N-14AE

As filed with the Securities and Exchange Commission on August 28, 2003

Registration No. 333-           

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-14

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

[  ]     Pre-Effective Amendment No.           [  ]     Post-Effective Amendment No.          

(Check appropriate box or boxes)

Exact name of Registrant as Specified in Charter:

Ivy Funds
6300 Lamar Avenue
Shawnee Mission, Kansas 66202

Registrant’s Telephone Number: (913) 236-2000

Name and Address of Agent for Service:
Kristen A. Richards
6300 Lamar Avenue
Shawnee Mission, Kansas 66202

Copies to:

Kathleen L. Prudhomme
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402 Robert R. Leveille
Bell, Boyd & Lloyd LLC
Three First National Plaza, Suite 3300
Chicago, IL 60602

Approximate Date of Proposed Public Offering:
As soon as possible following the effective date of this Registration Statement.
It is proposed that this filing become effective on
September 27, 2003 (30 days after filing) pursuant to Rule 488.
     

Title of securities being registered: Shares of Beneficial Interest, without par value.

An indefinite amount of the Registrant’s securities has been registered under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940. In reliance upon such Rule, no filing fee is being paid at this time.

ADVANTUS BOND FUND, INC.

ADVANTUS CORNERSTONE FUND, INC.

ADVANTUS ENTERPRISE FUND, INC.

ADVANTUS HORIZON FUND, INC.

ADVANTUS INDEX 500 FUND, INC.

ADVANTUS INTERNATIONAL BALANCED FUND, INC.

ADVANTUS MONEY MARKET FUND, INC.

ADVANTUS MORTGAGE SECURITIES FUND, INC.

ADVANTUS REAL ESTATE SECURITIES FUND, INC.

ADVANTUS SPECTRUM FUND, INC.

ADVANTUS VENTURE FUND, INC.

September      , 2003

Dear Shareholder:

      On November 10, 2003, a special meeting of the shareholders of the mutual funds listed above (each, an “Advantus Fund”) will be held at the offices of Advantus Capital Management, Inc. (“Advantus Capital”) in order to vote on the following important proposal:

Shareholders of each Advantus Fund are being asked to approve an Agreement and Plan of Reorganization (the “Reorganization Plan”) that provides for the reorganization of their Fund into a mutual fund managed by Waddell & Reed Ivy Investment Company (each, an “Ivy Fund”), in most cases with substantially similar investment objectives and strategies. If the Reorganization Plan is approved, the assets of each Advantus Fund will be acquired by a corresponding Ivy Fund in exchange for newly issued Ivy Fund shares. These Ivy Fund shares then will be distributed to shareholders of the Advantus Fund, and the Advantus Fund will be liquidated.

      This proposal has been thoroughly reviewed by the Advantus Funds’ Board of Directors, whose role is to protect the interests of shareholders. The Advantus Funds’ Boards of Directors believe that the proposal is in the best interest of the each Advantus Fund and its shareholders and unanimously recommends that you vote FOR the proposal.

      Whether or not you plan to attend the meeting, please fill out, sign and return your proxy card in the envelope provided so that your vote may be counted. If you are a shareholder of more than one Advantus Fund, you will receive more than one voting proxy card and will need to vote your shares of each Fund. Please read the entire proxy statement/ prospectus carefully before you vote.

      Thank you for your prompt attention and participation.

Sincerely,

Dianne M. Orbison

President

TABLE OF CONTENTS

APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
	Summary
	Comparison of Fund Expenses
	Comparison of Fund Investment Objectives, Strategies and Risks
	Comparison of Fund Performance
	Comparison of Operations
	Information About the Reorganizations
	Capitalization
	Shareholder Rights
INFORMATION ABOUT THE IVY FUNDS AND THE ADVANTUS FUNDS
	Ivy Funds
	Advantus Funds
VOTING INFORMATION
	General Information
	Voting Rights and Required Vote
	Record Date and Outstanding Shares
	Security Ownership of Certain Beneficial Owners and Management
	Other Business
	Shareholder Proposals
	Board Recommendations
APPENDIX A — FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN AN ADVANTUS FUND AND IVY FUNDS, INC.
APPENDIX B — FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN AN ADVANTUS FUND AND IVY FUNDS
APPENDIX C — MANAGER’S DISCUSSION
APPENDIX D — IVY FUNDS PROSPECTUS FOR NEWLY FORMED FUNDS
STATEMENT OF ADDITIONAL INFORMATION
I. Additional Information About the Ivy Funds and the Advantus Funds
II. Financial Information
III. Pro Forma Financial Statements
PART C
	Item 15. Indemnification
	Item 16. Exhibits
	Item 17. Undertakings
EX-(11)Opinion & Consent of Kirkpatrick & Lockhart
EX-(14)(a) Consent of Deloitte & Touche LLP
EX-(14)(b) Consent of KPMG LLP
EX-(16) Powers of Attorney
EX-(17)(a) Form of Proxy Card
EX-(17)(b) Form of Buck Slip
EX-(17)(c)Ivy Funds & Ivy Funds,Inc.Prosp.-7/1/03
EX-(17)(d)Ivy Funds&Ivy Funds,Inc.ProspSupp-7/7/03
EX-(17)(e)Ivy Funds&Ivy FundsInc ProspSupp-7/15/03
EX-(17)(f)Ivy Funds&Ivy FundsInc ProspSupp-7/25/03
EX-(17)(g)Ivy Funds&Ivy Funds,Inc.ProspSupp-8/4/03
EX-(17)(h)Ivy Funds & Ivy Funds,Inc. SAI - 7/1/03
EX-(17)(j)Ivy Funds&Ivy Funds,Inc.Preliminary SAI
EX-(17)(k)Adv FixedInc&Blended Funds Prosp-1/31/03
EX-(17)(l)Adv FixedInc&Blended Funds SAI-1/31/03
EX-(17)(m)Advantus Equity Funds Prosp.-11/29/02
EX-(17)(n)Advantus Equity Funds Prosp Supp-2/3/03
EX-(17)(o)AdvFixedInc&BlendedFundsProsSupp-4/24/03
EX-(17)(p)AdvFixedInc&BlendedFundsProsSupp-6/18/03
EX-(17)(q)AdvFixedInc&BlendedFundsProspSupp-8/8/03
Ex-(17)(r)AdvFixedInc&BlendedFundsProsSupp-8/20/03
EX-(17)(s)Advantus Equity Funds SAI - 11/29/03
EX-(17)(t)Advantus Equity Funds SAI Supp.- 5/1/03
EX-(17)(u) Ivy Funds,Inc. Annual Report-March 2003
EX-(17)(v) Ivy Funds Annual Report - December 2002
EX-(17)(w)AdvFixedInc&BlendedFunds AR - Sept. 2002
EX-(17)(x)AdvFixedInc&Blended Funds SAR-March 2003
EX-(17)(y)Advantus Equity Funds AR - July 2002
EX-(17)(z)Advantus Equity Funds SAR - January 2003

QUESTIONS AND ANSWERS

      The following is important information to help you understand the proposals on which you are being asked to vote. Please read the entire proxy statement/ prospectus.

      What am I being asked to vote on at the upcoming special shareholders meetings to be held on November 10, 2003?

      Shareholders of each Advantus Fund are being asked to approve the reorganization of their Advantus Fund into an Ivy Fund with similar investment objectives and strategies. Your Board of Directors has determined that the reorganization of each Advantus Fund is in the best interests of the shareholders of that Fund and recommends that you vote for the reorganization of your Advantus Fund. As explained below, the reorganizations are expected to be tax free.

      Why is the reorganization being proposed?

      In April 2003, Advantus Capital and its affiliates made a strategic business decision to exit the non-real estate equity management business and, in connection with that decision, entered into a Strategic Alliance Agreement and related Purchase Agreement with Waddell & Reed Financial, Inc. (“W&R”), a leading U.S. mutual fund firm, and certain companies affiliated with W&R, including Waddell & Reed Ivy Investment Co. (“WRIICO”). Under these agreements, Advantus Capital agreed to sell to WRIICO its assets related to the Advantus Funds. In order to integrate the Advantus Funds into the family of investment companies managed by WRIICO and its affiliates, Advantus Capital has recommended to the Advantus Funds’ Board of Directors that each Advantus Fund be merged into a mutual fund in either Ivy Funds (a Massachusetts business trust, hereinafter referred to as “Ivy Trust”) or Ivy Funds, Inc. (a Maryland corporation, hereinafter referred to as “Ivy Corporation”). Ivy Trust and Ivy Corporation are investment companies managed by WRIICO. Each Advantus Fund will be merged into an existing mutual fund in Ivy Corporation with generally similar investment objectives and strategies, or, where there is no similar fund, into a newly formed mutual fund in Ivy Trust.

      How do the investment objectives and strategies of the Advantus Funds compare to those of the Ivy Funds?

      Three of the Advantus Funds — Advantus Cornerstone Fund, Advantus Horizon Fund and Advantus Spectrum Fund — have been managed by WRIICO since May 1, 2003 using investment strategies that are substantially identical to those used by WRIICO in managing the Ivy Funds into which they will be reorganized. As a result, each of these Advantus Funds has investment objectives that are substantially similar and investment strategies that are substantially identical to those of its corresponding Ivy Fund.

      Advantus Bond Fund, Advantus Mortgage Securities Fund and Advantus Real Estate Securities Fund will be reorganized into new series of Ivy Trust that have been created for purposes of the reorganization, and Advantus Capital will act as the sub-adviser for these newly formed series. Advantus International Balanced Fund and Advantus Venture Fund also will be reorganized into newly formed series of Ivy Trust, and the current sub-advisers for these Advantus Funds will act as sub-advisers for the respective newly formed series. As a result, the investment objectives and strategies of Advantus Bond Fund, Advantus Mortgage Securities Fund, Advantus Real Estate Securities Fund, Advantus International Balanced Fund and Advantus Venture Fund will be substantially identical to those of their corresponding Ivy Funds.

      Advantus Enterprise Fund is currently managed by a sub-adviser. The Ivy Fund into which it will be reorganized is managed by WRIICO. Similarly, Advantus Money Market Fund and Advantus Index 500 Fund are currently managed by Advantus Capital and will be reorganized into Ivy Funds managed by WRIICO. Although the investment objectives and strategies of Advantus Enterprise Fund are similar to those of the Ivy Fund into which it will be reorganized, and the investment objectives and strategies of Advantus Money Market Fund and its corresponding Ivy Fund are substantially similar, there are some differences, which are discussed in the attached proxy statement/ prospectus. The differences are greater in the case of Advantus Index 500 Fund and its corresponding Ivy Fund, Ivy Core Equity Fund (see below).

      Please see “Proposal One — Comparison of Fund Investment Objectives, Strategies and Risks,” beginning on page 15 of the attached proxy statement/ prospectus for a detailed description of the investment objectives and strategies of the Advantus Funds and the Ivy Funds.

      How do the investment objectives and strategies of the Advantus Index 500 Fund compare to those of the Ivy Core Equity Fund?

      Each Fund invests primarily in common stocks of large companies. The Advantus Index 500 Fund, however, uses a passive investment approach that seeks to duplicate the investment performance of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”). The Ivy Core Equity Fund is an actively managed portfolio that invests primarily in common stocks of large U.S. and foreign companies with dominant market positions in their industries. The Ivy Core Equity Fund is not limited to stocks included in the S&P 500 and does not try to replicate the performance of the S&P 500.

      What are the advantages of the reorganization for Advantus Fund shareholders?

      The reorganizations will allow you to continue your investment in a fund with a similar investment objective and similar investment strategies (except in the case of the reorganization of the Advantus Index 500 Fund into Ivy Core Equity Fund) while at the same time giving you the opportunity to become part of a growing and competitive retail fund family. You will be part of a larger family of retail mutual funds, which will provide you with enhanced exchange privileges. Although the expense ratios for Class A shares of the Ivy Funds are generally somewhat higher than for the Class A shares of the Advantus Funds after fee waivers and expense reimbursements, the expense structures of the Ivy Funds are competitive and within industry norms. In addition, absent non-contractual expense waivers and reimbursements by the Advantus Funds’ investment adviser and distributor, which can be discontinued at any time, expense ratios of the Advantus Funds are generally higher than those of the Ivy Funds. In addition, Class B and Class C Advantus Fund shareholders will receive Class A Ivy Fund shares in the reorganizations. Class A Ivy Fund shares have significantly lower expenses than Class B and Class C shares of the corresponding Advantus Fund due to their lower Rule 12b-1 fees (.25% for Class A Ivy Fund shares, compared to 1.00% for Class B and Class C Advantus Fund shares). Also, there will be greater and broader distribution opportunities for the combined funds, increasing the likelihood that the funds will grow and net expenses will decline over time. Finally, the performance of each currently existing Ivy Fund is similar to that of its corresponding Advantus Funds. (The newly formed Ivy Funds have no performance history.)

      When would the reorganization take place for my Advantus Fund?

      If approved by shareholders, the reorganization for each Advantus Fund is expected to occur on or about November 22, 2003.

      What class of Ivy Fund shares would I receive in the reorganization?

      You will receive Class A Ivy Fund shares, regardless of whether you hold Class A, Class B or Class C shares of your Advantus Fund. The initial sales charge that usually applies to purchases of Class A Ivy Fund shares will not apply to Class A Ivy Fund shares that you receive in connection with the reorganization. In addition, you will not be subject to a contingent deferred sales charge (“CDSC”) if you redeem these shares, even if you previously held Class B Advantus Fund shares that were subject to a CDSC. An initial sales charge will apply to any purchases of Class A Ivy Fund shares that you make after the reorganization.

      Is there anything I need to do to convert my shares?

      No. On the closing date of the reorganization, your Advantus Fund shares automatically will be exchanged for shares of the corresponding Ivy Fund. The total value of the Ivy Fund shares that you receive in the reorganization will be the same as the total value of the Advantus Fund shares you hold immediately before the reorganization.

      Can I redeem my Advantus Fund shares before the reorganization takes place?

      Yes. You can redeem your Advantus Fund shares at any time before the reorganization takes place. In addition, as discussed below, the reorganization is not expected to result in the recognition of gain or loss to shareholders for federal income tax purposes. If the reorganization occurs, you will be free to redeem the shares of the Ivy Fund that you receive in the transaction at their current net asset value.

      Who will pay the costs of the reorganization?

      These expenses will be borne by Advantus Capital — not by shareholders of the Advantus Funds.

      Will I incur taxes as a result of the reorganization?

      This reorganization is expected to be a tax-free event. Shareholders are not expected to incur capital gains or losses on the conversion from Advantus Fund shares into Ivy Fund shares as a result of the reorganization. Furthermore, the cost basis on each investment will remain the same.

      Shareholders will incur capital gains or losses if they sell their Advantus Fund shares before the reorganization becomes effective or sell/exchange their Ivy Fund shares after the reorganization becomes effective. Shareholders also will be responsible for tax obligations associated with monthly or periodic distributions that occur prior to the reorganization. The Advantus Funds will be required to distribute any realized capital gains to shareholders prior to the reorganization, and these distributions generally will be taxable to shareholders. Please note that retirement accounts are exempt from the foregoing tax consequences.

      Has the Board of Directors of the Advantus Funds approved the proposal?

      Yes. The Advantus Funds’ Board recommends that you vote for the proposal.

      When should I vote?

      Please vote as soon as possible by mail, by telephone or on the Internet. Representatives of Georgeson Shareholder Communications, Inc., a proxy solicitation firm, may be contacting you to urge you to vote on this important matter.

ADVANTUS BOND FUND, INC.

ADVANTUS CORNERSTONE FUND, INC.

ADVANTUS ENTERPRISE FUND, INC.

ADVANTUS HORIZON FUND, INC.

ADVANTUS INDEX 500 FUND, INC.

ADVANTUS INTERNATIONAL BALANCED FUND, INC.

ADVANTUS MONEY MARKET FUND, INC.

ADVANTUS MORTGAGE SECURITIES FUND, INC.

ADVANTUS REAL ESTATE SECURITIES FUND, INC.

ADVANTUS SPECTRUM FUND, INC.

ADVANTUS VENTURE FUND, INC.

400 ROBERT STREET NORTH

ST. PAUL, MINNESOTA 55101

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON NOVEMBER 10, 2003

       Notice is hereby given that a Special Meeting of Shareholders of the Advantus Funds listed above (each an “Advantus Fund” and collectively, the “Advantus Funds”), will be held at the offices of Advantus Capital Management, Inc., 400 Robert Street North, St. Paul, Minnesota 55101, on November 10, 2003 at 10:00 a.m. Central time, for the purposes of considering the proposal set forth below.

      For shareholders of each Advantus Fund, to approve an Agreement and Plan of Reorganization providing for the transfer of all assets of that Advantus Fund to a mutual fund in either Ivy Funds (a Massachusetts business trust) or Ivy Funds, Inc. (a Maryland corporation), in exchange for shares of that fund and the assumption by that fund of all of the applicable Advantus Fund’s liabilities. The shares so received will be distributed to shareholders of the applicable Advantus Fund, which will be terminated or dissolved as soon as practicable thereafter.

      Shareholders of record of each Advantus Fund as of the close of business on September 12, 2003 are entitled to notice of, and to vote at, this meeting or any adjournment of this meeting.

      To secure the largest possible representation, please mark your proxy card, sign it, and return it in the enclosed envelope, which requires no postage if mailed in the United States. You may also vote by telephone or the Internet. You may revoke your proxy at any time at or before the meeting or vote in person if you attend the meeting.

By Order of the Board of Directors

/s/ MICHAEL J. RADMER

Michael J. Radmer

Secretary

Dated: September      , 2003

PROXY STATEMENT/ PROSPECTUS

Dated September      , 2003

RELATING TO THE ACQUISITION OF

ADVANTUS BOND FUND, INC.

ADVANTUS CORNERSTONE FUND, INC.

ADVANTUS ENTERPRISE FUND, INC.

ADVANTUS HORIZON FUND, INC.

ADVANTUS INDEX 500 FUND, INC.

ADVANTUS INTERNATIONAL BALANCED FUND, INC.

ADVANTUS MONEY MARKET FUND, INC.

ADVANTUS MORTGAGE SECURITIES FUND, INC.

ADVANTUS REAL ESTATE SECURITIES FUND, INC.

ADVANTUS SPECTRUM FUND, INC.

ADVANTUS VENTURE FUND, INC.

400 Robert Street North

St. Paul, Minnesota 55101-2098

1-800-665-6005

BY AND IN EXCHANGE FOR SHARES OF

IVY BOND FUND, A SERIES OF IVY FUNDS

IVY VALUE FUND, A SERIES OF IVY FUNDS

IVY SMALL CAP GROWTH FUND, A SERIES OF IVY FUNDS, INC.

IVY LARGE CAP GROWTH FUND, A SERIES OF IVY FUNDS, INC.

IVY CORE EQUITY FUND, A SERIES OF IVY FUNDS, INC.

IVY INTERNATIONAL BALANCED FUND, A SERIES OF IVY FUNDS

IVY MONEY MARKET FUND, A SERIES OF IVY FUNDS, INC.

IVY MORTGAGE SECURITIES FUND, A SERIES OF IVY FUNDS

IVY REAL ESTATE SECURITIES FUND, A SERIES OF IVY FUNDS

IVY BALANCED FUND, A SERIES OF IVY FUNDS

IVY SMALL CAP VALUE FUND, A SERIES OF IVY FUNDS

6300 Lamar Avenue

Shawnee Mission, Kansas 66201-9217

1-888-WADDELL

      This Proxy Statement/ Prospectus is furnished in connection with the solicitation of proxies by the Board of Directors of Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Real Estate Securities Fund, Inc., Advantus Spectrum Fund, Inc. and Advantus Venture Fund, Inc. (each an “Advantus Fund” and collectively the “Advantus Funds”) for the joint Special Meeting of Shareholders to be held on November 10, 2003 at 10:00 a.m. Central time, at the offices of Advantus Capital Management, Inc. (“Advantus Capital”), 400 Robert Street North, St. Paul, Minnesota 55101.

      Shareholders of each Advantus Fund, voting separately, will be asked to consider and approve an Agreement and Plan of Reorganization (the “Reorganization Plan”), pursuant to which all of the assets and liabilities of that Advantus Fund would be acquired by a mutual fund that is a series of either Ivy Funds (a Massachusetts business trust, hereinafter referred to as “Ivy Trust”) or Ivy Funds, Inc. (a Maryland corporation, hereinafter referred to as “Ivy Corporation”) with similar investment objectives and strategies (each an “Ivy Fund” and collectively the “Ivy Funds”) in return for shares of that Ivy Fund.

Each Advantus Fund is an open-end management investment company. Each Ivy Fund is a series of an open-end management investment company.

      THE BOARD OF DIRECTORS OF EACH ADVANTUS FUND UNANIMOUSLY RECOMMENDS APPROVAL OF THE REORGANIZATION RELATING TO THAT FUND.

      This Proxy Statement/ Prospectus sets forth concisely the information that you should know before voting on the proposal and should be retained for future reference. Additional Information is set forth in the Statement of Additional Information dated September      , 2003, relating to this Proxy Statement/ Prospectus, which is incorporated herein by reference. A copy of the Statement of Additional Information has been filed with the Securities and Exchange Commission (“SEC”) and is available upon request and without charge by calling or writing the Ivy Funds at the address and telephone number shown above.

      The following documents, which include more information about the Advantus Funds and the Ivy Funds, also are incorporated by reference into this Proxy Statement/ Prospectus. These documents have been filed with the SEC and are available without charge by writing or calling the Advantus Funds or Ivy Funds at the address and telephone numbers shown above:

•  Ivy Funds Prospectus dated July 1, 2003, as supplemented July 7, July 15, July 25 and August 4, 2003 (relating to all series of Ivy Trust and Ivy Corporation other than the newly formed series included in the Ivy Funds Preliminary Prospectus cited below) (SEC File Nos. 33-45961 and 811-6569; 2-17613 and 811-01028). A copy of the Ivy Funds Prospectus accompanies this Proxy Statement/ Prospectus.

•  Ivy Funds Preliminary Prospectus dated                      , 2003 (relating to Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund and Ivy Value Fund) (SEC File Nos. 2-17613 and 811-01028). A copy of the Ivy Funds Preliminary Prospectus is attached to this Proxy Statement/ Prospectus as Appendix D.

•  Advantus Fixed Income and Blended Funds Prospectus dated January 31, 2003, as supplemented April 24, June 18, August 8 and August 20, 2003 (SEC File Nos. 33-12046 and 811-5026; 33-80756 and 811-8590; 2- 94172 and 811-04141; 2-94173 and 811-4140; 2-94175 and 811-4143).

•  Advantus Equity Funds Prospectus dated November 29, 2002, as supplemented February 3, April 24 and June 18, 2003 (SEC File Nos. 33-80752 and 811-8586; 33-80754 and 811-08588; 2-94174 and 811-04142; 333-12285 and 811-07815; 333-68669 and 811-09139; 333-12283 and 811-07817).

•  Advantus Fixed Income and Blended Funds Annual Report for the fiscal year ended September 30, 2002, filed with the Securities and Exchange Commission on December 3, 2002 (SEC File Nos. 811-5026; 811- 8590; 811-04141; 811-4140; and 811-4143).

•  Advantus Fixed Income and Blended Funds Semi-Annual Report for the period ended March 31, 2003, filed with the Securities and Exchange Commission on May 28, 2003 (SEC File Nos. 811-5026; 811-8590; 811-04141; 811-4140; and 811-4143).

•  Advantus Equity Funds Annual Report for the fiscal year ended July 31, 2002, filed with the Securities and Exchange Commission on September 27, 2002 (SEC File Nos. 33-80752 and 811-8586; 33-80754 and 811- 08588; 2-94174 and 811-04142; 333-12285 and 811-07815; 333-68669 and 811-09139; 333-12283 and 811-07817).

•  Advantus Equity Funds Semi-Annual Report for the fiscal period ended January 31, 2003, filed with the Securities and Exchange Commission on April 1, 2003 (SEC File Nos. 33-80752 and 811-8586; 33-80754 and 811-08588; 2-94174 and 811-04142; 333-12285 and 811-07815; 333-68669 and 811-09139; 333-12283 and 811-07817).

      This Proxy Statement/ Prospectus, the Notice of Special Meetings and proxy card(s) are expected to be sent to shareholders beginning on or about September, 2003.

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      THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ii

TABLE OF CONTENTS

APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION		1
	Summary	1
	Comparison of Fund Expenses	2
	Comparison of Fund Investment Objectives, Strategies and Risks	15
	Comparison of Fund Performance	30
	Comparison of Operations	37
	Information About the Reorganizations	44
	Capitalization	48
	Shareholder Rights	49
INFORMATION ABOUT THE IVY FUNDS AND THE ADVANTUS FUNDS		55
	Ivy Funds	55
	Advantus Funds	55
VOTING INFORMATION		55
	General Information	55
	Voting Rights and Required Vote	56
	Record Date and Outstanding Shares	56
	Security Ownership of Certain Beneficial Owners and Management	56
	Other Business	57
	Shareholder Proposals	57
	Board Recommendations	57
APPENDIX A — FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN AN ADVANTUS FUND AND IVY FUNDS, INC.		A-1
APPENDIX B — FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN AN ADVANTUS FUND AND IVY FUNDS		B-1
APPENDIX C — IVY FUNDS MANAGER’S DISCUSSIONS		C-1
APPENDIX D — IVY FUNDS PROSPECTUS FOR NEWLY FORMED FUNDS		D-2

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APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION

Summary

      This summary is qualified in its entirety by reference to the additional information contained elsewhere in, or incorporated by reference into, this Proxy Statement/ Prospectus, and the Forms of Agreement and Plan of Reorganization, which are attached to this Proxy Statement/ Prospectus as Appendix A and Appendix B.

About the Proposed Reorganization

      The Board of Directors of each Advantus Fund has voted to recommend approval of that Fund’s Reorganization Plan to shareholders. The following chart shows the Ivy Fund into which each Advantus Fund will be reorganized if shareholders of that Advantus Fund approve the Reorganization.

Advantus Fund	Ivy Fund
Advantus Bond Fund, Inc.	Ivy Bond Fund, a series of Ivy Trust*
Advantus Cornerstone Fund, Inc.	Ivy Value Fund, a series of Ivy Trust*
Advantus Enterprise Fund, Inc.	Ivy Small Cap Growth Fund, a series of Ivy Corporation
Advantus Horizon Fund, Inc.	Ivy Large Cap Growth Fund, a series of Ivy Corporation
Advantus Index 500 Fund, Inc.	Ivy Core Equity Fund, a series of Ivy Corporation
Advantus International Balanced Fund, Inc.	Ivy International Balanced Fund, a series of Ivy Trust*
Advantus Money Market Fund, Inc.	Ivy Money Market Fund, a series of Ivy Corporation
Advantus Mortgage Securities Fund, Inc.	Ivy Mortgage Securities Fund, a series of Ivy Trust*
Advantus Real Estate Securities Fund, Inc.	Ivy Real Estate Securities Fund, a series of Ivy Trust*
Advantus Spectrum Fund, Inc.	Ivy Balanced Fund, a series of Ivy Trust*
Advantus Venture Fund, Inc.	Ivy Small Cap Value Fund, a series of Ivy Trust*

*  A newly formed Ivy Fund that will not have any assets prior to the Reorganization.

      Each Reorganization Plan provides that the applicable Advantus Fund will transfer all of its assets and liabilities to the corresponding Ivy Fund. In exchange for the transfer of these assets and liabilities, the Ivy Fund will issue Class A shares to the Advantus Fund in an amount equal in value to the aggregate net assets of the Advantus Fund. These asset transfers and share issuances (the “Reorganizations”) are expected to occur on or about November 22, 2003 (the “Closing Date”), based on the value of each Advantus Fund’s assets as of the close of the regular trading session on the New York Stock Exchange (normally, 3:00 p.m. Central time) on the business day immediately prior to the Closing Date (the “Effective Time”). As soon as practicable after the transfer of all of an Advantus Fund’s assets and liabilities, that Advantus Fund will make a liquidating distribution to its shareholders of the Class A Ivy Fund shares that it received, so that a holder of shares in an Advantus Fund at the Effective Time of the Reorganization will receive a number of Class A shares of the corresponding Ivy Fund with the same aggregate value as the shareholder had in the Advantus Fund at the Effective Time. On the Closing Date, shareholders of each Advantus Fund will become Class A shareholders of the corresponding Ivy Fund. Each Advantus Fund will be terminated as soon as practicable after the Closing Date. The closing of each Reorganization (each a “Closing”) is contingent upon the approval of the Reorganization Plan by the shareholders of the applicable Advantus Fund, the receipt of an opinion of tax counsel to the effect that

1

the Reorganization will be tax-free for federal income tax purposes to the Advantus Fund, its shareholders and the Ivy Fund, and certain other conditions.

      The Advantus Funds currently have Class A, Class B and Class C shares outstanding, except that Advantus Real Estate Securities Fund has only Class A and Class B shares and Advantus Money Market Fund has a single class of shares. The shareholders of each of these classes of shares will receive Class A Ivy Fund shares in the Reorganization. On July 25, 2003, all sales of Class B and Class C shares in the Advantus Funds were suspended, except for sales occurring in connection with the reinvestment of dividends and capital gains distributions, if any, and exchanges of Class B and Class C shares of an Advantus Fund for Class B and Class C shares, respectively, of another Advantus Fund.

      Shareholders of each Advantus Fund will vote separately on the Reorganization of their Fund, with each Reorganization separate and distinct from the other. The Reorganization of each Advantus Fund is not contingent upon the Reorganization of any other Advantus Fund.

      The Reorganization of each Fund is intended to qualify as a tax-free reorganization for federal income tax purposes. If it so qualifies, neither the Advantus Fund nor the Advantus Fund shareholders will recognize any gain or loss. The tax basis of the Ivy Fund shares received by Advantus Fund shareholders will be the same as the tax basis of their shares in the Advantus Fund.

The Advantus Funds and the Ivy Funds

      Each of the Advantus Funds is an open-end management investment company organized as a separate Minnesota corporation. Ivy Trust is organized as a Massachusetts business trust and Ivy Corporation is organized as a Maryland corporation. Ivy Trust and Ivy Corporation are both open-end management investment companies consisting of various investment portfolios or series, each of which is a separate mutual fund. The Ivy Funds are series of either Ivy Trust or Ivy Corporation.

      The investment objectives and strategies of each Advantus Fund are similar to those of its corresponding Ivy Fund (except in the case of the Advantus Index 500 Fund and its corresponding Ivy Fund, Ivy Core Equity Fund). Both the Advantus Funds and the Ivy Funds offer multiple classes of shares. However, as noted above, holders of Class A, Class B and Class C Advantus Fund shares will receive Class A Ivy Fund shares in the Reorganization. Class A shares of both the Advantus Funds and the Ivy Funds are offered with a front-end sales charge and are subject to Rule 12b-1 fees equal, on an annual basis, to .25% of average net assets attributable to those shares. Class B shares of the Advantus Funds were sold without a front-end sales charge but may be subject to a contingent deferred sales charge (“CDSC”) if sold within six years from the date of purchase. Class C Advantus Fund shares were sold without any sales charges. Both Class B and Class C shares of the Advantus Fund are subject to Rule 12b-1 fees equal, on an annual basis, to 1.00% of average net assets attributable to those shares.

Comparison of Fund Expenses

      The Advantus Funds and the Ivy Funds, like all mutual funds, incur certain expenses in their operations and shareholders pay these expenses indirectly. These expenses include management fees as well as the costs of maintaining accounts, administration, and other activities. The following tables (a) compare the fees and expenses for the Class A, Class B and Class C shares of each Advantus Fund and for the Class A shares of its corresponding Ivy Fund and (b) show the estimated fees and expenses for the Class A shares of the Ivy Funds on a pro forma basis after giving effect to the Reorganization. Fees and expenses are shown as of March 31, 2003 for all Funds other than the newly formed Ivy Funds. “Other expenses” for each newly formed Ivy Fund are based on expenses of the corresponding Advantus Fund as of March 31, 2003, restated to reflect new contractual arrangements.

2

													Ivy Bond
													Fund
	Ivy Bond			Advantus Bond Fund									Class A
	Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		4.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none			none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.53	%		0.60	%		0.60	%		0.60	%		0.53	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.67	%		1.05	% (6)		1.05	% (6)		1.05	% (6)		0.67	%
Total Annual Operating Expenses		1.45	%		1.90	%		2.65	%		2.65	%		1.45	%
Contractual Expense Waiver(7)		0.30	%		—			—			—			0.30	%
Net Annual Operating Expenses		1.15	%		1.90	%		2.65	%		2.65	%		1.15	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Funds accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.30% of the average net assets of Advantus Bond Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.15% for Class A shares and 1.90% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.
(7)	Ivy Funds Distributor, Inc., the distributor of the Ivy Funds, has contractually agreed to waive distribution and/or service fees and WRIICO has contractually agreed to reimburse other Fund expenses through December 31, 2004, so that net annual operating expenses for Ivy Bond Fund Class A shares do not exceed 1.15%.

3

													Ivy Value
													Fund
	Ivy Value			Advantus Cornerstone Fund									Class A
	Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none			none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.70	%		0.70	%		0.70	%		0.70	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.37	%		0.50	% (6)		0.50	% (6)		0.50	% (6)		0.37	%
Total Annual Operating Expenses		1.32	%		1.45	%		2.20	%		2.20	%		1.32	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.29% of the average net assets of Advantus Cornerstone Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.24% for Class A shares and 1.99% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

4

													Ivy Small
	Ivy Small												Cap Growth
	Cap Growth			Advantus Enterprise Fund									Fund Class A
	Fund												Estimated
	Class A			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(1)		none	(1)		5.00	%		none			none	(1)
Redemption/ Exchange Fee		none	(2)		none	(2,3)		none	(2,3)		none	(2,3)		none	(2)
Low Balance Fee		none		$	10.00	(4)	$	10.00	(4)	$	10.00	(4)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.85	%		0.70	%		0.70	%		0.70	%		0.85	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.44	%		0.87	% (5)		0.87	% (5)		0.87	% (5)		0.37	%
Total Annual Operating Expenses		1.54	%		1.82	%		2.57	%		2.57	%		1.47	%

(1)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(2)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(3)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(4)	Applies to certain accounts with balances below $2,000.
(5)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.53% of the average net assets of Advantus Enterprise Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.48% for Class A shares and 2.23% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

5

													Ivy Large Cap
	Ivy												Growth Fund
	Large Cap			Advantus Horizon Fund									Class A
	Growth Fund												Estimated
	Class A			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(1)		none	(1)		5.00	%		none			none	(1)
Redemption/ Exchange Fee		none	(2)		none	(2,3)		none	(2,3)		none	(2,3)		none	(2)
Low Balance Fee		none		$	10.00	(4)	$	10.00	(4)	$	10.00	(4)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.70	%(5)		0.70	%		0.70	%		0.70	%		0.70	%(5)
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.71	%		1.40	% (6)		1.40	% (6)		1.40	% (6)		0.75	%
Total Annual Operating Expenses		1.66	%		2.35	%		3.10	%		3.10	%		1.70	%

(1)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(2)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(3)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(4)	Applies to certain accounts with balances below $2,000.
(5)	WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund’s net assets are less than $25 million, subject to WRIICO’s right to change or terminate this waiver.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.30% of the average net assets of Advantus Horizon Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.25% for Class A shares and 2.00% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

6

													Ivy Core
													Equity Fund
	Ivy Core			Advantus Index 500 Fund									Class A
	Equity Fund												Estimated
	Class A			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(1)		none	(1)		5.00	%		none			none	(1)
Redemption/ Exchange Fee		none	(2)		none	(2,3)		none	(2,3)		none	(2,3)		none	(2)
Low Balance Fee		none		$	10.00	(4)	$	10.00	(4)	$	10.00	(4)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.70	%		0.34	%		0.34	%		0.34	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.37	%		1.03	% (5)		1.03	% (5)		1.03	% (5)		0.47	%
Total Annual Operating Expenses		1.32	%		1.62	%		2.37	%		2.37	%		1.42	%

(1)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(2)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(3)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(4)	Applies to certain accounts with balances below $2,000.
(5)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.26% of the average net assets of Advantus Index 500 Fund. After such absorption, the ratio of total operating expenses to average net assets is 0.85% for Class A shares and 1.60% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

7

													Ivy
													International
	Ivy												Balanced Fund
	International			Advantus International Balanced Fund									Class A
	Balanced Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none			none	(2)
Redemption/ Exchange Fee		2.00	%(3)		2.00	% (3,4)		2.00	% (3,4)		2.00	% (3,4)		2.00	%(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.70	%		0.70	%		0.70	%		0.70	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.46	%		0.76	% (6)		0.76	% (6)		0.76	% (6)		0.46	%
Total Annual Operating Expenses		1.41	%		1.71	%		2.46	%		2.46	%		1.41	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Redemptions of Advantus Fund shares within 60 days of purchase are subject to a short-term redemption fee equal to 2.00% of redemption proceeds, which is retained by the Advantus Fund. Redemptions or exchanges of Ivy Fund shares within 30 days of purchase are subject to a 2.00% redemption/ exchange fee. Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.72% of the average net assets of Advantus International Balanced Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.67% for Class A shares and 2.42% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

8

							Ivy Money
							Market Fund
	Ivy Money						Class A
	Market Fund			Advantus Money			Estimated
	Class A			Market Fund			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		none			none			none
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none			none			none
Redemption/ Exchange Fee		none	(1)		none	(1,2)		none	(1)
Low Balance Fee		none		$	10.00	(3)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.40	%(4)		0.50	%		0.40	%(4)
Distribution and/or Service (12b-1) Fees		none			0.25	%(5)		none
Other Expenses		0.51	%		0.77	%(5)		0.52	%
Total Annual Operating Expenses		0.91	%		1.52	%		0.92	%

(1)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(2)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(3)	Applies to certain accounts with balances below $2,000.
(4)	WRIICO has voluntarily agreed to waive its management fee on any day if the Ivy Money Market Fund’s net assets are less than $25 million, subject to WRIICO’s right to change or terminate this waiver.
(5)	Securian Financial Services, Inc., Advantus Money Market Fund’s underwriter, is voluntarily waiving all of the Rule 12b-1 fees. Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.35% of the average net assets of Advantus Money Market Fund. After such waiver and absorption, the ratio of total operating expenses to average net assets is 0.85%. Securian Financial Services and Advantus Capital reserve the right to discontinue such waiver or absorption, respectively, at any time in their sole discretion.

9

													Ivy Mortgage
													Securities Fund
	Ivy Mortgage			Advantus Mortgage Securities Fund									Class A
	Securities Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		4.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none			none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.50	%		0.48	%		0.48	%		0.48	%		0.50	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.35	%		0.42	% (6)		0.42	% (6)		0.42	% (6)		0.35	%
Total Annual Operating Expenses		1.10	%		1.15	%		1.90	%		1.90	%		1.10	%
Contractual Expense Waiver(7)		0.15	%		—			—			—			0.15	%
Net Annual Operating Expenses		0.95	%		1.15	%		1.90	%		1.90	%		0.95	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.25% of the average net assets of Advantus Mortgage Securities Fund. After such absorption, the ratio of total operating expenses to average net assets is 0.975% for Class A shares and 1.725% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.
(7)	Ivy Funds Distributor, Inc., the distributor of the Ivy Funds, has contractually agreed to waive distribution and/or service fees through December 31, 2004, so that net annual operating expenses for Ivy Mortgage Securities Fund Class A shares do not exceed 0.95%.

10

										Ivy Real Estate
				Advantus Real Estate						Securities Fund
	Ivy Real Estate			Securities Fund						Class A
	Securities Fund									Estimated
	Class A(1)			Class A			Class B			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.90	%		0.75	%		0.75	%		0.90	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		0.25	%
Other Expenses		0.31	%		0.52	% (6)		0.52	% (6)		0.31	%
Total Annual Operating Expenses		1.46	%		1.52	%		2.27	%		1.46	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.65% of the average net assets of Advantus Real Estate Securities Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.65% for Class A shares and 2.40% for Class B shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

11

													Ivy
	Ivy												Balanced Fund
	Balanced			Advantus Spectrum Fund									Class A
	Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50	%		none			none			5.75	%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00	%		none			none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.70	%		0.50	%		0.50	%		0.50	%		0.70	%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses		0.56	%		0.74	% (6)		0.74	% (6)		0.74	% (6)		0.56	%
Total Annual Operating Expenses		1.51	%		1.49	%		2.24	%		2.24	%		1.51	%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.
(6)	Advantus Capital is currently absorbing “other expenses,” excluding management fees and 12b-1 fees, in excess of 0.57% of the average net assets of Advantus Spectrum Fund. After such absorption, the ratio of total operating expenses to average net assets is 1.32% for Class A shares and 2.07% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time in its sole discretion.

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													Ivy
													Small Cap
	Ivy												Value Fund
	Small Cap			Advantus Venture Fund									Class A
	Value Fund												Estimated
	Class A(1)			Class A			Class B			Class C			Combined
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a percentage of offering price)		5.75	%		5.50%			none			none			5.75%
Maximum Deferred Sales Charge (as a percentage of sales proceeds)		none	(2)		none	(2)		5.00%			none			none	(2)
Redemption/ Exchange Fee		none	(3)		none	(3,4)		none	(3,4)		none	(3,4)		none	(3)
Low Balance Fee		none		$	10.00	(5)	$	10.00	(5)	$	10.00	(5)		none
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees		0.85	%		0.70%			0.70%			0.70%			0.85%
Distribution and/or Service (12b-1) Fees		0.25	%		0.25%			1.00%			1.00%			0.25%
Other Expenses		0.34	%		0.40%			0.40%			0.40%			0.34%
Total Annual Operating Expenses		1.44	%		1.35%			2.10%			2.10%			1.44%

(1)	This is a newly organized shell Ivy Fund.
(2)	A 1% contingent deferred sales charge may be imposed on Advantus Fund Class A share purchases of $1 million or more and on Ivy Fund Class A share purchases of $2 million or more that are redeemed within 12 months of purchase.
(3)	Advantus Fund accounts are charged a $15 fee and Ivy Fund accounts are charged a $10 fee for redemptions via Federal Funds wire.
(4)	There is no fee on the first 12 exchanges each year. Thereafter, a fee of $7.50 is imposed on each additional exchange.
(5)	Applies to certain accounts with balances below $2,000.

Examples

      The following examples help you compare the cost of investing in each Advantus Fund or Ivy Fund currently with the cost of investing in the Ivy Fund on a pro forma combined basis and also allow you to compare these costs with the cost of investing in other mutual funds. It uses the same assumptions that other funds use in their prospectuses:

•  $10,000 initial investment

•  5% return for each year

•  each Fund’s operating expenses remain the same for each period

•  redemption after the end of each period

•  reinvestment of all dividends and distributions

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Your actual costs may be higher or lower, so these examples should be used for comparison only. Based on these assumptions, your costs at the end of each time period would be:

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Bond Fund Class A	$	685	$	973	$	1,289	$	2,184
Advantus Bond Fund Class A		634		1,020		1,430		2,572
Advantus Bond Fund Class B		768		1,173		1,555		2,717
Advantus Bond Fund Class C		268		823		1,405		2,802
Ivy Bond Fund Class A, Pro Forma Combined		685		973		1,289		2,184

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Value Fund Class A	$	702	$	969	$	1,257	$	2,226
Advantus Cornerstone Fund Class A		689		983		1,299		2,190
Advantus Cornerstone Fund Class B		723		1,038		1,330		2,255
Advantus Cornerstone Fund Class C		223		688		1,180		2,344
Ivy Value Fund Class A, Pro Forma Combined		702		969		1,257		2,074

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Small Cap Growth Fund Class A	$	722	$	1,030	$	1,361	$	2,291
Advantus Enterprise Fund Class A		725		1,091		1,481		2,570
Advantus Enterprise Fund Class B		760		1,149		1,515		2,636
Advantus Enterprise Fund Class C		260		799		1,365		2,722
Ivy Small Cap Growth Fund Class A, Pro Forma Combined		715		1,010		1,326		2,218

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Large Cap Growth Fund Class A	$	663	$	848	$	1,050	$	1,630
Advantus Horizon Fund Class A		775		1,243		1,736		3,088
Advantus Horizon Fund Class B		813		1,307		1,775		3,156
Advantus Horizon Fund Class C		313		957		1,625		3,237
Ivy Large Cap Growth Fund Class A, Pro Forma Combined		738		1,080		1,445		2,468

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Core Equity Fund Class A	$	701	$	966	$	1,251	$	2,060
Advantus Index 500 Fund Class A		706		1,033		1,383		2,366
Advantus Index 500 Fund Class B		740		1,089		1,415		2,432
Advantus Index 500 Fund Class C		240		739		1,265		2,520
Ivy Core Equity Fund Class A, Pro Forma Combined		711		995		1,301		2,165

Fund	1 Year		3 Years		5 Years		10 Years
Ivy International Balanced Fund Class A	$	710	$	996	$	1,302	$	2,169
Advantus International Balanced Fund Class A		714		1,059		1,427		2,458
Advantus International Balanced Fund Class B		749		1,117		1,461		2,525
Advantus International Balanced Fund Class C		249		767		1,311		2,611
Ivy International Balanced Fund Class A, Pro Forma Combined		710		996		1,302		2,169

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Fund	1 Year		3 Years		5 Years		10 Years
Ivy Money Market Fund Class A	$	93	$	290	$	504	$	1,120
Advantus Money Market Fund		155		480		829		1,813
Ivy Money Market Fund Class A, Pro Forma Combined		94		293		509		1,131

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Mortgage Securities Fund Class A	$	666	$	887	$	1,130	$	1,824
Advantus Mortgage Securities Fund Class A		562		799		1,054		1,784
Advantus Mortgage Securities Fund Class B		693		947		1,176		1,934
Advantus Mortgage Securities Fund Class C		193		597		1,026		2,026
Ivy Mortgage Securities Fund Class A, Pro Forma Combined		666		887		1,130		1,824

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Real Estate Securities Fund Class A	$	715	$	1,010	$	1,327	$	2,221
Advantus Real Estate Securities Fund Class A		696		1,004		1,333		2,263
Advantus Real Estate Securities Fund Class B		731		1,062		1,367		2,329
Ivy Real Estate Securities Fund Class A, Pro Forma Combined		715		1,010		1,327		2,221

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Balanced Fund Class A	$	720	$	1,025	$	1,351	$	2,273
Advantus Spectrum Fund Class A		693		995		1,318		2,232
Advantus Spectrum Fund Class B		727		1,050		1,350		2,297
Advantus Spectrum Fund Class C		227		700		1,200		2,386
Ivy Balanced Fund Class A, Pro Forma Combined		720		1,025		1,351		2,273

Fund	1 Year		3 Years		5 Years		10 Years
Ivy Small Cap Value Fund Class A	$	713	$	1,004	$	1,317	$	2,200
Advantus Venture Fund Class A		680		954		1,249		2,085
Advantus Venture Fund Class B		713		1,008		1,279		2,150
Advantus Venture Fund Class C		213		658		1,129		2,240
Ivy Small Cap Value Fund Class A, Pro Forma Combined		713		1,004		1,317		2,200

Comparison of Fund Investment Objectives, Strategies and Risks

      This section will help you compare the investment objectives, strategies and risks of each Advantus Fund with its corresponding Ivy Fund. The investment objective of each Advantus Fund is fundamental and may not be changed without shareholder approval. The investment objectives of the Ivy Funds may be changed by the Board of Directors or Trustees of those Funds, without the approval of shareholders.

      Advantus Cornerstone Fund, Advantus Horizon Fund and Advantus Spectrum Fund have been managed by WRIICO since May 1, 2003 using investment strategies that are substantially identical to those used by WRIICO in managing the corresponding Ivy Funds into which these Advantus Funds will be reorganized.

      Advantus Bond Fund, Advantus Mortgage Securities Fund and Advantus Real Estate Securities Fund will be reorganized into new series of Ivy Trust that have been created for purposes of the reorganization, and Advantus Capital will act as the sub-adviser for these newly formed series. Advantus International Balanced Fund and Advantus Venture Fund also will be reorganized into newly formed series of Ivy Trust, and the current sub-advisers for these Advantus Funds will act as sub-advisers for the respective newly

15

formed series. As a result, the investment objectives and strategies of Advantus Bond Fund, Advantus Mortgage Securities Fund, Advantus Real Estate Securities Fund, Advantus International Balanced Fund and Advantus Venture Fund will be substantially identical to those of their corresponding Ivy Funds.

      Advantus Enterprise Fund is currently managed by a sub-adviser. The Ivy Fund into which it will be reorganized is managed by WRIICO. Similarly, Advantus Money Market Fund and Advantus Index 500 Fund are currently managed by Advantus Capital and will be reorganized into Ivy Funds managed by WRIICO. Although the investment objectives and strategies of Advantus Enterprise Fund are similar to those of the Ivy Fund into which it will be reorganized, and the investment objectives and strategies of Advantus Money Market Fund and its corresponding Ivy Fund are substantially similar, there are some differences, which are discussed below. The differences are greater in the case of Advantus Index 500 Fund and its corresponding Ivy Fund, Ivy Core Equity Fund. The Advantus Index 500 Fund uses a passive investment approach that seeks to duplicate the investment performance of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”). The Ivy Core Equity Fund is an actively managed portfolio that invests primarily in common stocks of large U.S. and foreign companies with dominant market positions in their industries. The Ivy Fund is not limited to stocks included in the S&P 500 and does not try to replicate the performance of the S&P 500.

      Please be aware that only a brief discussion appears below. More complete information may be found in the Advantus Funds’ and Ivy Funds’ prospectuses and statements of additional information.

Advantus Bond Fund/Ivy Bond Fund

     Investment Objectives

•  Advantus Bond Fund and Ivy Bond Fund: A high level of current income consistent with prudent investment risk.

     Investment Strategies

      Advantus Capital is the investment adviser of Advantus Bond Fund and will act as the sub-adviser for Ivy Bond Fund following the Reorganization. As a result, the investment strategies used by the Ivy Fund will be the same as those used by the Advantus Fund. Each Fund invests in a variety of investment-grade debt securities. These debt securities include, among other things, corporate and mortgage-backed securities, debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, asset-backed securities and other debt obligations of U.S. banks or savings and loan associations.

      The Funds may invest in long-term, intermediate-term and short-term debt securities. In selecting debt securities and their maturities for the Funds, Advantus Capital engages in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations.

      When Advantus Capital believes that a temporary defensive position is desirable, each Fund may invest up to all of its assets in various short-term cash and cash equivalent items. By taking a temporary defensive position, a Fund may not achieve its investment objective.

     Investment Risks

      Because the investment strategies of Advantus Bond Fund and Ivy Bond Fund are the same, each Fund is subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Call Risk — the risk that securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest the proceeds in other securities generally with lower interest rates.

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•  Credit Risk — the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security or obligation when due.

•  Extension Risk — the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities.

•  Income Risk — the risk that the Fund may experience a decline in its income due to falling interest rates.

•  Interest Rate Risk — the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Prepayment Risk — the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

Advantus Cornerstone Fund/ Ivy Value Fund

Investment Objectives

•  Advantus Cornerstone Fund: Growth of capital.

•  Ivy Value Fund: Long-term capital appreciation.

Investment Strategies

      Advantus Cornerstone Fund is currently managed by WRIICO using the same investment strategies that WRIICO will use to manage Ivy Value Fund. Each Fund seeks to achieve its goal by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Funds seek to invest in stocks that are, in the opinion of WRIICO, undervalued relative to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Funds typically invest in large-cap companies, they may invest in securities of any size company.

      WRIICO utilizes both fundamental research and quantitative analysis to identify securities for the Funds. The Funds will typically invest in core value stocks: stocks of companies in industries that have relatively lower price-to-earnings ratios than growth stocks. The Funds may also invest in growth stocks that are, in WRIICO’s opinion, temporarily undervalued.

      WRIICO utilizes both a top-down (assess the market environment) and a bottom-up (research individual issuers) analysis in its selection process. WRIICO considers numerous factors in its analysis of issuers and stocks, including the following:

•  intrinsic value of the company not reflected in stock price

•  historical earnings growth

•  future expected earnings growth

•  company’s position in its respective industry

•  industry conditions

•  competitive strategy

17

•  management capabilities

•  free cash flow potential

      Each Fund will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or it has performed below WRIICO’s expectations.

      When WRIICO believes that a temporary defensive position is desirable, each Fund may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. government securities) or preferred stocks, or both. By taking a temporary defensive position, a Fund may not achieve its investment objective.

Investment Risks

      An investment in Advantus Cornerstone Fund or Ivy Value Fund may result in the loss of money, and may also be subject to various risks, including the following main types of risk:

•  Foreign Securities Risk — the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country.

•  Large Company Risk — the risk that a portfolio of large capitalization company securities may underperform the market as a whole.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Value Stock Risk — the risk that the value of a security believed by the Fund’s investment adviser to be undervalued may never reach what the adviser believes is its full value, or that the security’s value may decrease.

      Although the Funds typically invest in large-cap companies, they may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations.

Advantus Enterprise Fund/Ivy Small Cap Growth Fund

Investment Objective

•  Advantus Enterprise Fund: Long-term accumulation of capital.

•  Ivy Small Cap Growth Fund: Growth of capital.

Investment Strategies

      Advantus Enterprise Fund: The Fund primarily invests in various types of equity securities of small capitalization companies (i.e., companies with a market capitalization within the range of capitalizations of companies in the Russell 2000 Growth Index) at the time of purchase. Under normal circumstances, the Fund will invest at least 65% of its total assets (exclusive of collateral received in connection with securities lending) in equity securities of small capitalization U.S. companies. The Portfolio primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. In selecting equity securities, the Portfolio’s investment sub-adviser employs a growth investment style and looks for either developing or older companies in a growth stage or companies providing products or services with a high unit-volume growth rate.

18

      In selecting equity securities of growth companies for the Fund, the Fund’s investment sub-adviser looks for:

•  companies still in the developmental stage;

•  older companies that appear to be entering a new stage of growth; and

•  companies providing products or services with a high unit-volume growth rate.

      The Fund may also invest in emerging-growth companies, which are small or medium-size companies that have passed their start-up phase, show positive earnings, and offer the potential for accelerated earnings growth. Emerging-growth companies generally stand to benefit from new products or services, technological developments, changes in management or other factors.

      The Fund is required to invest only 65% of its total assets in equity securities of small capitalization companies and may invest in companies of any size once this 65% policy is met. In addition, some companies may outgrow the definition of a small company after the Fund has purchased their securities. As a result, the Fund’s average market capitalization may sometimes exceed the market capitalization of the largest company in the Russell 2000 Growth Index.

      In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective.

      Ivy Small Cap Growth Fund: Ivy Small Cap Growth Fund also invests primarily in small capitalization stocks, although it uses a different index than Advantus Enterprise Fund for determining whether a stock is a small capitalization stock. The Fund seeks to achieve its goal by investing primarily in common stocks of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper Inc. Small Cap Category. The Fund emphasizes relatively new or unseasoned companies in their early stages of development, or smaller companies positioned in new or emerging industries where there is opportunity for rapid growth. The Fund will, under normal market conditions, invest at least 80% of its net assets in small cap stocks. The Advantus Enterprise Fund is required to invest only 65% of its total assets in such securities. Ivy Small Cap Growth Fund’s investments may include stocks of foreign companies or foreign government securities. Although the Advantus Enterprise Fund may invest in such securities, it does not do so as a principal investment strategy.

      In selecting companies, WRIICO seeks companies whose earnings, it believes, are likely to grow faster than the economy. WRIICO may look at a number of factors regarding a company, such as:

•  aggressive or creative management;

•  technological or specialized expertise;

•  new or unique products or services;

•  entry into new or emerging industries; or

•  growth in earnings/ growth in sales.

      Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities. For example, WRIICO may sell a security if it determines that the stock no longer offers significant growth potential, which may be due to a change in the business or management of the company or a change in the industry of the company. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

      When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. Government securities) or preferred stocks, or both. The Fund may also invest in more established companies, those with longer

19

operating histories than many small cap companies. By taking a temporary defensive position, the Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Enterprise Fund and Ivy Small Cap Growth Fund are similar, each Fund generally is subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Growth Stock Risk — the risk that if the assessment by the Fund’s investment adviser or sub-adviser of a company’s prospective earnings growth or judgment of how other investors assess the company’s earnings growth is wrong, then the value of the company’s securities may decrease or not approach the value that the Fund’s investment adviser or sub-adviser has placed on it.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Small Company Risk — the risk that equity securities of small companies are subject to greater price volatility due to, among other things, such companies’ small size, limited product lines, limited access to financing sources and limited management depth.

      Ivy Small Cap Growth Fund is also subject to the following type of principal risk:

•  Foreign Securities Risk — the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities.

Advantus Horizon Fund/Ivy Large Cap Growth Fund

Investment Objectives

•  Advantus Horizon Fund: Long-term growth of capital through investment in equity securities.

•  Ivy Large Cap Growth Fund: Appreciation of your investment.

Investment Strategies

      Advantus Horizon Fund and Ivy Large Cap Growth Fund are managed by WRIICO using the same investment strategies. Each Fund seeks to achieve its goal by investing primarily in a diversified portfolio of common stocks issued by growth-oriented, large to medium sized U.S. and foreign companies that WRIICO believes have appreciation possibilities. Growth stocks are those whose earnings WRIICO believes are likely to grow faster than the economy. Although WRIICO anticipates the majority of the Funds’ investments to be in large to medium sized companies, each Fund may invest in companies of any size.

      The Funds invest primarily in common stocks but may also own, to a lesser extent, preferred stocks, convertible securities and debt securities, typically of investment grade and of any maturity. Each Fund may invest up to 25% of its total assets in foreign securities.

      WRIICO attempts to select securities with appreciation possibilities by looking at many factors. These include:

•  the company’s market position, product line, technological position and prospects for increased earnings

•  the management capability of the company being considered

20

•  the short-term and long-term outlook for the industry being analyzed

•  changes in economic and political conditions

      WRIICO may also analyze the demands of investors for the security relative to its price. Securities may be chosen when WRIICO anticipates a development that might have an effect on the value of a security.

      In general, WRIICO may sell a security if it determines that the security no longer presents sufficient appreciation potential; this may be caused by, or be an effect of, changes in the industry of the issuer, loss by the company of its competitive position, and/or poor use of resources. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

      At times, as a temporary defensive measure, each Fund may invest up to all of its assets in either debt securities (which may include money market instruments held as cash reserves) or preferred stocks or both. The Funds may also use options and futures contracts for defensive purposes. By taking a temporary defensive position, a Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Horizon Fund and Ivy Large Cap Growth Fund are the same, each Fund is subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Foreign Securities Risk — the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country.

•  Growth Stock Risk — the risk that if the Fund’s investment adviser’s assessment of a company’s prospective earnings growth or judgment of how other investors assess the company’s earnings growth is wrong, then the value of the company’s securities may decrease or not approach the value that the Fund’s investment adviser placed on it.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Mid Size Company Risk — the risk that medium sized companies may be more vulnerable to adverse developments than large companies. These companies are more likely to have limited financial resources and inexperienced management. Stocks of these companies may experience volatile trading and price fluctuations.

•  Sector Risk — the risk that the Fund’s performance may be adversely affected by the mix of securities in the Fund’s portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy.

Advantus Index 500 Fund/ Ivy Core Equity Fund

Investment Objectives

•  Advantus Index 500 Fund: Seeks investment results that correspond generally, before sales charges and other Fund expenses, to the aggregate price and yield performance of the common stocks included in the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”).

•  Ivy Core Equity Fund: Seeks to provide capital growth and income.

21

Investment Strategies

      Advantus Index 500 Fund. Under normal conditions, the Fund invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 500. (Investments covered by this 80% policy may also include S&P 500 stock index futures contracts or S&P 500 depositary receipts.) Under normal conditions, the Fund invests in all of the common stocks included in the S&P 500. However, the Fund is not required to hold a minimum or maximum number of common stocks included in the S&P 500, and due to changing economic or market conditions, may invest in less than all of the common stocks included in the S&P 500. Advantus Capital uses a computer program to confirm the Fund’s S&P 500 replication and to round off security weightings.

      Ivy Core Equity Fund. Ivy Core Equity Fund does not attempt to replicate the performance of an index, but instead is an actively managed Fund. The Fund is not limited to investing in common stocks included in the S&P 500, and may invest in common stocks of foreign companies.

      Ivy Core Equity Fund seeks to achieve its goals by primarily investing, during normal market conditions, in common stocks of large, high-quality U.S., and to a lesser extent foreign, companies that have the potential for capital appreciation, or that WRIICO expects to resist market decline, and that are well known, have been consistently profitable and have dominant market positions in their industries. The Fund will, under normal market conditions, invest at least 80% of its net assets in equity securities, primarily common stocks and securities convertible into common stocks. Although the Fund typically invests in large companies, it may invest in securities of any size company.

      WRIICO attempts to select securities with growth and income possibilities by looking at many factors including a company’s:

•  profitability record;

•  history of improving sales and profits;

•  management;

•  leadership position in its industry;

•  stock price value; and

•  dividend payment history.

      Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer the prospect of significant growth potential and/ or continued dividend payments. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

      When WRIICO views stocks with high yields as less attractive than other common stocks, the Fund may hold lower-yielding common stocks because of their prospects for appreciation. When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (typically, investment grade) including commercial paper, short-term U.S. Government securities and/or preferred stocks. By taking a temporary defensive position the Fund may not achieve its investment objectives.

Investment Risks

      Because both Advantus Index 500 Fund and Ivy Core Equity Fund invest primarily in common stocks of large companies, they are subject to many of the same risks. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Company Risk — risks related to the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds.

•  Market Risk — the risk that equity securities are subject to adverse trends in equity markets.

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      Because Advantus S&P 500 Fund attempts to replicate the performance of an index, it is subject to the following additional risks to which Ivy Core Equity Fund is not subject:

•  Risks of Indexing Strategy — Because Advantus S&P 500 Fund uses an indexing strategy, it does not attempt to manage market volatility, use defensive strategies or reduce the effects of any long-term periods of poor stock performance.

•  S&P Performance Risk — the risk that the Fund’s ability to replicate the performance of the S&P 500 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor’s Rating Services calculates the S&P 500, the amount and timing of cash flows into and out of the Fund, commissions, sales charges (if any) and other expenses.

      Ivy Core Equity Fund is subject to the following additional risks to which Advantus S&P 500 Fund is not subject:

•  Foreign Securities Risk — the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

Advantus International Balanced Fund/Ivy International Balanced Fund

Investment Objectives

•  Advantus International Balanced Fund and Ivy International Balanced Fund: A high level of total return.

Investment Strategies

      Templeton Investment Counsel, LLC (“Templeton”), acts as the sub-adviser for Advantus International Balanced Fund, and will act as the sub-adviser for Ivy International Balanced Fund following the Reorganization. As a result, the investment strategies used by the Ivy Fund will be the same as those used by the Advantus Fund.

      Each Fund invests in equity and debt securities issued by large and small international companies and governmental agencies. Normally each Fund invests approximately 50% to 70% of its assets in international equity securities and approximately 30% to 50% of its assets in international investment-grade debt securities. Under normal circumstances, each Fund will maintain investments in at least three foreign countries.

      The Funds invest primarily in securities of companies or governments in developed foreign markets. However, each Fund may also invest up to 20% of its total assets in equity securities of companies located in developing or emerging markets and up to 10% of its total assets in debt securities of companies or governments located in such markets.

      In selecting equity securities, Templeton does a company-by-company analysis, rather than focusing on a specific industry or economic sector. Templeton concentrates primarily on the current market price of a company’s securities relative to its view regarding the company’s long-term earnings potential. A company’s historical value measures, including price/ earnings ratios, profit margins and liquidation value, will also be considered.

      Templeton has entered into an agreement with its affiliate, Franklin Advisers, Inc. (“FAV”) pursuant to which FAV provides investment advice and generally conducts the investment management program for fixed income investments of the Advantus Fund, and Templeton and FAV will enter into a similar arrangement with respect to the Ivy Fund. In selecting debt securities, FAV evaluates current, as well as expected future trends in, interest rates and general economic conditions. FAV then attempts to identify those securities and issuers which, in its judgment, are likely to perform well in such circumstances.

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      In an attempt to respond to adverse market, economic, political or other conditions, each Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. By taking a defensive position, a Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus International Balanced Fund and Ivy International Balanced Fund are the same, each Fund is generally subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Credit Risk — the risk that an issuer of a debt security or fixed income obligation will not make payments on the security when due.

•  Currency Risk — the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities.

•  Foreign Securities Risk — the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities.

•  Income Risk — the risk that the Fund’s income may decrease due to falling interest rates.

•  Interest Rate Risk — the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

Advantus Money Market Fund/Ivy Money Market Fund

Investment Objectives

•  Advantus Money Market Fund: A high level of current income to the extent consistent with preservation of capital and maintenance of liquidity.

•  Ivy Money Market Fund: Maximum current income consistent with stability of principal.

Investment Strategies

      Each Fund seeks to achieve its objective by investing in U.S. dollar-denominated, high-quality money market obligations and instruments. The securities in which each Fund invest will be rated in one of the two highest categories by a nationally recognized statistical rating organization or, if unrated, will be of comparable quality as determined by the Fund’s investment adviser. Each Fund maintains an average weighted maturity of 90 days or less and invests only in securities with a remaining maturity of not more than 397 calendar days. Each Fund seeks to maintain a net asset value of $1.00 per share.

Investment Risks

      Because the investment strategies of Advantus Money Market Fund and Ivy Money Market Fund are substantially similar, each Fund is generally subject to the same types of risk. An investment in either Fund may be subject to various risks including the following principal risks:

•  Credit Risk — the risk that an issuer of debt securities or other fixed income obligations will not make payments on the securities when due.

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•  Income Risk — the risk that the Fund’s income may decrease due to falling interest rates.

•  Inflation Risk — the risk that inflation will erode the purchasing power of the value of securities held by the Fund or the Fund’s dividends.

•  Interest Rate Risk — the risk that the value of a fixed income obligation will decline due to changes in market interest rates.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

      An investment in either Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although each Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in either Fund.

Advantus Mortgage Securities Fund/Ivy Mortgage Securities Fund

Investment Objectives

•  Advantus Mortgage Securities Fund and Ivy Mortgage Securities Fund: A high level of current income consistent with prudent investment risk.

Investment Strategies

      Advantus Capital is the investment adviser of Advantus Mortgage Securities Fund and will act as the sub-adviser for Ivy Mortgage Securities Fund following the Reorganization. As a result, the investment strategies used by the Ivy Fund will be the same as those used by the Advantus Fund.

      Each Fund invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in mortgage-related securities. These mortgage-related securities include investment-grade securities representing interests in pools of mortgage loans and a variety of other mortgage-related securities including collateralized mortgage obligations and stripped mortgage-backed securities.

      In selecting securities, Advantus Capital considers a variety of factors, including prepayment risk, credit quality, liquidity, the collateral securing the underlying loan (for example, residential versus commercial real estate) and the type of underlying mortgage loan (for example, a 30-year fully-amortized loan versus a 15-year fully-amortized loan). Advantus Capital also takes into consideration current and expected trends in economic conditions, interest rates and the mortgage market and selects securities which, in its judgment, are likely to perform well in those circumstances.

      In an attempt to respond to adverse market, economic, political or other conditions, each Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, a Fund may not always achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Mortgage Securities Fund and Ivy Mortgage Securities Fund are the same, each Fund is generally subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Call Risk — the risk that callable securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

•  Concentration Risk — the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not

25

	concentrate its investments in a single industry. Each Fund concentrates its investments in the mortgage and mortgage-finance industry.
•	Credit Risk — the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security when due.
•	Extension Risk — the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities.
•	Income Risk — the risk that the Fund may experience a decline in its income due to falling interest rates.
•	Interest Rate Risk — the risk that the value of a mortgage-backed security or other fixed income obligation will increase or decrease due to changes in market interest rates.
•	Liquidity Risk — the risk that mortgage-related securities purchased by the Fund, including restricted securities determined by Advantus Capital at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by Advantus Capital.
•	Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.
•	Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.
•	Prepayment Risk — the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

Advantus Real Estate Securities Fund/Ivy Real Estate Securities Fund

Investment Objectives

•  Advantus Real Estate Securities Fund and Ivy Real Estate Securities Fund: Total return through a combination of capital appreciation and current income.

Investment Strategies

      Advantus Capital is the investment adviser of Advantus Real Estate Securities Fund and will act as the sub-adviser for Ivy Real Estate Securities Fund following the Reorganization. As a result, the investment strategies used by the Ivy Fund will be the same as those used by the Advantus Fund.

      Each Fund invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in real estate securities and real estate-related securities. “Real estate securities” include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. Most of each Fund’s real estate securities portfolio will consist of securities issued by real estate investment trusts (“REITs”) that are listed on a securities exchange or traded over-the-counter. “Real estate-related securities” include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry.

      Each Fund may invest in securities of issuers of any size, including issuers with small, medium or large market capitalizations. Advantus Capital assesses an investment’s potential for sustainable earnings growth over time. In selecting securities, Advantus Capital considers factors such as an issuer’s financial condition, financial performance, quality of management, policies and strategies, real estate properties and competitive market position.

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      In an attempt to respond to adverse market, economic, political or other conditions, each Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, a Fund may not always achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Real Estate Securities Fund and Ivy Real Estate Securities Fund are the same, each Fund is generally subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Concentration Risk — the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. Each Fund concentrates its investments in the real estate and real estate related industry.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Real Estate Risk — the risk that the value of the Fund’s investments may decrease due to a variety of factors related to the construction, development, ownership, financing, repair or servicing or other events affecting the value of real estate, buildings or other real estate fixtures.

•  REIT Related Risk — the risk that the value of the Fund’s securities issued by REITs will be adversely affected by changes in the value of the underlying property.

Advantus Spectrum Fund/Ivy Balanced Fund

Investment Objectives

•  Advantus Spectrum Fund: Seeks the most favorable total return — from capital appreciation, interest and dividends — consistent with preservation of capital.

•  Ivy Balanced Fund: Seeks, as a primary goal, to provide current income to the extent that, in WRIICO’s opinion, market and economic conditions permit. As a secondary goal, the Fund seeks long-term appreciation of capital.

Investment Strategies

      Advantus Spectrum Fund is currently managed by WRIICO using the same investment strategies that WRIICO will use to manage Ivy Balanced Fund. Each Fund invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In general, each Fund invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Funds own common stocks in order to provide possible appreciation of capital and some dividend income. Each Fund ordinarily invests at least 25% of its total assets in fixed income securities.

      In their equity investments, the Funds invest primarily in medium to large, well-established companies, that typically issue dividend producing securities. The majority of each Fund’s debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by Standard & Poor’s Ratings Service or Baa and higher by Moody’s Investors Services, Inc. or, if unrated, deemed by WRIICO to be of comparable quality. The Funds have no limitations on the range of maturities of debt securities in which they may invest. Each Fund may invest in foreign securities.

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      WRIICO may look at a number of factors in selecting securities for the Funds. For equity investments, WRIICO may emphasize a blend of value and growth potential. For value securities, WRIICO looks for undervalued companies whose asset value or earnings power is not reflected in the price of their stock. In selecting growth securities, WRIICO seeks to identify securities whose earnings are likely to grow faster than the economy. In selecting debt securities for the Funds, WRIICO seeks high-quality securities with minimal credit risk.

      Generally, in determining whether to sell an equity security, WRIICO uses the same analysis that it uses in order to determine if the equity security is still undervalued or has ceased to offer the desired growth potential. In determining whether to sell a debt security, WRIICO will consider whether the debt security continues to maintain its minimal credit risk. WRIICO may also sell a security if the security ceases to produce income or otherwise to take advantage of attractive investment opportunities and/or to raise cash.

      When WRIICO believes that a temporary defensive position is desirable, each Fund may invest up to all of its assets in debt securities that may be considered equivalent to owning cash because of their safety and liquidity. By taking a temporary defensive position, a Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Spectrum Fund and Ivy Balanced Fund are the same, each Fund is generally subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Credit Risk — the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security when due.

•  Foreign Securities Risk — the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country.

•  Income Risk — the risk that the Fund may experience a decline in its income due to falling interest rates.

•  Interest Rate Risk — the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates. This risk is generally greater for bonds with longer maturities.

•  Manager Risk — the Fund’s performance will be affected by the investment adviser’s skill in allocating the Fund’s assets among different types of investments.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

Advantus Venture Fund/Ivy Small Cap Value Fund

Investment Objectives

•  Advantus Venture and Ivy Small Cap Value Fund: Long-term accumulation of capital.

Investment Strategies

      State Street Research and Management Company (“State Street Research”), acts as the sub-adviser for Advantus Venture Fund, and will act as the sub-adviser for Ivy Small Cap Value Fund following the Reorganization. As a result, the investment strategies of the Funds are substantially similar.

      Both Funds invest primarily in the securities of small capitalization companies. The Funds generally define small capitalization companies as those whose market capitalizations are similar to the market

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capitalizations of companies in the Russell 2000® Value Index. The Ivy Small Cap Value Fund will, under normal market conditions, invest at least 80% of its net assets in small capitalization companies. Under normal circumstances, the Advantus Venture Fund invests at least 65% of its total assets (exclusive of collateral receive in connection with securities lending) in common stocks of small capitalization companies.

      Equity securities in which the Funds invest will consist primarily of common stocks, but may also include preferred stock and other securities convertible into equity securities. From time to time, each Fund will also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e., companies with a market capitalization larger than that defined above). Each Fund’s purchases of equity securities may include common stocks that are part of initial public offerings.

      In selecting value stocks and other equity securities, State Street Research primarily looks to equity securities it believes are undervalued or trading below their true worth, but that appear likely to come back into favor with investors. In selecting such securities, State Street Research examines such features as a company’s financial condition, business prospects, competitive position and business strategy. Undervalued securities are securities that State Street Research believes: (a) are undervalued relative to other securities in the market or currently earn low returns with a potential for higher returns, (b) are undervalued relative to the potential for improved operating performance and financial strength, or (c) are issued by companies that have recently undergone a change in management or control, or developed new products or services, that may improve their business prospects or competitive position. In assessing relative value, State Street Research will consider factors such as a company’s ratio of market price to earnings, ratio of market price to book value, ratio of market price to assets, ratio of market price to cash flow, estimated earnings growth rate, cash flow, yield, liquidation value, product pricing, quality of management and competitive market position. As a secondary focus, State Street Research may also consider an investment’s potential to provide current income. In seeking to achieve its investment objectives, each Fund may also invest in equity securities of companies that State Street Research believes show potential for sustainable earnings growth above the average market growth rate.

      When State Street Research believes that a temporary defensive position is desirable, each Fund may invest up to all of its assets in various short-term cash and cash equivalent items. By taking a defensive position, a Fund may not achieve its investment objective.

Investment Risks

      Because the investment strategies of Advantus Venture Fund and Ivy Small Cap Value Fund are substantially similar, each Fund is generally subject to the same types of risk. An investment in either Fund may result in the loss of money, and may also be subject to various risks including the following principal risks:

•  Initial Public Offering Risk — the risk that the Fund will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Favorable investments in IPOs have had a significant impact on the Fund’s performance in some periods. The effect of IPOs on the Fund’s total returns going forward may not be positive, either as a result of changes in the IPO market or growth of the Fund’s assets which may reduce its total return.

•  Manager Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

•  Market Risk — the risk of adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund’s holdings to fall as part of a broad market decline.

•  Small Company Risk — the risk that equity securities of small companies are subject to greater price volatility due to, among other things, such companies’ small size, limited product lines, limited access to financing sources and limited management depth.

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•  Value Stock Risk — the risk that the value of a security believed by the Fund’s sub-adviser to be undervalued may never reach what the sub-adviser believes is its full value, or that such security’s value may decrease.

Comparison of Fund Performance

      The bar charts and tables below compare the potential risks and rewards of investing in the Advantus Funds and the Ivy Funds.

      Each bar chart provides an indication of the risks of investing in the respective Fund by showing changes in the performance of each Fund from year to year for the last ten years or since inception of the share class for which performance is presented. Performance is generally presented for Class A shares, unless otherwise indicated. The performance of Class B and Class C shares will be lower due to their higher expenses. The bar charts do not reflect any sales charges. If sales charges were included, the returns would be less than those shown.

      The tables show how the average annual total returns of the Class A, Class B and Class C Advantus Fund shares and the Class A Ivy Fund shares for one year, five years and ten years (or since inception) compare to the returns of a broad-based market index. (Returns for Class C Ivy Fund shares also are presented in some cases where the life of that share class is longer than the life of the Class A shares.) The table includes returns both before and after taxes for Class A shares (unless otherwise indicated). For other share classes, the tables only include returns before taxes. After-tax returns for those share classes will vary. Before-tax returns show the actual change in the value of the Fund’s shares over the periods shown, but do not reflect the impact of taxes on Fund distributions or the sale of Fund shares. After-tax returns take into account taxes that may be associated with owning Fund shares. Returns after taxes on distributions reflect a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period. Returns after taxes on distributions and redemption are further adjusted to reflect the tax impact of selling Fund shares on the last day of the period. Returns after taxes on distributions and redemptions may be higher than other returns for the same period due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. After-tax returns are not shown for Advantus Money Market Fund and Ivy Money Market Fund. Returns presented in the tables include the maximum sales charge for Ivy Fund and Advantus Fund Class A shares and the applicable CDSC for Advantus Fund Class B shares.

      Comparative performance information is only given for Reorganizations in which an Advantus Fund is being acquired by an existing (rather than a newly formed) Ivy Fund. The performance of the Funds and the indices varies over time, and past performance is not necessarily indicative of future results. The Funds’ returns assume reinvestment of dividends and distributions and reflect Fund expenses. Total returns for the indices do not reflect expenses or taxes. The indices are unmanaged, and it is not possible to invest directly in an index. Please note that the average annual total return since a Fund’s inception is given only for those Funds that have been in existence for less than ten calendar years.

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Advantus Enterprise Fund/Ivy Small Cap Growth Fund

Advantus Enterprise Fund (Class A)*

*  The Class A return for the year through June 30, 2003 was 1.31%

Best Quarter:	46.12% (quarter ended 12/31/99)
Worst Quarter:	-27.99% (quarter ended 9/30/98)

Ivy Small Cap Growth Fund (Class C)*

*  The Class C return for the year through June 30, 2003 was 16.02%

Best Quarter:	40.97% (quarter ended 12/31/99)
Worst Quarter:	-23.83% (quarter ended 9/30/01)

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Average Annual Total Returns as of December 31, 2002

										Since
Fund	1 Year			5 Years			10 Years			Inception
Advantus Enterprise Fund Class A Before Taxes (inception 9/16/94)		(35.46	)%		(7.18	)%		N/A			0.56	%
Advantus Enterprise Fund Class A After Taxes on Distributions		(35.46	)%		(9.34	)%		N/A			(1.45	)%
Advantus Enterprise Fund Class A After Taxes on Distributions and Redemption		(21.59	)%		(5.60	)%		N/A			(1.45	)%
Advantus Enterprise Fund Class B Before Taxes (inception 9/16/94)		(35.57	)%		(7.18	)%		N/A			0.38	%
Advantus Enterprise Fund Class C Before Taxes (inception 3/1/95)		(32.29	)%		(6.91	)%		N/A			(0.16	)%
Ivy Small Cap Growth Fund Class A Before Taxes (inception 7/3/00)		(29.53	)%		N/A			N/A			(19.62	)%
Ivy Small Cap Growth Fund Class C Before Taxes(1)		(25.82	)%		7.15	%		12.47	%		N/A
Ivy Small Cap Growth Fund Class C After Taxes on Distributions		(25.82	)%		3.33	%		9.92	%		N/A
Ivy Small Cap Growth Fund Class C After Taxes on Distributions and Redemption		(15.85	)%		6.42	%		10.83	%		N/A
Russell 2000 Growth Index(2)		(30.22	)%		(6.56	)%		2.60	%		N/A

(1)

The returns shown for Class C shares are based on the performance of the Fund’s prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B’s performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

(2)

Benchmark index for Advantus Enterprise Fund and Ivy Small Cap Growth Fund.

Advantus Horizon Fund/ Ivy Large Cap Growth Fund

Advantus Horizon Fund (Class A)*

*  The Class A return for the year through June 30, 2003 was 0.25%

Best Quarter:	21.30% (quarter ended 12/31/98)
Worst Quarter:	-25.90% (quarter ended 3/31/01)

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Ivy Large Cap Growth Fund (Class A)*

*  The Class A return for the year through June 30, 2003 was 12.54%

Best Quarter:	11.88% (quarter ended 12/31/01)
Worst Quarter:	-18.97% (quarter ended 3/31/01)

Average Annual Total Returns as of December 31, 2002

Fund	1 Year		5 Years			10 Years			Since Inception
Advantus Horizon Fund Class A Before Taxes		(30.19)%		(7.63	)%		3.09	%		N/A
Advantus Horizon Fund Class A After Taxes on Distributions		(30.19)%		(9.01	)%		(1.03	)%		N/A
Advantus Horizon Fund Class A After Taxes on Distributions and Redemption		(18.39)%		(5.38	)%		2.53	%		N/A
Advantus Horizon Fund Class B Before Taxes (inception 8/19/94)		(30.34)%		(7.54	)%		N/A			3.21	%
Advantus Horizon Fund Class C Before Taxes (inception 3/1/95)		(26.68)%		(7.25	)%		N/A			2.76	%
Ivy Large Cap Growth Fund Class A Before Taxes (inception 6/30/00)		(24.39)%		N/A			N/A			(14.10	)%
Ivy Large Cap Growth Fund Class A After Taxes on Distributions		(24.39)%		N/A			N/A			(14.24	)%
Ivy Large Cap Growth Fund Class A After Taxes on Distributions and Redemption		(14.98)%		N/A			N/A			(11.01	)%
S&P 500 Index(1)		(22.10)%		N/A			N/A			(17.07	)%
Russell 1000 Growth Index(2)		(27.89)%		(3.84	)%		6.71	%		N/A

(1)	Benchmark index for Ivy Large Cap Growth Fund. Since inception performance is measured from June 30, 2000.
(2)	Benchmark index for Advantus Horizon Fund.

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     Advantus Index 500 Fund/Ivy Core Equity Fund

Advantus Index 500 Fund (Class A)*

*  The Class A return for the year through June 30, 2003 was -0.54%

Best Quarter:	21.34% (quarter ended 12/31/98)
Worst Quarter:	-17.34% (quarter ended 9/30/02)

Ivy Core Equity Fund (Class C)*

*  The Class C return for the year through June 30, 2003 was 5.39%

Best Quarter:	17.05% (quarter ended 3/31/97)
Worst Quarter:	-16.80% (quarter ended 9/30/02)

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Average Annual Total Returns as of December 31, 2002

Fund	1 Year			5 Years			10 Years			Since Inception
Advantus Index 500
Fund Class A Before Taxes (inception 1/31/97)		(26.85	)%		(2.65	)%		N/A			1.40	%
Advantus Index 500
Fund Class A After Taxes on Distributions		(27.10	)%		(2.98	)%		N/A			1.02	%
Advantus Index 500
Fund Class A After Taxes on Distributions and Redemption		(16.35	)%		(2.22	)%		N/A			0.97	%
Advantus Index 500
Fund Class B Before Taxes (inception 1/31/97)		(27.11	)%		(2.68	)%		N/A			1.26	%
Advantus Index 500
Fund Class C Before Taxes (inception 1/31/97)		(23.25	)%		(2.39	)%		N/A			1.44	%
Ivy Core Equity Fund Class A Before Taxes (inception 7/3/00)		(27.08	)%		N/A			N/A			(18.55	)%
Ivy Core Equity Fund Class C Before Taxes(1)		(23.24	)%		(1.03	)%		7.30	%		N/A
Ivy Core Equity Fund Class C After Taxes on Distributions		(23.24	)%		(2.60	)%		6.33	%		N/A
Ivy Core Equity Fund Class C After Taxes on Distributions and Redemption		(14.27	)%		(0.04	)%		6.63	%		N/A
S&P 500 Index(2)		(22.10	)%		(0.59	)%		9.34	%		N/A

(1)

The returns shown for Class C shares are based on the performance of the Fund’s prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B’s performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

(2)

Benchmark index for Advantus S&P 500 Fund and Ivy Core Equity Fund.

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     Advantus Money Market Fund/Ivy Money Market Fund

Advantus Money Market Fund

*  The return for the year through June 30, 2003 was 0.70%

Best Quarter:	1.45% (quarter ended 9/30/00)
Worst Quarter:	0.21% (quarter ended 12/31/02)

Ivy Money Market Fund (Class A)*

*  The Class A return for the year through June 30, 2003 was 0.47%

Best Quarter:	1.28% (quarter ended 3/31/01)
Worst Quarter:	0.32% (quarter ended 6/30/02)

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Average Annual Total Returns as of December 31, 2002

Fund	1 Year			5 Years			10 Years			Since Inception
Advantus Money Market Fund		1.03	%		3.82	%		3.95	%		N/A
Ivy Money Market Fund Class A (inception 6/30/00)		1.40	%		N/A			N/A			3.12	%

Comparison of Operations

Investment Advisers and Sub-Advisers

      WRIICO is the investment adviser to the Ivy Funds. As of May 1, 2003, WRIICO began serving as investment adviser to Advantus Cornerstone Fund, Advantus Horizon Fund and Advantus Spectrum Fund. WRIICO is a wholly owned subsidiary of Waddell & Reed Financial, Inc. (“W&R”), a publicly held company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

      WRIICO has served as the investment manager to Ivy Trust since December 31, 2002¹, and to Ivy Corporation since June 30, 2003. Prior to June 30, 2003, Waddell & Reed Investment Management Company (“WRIMCO”) served as the investment manager for each of the Funds in Ivy Corporation. On June 30, 2003, WRIMCO assigned the Investment Management Agreement with Ivy Corporation (formerly W&R Funds, Inc.) to WRIICO.

      Prior to May 1, 2003, Advantus Capital had been the investment adviser to all of the Advantus Funds. Advantus Capital had acted in that capacity since May 1, 1997. Prior to that, the Advantus Funds had obtained advisory services from MIMLIC Asset Management Company, formerly the parent company of Advantus Capital. Advantus Capital continues to serve as investment adviser to the Advantus Funds other than Advantus Cornerstone Fund, Advantus Horizon Fund and Advantus Spectrum Fund. Advantus Capital will serve as investment adviser to these funds until the Closing Date of the Reorganizations. After the Reorganizations, Advantus Capital will serve as the sub-adviser to Ivy Bond Fund, Ivy Mortgage Securities Fund and Ivy Balanced Fund. The address of Advantus Capital is 400 Robert Street North, St. Paul, Minnesota 55101.

      Credit Suisse Asset Management, LLC (“CSAM”), 466 Lexington Avenue, New York, New York 10017, serves as investment sub-adviser to Advantus Enterprise Fund pursuant to an investment sub-advisory agreement with Advantus Capital. In connection with the Reorganization, CSAM will be terminated as sub-adviser to Advantus Enterprise Fund.

      Templeton Investment Counsel, LLC (“Templeton”), 500 East Broward Boulevard, Fort Lauderdale, Florida 33394, serves as investment sub-adviser to Advantus International Balanced Fund pursuant to an investment sub-advisory agreement with Advantus Capital. Templeton will act as the sub-adviser to Ivy International Balanced Fund after the Reorganization.

      State Street Research & Management Company (“State Street Research”), One Financial Center, Boston, Massachusetts 02111, serves as investment sub-adviser to Advantus Venture Fund pursuant to an investment sub-advisory agreement with Advantus Capital. State Street Research will act as the sub-adviser to Ivy Small Cap Value Fund after the Reorganization.

Portfolio Managers

      The same individuals who currently are primarily responsible for the day-to-day management of an Advantus Fund will also be responsible for the day-to-day management of the corresponding Ivy Fund,

¹ Until December 31, 2002, Ivy Management, Inc. (“IMI”) provided business management services and investment advisory services to Ivy Fund. On December 31, 2002, IMI, an indirect wholly owned subsidiary of W&R and a wholly owned subsidiary of Ivy Acquisition Corporation (“IAC”), merged with and into IAC, a wholly owned subsidiary of W&R. Upon effectiveness of the merger, IAC changed its name to WRIICO, and WRIICO assumed all of IMI’s duties with respect to Ivy Fund.

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except in the case of the Reorganizations of Advantus Enterprise Fund into Ivy Small Cap Growth Fund, Advantus Index 500 Fund into Ivy Core Equity Fund and Advantus Money Market Fund into Ivy Money Market Fund.

      The Ivy Small Cap Growth Fund is managed by the small cap growth team. Gilbert Scott is primarily responsible for the management of Ivy Small Cap Growth Fund. Mr. Scott has held his Fund responsibilities since August 2003. Mr. Scott joined Waddell & Reed in 1997 and has been assistant portfolio manager of small cap growth institutional accounts since September 2000. He is a vice president of WRIICO and WRIMCO. Mark G. Seferovich is the senior member of the small cap growth team. Mr. Seferovich has held his Fund responsibilities since August 2003. Mr. Seferovich joined Waddell & Reed in 1989 and served as portfolio manager of Waddell & Reed’s small cap growth mutual funds from September 1992 through September 2002. Mr. Seferovich currently is primarily responsible for managing small cap growth institutional accounts of WRIMCO, and, as the senior member of the team, provides oversight to the small cap growth team. He is a senior vice president of WRIICO and WRIMCO

      James D. Wineland is primarily responsible for the management of Ivy Core Equity Fund. Mr. Wineland has held his Fund responsibilities since July 1997. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From March 1995 to March 1998 Mr. Wineland was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr. Wineland has served as the portfolio manager for investment companies managed by WRIMCO and its predecessor since January 1988 and has been an employee of such since November 1984.

      Mira Stevovich is primarily responsible for the management of the Ivy Money Market Fund. Ms. Stevovich has held her Fund responsibilities since the inception of the Fund. She is Senior Vice President of WRIICO, Vice President of WRIMCO, Vice President and Assistant Treasurer of the Fund and Vice President and Assistant Treasurer of other investment companies for which WRIMCO serves as investment manager. Ms. Stevovich has served as the portfolio manager for investment companies managed by WRIMCO since May 1998 and has been an employee of WRIMCO and its predecessor since March 1987.

Other Service Providers

Distributor

      Securian Financial Services, Inc. (“Securian”), an affiliate of Advantus Capital, is the principal distributor of the Advantus Funds. Securian receives front-end and contingent deferred sales charges and Rule 12b-1 fees in connection with distributing Advantus Fund shares and providing shareholder services. The address of Securian is 400 Robert Street North, St. Paul, Minnesota 55101.

      Ivy Funds Distributor, Inc.(“IFDI”), an affiliate of WRIICO and W&R, is the principal distributor of the Ivy Funds. IFDI receives front-end and contingent deferred sales charges and Rule 12b-1 fees in connection with distributing Ivy Fund shares and providing shareholder services. The address of IFDI is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.

Administrative, Accounting and Transfer Agent Services

      Each Advantus Fund has entered into an agreement with Minnesota Life Insurance Company (“Minnesota Life”) under which Minnesota Life provides accounting, legal and other administrative services and shareholder servicing to the Fund. PFPC Inc. is the transfer agent for the Advantus Funds.

      The Ivy Funds have entered into an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a subsidiary of W&R, under which WRSCO provides the Funds with bookkeeping and accounting services and assistance including maintenance of the Funds’ records, pricing of the Funds’ shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. The Ivy Funds that are part of Ivy Trust have entered into a Master Administrative Services Agreement with WRIICO under which WRIICO provides certain administrative

38

services to the Funds. The Ivy Funds have also entered into a Shareholder Servicing Agreement with WRSCO under which WRSCO performs shareholder servicing functions, including the maintenance of shareholder accounts, the issuance, transfer and redemption of shares, distribution of dividends and payment of redemptions, the furnishing of related information to the Funds and handling of shareholder inquiries.

Custodial and Auditing Services

      The custodian for the Ivy Funds is UMB Bank, n.a. The custodian for the Advantus Funds is Bankers Trust Company for the Advantus Bond Fund and the Advantus Mortgage Securities Fund and Wells Fargo Bank Minnesota for the other Advantus Funds. In general, these custodians are responsible for holding the Funds’ cash and securities. Deloitte & Touche LLP acts as the Ivy Funds’ independent auditors. KPMG LLP acts as the Advantus Funds’ independent auditors.

Sales Load, Distribution and Shareholder Servicing Arrangements

      Each Advantus Fund has Class A, Class B and Class C shares, except that Advantus Real Estate Securities Fund has only Class A and Class B shares, and Advantus Money Market Fund has only one class of shares. The Ivy Funds also have multiple classes of shares. However, all Advantus Fund shares, regardless of their class, will be exchanged in the Reorganizations for Ivy Fund Class A shares (without payment of the initial sales charge that usually applies to purchases of Ivy Fund Class A shares). Therefore, with respect to the Ivy Funds, this section will discuss only the sales load, distribution and shareholder servicing arrangements relating to Class A shares.

Ivy Fund and Advantus Fund Class A Shares; Advantus Money Market Fund Shares

      Class A shares of both the Ivy Funds and the Advantus Funds may be purchased at a public offering price equal to their net asset value per share plus a sales charge, except that Class A shares of the Ivy Money Market Fund are not subject to a sales charge. Advantus Money Market Fund shares also are not subject to a sales charge. A comparison of front-end sales charges is set forth in the following tables.

Sales Charges for Advantus Equity and Blended Funds*

	As a % of			As a % of			Dealer Commission as %
Your Investment	Offering Price			Net Investment			of Offering Price
Less than $50,000		5.50	%		5.82	%		4.75	%
$50,000 to less than $100,000		4.50	%		4.71	%		3.75	%
$100,000 to less than $250,000		3.50	%		3.63	%		2.75	%
$250,000 to less than $500,000		2.50	%		2.56	%		2.00	%
$500,000 to less than $1,000,000		2.00	%		2.04	%		1.50	%
$1,000,000 or more**		0	%		0	%		1.00	%

*  Includes Advantus Cornerstone Fund, Advantus Enterprise Fund, Advantus Horizon Fund, Advantus Index 500 Fund, Advantus International Balanced Fund, Advantus Real Estate Securities Fund, Advantus Spectrum Fund and Advantus Venture Fund.

**  No sales charge is payable at the time of purchase on investments of $1 million or more. For such investments, the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase.

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Sales Charges for Ivy Equity and Blended Funds*

	As a % of			As a % of			Dealer Commission as %
Your Investment	Offering Price			Amount Invested			of Offering Price
Less than $100,000		5.75	%		6.10	%		5.00	%
$100,000 to less than $200,000		4.75	%		4.99	%		4.00	%
$200,000 to less than $300,000		3.50	%		3.63	%		2.80	%
$300,000 to less than $500,000		2.50	%		2.56	%		2.00	%
$500,000 to less than $1,000,000		1.50	%		1.52	%		1.20	%
$1,000,000 to less than $2,000,000		1.00	%		1.01	%		0.75	%
$2,000,000 and over**		0.00	%		0.00	%		0.50	%

*  Includes Ivy Value Fund, Ivy Small Cap Growth Fund, Ivy Large Cap Growth Fund, Ivy Core Equity Fund, Ivy International Balanced Fund, Ivy Real Estate Securities Fund, Ivy Balanced Fund and Ivy Small Cap Value Fund.

**  No sales charge is payable at the time of purchase on investments of $2 million or more. For such investments, the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase.

Sales Charges for Advantus Fixed Income Funds*

	As a % of			As a % of			Dealer Commission as %
Your Investment	Offering Price			Net Investment			of Offering Price
Less than $100,000		4.50	%		4.71	%		3.75	%
$100,000 to less than $250,000		3.50	%		3.63	%		2.75	%
$250,000 to less than $500,000		2.50	%		2.56	%		2.00	%
$500,000 to less than $1,000,000		2.00	%		2.04	%		1.50	%
$1,000,000 or more**		0	%		0	%		1.00	%

*  Includes Advantus Bond Fund and Advantus Mortgage Securities Fund.

**  No sales charge is payable at the time of purchase on investments of $1 million or more. For such investments, the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase.

Sales Charges for Ivy Fixed Income Funds*

	As a % of			As a % of			Dealer Commission as %
Your Investment	Offering Price			Amount Invested			of Offering Price
Less than $100,000		4.25	%		4.44	%		3.60	%
$100,000 to less than $300,000		3.25	%		3.36	%		2.75	%
$300,000 to less than $500,000		2.50	%		2.56	%		2.00	%
$500,000 to less than $1,000,000		1.50	%		1.52	%		1.20	%
$1,000,000 to less than $2,000,000		1.00	%		1.01	%		0.75	%
$2,000,000 and over**		0.00	%		0.00	%		0.50	%

*  Includes Ivy Bond Fund and Ivy Mortgage Securities Fund.

**  No sales charge is payable at the time of purchase on investments of $2 million or more. For such investments, the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase.

      Class A shares of both the Advantus Funds and the Ivy Funds are also subject to Rule 12b-1 fees. The Advantus Funds have adopted Rule 12b-1 Distribution Plans under which each Fund pays distribution and shareholder servicing fees in an amount up to 0.25% per annum of the average daily net assets of the Class A shares of the Fund. The Ivy Funds have adopted a Rule 12b-1 Distribution and/or Service Plan for Class A shares under which each Ivy Fund (other than Ivy Money Market Fund) may pay distribution

40

and/or shareholder servicing fees in an amount not to exceed 0.25% of the Fund’s average annual net assets attributable to Class A shares.

Advantus Fund Class B Shares

      Advantus Fund Class B shares were sold at their net asset value per share, without a front-end sales charge, but may be subject to a contingent deferred sales charge (“CDSC”) if sold within six years from the date of purchase. The amount of the CDSC depends on the number of years since the purchase was made, the amount of shares originally purchased and the dollar amount being sold. The CDSC is based on the net asset value (“NAV”) of the shares being sold at the time of the purchase or the sale of such shares, whichever is lower. No CDSC is charged on shares acquired through reinvestment of dividends or capital gains distributions. The Advantus Fund Class B CDSC is calculated as follows:

	CDSC Applicable in Year Following Date of Purchase
Amount of Shares Purchased	1			2			3			4			5			6
Less Than $50,000		5.0	%		4.5	%		3.5	%		2.5	%		1.5	%		1.5	%
$50,000 to less than $100,000		4.5	%		3.5	%		2.5	%		1.5	%		1.5	%		0	%
$100,000 to less than $250,000		3.5	%		2.5	%		1.5	%		1.5	%		0	%		0	%
$250,000 to less than $500,000		2.5	%		1.5	%		1.5	%		0	%		0	%		0	%
$500,000 to less than $1,000,000		1.5	%		1.5	%		0	%		0	%		0	%		0	%

      Class B shares will automatically convert to Class A shares on a specified date following the date of purchase. The conversion will be based on the relative NAV’s of the two classes. The date of conversion is based on the amount of shares purchased and is determined as described in the following table:

	Conversion Date Following Expiration
Amount of Shares Purchased	of Period After Date of Purchase*
Less than $50,000		84 months
$50,000 to less than $100,000		76 months
$100,000 to less than $250,000		60 months
$250,000 to less than $500,000		44 months
$500,000 to less than $1,000,000		28 months

*  Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day.

      Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual rate of up to 1.00% of the average daily net assets attributable to Class B shares of the Fund.

      Advantus Class B shares will be exchanged for Ivy Fund Class A shares in the Reorganization (without payment of the initial sales charge that usually applies to purchases of Ivy Fund Class A shares). The sales loads and Rule 12b-1 fees applicable to Ivy Fund Class A shares are described above.

Advantus Fund Class C Shares

      Advantus Fund Class C shares were sold at their net asset value per share, without a front-end sales charge or a CDSC. Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate of up to 1.00% of the average daily net assets attributable to Class C shares of the Fund.

41

      Class C shares will automatically convert to Class A shares on a specified date following the date of purchase. The conversion will be based on the relative NAV’s of the two classes. The date of conversion is based on the amount of shares purchased and is determined as described in the following table:

	Conversion Date Following Expiration
Amount of Shares Purchased	of Period After Date of Purchase*
Less than $50,000	96 months
$50,000 to less than $100,000	88 months
$100,000 to less than $250,000	72 months
$250,000 to less than $500,000	56 months
$500,000 to less than $1,000,000	40 months

*  Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day.

      Advantus Class C shares will be exchanged for Ivy Fund Class A shares in the Reorganization (without payment of the initial sales charge that usually applies to purchases of Ivy Fund Class A shares). The sales loads and Rule 12b-1 fees applicable to Ivy Fund Class A shares are described above.

Sales Charge Reductions and Waivers

      Sales charges for both the Advantus Funds and the Ivy Funds are subject to reductions and waivers under similar circumstances, as set forth in the Funds’ prospectuses and statements of additional information.

Purchase, Exchange and Redemption Procedures

      Procedures for the purchase, exchange and redemption of Ivy Fund shares are similar to the procedures applicable to the purchase, exchange and redemption of Advantus Fund shares. Please refer to the prospectuses and statements of additional information of the Advantus Funds and the Ivy Funds for a complete description of these procedures. A brief description of the significant purchase, exchange and redemption procedures applicable to the Advantus Funds and the Ivy Funds is set forth below.

Minimum Investments and Account Balances

      The minimum initial investment for Class A shares of each Ivy Fund is $500 for non-retirement accounts, $50 for certain retirement accounts and accounts opened with Automatic Investment Service and $25 for certain retirement accounts and accounts opened through payroll deductions. There is no minimum required for subsequent investments, except that additions through Automatic Investment Service have a $25 minimum. There is also a $100 minimum for certain exchanges.

      A minimum initial investment of $1,000 is required to open an account in an Advantus Fund, except that $500 is the minimum initial investment required to open a qualified account or an account in which the shareholder has agreed to make investments of not less than $50 under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50.

      Each Ivy Fund reserves the right to redeem all of the Ivy Fund shares in a shareholder’s account if the net asset value of those shares is less than $500, or less than $250 for Ivy Money Market Fund. This redemption right does not apply to individual retirement plan accounts or to accounts which have a value of less than $500 due to market forces. Similarly, the Advantus Funds reserve the right to close a shareholder’s account if for any reason the account has a value of less than $500. Both the Advantus Funds and the Ivy Funds provide you with written notice and give you at least 60 days to add to your account and reestablish the minimum balance. The Advantus Funds also generally deduct a $10 annual fee if a shareholders account balance is below $2,000 in October of any year. The Ivy Funds do not charge a similar fee.

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Mail Transactions

      You may buy, sell or exchange shares of either the Ivy Funds or the Advantus Funds by mail.

Telephone and Internet Transactions

      Advantus Fund shareholders may sell or exchange Advantus Fund shares by telephone and may purchase, sell or exchange shares on the Advantus Funds’ website. Ivy Fund shareholders may sell or exchange shares by telephone or on the Ivy Funds’ website.

Wire Transactions

      An investor may make initial and subsequent purchases by wire of both Ivy Fund and Advantus Fund shares by instructing his or her bank to wire funds in the manner described in the applicable prospectus. Before making an initial purchase of shares by wire in either the Ivy Funds or the Advantus Funds, an investor must complete an application and obtain an account number. Ivy Fund and Advantus Shareholders may elect to have redemption proceeds wired to their account. Shareholders’ accounts are charged $10 in the case of the Ivy Funds and $15 in the case of the Advantus Funds.

Exchange Privileges

      Shareholders of an Advantus Fund may exchange their shares for shares of the same class of any other Advantus Fund or for shares of Advantus Money Market Fund (which offers only one class of shares). Advantus Fund shareholders may exchange their shares up to twelve times a year without restriction or charge. A $7.50 service fee is then imposed on subsequent exchanges. (Shares of Advantus International Balanced Fund exchanged within 60 days of purchase may be subject to a 2% redemption fee.) Advantus Fund shareholders pay no additional sales charges for exchanges in most cases. However, exchanges of shares from Advantus Money Market Fund are subject to any sales charges applicable to the Advantus Fund being exchanged into, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gain distributions.

      Similarly, shareholders of an Ivy Fund generally may exchange their shares for shares of the same class of any other fund in the Ivy Family of Funds (currently 20 mutual funds and 27 mutual funds assuming the Reorganizations are consummated) without the payment of a sales charge. There are certain restrictions on exchanges of Class A shares of Ivy Limited-Term Bond and Ivy Municipal Bond Funds held for less than six months. The Ivy Funds do not charge any exchange fees.

Purchase and Withdrawal Plans

      Both the Ivy Funds and the Advantus Funds offer automatic investment plans and systematic withdrawal plans. In addition, both the Advantus Money Market Fund and Class A shares of the Ivy Money Market Fund offer check writing privileges. See the applicable prospectus for more information.

Electronic Delivery

      Advantus Fund shareholders may elect to receive annual and semi-annual reports and updated prospectuses by electronic delivery. Ivy Fund shareholders currently do not have this option and will receive these communications by mail.

Net Asset Value

      NAV is generally calculated for both the Advantus Funds and the Ivy Funds as of the close of normal trading on the New York Stock Exchange (“NYSE”) (typically 3:00 p.m. Central time), except that an option or futures contract held by a Fund may be priced at the close of the regular session of any

43

other securities or commodities exchange on which that instrument is traded. In calculating the NAV per share of each Advantus Fund and each Ivy Fund:

•  the securities in the Fund that are listed or traded on an exchange are valued primarily using market prices;

•  bonds are generally valued according to prices quoted by an independent pricing service;

•  short-term debt securities are valued at amortized cost, which approximates market value; and

•  other investment assets for which market prices are unavailable are valued at their fair value by or at the direction of the Fund’s Board of Directors or Trustees.

      Certain Advantus Funds and Ivy Funds may invest in securities listed on foreign exchanges which may trade on Saturdays or on U.S. national business holidays when the NYSE is closed. Consequently, for both the Advantus Funds and the Ivy Funds, the NAV of a Fund’s shares may be significantly affected on days when the Fund does not price its shares and when shareholders are not able to purchase or redeem the Fund’s shares. When market quotations are not readily available, securities, options, futures contracts and other assets are valued at fair value in a manner determined in good faith under procedures established by and under the general supervision and responsibility of the Board of Directors or Trustees. Similarly, if events materially affecting the value of foreign investments or foreign currency exchange rates occur prior to the close of the regular session of trading on the NYSE, but after the time their values are otherwise determined, such investments or exchange rates will be valued at their fair value as determined in good faith by or under the direction of the Board of Directors or Trustees.

Dividend Policies

      Both the Advantus Funds and the Ivy Funds distribute substantially all of their net investment income and net capital gains each year. Dividends, if any, for Advantus Bond Fund, Advantus Money Market Fund and Advantus Mortgage Securities Fund are declared daily and paid monthly. Dividends for the other Advantus Funds, if any, are paid quarterly. Dividends, if any, are paid annually for Ivy Core Equity Fund, Ivy Large Cap Growth Fund and Ivy Small Cap Growth Fund, and quarterly for Ivy Balanced Fund, Ivy International Balanced Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund and Ivy Value Fund. Dividends, if any, for Ivy Bond Fund, Ivy Money Market Fund and Ivy Mortgage Securities Fund are declared daily and paid monthly. For both the Advantus Funds and the Ivy Funds, net capital gains distributions, if any, are generally paid once a year. Distributions may be reinvested in additional Advantus Fund or Ivy Fund shares, as the case may be, or paid in cash. Distributions of additional shares are made at the NAV as of the payment date. For the Ivy Funds and the Advantus Funds, dividends ordinarily are paid on shares starting on the day after they are issued and through the day they are redeemed.

Information About the Reorganizations

Reasons for the Proposed Reorganizations

      In April 2003, Advantus Capital and its affiliates made a strategic business decision to exit the non-real estate equity management business and, in connection with that decision, entered into a Strategic Alliance Agreement and related Purchase Agreement with W&R, a leading U.S. mutual fund firm, and certain companies affiliated with W&R, including WRIICO. Under these agreements, Advantus Capital agreed to sell to WRIICO its assets related to the Advantus Funds. In order to integrate the Advantus Funds into the family of investment companies managed by WRIICO and its affiliates, Advantus Capital has recommended to the Advantus Funds’ Board of Directors that each Advantus Fund be merged into a mutual fund in either Ivy Trust or Ivy Corporation. Ivy Trust and Ivy Corporation are investment companies managed by WRIICO. Each Advantus Fund will be merged into an existing mutual fund in Ivy Corporation with generally similar investment objectives and strategies, or, where there is no similar fund, into a newly formed mutual fund in Ivy Trust.

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Board Considerations

      In determining whether to approve the Reorganizations, the Board of Directors of each of the Advantus Funds, including the Directors who are not interested persons of the Funds as defined under Section 2(a)(19) of the Investment Company Act of 1940 (the “Independent Directors”), considered various materials provided by W&R and Advantus Capital and met with senior representatives of W&R and its affiliates. The Independent Directors were advised by independent legal counsel throughout this process.

      The Board of Directors was first advised of the possibility of a transaction between Advantus Capital and W&R at a meeting of the Board of Directors held January 30, 2003. Board members were provided with additional information regarding the proposed transaction at a meeting held February 6, 2003, and were advised by counsel at such meeting regarding their legal duties in connection with the proposed transaction. At such meeting, the Directors also reviewed and discussed an information request list that had been prepared by counsel, and instructed counsel to transmit this list to W&R and Advantus Capital on their behalf. At meetings held on February 21, March 6, March 21, April 8, April 17 and April 23, 2003, the Directors reviewed, analyzed and asked questions concerning information that was provided to them by W&R and Advantus Capital including, among other things, the following types of information:

•  general information concerning W&R and its affiliates, including W&R’s organization structure and senior personnel;

•  information on W&R’s operations;

•  information concerning the ethical profile and compliance history of W&R and its affiliates;

•  information regarding WRIICO’s investment management process;

•  comparative style and performance information, expense information and asset size information with respect to each Advantus Fund and its corresponding Ivy Fund; and

•  profitability information.

In addition, the directors met with certain senior officers of W&R and its affiliates at the meeting held February 13, 2003 and, during a due diligence trip to W&R’s headquarters on March 25, 2003, certain directors and their representatives also met, either telephonically or in person, with senior officers of W&R and its affiliates and with Ivy Fund portfolio managers.

      The Board of Directors gave preliminary approval to the Reorganizations at its meeting held April 23, 2003, subject to, among other things, its discussions with independent directors and trustees of the Ivy Funds and the Board’s review and approval of the Reorganization Plans. The directors met telephonically with certain independent directors and trustees of the Ivy Funds. At a meeting held June 25, 2003, the Board of Directors determined that each Reorganization is in the best interests of the respective Advantus Fund and its shareholders and that the interests of the shareholders of each Advantus Fund will not be diluted as a result of the Reorganization. Therefore, the Board of Directors unanimously approved each Reorganization and each Reorganization Plan, and recommended their approval by Advantus Fund shareholders. The Trustees/ Directors of each Ivy Fund, including all Trustees/ Directors who are not “interested persons” of the Ivy Trust or the Ivy Corporation, as the case may be, have determined that each Reorganization would be in the best interests of the relevant Ivy Fund’s shareholders and that the interests of existing shareholders in such Ivy Fund would not be diluted as a result of the Reorganization. In approving the Reorganization Plan for each Advantus Fund, the Advantus Funds’ Board of Directors considered the following factors:

•  The investment objectives and strategies of each Advantus Fund and its corresponding Ivy Fund are similar. Thus, the Reorganizations will enable Advantus Fund shareholders to continue their current investment programs without substantial disruption while at the same time giving them the opportunity to become part of a growing and competitive retail fund family.

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•  Shareholders will be part of a larger family of retail mutual funds, which will provide them with enhanced exchange privileges.

•  The Reorganizations will result in each surviving Fund having a larger asset base (except in the case of Reorganizations into newly formed Ivy Funds). In addition, there will be greater and broader distribution opportunities for the combined Funds. Thus, the Reorganizations should increase the likelihood that combined Funds will grow and net expenses will decline over time.

•  Advantus Fund shareholders will not have to pay any federal income tax solely as a result of the Reorganizations.

•  Advantus Capital, and not the Advantus Fund shareholders, will be responsible for the payment of all expenses related to consummating the Reorganizations.

•  The proposed Reorganizations will be effected on the basis of the relative net asset values of the Ivy Funds and their corresponding Advantus Funds, so that Advantus Fund shareholders will receive Ivy Fund shares having a total net asset value equal to the total net asset value of their Advantus Fund shares at the closing of the Reorganization.

•  The Board noted that Ivy Fund Class A share expense ratios are generally somewhat higher than those of the Class A shares of the corresponding Advantus Fund after fee waivers and expense reimbursements. The Board noted, however, that the expense structures of the Ivy Funds are competitive and within industry norms. In addition, absent non-contractual fee waivers and expense reimbursements by Advantus Capital and Securian Financial, which may be discontinued at any time, the expense ratios of the Advantus Funds are generally higher than those of the Ivy Funds. The Board also noted that Class B and Class C Advantus Fund shareholders will receive Class A Ivy Fund shares in the Reorganizations. Class A Ivy Fund shares have significantly lower expenses than Class B and Class C shares of the corresponding Advantus Fund due to their lower Rule 12b-1 fees (.25% for Class A Ivy Fund shares, compared to 1.00% for Class B and Class C Advantus Fund shares). Finally, the Board considered the fact that WRIICO agreed to maintain the total operating expenses of Ivy Bond Fund and Ivy Mortgage Securities Fund Class A shares at the levels currently maintained for Advantus Bond Fund and Advantus Mortgage Securities Fund Class A shares (1.15% and 0.975% respectively) through December 31, 2004. In addition, no contingent deferred sales charge will be payable upon the redemption of Ivy Fund Class A shares received in exchange for Advantus Fund Class B shares that would have been subject to such a sales charge upon redemption.

•  The performance of each currently existing Ivy Fund is similar to that of its corresponding Advantus Fund.

      The Board did not assign relative weights to the foregoing factors or deem any one or group of them to be controlling in and of themselves.

      The Board of Directors of the Advantus Funds recommends that shareholders of each Advantus Fund approve the Reorganization Plan for their Fund.

Description of the Reorganizations

      The following summary is qualified in its entirety by reference to the forms of Reorganization Plan attached as Appendix A and Appendix B to this Proxy Statement/ Prospectus. Each Advantus Fund will enter into a separate Reorganization Plan with either Ivy Trust or Ivy Corporation on behalf of the corresponding Ivy Fund. The form of Reorganization Plan attached as Appendix A will be used for Reorganizations into Ivy Corporation and the form of Reorganization Plan attached as Appendix B will be used for Reorganizations into Ivy Trust. Each Reorganization into Ivy Trust involves a new series of Ivy Trust formed specifically for purposes of the Reorganization. Because these series have not yet commenced operations, representations and warranties made by such series in the form of Reorganization Plan attached as Exhibit B will differ somewhat from those made by the currently operational series of Ivy Corporation

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in the form of Reorganization Plan attached as Exhibit A. There are no other material differences between the two forms of Reorganization Plan.

      The Reorganization Plans provide for the Reorganizations to occur on or about November 22, 2003. Each Reorganization Plan provides that all of the assets and liabilities of the Advantus Fund will be transferred to the Ivy Fund on the Closing Date of the Reorganization. In exchange for the transfer of these assets and liabilities, the Ivy Fund will simultaneously issue on the Closing Date of the Reorganization a number of full and fractional Ivy Fund shares to the Advantus Fund equal in value to the aggregate net asset value of the Advantus Fund calculated at the Effective Time. Advantus Fund Class A, Class B and Class C shareholders will receive Ivy Fund Class A shares in the Reorganization. The Reorganization Plans provide that no sales charges will by incurred by Advantus Fund shareholders in connection with their acquisition of Class A Ivy Fund shares in the Reorganizations.

      Following the transfer of assets and liabilities in exchange for Ivy Fund shares, each Advantus Fund will distribute, in complete liquidation, pro rata to its shareholders of record, all of the shares of the corresponding Ivy Fund so received. Shareholders of each Advantus Fund owning shares at the Effective Time will receive a number of shares of the corresponding Ivy Fund with the same aggregate value as such shareholder had in the Advantus Fund at the Effective Time. Such distribution will be accomplished by the establishment of accounts in the names of the Advantus Funds’ shareholders on the share records of the Ivy Funds. Each account will receive the respective pro rata number of full and fractional shares of the applicable Ivy Fund due to the shareholders of the corresponding Advantus Fund. Each Advantus Fund then will be terminated or dissolved as soon as practicable thereafter. The Ivy Funds will not issue share certificates to Advantus Fund shareholders in connection with the Reorganizations. Shares of the Ivy Funds to be issued will have no preemptive or conversion rights.

      Each Reorganization Plan contains customary representations, warranties and conditions. Each Reorganization Plan provides that the consummation of the Reorganization is conditioned upon, among other things: (1) approval of the Reorganization by the Advantus Fund’s shareholders, and (2) the receipt by the Advantus Fund and the Ivy Fund of an opinion of tax counsel to the effect that the Reorganization will be tax-free for federal income tax purposes to the Advantus Fund, its shareholders and the Ivy Fund. The Reorganization Plan may be terminated by the mutual agreement of Ivy Trust or Ivy Corporation, as the case may be, with respect to the Ivy Fund, and the Advantus Fund, or if, before the Closing Date, any of the required conditions has not been met or the representations and warranties are not true.

Costs of the Reorganizations

      Advantus Capital will bear the costs associated with the Advantus Funds’ participation in the Reorganizations, including the following: (a) expenses associated with the preparation and filing of this Proxy Statement/ Prospectus; (b) postage; (c) printing; (d) accounting fees; (e) legal fees incurred by each Advantus Fund (including fees of counsel to the Independent Directors); (f) solicitation costs; (g) fees payable to the Independent Directors for participation in any special meetings relating to the Reorganizations; and (h) other related administrative or operational costs. The Advantus Funds will not pay any of these expenses. The Advantus Funds will pay brokerage costs of any necessary rebalancing of their investment portfolios prior to the effective date of the Reorganizations, and the Ivy Funds will pay the registration fees incurred in connection with issuing shares in the Reorganizations.

Federal Income Taxes

      Each Reorganization is intended to qualify for U.S. federal income tax purposes as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If it so qualifies, neither the Advantus Fund nor its shareholders will recognize taxable gain or loss as a result of the Reorganization; the tax basis of the Ivy Fund shares received by shareholders will be the same in the aggregate as the basis of the Advantus Fund shares exchanged; and the holding period of the Ivy Fund shares received will include the holding period of the Advantus Fund shares exchanged, provided that the shares exchanged were held as capital assets at the time of the Reorganization. As a condition to the

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closing of each Reorganization, the Ivy Fund and the Advantus Fund will receive an opinion of tax counsel to that effect. No tax ruling from the Internal Revenue Service regarding the Reorganizations has been requested. The opinion is not binding on the Internal Revenue Service or a court and does not preclude the Internal Revenue Service from asserting or adopting a contrary position.

      Advantus Enterprise Fund, Advantus Horizon Fund, and Advantus Index 500 Fund currently have unused capital loss carryforwards. As a result of the reorganizations of these Funds into the corresponding Ivy Funds, it is possible that limitations will be imposed on the Funds’ ability to use these capital loss carryforwards to offset capital gains realized in the future. If these limitations apply, the amount of capital loss carryforwards of each of the three Advantus Funds that may be used in any future year to offset capital gains of the corresponding Ivy Fund will be limited (subject to certain adjustments) to an amount equal to the product of the net asset value of the portfolio of securities held by the Advantus Fund at the time of the Reorganization and an interest rate determined by the Internal Revenue Service as the applicable long-term tax-exempt rate (currently           %). It is possible that as a result of this limitation, the capital loss carryforwards will be used more slowly than they would been used had the Reorganizations not occurred, or that some or all of them will expire before being used.

      The Advantus Funds will continue their investment operations while the Reorganizations are pending. Accordingly, they may realize taxable income and gains, which may have to be distributed to shareholders under the tax rules relating to mutual funds. The opinion of tax counsel will state that Advantus Fund shareholders subject to taxation will recognize income upon receipt of any net investment income or net capital gains of an Advantus Fund distributed by the Advantus Fund prior to the closing. Furthermore, no opinion will be expressed as to the effect of the Reorganization on the Advantus Funds, the Ivy Funds, or shareholders with respect to any asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. After the closing, the Ivy Funds may dispose of certain securities received from the corresponding Advantus Funds. These sales may result in transaction costs, and in capital gains which may have to be distributed to shareholders of the respective Fund.

Capitalization

      The following tables set forth, as of July 31, 2003, the unaudited capitalization of each Advantus Fund and the Ivy Fund into it will be reorganized, and the unaudited pro forma combined capitalization of such Ivy Fund assuming the Reorganization has taken place. The capitalizations are likely to be different on the Closing Date as a result of daily share purchase and redemption activity.

			Net Asset
			Value		Shares
Fund	Net Assets		Per Share		Outstanding
	(millions)				(millions)
Ivy Bond Fund Class A		—		—		—
Advantus Bond Fund* Class A	$	18.0	$	10.55		1.7
Advantus Bond Fund Class B	$	5.2	$	10.58		0.5
Advantus Bond Fund Class C	$	1.2	$	10.54		0.1
Ivy Bond Fund Class A, Pro Forma Combined	$	24.4	$	10.55		2.3
Ivy Value Fund Class A		—		—		—
Advantus Cornerstone Fund* Class A	$	63.4	$	12.49		5.1
Advantus Cornerstone Fund Class B	$	4.8	$	12.27		0.4
Advantus Cornerstone Fund Class C	$	0.6	$	12.23		0.0
Ivy Value Fund Class A, Pro Forma Combined	$	68.8	$	12.49		5.5
Ivy Small Cap Growth Fund* Class A	$	36.2	$	9.79		3.6
Advantus Enterprise Fund Class A	$	35.4	$	8.28		4.3
Advantus Enterprise Fund Class B	$	3.0	$	7.37		0.4
Advantus Enterprise Fund Class C	$	0.4	$	7.36		0.1
Ivy Small Cap Growth Fund Class A, Pro Forma Combined	$	75.0	$	9.79		9.0

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			Net Asset
			Value		Shares
Fund	Net Assets		Per Share		Outstanding
	(millions)				(millions)
Ivy Large Cap Growth Fund* Class A	$	26.6	$	8.36		3.2
Advantus Horizon Fund Class A	$	21.7	$	12.34		1.8
Advantus Horizon Fund Class B	$	6.1	$	11.20		0.5
Advantus Horizon Fund Class C	$	0.6	$	11.28		0.0
Ivy Large Cap Growth Fund Class A, Pro Forma Combined	$	55.0	$	8.36		3.8
Ivy Core Equity Fund* Class A	$	43.9	$	7.49		5.9
Advantus Index 500 Fund Class A	$	20.4	$	13.01		1.6
Advantus Index 500 Fund Class B	$	13.3	$	12.76		1.0
Advantus Index 500 Fund Class C	$	1.6	$	12.73		0.1
Ivy Core Equity Fund Class A, Pro Forma Combined	$	79.2	$	7.49		10.6
Ivy International Balanced Fund Class A		—		—		—
Advantus International Balanced Fund* Class A	$	44.9	$	10.84		4.1
Advantus International Balanced Fund Class B	$	2.9	$	10.57		0.3
Advantus International Balanced Fund Class C	$	0.9	$	10.58		0.1
Ivy Core Equity Fund Class A, Pro Forma Combined	$	48.7	$	10.84		4.5
Ivy Money Market Fund* Class A	$	14.3	$	1.00		14.3
Advantus Money Market Fund	$	37.1	$	1.00		37.1
Ivy Money Market Fund Class A, Pro Forma Combined	$	51.4	$	1.00		51.4
Ivy Mortgage Securities Fund Class A		—		—		—
Advantus Mortgage Securities Fund* Class A	$	90.1	$	10.89		8.3
Advantus Mortgage Securities Fund Class B	$	37.3	$	10.91		3.4
Advantus Mortgage Securities Fund Class C	$	16.6	$	10.89		1.5
Ivy Mortgage Securities Fund Class A, Pro Forma Combined	$	144.0	$	10.89		13.3
Ivy Real Estate Securities Fund Class A		—		—		—
Advantus Real Estate Securities Fund* Class A	$	59.6	$	13.42		4.4
Advantus Real Estate Securities Fund Class B	$	2.2	$	13.36		0.2
Ivy Real Estate Securities Fund Class A, Pro Forma Combined	$	61.8	$	13.42		4.6
Ivy Balanced Fund Class A		—		—		—
Advantus Spectrum Fund* Class A	$	38.6	$	12.13		3.2
Advantus Spectrum Fund Class B	$	10.4	$	12.04		0.9
Advantus Spectrum Fund Class C	$	2.4	$	11.95		0.2
Ivy Balanced Fund Class A, Pro Forma Combined	$	51.4	$	12.13		4.2
Ivy Small Cap Value Fund Class A		—		—		—
Advantus Venture Fund* Class A	$	58.7	$	12.94		4.5
Advantus Venture Fund Class B	$	5.1	$	12.45		0.4
Advantus Venture Fund Class C	$	1.1	$	12.52		0.1
Ivy Small Cap Value Fund Class A, Pro Forma Combined	$	64.9	$	12.94		4.9

*  The accounting survivor for financial statement purposes.

Shareholder Rights

      The following is a summary of the major differences between the governing documents and laws applicable to the Advantus Funds prior to and after the Reorganizations. The Advantus Funds are all separate Minnesota corporations organized under the provisions of Minnesota law and the articles of incorporation and bylaws which govern each Advantus Fund. The Advantus Enterprise Fund, Advantus Horizon Fund, Advantus Index 500 Fund and Advantus Money Market Fund will each be reorganized, subject to shareholder approval, into a separate series of Ivy Funds, Inc., a Maryland corporation (the “Ivy Corporation”). The Advantus Bond Fund, Advantus Cornerstone Fund, Advantus International Balanced

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Fund, Advantus Mortgage Securities Fund, Advantus Real Estate Securities Fund, Advantus Spectrum Fund and Advantus Venture Fund will be reorganized, subject to shareholder approval, into separate, newly formed series of Ivy Fund, a Massachusetts business trust (the “Ivy Trust”). Except as otherwise noted below, the provisions of Minnesota law and the articles of incorporation and bylaws which currently govern each Advantus Fund are substantially similar to the provisions of Maryland or Massachusetts law and the articles of incorporation or declaration of trust and bylaws that will govern Advantus Funds following the Reorganization.

      Shares. The authorized capital of each Advantus Fund consists of ten billion shares of capital stock with a par value of $.01 per share. The shares may be classified by the Board in one or more classes with such rights and preferences as stated or expressed in a resolution adopted by the Board providing for the issuance of the class or classes. The Board has the authority to provide that shares of any class shall be convertible into shares of one or more other classes.

      Ivy Corporation is authorized to issue six billion shares of capital stock, with a par value of $.01 per share. The shares may be issued by the Board of Directors in such separate and distinct series and classes of series as the Board shall create and establish. The Board may change the designation of any fund and may increase or decrease the numbers of shares of any fund but may not decrease the number of shares of any fund below the number of shares then outstanding. Currently, Ivy Corporation consists of 12 separate investment series.

      Ivy Trust is authorized to issue an unlimited number of shares, without a par value per share. The shares may be issued by the Board of Trustees in such separate and distinct series and classes of series as the Board shall from time to time create and establish. The Board also may authorize division of the shares or a series of shares into two or more classes. The Board may change the designation of any fund and may increase or decrease the numbers of shares of any fund but may not decrease the number of shares of any fund below the number of shares then outstanding. Currently, Ivy Trust consists of 8 separate investment series.

      Shareholder Meetings. The Advantus Funds do not hold periodically scheduled shareholder meetings. Minnesota corporate law does not require an annual meeting. Instead, it provides for the Board of Directors to convene shareholder meetings when it deems appropriate. In addition, if a regular meeting of shareholders has not been held during the immediately preceding fifteen months, a shareholder or shareholders holding three percent or more of the voting shares of an Advantus Fund may demand a regular meeting of shareholders of the Advantus Fund by written notice of demand given to the chief executive officer or the chief financial officer of the Advantus Fund. Within thirty days after receipt of the demand by one of those officers, the Board of Directors shall cause a regular meeting of shareholders to be called and held no later than ninety days after receipt of the demand, all at the expense of the Advantus Fund. A special meeting may also be called at any time by the chief executive officer, two or more directors, or a shareholder or shareholders holding ten percent of the voting shares of the Fund. At a meeting, called for the purpose, shareholders may remove any director by a vote of two-thirds of the outstanding shares. Additionally, the Investment Company Act of 1940 requires shareholder votes for all amendments to fundamental investment policies and restrictions, and for all investment advisory contracts and amendments thereto.

      Ivy Corporation does not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval, will be presented to shareholders at a meeting called by the Board for such purpose. Special meetings may be called at any time by the chairman, the president or a vice-president, or by a majority of the Board. Special meetings are called upon the written request of the holders of shares entitled to vote not less than 10 percent of all the shares entitled to be voted at such meeting. No special meeting is required to be called upon the request of the holders of shares entitled to vote less than a majority of all the shares to consider any matter which is substantially the same as a matter voted upon at any special meeting of the shareholders held during the preceding 12 months.

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      Ivy Trust also does not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval, will be presented to shareholders at a meeting called by the Board for such purpose. If the trustees do not call or give notice of a meeting for a period of 30 days after written application by shareholders holding at least 10 percent of the shares then outstanding, then the shareholders holding at least 10 percent of the shares then outstanding may call and give notice of such a meeting.

      Quorums. The bylaws of each Advantus Fund provide that the holders of 10 percent of the shares outstanding and entitled to vote shall constitute a quorum for the transaction of business at any regular or special meeting. The bylaws of Ivy Corporation provide that the presence in person or by proxy of the stockholders entitled to cast one-third of the votes at the meeting shall constitute a quorum for the transaction of business at any stockholders meeting. The declaration of trust of Ivy Trust provides that a majority of the shares entitled to vote at the meeting shall constitute a quorum for the transaction of business at any shareholders meeting.

      Notice of Meetings. Notice regarding meetings must be mailed to shareholders of each Advantus Fund at least 10 days prior to the meeting, or two weeks in the case of a meeting at which an agreement of merger or consolidation is to be considered. Notice must be mailed to each shareholder of Ivy Corporation entitled to vote at least 10 days, but not more than 90 days, before the shareholders meeting. The shareholders of Ivy Trust must be provided written notice by mailing at least seven days before any meeting of shareholders.

      Number of Directors or Trustees. The articles of incorporation and bylaws of the Advantus Funds provide that the initial number of directors of the Advantus Fund shall be five directors. Thereafter, the number of directors may be established by resolution of the shareholders (subject to the authority of the Board of Directors to increase the number of directors as permitted by law). There are currently four directors of each Advantus Fund. The articles of incorporation and bylaws of Ivy Corporation provide that the number of directors shall initially be sixteen. Thereafter, the board of directors, by the vote of a majority of the entire Board, may change the number of directors to a number not less than three nor more than seventeen. There are currently nine directors of Ivy Corporation. The declaration of trust of Ivy Trust provides that the initial number of trustees shall be seven trustees. There are currently nine trustees of Ivy Trust.

      Removal of Directors or Trustees. The bylaws of the Advantus Funds provide that a director may be removed with or without cause at any time by the affirmative vote of the holders of a majority of the voting power of all shares entitled to vote on the election of directors. The bylaws of Ivy Corporation provide that a director may be removed with or without cause at a meeting duly called at which a quorum is present, by the vote of the holders of a majority of the shares represented at the meeting. The declaration of trust of Ivy Trust provides that a trustee may be removed at a shareholder meeting by the vote of two-thirds of the outstanding shares of Ivy Trust or by a written instrument signed by at least two-thirds of the number of trustees prior to the removal.

      Shareholder Liability. Minnesota law, which governs the Advantus Funds, provides that a shareholder is under no obligation to the corporation or its creditors with respect to his or her shares, except to pay to the corporation the full consideration for which the shares were issued. However, a shareholder who receives a distribution made in violation of Minnesota law is liable to the extent that the distribution received by the shareholder exceeded the amount that could properly have been paid under Minnesota law. Under Maryland law, shareholders who have paid the subscription price for their stock have no personal liability for acts or obligations of the corporation, except to the extent that liability is imposed under any other provision of Maryland law. The declaration of trust of Ivy Trust contains limitations on the liability of shareholders. Under certain circumstances, however, shareholder of these funds may be held personally liable as partners under Massachusetts law for acts or obligations of the trust. To protect shareholders, the declaration of trust expressly disclaims the liability of shareholders for acts and obligations of Ivy Trust. The declaration of trust also provides shareholders with rights of

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indemnification in the unlikely event that a shareholder is held personally liable for an obligation of the fund.

      Director or Trustee Indemnification. The articles of incorporation of the Advantus Funds indemnify directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors’ willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). Under Minnesota law, a corporation shall indemnify a person made or threatened to be made a party to a proceeding by reason of the person’s position with the corporation against liabilities arising from such proceeding if it is established that (i) the person acted in good faith, (ii) the person received no improper personal benefit, (iii) in the case of a criminal proceeding, the person had no reasonable cause to believe the act or omission was unlawful, (iv) the person had not otherwise been indemnified by another organization, and (v) the person reasonably believed that the conduct was in (or, in certain cases, not opposed to) the best interests of the corporation.

      Minnesota law also provides that indemnification is not payable by a corporation unless a determination has been made that the person has met the standard of conduct noted in the foregoing paragraph. Such determination may be made by (i) a vote of a majority of a quorum of directors consisting of directors not, at the time, parties to the proceedings, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the board (designated by a majority of the board in which directors who are parties may participate) consisting solely of two or more directors not, at the time, parties to such proceedings, (ii) special legal counsel selected by the board or a committee as set forth in (i) above, or if the quorum of the full board cannot be obtained and the committee cannot be established, by a majority vote of the full board in which directors who are parties may participate, or (iii) the shareholders. With respect to persons who are not directors, officers, or controlling persons of a Fund, such determination may be made by a committee of the board of directors. If an adverse determination or no determination is made under the foregoing provisions, then the matter may be submitted to a court.

      Under Minnesota law, indemnification expenses may be paid in advance of the final disposition if (1) the applicable person provides (a) a written affirmation of his or her good faith belief that the standard of conduct necessary for indemnification has been met and (b) a written undertaking, which need not be secured, to repay the amount if it is determined that the standard of conduct has not been met and (2) a determination is made that the facts then known to those making the determination would not preclude indemnification under the statute. Under Minnesota law, any corporation that indemnifies or advances expenses to a person with regard to a proceeding by or on behalf of the corporation shall report that indemnification or advance to its shareholders no later than the next meeting of the shareholders.

      The directors of Ivy Corporation generally are not liable for any obligation of the funds. Like the Advantus Funds, the corporation will indemnify its directors against all liabilities and expenses, except for those arising from the director’s willful misfeasance, bad faith, gross negligence or reckless disregard of such director’s duties. Maryland law prescribes the circumstances under which a director may be indemnified. Agents may be indemnified and advanced expenses to the same extent as directors, as determined by the board.

      Under Maryland law, which governs Ivy Corporation, a corporation may indemnify any director against liabilities for acts incurred by reason of service to the corporation unless it is established that (i) the act or omission was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) the director actually received an improper personal benefit or (iii) in the case of a criminal proceeding, the director had reasonable cause to believe the act or omission was unlawful. In addition, indemnification may not be made (i) in a proceeding by or in the right of the corporation where the director is found liable to the corporation (a “Corporate Liability”) or (ii) in a proceeding charging improper personal benefit where the director is found to be liable because such benefit was improperly received, whether or not involving action in the director’s official capacity (a “Personal Liability”).

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      Maryland law also provides that indemnification is not payable by a corporation unless a determination has been made that the director has met the standard of conduct noted in the foregoing paragraph. Such determination may be made by (i) a vote of a majority of a quorum of directors consisting of directors not, at the time, parties to the proceedings, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the board (designated by a majority of the board in which directors who are parties may participate) consisting solely of two or more directors not, at the time, parties to such proceedings, (ii) special legal counsel selected by the board or a committee as set forth in (i) above, or if the quorum of the full board cannot be obtained and the committee cannot be established, by a majority vote of the full board in which directors who are parties may participate, or (iii) the shareholders. Upon the application of a director, a court may order indemnification if it determines that (i) such director is entitled to reimbursement because such director has been successful, on the merits or otherwise, in the defense of a proceeding in which such director has been determined to have met the applicable standards of conduct or (ii) whether or not the director has met the applicable standards of conduct, the director is entitled to indemnification in view of all the relevant circumstances, provided that the indemnification payment shall be limited to the director’s expenses in cases involving Corporate Liability or Personal Liability.

      Under Maryland law, indemnification expenses may be paid in advance of the final disposition if a director provides (i) a written affirmation of his good faith belief that the standard of conduct necessary for indemnification has been met and (ii) a written undertaking to repay the amount if it is determined that the standard of conduct has not been met. This undertaking need not be secured.

      The trustees of Ivy Trust also are generally not liable for any obligation of the funds. Ivy Trust will indemnify its trustees against all liabilities and expenses, except for those actions in which the trustee is finally adjudicated not to have acted in good faith in the reasonable belief that the actions were in the best interests of Ivy Trust, or to be liable to Ivy Trust or its shareholders for willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as of the trustees. Expenses are paid by Ivy Trust prior to the final disposition of any action, suit or proceeding against a trustee.

      Personal Liability of Directors or Trustees and Officers. The articles of incorporation of each of the Advantus Funds provide that, to the fullest extent permitted by the Minnesota Business Corporation Act and the Investment Company Act of 1940, a director of an Advantus Fund shall not be liable to the Fund or its shareholders for monetary damages for breach of fiduciary duty as a director. Under Minnesota law, a director may not be excused from personal liability (i) for any breach of the directors’ duty of “loyalty” to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. Under the 1940 Act, a director or officer may not be excused from personal liability for willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his or her office. Minnesota law does not permit a corporation to excuse its officers from personal liability for breach of fiduciary duty.

      Under Maryland law, which governs Ivy Corporation, a director or officer may not be excused from personal liability for a fiduciary breach (1) where he or she is proved to have actually received an improper benefit or profit in money, property, or services actually received or (2) to the extent that an adverse judgment or other final adjudication is entered in a proceeding against such director or officer based on a finding in the proceeding that such person’s action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

      The declaration of trust of Ivy Trust provides that the trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, manager or principal underwriter of Ivy Trust, or an act or omission of any other trustee.

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      Dissolution. Under Minnesota law, which governs the Advantus Funds, a corporation may be dissolved at a meeting of the shareholders by vote of the majority of the shares entitled to vote. However, this provision is not available to dissolve a separate series of a Minnesota corporation without dissolving the corporation itself, which would be the case if one or more other series of the corporation remained or might remain outstanding after the dissolution of the series in question. Under Maryland law, which governs Ivy Corporation, a corporation may be dissolved, upon submission of a resolution by the majority of the board of directors at a meeting of the shareholders, by the affirmative vote of two-thirds of all the votes entitled to be cast on such resolution. The declaration of trust of Ivy Trust provides that the trust may be terminated by a vote of the shareholders holding at least 66 2/3 percent of the shares of each series entitled to vote or by the trustees by written notice to the shareholders.

      Amendments. Pursuant to Minnesota law, the articles of incorporation of each Advantus Fund may be amended upon approval, by the affirmative vote of the holders of the greater of (1) a majority of the voting power of the shares present and entitled to vote or (2) a majority of the voting power of the minimum number of the shares entitled to vote that would constitute a quorum for the transaction of business at the meeting, of a resolution (a) proposed by the affirmative vote of a majority of the directors present at a meeting of the board of directors, or (b) proposed by a shareholder or shareholders holding 3 percent or more of the voting power of the shares entitled to vote; provided, however, that if the articles provide for a larger proportion or number to transact a specified type of business at a meeting, the affirmative vote of that larger proportion or number is necessary to amend the articles to decrease the proportion or number necessary to transact business. The bylaws of each Advantus Fund may be amended by the shareholders (upon a proposal by a shareholder or shareholders holding 3 percent or more of the shares entitled to vote) or by the board of directors (unless reserved to the shareholders by the bylaws of each Advantus Fund or by Minnesota law), subject to the power of the shareholders to repeal such an amendment.

      In contrast, the articles of incorporation of Ivy Corporation may only be amended upon adoption of a resolution to that effect by the board of directors and approval of such resolution by the holders of a majority of the shares entitled to vote. Maryland law, however, permits the directors to amend the articles without shareholder approval to (1) increase or decrease the aggregate number of shares of stock, or the number of shares of stock of any class, that a fund has authority to issue, or (2) to change a fund’s name or aggregate par value, or the name or par value of any series or class of a fund. The bylaws may be amended by a majority of the board of directors or, at a meeting of the shareholders, by the holders of a majority of the shares entitled to vote.

      The declaration of trust of Ivy Trust may be amended by an instrument in writing signed by a majority of the trustees when authorized to do so by a vote of shareholders holding a majority of the shares entitled to vote. Amendments to the declaration of trust that change the name of Ivy Trust or cure any ambiguity do not require authorization by shareholder vote. The bylaws may be amended by a majority of the trustees then in office at any meeting of the trustees or by one or more writings signed by a majority of trustees.

      The foregoing is only a summary of certain rights of shareholders of the Ivy Funds and the Advantus Funds under their governing charter documents, bylaws and state law and is not a complete description of provisions contained in those sources. Shareholders should refer to the provisions of those documents and state law directly for a more thorough description.

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INFORMATION ABOUT THE IVY FUNDS AND THE ADVANTUS FUNDS

Ivy Funds

      A discussion of the performance of Ivy Small Cap Growth Fund, Ivy Large Cap Growth Fund and Ivy Core Equity Fund during their last fiscal year is included in this Proxy Statement/ Prospectus as Appendix C.

      The Ivy Funds are subject to the informational requirements of the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the 1940 Act and in accordance therewith file reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by the Ivy Funds can be obtained by calling or writing the Ivy Funds at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, 888-WADDELL.

      Copies can also be inspected and copied by the public at the following locations of the SEC:

Public Reference Room
450 Fifth Street, N.W
Room 1024
Washington, D.C. 20549 Midwest Regional Office
Citicorp Center, Suite 1400
500 West Madison Street
Chicago, Illinois 60661

      Copies of the information also may be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Further information on the operations of the public reference facilities may be obtained by calling 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains copies of the information. The address of the site is http://www.sec.gov.

Advantus Funds

      The Advantus Funds are subject to the informational requirements of the 1933 Act, the 1934 Act and the 1940 Act and in accordance therewith file reports and other information with the SEC. Reports, proxy and information statements, charter documents and other information filed by the Advantus Funds can be obtained by calling or writing the Advantus Funds at 400 Robert Street North, St. Paul, Minnesota 55101-2098, 800-665-6005.

      Copies can also be inspected at the public reference facilities maintained by the SEC or obtained at prescribed rates at the addresses listed in the previous section or from the SEC’s Internet site at http://www.sec.gov.

VOTING INFORMATION

General Information

      This solicitation is being made primarily by the mailing of this Proxy Statement/ Prospectus and the accompanying proxy card(s). Supplementary solicitations may be made by mail, telephone, telegraph, facsimile, electronic means or by personal interview by representatives of Advantus Capital. Advantus Capital may also arrange for an outside firm, Georgeson Shareholder Communications, Inc. (“Georgeson”), to solicit shareholder votes by telephone on behalf of the Advantus Funds. Advantus Capital will pay for the services provided by Georgeson, which are expected to cost approximately $83,000. Advantus Capital will also pay the cost of preparing, printing and mailing the Proxy Statement/ Prospectus, and all other costs incurred in connection with the solicitation of proxies, and will reimburse brokerage firms and other financial intermediaries for their reasonable expenses in forwarding solicitation materials to shareholders.

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Voting Rights and Required Vote

      Shareholders of each Advantus Fund are entitled to one vote for each full share held and are entitled to fractional votes for fractional shares. Any shareholder giving a proxy may revoke it at any time before it is exercised by submitting to the Secretary of the Advantus Funds a written notice of revocation or a subsequently executed proxy or by attending the meeting and voting in person.

      In order for the shareholder meeting to go forward for a Fund, there must be a quorum. This means that at least 10% of that Fund’s shares must be represented at the meeting, either in person or by proxy. All returned proxies count toward a quorum, regardless of how they are voted. An abstention will be counted as shares present at the meeting in determining whether the proposal has been approved, and will have the same effect as a vote against the proposal. Broker non-votes will not be counted as present in calculating the vote on the proposal. (Broker non-votes are shares for which (a) the underlying owner has not voted and (b) the broker holding the shares does not have discretionary authority to vote on the particular matter.) If a quorum is not obtained or if sufficient votes to approve a proposal are not obtained for any Fund, the proxies may propose one or more adjournments of the meeting with respect to that Fund to permit further solicitation of proxies. Any adjournment will require a vote in favor of the adjournment by the holders of a majority of the shares present in person or by proxy at the meeting (or any adjournment of the meeting).

      For each Advantus Fund, approval of the Reorganization Plan requires the affirmative vote, in person or by proxy, of a majority of the outstanding shares on the record date.

Record Date and Outstanding Shares

      Only shareholders of record of the Advantus Funds at the close of business on September 12, 2003 are entitled to notice of and to vote at the meeting and any postponement or adjournment thereof. On that date, each Advantus Fund had the following number of shares outstanding and entitled to vote:

	Total Number
	of Shares
Name of Fund	Outstanding
Advantus Bond Fund
Advantus Cornerstone Fund
Advantus Enterprise Fund
Advantus Horizon Fund
Advantus Index 500 Fund
Advantus International Balanced Fund
Advantus Money Market Fund
Advantus Mortgage Securities Fund
Advantus Real Estate Securities Fund
Advantus Spectrum Fund
Advantus Venture Fund

Security Ownership of Certain Beneficial Owners and Management

      As of the record date, all of the directors and officers of the Advantus Funds, as a group, owned less than 1% of the outstanding shares of each Advantus Fund. The following table includes information regarding the persons who were known to Advantus Fund management to be the record or beneficial owners of 5% or more of a class of shares of any of the Advantus Funds as of the record date, including

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the percentage of the Class A shares of the applicable Ivy Fund they would have owned after the Reorganization if the Reorganization had occurred on the record date:

				Percent of Ivy
				Fund Class A
		Number of	Percent	after the
Fund/Name and Address of Record or Beneficial Owner	Share Class	Shares Owned	of Class	Reorganization

      As of the record date, all of the directors and officers of the Ivy Funds, as a group, owned less than 1% of the outstanding shares of each Ivy Fund. The following table includes information regarding the persons who were known to Ivy Fund management to be the record or beneficial owners of 5% or more of a class of shares of any of the Ivy Funds as of the record date, including the percentage they would have owned after the Reorganization if the Reorganization had occurred on the record date:

				Percent of Ivy
				Fund Class A
		Number of	Percent	after the
Fund/Name and Address of Record or Beneficial Owner	Share Class	Shares Owned	of Class	Reorganization

Other Business

      The Board of Directors of the Advantus Funds knows of no other business to be brought before the meeting. However, if any other matters come before the meeting, it is the intention that voting instruction forms that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named in the enclosed voting instruction form.

Shareholder Proposals

      Neither the Advantus Funds nor the Ivy Funds hold annual or other regular meetings of shareholders. Since the Funds do not hold regular meetings of shareholders, the anticipated date of the next shareholder meeting of the Advantus Funds or the Ivy Funds cannot be provided. To be considered for inclusion in the proxy statement for any subsequent meeting of shareholders, a shareholder proposal must be submitted a reasonable time before the proxy statement for that meeting is mailed. Whether a proposal is included in the proxy statement will be determined in accordance with applicable federal and state laws. The timely submission of a proposal does not guarantee its inclusion.

Board Recommendations

      After carefully considering the issues involved, the Board of Directors of the Advantus Funds has unanimously concluded that the proposed Reorganizations are in the best interests of the shareholders of each Advantus Fund and recommends that you vote to approve your Fund’s Reorganization Plan. Whether or not you expect to attend the meeting, you are urged to promptly sign, fill in and return the enclosed voting instruction form.

By Order of the Board of Directors,

/s/ MICHAEL J. RADMER

Michael J. Radmer

Secretary

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APPENDIX A

FORM OF AGREEMENT AND PLAN OF REORGANIZATION

BETWEEN AN ADVANTUS FUND AND IVY FUNDS, INC.

      THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of                     , 2003, between Ivy Funds, Inc., a Maryland corporation (“Ivy”), on behalf of its series,                     Fund (“Acquiring Fund”), and Advantus                     Fund, Inc., a Minnesota corporation (“Target Fund). (Acquiring Fund and Target Fund are sometimes referred to herein individually as a “Fund” and collectively as the “Funds”)

      All agreements, representations and warranties, actions, and obligations described herein made or to be taken or undertaken by Acquiring Fund are made and shall be taken or undertaken by Ivy on behalf of Acquiring Fund.

      Ivy, on behalf of Acquiring Fund, and Target Fund wish to effect a reorganization, as described in section 368(a)(1) of the Internal Revenue Code of 1986, as amended (“Code”), and intend this Agreement to be, and adopt it as, a “plan of reorganization” within the meaning of the regulations under section 368 of the Code (“Regulations”). Target Fund and Acquiring Fund each have multiple classes of shares. Holders of each class of shares of Target Fund (“Target Fund Shares”) will receive Class A shares of Acquiring Fund (“Acquiring Fund Shares”) in the reorganization. The reorganization will involve the transfer of the assets of Target Fund to Acquiring Fund in exchange solely for Acquiring Fund Shares and the assumption by Acquiring Fund of Target Fund’s liabilities, followed by the constructive distribution of those Acquiring Fund Shares pro rata to the holders of Target Fund Shares, all on the terms and conditions set forth herein. (All such transactions involving Target Fund and Acquiring Fund are referred to herein as the “Reorganization.”)

      In consideration of the mutual promises contained herein, the parties agree as follows:

1.     PLAN OF REORGANIZATION

      1.1.     Subject to the requisite approval by Target Fund shareholders and to the other terms and conditions set forth herein and on the basis of the representations and warranties contained herein, Target Fund agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 (“Assets”) to Acquiring Fund and Acquiring Fund agrees in exchange therefor (a) to assume all of the liabilities of Target Fund described in paragraph 1.3, except the expenses of the Reorganization contemplated hereby to be paid by Advantus Capital Management, Inc. pursuant to paragraph 8.1 (“Liabilities”), and (b) to issue and deliver to Target Fund the number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares determined by dividing the value of the Assets of Target Fund less the Liabilities of Target Fund by the net asset value (“NAV”) of an Acquiring Fund Share (all computed as set forth in paragraph 2.1). Such transactions shall take place at the Closing (as defined in paragraph 3.1).

      1.2.     The Assets shall include all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and records, deferred and prepaid expenses shown as assets on Target Fund’s books, and other property or assets owned by Target Fund at the Effective Time (as defined in paragraph 3.1).

      1.3.     The Liabilities shall include all liabilities, debts, obligations, and duties of whatever kind or nature of Target Fund at the Effective Time, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, and whether or not specifically referred to in this Agreement, including any obligation to indemnify the directors of Target Fund, acting in their capacities as such, to the fullest extent permitted by law and the amended and restated articles of incorporation (“Articles of Incorporation”) and bylaws of Target Fund.

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      1.4.     At or immediately before the Effective Time, Target Fund shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed all of its investment company taxable income (as defined in section 852(b)(2) of the Code but computed without regard to any deduction for dividends paid) and substantially all of its net capital gain (within the meaning of section 852(b)(3) of the Code, but computed without regard to any deduction for capital gain dividends paid) for the current taxable year through the Effective Time.

      1.5.     At the Effective Time (or as soon thereafter as is reasonably practicable), Target Fund shall liquidate and distribute the Acquiring Fund Shares it receives pursuant to paragraph 1.1 to Target Fund’s shareholders of record, determined as of the Effective Time (each, a “Shareholder”), in constructive exchange for their Target Fund Shares. Such distribution shall be accomplished by Ivy’s transfer agent’s opening accounts on Acquiring Fund’s share transfer books in the Shareholders’ names and transferring such Acquiring Fund Shares thereto. Each Shareholder’s account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Shareholder. All outstanding Target Fund Shares shall simultaneously be canceled on Target Fund’s share transfer books. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares issued in connection with the Reorganization.

      1.6.     No front-end sales charges will be incurred by Target Fund shareholders in connection with their acquisition of Acquiring Fund Shares pursuant to this Agreement.

      1.7.     As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target Fund shall wind up its affairs, shall file any required final regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2 filings, and shall file an application for deregistration on Form N-8F.

      1.8.     Any transfer taxes payable on issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target Fund’s books of the Target Fund Shares constructively exchanged therefor shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer.

2.     VALUATION

      2.1.     For purposes of paragraph 1.1(b), the value of the Assets, the amount of the Liabilities and the NAV of an Acquiring Fund Share shall be computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the date of the Closing (“Valuation Time”). The NAV of an Acquiring Fund Share shall be computed using the valuation procedures set forth in Acquiring Fund’s then-current prospectus and statement of additional information (“SAI”). The value of the Assets and the amount of the Liabilities shall be computed using the valuation procedures set forth in Target Fund’s then-current prospectus and SAI, subject to adjustment by the amount, if any, agreed to by the Funds. The Funds agree to use all commercially reasonable efforts to resolve, before the Valuation Time, any material differences between the value of the Assets and the amount of the Liabilities determined in accordance with the respective valuation procedures of the Funds.

3.     CLOSING AND EFFECTIVE TIME

      3.1.     The Reorganization, together with related acts necessary to consummate the same (“Closing”), shall occur at the offices of Dorsey & Whitney LLP, 50 South Sixth Street, Minneapolis, Minnesota 55402, at            a.m. on                     , 2003, or at such other place and/or on such other date as to which the Funds may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of            a.m. on the date thereof or at such other time as to which the Funds may agree (“Effective Time”). If, immediately before the Valuation Time, (a) the New York Stock Exchange is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on that exchange or elsewhere is disrupted, so that accurate appraisal of the value of the Assets, the amount of the Liabilities and the NAV of an Acquiring Fund Share is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading has fully resumed and such reporting has been restored.

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      3.2.     The portfolio securities of Target Fund shall be made available by Target Fund to UMB Bank, n.a., as custodian for Acquiring Fund (the “Custodian”), for examination no later than six business days preceding the date of the Closing. On the date of the Closing, the portfolio securities of Target Fund and all Target Fund’s cash shall be delivered by Target Fund to the Custodian for the account of Acquiring Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department’s book-entry system or by the Depository Trust Company, Participants Trust Company or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940, as amended (the “1940 Act”) and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price of such transfer stamps. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of “UMB Bank, n.a., custodian for                     Fund, a series of Ivy Funds, Inc.”

      3.3.     Target Fund shall deliver to Ivy at the Closing a schedule of the Assets and Liabilities as of the Effective Time, which shall set forth for all portfolio securities included therein and all other Assets, their adjusted basis and holding period, by lot, for federal income tax purposes. Target Fund’s custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made.

      3.4.     Target Fund’s transfer agent shall deliver to Ivy at the Closing a statement of an authorized officer thereof certifying that its records contain the names and addresses of the Shareholders and the number and percentage ownership of outstanding Target Fund Shares owned by each Shareholder, all as of the Effective Time. Ivy’s transfer agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund’s share transfer books of accounts in the Shareholders’ names. Ivy shall issue and deliver a confirmation to Target Fund evidencing the Acquiring Fund Shares to be credited to Target Fund at the Effective Time or provide evidence satisfactory to Target Fund that such Acquiring Fund Shares have been credited to Target Fund’s account on Acquiring Fund’s books. At the Closing, Target Fund and Ivy each shall deliver to the other bills of sale, checks, assignments, stock certificates, receipts, or other documents the other party or its counsel reasonably requests.

      3.5.     Target Fund and Ivy each shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipient and dated the Effective Time, to the effect that the representations and warranties it made in this Agreement are true and correct at the Effective Time.

4.     REPRESENTATIONS AND WARRANTIES

      4.1.     Target Fund represents and warrants as follows:

      4.1.1.     Target Fund is a corporation that is duly organized, validly existing, and in good standing under the laws of the State of Minnesota; and its Articles of Incorporation are on file with the Secretary of the State of the State of Minnesota;

      4.1.2.     Target Fund is duly registered as an open-end management investment company under the Investment Company Act of 1940, as amended (“1940 Act”), and such registration is in full force and effect;

      4.1.3.     All Target Fund Shares outstanding at the Effective Time will have been duly authorized and duly and validly issued and outstanding shares of Target Fund, fully paid and non-assessable, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws; the authorized capital of the Target Fund consists of 10 billion common shares, par value of $0.01 per share. The outstanding shares of Target Fund are, and at the Date of the Closing will be, [of a single class] [divided into Class A shares, Class B shares and

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Class C shares], each having the characteristics described in Target Fund’s prospectus and SAI; no options, warrants or other rights to subscribe for or purchase, or securities convertible into, any common shares in the Target Fund of any class are outstanding and none will be outstanding on the Date of the Closing;

      4.1.4.     At the Closing, Target Fund will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and on delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto free of any liens or other encumbrances and without any restrictions upon the transfer thereof, except as otherwise disclosed in writing to and accepted by Ivy;

      4.1.5.     Target Fund’s current prospectus and SAI conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (“1933 Act”), and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Target Fund is a party, other than contracts made in the ordinary course of business, that are not referred to in such prospectus or SAI or in the registration statement of which they are a part;

      4.1.6.     Target Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, applicable law or any provision of Target Fund’s Articles of Incorporation or bylaws or of any agreement, instrument, lease, or other undertaking to which Target Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target Fund is a party or by which it is bound, except as otherwise disclosed in writing to and accepted by Ivy;

      4.1.7.     Except as otherwise disclosed in writing to and accepted by Ivy, Target Fund has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to Target Fund or under which (whether or not terminated) any material payments for periods subsequent to the date of the Closing will be due from Target Fund;

      4.1.8.     Except as otherwise disclosed in writing to and accepted by Ivy, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Target Fund’s knowledge) threatened against Target Fund, any person whom Target Fund may be obligated to indemnify, or any of Target Fund’s properties or assets that, if adversely determined, would materially and adversely affect Target Fund’s financial condition or the conduct of its business; and Target Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby;

      4.1.9.     The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Target Fund’s board of directors; and, subject to approval by Target Fund’s shareholders, this Agreement constitutes a valid and legally binding obligation of Target Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      4.1.10.     At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target Fund’s shareholders;

      4.1.11.     No governmental consents, approvals, authorizations, or filings are required for the execution or performance of this Agreement by Target Fund, except for (a) the filing with the Securities and Exchange Commission (“SEC”) of a registration statement by Ivy on Form N-14

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relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto (“Registration Statement”), including therein a prospectus/ proxy statement (“Proxy Statement”), (b) such other consents, approvals, authorizations, or filings as may be required under the 1933 Act, the Securities Exchange Act of 1934, as amended (the “1934 Act”), the 1940 Act and state securities or blue sky laws (which term as used in this Agreement shall include the laws of the District of Columbia and of Puerto Rico), and (c) such consents, approvals, authorizations, and filings as have been made or received;

      4.1.12.     On the effective date of the Registration Statement, at the time of the shareholders’ meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Ivy for use therein;

      4.1.13.     There are no Liabilities (for purposes of this paragraph, as defined in paragraph 1.3 but excluding “at the Effective Time”) other than Liabilities disclosed or provided for in Target Fund’s financial statements referred to in paragraph 4.1.16 and Liabilities incurred by Target Fund in the ordinary course of its business subsequent to [January 31] [March 31], 2003, or otherwise previously disclosed to Ivy, none of which has been materially adverse to the business, assets, or results of Target Fund’s operations;

      4.1.14.     Target Fund is a “fund” as defined in section 851(g)(2) of the Code; it qualified for treatment as a regulated investment company under Subchapter M of the Code (“RIC”) for each past taxable year and all applicable quarters of such years since it commenced operations and will continue to meet all the requirements for such qualification for the taxable year ending on the date of the Closing; the assets of the Target Fund will be invested at all times through the Effective Time in a manner that ensures compliance with the foregoing; Target Fund has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; and Target Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder;

      4.1.15.     Target Fund’s federal income tax returns and all applicable state, local and foreign tax returns which are required to have been filed have been timely filed and all taxes which are due and payable have been timely paid;

      4.1.16.     Target Fund’s financial statements for the six months ended [January 31] [March 31], 2003, as set forth in its semi-annual report on Form N-30D, fairly represent Target Fund’s financial position as of such date and the results of its operations and changes in its net assets for the period then ended in accordance with generally accepted accounting principles consistently applied;

      4.1.17.     At the date of Closing, Target Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of Target Fund pursuant to this Agreement, Acquiring Fund will remain a “diversified company” within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in Acquiring Fund’s prospectus and SAI, as amended through the date of the Closing; and

      4.1.18.     Target Fund’s investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus and statement of additional information as in effect from time to time, except as otherwise disclosed in writing to and accepted by Ivy.

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      4.2.     Ivy represents and warrants as follows:

      4.2.1.     Ivy is a corporation that is duly organized, validly existing, and in good standing under the laws of the State of Maryland; and its articles of incorporation are on file with the Secretary of State of the State of Maryland;

      4.2.2.     Ivy is duly registered as an open-end management investment company under the 1940 Act, and such registration has not been revoked or rescinded and is in full force and effect;

      4.2.3.     Acquiring Fund is a duly established and designated series of Ivy;

      4.2.4.     No consideration other than Acquiring Fund Shares (and Acquiring Fund’s assumption of liabilities) will be issued in exchange for the Assets in the Reorganization;

      4.2.5.     The Acquiring Fund Shares to be issued and delivered to Target Fund hereunder will have been duly authorized at the Effective Time and, when issued and delivered as provided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable;

      4.2.6.     Acquiring Fund’s current prospectus and SAI conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which Acquiring Fund is a party, other than contracts made in the ordinary course of business, that are not referred to in such prospectus or SAI or in the registration statement of which they are a part;

      4.2.7.     Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, applicable law or any provision of Ivy’s articles of incorporation or bylaws or of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as otherwise disclosed in writing to and accepted by Target Fund;

      4.2.8.     Except as otherwise disclosed in writing to and accepted by Target Fund, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Ivy’s knowledge) threatened against Ivy, any person whom Ivy may be obligated to indemnify, or any of Ivy’s properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund’s financial condition or the conduct of its business; and Ivy knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby;

      4.2.9.     The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Ivy’s board of directors (together with Target Fund’s board of directors, the “Boards”); no approval of this Agreement by Acquiring Fund’s shareholders is required under Ivy’s articles of incorporation or bylaws, or applicable law; and this Agreement constitutes a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      4.2.10.     No governmental consents, approvals, authorizations, or filings are required for the execution or performance of this Agreement by Ivy, except for (a) the filing with the SEC of the Registration Statement, (b) such other consents, approvals, authorizations, or filings as may be

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required under the 1933 Act, the 1934 Act, the 1940 Act and state securities or blue sky laws, and (c) such consents, approvals, authorizations, and filings as have been made or received;

      4.2.11.     On the effective date of the Registration Statement, at the time of the shareholders’ meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Target Fund for use therein;

      4.2.12.     Acquiring Fund is a “fund” as defined in section 851(g)(2) of the Code; it qualified for treatment as a RIC for each past taxable year and all applicable quarters of such years since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; Acquiring Fund intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it, and Acquiring Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder;

      4.2.13.     Acquiring Fund’s federal income tax returns and all applicable state, foreign and local tax returns which are required to have been filed have been timely filed and all taxes which are due and payable have been timely paid;

      4.2.14.     Acquiring Fund’s financial statements for the [year ended                     , 200          ][six months ended                     , 200          ], as set forth in its [annual] [semi-annual] report on Form N-30D, fairly represent Acquiring Fund’s financial position as of that date and the results of its operations and changes in its net assets for the year then ended.

      4.2.15.     Acquiring Fund’s investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus and statement of additional information as in effect from time to time, except as otherwise disclosed in writing to and accepted by Target Fund.

      4.3.     Target Fund and Ivy each represent and warrant to the other that there is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount.

5.     COVENANTS

      5.1.     Each Fund covenants to operate its respective business in the ordinary course between the date hereof and the Closing, it being understood that such ordinary course will include declaring and paying customary dividends and other distributions (including the dividend and/or other distribution referred to in paragraph 1.4) and changes in operations contemplated by each Fund’s normal business activities.

      5.2.     Target Fund covenants to call a shareholders’ meeting to be held prior to the date of the Closing to consider and act on this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby.

      5.3.     Target Fund covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms hereof.

      5.4.     Target Fund covenants that it will assist Ivy in obtaining information Ivy reasonably requests concerning the beneficial ownership of Target Fund Shares.

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      5.5.     Target Fund covenants that its books and records (including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder) will be turned over to Ivy at the Closing.

      5.6.     Each Fund covenants to cooperate in preparing the Proxy Statement and the Registration Statement in compliance with applicable federal and state securities laws.

      5.7.     Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the other Fund may deem necessary or desirable in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession of all the Assets, and (b) Target Fund, title to and possession of the Acquiring Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof.

      5.8.     Acquiring Fund covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and state securities laws it deems appropriate to continue its operations after the Effective Time.

      5.9.     Target Fund covenants that it will furnish to Acquiring Fund tax returns, signed by a manager or partner of KPMG LLP, for the fiscal year ended                     , 200          , and signed pro forma tax returns for the period from                     , 200          to the date of the Closing Date (which pro forma tax returns shall be furnished promptly after the date of the Closing).

      5.10.     Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby.

6.     CONDITIONS PRECEDENT

      The obligations of each of Target Fund and Ivy hereunder shall be subject to (a) performance by the other party of all its obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other party contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further conditions that, at or before the Effective Time:

      6.1.     This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by each Board and shall have been approved by Target Fund’s shareholders in accordance with Target Fund’s Articles of Incorporation and bylaws and applicable law.

      6.2.     All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the transactions contemplated hereby. The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin consummation of the transactions contemplated hereby under section 25(c) of the 1940 Act. All consents, orders, and permits of federal, state, and local regulatory authorities (including the SEC and state securities authorities) deemed necessary by either Target Fund or Ivy to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on either Fund’s assets or properties, provided that either Target Fund or Ivy may for itself waive any of such conditions.

      6.3.     The Target Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Target Fund, as to the adjusted tax basis in the hands of the Target Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement.

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      6.4.     At the Effective Time, no action, suit, or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the transactions contemplated hereby.

      6.5.     Target Fund shall have received an opinion of Bell, Boyd & Lloyd LLC, counsel to Ivy substantially to the effect that:

      6.5.1.     Acquiring Fund is a duly established series of Ivy, a corporation duly incorporated, validly existing, and in good standing under the laws of the State of Maryland with power under its articles of incorporation to own all its properties and assets and, to the knowledge of such counsel, to carry on its business as described in its registration statement on Form N-1A (as amended to date);

      6.5.2.     This Agreement has been duly authorized, executed, and delivered by Ivy on behalf of Acquiring Fund; no approval of this Agreement by Acquiring Fund’s shareholders is required under Ivy’s articles of incorporation or bylaws or applicable law; and assuming due authorization, execution, and delivery of this Agreement by Target Fund and that the Proxy Statement and the Registration Statement comply with all applicable provisions of federal securities laws, this Agreement is a valid and binding obligation of Ivy with respect to Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      6.5.3.     The Acquiring Fund Shares to be issued for transfer and delivery to the Shareholders as provided by this Agreement have been duly authorized and, upon such transfer and delivery, will be validly issued, fully paid and non-assessable Class A shares of the Acquiring Fund, assuming that as consideration for such shares not less than the net asset value and the par value of such shares has been paid and that the conditions set forth in this Agreement have been satisfied;

      6.5.4.     The execution and delivery of this Agreement by Ivy on behalf of the Acquiring Fund did not, and the consummation of Ivy’s obligations hereunder will not, violate Ivy’s articles of incorporation or bylaws or any provision of any agreement filed as an exhibit to Ivy’s registration statement on Form N-1A, as amended to date, and to which Ivy (with respect to Acquiring Fund) is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any such agreement, or, to the knowledge of such counsel, any judgment or decree to which Ivy (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target Fund;

      6.5.5.     To the knowledge of such counsel, no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Ivy (on behalf of Acquiring Fund) of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws;

      6.5.6.     To the knowledge of such counsel (after inquiry of officers of Ivy but without having made any further investigation), (a) no material litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Ivy (with respect to Acquiring Fund) or any of Acquiring Fund’s properties or assets and (b) Ivy (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund’s business, in each case except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target Fund; and

      6.5.7.     After inquiry of officers of Ivy by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to Acquiring Fund on or before the date of mailing of the Proxy Statement or the date of such opinion which is required to be disclosed in the Registration Statement which is not disclosed therein.

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In rendering such opinion, such counsel may (1) rely, as to matters governed by the laws of the State of Maryland, on an opinion of competent Maryland counsel, (2) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (3) limit such opinion to applicable federal and state law, and (4) define the word “knowledge” and related terms to mean the knowledge of attorneys then with such counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization.

      6.6.     Ivy shall have received an opinion of Dorsey & Whitney LLP, counsel to Target Fund, substantially to the effect that:

      6.6.1.     Target Fund is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota with power under its Articles of Incorporation to own all its properties and assets and, to the knowledge of such counsel, to carry on its business as described in its registration statement on Form N-1A, as amended to date;

      6.6.2.     This Agreement (a) has been duly authorized, executed, and delivered by Target Fund and (b) assuming due authorization, execution, and delivery of this Agreement by Ivy on behalf of Acquiring Fund, is a valid and binding obligation of Target Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      6.6.3.     The execution and delivery of this Agreement by Target Fund did not, and the consummation of Target Fund’s obligations hereunder will not, violate Target Fund’s Articles of Incorporation or bylaws or any provision of any agreement filed as an exhibit to Target Fund’s registration statement on Form N-1A, as amended to date, and to which Target Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any such agreement, or, to the knowledge of such counsel, any judgment or decree to which Target Fund is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Ivy;

      6.6.4.     To the knowledge of such counsel, no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Target Fund of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws;

      6.6.5.     To the knowledge of such counsel (after inquiry of officers of Target Fund but without having made any further investigation), (a) no material litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Target Fund or any of its properties or assets and (b) Target Fund is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Target Fund’s business, in each case except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Ivy;

      6.6.6.     All issued and outstanding shares of Target Fund are validly issued, fully paid and non-assessable, assuming that as consideration for such shares not less than the net asset value of such shares has been paid, and assuming that such shares were issued in accordance with Target Fund’s registration statement on Form N-1A, or any amendments thereto, in effect at the time of such issuance;

      6.6.7.     Target Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it under this Agreement, and, upon consummation of the transactions contemplated by this Agreement, Target Fund will have duly transferred such assets to Acquiring Fund; and

      6.6.8.     After inquiry of officers of the Target Fund by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to Target Fund on or

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before the date of mailing of the Proxy Statement or the date of such opinion which is required to be disclosed in the Registration Statement which is not disclosed therein.

In rendering such opinion, such counsel may (1) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (2) limit such opinion to applicable federal and state law, and (3) define the word “knowledge” and related terms to mean the knowledge of attorneys then with such counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization.

      6.7.     Target Fund and Ivy each shall have received an opinion of Dorsey & Whitney LLP, addressed to and in form and substance reasonably satisfactory to it, as to the federal income tax consequences mentioned below (“Tax Opinion”). In rendering the Tax Opinion, such counsel may rely as to factual matters, exclusively and without independent verification, on the representations and warranties made in this Agreement, which such counsel may treat as representations and warranties made to it, and in separate letters addressed to such counsel and the certificates delivered pursuant to paragraph 3.4. The Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein and conditioned on consummation of the Reorganization in accordance with this Agreement, for federal income tax purposes:

      6.7.1.     Acquiring Fund’s acquisition of the Assets in exchange solely for Acquiring Fund Shares and its assumption of Target Fund’s liabilities, followed by Target Fund’s distribution of those shares pro rata to the Shareholders in exchange for their Target Fund Shares, will qualify as a reorganization within the meaning of section 368(a)(1) of the Code, and each Fund will be “a party to a reorganization” within the meaning of section 368(b) of the Code;

      6.7.2.     Target Fund will recognize no gain or loss on the transfer of the Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and Acquiring Fund’s assumption of Target Fund’s liabilities or on the subsequent distribution of those shares to the Shareholders in exchange for their Target Fund Shares;

      6.7.3.     Acquiring Fund will recognize no gain or loss on its receipt of the Assets in exchange solely for Acquiring Fund Shares and the assumption by Acquiring Fund of the liabilities of Target Fund;

      6.7.4.     Acquiring Fund’s basis in the Assets will be the same as Target Fund’s basis therein immediately before the Reorganization, and Acquiring Fund’s holding period for the Assets will include Target Fund’s holding period therefor;

      6.7.5.     A Shareholder will recognize no gain or loss on the exchange of all its Target Fund Shares solely for Acquiring Fund Shares pursuant to the Reorganization. Shareholders subject to taxation will recognize income upon receipt of any net investment income or net capital gains of Target Fund which are distributed by Target Fund prior to the Closing;

      6.7.6.     A Shareholder’s aggregate basis in the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the aggregate basis in its Target Fund Shares to be surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will include its holding period for those Target Fund Shares, provided the Shareholder held them as capital assets at the Effective Time; and

      6.7.7.     Acquiring Fund will succeed to and take into account the items of Target Fund described in Section 381(c) of the Code. Acquiring Fund will, in each instance, take these items into account subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Regulations thereunder.

Notwithstanding subparagraphs 6.7.2 and 6.7.4, the Tax Opinion may state that no opinion is expressed as to the effect of the Reorganization on the Funds or any Shareholder with respect to any asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting.

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At any time before the Closing, either Target Fund or Ivy may waive any of the foregoing conditions (except the condition set forth in paragraph 6.1) if, in the judgment of its Board, such waiver will not have a material adverse effect on the interests of Target Fund’s or Acquiring Fund’s shareholders, as the case may be.

7.     BROKERAGE FEES

      Each of Target Fund and Ivy represent and warrant to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.

8.     EXPENSES; INDEMNIFICATION

      8.1     The parties hereto understand and agree that the cost of the transactions contemplated by this Agreement are being borne by Advantus Capital Management, Inc.

      8.2     Acquiring Fund agrees to indemnify and hold harmless Target Fund and each of Target Fund’s directors and officers from and against any and all losses, claims, damages, liabilities or expenses (including the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly or severally, Target Fund or any of Target Fund’s directors or officers may become subject, insofar as any such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by Ivy or Acquiring Fund of any of their representations, warranties, covenants or agreements set forth in this Agreement.

      8.3     Target Fund agrees to indemnify and hold harmless Ivy, Acquiring Fund and each of Ivy’s directors and officers from and against any and all losses, claims, damages, liabilities or expenses (including the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly or severally, Ivy, Acquiring Fund or any of Ivy’s directors or officers may become subject, insofar as any such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by Target Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement.

9.     ENTIRE AGREEMENT; NO SURVIVAL

      Neither party has made any representation, warranty, or covenant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warranties and covenants contained in Articles 4 and 5 of this Agreement, other than those contained in paragraphs 5.5, 5.7, 5.8 and 5.9, shall not survive the Closing.

10.     TERMINATION OF AGREEMENT

      This Agreement may be terminated at any time at or prior to the Effective Time, whether before or after approval by Target Fund’s shareholders:

      10.1.     By either Target Fund or Ivy (a) in the event of the other party’s material breach of any representation, warranty, or covenant contained herein to be performed at or prior to the Effective Time, (b) if a condition to its obligations has not been met and it reasonably appears that such condition will not or cannot be met, or (c) if the Closing has not occurred on or before December 31, 2003;

      10.2.     If required by any final, non-appealable order, decree or judgment of any court or governmental body; or

      10.3.     By the parties’ mutual agreement.

      In the event of termination under paragraphs 10.1(c), 10.2 or 10.3, there shall be no liability for damages on the part of either party to the other party.

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11.     AMENDMENT

      This Agreement may be amended, modified, or supplemented at any time, notwithstanding approval thereof by Target Fund’s shareholders, in any manner mutually agreed on in writing by the parties; provided that following such approval no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to Target Fund shareholders under this Agreement to the detriment of such shareholders without their further approval.

12.     MISCELLANEOUS

      12.1.     This Agreement shall be governed by and construed in accordance with the internal laws of the State of Maryland; provided that, in the case of any conflict between such laws and the federal securities laws, the latter shall govern.

      12.2.     Nothing expressed or implied herein is intended or shall be construed to confer upon or give any person, firm, trust, or corporation other than the parties and their respective successors and assigns any rights or remedies under or by reason of this Agreement.

      12.3.     This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been executed by each party and delivered to the other party hereto. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

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      IN WITNESS WHEREOF, each party has caused this Agreement to be executed and delivered by its duly authorized officers as of the day and year first written above.

IVY FUNDS, INC.

on behalf of its series                     Fund

By:

Its: President

ADVANTUS                     FUND, INC.

By:

Its: President

Agreed and accepted as to paragraph 8.1 only

ADVANTUS CAPITAL MANAGEMENT, INC.

By:

Its: President

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APPENDIX B

FORM OF AGREEMENT AND PLAN OF REORGANIZATION

BETWEEN AN ADVANTUS FUND AND IVY FUNDS

      THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of                     , 2003, between Ivy Funds, a Massachusetts business trust (“Ivy”), on behalf of its series,                     Fund (“Acquiring Fund”), and Advantus                     Fund, Inc., a Minnesota corporation (“Target Fund). (Acquiring Fund and Target Fund are sometimes referred to herein individually as a “Fund” and collectively as the “Funds”)

      All agreements, representations and warranties, actions, and obligations described herein made or to be taken or undertaken by Acquiring Fund are made and shall be taken or undertaken by Ivy on behalf of Acquiring Fund.

      Ivy, on behalf of Acquiring Fund, and Target Fund wish to effect a reorganization, as described in section 368(a)(1) of the Internal Revenue Code of 1986, as amended (“Code”), and intend this Agreement to be, and adopt it as, a “plan of reorganization” within the meaning of the regulations under section 368 of the Code (“Regulations”). Target Fund and Acquiring Fund each have multiple classes of shares. Holders of each class of shares of Target Fund (“Target Fund Shares”) will receive Class A shares of Acquiring Fund (“Acquiring Fund Shares”) in the reorganization. The reorganization will involve the transfer of the assets of Target Fund to Acquiring Fund in exchange solely for Acquiring Fund Shares and the assumption by Acquiring Fund of Target Fund’s liabilities, followed by the constructive distribution of those Acquiring Fund Shares pro rata to the holders of Target Fund Shares, all on the terms and conditions set forth herein. (All such transactions involving Target Fund and Acquiring Fund are referred to herein as the “Reorganization.”)

      In consideration of the mutual promises contained herein, the parties agree as follows:

1.     Plan of Reorganization

      1.1.     Subject to the requisite approval by Target Fund shareholders and to the other terms and conditions set forth herein and on the basis of the representations and warranties contained herein, Target Fund agrees to assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 (“Assets”) to Acquiring Fund and Acquiring Fund agrees in exchange therefor (a) to assume all of the liabilities of Target Fund described in paragraph 1.3, except the expenses of the Reorganization contemplated hereby to be paid by Advantus Capital Management Inc. pursuant to paragraph 8.1 (“Liabilities”), and (b) to issue and deliver to Target Fund the number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares having an aggregate net asset value (“NAV”) equal to that of the full and fractional Target Fund Shares outstanding as of the Valuation Time (as defined in paragraph 2.1) (all computed as set forth in paragraph 2.1). Such transactions shall take place at the Closing (as defined in paragraph 3.1).

      1.2.     The Assets shall include all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and records, deferred and prepaid expenses shown as assets on Target Fund’s books, and other property or assets owned by Target Fund at the Effective Time (as defined in paragraph 3.1).

      1.3.     The Liabilities shall include all liabilities, debts, obligations, and duties of whatever kind or nature of Target Fund at the Effective Time, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, and whether or not specifically referred to in this Agreement, including any obligation to indemnify the directors of Target Fund, acting in their capacities as such, to the fullest extent permitted by law and the amended and restated articles of incorporation (“Articles of Incorporation”) and bylaws of Target Fund.

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      1.4.     At or immediately before the Effective Time, Target Fund shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed all of its investment company taxable income (as defined in section 852(b)(2) of the Code but computed without regard to any deduction for dividends paid) and substantially all of its net capital gain (within the meaning of section 852(b)(3) of the Code, but computed without regard to any deduction for capital gain dividends paid) for the current taxable year through the Effective Time.

      1.5.     At the Effective Time (or as soon thereafter as is reasonably practicable), Target Fund shall liquidate and distribute the Acquiring Fund Shares it receives pursuant to paragraph 1.1 to Target Fund’s shareholders of record, determined as of the Effective Time (each, a “Shareholder”), in constructive exchange for their Target Fund Shares. Such distribution shall be accomplished by Ivy’s transfer agent’s opening accounts on Acquiring Fund’s share transfer books in the Shareholders’ names and transferring such Acquiring Fund Shares thereto. Each Shareholder’s account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Shareholder. All outstanding Target Fund Shares shall simultaneously be canceled on Target Fund’s share transfer books. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares issued in connection with the Reorganization.

      1.6.     No front-end sales charges will be incurred by Target Fund shareholders in connection with their acquisition of Acquiring Fund Shares pursuant to this Agreement.

      1.7.     As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, Target Fund shall wind up its affairs, shall file any required final regulatory reports, including but not limited to any Form N-SAR and Rule 24f-2 filings, and shall file an application for deregistration on Form N-8F.

      1.8.     Any transfer taxes payable on issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target Fund’s books of the Target Fund Shares constructively exchanged therefor shall be paid by the person to whom such Acquiring Fund Shares are to be issued, as a condition of such transfer.

2.     Valuation

      2.1.     For purposes of paragraph 1.1(b), the value of the Assets, the amount of the Liabilities and the NAV of Target Fund Shares shall be computed as of the close of regular trading on the New York Stock Exchange on the business day next preceding the date of the Closing (“Valuation Time”). Such values and amounts shall be computed using the valuation procedures set forth in Target Fund’s then-current prospectus and SAI.

3.     Closing And Effective Time

      3.1.     The Reorganization, together with related acts necessary to consummate the same (“Closing”), shall occur at the offices of Dorsey & Whitney LLP, 50 South Sixth Street, Minneapolis, Minnesota 55402, at                     a.m. on                     , 2003, or at such other place and/or on such other date as to which the Funds may agree. All acts taking place at the Closing shall be deemed to take place simultaneously as of                     a.m. on the date thereof or at such other time as to which the Funds may agree (“Effective Time”). If, immediately before the Valuation Time, (a) the New York Stock Exchange is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on that exchange or elsewhere is disrupted, so that accurate appraisal of the value of the Assets, the amount of the Liabilities and the NAV of Target Fund Shares is impracticable, the Effective Time shall be postponed until the first business day after the day when such trading has fully resumed and such reporting has been restored.

      3.2.     The portfolio securities of Target Fund shall be made available by Target Fund to UMB Bank, n.a., as custodian for Acquiring Fund (the “Custodian”), for examination no later than six business days preceding the date of the Closing. On the date of the Closing, the portfolio securities of Target Fund and all Target Fund’s cash shall be delivered by Target Fund to the Custodian for the account of Acquiring

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Fund, such portfolio securities to be duly endorsed in proper form for transfer in such manner and condition as to constitute good delivery thereof in accordance with the custom of brokers or, in the case of portfolio securities held in the U.S. Treasury Department’s book-entry system or by the Depository Trust Company, Participants Trust Company or other third party depositories, by transfer to the account of the Custodian in accordance with Rule 17f-4, Rule 17f-5 or Rule 17f-7, as the case may be, under the Investment Company Act of 1940, as amended (the “1940 Act”) and accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price of such transfer stamps. The cash delivered shall be in the form of currency or certified or official bank checks, payable to the order of “UMB Bank, n.a., custodian for                     Fund, a series of Ivy Funds.”

      3.3.     Target Fund shall deliver to Ivy at the Closing a schedule of the Assets and Liabilities as of the Effective Time, which shall set forth for all portfolio securities included therein and all other Assets, their adjusted basis and holding period, by lot, for federal income tax purposes. Target Fund’s custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets held by the custodian will be transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made.

      3.4.     Target Fund’s transfer agent shall deliver to Ivy at the Closing a statement of an authorized officer thereof certifying that its records contain the names and addresses of the Shareholders and the number and percentage ownership of outstanding Target Fund Shares owned by each Shareholder, all as of the Effective Time. Ivy’s transfer agent shall deliver at the Closing a certificate as to the opening on Acquiring Fund’s share transfer books of accounts in the Shareholders’ names. Ivy shall issue and deliver a confirmation to Target Fund evidencing the Acquiring Fund Shares to be credited to Target Fund at the Effective Time or provide evidence satisfactory to Target Fund that such Acquiring Fund Shares have been credited to Target Fund’s account on Acquiring Fund’s books. At the Closing, Target Fund and Ivy each shall deliver to the other bills of sale, checks, assignments, stock certificates, receipts, or other documents the other party or its counsel reasonably requests.

      3.5.     Target Fund and Ivy each shall deliver to the other at the Closing a certificate executed in its name by its President or a Vice President in form and substance satisfactory to the recipient and dated the Effective Time, to the effect that the representations and warranties it made in this Agreement are true and correct at the Effective Time.

4.     Representations And Warranties

      4.1.     Target Fund represents and warrants as follows:

      4.1.1.     Target Fund is a corporation that is duly organized, validly existing, and in good standing under the laws of the State of Minnesota; and its Articles of Incorporation are on file with the Secretary of the State of the State of Minnesota;

      4.1.2.     Target Fund is duly registered as an open-end management investment company under the Investment Company Act of 1940, as amended (“1940 Act”), and such registration is in full force and effect;

      4.1.3.     All Target Fund Shares outstanding at the Effective Time will have been duly authorized and duly and validly issued and outstanding shares of Target Fund, fully paid and non-assessable, and will have been issued in compliance with all applicable registration or qualification requirements of federal and state securities laws; the authorized capital of the Target Fund consists of 10 billion common shares, par value of $0.01 per share. The outstanding shares of Target Fund are, and at the Date of the Closing will be, [divided into Class A shares [and Class B shares] [, Class B shares and Class C shares]], each having the characteristics described in Target Fund’s prospectus and SAI; no options, warrants or other rights to subscribe for or purchase, or securities convertible into, any common shares in the Target Fund of any class are outstanding and none will be outstanding on the Date of the Closing;

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      4.1.4.     At the Closing, Target Fund will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances; and on delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto free of any liens or other encumbrances and without any restrictions upon the transfer thereof, except as otherwise disclosed in writing to and accepted by Ivy;

      4.1.5.     Target Fund’s current prospectus and SAI conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended (“1933 Act”), and the 1940 Act and the rules and regulations thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there are no material contracts to which the Target Fund is a party, other than contracts made in the ordinary course of business, that are not referred to in such prospectus or SAI or in the registration statement of which they are a part;

      4.1.6.     Target Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, applicable law or any provision of Target Fund’s Articles of Incorporation or bylaws or of any agreement, instrument, lease, or other undertaking to which Target Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target Fund is a party or by which it is bound, except as otherwise disclosed in writing to and accepted by Ivy;

      4.1.7.     Except as otherwise disclosed in writing to and accepted by Ivy, Target Fund has no material contracts or other commitments (other than this Agreement and such other contracts as may be entered into in the ordinary course of its business) which if terminated may result in material liability to Target Fund or under which (whether or not terminated) any material payments for periods subsequent to the date of the Closing will be due from Target Fund;

      4.1.8.     Except as otherwise disclosed in writing to and accepted by Ivy, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Target Fund’s knowledge) threatened against Target Fund, any person whom Target Fund may be obligated to indemnify, or any of Target Fund’s properties or assets that, if adversely determined, would materially and adversely affect Target Fund’s financial condition or the conduct of its business; and Target Fund knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby;

      4.1.9.     The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Target Fund’s board of directors; and, subject to approval by Target Fund’s shareholders, this Agreement constitutes a valid and legally binding obligation of Target Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      4.1.10.     At the Effective Time, the performance of this Agreement shall have been duly authorized by all necessary action by Target Fund’s shareholders;

      4.1.11.     No governmental consents, approvals, authorizations, or filings are required for the execution or performance of this Agreement by Target Fund, except for (a) the filing with the Securities and Exchange Commission (“SEC”) of a registration statement by Ivy on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto (“Registration Statement”), including therein a prospectus/ proxy statement (“Proxy Statement”), (b) such other consents, approvals, authorizations, or filings as may be required under the 1933 Act, the Securities Exchange Act of 1934, as amended (the “1934 Act”), the 1940 Act and state

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securities or blue sky laws (which term as used in this Agreement shall include the laws of the District of Columbia and of Puerto Rico), and (c) such consents, approvals, authorizations, and filings as have been made or received;

      4.1.12.     On the effective date of the Registration Statement, at the time of the shareholders’ meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Ivy for use therein;

      4.1.13.     There are no Liabilities (for purposes of this paragraph, as defined in paragraph 1.3 but excluding “at the Effective Time”) other than Liabilities disclosed or provided for in Target Fund’s financial statements referred to in paragraph 4.1.16 and Liabilities incurred by Target Fund in the ordinary course of its business subsequent to [January 31] [March 31], 2003, or otherwise previously disclosed to Ivy, none of which has been materially adverse to the business, assets, or results of Target Fund’s operations;

      4.1.14.     Target Fund is a “fund” as defined in section 851(g)(2) of the Code; it qualified for treatment as a regulated investment company under Subchapter M of the Code (“RIC”) for each past taxable year and all applicable quarters of such years since it commenced operations and will continue to meet all the requirements for such qualification for the taxable year ending on the date of the Closing; the assets of the Target Fund will be invested at all times through the Effective Time in a manner that ensures compliance with the foregoing; Target Fund has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; and Target Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service pertaining to the reporting of dividends and other distributions on and redemptions of its capital stock and to withholding in respect of dividends and other distributions to shareholders, and is not liable for any material penalties which could be imposed thereunder;

      4.1.15.     Target Fund’s federal income tax returns and all applicable state, local and foreign tax returns which are required to have been filed have been timely filed and all taxes which are due and payable have been timely paid;

      4.1.16.     Target Fund’s financial statements for the six months ended [January 31] [March 31], 2003, as set forth in its semi-annual report on Form N-30D, fairly represent Target Fund’s financial position as of such date and the results of its operations and changes in its net assets for the period then ended in accordance with generally accepted accounting principles consistently applied;

      4.1.17.     At the date of Closing, Target Fund will have sold such of its assets, if any, as are necessary to assure that, after giving effect to the acquisition of the assets of Target Fund pursuant to this Agreement, Acquiring Fund will remain a “diversified company” within the meaning of Section 5(b)(1) of the 1940 Act and in compliance with such other mandatory investment restrictions as are set forth in Acquiring Fund’s prospectus and SAI, as amended through the date of the Closing; and

      4.1.18.     Target Fund’s investment operations from inception to the date hereof have been in compliance in all material respects with the investment policies and investment restrictions set forth in its prospectus and statement of additional information as in effect from time to time, except as otherwise disclosed in writing to and accepted by Ivy.

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      4.2.     Ivy represents and warrants as follows:

      4.2.1.     Ivy is a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and its declaration of trust is on file with the Secretary of State of the Commonwealth of Massachusetts;

      4.2.2.     Ivy is duly registered as an open-end management investment company under the 1940 Act, and such registration has not been revoked or rescinded and is in full force and effect;

      4.2.3.     Acquiring Fund is a duly established and designated series of Ivy;

      4.2.4.     No consideration other than Acquiring Fund Shares (and Acquiring Fund’s assumption of liabilities) will be issued in exchange for the Assets in the Reorganization;

      4.2.5.     The Acquiring Fund Shares to be issued and delivered to Target Fund hereunder will have been duly authorized at the Effective Time and, when issued and delivered as provided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and, except as set forth in Acquiring Fund’s current prospectus and SAI, non-assessable;

      4.2.6.     On the date the Proxy Statement is first mailed to Target Fund shareholders, and at the Effective Time, Acquiring Fund’s prospectus and SAI will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and there will be no material contracts to which Acquiring Fund is a party, other than contracts made in the ordinary course of business, that will not be referred to in such prospectus or SAI or in the registration statement of which they are a part;

      4.2.7.     Acquiring Fund is not in violation of, and the execution and delivery of this Agreement and consummation of the transactions contemplated hereby will not conflict with or violate, applicable law or any provision of Ivy’s declaration of trust or bylaws or of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound, except as otherwise disclosed in writing to and accepted by Target Fund;

      4.2.8.     Except as otherwise disclosed in writing to and accepted by Target Fund, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Ivy’s knowledge) threatened against Ivy, any person whom Ivy may be obligated to indemnify, or any of Ivy’s properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund’s financial condition or the conduct of its business; and Ivy knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the transactions contemplated hereby;

      4.2.9.     The execution, delivery, and performance of this Agreement have been duly authorized as of the date hereof by all necessary action on the part of Ivy’s board of trustees (together with Target Fund’s board of directors, the “Boards”); no approval of this Agreement by Acquiring Fund’s shareholders is required under Ivy’s declaration of trust or bylaws, or applicable law; and this Agreement constitutes a valid and legally binding obligation of Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      4.2.10.     No governmental consents, approvals, authorizations, or filings are required for the execution or performance of this Agreement by Ivy, except for (a) the filing with the SEC of the

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Registration Statement, (b) such other consents, approvals, authorizations, or filings as may be required under the 1933 Act, the 1934 Act, the 1940 Act and state securities or blue sky laws, and (c) such consents, approvals, authorizations, and filings as have been made or received;

      4.2.11.     On the effective date of the Registration Statement, at the time of the shareholders’ meeting referred to in paragraph 5.2, and at the Effective Time, the Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided that the foregoing shall not apply to statements in or omissions from the Proxy Statement made in reliance on and in conformity with information furnished by Target Fund for use therein;

      4.2.12.     Acquiring Fund has no operations or assets other than in connection with its organization and the transactions contemplated by this Agreement. Acquiring Fund has not yet filed its first federal income tax return. Upon such filing after the completion of its first taxable year, Acquiring Fund will elect to be treated as a RIC, and until such time it will take all steps to ensure that it qualifies for taxation as a RIC under Sections 851 and 852 of the Code.

      4.3.     Target Fund and Ivy each represent and warrant to the other that there is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount.

5.     Covenants

      5.1.     Target Fund covenants to operate its business in the ordinary course between the date hereof and the Closing, it being understood that such ordinary course will include declaring and paying customary dividends and other distributions (including the dividend and/or other distribution referred to in paragraph 1.4) and changes in operations contemplated by the Fund’s normal business activities. Acquiring Fund covenants that it will continue to have no operations or assets other than in connection with its organization and the transactions contemplated by this Agreement until the Closing.

      5.2.     Target Fund covenants to call a shareholders’ meeting to be held prior to the date of the Closing to consider and act on this Agreement and to take all other action necessary to obtain approval of the transactions contemplated hereby.

      5.3.     Target Fund covenants that the Acquiring Fund Shares to be delivered hereunder are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms hereof.

      5.4.     Target Fund covenants that it will assist Ivy in obtaining information Ivy reasonably requests concerning the beneficial ownership of Target Fund Shares.

      5.5.     Target Fund covenants that its books and records (including all books and records required to be maintained under the 1940 Act and the rules and regulations thereunder) will be turned over to Ivy at the Closing.

      5.6.     Each Fund covenants to cooperate in preparing the Proxy Statement and the Registration Statement in compliance with applicable federal and state securities laws.

      5.7.     Each Fund covenants that it will, from time to time, as and when requested by the other Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the other Fund may deem necessary or desirable in order to vest in, and confirm to, (a) Acquiring Fund, title to and possession of all the Assets, and (b) Target Fund, title to and possession of the Acquiring Fund Shares to be delivered hereunder, and otherwise to carry out the intent and purpose hereof.

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      5.8.     Acquiring Fund covenants to use all reasonable efforts to have the post-effective amendment to Ivy’s registration statement on Form N-1A filed for purposes of registering the Acquiring Fund Shares (the “Acquiring Fund Registration Statement”) declared effective by the SEC prior to the Effective Time.

      5.9.     Acquiring Fund covenants to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and state securities laws it deems appropriate to continue its operations after the Effective Time.

      5.10.     Target Fund covenants that it will furnish to Acquiring Fund tax returns, signed by a manager or partner of KPMG LLP, for the fiscal year ended                     , 200     and signed pro forma tax returns for the period from                     , 200     to the date of the Closing Date (which pro forma tax returns shall be furnished promptly after the date of the Closing).

      5.11.     Subject to this Agreement, each Fund covenants to take or cause to be taken all actions, and to do or cause to be done all things, reasonably necessary, proper, or advisable to consummate and effectuate the transactions contemplated hereby.

6.     Conditions Precedent

      The obligations of each of Target Fund and Ivy hereunder shall be subject to (a) performance by the other party of all its obligations to be performed hereunder at or before the Effective Time, (b) all representations and warranties of the other party contained herein being true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated hereby, as of the Effective Time, with the same force and effect as if made at and as of the Effective Time, and (c) the following further conditions that, at or before the Effective Time:

      6.1.     This Agreement and the transactions contemplated hereby shall have been duly adopted and approved by each Board and shall have been approved by Target Fund’s shareholders in accordance with Target Fund’s Articles of Incorporation and bylaws and applicable law.

      6.2.     All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the transactions contemplated hereby. The Acquiring Fund Registration Statement and the Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness of either the Acquiring Fund Registration Statement or the Registration Statement shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin consummation of the transactions contemplated hereby under section 25(c) of the 1940 Act. All consents, orders, and permits of federal, state, and local regulatory authorities (including the SEC and state securities authorities) deemed necessary by either Target Fund or Ivy to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on either Fund’s assets or properties, provided that either Target Fund or Ivy may for itself waive any of such conditions.

      6.3.     The Target Fund shall have furnished to the Acquiring Fund a certificate, signed by the President (or any Vice President) and the Treasurer of the Target Fund, as to the adjusted tax basis in the hands of the Target Fund of the securities delivered to the Acquiring Fund pursuant to this Agreement

      6.4.     At the Effective Time, no action, suit, or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the transactions contemplated hereby.

      6.5.     Target Fund shall have received an opinion of Bell, Boyd & Lloyd LLC, counsel to Ivy substantially to the effect that:

      6.5.1.     Acquiring Fund is a duly established series of Ivy, a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts with power under its declaration of trust to own all its properties and assets and, to the knowledge of such

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counsel, to carry on its business as described in its Registration Statement on Form N-1A (as amended to date);

      6.5.2.     This Agreement has been duly authorized, executed, and delivered by Ivy on behalf of Acquiring Fund; no approval of this Agreement by Acquiring Fund’s shareholders is required under Ivy’s declaration of trust or bylaws or applicable law; and assuming due authorization, execution, and delivery of this Agreement by Target Fund and that the Proxy Statement and the Registration Statement comply with all applicable provisions of federal securities laws, this Agreement is a valid and binding obligation of Ivy with respect to Acquiring Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      6.5.3.     The Acquiring Fund Shares to be issued for transfer and delivery to the Shareholders as provided by this Agreement have been duly authorized and, upon such transfer and delivery, will be validly issued, fully paid and non-assessable Class A shares of the Acquiring Fund, assuming that as consideration for such shares not less than the net asset value and the par value of such shares has been paid and that the conditions set forth in this Agreement have been satisfied;

      6.5.4.     The execution and delivery of this Agreement by Ivy on behalf of the Acquiring Fund did not, and the consummation of Ivy’s obligations hereunder will not, violate Ivy’s declaration of trust or by laws or any provision of any agreement filed as an exhibit to Ivy’s registration statement on Form N-1A, as amended to date, and to which Ivy (with respect to Acquiring Fund) is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any such agreement, or, to the knowledge of such counsel, any judgment or decree to which Ivy (with respect to Acquiring Fund) is a party or by which it is bound, except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target Fund;

      6.5.5.     To the knowledge of such counsel, no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Ivy (on behalf of Acquiring Fund) of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws;

      6.5.6.     To the knowledge of such counsel (after inquiry of officers of Ivy but without having made any further investigation), (a) no material litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Ivy (with respect to Acquiring Fund) or any of Acquiring Fund’s properties or assets and (b) Ivy (with respect to Acquiring Fund) is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Acquiring Fund’s business, in each case except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Target Fund; and

      6.5.7.     After inquiry of officers of Ivy by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to Acquiring Fund on or before the date of mailing of the Proxy Statement or the date of such opinion which is required to be disclosed in the Registration Statement which is not disclosed therein.

In rendering such opinion, such counsel may (1) rely, as to matters governed by the laws of the State of Massachusetts, on an opinion of competent Massachusetts counsel, (2) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (3) limit such opinion to applicable federal and state law, and (4) define the word “knowledge” and related terms to mean the knowledge of attorneys then with such counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization.

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      6.6.     Ivy shall have received an opinion of Dorsey & Whitney LLP, counsel to Target Fund, substantially to the effect that:

      6.6.1.     Target Fund is a corporation duly organized, validly existing, and in good standing under the laws of the State of Minnesota with power under its Articles of Incorporation to own all its properties and assets and, to the knowledge of such counsel, to carry on its business as described in its registration statement on Form N-1A, as amended to date;

      6.6.2.     This Agreement (a) has been duly authorized, executed, and delivered by Target Fund and (b) assuming due authorization, execution, and delivery of this Agreement by Ivy on behalf of Acquiring Fund, is a valid and binding obligation of Target Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws relating to or affecting creditors’ rights and by general principles of equity;

      6.6.3.     The execution and delivery of this Agreement by Target Fund did not, and the consummation of Target Fund’s obligations hereunder will not, violate Target Fund’s Articles of Incorporation or bylaws or any provision of any agreement filed as an exhibit to Target Fund’s registration statement on Form N-1A, as amended to date, and to which Target Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any such agreement, or, to the knowledge of such counsel, any judgment, or decree to which Target Fund is a party or by which it is bound, except as set forth in such opinion or as previously disclosed in writing to and accepted by Ivy;

      6.6.4.     To the knowledge of such counsel, no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Target Fund of the transactions contemplated herein, except those obtained under the 1933 Act, the 1934 Act, and the 1940 Act and those that may be required under state securities laws;

      6.6.5.     To the knowledge of such counsel (after inquiry of officers of Target Fund but without having made any further investigation), (a) no material litigation, administrative proceeding, or investigation of or before any court or governmental body is pending or threatened as to Target Fund or any of its properties or assets and (b) Target Fund is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects Target Fund’s business, in each case except as set forth in such opinion or as otherwise disclosed in writing to and accepted by Ivy;

      6.6.6.     All issued and outstanding shares of Target Fund are validly issued, fully paid and non-assessable, assuming that as consideration for such shares not less than the net asset value of such shares has been paid, and assuming that such shares were issued in accordance with Target Fund’s registration statement on Form N-1A, or any amendments thereto, in effect at the time of such issuance;

      6.6.7.     Target Fund has the power to sell, assign, transfer and deliver the assets to be transferred by it under this Agreement, and, upon consummation of the transactions contemplated by this Agreement, Target Fund will have duly transferred such assets to Acquiring Fund; and

      6.6.8.     After inquiry of officers of the Target Fund by such counsel, but without having made any other investigation, there is no legal or governmental proceeding relating to Target Fund on or before the date of mailing of the Proxy Statement or the date of such opinion which is required to be disclosed in the Registration Statement which is not disclosed therein.

In rendering such opinion, such counsel may (1) make assumptions regarding the authenticity, genuineness, and/or conformity of documents and copies thereof without independent verification thereof, (2) limit such opinion to applicable federal and state law, and (3) define the word “knowledge” and related terms to mean the knowledge of attorneys then with such counsel who have devoted substantive attention to matters directly related to this Agreement and the Reorganization.

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      6.7.     Target Fund and Ivy each shall have received an opinion of Dorsey & Whitney LLP, addressed to and in form and substance reasonably satisfactory to it, as to the federal income tax consequences mentioned below (“Tax Opinion”). In rendering the Tax Opinion, such counsel may rely as to factual matters, exclusively and without independent verification, on the representations and warranties made in this Agreement, which such counsel may treat as representations and warranties made to it, and in separate letters addressed to such counsel and the certificates delivered pursuant to paragraph 3.4. The Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein and conditioned on consummation of the Reorganization in accordance with this Agreement, for federal income tax purposes:

      6.7.1.     Acquiring Fund’s acquisition of the Assets in exchange solely for Acquiring Fund Shares and its assumption of Target Fund’s liabilities, followed by Target Fund’s distribution of those shares pro rata to the Shareholders in exchange for their Target Fund Shares, will qualify as a reorganization within the meaning of section 368(a)(1) of the Code, and each Fund will be “a party to a reorganization” within the meaning of section 368(b) of the Code;

      6.7.2.     Target Fund will recognize no gain or loss on the transfer of the Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and Acquiring Fund’s assumption of Target Fund’s liabilities or on the subsequent distribution of those shares to the Shareholders in exchange for their Target Fund Shares;

      6.7.3.     Acquiring Fund will recognize no gain or loss on its receipt of the Assets in exchange solely for Acquiring Fund Shares and the assumption by Acquiring Fund of the liabilities of Target Fund;

      6.7.4.     Acquiring Fund’s basis in the Assets will be the same as Target Fund’s basis therein immediately before the Reorganization, and Acquiring Fund’s holding period for the Assets will include Target Fund’s holding period therefor;

      6.7.5.     A Shareholder will recognize no gain or loss on the exchange of all its Target Fund Shares solely for Acquiring Fund Shares pursuant to the Reorganization. Shareholders subject to taxation will recognize income upon receipt of any net investment income or net capital gains of Target Fund which are distributed by Target Fund prior to the Closing;

      6.7.6.     A Shareholder’s aggregate basis in the Acquiring Fund Shares to be received by it in the Reorganization will be the same as the aggregate basis in its Target Fund Shares to be surrendered in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will include its holding period for those Target Fund Shares, provided the Shareholder held them as capital assets at the Effective Time; and

      6.7.7.     Acquiring Fund will succeed to and take into account the items of Target Fund described in Section 381(c) of the Code. Acquiring Fund will, in each instance, take these items into account subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the Regulations thereunder.

Notwithstanding subparagraphs 6.7.2 and 6.7.4, the Tax Opinion may state that no opinion is expressed as to the effect of the Reorganization on the Funds or any Shareholder with respect to any asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. At any time before the Closing, either Target Fund or Ivy may waive any of the foregoing conditions (except the condition set forth in paragraph 6.1) if, in the judgment of its Board, such waiver will not have a material adverse effect on the interests of Target Fund’s or Acquiring Fund’s shareholders, as the case may be.

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7.     Brokerage Fees

      Each of Target Fund and Ivy represent and warrant to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.

8.     Expenses; Indemnification

      8.1     The parties hereto understand and agree that the cost of the transactions contemplated by this Agreement are being borne by Advantus Capital Management, Inc.

      8.2     Acquiring Fund agrees to indemnify and hold harmless Target Fund and each of Target Fund’s directors and officers from and against any and all losses, claims, damages, liabilities or expenses (including the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly or severally, Target Fund or any of Target Fund’s directors or officers may become subject, insofar as any such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by Ivy or Acquiring Fund of any of their representations, warranties, covenants or agreements set forth in this Agreement.

      8.3     Target Fund agrees to indemnify and hold harmless Ivy, Acquiring Fund and each of Ivy’s trustees and officers from and against any and all losses, claims, damages, liabilities or expenses (including the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly or severally, Ivy, Acquiring Fund or any of Ivy’s trustees or officers may become subject, insofar as any such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by Target Fund of any of its representations, warranties, covenants or agreements set forth in this Agreement.

9.     Entire Agreement; No Survival

      Neither party has made any representation, warranty, or covenant not set forth herein, and this Agreement constitutes the entire agreement between the parties. The representations, warranties and covenants contained in Articles 4 and 5 of this Agreement, other than those contained in paragraphs 4.2.12, 5.5, 5.7, 5.9 and 5.10, shall not survive the Closing.

10.     Termination of Agreement

      This Agreement may be terminated at any time at or prior to the Effective Time, whether before or after approval by Target Fund’s shareholders:

      10.1.     By either Target Fund or Ivy (a) in the event of the other party’s material breach of any representation, warranty, or covenant contained herein to be performed at or prior to the Effective Time, (b) if a condition to its obligations has not been met and it reasonably appears that such condition will not or cannot be met, or (c) if the Closing has not occurred on or before December 31, 2003;

      10.2.     If required by any final, non-appealable order, decree or judgment of any court or governmental body; or

      10.3.     By the parties’ mutual agreement.

      In the event of termination under paragraphs 10.1(c), 10.2 or 10.3, there shall be no liability for damages on the part of either party to the other party.

11.     Amendment

      This Agreement may be amended, modified, or supplemented at any time, notwithstanding approval thereof by Target Fund’s shareholders, in any manner mutually agreed on in writing by the parties; provided that following such approval no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to Target Fund shareholders under this Agreement to the detriment of such shareholders without their further approval.

B-12

12.     Miscellaneous

      12.1.     This Agreement shall be governed by and construed in accordance with the internal laws of the State of Massachusetts; provided that, in the case of any conflict between such laws and the federal securities laws, the latter shall govern.

      12.2.     Nothing expressed or implied herein is intended or shall be construed to confer upon or give any person, firm, trust, or corporation other than the parties and their respective successors and assigns any rights or remedies under or by reason of this Agreement.

      12.3.     This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been executed by each party and delivered to the other party hereto. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

      IN WITNESS WHEREOF, each party has caused this Agreement to be executed and delivered by its duly authorized officers as of the day and year first written above.

IVY FUNDS

on behalf of its series                     Fund

By: 

Its: President

ADVANTUS                     FUND, INC.

By: 

Its: President

Agreed and accepted as to paragraph 8.1 only

ADVANTUS CAPITAL MANAGEMENT, INC.

By: 

Its: President

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APPENDIX C

Set forth in this Appendix are discussions of the performance of Ivy Small Cap Growth Fund, Ivy Large Cap Growth Fund and Ivy Core Equity Fund during the fiscal year ended March 31, 2003. Each of these funds is a series of Ivy Funds, Inc., which was known as W&R Funds, Inc. at the time of the discussions below.

MANAGER’S DISCUSSION

     March 31, 2003

     An interview with Grant P. Sarris, portfolio manager of W&R Funds, Inc. — Small Cap Growth Fund

This report relates to the operation of W&R Funds, Inc. — Small Cap Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund’s performance during that period.

How did the Fund perform during the last fiscal year?

In a difficult environment for equities, the Fund showed a negative return for the fiscal year. However, the Fund significantly outperformed its benchmark index. The Class C shares of the Fund decreased 22.70 percent for the fiscal year, compared with the Russell 2000 Growth Index (reflecting the performance of securities that generally represent the small companies sector of the stock market), which decreased 31.62 percent for the year, and the Lipper Small-Cap Growth Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which decreased 30.88 percent for the same period.

What helped the Fund outperform its benchmark index during the fiscal year?

We believe that the Fund did better than the index primarily through individual stock selection. Although we had less of an emphasis on technology and producer durables than the benchmark did, and this helped performance a small amount, on the whole sector weightings had minimal impact on the Fund’s relative performance.

What other market conditions or events influenced the Fund’s performance during the fiscal year?

Obviously, this past fiscal year was a challenging year for equity returns, and particularly for those of small-cap growth equities. Economic growth continued to be weak, with no strong recovery in sight. In this environment, we took a somewhat conservative approach, which helped relative performance.

What strategies and techniques did you employ that affected performance during the fiscal year?

In keeping with our conservative approach, we emphasized companies with solid balance sheets and consistent, albeit slower, growth prospects. Cash levels were kept in the mid-teens as a percentage of the Fund for most of the year. However, due to the timing of money flows in and out of the Fund, cash levels had almost no impact on the Fund’s performance.

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MANAGER’S DISCUSSION (Continued)

     March 31, 2003

What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward?

The Fund was slightly overweight in health care, energy, and consumer discretionary shares throughout the past year. Producer durables, technology, and financials were underemphasized versus the benchmark. Although the magnitude of these relative weightings was very small, they resulted in a more balanced portfolio than in the recent past. At present, we would expect the above relative weightings to continue until a clear leading sector can be identified. We feel this will be more likely when there is greater visibility of an economic recovery. Going forward, we believe that individual stock selection will be of utmost importance in this sideways market. Our focus continues to be on companies that we feel have the financial wherewithal to weather the current storm, while having strong potential to grow when the economy turns around.

Respectfully,

Grant P. Sarris
Manager
W&R Small Cap Growth Fund

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Comparison of Change in Value of $10,000 Investment

	W&R				Lipper
	Small Cap				Small-Cap
	Growth		Russell		Growth
	Fund,		2000		Funds
	Class C		Growth		Universe
	Shares(1)		Index		Average
03-31-93		10,000		10,000		10,000
03-31-94		12,316		11,076		11,329
03-31-95		15,101		11,859		12,394
03-31-96		19,113		15,559		17,043
03-31-97		17,016		14,651		16,983
03-31-98		28,139		20,687		24,967
03-31-99		34,219		18,396		23,348
03-31-00		59,330		29,248		44,795
03-31-01		38,463		17,624		28,664
03-31-02		42,810		18,509		30,577
03-31-03		33,091		12,656		21,134

(1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.

Average Annual Total Return⁽²⁾

	Class A			Class B			Class C(3)			Class Y
1-year period ended 3-31-03		-26.58	%		-26.06	%		-22.70	%		-21.95	%
5-year period ended 3-31-03		—			—			3.30	%		4.20	%
10-year period ended 3-31-03		—			—			12.71	%		—
Since inception of Class through 3-31-03(4)		-17.44	%		-16.55	%		—			9.34	%

(2)	Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(3)	Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund’s original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B’s performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00.
(4)	7-3-00 for Class A shares, 7-6-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders).
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

C-3

MANAGER’S DISCUSSION

     March 31, 2003

     An interview with Daniel P. Becker, portfolio manager of W&R Funds, Inc. — Large Cap Growth Fund

This report relates to the operation of W&R Funds, Inc. — Large Cap Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund’s performance during that period.

How did the Fund perform during the last fiscal year?

In a difficult environment for large-cap U.S. stocks, the Fund posted a negative return for the period. Class A shares of the Fund declined 21.39 percent before the impact of sales load, and declined 25.91 percent after the impact of sales load. This compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which decreased 24.76 percent during the period, and the Lipper Large-Cap Growth Funds Universe Average (generally representing the performance of the universe of funds with similar investment objectives), which declined 27.02 percent during the period. It should be noted that the values for the benchmark index and the Lipper category do not reflect a sales load.

Why did the Fund lag (with sales load impact) its benchmark index during the fiscal year?

Primarily, in relation to its index, the Fund was adversely affected by the impact of the Fund’s sales load. On a more favorable note, large holdings in health care companies early in the year, and select technology companies later in the year, had a positive effect on performance relative to the benchmark. In addition, the Fund was underweight in some of the large underperforming stocks that make up a large part of the S&P 500 Index.

What other market conditions or events influenced the Fund’s performance during the fiscal year?

The year was characterized by a continued slowdown in economic growth, driven primarily by the capital spending- and industrial cyclical-linked industries. Many years of prosperity had resulted in overcapacity in many economically sensitive industries, and the unwinding of the prior-spending boom had a negative effect on the economy. Companies were quick to restructure by reducing employee levels, capital spending and R&D (research and development). These further cuts deepened the economic problems and were responsible for the sharpest decline in corporate profits in decades. Stocks leveraged to these cyclical events did very poorly in 2002. However, some stocks in health care and consumer staple industries did very well as they were far removed from the economic turmoil.

C-4

MANAGER’S DISCUSSION (Continued)

     March 31, 2003

What strategies and techniques did you employ that specifically affected the Fund’s performance?

During the middle of 2002, we felt it was appropriate to start to position the Fund to benefit from a possible economic recovery. We felt the recovery would appear by early 2003, and added to positions in technology and decreased positions in what we felt were less economically leveraged stocks in consumer-related areas. The performance of the Fund was initially hurt by these moves. But by late 2002, performance had been enhanced by this strategy, which continued into 2003.

What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward?

During 2002, we emphasized the pharmaceutical, tobacco, financial and biotech industries. We tried to establish a balance between what we view as high quality, very profitable stable businesses and those that were less profitable but that we felt were set to improve as the economy improved.

Looking forward, we intend to maintain our balance between those companies that we feel should benefit from stronger economic growth and those whose profits are relatively immune to economic fluctuations. We intend to emphasize drug, biotech, financial and capital-spending-linked companies. As we go further into the fiscal year, we expect to increase our exposure to economically linked industries and decrease our holdings in more stable businesses.

Respectfully,

Daniel P. Becker
Manager
W&R Large Cap Growth Fund

C-5

Comparison of Change in Value of $10,000 Investment

	W&R
	Large				Lipper
	Cap				Large-Cap
	Growth				Growth
	Fund,		S&P		Funds
	Class A		500		Universe
	Shares(1)		Index		Average
07-3-00	$	9,425	$	10,000	$	10,000
03-31-01		9,023		8,043		6,528
03-31-02		8,766		8,060		6,154
03-31-03		6,891		6,064		4,491

(1) The value of the investment in the Fund is impacted by the sales load at the time of the investment and by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.

Average Annual Total Return⁽²⁾

	Class A			Class B			Class C			Class Y
1-year period ended 3-31-03		-25.91	%		-25.85	%		-22.28	%		-21.26	%
Since inception of Class through 3-31-03(3)		-12.66	%		-13.15	%		-11.64	%		-10.77	%

(2)	Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(3)	6-30-00 for Class A shares, 7-6-00 for Class B shares, 7-3-00 for Class C shares and 7-6-00 for Class Y shares (the date on which shares were first acquired by shareholders).
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

C-6

MANAGER’S DISCUSSION

     March 31, 2003

     An interview with James D. Wineland, portfolio manager of W&R Funds, Inc. — Core Equity Fund

This report relates to the operation of W&R Funds, Inc. — Core Equity Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund’s performance during that period.

How did the Fund perform during the last fiscal year?

The Fund had a negative return for the fiscal year, slightly underperforming its benchmark indexes. In a challenging economic environment, most large capitalization stocks struggled, and the benchmark index experienced a large decline for the period. The Class C shares of the Fund declined 26.03 percent during the last fiscal year, compared with the Lipper Large-Cap Core Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 25.78 percent for the year, and the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 24.76 percent for the year.

Why did the Fund lag its benchmark index during the fiscal year?

The Fund owned several stocks that did poorly and that detracted from performance. In addition, holdings in the electric utilities sector underperformed the market and hindered the Fund’s performance, especially in the summer months of 2002.

What other market conditions or events influenced the Fund’s performance during the fiscal year?

During the last 12 months, the financial markets have been dominated by geopolitical events surrounding the War on Terrorism and events in Iraq. High energy prices and weak global economies helped create a general atmosphere of very sluggish earnings growth. The technology and telecommunications sectors continued to be very lackluster as corporate capital spending remained weak. The key event for all financial markets in the last quarter of the period was the ongoing international debate surrounding, and the eventual start of, the war with Iraq.

C-7

MANAGER’S DISCUSSION (Continued)

     March 31, 2003

What strategies and techniques did you employ that specifically affected the Fund’s performance?

In the difficult market of the past year, preservation of capital was an important objective. Accordingly, we raised the cash position in the Fund, a move driven by our concerns regarding earnings and the global economy. We also placed emphasis on increasing the overall dividend yield of the portfolio. We have focused on stocks of companies that we believe to have excellent financial strength and companies that are, in our view, unlikely to produce negative accounting “surprises.”

What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward?

The portfolio continues to emphasize aerospace/defense, energy, health care and utility stocks. We remain substantially underweighted in consumer-related and technology issues. Looking ahead, we feel that the short-term outlook for the stock market is not favorable. While a sharp positive rebound is likely to follow any successful conclusion to the war in Iraq, we think global economic difficulties also are likely to limit the magnitude and duration of any “relief rally.” We remain conservatively positioned, emphasizing what we feel are high-quality, financially strong companies with meaningful competitive advantages in their industries.

Respectfully,

James D. Wineland
Manager
W&R Core Equity Fund

C-8

Comparison of Change in Value of $10,000 Investment

	W&R				Lipper
	Core				Large-Cap
	Equity				Core
	Fund,		S&P		Funds
	Class C		500		Universe
	Shares(1)		Index		Average
03-31-93		10,000		10,000		10,000
03-31-94		10,831		10,147		10,366
03-31-95		11,500		11,727		11,482
03-31-96		14,806		15,492		14,811
03-31-97		16,572		18,550		17,083
03-31-98		23,129		27,462		24,544
03-31-99		24,857		32,550		28,101
03-31-00		30,819		38,465		33,764
03-31-01		25,766		30,059		26,140
03-31-02		24,750		30,122		25,648
03-31-03		18,308		22,665		19,037

(1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions.

Average Annual Total Return⁽²⁾

	Class A			Class B			Class C(3)			Class Y
1-year period ended 3-31-03		-29.71	%		-29.15	%		-26.03	%		-25.35	%
5-year period ended 3-31-03		—			—			-4.57	%		-3.75	%
10-year period ended 3-31-03		—			—			6.23	%		—
Since inception of Class through 3-31-03(4)		-18.70	%		-19.02	%		—			4.74	%

(2)	Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
(3)	Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund’s original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B’s performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00.
(4)	7-3-00 for Class A shares, 7-11-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders).
	Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

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APPENDIX D

IVY FUNDS

Ivy Balanced Fund

Ivy Bond Fund

Ivy International Balanced Fund

Ivy Mortgage Securities Fund

Ivy Real Estate Securities Fund

Ivy Small Cap Value Fund

Ivy Value Fund

The Securities and Exchange Commission has not approved or disapproved the Fund’s securities, or determined whether this Prospectus is accurate or adequate. It is a criminal offense to state otherwise.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Prospectus
     , 2003

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Table of Contents

AN OVERVIEW OF THE FUNDS
Ivy Balanced Fund
Ivy Bond Fund
Ivy International Balanced Fund
Ivy Mortgage Securities Fund
Ivy Real Estate Securities Fund
Ivy Small Cap Value Fund
Ivy Value Fund
Additional Information About Principal Investment Strategies and Risks
YOUR ACCOUNT
	Choosing a Share Class
	Ways to Set Up Your Account
	Buying Shares
	Selling Shares
	Distributions and Taxes
THE MANAGEMENT OF THE FUNDS
	Portfolio Management
	Management Fee
FINANCIAL HIGHLIGHTS

An Overview of the Fund

Ivy Balanced Fund

Goals

Ivy Balanced Fund seeks, as a primary goal, to provide current income to the extent that, in the opinion of Waddell & Reed Ivy Investment Company (WRIICO), the Fund’s investment manager, market and economic conditions permit. As a secondary goal, the Fund seeks long-term appreciation of capital.

Principal Investment Strategies

The Fund invests primarily in a mix of stocks, debt securities and short- term instruments, depending on market conditions. In general, the Fund invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Fund owns common stocks in order to provide possible appreciation of capital and some dividend income. The Fund ordinarily invests at least 25% of its total assets in fixed income securities.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Balanced Fund. These include:

• Management Risk - the Fund’s performance will be affected by WRIICO’s skill in allocating the Fund’s assets among different types of investments.

• Credit Risk - the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security when due.

• Fund Risk - the risk that Fund performance may not meet or exceed that of the market as a whole.

• Income Risk - the risk that the Fund may experience a decline in its income due to falling interest rates.

• Interest Rate Risk - the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates. This risk is generally greater for bonds with longer maturities.

• Market Risk - the risk that equity securities are subject to adverse trends in equity markets.

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• Foreign Securities Risk — the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Balanced Fund is designed for investors seeking current income and the potential for long-term appreciation of capital. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Spectrum Fund which was reorganized as the Ivy Balanced Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy Balanced Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown for Advantus Spectrum Fund in the Financial Highlights section of this Prospectus and in the Advantus Spectrum Fund ‘s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1993	5.51	%
1994	-2.14	%
1995	24.12	%
1996	11.58	%
1997	18.18	%
1998	22.60	%
1999	14.64	%
2000	-10.33	%
2001	-15.27	%
2002	-9.30	%

In the period shown in the chart, the highest quarterly return was 14.70% (the fourth quarter of 1998) and the lowest quarterly return was -17.38% (the first quarter of 2001). The Class A return for the year through June 30, 2003 was 8.87%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s

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returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

							10 Years
	1 Year			5 Years			(or Life of Class)
Class A (began on 11-16-87)
Before Taxes		-14.52	%		-1.81	%		4.43	%
After Taxes on Distributions		-15.17	%		-3.55	%		2.27	%
After Taxes on Distributions and Sale of Fund Shares		-8.90	%[2]		-1.74	%[2]		2.92	%
Indexes[3]
S&P 500 Index		-22.11	%		-0.59	%		9.34	%
Lehman Brothers Aggregate Bond Index		10.27	%		7.54	%		7.51	%

[1]Performance shown is that of the Advantus Spectrum Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy Balanced Fund. Class A shares of the Ivy Balanced Fund would generally have had substantially similar returns to the Class A shares of the Advantus Spectrum Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Spectrum Fund differ from expenses for Class A of shares of Ivy Balanced Fund.

[2]After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

[3]Reflects no deduction for fees, expenses or taxes.

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Fees and Expenses

Ivy Balanced Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees	Class A			Class B			Class C			Class Y
(fees paid directly from your investment)	Shares			Shares			Shares			Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]	None			None			None			None

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.70	%		0.70	%		0.70	%		0.70	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.56	%		0.50	%		0.50	%		0.38	%
Total Annual Fund Operating Expenses		1.51	%		2.20	%		2.20	%		1.33	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

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If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	720		$	1,025	$	1,351	$	2,273
Class B Shares	$	623		$	988	$	1,280	$	2,358	[1]
Class C Shares	$	223	[2]	$	688	$	1,180	$	2,534
Class Y Shares	$	135		$	421	$	729	$	1,601

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	720	$	1,025	$	1,351	$	2,273
Class B Shares	$	223	$	688	$	1,180	$	2,358	[1]
Class C Shares	$	223	$	688	$	1,180	$	2,534
Class Y Shares	$	135	$	421	$	729	$	1,601

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy Bond Fund

Goal

Ivy Bond Fund seeks a high level of current income consistent with prudent investment risk.

Principal Strategies

The Fund invests in a variety of investment-grade debt securities. These debt securities include, among other things, corporate and mortgage-backed securities, debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, asset-backed securities and other debt obligations of U.S. banks or savings and loan associations. In selecting securities, the Fund’s investment sub-advisor, Advantus Capital Management, Inc., considers factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Bond Fund. These include:

• Management Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

• Call Risk — the risk that securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

• Credit Risk — the risk that an issuer of a debt security or fixed income obligation will not make payments on the security or obligation when due.

• Extension Risk — the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities.

• Income Risk — the risk that the Fund’s income may decrease due to falling interest rates

• Interest Rate Risk — the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest

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	rates (note: one measure of interest rate risk is effective duration, explained under “Additional Information about Principal Investment Strategies and Risks.”)
•	Prepayment Risk — the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Bond Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long- term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Bond Fund which was reorganized as the Ivy Bond Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy Bond Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information for Advantus Bond Fund shown in the Financial Highlights section of this Prospectus and in the Advantus Bond Fund’s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1993	11.34	%
1994	-5.75	%
1995	20.63	%
1996	2.48	%
1997	10.05	%
1998	5.31	%
1999	-2.57	%
2000	10.64	%
2001	8.00	%
2002	9.78	%

     In the period shown in the chart, the highest quarterly return was 7.20% (the second quarter of 1995) and the lowest quarterly return was -4.78% (the first quarter of 1994). The Class A return for the year through June 30, 2003 was 4.71%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

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Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

							10 Years
	1 Year			5 Years			(or Life of Class
Class A (began on 8-14-87)
Before Taxes		3.47	%		4.87	%		6.12	%
After Taxes on Distributions		1.54	%		2.50	%		3.51	%
After Taxes on Distributions and Sale of Fund Shares		2.07	%		2.67	%		3.55	%
Index[2]
Lehman Brothers Aggregate Bond Index		10.27	%		7.54	%		7.51	%

[1]Performance shown is that of the Advantus Bond Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy Bond Fund. Class A shares of Ivy Bond Fund would generally have had substantially similar returns to Class A shares of the Advantus Bond Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Bond Fund differ from expenses for Class A shares of Ivy Bond Fund.

[2]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy Bond Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

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Shareholder Fees		Class A			Class B			Class C			Class Y
(fees paid directly from your investment)		Shares			Shares			Shares			Shares
	Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
	Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]		None			None			None			None

Annual Fund Operating Expenses		Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)		Shares			Shares			Shares			Shares
	Management Fees		0.53	%		0.53	%		0.53	%		0.53	%
Distribution and Service (12b-1) Fees			0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]			0.67	%		0.63	%		0.63	%		0.55	%
Total Annual Fund Operating Expenses			1.45	%		2.16	%		2.16	%		1.33	%
Expenses Waived[5]			0.30	%		0.00	%		0.00	%		0.00	%
Net Fund Operating Expenses			1.15	%		2.16	%		2.16	%		1.33	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

[5]WRIICO has contractually agreed to waive the 12b-1 fees applicable to Class A shares and sufficient transfer agency fees to cap the expenses for Class A at 1.15% through December 31, 2004.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of

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shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	685		$	958	$	1,275	$	2,171
Class B Shares	$	619		$	976	$	1,259	$	2,311	[1]
Class C Shares	$	219	[2]	$	675	$	1,158	$	2,490
Class Y Shares	$	135		$	421	$	728	$	1,599

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	685	$	958	$	1,275	$	2,171
Class B Shares	$	219	$	676	$	1,159	$	2,311	[1]
Class C Shares	$	219	$	675	$	1,158	$	2,490
Class Y Shares	$	135	$	421	$	728	$	1,599

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy International Balanced Fund

Goal

Ivy International Balanced Fund seeks a high level of total return.

Principal Strategies

The Fund invests in equity and debt securities issued by large and small international companies and governmental agencies. Normally, the Fund invests approximately 50% to 70% of its assets in international equity securities. In addition, the Fund invests approximately 30% to 50% of its assets in international investment-grade debt securities.

In selecting equity securities the Fund’s investment sub-advisor, Templeton Investment Counsel LLC, relies primarily on its analysis of the current market price of a company’s securities relative to the company’s long-term earnings potential. Debt securities are selected, after an analysis of trends in interest rates and economic conditions, based on the sub-advisor’s judgment as to which securities are more likely to perform well under those conditions.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy International Balanced Fund. These include:

• Management Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

• Credit Risk — the risk that an issuer of a debt security or fixed income obligation will not make payments on the security when due

• Currency Risk — the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the

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	amount of income or gain received on such securities
•	Foreign Securities Risk — the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities
•	Fund Risk — the risk that Fund performance may not meet or exceed that of the market as a whole.
•	Income Risk — the risk that the Fund’s income may decrease due to falling interest rates.
•	Interest Rate Risk — the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under “Additional Information about Principal Investment Strategies and Risks”).
•	Market Risk — the risk that equity securities are subject to adverse trends in equity markets.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy International Balanced Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long-term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus International Balanced Fund which was reorganized as the Ivy International Balanced Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy International Balanced Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information for Advantus International Balanced Fund shown in the Financial Highlights section of this Prospectus and in the Advantus International Balanced Fund’s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1995	12.63	%
1996	17.41	%
1997	5.12	%
1998	3.55	%
1999	15.66	%
2000	1.27	%
2001	-8.74	%
2002	-3.73	%

In the period shown in the chart, the highest quarterly return was 9.83% (the fourth quarter of 1998) and the lowest quarterly return was             -12.45% (the third quarter of 2002). The Class A return for the year through June 30, 2003 was 13.30%.

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* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

	1 Year			5 Years			Life of Class
Class A (began on 9-16-94)
Before Taxes		-9.26	%		0.09	%		3.51	%
After Taxes on Distributions		-9.33	%		-1.30	%		1.74	%
After Taxes on Distributions and Sale of Fund Shares		-5.69	%[2]		-0.28	%		2.22	%
Indexes[3]
MSCI EAFE Index		-15.65	%		-2.61	%		-1.37	%
J.P. Morgan Non-U.S. Government Bond Index		22.09	%		4.97	%		5.67	%

[1]Performance shown is that of the Advantus International Balanced Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy International Balanced Fund. Class A shares of Ivy International Balanced Fund would generally have had substantially similar returns to the same class of shares of the Advantus International Balanced Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus International Balanced Fund differ from expenses for Class A shares of Ivy International Balanced Fund.

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[2]After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

[3]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy International Balanced Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees

Class A

Class B

Class C

Class Y

(fees paid directly from your investment)

Shares

Shares

Shares

Shares

Maximum Sales Charge (Load)

Imposed on Purchases (as a percentage of offering price)

5.75

%

None

None

None

Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)

None[2]

5

%

1

%

None

Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]

2.00

%

None

None

2.00

%

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.70	%		0.70	%		0.70	%		0.70	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.46	%		0.44	%		0.44	%		0.45	%
Total Annual Fund Operating Expenses		1.41	%		2.14	%		2.14	%		1.40	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

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Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	711		$	996	$	1,302	$	2,169
Class B Shares	$	617		$	968	$	1,247	$	2,282	[1]
Class C Shares	$	217	[2]	$	668	$	1,147	$	2,467
Class Y Shares	$	143		$	443	$	766	$	1,680

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	710	$	996	$	1,302	$	2,169
Class B Shares	$	217	$	668	$	1,147	$	2,282	[1]
Class C Shares	$	217	$	668	$	1,147	$	2,467
Class Y Shares	$	143	$	443	$	766	$	1,680

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy Mortgage Securities Fund

Goal

Ivy Mortgage Securities Fund seeks a high level of current income consistent with prudent investment risk.

Principal Strategies

The Fund invests primarily in mortgage-related securities, including investment-grade securities representing interests in pools of mortgage loans. In addition, the Fund may invest in a variety of other mortgage- related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting securities the Fund’s investment sub-advisor, Advantus Capital Management, Inc., considers factor such as prepayment risk, liquidity, credit quality and the type of loan and collateral underlying the security, as well as trends in economic conditions, interest rates and the mortgage market.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Mortgage Securities Fund. These include:

• Management Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

• Call Risk — the risk that callable securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest

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	the proceeds in other securities with generally lower interest rates.
•	Concentration Risk — the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund concentrates its investments in the mortgage and mortgage-finance industry.
•	Credit Risk — the risk that an issuer of a mortgage-backed security or fixed income obligation will not make payments on the security when due.
•	Extension Risk — the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities.
•	Income Risk — the risk that the Fund’s income may decrease due to falling interest rates.
•	Interest Rate Risk — the risk that the value of a mortgage-backed security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under “Additional Information about Principal Investment Strategies and Risks.”)
•	Liquidity Risk — the risk that mortgage-related securities purchased by the Fund, including restricted securities determined by the Fund’s investment sub-advisor to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment sub-advisor.
•	Prepayment Risk — the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Mortgage Securities Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long-term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Mortgage Securities Fund which was reorganized as the Ivy Mortgage Securities Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy Mortgage Securities Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information for Advantus Mortgage Securities Fund shown in the Financial Highlights section of this Prospectus and in the Advantus Mortgage Securities Fund’s shareholder reports is based on the Fund’s fiscal year.

D-15

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1993	8.44	%
1994	-3.59	%
1995	17.28	%
1996	4.49	%
1997	9.42	%
1998	6.94	%
1999	1.52	%
2000	12.12	%
2001	8.85	%
2002	9.15	%

In the period shown in the chart, the highest quarterly return was 5.72% (the second quarter of 1995) and the lowest quarterly return was -3.78% (the first quarter of 1994). The Class A return for the year through June 30, 2003 was 3.53%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

							10 Years
	1 Year			5 Years			(or Life of Class)
Class A (began on 8-3-85)
Before Taxes		2.87	%		6.39	%		6.69	%
After Taxes on Distributions		0.45	%		3.72	%		3.96	%
After Taxes on Distributions and Sale of Fund Shares		1.71	%		3.74	%		3.95	%
Index[2]
Lehman Brothers Mortgage-Backed Securities Index		8.75	%		7.34	%		7.28	%

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[1]Performance shown is that of the Advantus Mortgage Securities Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy Mortgage Securities Fund. Class A shares of Ivy Mortgage Securities Fund would generally have had substantially similar returns to Class A shares of the Advantus Mortgage Securities Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Mortgage Securities Fund differ from expenses for Class A shares of Ivy Mortgage Securities Fund.

[2]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy Mortgage Securities Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees	Class A			Class B			Class C			Class Y
(fees paid directly from your investment)	Shares			Shares			Shares			Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]	None			None			None			None

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.50	%		0.50	%		0.50	%		0.50	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.35	%		0.33	%		0.33	%		0.32	%
Total Annual Fund Operating Expenses		1.10	%		1.83	%		1.83	%		1.07	%
Expenses Waived[5]		0.15	%		0.00	%		0.00	%		0.00	%
Net Fund Operating Expenses		0.95	%		1.83	%		1.83	%		1.07	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares,

D-17

all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

[5]WRIICO has contractually agreed to waive sufficient 12b-1 fees applicable to Class A shares to cap the expenses for Class A at 0.95% through December 31, 2004.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	667		$	881	$	1,124	$	1,830
Class B Shares	$	585		$	874	$	1,088	$	1,952	[1]
Class C Shares	$	185	[2]	$	574	$	988	$	2,143
Class Y Shares	$	109		$	341	$	591	$	1,308

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	667	$	881	$	1,124	$	1,830
Class B Shares	$	185	$	574	$	988	$	1,952	[1]
Class C Shares	$	185	$	574	$	988	$	2,143
Class Y Shares	$	109	$	341	$	591	$	1,308

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy Real Estate Securities Fund

Goal

Ivy Real Estate Securities Fund seeks total return through a combination of capital appreciation and current income.

Principal Strategies

The Fund invests its assets primarily in real estate and real estate- related securities. “Real estate securities” include securities issued by companies that receive at least 50% of their gross revenue from the

D-18

construction, ownership, management, financing or sale of residential, commercial or industrial real estate. “Real estate-related securities” include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry.

Most of the Fund’s real estate securities portfolio will consist of securities issued by Real Estate Investment Trusts (REITs) that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs. In selecting securities, factors such as an issuer’s financial condition, financial performance, quality of management, policies and strategies, real estate properties and competitive market condition are considered by the Fund’s investment sub-advisor, Advantus Capital Management, Inc., The Fund then invests in those issuers which its investment sub-advisor determines have potential for long-term sustainable growth in earnings.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Real Estate Securities Fund. These include:

• Management Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

• Market Risk — the risk that equity securities are subject to adverse trends in equity markets.

• Concentration Risk — the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund concentrates its investments in the real estate and real estate related industry

• Fund Risk — the risk that Fund performance may not meet or exceed that of the market as a whole .

• Real Estate Risk — the risk that the value of the Fund’s investments may decrease due to a variety of factors related to the construction, development, ownership, financing, repair or servicing or other events affecting the value of real estate, buildings or other real estate fixtures.

• REIT-Related Risk — the risk that the value of the Fund’s securities issued by REITs (as discussed in “Additional Information about Principal Investment Strategies and Risks” below) will be adversely affected by changes in the value of the underlying property

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Real Estate Securities Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long-term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Real Estate Securities Fund which was reorganized as the Ivy Real Estate Securities Fund on      , 2003. Performance has not been restated to reflect the

D-19

estimated annual operating expenses of the Ivy Real Estate Securities Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information for Advantus Real Estate Securities Fund shown in the Financial Highlights section of this Prospectus and in the Advantus Real Estate Securities Fund’s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

2000	25.22	%
2001	10.01	%
2002	6.19	%

In the period shown in the chart, the highest quarterly return was 10.85% (the second quarter of 2001) and the lowest quarterly return was -9.01% (the third quarter of 2002). The Class A return for the year through June 30, 2003 was 3.53%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

D-20

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

	1 Year			Life of Class
Class A (began on 2-25-99)
Before Taxes		0.08	%		8.37	%
After Taxes on Distributions		-1.54	%		5.86	%
After Taxes on Distributions and Sale of Fund Shares		0.23	%[2]		5.57	%
Index[3]
Wilshire Associates Real Estate Securities Index		2.66	%		10.43	%

[1]Performance shown is that of the Advantus Real Estate Securities Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy Real Estate Securities Fund. Class A shares of Ivy Real Estate Securities Fund would generally have had substantially similar returns to Class A shares of the Advantus Real Estate Securities Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Real Estate Securities Fund differ from expenses for Class A shares of Ivy Real Estate Securities Fund.

[2]After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

[3]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy Real Estate Securities Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees	Class A			Class B			Class C			Class Y
(fees paid directly from your investment)	Shares			Shares			Shares			Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]	None			None			None			None

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.90	%		0.90	%		0.90	%		0.90	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.31	%		0.30	%		0.30	%		0.41	%
Total Annual Fund Operating Expenses		1.46	%		2.20	%		2.20	%		1.56	%

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[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	715		$	1,010	$	1,327	$	2,221
Class B Shares	$	623		$	988	$	1,280	$	2,345	[1]
Class C Shares	$	223	[2]	$	688	$	1,180	$	2,534
Class Y Shares	$	158		$	492	$	849	$	1,854

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	715	$	1,010	$	1,327	$	2,221
Class B Shares	$	223	$	688	$	1,180	$	2,345	[1]
Class C Shares	$	223	$	688	$	1,180	$	2,534
Class Y Shares	$	158	$	492	$	849	$	1,854

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy Small Cap Value Fund

Goal

Ivy Small Cap Value Fund seeks long-term accumulation of capital.

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Principal Strategies

The Fund primarily invests in various types of equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Fund generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000c Value Index. These equity securities will consist primarily of value common stocks, but may also include preferred stock and other securities convertible into equity securities. The Fund’s purchase of equity securities may include common stocks that are part of initial public offerings. In selecting equity securities, the Fund’s investment sub-advisor, State Street Research & Management Company, searches for those companies that appear to be undervalued or trading below their true worth, and examines such features as a firm’s financial condition, business prospects, competitive position and business strategy. The Fund looks for companies that appear likely to come back into favor with investors, for reasons that may range from good prospective earnings or strong management teams to new products or services.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Small Cap Value Fund. These include:

• Management Risk — securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

• Market Risk — the risk that equity securities are subject to adverse trends in equity markets.

• Fund Risk — the risk that Fund performance may not meet or exceed that of the market as a whole.

• Small Company Risk — the risk that equity securities of small capitalization companies are subject to greater price volatility due to, among other things, such companies’ small size, limited product lines, limited access to financing sources and limited management depth.

• Value Stock Risk — the risk that the value of a security believed by the Fund’s investment sub-advisor to be undervalued may never reach what the investment sub-advisor believes is its full value, or that such security’s value may decrease.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Small Cap Value Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long-term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Venture Fund which was reorganized as the Ivy Small Cap Value Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy Small Cap Value Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

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Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information for Advantus Venture Fund shown in the Financial Highlights section of this Prospectus and in the Advantus Venture Fund’s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1998	-7.30	%
1999	-3.93	%
2000	26.51	%
2001	15.98	%
2002	-18.68	%

In the period shown in the chart, the highest quarterly return was 21.39% (the fourth quarter of 2001) and the lowest quarterly return was -26.24% (the third quarter of 2002). The Class A return for the year through June 30, 2003 was 13.62%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

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AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

	1 Year			5 Years			Life of Class
Class A (began on 1-31-97)
Before Taxes		-23.40	%		0.03	%		4.61	%
After Taxes on Distributions		-24.51	%		-1.17	%		3.14	%
After Taxes on Distributions and Sale of Fund Shares		-13.25	%[2]		-0.31	%		3.24	%
Index[3]
Russell 2000 Value Index		-11.43	%		2.71	%		6.90	%

[1]Performance shown is that of the Advantus Venture Fund, restated to reflect current sales charges applicable to Class A of the Ivy Small Cap Value Fund. Class A shares of Ivy Small Cap Value Fund would generally have had substantially similar returns to Class A shares of the Advantus Venture Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Venture Fund differ from expenses for Class A shares of the Ivy Small Cap Value Fund.

[2]After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

[3]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy Small Cap Value Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees	Class A			Class B			Class C			Class Y
(fees paid directly from your investment)	Shares			Shares			Shares			Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]	None			None			None			None

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.85	%		0.85	%		0.85	%		0.85	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.34	%		0.32	%		0.32	%		0.38	%
Total Annual Fund Operating Expenses		1.44	%		2.17	%		2.17	%		1.48	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years,

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to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	713		$	1,004	$	1,317	$	2,200
Class B Shares	$	620		$	979	$	1,264	$	2,316	[1]
Class C Shares	$	220	[2]	$	679	$	1,164	$	2,503
Class Y Shares	$	151		$	468	$	808	$	1,768

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	713	$	1,004	$	1,317	$	2,200
Class B Shares	$	220	$	679	$	1,164	$	2,316	[1]
Class C Shares	$	220	$	679	$	1,164	$	2,503
Class Y Shares	$	151	$	468	$	808	$	1,768

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

An Overview of the Fund

Ivy Value Fund

Goal

Ivy Value Fund seeks long-term accumulation of capital.

Principal Strategies

The Fund seeks to achieve its goal by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Fund seeks to invest in stocks that are, in the opinion of WRIICO, undervalued relative

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to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Fund typically invests in large-cap companies, it may invest in securities of any size company.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Value Fund. These include:

• Value Stock Risk — the risk that the value of a security believed by WRIICO to be undervalued may never reach what the advisor believes is its full value, or that the security’s value may decrease.

• Fund Risk - the risk that the Fund Performance may not meet or exceed that of the market as a whole.

• Large Company Risk — the risk that a portfolio of large capitalization company securities may underperform the market as a whole.

• Manager Risk — the Fund’s performance will be affected by WRIICO’s skill in evaluating and selecting securities for the Fund.

• Market Risk — the risk that the equity securities are subject to adverse trends in equity markets.

• Foreign Securities Risk — the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund’s shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Value Fund seeks to achieve its investment objective over longer rather than shorter periods of time, and is designed for investors seeking long-term focus. You should consider whether the Fund fits your particular investment objectives.

Performance

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns compare with those of a broad measure of market performance. The performance shown below is the performance of the Advantus Cornerstone Fund which was reorganized as the Ivy Value Fund on      , 2003. Performance has not been restated to reflect the estimated annual operating expenses of the Ivy Value Fund. If those expenses were reflected, performance of the Fund would differ. The Fund’s past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund’s shareholder reports is based on the Fund’s fiscal year.

CHART OF YEAR-BY-YEAR RETURNS*
as of December 31 each year

1995	32.93	%
1996	30.13	%
1997	21.08	%
1998	0.70	%
1999	0.02	%
2000	-2.21	%
2001	-10.81	%
2002	-15.71	%

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In the period shown in the chart, the highest quarterly return was 14.82% (the fourth quarter of 1998) and the lowest quarterly return was -18.54% (the third quarter of 2002). The Class A return for the year through June 30, 2003 was 10.79%.

* Any applicable account fees or sales charges are not reflected, and if they were, the returns shown above would be lower. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structures.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund’s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

AVERAGE ANNUAL TOTAL RETURNS[1]
as of December 31, 2002

	1 Year			5 Years			Life of Class
Class A (began on 9-16-94)
Before Taxes		-20.43	%		-6.91	%		4.22	%
After Taxes on Distributions		-20.69	%		-7.23	%		2.63	%
After Taxes on Distributions and Sale of Fund Shares		-12.54	%[2]		-5.46	%[2]		2.81	%
Index[3]
Russell 1000 Value Index		-15.52	%		1.16	%		10.62	%

[1]Performance shown is that of the Advantus Cornerstone Fund, restated to reflect current sales charges applicable to Class A shares of the Ivy Value Fund. Class A shares of Ivy Value Fund would generally have had

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substantially similar returns to Class A shares of the Advantus Cornerstone Fund because they would have been invested in the same portfolio of securities, although returns would be different to the extent that expenses for Class A shares of the Advantus Cornerstone Fund differ from expenses for Class A shares of Ivy Value Fund.

[2]After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

[3]Reflects no deduction for fees, expenses or taxes.

Fees and Expenses

Ivy Value Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees	Class A			Class B			Class C			Class Y
(fees paid directly from your investment)	Shares			Shares			Shares			Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)		5.75	%	None			None			None
Maximum Deferred Sales Charge (Load)[1] (as a percentage of lesser of amount invested or redemption value)	None[2]				5	%		1	%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)[3]	None			None			None			None

Annual Fund Operating Expenses	Class A			Class B			Class C			Class Y
(expenses that are deducted from Fund assets)	Shares			Shares			Shares			Shares
Management Fees		0.70	%		0.70	%		0.70	%		0.70	%
Distribution and Service (12b-1) Fees		0.25	%		1.00	%		1.00	%		0.25	%
Other Expenses[4]		0.37	%		0.34			0.34	%		0.35	%
Total Annual Fund Operating Expenses		1.32	%		2.04	%		2.04	%		1.30	%

[1]The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

[2]A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

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[3]If you choose your redemption proceeds by Federal Funds wire, a $10 wire fee will be charged to your account.

[4]The data for Other Expenses has been restated to reflect current contractual arrangements.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed
at end of period:	1 Year			3 Years		5 Years		10 Years
Class A Shares	$	702		$	969	$	1,257	$	2,074
Class B Shares	$	607		$	940	$	1,198	$	2,182	[1]
Class C Shares	$	207	[2]	$	640	$	1,098	$	2,369
Class Y Shares	$	132		$	412	$	713	$	1,568

If shares are not redeemed
at end of period:	1 Year		3 Years		5 Years		10 Years
Class A Shares	$	702	$	969	$	1,257	$	2,074
Class B Shares	$	207	$	640	$	1,098	$	2,182	[1]
Class C Shares	$	207	$	640	$	1,098	$	2,369
Class Y Shares	$	132	$	412	$	713	$	1,568

[1]Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

[2]A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

Additional Information About Principal Investment Strategies and Risks

Ivy Balanced Fund: The Fund seeks to achieve its primary goal of providing current income, and its secondary goal of long-term appreciation of capital, by investing primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In general, the Fund invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Fund owns common stocks in order to provide possible appreciation of capital and some dividend income. The Fund ordinarily invests at least 25% of its total assets in fixed income securities.

In its equity investments, the Fund invests primarily in medium to large, well-established companies, that typically issue dividend producing securities. The majority of the Fund’s debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by Standard & Poor’s Ratings Service or Baa and higher by Moody’s Investor Services, Inc. or, if unrated, deemed by WRIICO to be of comparable quality. The Fund has no limitations on the range of maturities of debt securities in which it may invest. The Fund may also invest in foreign securities.

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WRIICO may look at a number of factors in selecting securities for the Fund. For equity investments, it may emphasize a blend of value and growth potential. For value securities, WRIICO looks for undervalued companies whose asset value or earnings power is not reflected in the price of their stock. In selecting growth securities, it seeks to identify securities whose earnings are likely to grow faster than the economy. In selecting debt securities for the Fund, WRIICO seeks high-quality securities with minimal credit risk.

Generally, in determining whether to sell an equity security, WRIICO uses the same analysis that it uses in order to determine if the equity security is still undervalued or has ceased to offer the desired growth potential. In determining whether to sell a debt security, WRIICO will consider whether the debt security continues to maintain minimal credit risk. A security may be sold if the security ceases to produce income or otherwise to take advantage of attractive investment opportunities and/or to raise cash.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities that may be considered equivalent to owning cash because of their safety and liquidity. By taking a temporary defensive position, the Fund may not achieve its investment objective.

Risks. An investment in Balanced Fund is subject to various risks, including the following:

•     Call Risk

•     Company Risk

•     Credit Risk

•     Diversification Risk

•     Extension Risk

•     Foreign Securities Risk

•     Fund Risk

•     Income Risk

•     Inflation Risk

•     Interest Rate Risk

•     Large Company Risk

•     Manager Risk

•     Market Risk

•     Mid Size Company Risk

•     Prepayment Risk

•     Sector Risk

•     Short-Term Trading Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the Statement of Additional Information (“SAI”).

Ivy Bond Fund: The Fund seeks to achieve its goal of a high level of current income consistent with prudent investment risk by investing, under normal circumstances, at least 80% of its net assets in bonds (for this purpose, “bonds” includes any debt security). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund’s outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy.

The Fund invests primarily in a variety of investment-grade debt securities which include:

•     investment-grade corporate debt obligations and mortgage-backed securities

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•     debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities (including U.S. Treasury bills, notes and bonds)

•     investment-grade mortgage-backed securities issued by governmental agencies and financial institutions

•     investment grade asset-backed securities

•     U.S. dollar denominated investment-grade debt securities issued by foreign governments and companies and publicly traded in the United States

•     debt obligations of U.S. banks, savings and loan associations

The Fund will invest a significant portion of its assets in investment-grade debt obligations issued by domestic companies in a variety of industries. The Fund may invest in long-term debt securities (maturities of more than 10 years), intermediate debt securities (maturities from 3 to 10 years) and short-term debt securities (maturities of less than 3 years).

In selecting corporate debt securities and their maturities, the sub- advisor seeks to maximize current income by engaging in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations.

The Fund may also invest a portion of its assets in government and non- governmental mortgage-related securities, including CMOs, and in stripped mortgage-backed securities and asset-backed securities. CMOs are debt obligations typically issued by either a government agency or a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. CMOs allocate the priority of the distribution of principal and interest from the underlying mortgage loans among various series. Each series differs from the other in terms of the priority right to receive cash payments from the underlying mortgage loans.

Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the interest holder to receive the interest portion of cash payments, while the principal component only allows the interest holder to receive the principal portion of cash payments.

Asset-backed securities represent interest in pools of consumer loans (such as credit card, trade or automobile loans). Investors in asset- backed securities are entitled to receive payments of principal and interest received by the pool entity from the underlying consumer loans net of any costs and expenses incurred by the entity.

In addition, the Fund may invest lesser portions of its assets in interest rate and other bond futures contracts, convertible and non-convertible investment-grade and non-investment grade debt securities issued by domestic governments and companies, restricted and illiquid securities, options (the Fund may purchase and sell put and call options), stripped asset-backed securities, securities purchased on a when-issued or forward commitment basis, mortgage dollar roll transactions, direct mortgage investments, securities of other mutual funds, warrants, repurchase agreement transactions, and money market securities. To generate additional income, the Fund may lend securities representing up to one- third of the value of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. By

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taking a temporary defensive position, the Fund may not always achieve its investment objective.

Risks. An investment in Ivy Bond Fund is subject to various risks, including the following:

•     Call Risk

•     Credit Risk

•     Diversification Risk

•     Emerging Markets Risk

•     Extension Risk

•     Foreign Securities Risk

•     Fund Risk

•     Income Risk

•     Inflation Risk

•     Interest Rate Risk

•     Market Risk

•     Prepayment Risk

•     Securities Lending Risk

•     Short-Term Trading Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

Ivy International Balanced Fund: The Fund seeks to achieve its goal of a high level of total return by investing in equity and debt securities issued by large and small international companies and governmental agencies. Normally, the Fund invests approximately 50% to 70% of its assets in international equity securities. In addition, the Fund invests approximately 30% to 50% of its assets in international investment-grade debt securities. The Fund invests primarily in securities of companies or governments in developed foreign markets. However, the Fund may also invest up to 20% of its total assets in equity securities of companies located in developing or emerging markets. In addition, the Fund may invest up to 10% of its total assets in debt securities of companies or governments located in developing or emerging markets. (For purposes of the investment percentages described in the preceding sentences, collateral received in connection with securities lending shall not be considered Fund assets.) Under normal circumstances, the Fund will maintain investments in at least three foreign countries.

Equity securities generally entitle the holder to participate in a company’s general operating results. These include common stock, preferred stock, warrants or rights to purchase such securities. In selecting these equity securities, the sub-advisor does a company-by-company analysis, rather than focusing on a specific industry or economic sector. The sub- advisor concentrates primarily on the market price of a company’s securities relative to its view regarding the company’s long-term earnings potential. A company’s historical value measures, including price/earnings ratios, profit margins and liquidation value, will also be considered.

Debt securities represent an obligation of the issuer to repay a loan of money to it, and generally, provide for the payment of interest. These include bonds, notes and debentures; commercial paper; time deposits; bankers’ acceptances; and structured investments which are more fully described in the SAI. In selecting debt securities the sub-advisor evaluates current, as well as expected future trends in, interest rates and general economic conditions, and then attempts to identify those securities and issuers which, in its judgment, are likely to perform well in such circumstances.

The Fund may also invest a lesser portion of its assets in closed-end investment companies, restricted and illiquid securities, U.S. government and domestic investment-grade debt securities, American Depositary

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Receipts, European Depositary Receipts, securities and index futures contracts, forward foreign currency exchange contracts, exchange-traded foreign currency futures contracts, securities of other mutual funds, options (the Fund may purchase and sell put and call options), repurchase agreement transactions, securities purchased on a when-issued or forward commitment basis and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. By taking a temporary defensive position, the Fund may not always achieve its investment objective.

Risks. An investment in Ivy International Balanced Fund is subject to various risks, including the following:

•     Call Risk

•     Company Risk

•     Credit Risk

•     Currency Risk

•     Diversification Risk

•     Emerging Markets Risk

•     Foreign Securities Risk

•     Fund Risk

•     Income Risk

•     Inflation Risk

•     Interest Rate Risk

•     Large Company Risk

•     Market Risk

•     Mid Size Company Risk

•     Sector Risk

•     Securities Lending Risk

•     Small Company Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

Ivy Mortgage Securities Fund: The Fund seeks to achieve its goal of a high level of current income consistent with prudent investment risk by investing at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in mortgage-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund’s outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. Under this 80% investment policy the Fund invests a major portion of its assets in investment-grade securities representing interests in pools of mortgage loans, and in a variety of other mortgage- related securities including CMOs and stripped mortgage-backed securities.

In selecting mortgage-related securities the sub-advisor considers a variety of factors, including prepayment risk, credit quality, liquidity, the collateral securing the underlying loan (for example, residential versus commercial real estate) and the type of underlying mortgage loan (for example, a 30 year fully-amortized loan versus a 15 year fully- amortized loan). The sub-advisor also takes into consideration current and expected trends in economic conditions, interest rates and the mortgage market and selects securities which, in its judgment, are likely to perform well in those circumstances.

The market for mortgage-related securities is generally liquid, but individual mortgage-related securities purchased by the Fund may be subject to the risk of reduced liability due to changes in quality ratings

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or changes in general market conditions which adversely affect particular mortgage-related securities or the broader mortgage securities market as a whole. In addition, the Fund may, at the time of purchase, invest up to 15% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by the sub-advisor to be liquid under liquidity guidelines adopted by the Fund’s Board of Trustees. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Fund bears the costs of registering such securities. The Fund may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. The sub-advisor continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 15% of the Fund’s net assets being invested in illiquid securities.

Interests in pools of mortgage loans provide the security holder the right to receive out of the underlying mortgage loans periodic interest payments at a fixed rate and a full principal payment at a designated maturity or call date. Scheduled principal, interest and other payments on the underlying mortgage loans received by the sponsoring or guarantor entity are then distributed or “passed through” to security holders net of any service fees retained by the sponsor or guarantor. Additional payments passed through to security holders could arise from the prepayment of principal resulting from the sale of residential property, the refinancing of underlying mortgages, or the foreclosure of residential property. In “pass through” mortgage loan pools, payments to security holders will depend on whether mortgagors make payments to the pooling entity on the underlying mortgage loans. To avoid this non-payment risk, the Fund may also invest in “modified pass through” mortgage loan pools which provide that the security holder will receive interest and principal payments regardless of whether mortgagors make payments on the underlying mortgage loans.

The Fund may invest in government or government-related mortgage loan pools or private mortgage loan pools. In government or government-related mortgage loan pools, the U.S. government or certain agencies guarantee to mortgage pool security holders the payment of principal and interest. The principal governmental guarantors of mortgage-related securities are the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA and FHLMC generally guarantee payment of principal and interest on mortgage loan pool securities issued by certain pre-approved institutions (i.e., savings and loan institutions, commercial banks and mortgage bankers).

The Fund may also invest in private mortgage loan pools sponsored by commercial banks, insurance companies, mortgage bankers and other private financial institutions. Mortgage pools created by these non-governmental entities offer a higher rate of interest than government or government related securities. Unlike government agency sponsored mortgage loan pools, payment of interest and payment to investors is not guaranteed.

The Fund may also invest a major portion of its assets in CMOs and stripped mortgage-backed securities. CMOs are debt obligations issued by both government agencies and private special-purpose entities that are collateralized by residential or commercial mortgage loans. Unlike traditional mortgage loan pools, CMOs allocate the priority of the distribution of principal and level of interest from the underlying mortgage loans among various series. Each series differs from another in terms of the priority right to receive cash payments from the underlying mortgage loans. Each series may be further divided into classes in which

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the principal and interest payments payable to classes in the same series may be allocated. For instance, a certain class in a series may have right of priority over another class to receive principal and interest payments. Moreover, a certain class in a series may be entitled to receive only interest payments while another class in the same series may be only entitled to receive principal payments. As a result, the timing and the type of payments received by a CMO security holder may differ from the payments received by a security holder in a traditional mortgage loan pool.

Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the security holder to receive the interest portion of cash payments, while the principal component only allows the security holder to receive the principal portion of cash payments.

The Fund expects that under normal circumstances the effective duration of its portfolio will range from one to seven years. In addition, the Fund may invest lesser portions of its assets in non-investment grade mortgage- related securities, securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, certificates of deposits, bankers’ acceptances, investment-grade commercial paper, convertible and non- convertible investment-grade and non-investment grade corporate debt securities, securities of other mutual funds, restricted and illiquid securities, direct mortgage investments, interest rate and other bond futures contracts, asset-backed securities, stripped asset-backed securities, when-issued or forward commitment transactions and mortgage dollar rolls. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker- dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. By taking a temporary defensive position, the Fund may not always achieve its investment objective.

Risks. An investment in Ivy Mortgage Securities Fund is subject to various risks, including the following:

•     Call Risk

•     Concentration Risk

•     Credit Risk

•     Diversification Risk

•     Emerging Markets Risk

•     Extension Risk

•     Foreign Securities Risk

•     Fund Risk

•     Income Risk

•     Inflation Risk

•     Interest Rate Risk

•     Market Risk

•     Prepayment Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

Ivy Real Estate Securities Fund: The Fund seeks to achieve its goal of total return through a combination of capital appreciation and current income by investing, under normal circumstances, at least 80% of the Fund’s net assets (exclusive of collateral received in connection with securities lending) in real estate and real estate-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund’s outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy.

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The Fund will primarily invest in real estate and real estate-related equity securities (including securities convertible into equity securities). The Fund does not invest directly in real estate.

“Real estate securities” include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. Real estate securities issuers typically include real estate investment trusts (REITs), real estate brokers and developers, real estate holding companies and publicly traded limited partnerships.

“Real estate-related securities” include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Real estate-related securities issuers typically include construction and related building companies, manufacturers and distributors of building supplies, financial institutions that issue or service mortgages and resort companies.

Most of the Fund’s real estate securities portfolio will consist of securities issued by REITs that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs. REITs may be characterized as equity REITs (i.e., REITs that primarily invest in fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that primarily invest in mortgages on real estate) or hybrid REITs which invest in both fee and leasehold ownership of land and mortgages. The Fund mostly invests in equity REITs but also invests lesser portions of its assets in mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders, effectively eliminating any corporate level federal tax. As a result, REITs distribute a larger portion of their earnings to investors than other corporate entities subject to the federal corporate tax.

The Fund may invest in securities of issuers of any size, including issuers with small, medium or large market capitalizations. The Fund’s sub-advisor assesses an investment’s potential for sustainable earnings growth over time. In selecting securities, the sub-advisor considers factors such as an issuer’s financial condition, financial performance, quality of management, policies and strategies, real estate properties and competitive market position.

In addition, the Fund may invest lesser portions of its assets in securities issued by companies outside of the real estate industry. The Fund may also invest in non-real estate-related equity securities, convertible debt securities, investment-grade fixed income securities, securities of other mutual funds, repurchase agreement transactions, restricted and illiquid securities, stock index futures contracts, options (the Fund may purchase and sell put and call options), American Depositary Receipts, securities purchased on a when issued or forward commitment basis, and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. By taking a temporary defensive position, the Fund may not always achieve its investment objective.

Risks. An investment in Ivy Real Estate Securities Fund is subject to various risks, including the following:

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•     Company Risk

•     Concentration Risk

•     Credit Risk

•     Diversification Risk

•     Extension Risk

•     Fund Risk

•     Income Risk

•     Inflation Risk

•     Interest Rate Risk

•     Large Company Risk

•     Market Risk

•     Mid Size Company Risk

•     Prepayment Risk

•     Real Estate Risk

•     REIT-Related Risk

•     Sector Risk

•     Securities Lending Risk

•     Short-Term Trading Risk

•     Small Company Risk

An investment in the Ivy Real Estate Securities Fund may encounter the risk of greater volatility, due to the limited number of issuers of real estate and real estate-related securities, than an investment in portfolio of securities selected form a greater number of issuers. The Fund is subject to limited portfolio risk because the Fund may invest in a smaller number of individual issuers than other portfolios.

As well, the value of the Fund’s investments may decrease due to fluctuations in rental income, overbuilding and increased competition, casualty and condemnation losses, environmental costs and liabilities, extended vacancies of property, lack of available mortgage funds, government regulation and limitations, increases in property taxes, cash flow dependency, declines in real estate value, physical depreciation of buildings, inability to obtain project financing, increased operating costs and changes in general or local economic conditions.

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

Ivy Small Cap Value Fund: The Fund seeks to achieve its goal of long- term accumulation of capital by investing primarily in various types of equity securities such as common stock, preferred stock and securities convertible into equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Fund generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000c Value Index. Under normal circumstances, at least 80% of the Fund’s total assets (exclusive of collateral received in connection with securities lending) will be invested, at the time of purchase, in common stocks of small capitalization domestic companies and foreign issuers that are publicly traded in the United States. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund’s outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. Some companies may outgrow the definition of a small capitalization company after the Fund has purchased their securities. These companies continue to be considered small for purposes of the Fund’s minimum 80% allocation to small capitalization companies. From time to time, the Fund will also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e., companies with market capitalizations larger than that defined above).

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In selecting value stocks and other equity securities, the Fund’s sub- advisor primarily looks to equity securities it believes are undervalued or trading below their true worth, but that appear likely to come back into favor with investors. Undervalued securities are securities that the sub-advisor believes: (a) are undervalued relative to other securities in the market or currently earn low returns with a potential for higher returns, (b) are undervalued relative to the potential for improved operating performance and financial strength, or (c) are issued by companies that have recently undergone a change in management or control, or developed new products or services that may improve their business prospects or competitive position. In assessing relative value, the sub- advisor will consider factors such as a company’s ratio of market price to earnings, ratio of market price to book value, ratio of market price to assets, ratio of market price to cash flow, estimated earnings growth rate, cash flow, yield, liquidation value, product pricing, quality of management and competitive market position. In seeking to achieve its investment objectives, the Fund may also invest in equity securities of companies that the sub-advisor believes show potential for sustainable earnings growth above the average market growth rate. The Fund’s purchases of equity securities may include shares of common stock that are part of a company’s initial public offering. In addition, the Fund may invest lesser portions of its assets in restricted and illiquid securities, convertible and non-convertible investment-grade and non-investment grade debt securities, securities of other mutual funds, foreign securities, warrants, repurchase agreement transactions, stock index futures contracts, options (the Fund may purchase and sell put and call options), when-issued or forward commitment transactions, index depositary receipts, and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. By taking a temporary defensive position, the Fund may not always achieve its investment objective.

Risks. An investment in Ivy Small Cap Value Fund is subject to various risks, including the following:

•     Company Risk

•     Diversification Risk

•     Fund Risk

•     Inflation Risk

•     Initial Public Offering Risk

•     Market Risk

•     Mid Size Company Risk

•     Sector Risk

•     Securities Lending Risk

•     Short-Term Trading Risk

•     Small Company Risk

•     Value Stock Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

Ivy Value Fund: The Fund seeks to achieve its goal of long-term accumulation of capital by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Fund seeks to invest in stocks that are, in the opinion of WRIICO, undervalued relative to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although the Fund typically invests in large-cap companies, it may invest in securities of any size company.

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WRIICO utilizes both fundamental research and quantitative analysis to identify securities for the Fund. The Fund will typically invest in core value stocks: stocks of companies in industries that have relatively lower price-to-earnings ratios than growth stocks. The Fund may also invest in growth stocks that are, in WRIICO’s opinion, temporarily undervalued.

WRIICO utilizes both a top-down (assess the market environment) and a bottom-up (research individual issuers) analysis in its selection process. It considers numerous factors in its analysis of issuers and stocks, including the following:

— intrinsic value of the company not reflected in stock price

— historical earnings growth

— future expected earnings growth

— company’s position in its respective industry

— industry conditions

— competitive strategy

— management capabilities

— free cash flow potential

The Fund will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or its has performed below WRIICO’s expectations.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. government securities) or preferred stocks, or both. By taking a temporary defensive position, the Fund may not achieve its investment objective.

Risks. An investment in Ivy Value Fund is subject to various risks, including the following:

•     Company Risk

•     Diversification Risk

•     Foreign Securities Risk

•     Fund Risk

•     Inflation Risk

•     Large Company Risk

•     Manager Risk

•     Market Risk

•     Mid Size Company Risk

•     Sector Risk

•     Securities Lending Risk

•     Small Company Risk

•     Short-Term Trading Risk

•     Value Stock Risk

A detailed description of these risks is set forth in “Defining Risks” below. Additional risk information, as well as additional information on securities in which the Fund may invest, is provided in the SAI.

All Funds

Although the Funds do not pursue an investment strategy of active and frequent trading of portfolio securities, each Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Portfolio turnover rates may therefore vary greatly from year to year. To the extent a Fund experiences high rates of portfolio turnover, it will incur correspondingly greater brokerage commission expenses, which may reduce investment returns. Higher rates of portfolio turnover may also result in larger capital gains distributions, which are taxable to Fund shareholders.

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Defining Risks

• Call Risk – is the risk that securities with high interest rates (or other attributes that increase debt cost) will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates. In general, an issuer will call its debt securities if they can be refinanced by issuing new securities with a lower interest rate. The Fund is subject to the possibility that during periods of falling interest rates, an issuer will call its securities. As a result, the Fund would have to reinvest the proceeds in other securities with generally lower interest rates, resulting in a decline of the Fund’s income.

• Company Risk – is the risk that individual securities may perform differently than the overall market. This may be a result of specific factors such as changes in corporate profitability due to the success or failure of specific products or management strategies, or it may be due to changes in investor perceptions regarding a company.

• Concentration Risk – is the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund is subject to concentration risk if the Fund invests more than 25% of its total assets in a particular industry.

• Credit Risk – is the risk that an issuer of a REIT or debt security (including mortgage-backed securities) will not make payments on the security when due, or that the other party to a contract will default on its obligation. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the Fund. Also, a change in the quality rating of a REIT security or a debt security can affect the security’s liquidity and make it more difficult to sell. The Fund may attempt to minimize credit risk by investing in debt securities and other fixed income obligations considered at least investment grade at the time of purchase. However, all of these securities and obligations, especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities and obligations are more likely to have difficulty making principal and interest payments than issuers of higher rated securities and obligations. If the Fund purchases unrated securities and obligations, it will depend on its investment advisor’s or sub-advisor’s analysis of credit risk more heavily than usual.

• Currency Risk – is the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the Fund. Attempts by the Fund to minimize the effects of currency fluctuations through the use of foreign currency hedging transactions may not be successful or the Fund’s hedging transactions may cause the Fund to be unable to take advantage of a favorable change in the value of foreign currencies.

• Diversification Risk – is the risk that the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified investment portfolio. The Fund is subject to diversification risk if the Fund may invest more than 5% of its total assets in the securities of a single issuer with respect to 25% of its total investment portfolio (a Fund is considered diversified, as defined in the Investment Company Act of 1940, if it does not invest more than 5% of its total assets in the securities of a single issuer with respect to 75% of its total investment portfolio).

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• Emerging Markets Risk – is the risk that the value of securities issued by companies located in emerging market countries may be subject to greater volatility than foreign securities issued by companies in developed markets. Risks of investing in foreign securities issued by companies in emerging market countries include, among other things, greater social, political and economic instability, lack of liquidity and greater price volatility due to small market size and low trading volume, certain national policies that restrict investment opportunities and the lack of legal structures governing private and foreign investment and private property.

• Extension Risk – is the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities and real estate debt securities. This would, in effect, convert a short or medium-duration security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline. Duration measures the expected price sensitivity of a fixed income security or portfolio for a given change in interest rates. For example, if interest rates rise by one percent, the value of a security or portfolio having a duration of two years generally will fall by approximately two percent.

• Foreign Securities Risk – is the risk that the value of foreign companies or foreign government securities held by the Fund may be subject to greater volatility than domestic securities. Risks of foreign securities include, among other things:

Political and Economic Risks. Investing in foreign securities is subject to the risk of political, social or economic instability in the country of the issuer of the security, the difficulty of predicting international trade patterns, the possibility of exchange controls, expropriation, limits on currency removal or nationalization of assets.

Foreign Tax Risk. The Fund’s income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the Fund may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties. To the extent foreign income taxes are paid by the Fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes.

Foreign Investment Restriction Risk. Some countries, particularly emerging market countries, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies.

Foreign Securities Market Risk. Securities of many foreign companies may be less liquid and their prices more volatile than securities of domestic companies. Securities of companies traded outside the U.S. may be subject to further risks due to the inexperience of local brokers and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. Moreover, foreign stock exchanges and brokers are subject to less governmental regulation, and commissions may be higher than in the U.S. In addition, there may be delays in the settlement of foreign stock exchange transactions.

Information and Remedies Risk. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements that apply to domestic companies. As a result, less information may be available to

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investors concerning foreign issuers. In addition, the Fund may have greater difficulty voting proxies, exercising shareholder rights, pursuing legal remedies and obtaining judgments with respect to foreign investments in foreign courts than with domestic companies in domestic courts.

•	Fund Risk – is the risk that Fund performance may not meet or exceed that of the market as a whole. The performance of the Fund will depend on the Fund’s sub-advisor’s judgment of economic and market policies, trends in investment yields and monetary policy. Due to its active management, the Fund could under perform other mutual funds with similar investment objectives or the market generally.
•	Income Risk – is the risk that the Fund may experience a decline in its income due to falling interest rates.
•	Index Performance Risk – is the risk that the Fund’s ability to replicate the performance of a particular securities index may be affected by, among other things, changes in securities markets, the manner in which the index’s sponsor calculates the applicable securities index, the amount and timing of cash flows into and out of the Fund, commissions, sales charges (if any) and other expenses.
•	Inflation Risk – is the risk that even if the principal value of an investment in the Fund remains constant or increases, or the income from the investment remains constant or increases, their real value may be less in the future because of inflation. Thus, as inflation occurs, the purchasing power of an investor’s Fund shares may decline, even if their value in dollars increases.
•	Initial Public Offering Risk – is the risk that the Fund will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Investments in IPOs can have a significant positive impact on the Fund’s performance. The positive effect of investments of IPOs may not be sustainable because of a number of factors. The Fund may not be able to buy shares in some IPOs, or may be able to buy only a small number of shares. Also, the Fund may not be able to buy the shares at the commencement of the offering, and the general availability and performance of IPOs are dependent on market psychology and economic conditions. The relative performance impact of IPOs is also likely to decline as the Fund grows.
•	Interest Rate Risk – is the risk that the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) will decline due to changes in market interest rates. Generally, when interest rates rise, the value of such a security or obligation decreases. Conversely, when interest rates decline, the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) generally increases. Long-term debt securities, mortgage-backed securities and fixed income obligations are generally more sensitive to interest rate changes.
	As a rule of thumb, a portfolio of debt, mortgage-related and asset- backed securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by a Fund’s duration of its portfolio of debt, mortgage-related and asset-backed securities. Duration measures the relative price sensitivity of a security to changes in interest rates. “Effective” duration takes into consideration the likelihood that a security will be called, or prepaid, prior to maturity given current market interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of debt, mortgage-related and asset-backed securities experiences a percentage decrease in principal value equal to

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	its effective duration for each 1% increase in interest rates. For example, if a Fund holds a portfolio of securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. Ivy Bond Fund expects that under normal circumstances the effective duration of its portfolio will range from four to seven years. Ivy International Balanced Fund expects that under normal circumstances the effective duration of its portfolio will range from three to six years. Ivy Mortgage Securities Fund expects that under normal circumstances the effective duration of its portfolio will range from one to seven years.
•	Large Company Risk – is the risk that a portfolio of large capitalization company securities may underperform the market as a whole.
•	Market Risk – is the risk that equity securities are subject to adverse trends in equity markets. Securities are subject to price movements due to changes in general economic conditions, the level of prevailing interest rates or investor perceptions of the market. In addition, prices are affected by the outlook for overall corporate profitability. Market prices of equity securities are generally more volatile than debt securities. This may cause a security to be worth less than the price originally paid for it, or less than it was worth an earlier time. Market risk may affect a single issuer or the market as a whole. As a result, a portfolio of such equity securities may underperform the market as a whole.
•	Mid Size Company Risk – is the risk that securities of mid capitalization companies may be more vulnerable to adverse developments than those of large companies due to such companies’ limited product lines, limited markets and financial resources and dependence upon a relatively small management group.
•	Prepayment Risk – is the risk that falling interest rates could cause prepayments of mortgage loans to occur more quickly than expected. This occurs because, as interest rates fall, more property owners refinance the mortgages underlying mortgage-backed securities (including mortgage REITs). The Fund (or REIT) must reinvest the prepayments at a time when interest rates of new mortgage investments are falling, reducing the income of the Fund (or potentially reducing the portion of the REIT’s income distributable to the Fund). In addition, when interest rates fall, prices of mortgage-backed securities may not rise as much as for other types of comparable securities because investors may anticipate an increase in mortgage prepayments.
•	REIT-Related Risk – is the risk that the value of the Fund’s REIT securities will be adversely affected by changes in the value of the underlying property. In addition, the value of equity or mortgage REIT’s could be adversely affected if the REIT fails to qualify for tax-free pass through income under the Internal Revenue Code of 1986 (as amended), or maintain its exemption from registration under the Investment Company Act of 1940.
•	Sector Risk – is the risk that the securities of companies within specific industries or sectors of the economy can periodically perform differently than the overall market. This may be due to changes in such things as the regulatory or competitive environment or to changes in investor perceptions regarding a company.
•	Securities Lending Risk – is the risk that the Fund may experience a delay in the recovery of loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the Fund enters into loan arrangements only with institutions that the Fund’s investment advisor or sub-advisor has determined are creditworthy.

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• Short-Term Trading Risk – is the risk that a Fund may trade securities frequently and hold securities in its portfolio for one year or less. Frequent purchases and sales of securities will increase the Fund’s transaction costs. Factors that can lead to short-term trading include market volatility, a significant positive or negative development concerning a security, an attempt to maintain a Fund’s market capitalization target, and the need to sell a security to meet redemption activity.

• Small Company Risk – is the risk that equity securities of small capitalization companies (including small capitalization REIT’s) are subject to greater price volatility due to, among other things, such companies’ small size, limited product lines, limited access to financing sources and limited management depth. In addition, the frequency and volume of trading of such securities may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling securities of small capitalization companies at the desired time.

• Value Stock Risk – is the risk that the value of security believed by WRIICO or a sub-advisor to be undervalued may never reach what is believed to be is its full value, or that such security’s value may decrease.

YOUR ACCOUNT

Choosing a Share Class

Each class of shares offered in this prospectus has its own sales charge, if any, and expense structure. The decision as to which class of shares of a Fund is best suited to your needs depends on a number of factors that you should discuss with your financial advisor. Some factors to consider are how much you plan to invest and how long you plan to hold your investment. If you are investing a substantial amount and plan to hold your shares for a long time, Class A shares may be the most appropriate for you. If you are investing a lesser amount, you may want to consider Class B shares (if investing for at least seven years) or Class C shares (if investing for less than seven years). Class B and Class C shares are not available for investments of $2 million or more. Class Y shares are designed for institutional investors and others investing through certain intermediaries.

Since your objectives may change over time, you may want to consider another class when you buy additional Fund shares. All of your future investments in a Fund will be made in the class you select when you open your account, unless you inform the Fund otherwise, in writing, when you make a future investment.

General Comparison of Class A, Class B and Class C Shares

Class A	Class B	Class C
Initial sales charge	No initial sales charge	No initial sales charge
No deferred sales charge[1]	Deferred sales charge on shares you sell within six years after purchase months after purchase	A 1% deferred sales charge on shares you sell within twelve
Maximum distribution and service (12b-1) fees of 0.25%	Maximum distribution and service (12b-1) fees of 1.00%	Maximum distribution and service (12b-1) fees of 1.00%
For an investment of $2 million or more, only Class A shares are available	Converts to Class A shares 8 years after the month in which the shares were purchased, thus reducing future annual expenses For an investment of $300,000 or more, your financial advisor typically will recommend purchase of Class A shares due to a reduced sales charge and lower annual expenses	Does not convert to Class A shares, so annual expenses do not decrease

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[1]A 1% CDSC may apply to purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

Each Fund has adopted a Distribution and Service Plan (Plan) pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (1940 Act) for each of its Class A, Class B, Class C, and Class Y shares. Under the Class A Plan and Class Y Plan, a Fund may pay Ivy Funds Distributor, Inc. (IFDI) a fee of up to 0.25%, on an annual basis, of the average daily net assets of that class. This fee is to reimburse and/or compensate IFDI for, either directly or through third parties, distributing the shares of that class, providing personal service to shareholders of that class and/or maintaining shareholder accounts for that class. Under the Class B Plan and the Class C Plan, each Fund may pay IFDI, on an annual basis, a service fee of up to 0.25% of the average daily net assets of that class to compensate IFDI for, either directly or through third parties, providing personal service to shareholders of that class and/or maintaining shareholder accounts for that class and a distribution fee of up to 0.75% of the average daily net assets of that class to compensate IFDI for, either directly or through third parties, distributing shares of that class. No payment of the distribution fee will be made, and no deferred sales charge will be paid, to IFDI by any Fund if, and to the extent that, the aggregate distribution fees paid by the Fund and the deferred sales charges received by IFDI with respect to the Fund’s Class B or Class C shares would exceed the maximum amount of such charges that IFDI is permitted to receive under the NASD rules as then in effect.

Because the fees of a class are paid out of the assets of that class on an ongoing basis, over time such fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

Class A shares are subject to an initial sales charge when you buy them, based on the amount of your investment, according to the table below. As noted, Class A shares pay an annual 12b-1 fee of up to 0.25% of average Class A net assets. The ongoing expenses of this class are lower than those for Class B or Class C shares and typically higher than those for Class Y shares.

				Sales
	Sales			Charge as			Reallowance to
	Charge as			Approximate			Dealers as
	Percent of			Percent of			Percent of
	Offering			Amount			Offering
Size of Purchase	Price			Invested			Price
under $100,000		5.75	%		6.10	%		5.00	%
$100,000 to less than $200,000		4.75			4.99			4.00
$200,000 to less than $300,000		3.50			3.63			2.80
$300,000 to less than $500,000		2.50			2.56			2.00
$500,000 to less than $1,000,000		1.50			1.52			1.20
$1,000,000 to less than $2,000,000		1.00			1.01			0.75
$2,000,000 and over		0.00	[1]		0.00	[1]		0.50

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[1] No sales charge is payable at the time of purchase on investments of $2 million or more, although for such investments the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase. The CDSC is assessed on an amount equal to the lesser of the then current market value or the cost of the shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price.

IFDI or its affiliates may pay additional compensation from its own resources to securities dealers based upon the value of shares of a Fund owned by the dealer for its own account or for its customers, including compensation for shares of the Funds purchased by customers of such dealers without payment of a sales charge. Please see the SAI for additional disclosure regarding dealer compensation for all classes.

Sales Charge Reductions and Waivers

Lower sales charges are available by:

• Combining additional purchases of Class A shares of any of the funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc., except Class A shares of Ivy Money Market Fund unless acquired by exchange for Class A shares on which a sales charge was paid (or as a dividend or distribution on such acquired shares), with the net asset value (NAV) of Class A shares already held (Rights of Accumulation)[2]

• Grouping all purchases of Class A shares of the funds referenced above, except shares of Ivy Money Market Fund, made during a thirteen-month period (Letter of lntent)

• Grouping purchases by certain related persons

Additional information and applicable forms are available from your financial advisor.

[2]Clients of Waddell & Reed, Inc. and Legend Equities Corporation (Legend) may also combine purchases of Class A shares of any of the funds in the Waddell & Reed Advisors Family of Funds, except Class A shares of Waddell & Reed Advisors Cash Management, Inc.

Sales Charge Waivers for Certain Investors

Class A shares may be purchased at NAV by:

• Shareholders investing through certain investment advisors and financial planners who charge a management, consulting or other fee for their services

• The Trustees and officers of the Ivy Fund, the Directors and officers of Ivy Funds, Inc. or of any affiliated entity of WRIICO, employees of IFDI and its affiliates, financial advisors of Waddell & Reed and its affiliates and the spouse, children, parents, children’s spouses and

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	spouse’s parents of each, including purchases into certain retirement plans and certain trusts for these individuals
•	Participants in a 401(k) plan or a 457 plan having 100 or more eligible employees that are participants, and the shares are held in individual plan participant accounts on the Fund’s records
•	The Merrill Lynch Daily K Plan (the “Plan”), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see “Group Systematic Investment Program” in the SAI.
•	Friends of the Firm which include certain persons who have an existing relationship with IFDI or any of its affiliates

You will find more information in the Fund’s SAI about sales charge reductions and waivers.

Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption amount of Class B, Class C or certain Class A shares and paid to IFDI, as further described below. The purpose of the CDSC is to compensate IFDI for the costs incurred by it in connection with the sale of the Fund’s Class B or Class C shares or certain Class A shares. The CDSC will not be imposed on shares representing payment of dividends or other distributions and will be assessed on an amount equal to the lesser of the then current market value or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

To keep your CDSC as low as possible, each time you place a request to redeem shares, the Fund assumes that a redemption is made first of shares not subject to a CDSC (including shares which represent reinvested dividends and distributions), and then of shares that represent the lowest sales charge.

Unless instructed otherwise, a Fund, when requested to redeem a specific dollar amount, will redeem additional shares of the applicable class that are equal in value to the CDSC. For example, should you request a $1,000 redemption and the applicable CDSC is $27, the Fund will redeem shares having an aggregate NAV of $1,027, absent different instructions. The shares redeemed for payment of the CDSC are not subject to a CDSC.

Class B shares are not subject to an initial sales charge when you buy them. However, you may pay a CDSC if you sell your Class B shares within six years of their purchase, based on the table below. As noted above, Class B shares pay an annual 12b-1 service fee of up to 0.25% of average net assets and a distribution fee of up to 0.75% of average net assets. Over time, these fees will increase the cost of your investment and may cost you more than if you had purchased Class A shares. Class B shares, and any dividends and distributions paid on such shares, automatically convert to Class A shares eight years after the end of the month in which the shares were purchased. Such conversion will be on the basis of the relative net asset values per share, without the imposition of any sales load, fee or other charge. The conversion from Class B shares to Class A shares is not considered a taxable event for Federal income tax purposes.

The Fund will redeem your Class B shares at their NAV next calculated after receipt of a written request for redemption in good order, subject to the CDSC identified below.

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CDSC on Shares Sold Within Year	As % of Amount Subject to Charge
1		5.0	%
2		4.0	%
3		3.0	%
4		3.0	%
5		2.0	%
6		1.0	%
7+		0.0	%

In the table, a year is a 12-month period. In applying the CDSC, all purchases are considered to have been made on the first day of the month in which the purchase was made. For example, if a shareholder opens an account on November 14, 2003, then redeems all Class B shares on November 12, 2004, the shareholder will pay a CDSC of 4%, the rate applicable to redemptions made within the second year of purchase.

Class C shares are not subject to an initial sales charge when you buy them, but if you sell your Class C shares within twelve months after purchase, you will pay a 1% CDSC, which will be applied to the lesser of amount invested or redemption value of the shares redeemed. For purposes of the CDSC, purchases of Class C shares within a month will be considered as being purchased on the first day of the month. As noted above, Class C shares pay an annual 12b-1 service fee of up to 0.25% of average net assets and an annual distribution fee of up to 0.75% of average net assets. Over time, these fees will increase the cost of your investment and may cost you more than if you had purchased Class A shares. Class C shares do not convert to any other class; therefore, if you anticipate holding the shares for seven years or longer, Class C shares may not be appropriate.

The CDSC will not apply in the following circumstances:

• redemptions of shares requested within one year of the shareholder’s death or disability, provided the Fund is notified of the death or disability at the time of the request and furnished proof of such event satisfactory to IFDI

• redemptions of shares made to satisfy required minimum distributions after age 70 1/2 from a qualified retirement plan, a required minimum distribution from an individual retirement account, Keogh plan or custodial account under section 403(b)(7) of the Internal Revenue Code of 1986, as amended (Code), a tax-free return of an excess contribution, or that otherwise results from the death or disability of the employee, as well as in connection with redemptions by any tax-exempt employee benefit plan for which, as a result of a subsequent law or legislation, the continuation of its investment would be improper

• redemptions of shares purchased by current or retired Trustees of the Funds, Directors of affiliated companies, current or retired officers of the Funds, employees of IFDI and its affiliates, financial advisors of Waddell & Reed and its affiliates, and by the members of the immediate families of such persons

• redemptions of shares made pursuant to a shareholder’s participation in any systematic withdrawal service adopted for a Fund (The service and this exclusion from the CDSC do not apply to a one-time withdrawal)

• redemptions the proceeds of which are reinvested within forty-five (45) days in shares of the same class of the Fund as that redeemed

• for Class C shares, redemptions made by shareholders that have purchased shares of the Fund through certain group plans that have selling agreements with IFDI and that are administered by a third party and/or

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	for which brokers not affiliated with IFDI provide administrative or recordkeeping services
•	the exercise of certain exchange privileges
•	redemptions effected pursuant to the Fund’s right to liquidate a shareholder’s account if the aggregate NAV of the shares is less than $500
•	redemptions effected by another registered investment company by virtue of a merger or other reorganization with a Fund or redemptions by a former shareholder of such investment company of shares of the Fund acquired pursuant to such reorganization

These exceptions may be modified or eliminated by a Fund at any time without prior notice to shareholders, except with respect to redemptions effected pursuant to the Fund’s right to liquidate a shareholder’s shares, which requires certain notice.

Class Y shares are not subject to a sales charge. Class Y shares pay an annual 12b-1 distribution and/or service fee of up to 0.25% of average net assets. Class Y shares are only available for purchase by:

• participants of employee benefit plans established under section 403(b) or section 457, or qualified under section 401 of the Code, including 401 (k) plans, when the plan has 100 or more eligible employees that are participants and holds the shares in an omnibus account on the Fund’s records, and an unaffiliated third party provides administrative, distribution and/or other support services to the plan

• banks, trust institutions, investment fund administrators and other third parties investing for their own accounts or for the accounts of their customers where such investments for customer accounts are held in an omnibus account on the Fund’s records, and to which entity an unaffiliated third party provides administrative, distribution and/or other support services

• government entities or authorities and corporations whose investment within the first twelve months after initial investment is $10 million or more and to which entity an unaffiliated third party provides certain administrative, distribution and/or other support services

• certain retirement plans and trusts for employees of Waddell & Reed and its affiliates

Ways to Set Up Your Account

The different ways to set up (register) your account are listed below.

Individual or Joint Tenants

For your general investment needs

Individual accounts are owned by one person. Joint accounts have two or more owners (tenants).

Business or Organization

For investment needs of corporations, associations, partnerships, institutions or other groups

Retirement and other Tax-Advantaged Savings Plans

To shelter your savings from income taxes

Retirement and other tax-advantaged savings plans allow individuals to shelter investment income and capital gains from current income taxes. In addition, contributions to these accounts (other than Roth IRAs and

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Coverdell Education Savings Accounts) may be tax-deductible.

• Individual Retirement Accounts (IRAs) allow certain individuals under age 70 1/2, with earned income, to invest up to the Annual Dollar Limit per year. For the 2002 through 2004 calendar years, the Annual Dollar Limit is $3,000. For individuals who have attained age 50 by the last day of the calendar year for which a contribution is made, the Annual Dollar Limit also allows a catch-up contribution. The maximum annual catch-up contribution is $500 for the 2002 through 2005 calendar years. An individual’s maximum IRA contribution for a taxable year is reduced by the amount of any contributions that individual makes to a Roth IRA for that year. The maximum annual contribution for an individual and his or her spouse is two times the Annual Dollar Limit or, if less, the couple’s combined earned income for the tax year.

• IRA Rollovers retain special tax advantages for certain distributions from employer-sponsored retirement plans.

• Roth IRAs allow certain individuals to make nondeductible contributions up to the Annual Dollar Limit per year (as identified above). The maximum annual contribution for an individual and his or her spouse is two times the Annual Dollar Limit or, if less, the couple’s combined earned income for the taxable year. Withdrawals of earnings may be tax-free if the account is at least five years old and certain other requirements are met.

• Coverdell Education Savings Accounts (formerly, Education IRAs) are established for the benefit of a minor, with nondeductible contributions up to $2000 per taxable year, and permit tax-free withdrawals to pay the qualified education expenses of the beneficiary.

• Simplified Employee Pension Plans (SEP-IRAs) provide small business owners or those with self-employed income (and their eligible employees) with many of the same advantages and contribution limits as a profit sharing plan but with fewer administrative requirements.

• Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established by small employers to contribute to, and allow their employees to contribute a portion of their wages on a pre-tax basis to, retirement accounts. This plan-type generally involves fewer administrative requirements than 401(k) or other qualified plans.

• Keogh Plans allow self-employed individuals to make tax-deductible contributions for themselves of up to 100% of their adjusted annual earned income, with a maximum of $40,000.

• Pension and Profit-Sharing Plans, including 401(k) Plans, allow corporations and nongovernmental tax-exempt organizations of all sizes and/or their employees to contribute a percentage of the employees’ wages or other amounts on a tax-deferred basis. These accounts need to be established by the administrator or trustee of the plan.

• 403(b) Custodial Accounts are available to employees of public school systems, churches and certain types of charitable organizations.

• 457 Accounts allow employees of state and local governments and certain charitable organizations to contribute a portion of their compensation on a tax-deferred basis.

Gifts or Transfers to a Minor

To invest for a child’s education or other future needs

These custodial accounts provide a way to give money to a child and obtain tax benefits. An individual can give up to $11,000 a year per child free

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of Federal transfer tax consequences. Depending on state laws, you can set up a custodial account under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA).

Trust

For money being invested by a trust

The trust must be established before an account can be opened, or you may use a trust form made available by IFDI. Contact your financial advisor for the form.

Buying Shares

You may buy shares of each of the Funds through IFDI and through third parties that have entered into selling arrangements with IFDI. To open your account you must complete and sign an application. Your financial advisor can help you with any questions you might have.

By mail: To purchase any class of shares by check, make your check payable to Ivy Funds Distributor, Inc. Mail the check, along with your completed application, to:

Ivy Funds Distributor, Inc.
P. 0. Box 29217
Shawnee Mission, Kansas
66201-9217

By wire: To purchase shares of the Fund by wire, you must first obtain an account number by calling 800-777-6472, then mail a completed application to IFDI at the above address, or fax it to 800-532-2749. Instruct your bank to wire the amount you wish to invest, along with the account number and registration, to UMB Bank, n.a., ABA Number 101000695, DDA Number 98-0000-797-8.

The price to buy a share of a Fund, called the offering price, is calculated every business day.

The offering price of a share (the price to buy one share of a particular class) is the next NAV calculated per share of that class plus, for Class A shares, the applicable sales charge.

In the calculation of a Fund’s NAV:

• The securities in the Fund’s portfolio that are listed or traded on an exchange are valued primarily using market prices.

• Bonds are generally valued according to prices quoted by an independent pricing service.

• Short-term debt securities are valued at amortized cost, which approximates market value.

• Other investment assets for which market prices are unavailable are valued at their fair value by or at the direction of a Fund’s Board of Trustees.

Each Fund is open for business every day the New York Stock Exchange (NYSE) is open. The Funds normally calculate their NAVs as of the close of business of the NYSE, normally 4 p.m. Eastern time, except that an option or futures contract held by a Fund may be priced at the close of the regular session of any other securities exchange on which that instrument is traded.

As noted, some of the Funds may invest in securities listed on foreign

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exchanges which may trade on Saturdays or on U.S. national business holidays when the NYSE is closed. Consequently, the NAV of Fund shares may be significantly affected on days when a Fund does not price its shares and when you are not able to purchase or redeem a Fund’s shares. Similarly, if an event materially affecting the value of foreign investments or foreign currency exchange rates occurs prior to the close of business of the NYSE but after the time their values are otherwise determined, such investments or exchange rates may be valued at their fair value as determined in good faith by or under the direction of each Fund’s Board of Trustees.

When you place an order to buy shares, your order will be processed at the next offering price calculated after your order is received and accepted. Note the following:

• All of your purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. Neither cash nor post-dated checks will be accepted.

• If you buy shares by check, and then sell those shares by any method other than by exchange to another fund in the Ivy Family of Funds, the payment may be delayed for up to ten (10) days from the date of purchase to ensure that your previous investment has cleared.

• If you purchase shares of a Fund from certain broker-dealers, banks or other authorized third parties, the Fund will be deemed to have received your purchase order when that third party (or its designee) has received your order. Your order will receive the offering price next calculated after the order has been received in proper form by the authorized third party (or its designee). You should consult that firm to determine the time by which it must receive your order for you to purchase shares of a Fund at that day’s price.

• Dealers that perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients’ permission to perform those transactions, and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly.

When you sign your account application, you will be asked to certify that your Social Security number or other taxpayer number is correct and whether you are subject to backup withholding for failing to report income to the Internal Revenue Service.

IFDI reserves the right to reject any purchase orders, including purchases by exchange, and it and the Funds reserve the right to discontinue offering Fund shares for purchase.

Minimum Investments

For Class A, Class B and Class C:
To Open an Account	$500 (per Fund)
For certain exchanges	$100 (per Fund)
For certain retirement accounts and accounts opened with Automatic Investment Service	$50 (per Fund)
For certain retirement accounts and accounts opened through payroll deductions	$25 (per Fund)
To Add to an Account	Any amount
For certain exchanges	$100 (per Fund)
For Automatic Investment Service	$25 (per Fund)
For Class Y:
To Open an Account
For a government entity or authority	$10 million
or for a corporation	(within first twelve months)
For other eligible investors	Any amount
To Add to an Account	Any amount

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Adding to Your Account

Subject to the minimums described above, you can make additional investments of any amount at any time.

By mail: Make your check payable to Ivy Funds Distributor, Inc. Mail the check to IFDI, along with the detachable form that accompanies the confirmation of a prior purchase or your year-to-date statement, or a letter stating your account number, the account registration, the Fund and the class of shares that you wish to purchase.

By wire: Instruct your bank to wire the amount you wish to invest, along with the account number and registration, to UMB Bank, n.a., ABA Number 101000695, DDA Number 98-0000-797-8.

By Automatic Investment Method: You can authorize to have funds electronically drawn each month from your bank account through Electronic Funds Transfer (“EFT”) and invested as a purchase of shares into your Fund account. Complete the appropriate sections of the Account Application.

If you purchase shares of the Fund from certain broker-dealers, banks or other authorized third parties, additional purchases may be made through those firms.

Selling Shares

You can arrange to take money out of your Fund account at any time by selling (redeeming) some or all of your shares.

The redemption price (price to sell one share of a particular class of the Fund) is the NAV per share of that Fund class, subject to any applicable CDSC.

By mail: Complete an Account Service Request form, available from your financial advisor, or write a letter of instruction with:

•     the name on the account registration

•     the Fund’s name

•     the account number

•     the dollar amount or number, and the class, of shares to be redeemed

•     any other applicable requirements listed in the table on page      

Deliver the form or your letter to:

Ivy Client Services
c/o Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217

Unless otherwise instructed, a check will be sent to the address on the account. For your protection, the address of record must not have been changed within 30 days prior to your redemption request.

The Fund will deduct a redemption fee of 2.00% from any redemption or

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exchange proceeds if you sell or exchange your Class A or Class Y shares of Ivy International Balanced Fund after holding them less than 30 days. These fees are paid to the Fund, and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short term shareholder trading.

If you bought your shares on different days, the “first-in, first-out” (FIFO) method is used to determine the holding period. Under this method, the shares you held longest will be redeemed first for purposes of determining whether the redemption fee applies. The redemption fee does not apply to shares that were acquired through reinvestment of distributions and generally is waived for shares purchased through certain retirement and educational plans, and programs and through certain fee- based asset allocation programs. In addition, the fee waiver does not apply to any IRA or SEP-IRA accounts. The Funds reserve the right to modify the terms of or terminate the redemption/exchange fee at any time.

By telephone: If you have elected this method in your application or by subsequent authorization, call 800-777-6472, or fax your request to 800-532-2749, and give your instructions to redeem your shares. For deposit to your predesignated bank account you may receive your proceeds by wire (requires a $1,000 minimum redemption amount, a $10 wire fee, and is available only in the Ivy Money Market), or by direct Automated Clearing House(ACH). You may also request a check be sent to you at the address on the account (provided the address has been unchanged for at least 30 days). For your protection, banking wire information must be established on your account for a minimum of 30 days before a wire redemption will be processed. Requests by telephone can only be accepted for amounts up to $50,000.

By Internet: You need to have selected the Internet option on your Account Application. Once your request for this option has been processed (which may take up to 10 days), you may place your redemption order at www.ivyfunds.com. For your protection, your redemption proceeds will be mailed to your address of record, which may not have been changed within 30 days prior to your redemption request and such redemptions can only be accepted for amounts up to $50,000.

When you place an order to sell shares, your shares will be sold at the next NAV calculated, subject to any applicable CDSC, after receipt of a written request for redemption in good order by Ivy Client Services (on behalf of Waddell & Reed Services Company) at the address listed above. Note the following:

• If more than one person owns the shares, each owner must sign the written request.

• If you recently purchased the shares by check, the Fund may delay payment of redemption proceeds. You may arrange for the bank upon which the purchase check was drawn to provide telephone or written assurance, satisfactory to the Fund, that the check has cleared and been honored. If you do not, payment of the redemption proceeds on these shares will be delayed until the earlier of ten (10) days from the date of purchase or the date the Fund can verify that your purchase check has cleared and been honored.

• Redemptions may be suspended or payment dates postponed on days when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted or as permitted by the Securities and Exchange Commission.

• Payment is normally made in cash, although under extraordinary conditions redemptions may be made in portfolio securities when the Fund’s Board of Trustees determines that conditions exist making cash

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	payments undesirable. A Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.
•	If you purchased shares of a Fund from certain broker-dealers, banks or other authorized third parties, you may sell those shares through those firms, some of which may charge you a fee and may have additional requirements to sell Fund shares. The Fund will be deemed to have received your order to sell shares when that firm (or its designee) has received your order. Your order will receive the NAV of the redeemed Class, subject to any applicable CDSC, next calculated after the order has been received in proper form by the authorized firm (or its designee). You should consult that firm to determine the time by which it must receive your order for you to sell shares at that day’s price.
•	Dealers that perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients’ permission to perform those transactions, and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly.

Special Requirements for Selling Shares

Account Type	Special Requirements
Individual or Joint Tenant	The written instructions must be signed by all persons required to sign for transactions, exactly as their names appear on the account.
Sole Proprietorship	The written instructions must be signed by the individual owner of the business.
UGMA, UTMA	The custodian must sign the written instructions indicating capacity as custodian.
Retirement Account	The written instructions must be signed by a properly authorized person.
Trust	The trustee must sign the written instructions indicating capacity as trustee. If the trustee’s name is not in the account registration, provide a currently certified copy of the trust document.
Business or Organization	At least one person authorized by corporate resolution to act on the account must sign the written instructions.
Conservator, Guardian or Other Fiduciary	The written instructions must be signed by the person properly authorized by court order to act in the particular fiduciary capacity.

A Fund may require a signature guarantee in certain situations such as:

• a redemption request made by a corporation, partnership or fiduciary

• a redemption request made by someone other than the owner of record

• the check is made payable to someone other than the owner of record

This requirement is to protect you and the Funds from fraud. You can obtain a signature guarantee from most banks and securities dealers, but not from a notary public.

Each Fund reserves the right to redeem at NAV all of your Fund shares in your account if the aggregate NAV of those shares is less than $500. The Fund will give you notice and sixty (60) days to purchase a sufficient number of additional shares to bring the aggregate NAV of your shares in that Fund to $500. These redemptions will not be subject to a CDSC. The

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Fund will not apply its redemption right to individual retirement plan accounts or to accounts which have an aggregate NAV of less than $500 due to market forces.

You may reinvest, without charge, all or part of the amount of Class A shares of a Fund you redeemed by sending to the Fund the amount you want to reinvest. The reinvested amounts must be received by the Fund within forty-five (45) days after the date of your redemption. You may do this only once with Class A shares of a Fund.

The CDSC will not apply to the proceeds of Class A (as applicable), Class B or Class C shares of a Fund which are redeemed and then reinvested in shares of the same class of the Fund within forty-five (45) days after such redemption. IFDI will, with your reinvestment, restore an amount equal to the CDSC attributable to the amount reinvested by adding the CDSC amount to your reinvestment. For purposes of determining a future CDSC, the reinvestment will be treated as a new investment. You may do this only once as to Class B shares of a Fund and once as to Class C shares of a Fund. This privilege may be eliminated or modified at any time without prior notice to shareholders.

Payments of principal and interest on loans made pursuant to a 401 (a) qualified plan (if such loans are permitted by the plan) may be reinvested, without payment of a sales charge, in Class A shares of any of the Funds in which the plan may invest.

Telephone Transactions

The Funds and their agents will not be liable for following instructions communicated by telephone that they reasonably believe to be genuine. Waddell & Reed Services Company (WRSCO), the Funds’ transfer agent, will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If WRSCO fails to do so, WRSCO may be liable for losses due to unauthorized or fraudulent instructions. Current procedures relating to instructions communicated by telephone include tape recording instructions, requiring personal identification and providing written confirmations of transactions effected pursuant to such instructions.

Shareholder Services

We provide a variety of services to help you manage your account.

Personal Service

Your local financial advisor is available to provide personal service. Additionally, a toll-free call, 800-777-6472, connects you to a Client Services Representative or our automated customer telephone service. During normal business hours, our Client Services staff is available to answer your questions or update your account records. At almost any time of the day or night, you may access your account information from a touch- tone phone, or from our web site, www.ivyfunds.com, to:

• obtain information about your accounts

• obtain price information about other funds in the Ivy Family of Funds

• obtain a Fund’s current prospectus

• request duplicate statements

• transact certain account activity, including exchange privileges and redemption of shares

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Reports

Statements and reports sent to you include the following:

• confirmation statements (after every purchase, other than those purchases made through Automatic Investment Service, and after every exchange, transfer or redemption)

• year-to-date statements (quarterly)

• annual and semiannual reports to shareholders (every six months)

To avoid sending duplicate copies of materials to households and thereby reduce expenses, only one copy of the most recent prospectus, annual and semiannual reports of the Funds may be mailed to Shareholders having the same last name and address in the Fund’s records. The consolidation of these mailings, called householding, benefits the Fund through reduced mailing expense. You may call the telephone number listed for Client Services if you need additional copies.

Exchanges

Except as otherwise noted, you may sell your shares and buy shares of the same Class of another Fund in the Ivy Family of Funds without the payment of an additional sales charge if you exchange Class A shares or without payment of a CDSC when you exchange Class B or Class C shares. For Class B and Class C shares, or Class A shares to which the CDSC would otherwise apply, the time period for the CDSC will continue to run. You may sell your Class Y shares of any of the Funds and buy Class Y shares of another Fund.

You may exchange only into Funds that are legally permitted for sale in your state of residence. Currently, each fund within the Ivy Family of Funds may only be sold within the United States and the Commonwealth of Puerto Rico, except that Ivy Cundill Global Value Fund, Ivy Global Natural Resources Fund and Ivy Pacific Opportunities Fund are not eligible for sale in the Commonwealth of Puerto Rico. Note that exchanges out of a Fund may have tax consequences for you. Before exchanging into a Fund, read its prospectus.

How to Exchange

By mail: Send your written exchange request to Ivy Client Services at the address on page      of this Prospectus.

By telephone: Call IFDI at 800-777-6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IFDI employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IFDI may be liable for any losses due to unauthorized or fraudulent telephone instructions.

By Internet: You will be allowed to exchange by Internet if (1) you can provide proper identification information; and (2) you have established the Internet trading option.

Redemption/Exchange Fee

The Fund will deduct a redemption fee of 2.00% from any redemption or exchange proceeds if you sell or exchange your Class A or Class Y shares of Ivy International Balanced Fund after holding them less than 30 days. These fees are paid to the Fund, and are designed to offset the brokerage

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commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short term shareholder trading.

Important Exchange Information

• You must exchange into the same share class you currently own (except that you may exchange Class Y shares of any of the Funds for Class A shares of Ivy Money Market Fund).

• Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes.

• It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee or cancel a shareholder’s exchange privilege if at any time it appears that such market-timing strategies are being used.

Automatic Transactions for Class A, Class B and Class C Shareholders

Regular Investment Plans allow you to transfer money into your Fund account, or between Fund accounts, automatically. While Regular Investment Plans do not guarantee a profit and will not protect you against loss in a declining market, they can be an excellent way to invest for retirement, a home, educational expenses and other long-term financial goals.

Systematic Withdrawal Plan lets you set up ongoing monthly, quarterly, semiannual or annual redemptions from your account.

Certain restrictions and fees imposed by the plan custodian may also apply for retirement accounts. Speak with your financial advisor for more information.

Regular Investment Plans

Automatic Investment Service

To move money from your bank account to an existing Fund account

Minimum Amount	Minimum Frequency
$25 (per Fund)	Monthly

Distributions and Taxes

Distributions

Each Fund distributes substantially all of its net investment income and net capital gains to its shareholders each year.

Usually, Ivy Balanced Fund, Ivy International Balanced Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund and Ivy Value Fund, distributes net investment income quarterly in March, June, September and December. Ivy Bond Fund and Ivy Mortgage Securities Fund declare dividends from net investment income daily and pay them monthly. Net capital gains (and any net gains from foreign currency transactions) ordinarily are distributed by each Fund in December. Ordinarily, dividends are paid on shares starting on the day after they are issued and through the day they are redeemed.

Distribution Options. When you open an account, you may specify on your application how you want to receive your distributions. Each Fund offers two options:

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1.     Share Payment Option. Your dividends, capital gains and other distributions with respect to a class will be automatically paid in additional shares of the same class of the Fund. If you do not indicate a choice on your application, you will be assigned this option.

2.     Cash Option. You will be sent a check for your dividends, capital gains and other distributions if the total distribution is equal to or greater than five dollars. If the distribution is less than five dollars, it will be automatically paid in additional shares of the same class of the Fund.

For retirement accounts, all distributions are automatically paid in additional shares.

Taxes

As with any investment, you should consider how your investment in a Fund will be taxed. If your account is not a retirement account or other tax- advantaged savings plan (or you are not otherwise exempt from income tax), you should be aware of the following tax implications:

Taxes on distributions. You may be subject to tax as a result of income generated at the Fund level, to the extent the Fund makes actual or deemed distributions of such income to you. Dividends from the Fund’s investment company taxable income (which includes net short-term capital gains and net gains from certain foreign currency transactions), if any, generally are taxable to you as ordinary income whether received in cash or paid in additional Fund shares, unless such dividends are “qualified dividend income” eligible for the reduced rate of tax on long-term capital gains, as described below. Distributions of the Fund’s net capital gains (the excess of net long-term capital gains over net short-term capital loss), when designated as such, are taxable to you as long-term capital gains, whether received in cash or paid in additional Fund shares and regardless of the length of time you have owned your shares. For Federal income tax purposes, long-term capital gains generally are taxed at a maximum rate of 15% for noncorporate shareholders. As a result of changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003, “qualified dividend income” received by noncorporate shareholders is taxed as net capital gain. The portion of the dividends that the Fund pays which is attributable to qualified dividend income received by the Fund will qualify for such treatment in the hands of noncorporate shareholders of the Fund.

Each Fund notifies you after each calendar year-end as to the amounts of dividends and other distributions paid (or deemed paid) to you for that year.

A portion of the dividends paid by a Fund, whether received in cash or paid in additional Fund shares, may be eligible for the dividends received deduction allowed to corporations. The eligible portion may not exceed the aggregate dividends received by a Fund from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends received deduction are subject indirectly to the Federal alternative minimum tax.

Taxes on transactions. Your redemption of Fund shares will result in a taxable gain or loss to you, depending on whether the redemption proceeds are more or less than what you paid for the redeemed shares (which normally includes any sales charge paid).

An exchange of Fund shares for shares of any other fund in the Ivy Family of Funds generally will have similar tax consequences. However, special rules apply when you dispose of a Fund’s Class A shares through a

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redemption or exchange within ninety (90) days after your purchase and then reacquire Class A shares of that Fund or acquire Class A shares of another fund in the Ivy Family of Funds without paying a sales charge due to the forty-five (45) day reinvestment privilege or exchange privilege. See Your Account — Selling Shares. In these cases, any gain on the disposition of the original Class A Fund shares will be increased, or loss decreased, by the amount of the sales charge you paid when those shares were acquired, and that amount will increase the adjusted basis of the shares subsequently acquired. In addition, if you purchase shares of a Fund within thirty (30) days before or after redeeming other shares of the Fund (regardless of class) at a loss, part or all of that loss will not be deductible and will increase the basis of the newly purchased shares.

Withholding. Each Fund must withhold a portion of all dividends and capital gains distributions and redemption proceeds payable to individuals and certain other noncorporate shareholders who do not furnish the Fund with a correct taxpayer identification number. Withholding at that rate is also required from dividends and capital gains distributions payable to shareholders who are otherwise subject to backup withholding.

State and local income taxes. The portion of the dividends a Fund pays that is attributable to interest earned on U.S. Government securities generally is not subject to state and local income taxes, although distributions by any Fund to its shareholders of net realized gains on the sale of those securities are fully subject to those taxes. You should consult your tax adviser to determine the taxability in your state and locality of dividends and other distributions by the Funds.

The foregoing is only a summary of some of the important Federal income tax considerations generally affecting each Fund and its shareholders; you will find more information in the SAI There may be other Federal, state or local tax considerations applicable to a particular investor. You are urged to consult your own tax adviser.

The Management of the Funds

Portfolio Management

WRIICO provides investment advisory services to the Funds. WRIICO is a wholly-owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee-Mission, Kansas 66201-9217. WRIICO is an SEC-registered investment advisor with approximately $1.6 billion in assets under management as of December 31, 2002. All the Funds pay WRIICO a fee that is equal to the following percentages of the Funds’ respective average net assets as listed below. WRIICO uses a portion of the applicable fee to pay a Fund’s sub-advisor, if any.

	Fee Payable to WRIICO as a Percentage
Fund Name	of the Fund’s Average Net Assets
Ivy Bond Fund		0.53	%
Ivy International Balanced Fund		0.70	%
Ivy Mortgage Securities Fund		0.50	%
Ivy Value Fund		0.70	%
Ivy Real Estate Securities Fund		0.90	%
Ivy Small Cap Value Fund		0.85	%
Ivy Balanced Fund		0.70	%

Advantus Capital Management, Inc. (Advantus Capital), an SEC-registered investment advisor located at 400 Robert Street North, St. Paul, Minnesota 55101, serves as investment sub-advisor to Ivy Real Estate Securities Fund, Ivy Mortgage Securities Fund and Ivy Bond Fund under an agreement with WRIICO. Since its inception in 1994, Advantus Capital has

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provided investment advisory services for mutual funds and has managed investment portfolios for various private accounts, including its affiliate, Minnesota Life Insurance Company (Minnesota Life). Both Advantus Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc., which is a second-tier subsidiary of a mutual insurance holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota Life’s investment portfolio. Advantus Capital had approximately $           billion in assets under management as of June 30, 2003.

Templeton Investment Counsel, LLC (Templeton Counsel), an SEC-registered investment advisor located at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394 serves as investment sub-advisor to the Ivy International Balanced Fund under an agreement with WRIICO. Templeton Counsel provides investment advice, and generally conducts the investment management program for the Fund. At June 30, 2003, Templeton Counsel had approximately $      billion in assets under management.

State Street Research & Management Company (State Street Research), an SEC-registered investment advisor located at One Financial Center, Boston, Massachusetts 02111 serves as investment sub-advisor to the Ivy Small Cap Value Fund under an agreement with WRIICO. State Street Research provides investment advice, and generally conducts the investment management program for the Fund. At June 30, 2003, State Street Research had approximately $     billion in assets under management.

The following persons serve as the primary portfolio managers for the Funds:

FUND	SUB-ADVISOR	PORTFOLIO MANAGER	PRIMARY PORTFOLIO	BUSINESS EXPERIENCE
		AND TITLE	MANAGER SINCE	DURING PAST FIVE
				YEARS
Bond Fund	Advantus Capital	Christopher R. Sebald Portfolio Manager	, 2003	Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income, Advantus Capital, since August 2003; Senior Vice President and Portfolio manager,
				AEGON USA Investment Management, 2000 throughJuly 2003; Director of Portfolio Management, GMAC-RFC, January 1998 through July 2000

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FUND	SUB-ADVISOR	PORTFOLIO MANAGER	PRIMARY PORTFOLIO	BUSINESS EXPERIENCE
		AND TITLE	MANAGER SINCE	DURING PAST FIVE
				YEARS
		Edgerton Tucker Scott III Co-Potfolio Manager (equity portfolio)	, 2003; prior thereto, Portfolio Manager to predecessor fund since	Vice President and Research Analyst, Templeton Investment Counsel, LLC
International Balanced Fund	Templeton Counsel	Alexander C. Calvo Co-Portfolio Manager (fixed income portfolio)	, 2003; prior thereto, Portfolio Manager to predecessor fund since	Senior Vice President and Director of the International Bond Department, Franklin Advisors, Inc.; Portfolio Manager and Director of Research of the International Bond Department, Franklin Templeton Investments
Mortgage Securities	Advantus Capital	Christopher R. Sebald Portfolio Manager	, 2003	Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income, Advantus Capital, since August 2003; Senior Vice President and Portfolio manager, AEGON USA Investment Management, 2000 throughJuly 2003; Director of Portfolio Management, GMAC-RFC, January 1998 through July 2000
Value Fund		Matthew T. Norris Portfolio Manager	, 2003	Vice President of WRIICO and the Fund; Portfolio Manager for Advantus Capital from January 2000 to June 2003; Analyst/Senior Analyst for AdvantusCapital Management since 1997.

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FUND	SUB-ADVISOR	PORTFOLIO MANAGER	PRIMARY PORTFOLIO	BUSINESS EXPERIENCE
		AND TITLE	MANAGER SINCE	DURING PAST FIVE
				YEARS
Real Estate Securities Fund	Advantus Capital	Joseph R. Betlej Portfolio Manager	, 2003; prior thereto, Portfolio Manager to predecessor fund since	Vice President and Investment Officer of Advantus Capital
Small Cap Value Fund	State Street Research	John Burbank Portfolio Manager	, 2003; prior thereto, Portfolio Manager to predecessor fund since	Senior Vice President, State Street Research
Balanced Fund		Cynthia P. Prince-Fox Portfolio Manager	, 2003	Senior Vice President, WRIICO and WRIMCO; Vice President of the Fund; Co-Chief Investment Officer, Vice President and Portfolio Manager for Austin, Calvert & Flavin, Inc..; From January 1993 to March 1998, Vice President and Portfolio Manager, Waddell & Reed Asset Management Company

FINANCIAL HIGHLIGHTS

The following information is to help you understand the financial performance of each of the classes of each Fund for the fiscal periods shown. The information shown is that of Class A shares of the respective Advantus Fund(“predecessor funds”) for periods prior to the date of this Prospectus (as further described in the footnotes to each Fund’s financial highlights tables below). Information is not shown for Class B, Class C and Class Y shares because all assets of the predecessor funds, Classes A, B and C, merged into Class A shares of the respective Ivy Fund. Certain information reflects financial results for a single Fund share. Total return shows how much

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your investment would have increased (or decreased) during each period, assuming reinvestment of all dividends and distributions. This information is included in a Fund’s financial statements, which, except for the six-month periods ended January 31, 2003 or March 31, 2003, have been audited by KPMG LLP, independent accountants, whose report, along with the Fund’s financial statements, is included in the annual report of the predecessor fund. The annual report contains additional performance information and will be made available upon request and without charge.

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Ivy Balanced Fund

Historical information is presented for Advantus Spectrum Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations								Less Distributions
					Net Gain
	Net Asset		Net		(Loss) on						Dividends			Distributions						Net Asset
	Value		Investment		Investments			Total From			From Net			From Net						Value
	Beginning		Income		(Realized and			Investment			Investment			Realized			Total			End of
	of Period		(Loss)		Unrealized)			Operations			Income			Gains			Distributions			Period
For the Period From
10-1-02 to 3-31-03*	$	10.54	$	0.10	$	0.39		$	0.49		$	(0.11	)	$	0.00		$	(0.11	)	$	10.92
10-1-01 to 9-30-02		11.45		0.23		(0.89	)		(0.66	)		(0.25	)		0.00			(0.25	)		10.54
10-1-00 to 9-30-01		19.73		0.22		(6.08	)		(5.86	)		(0.20	)		(2.22	)		(2.42	)		11.45
10-1-99 to 9-30-00		17.88		0.31		2.55			2.86			(0.30	)		(0.71	)		(1.01	)		19.73
10-1-98 to 9-30-99		16.50		0.31		2.30			2.61			(0.31	)		(0.92	)		(1.23	)		17.88
10-1-97 to 9-30-98		16.40		0.33		1.40			1.73			(0.33	)		(1.30	)		(1.63	)		16.50

* Unaudited.

Ivy Balanced Fund

Historical information is presented for Advantus Spectrum Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss)to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
10-1-02 to 3-31-03*		4.73	%	$	36,108		1.17	%(b)		1.49	%(b)		1.67	%(b)		1.35	%(b)		47.1	%
10-1-01 to 9 30-02		(5.91	)		36,974		1.22			1.52			1.84			1.54			129.0
10-1-00 to 9-30 01		(32.35	)		45,066		1.12			1.40			1.57			1.29			158.4
10-1-99 to 9-30-00		16.22			77,964		1.11			1.20			1.58			1.49			132.0
10-1-98 to 9-30-99		16.08			73,613		1.10			1.10			1.77			1.77			100.8
10-1-97 to 9-30-98		11.31			68,157		1.19			1.19			1.98			1.98			139.8

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

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Ivy Bond Fund

Historical information is presented for Advantus Bond Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations								Less Distributions
					Net Gain
	Net Asset		Net		(Loss) on						Dividends			Distributions						Net Asset
	Value		Investment		Investments			Total From			From Net			From Net						Value
	Beginning		Income		(Realized and			Investment			Investment			Realized			Total			End of
	of Period		(Loss)		Unrealized)			Operations			Income			Gains			Distributions			Period
For the Period From
10-1-02 to 3-31-03*	$	10.57	$	0.24	$	0.06		$	0.30		$	(0.23	)	$	0.00		$	(0.23	)	$	10.64
10-1-01 to 9-30-02		10.30		0.52		0.27			0.79			(0.52	)		0.00			(0.52	)		10.57
10-1 00 to 9-30-01		9.60		0.58		0.70			1.28			(0.58	)		0.00			(0.58	)		10.30
10-1-99 to 9-30-00		9.71		0.58		(0.11	)		0.47			(0.58	)		0.00			(0.58	)		9.60
10-1-98 to 9-30-99		10.69		0.54		(0.79	)		(0.25	)		(0.54	)		(0.19	)		(0.73	)		9.71
10-1-97 to 9-30-98		10.43		0.59		0.30			0.89			(0.60	)		(0.03	)		(0.63	)		10.69

* Unaudited.

Ivy Bond Fund

Historical information is presented for Advantus Bond Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss)to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
10-1-02 to 3-31-03*		2.91	%	$	18,145		1.15	%(b)		1.95	%(b)		4.56	%(b)		3.75	%(b)		66.0	%
10-1-01 to 9-30-02		7.90			17,313		1.15			1.92			5.07			4.30			148.3
10-1-00 to 9-30-01		13.68			15,737		1.15			1.99			5.77			4.93			251.9
10-1-99 to 9-30-00		5.04			15,002		1.15			1.84			6.08			5.39			191.4
10-1-98 to 9-30-99		(2.36	)		17,846		1.15			1.55			5.41			5.01			211.9
10-1-97 to 9-30-98		8.75			19,419		1.10			1.58			5.55			5.07			237.2

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

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Ivy International Balanced Fund

Historical information is presented for Advantus International Balanced Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations								Less Distributions
					Net Gain
	Net Asset		Net		(Loss) on						Dividends			Distributions									Net Asset
	Value		Investment		Investments			Total From			From Net			From Net			Tax						Value
	Beginning		Income		(Realized and			Investment			Investment			Realized			Return of			Total			End of
	of Period		(Loss)		Unrealized)			Operations			Income			Gains			Capital			Distributions			Period
For the Period From
10-1-02 to 3-31-03*	$	8.72	$	0.06	$	0.17		$	0.23		$	0.00		$	0.00			0.00		$	0.00		$	8.95
10-1-01 to 9-30-02		9.28		0.18		(0.59	)		(0.41	)		0.00			(0.13	)		(0.02	)		(0.15	)		8.72
10-1-00 to 9-30-01		11.59		0.18		(1.28	)		(1.10	)		(0.11	)		(1.10	)		0.00			(1.21	)		9.28
10-1-99 to 9-30-00		11.80		0.23		0.50			0.73			(0.36	)		(0.58	)		0.00			(0.94	)		11.59
10-1-98 to 9-30-99		10.56		0.21		1.52			1.73			(0.11	)		(0.38	)		0.00			(0.49	)		11.80
10-1-97 to 9-30-98		13.29		0.28		(1.95	)		(1.67	)		(0.14	)		(0.92	)		0.00			(1.06	)		10.56

* Unaudited.

Ivy International Balanced Fund

Historical information is presented for Advantus International Balanced Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss) to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
10-1-02 to 3-31-03*		2.64	%	$	37,019		1.67	%(b)		1.70	%(b)		1.14	%(b)		1.11	%(b)		20.6	%
10-1-01 to 9-30-02		(4.62	)		36,488		1.62			1.72			1.84			1.74			47.8
10-1-00 to 9-30-01		(10.57	)		40,021		1.62			1.73			1.60			1.49			35.6
10-1-99 to 9-30-00		6.26			47,693		1.52			1.65			1.92			1.79			44.2
10-1-98 to 9-30-99		16.65			49,502		1.63			1.70			1.77			1.70			73.8
10-1-97 to 9-30-98		(13.02	)		46,025		1.62			1.91			2.38			2.09			57.0

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

D-68

Ivy Mortgage Securities Fund

Historical information is presented for Advantus Mortgage Securities Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations							Less Distributions
					Net Gain
	Net Asset		Net		(Loss) on					Dividends			Distributions								Net Asset
	Value		Investment		Investments			Total From		From Net			From Net		Tax						Value
	Beginning		Income		(Realized and			Investment		Investment			Realized		Return of			Total			End of
	of Period		(Loss)		Unrealized)			Operations		Income			Gains		Capital			Distributions			Period
For the Period From
10-1-02 to 3-31-03*	$	11.07	$	0.33	$	(0.07	)	$	0.26	$	(0.31	)	$	0.00	$	0.00		$	(0.31	)	$	11.02
10-1-01 to 9-30-02		10.99		0.70		0.11			0.81		(0.72	)		0.00		(0.01	)		(0.73	)		11.07
10-1-00 to 9-30-01		10.37		0.73		0.65			1.38		(0.72	)		0.00		(0.04	)		(0.76	)		10.99
10-1-99 to 9-30-00		10.30		0.69		0.09			0.78		(0.70	)		0.00		(0.01	)		(0.71	)		10.37
10-1-98 to 9-30-99		10.75		0.69		(0.45	)		0.24		(0.68	)		0.00		(0.01	)		(0.69	)		10.30
10-1-97 to 9-30 98		10.54		0.64		0.25			0.89		(0.65	)		0.00		(0.03	)		(0.68	)		10.75

* Unaudited.

Ivy Mortgage Securities Fund

Historical information is presented for Advantus Mortgage Securities Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss) to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
10-1-02 to 3-31-03*		2.25	%	$	84,128		95	%(b)		1.14	%(b)		5.79	%(b)		5.60	%(b)		36.1	%
10-1-01 to 9-30-02		7.88			67,395		95			1.21			6.24			5.98			98.5
10-1-00 to 9-30-01		13.90			42,458		95			1.31			6.75			6.39			55.2
10-1-99 to 9-30-00		7.70			31,814		95			1.32			6.81			6.44			64.7
10-1-98 to 9-30-99		2.26			33,617		95			1.21			6.29			6.03			127.1
10-1-97 to 9-30-98		8.73			32,268		95			1.29			6.02			5.68			152.5

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

D-69

Ivy Real Estate Securities Fund

Historical information is presented for Advantus Real Estate Securities Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations								Less Distributions
			Net Gain
	Net Asset		Net		(Loss) on						Dividends			Distributions			Excess						Net Asset
	Value		Investment		Investments			Total From			From Net			From Net			Distributions						Value
	Beginning		Income		(Realized and			Investment			Investment			Realized			of Net Inv.			Total			End of
	of Period		(Loss)		Unrealized)			Operations			Income			Gains			Income			Distributions			Period
For the Period From
8-1-02 to 1-31-03*	$	11.93	$	0.24	$	(0.76	)	$	(0.52	)	$	(0.23	)	$	(0.22	)	$	0.00		$	(0.45	)	$	10.96
8-1-01 to 7-31-02		11.67		0.32		1.01			1.33			(0.28	)		(0.79	)		0.00			(1.07	)		11.93
8-1-00 to 7-31-01		11.23		0.51		0.47			0.98			(0.54	)		0.00			0.00			(0.54	)		11.67
8-1-99 to 7-31-00		10.25		0.43		1.00			1.43			(0.42	)		(0.03	)		0.00			(0.45	)		11.23
2-25-99 to 7-31-99		10.02		0.18		0.31			0.49			(0.18	)		0.00			(0.08	)		(0.26	)		10.25

* Unaudited.

D-70

Ivy Real Estate Securities Fund

Historical information is presented for Advantus Real Estate Securities Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss) to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
8-1-02 to 1-31-03*		(4.40	)%	$	40,318		1.55	%(b)		1.55	%(b)		4.41	%(b)		4.40	%(b)		52.6	%
8-1-01 to 7-31-02		12.31			32,269		1.50			1.69			2.83			2.64			101.2
8-1-00 to 7-31-01		9.10			17,336		1.50			1.99			4.30			3.81			173.1
8-1-99 to 7-31-00		14.89			11,704		1.50			2.72			4.25			3.04			116.8
2-25-99 to 7-31-99		4.78			6,113		1.50	(b)		3.49	(b)		4.09	(b)		2.10	(b)		51.5

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

Ivy Small Cap Value Fund

Historical information is presented for Advantus Venture Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations
						(Loss) on
	Net Asset		Net			Investments
	Value		Investment			(Realized			Total From
	Beginning		Income			and			Investment
	of Period		(Loss)			Unrealized)			Operations
For the Period From
8-1-02 to 1-31-03*	$	12.25	$	(0.04	)	$	(1.02	)	$	(1.06	)
8-1-01 to 7-31-02		15.05		(0.08	)		(1.84	)		(1.92	)
8-1 00 to 7-31-01		11.47		(0.06	)		4.04			3.98
8-1-99 to 7-31-00		11.20		0.05			0.32			0.37
8-1-98 to 7-31-99		12.03		0.10			(0.59	)		(0.49	)
8-1-97 to 7-31-98		11.73		0.06			0.98			1.04

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Selected Per-Share Data
	Less Distributions
	Dividends			Dividends			Distributions						Net Asset
	From Net			in Excess			From Net						Value
	Investment			of Net Inv.			Realized			Total			End of
	Income			Income			Gains			Distributions			Period
For the Period From
8-1-02 to 1-31-03*	$	0.00		$	0.00		$	(0.88	)	$	(1.94	)		10.31
8-1-01 to 7-31-02		0.00			0.00			(0.88	)		(0.88	)		12.25
8-1 00 to 7-31-01		0.00			0.00			(0.40	)		(0.40	)		15.05
8-1-99 to 7-31-00		(0.06	)		(0.04	)		0.00			(0.10	)		11.47
8-1-98 to 7-31-99		(0.09	)		0.00			(0.23	)		(0.34	)**		11.20
8-1-97 to 7-31-98		(0.08	)		0.00			(0.66	)		(0.74	)		12.03

*	Unaudited.
**	Total Distributions number also includes (0.02) Tax return of capital.

D-71

Ivy Small Cap Value Fund

Historical information is presented for Advantus Venture Fund Class A shares

	Ratios and Supplemental Data
												Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss) to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
8-1-02 to 1-31-03*		(9.01	)%	$	47,215		1.45	%(b)		1.45	%(b)		(0.80)	%(b)		(0.80)	%(b)		31.4	%
8-1-01 to 7-31-02		(13.27	)		53,071		1.27			1.37			(0.57	)		(0.67	)		37.3
8-1-00 to 7-31-01		35.18			54,735		1.40			1.51			(0.56	)		(0.67	)		37.8
8-1-99 to 7-31-00		3.74			31,371		1.40			1.71			0.63			0.32			169.0
8-1-98 to 7-31-99		(3.89	)		31,683		1.40			1.64			0.81			0.57			103.9
8-1-97 to 7-31-98		8.92			34,630		1.38			1.55			0.55			0.38			45.0

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

Ivy Value Fund

Historical information is presented for Advantus Cornerstone Fund Class A shares

	Selected Per-Share Data
			Increase (Decrease)
			From Investment Operations
	Net Asset		Net		(Loss) on
	Value		Investment		Investments			Total From
	Beginning		Income		(Realized and			Investment
	of Period		(Loss)		Unrealized)			Operations
For the Period From
8-1-02 to 1-31-03*	$	11.81	$	0.07	$	(0.80	)	$	(0.73	)
10-1-01 to 7-31-02		12.59		0.08		(0.78	)		(0.70	)
10-1-00 to 9-30-01		15.08		0.09		(2.50	)		(2.41	)
10-1 99 to 9-30-00		15.14		0.06		0.13			0.19
10-1-98 to 9-30-99		13.88		0.15		1.24			1.41
10-1-97 to 9-30-98		18.68		0.16		(3.04	)		(2.88	)
10-1-96 to 9-30-97		15.06		0.14		5.19			5.33

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Selected Per-Share Data
	Less Distributions
	Dividends			Distributions			Excess						Net Asset
	From Net			From Net			Distributions						Value
	Investment			Realized			of Net Inv.			Total			End of
	Income			Gains			Income			Distributions			Period
For the Period From
8-1-02 to 1-31-03*	$	(0.06	)	$	0.00		$	0.00		$	(0.06	)	$	11.02
10-1-01 to 7-31-02		(0.08	)		0.00			0.00			(0.08	)		11.81
10-1-00 to 9-30-01		(0.08	)		0.00			0.00			(0.08	)		12.59
10-1-99 to 9-30-00		(0.05	)		(0.13	)		(0.06	)		(0.25	)**		15.08
10-1-98 to 9-30-99		(0.15	)		0.00			0.00			(0.15	)		15.14
10-1-97 to 9-30-98		(0.16	)		(1.76	)		0.00			(1.92	)		13.88
10-1-96 to 9-30-97		(0.14	)		(1.57	)		0.00			(1.71	)		18.68

* Unaudited. ** Total Distributions number also includes (0.01) Tax return of capital.

D-72

Ivy Value Fund

Historical information is presented for Advantus Cornerstone Fund Class A shares

	Ratios and Supplemental Data
									Ratio of Net			Ratio of Net
						Ratio of			Ratio of			Investment			Investment
				Net Assets		Expenses to			Expenses to			Income (Loss)to			Income (Loss) to
				End of		Average Net			Average Net			Average Net			to Average Net			Portfolio
	Total			Period		Assets with			Assets without			Assets with			Assets without			Turnover
	Return(a)			(in Thousands)		Waiver			Waiver			Waiver			Waiver			Rate
For the Period From
8-1-02 to 1-31-03*		(6.17	)%	$	56,614		1.24	%(b)		1.49	%(b)		1.21	%(b)		0.96	%(b)		54.0	%
10-1-01 to 7-31-02		(5.72	)		57,947		1.24	(b)		1.41	(b)		0.70	(b)		0.53	(b)		95.3
10-1-00 to 9-30-01		(15.97	)		65,766		1.24			1.39			0.61			0.46			147.9
10-1-99 to 9-30-00		1.26			81,389		1.24			1.34			0.43			0.33			180.1
10-1-98 to 9-30-99		10.13			92,657		1.21			1.23			0.94			0.92			78.7
10-1-97 to 9-30-98		(16.45	)		93,833		1.16			1.25			0.98			0.89			114.4
10-1-96 to 9-30-97		38.35			107,322		1.08			1.28			0.85			0.65			87.7

*	Unaudited.
(a)	Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges.
(b)	Adjusted to an annual basis.

IVY FUNDS
Custodian	Distributor
UMB Bank, n.a	Ivy Funds Distributor, Inc.
928 Grand Boulevard	6300 Lamar Avenue
Kansas City, Missouri 64106	P. O. Box 29217
	Shawnee Mission, Kansas
Legal Counsel	66201-9217
Bell, Boyd & Lloyd LLC	913-236-2000
Three First National Plaza	800-777-6472
70 West Madison Street
Suite 3300
Chicago, Illinois 60602-4207
Independent Auditors	Transfer Agent
Deloitte & Touche LLP	Waddell & Reed
1010 Grand Boulevard	Services Company
Kansas City, Missouri	6300 Lamar Avenue
64106-2232	P. O. Box 29217
	Shawnee Mission, Kansas
Investment Manager	66201-9217
Waddell & Reed Ivy	913-236-2000
Investment Company	800-777-6472
6300 Lamar Avenue
P. O. Box 29217	Accounting Services Agent
Shawnee Mission, Kansas	Waddell & Reed
66201-9217	Services Company
913-236-2000	6300 Lamar Avenue
800-777-6472	P. O. Box 29217
	Shawnee Mission, Kansas
	66201-9217
	913-236-2000
	800-777-6472

D-73

IVY FUNDS

You can get more information about each Fund in the—

• Statement of Additional Information (SAI), which contains detailed information about a Fund, particularly the investment policies and practices. You may not be aware of important information about a Fund unless you read both the Prospectus and the SAI. The current SAI is on file with the Securities and Exchange Commission (SEC) and it is incorporated into this Prospectus by reference (that is, the SAI is legally part of the Prospectus).

• Annual and Semiannual Reports to Shareholders, which detail a Fund’s actual investments and include financial statements as of the close of the particular annual or semiannual period. The annual report also contains a discussion of the market conditions and investment strategies that significantly affected a Fund’s performance during the year covered by the report.

To request a copy of the Funds’ current SAI without charge, or for other inquiries, contact the Fund or Ivy Funds Distributor, Inc. at the address and telephone number below. Copies of the SAI may also be requested via e- mail at request@waddell.com.

Information about the Funds (including the current SAI and most recent Annual and Semiannual Reports once available) is available from the SEC’s web site at http://www.sec.gov and may also be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov or from the SEC’s Public Reference Room in Washington, D.C. You can find out about the operation of the Public Reference Room and applicable copying charges by calling 202-942-8090.

The Funds’ SEC file number is: 811-01028

IVY FUNDS DISTRIBUTOR, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-777-6472

D-74

PART B

STATEMENT OF ADDITIONAL INFORMATION
dated September __, 2003

Acquisition of the Assets of

ADVANTUS BOND FUND, INC.
ADVANTUS CORNERSTONE FUND, INC.
ADVANTUS ENTERPRISE FUND, INC.
ADVANTUS HORIZON FUND, INC.
ADVANTUS INDEX 500 FUND, INC.
ADVANTUS INTERNATIONAL BALANCED FUND, INC.
ADVANTUS MONEY MARKET FUND, INC.
ADVANTUS MORTGAGE SECURITIES FUND, INC.
ADVANTUS REAL ESTATE SECURITIES FUND, INC.
ADVANTUS SPECTRUM FUND, INC.
ADVANTUS VENTURE FUND, INC.

400 Robert Street North
St. Paul, Minnesota 55101
Telephone: 1-800-665-6005

By and in Exchange for Shares of

IVY BOND FUND, A SERIES OF IVY FUNDS
IVY VALUE FUND, A SERIES OF IVY FUNDS
IVY SMALL CAP GROWTH FUND, A SERIES OF IVY FUNDS, INC.
IVY LARGE CAP GROWTH FUND, A SERIES OF IVY FUNDS, INC.
IVY CORE EQUITY FUND, A SERIES OF IVY FUNDS, INC.
IVY INTERNATIONAL BALANCED FUND, A SERIES OF IVY FUNDS
IVY MONEY MARKET FUND, A SERIES OF IVY FUNDS, INC.
IVY MORTGAGE SECURITIES FUND, A SERIES OF IVY FUNDS
IVY REAL ESTATE SECURITIES FUND, A SERIES OF IVY FUNDS
IVY BALANCED FUND, A SERIES OF IVY FUNDS
IVY SMALL CAP VALUE FUND, A SERIES OF IVY FUNDS

6300 Lamar Avenue
Shawnee Mission, Kansas 66201-9217
Telephone: 1-888-WADDELL

     This Statement of Additional Information relates specifically to the reorganization of the Advantus Bond Fund, Inc., Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Real Estate Securities Fund, Inc., Advantus Spectrum Fund, Inc. and Advantus Venture Fund, Inc. (each an “Advantus Fund” and collectively the “Advantus Funds”) into a mutual fund that is a series of either Ivy Funds (a Massachusetts business trust, hereinafter referred to as “Ivy Trust”) or Ivy Funds, Inc. (a Maryland corporation, hereinafter referred to as “Ivy Corporation”), in most cases with substantially similar investment objectives and strategies (each an “Ivy Fund” and collectively the “Ivy Funds”) in return for shares of that Ivy Fund. Pursuant to this reorganization, each Ivy Fund would acquire all of the assets of a corresponding Advantus Fund, except as described in the Prospectus/Proxy Statement dated September      , 2003, and Ivy Fund shares would be distributed pro rata by each Advantus Fund to the holders of its shares, in complete liquidation of the Advantus Fund. For the name of the Ivy Fund into which your Advantus Fund would be reorganized, see the Prospectus/Proxy Statement dated September      , 2003.

1

     This Statement of Additional Information is not a prospectus. A Prospectus/Proxy Statement dated September      , 2003, relating to the above-referenced matters may be obtained from the Advantus Funds at the address and telephone number shown above. This Statement of Additional Information should be read in conjunction with such Prospectus/Proxy Statement.

Table of Contents

I.	Additional Information About the Ivy Funds and the Advantus Funds	2
II.	Financial Information	2
III.	Pro Forma Financial Statements	3

I. Additional Information About the Ivy Funds and the Advantus Funds

     This Statement of Additional Information is accompanied by the following documents which contain additional information about the Ivy Funds and the Advantus Funds and which are incorporated by reference herein:

1.	The Statement of Additional Information dated January 31, 2003 of Advantus Spectrum Fund, Inc. (SEC File No. 002-94175), Advantus Bond Fund, Inc. (SEC File No. 033-12046), Advantus International Balanced Fund, Inc. (SEC File No. 033-80756), Advantus Money Market Fund (SEC File No. 002-94172), and Advantus Mortgage Securities Fund, Inc. (SEC File No. 002-94173) (the “Advantus Fixed Income and Blended Funds”), in the form filed by Advantus Fixed Income and Blended Funds with the Securities and Exchange Commission (the “SEC”) on February 6, 2003 pursuant to Rule 497, EDGAR Accession Number 0001047469-03-004266.
2.	The Statement of Additional Information dated November 29, 2002 of Advantus Index 500 Funds, Inc. (SEC File No. 333-12285), Advantus Venture Fund, Inc. (SEC File No. 333-12283), Advantus Real Estate Securities Fund, Inc. (SEC File No. 333-68669), Advantus Enterprise Fund, Inc. (SEC File No. 033-80754), Advantus Horizon Fund, Inc. (SEC File No. 002-94174), and Advantus Cornerstone Fund, Inc. (SEC File No. 033-80752) (the “Advantus Equity Funds”), as supplemented on May 1, 2003, in the form filed by Advantus Equity Funds with the SEC on December 3, 2002 pursuant to Rule 497, EDGAR Accession Number 0001047469-02-005496.
3.	The Statement of Additional Information dated July 31, 2003 of Ivy Funds (SEC File No. 002-17613) and Ivy Funds, Inc. (SEC File No. 033-45961) in the form filed by Ivy Funds and Ivy Funds, Inc. with the SEC on July 1, 2003 pursuant to Rule 485(b), EDGAR Accession Number 0001105607-03-000110.
4.	The Preliminary Statement of Additional Information dated           , 2003 of Ivy Funds (SEC File No. 002-17613) and Ivy Funds, Inc. (SEC File No. 033-45961) in the form filed by Ivy Funds and Ivy Funds, Inc. with the SEC on August 26, 2003 pursuant to Rule 485(a), EDGAR Accession Number 0001105607-03-000170.

II. Financial Information

     Historical financial information regarding the Ivy Funds and the Advantus Funds is included in the following documents which accompany this Statement of Additional Information and which are incorporated by reference herein:

1. The Advantus Fixed Income and Blended Funds Annual Report for the fiscal year ended September 30, 2002, in the form filed by Advantus Fixed Income and Blended Funds with the SEC on December 29, 2002, EDGAR Accession Number 0001047469-02-005427.

2

2.	The Advantus Fixed Income and Blended Funds Semi-Annual Report for the period ended March 31, 2003, in the form filed by Advantus Fixed Income and Blended Funds with the SEC on May 28, 2003, EDGAR Accession Number 0001047469-03-019932.
3.	The Advantus Equity Funds Annual Report for the period ended July 31, 2002, in the form filed by Advantus Equity Funds with the SEC on September 27, 2002, EDGAR Accession Number 0000912057-02-037026.
4.	The Advantus Equity Funds Semi-Annual Report for the period ended January 31, 2003, in the form filed by Advantus Equity Funds with the SEC on April 1, 2003, EDGAR Accession Number 0001047469-03-011495.
5.	The Ivy Funds’ Annual Report for the fiscal year ended December 31, 2002, in the form filed by Ivy Funds with the SEC on February 28, 2003, EDGAR Accession Number 0000950144-03-002502.
6.	The Ivy Funds, Inc.’s Annual Report for the fiscal year ended March 31, 2003, in the form filed by Ivy Funds, Inc. with the SEC on May 28, 2003, EDGAR Accession Number 0000883622-03-000001.

III. Pro Forma Financial Statements

     Set forth on the following pages are pro forma financial statements which are presented to show the effect of the proposed acquisition of each Advantus Fund by the corresponding Ivy Fund as if such acquisition had taken place as of the close of business on March 31, 2003. Pro forma financial statements are included for the following fund reorganizations: Advantus Horizon Fund, Inc. into Ivy Large Cap Growth Fund, Advantus Index 500 Fund, Inc. into Ivy Core Equity Fund, and Advantus Money Market Fund, Inc. into Ivy Money Market Fund. Pursuant to Item 14(a)(2) of the instructions to Part B of Form N-14, pro forma financial statements are not included for the reorganization of Advantus Enterprise Fund, Inc. into Ivy Small Cap Growth Fund because the net asset value of the fund being acquired does not exceed ten percent of the acquiring fund’s net asset value. Pro forma financial statements are not included for the reorganization of Advantus Bond Fund, Inc. into Ivy Bond Fund, Advantus Cornerstone Fund, Inc. into Ivy Value Fund, Advantus International Balanced Fund, Inc. into Ivy International Balanced Fund, Advantus Mortgage Securities Fund, Inc. into Ivy Mortgage Securities Fund, Advantus Real Estate Securities Fund, Inc. into Ivy Real Estate Securities Fund, Advantus Spectrum Fund, Inc. into Ivy Balanced Fund, and Advantus Venture Fund, Inc. into Ivy Small Cap Value Fund because the acquiring funds are newly formed Ivy Funds that will not have any assets prior to the Reorganization.

3

IVY LARGE CAP GROWTH FUND
ADVANTUS HORIZON FUND
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of Ivy Large Cap Growth Fund and Advantus Horizon Fund as of March 31, 2003 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of Ivy Large Cap Growth Fund and Advantus Horizon Fund as of March 31, 2003.

Under the terms of the Agreement and Plan of Reorganization, the combination of Advantus Horizon Fund and Ivy Large Cap Growth Fund will be treated as a tax-free business combination and accordingly will be accounted for by a method of accounting for tax-free mergers of investment companies (sometimes referred to as the pooling without restatement method). The acquisition would be accomplished by an acquisition of the net assets of Advantus Horizon Fund in exchange for shares of Ivy Large Cap Growth Fund at net asset value. Ivy Large Cap Growth Fund will be the accounting survivor for financial statement purposes.

As of August 20, 2003, all of the securities held by Advantus Horizon Fund would comply with the compliance guidelines and/or investment restrictions of Ivy Large Cap Growth Fund. All reorganization costs will be borne by Advantus Capital Management, Inc. and not by the funds.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of Ivy Large Cap Growth Fund and Advantus Horizon Fund incorporated by reference in this Statement of Additional Information.

4

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
			COMMON STOCKS
			Aircraft
14,800		14,800	Lockheed Martin Corporation	703,740		703,740
	2,600	2,600	United Technologies Corporation		150,228	150,228
			Total	703,740	150,228	853,968
			Banks
9,500	2,000	11,500	Bank of America Corporation	634,980	133,680	768,660
	3,400	3,400	Charter One Financial, Inc.		94,044	94,044
	7,600	7,600	Citigroup, Inc.		261,820	261,820
5,200		5,200	Commerce Bancorp, Inc.	206,648		206,648
	3,100	3,100	Fifth Third BanCorporation		155,434	155,434
	8,550	8,550	MBNA Corporation		128,678	128,678
	2,000	2,000	State Street Corporation		63,260	63,260
14,100	4,400	18,500	Wells Fargo & Company	634,359	197,956	832,315
			Total	1,475,987	1,034,872	2,510,859
			Beverages
5,100	1,700	6,800	Anheuser-Busch Companies, Inc.	237,711	79,237	316,948
	10,800	10,800	Coca-Cola Company (The)		437,184	437,184
	7,300	7,300	Constellation Brands, Inc.		165,710	165,710
	11,010	11,010	Pepsico, Inc.		440,400	440,400
			Total	237,711	1,122,531	1,360,242
			Broadcasting
	8,300	8,300	Clear Channel Communications, Inc.		281,536	281,536
	2,600	2,600	Fox Entertainment Group, Inc.		69,342	69,342
	5,900	5,900	Viacom, Inc.		215,468	215,468
			Total	0	566,346	566,346
			Business Equipment and Services
	7,400	7,400	Ceridian Corporation		103,452	103,452
	4,200	4,200	Entegris, Inc.		41,832	41,832
	4,800	4,800	First Data Corporation		177,648	177,648
	2,400	2,400	Hewitt Associates, Inc.		70,560	70,560
22,500		22,500	Manpower Inc.	672,300		672,300
			Total	672,300	393,492	1,065,792
			Capital Equipment
6,000		6,000	Parker Hannifin Corporation	232,440		232,440
			Coal
	1,300		Genentech, Inc.		45,513	45,513
			Chemicals — Specialty
	2,500	2,500	Air Products and Chemicals, Inc.		103,575	103,575
6,600		6,600	Praxair, Inc.	371,910		371,910
			Total	371,910	103,575	475,485
			Communications Equipment
54,600	47,885	102,485	Cisco Systems, Inc.*	708,162	617,716	1,325,878

See Notes to Pro Forma Combined Financial Statements.

5

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
	15,900	15,900	Nokia Oyj		222,759	222,759
	4,774	4,774	Qualcomm, Inc.		172,150	172,150
	7,000	7,000	UTStarcom, Inc.		139,930	139,930
			Total	708,162	1,152,555	1,860,717
			Computers — Main
	4,200	4,200	Hewlett-Packard Company		65,310	65,310
	5,300	5,300	International Business Machines Corporation		415,679	415,679
			Total	0	480,989	480,989
			Computers — Micro
11,100	14,530	25,630	Dell Computer Corporation*	303,363	396,814	700,177
			Computers — Peripherals
	2,700	2,700	Comverse Technology, Inc.		30,537	30,537
144,211		144,211	EMC Corporation*	1,042,646		1,042,646
	1,946	1,946	Electronic Arts, Inc.		114,113	114,113
37,600	55,018	92,618	Microsoft Corporation	910,296	1,331,986	2,242,282
	17,100	17,100	Oracle Corporation		185,518	185,518
45,400	9,800	55,200	SAP Aktiengesellschaft, ADR	860,784	185,808	1,046,592
	8,400	8,400	Seagate Technology		86,688	86,688
	12,200	12,200	Siebel Systems, Inc.		97,722	97,722
	2,006	2,006	Sungard Data Systems, Inc.		42,728	42,728
	4,200	4,200	Symantec Corporation		164,556	164,556
	22,300	22,300	Symbol Technologies, Inc.		192,003	192,003
	10,600	10,600	Veritas Software Corporation		186,348	186,348
			Total	2,813,726	2,618,007	5,431,733
			Consumer Electronics
6,100		6,100	Harman International Industries, Incorporated	357,277		357,277
			Cosmetics and Toiletries
	2,500	2,500	Avon Products, Inc.		142,625	142,625
			Electrical Equipment
	2,800	2,800	W.W. Grainger, Inc.		120,120	120,120
			Electronic Components
	3,400	3,400	Altera Corporation		46,036	46,036
11,400	2,466	13,866	Analog Devices, Inc.*	313,500	67,815	381,315
	29,831	29,831	Intel Corporation		485,649	485,649
	3,600	3,600	Intersil Corporation		56,016	56,016
	2,288	2,288	Linear Technology Corporation		70,631	70,631
9,400	2,222	11,622	Maxim Integrated Products, Inc.	339,528	80,259	419,787
18,500		18,500	Microchip Technology Incorporated	369,075		369,075
	5,300	5,300	National Semiconductor Corporation		90,312	90,312
	18,587	18,587	Texas Instruments, Inc.		304,269	304,269
	2,279	2,279	Xilinx, Inc.		53,351	53,351
			Total	1,022,103	1,254,338	2,276,441
			Electronic Instruments
	9,652	9,652	Applied Materials, Inc.		121,422	121,422

See Notes to Pro Forma Combined Financial Statements.

6

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
	2,435	2,435	KLA-Tencor Corporation		87,519	87,519
	1,800	1,800	Novellus Systems, Inc.		49,086	49,086
			Total	0	258,027	258,027
			Finance Companies
	7,700	7,700	T. Rowe Price Group, Inc.		208,816	208,816
			Food and Related
	4,700	4,700	Sysco Corporation		119,568	119,568
			Health Care — Drugs
	9,300	9,300	Abbott Laboratories		349,773	349,773
	3,300	3,300	AmerisourceBergen Corporation		173,250	173,250
30,800	11,800	42,600	Amgen Inc.*	1,773,618	679,090	2,452,708
	3,300	3,300	Eli Lilly & Company		188,595	188,595
12,200	2,000	14,200	Forest Laboratories, Inc.*	658,434	107,940	766,374
16,800		16,800	Gilead Sciences, Inc.*	705,348		705,348
	3,000	3,000	Merck & Company, Inc.		164,340	164,340
34,800	53,350	88,150	Pfizer Inc.	1,084,368	1,662,386	2,746,754
	4,000	4,000	Schering-Plough Corporation		71,320	71,320
	1,200	1,200	Teva Pharmaceutical, ADR		49,980	49,980
			Total	4,221,768	3,446,674	7,668,442
			Health Care — General
	1,900	1,900	Boston Scientific Corporation		77,444	77,444
	4,300	4,300	Bristol-Myers Squibb Company		90,859	90,859
8,800	17,400	26,200	Johnson & Johnson	509,256	1,006,938	1,516,194
	500	500	St. Jude Medical, Inc.		24,375	24,375
	12,000	12,000	Wyeth		453,840	453,840
17,500	5,300	22,800	Zimmer Holdings, Inc.*	851,025	257,739	1,108,764
			Total	1,360,281	1,911,195	3,271,476
			Hospital Supply and Management
	8,800	8,800	Caremark Rx, Inc.		159,720	159,720
	5,800	5,800	Express Scripts, Inc.		322,944	322,944
	4,600	4,600	HCA — The Healthcare Company		190,256	190,256
54,400	3,500	57,900	Health Management Associates, Inc., Class A	1,033,600	66,500	1,100,100
25,600	7,000	32,600	Medtronic, Inc.	1,155,072	315,840	1,470,912
	1,700	1,700	Unitedhealth Group, Inc.		155,839	155,839
			Total	2,188,672	1,211,099	3,399,771
			Hotels and Gaming
4,000		4,000	International Game Technology*	327,600		327,600
			Household — General Products
7,800		7,800	Clorox Company (The)	360,126		360,126
	6,500	6,500	Colgate-Palmolive Company		353,860	353,860
2,700	6,700	9,400	Procter & Gamble Company (The)	240,435	596,635	837,070
			Total	600,561	950,495	1,551,056
			Insurance — Property and Casualty
	4,800	4,800	American International Group		237,360	237,360

See Notes to Pro Forma Combined Financial Statements.

7

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
5,000		5,000	MGIC Investment Corporation	196,350		196,350
293		293	Travelers Property Casualty Corp., Class A	4,128		4,128
603		603	Travelers Property Casualty Corp., Class B	8,508		8,508
			Total	208,986	237,360	446,346
			Leisure Time Industry
	16,500	16,500	Brunswick Corporation		313,500	313,500
			Metal Fabrication
	4,300	4,300	Fastenal Company		121,217	121,217
			Motor Vehicle Parts
3,400	2,300	5,700	AutoZone, Inc.*	233,614	158,033	391,647
	1,800	1,800	Danaher Corporation		118,368	118,368
	2,100	2,100	Eaton Corporation		146,895	146,895
			Total	233,614	423,296	656,910
			Motor Vehicles
600		600	Harley-Davidson, Inc.	23,826		23,826
			Multiple Industry
	1,800	1,800	3M Company		234,054	234,054
	6,600	6,600	Fisher Scientific International, Inc.		184,536	184,536
4,800		4,800	Garmin Ltd.*	171,864		171,864
	37,928	37,928	General Electric Company		967,164	967,164
	100	100	S&P Depository Receipt		8,487	8,487
			Total	171,864	1,394,241	1,566,105
			Petroleum — Canada
	4,080	4,080	Nabors Industries, Ltd.		162,670	162,670
			Petroleum — Domestic
	1,700	1,700	Burlington Resources, Inc.		81,107	81,107
	1,500	1,500	Devon Energy Corporation		72,330	72,330
	1,900	1,900	EOG Resources, Inc.		75,164	75,164
			Total	0	228,601	228,601
			Petroleum — Services
	3,100	3,100	Ensco International, Inc.		79,081	79,081
	3,900	3,900	Noble Corporation		122,538	122,538
35,300	4,200	39,500	Smith International, Inc.*	1,243,619	147,966	1,391,585
			Total	1,243,619	349,585	1,593,204
			Restaurants
	10,000	10,000	Darden Restaurants, Inc.		178,500	178,500
			Retail — Food Stores
	6,600	6,600	Walgreen Company		194,568	194,568
			Retail — General Merchandise
	10,500	10,500	Family Dollar Stores		324,240	324,240
3,700		3,700	Target Corporation	108,262		108,262

See Notes to Pro Forma Combined Financial Statements.

8

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
5,400	15,200	20,600	Wal-Mart Stores, Inc.	280,962	790,856	1,071,818
			Total	389,224	1,115,096	1,504,320
			Retail — Specialty Stores
	5,200	5,200	Bed Bath & Beyond, Inc.		179,608	179,608
	4,800	4,800	Best Buy Company, Inc.		129,456	129,456
	19,600	19,600	Home Depot, Inc.		477,456	477,456
	4,700	4,700	Lowe’s Companies, Inc.		191,854	191,854
			Total	0	978,374	978,374
			Security and Commodity Brokers
	5,100	5,100	American Express Company		169,473	169,473
7,400		7,400	Chicago Mercantile Exchange Holdings Inc.	356,310		356,310
4,800		4,800	Fannie Mae	313,680		313,680
6,900	9,500	16,400	Freddie Mac	366,390	504,450	870,840
9,100	2,000	11,100	Goldman Sachs Group, Inc. (The)	619,528	136,160	755,688
	1,300	1,300	Marsh and McLennan Companies, Inc.		55,419	55,419
8,700	1,400	10,100	SLM Corporation	965,004	155,288	1,120,292
			Total	2,620,912	1,020,790	3,641,702
			Tobacco
	2,700	2,700	Altria Group, Inc.		80,892	80,892
			Timesharing and Software
	1,700	1,700	Automatic Data Processing, Inc.		52,343	52,343
	923	923	eBay, Inc.		78,723	78,723
	3,100	3,100	Paychex, Inc.		85,157	85,157
			Total	0	216,223	216,223
			Utilities — Electric
	3,000	3,000	PPL Corporation		106,830	106,830
			TOTAL COMMON STOCKS	$22,489,646	$24,809,622	$47,299,268
			SHORT-TERM SECURITIES
			Commercial Paper
			Banks
			Wells Fargo & Company,
	82		1.431%		81,971	81,971
			Chemicals — Petroleum and Inorganic
			du Pont (E.I.) de Nemours and Company,
659			1.16315%, Master Note	659,000		659,000
			Food and Related
			General Mills, Inc.,
1,176			1.4588%, Master Note	1,176,000		1,176,000
			Multiple Industry
			Federated Prime Obligations Fund,
	502		1.270%		501,860	501,860

See Notes to Pro Forma Combined Financial Statements.

9

SHARES OR						(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)			DESCRIPTION	VALUE
		IVY LARGE				IVY LARGE
		CAP GROWTH				CAP GROWTH
IVY LARGE	ADVANTUS	FUND		IVY LARGE	ADVANTUS	FUND
CAP GROWTH	HORIZON	PRO FORMA		CAP GROWTH	HORIZON	PRO FORMA
FUND	FUND	COMBINED		FUND	FUND	COMBINED
			Total Commercial Paper	$1,835,000	$583,831	$2,418,831
			Repurchase Agreement
			Merrill Lynch, Pierce, Fenner &
			Smith Inc., 1.25% Repurchase Agreement
			dated 3-31-03, to be repurchased
3,492			at $3,492,121 on 4-1-03(A)	3,492,000		3,492,000
			TOTAL SHORT-TERM SECURITIES	$5,327,000	$583,831	$5,910,831
			TOTAL INVESTMENT SECURITIES	$27,816,646	$25,393,453	$53,210,099
			LIABILITIES, NET OF CASH AND OTHER ASSETS	(7,753)	12,132	4,379
			NET ASSETS — 100.00%	$27,808,893	$25,405,585	$53,214,478

Notes to Schedule of Investments

* No income dividends were paid during the preceding 12 months.
(A)Collateralized by $3,335,152 Government National Mortgage Association, 7.5% due 12-15-23; market value and accrued interest aggregate $3,635,663.

See Notes to Pro Forma Combined Financial Statements.

10

Pro Forma Combined Statement of Assets and Liabilities (Unaudited)
Year Ended March 31, 2003

												Ivy Large
						Ivy						Cap Growth
			Advantus			Large Cap			Pro forma			Pro Forma
			Horizon			Growth			Adjustments			Combined
ASSETS
Investment securities				25,393,453			27,816,646						53,210,099
Cash							1,102						1,102
Receivable for Investment securities sold				352,431									352,431
Other Assets				66,680			49,855						116,535
Collateral for securities loaned				1,615,780									1,615,780
	Total assets			27,428,344			27,867,603			0			55,295,947
LIABILITIES
Payable to Fund shareholders				20,140			37,646						57,786
Payable for securities purchased				273,172									273,172
Payable to affiliates				32,202			14,312						46,514
Other payables				81,465			6,752						88,217
Payable upon return of securities loaned				1,615,780									1,615,780
	Total liabilities			2,022,759			58,710			0			2,081,469
Net Assets				25,405,585			27,808,893			0			53,214,478
Class A
		Net Assets		19,064,025			20,689,354			6,341,560			46,094,939
		Outstanding Shares		1,779,704			2,858,213			1,728,787	(a)		6,366,704
		Net asset value per share	$	10.71		$	7.24					$	7.24
Class B
		Net Assets		5,815,400			1,885,202			(5,815,400	)		1,885,202
		Outstanding Shares		596,809			269,696			(596,809	)(a)		269,696
		Net asset value per share	$	9.74		$	6.99					$	6.99
Class C
		Net Assets		526,160			4,342,361			(526,160	)		4,342,361
		Outstanding Shares		53,584			613,029			(53,584	)(a)		613,029
		Net asset value per share	$	9.82		$	7.08					$	7.08
Class Y
		Net Assets		0			891,976			0			891,976
		Outstanding Shares		0			122,815			(0	)(a)		122,815
		Net asset value per share	$	0.00		$	7.26					$	7.26
Net Assets
Capital paid In				42,133,966			41,406,286						83,540,252
Accumulated net realized gain / (loss) on investments				(18,362,585	)		(12,750,732	)					(31,113,317	)
Undistributed net investment income (loss)				(40,559	)		(374	)		0			(40,933	)
Net unrealized appreciation (depreciation) on investments				1,674,763			(846,287	)					828,476
		Total Net Assets		25,405,585			27,808,893			0			53,214,478

(a) Share adjustment — removal of old shares and addition of new shares for net assets at Class A NAV per share of surviving fund.

See Notes to Pro Forma Combined Financial Statements.

11

The following unaudited Pro Forma Combined Statement of Operations for Ivy Large Cap Growth Fund and Advantus Horizon Fund has been derived from the Statements of Operations of Ivy Large Cap Growth Fund and Advantus Horizon Fund for the twelve months ended March 31, 2003. Such information has been adjusted to give effect to the Reorganization as if it had occurred on April 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

12

Pro Forma Combined Statement of Operations (Unaudited)
Year Ended March 31, 2003

														Ivy Large
								Ivy						Cap Growth
					Advantus			Large Cap			Pro forma			Pro forma
					Horizon			Growth			Adjustments			Combined
Investment Income
	Income
		Dividends				300,533			211,027						511,560
		Interest and amortization				6,282			47,793						54,075
		Income from securities lending activities				1,653									1,653
			Total income			308,468			258,820			0			567,288
	Expenses
		Investment management fee				212,238			172,560			0	(a)		384,798
		Transfer agent				224,573			119,678			(42,931	)(b)		301,320
	12b-1 service and distribution Class A					55,529			42,758			20,271	(a)		118,558
	12b-1 service and distribution Class B					74,539			19,929			(74,539	)(a)		19,929
	12b-1 service and distribution Class C					6,544			48,685			(6,544	)(a)		48,685
	12b-1 service and distribution Class Y / Advisor								1,745			0	(a)		1,745
		Other				199,326			81,888			(154,204	)(c)		127,010
			Total expenses			772,749			487,243			(257,947	)		1,002,045
			Expenses reimbursement			(332,524	)		(93,158	)		425,682	(a)		0
			Net Expenses			440,225			394,085			167,735			1,002,045
				Net investment income		(131,757	)		(135,265	)		(167,735	)		(434,757	)
Realized and Unrealized Gain (Loss) on Investments
	Realized net gain (loss) on securities					(3,797,847	)		(3,464,361	)		0			(7,262,208	)
	Unrealized depreciation in value of investments during the period					(12,670,933	)		(2,633,064	)		0			(15,303,997	)
		Net gain (loss) on investments				(16,468,780	)		(6,097,425	)		0			(22,566,205	)
			Net increase (decrease) in net assets resulting from operations			(16,600,537	)		(6,232,690	)		(167,735	)		(23,000,962	)

(a)	Based on the contract in effect for the surviving fund.
(b)	Based on fees for the surviving fund.
(c)	Decrease due to economies of scale achieved by merging funds.

See Notes to Pro Forma Combined Financial Statements.

13

IVY LARGE CAP GROWTH FUND and ADVANTUS HORIZON FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)

Note 1 — Significant Accounting Policies

Ivy Large Cap Growth Fund and Advantus Horizon Fund (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. Ivy Large Cap Growth Fund’s investment objective is to seek the appreciation of your investment. Advantus Horizon Fund’s investment objective is to seek long-term growth of capital through investment in equity securities. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.	Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value. Short-term debt securities denominated in foreign currencies are valued at amortized cost in that currency.
B.	Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes over the remaining lives of the bonds. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.
C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and

14

	losses from foreign currency translation arise from changes in currency exchange rates. The respective Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, the Fund intends to pay distributions as required to avoid imposition of excise tax. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Ivy Investment Management Company (“WRIICO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as investment manager for Ivy Large Cap Growth Fund. WRIICO provides advice and supervises investments for which services it is paid a fee. The fee is payable by the Fund at the following annual rates:

		Annual
Fund	Net Assets Breakpoints	Rate
Ivy Large Cap Growth Fund	Up to $1 Billion		.700	%
	Over $1 Billion up to $2 Billion		.650	%
	Over $2 Billion up to $3 Billion		.600	%
	Over $3 Billion		.550	%

The fee is accrued and paid daily. However, WRIICO has agreed to waive the Fund’s management fee on any day that the Fund’s net assets are less than $25 million, subject to WRIICO’s right to change or modify this waiver. During the period ended March 31, 2003, WRIICO voluntarily waived its fee as shown in the following table:

Large Cap Growth Fund $93,158

15

The Fund also reimburses WRIICO for certain expenses, including additional Fund-related security costs incurred by WRIICO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of the incremental security-related costs including the cost of using private transportation for WRIICO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At March 31, 2003, additional security costs amounted to $1,545 for Large Cap Growth Fund, which is included in other expenses.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, the Fund pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee
Average Net Asset Level	Annual Fee Rate
(in millions)	for Each Level
From $0 to $10	$	0
From $10 to $25	$	11,000
From $25 to $50	$	22,000
From $50 to $100	$	33,000
From $100 to $200	$	44,000
From $200 to $350	$	55,000
From $350 to $550	$	66,000
From $550 to $750	$	77,000
From $750 to $1,000	$	93,500
$1,000 and Over	$	110,000

In addition, for each class of shares in excess of one, each Fund pays the Agent a monthly per-class fee equal to 2.5% of the monthly base fee.

For Class A, Class B and Class C shares, the Fund pays WRSCO a monthly per account charge for shareholder servicing of $1.5042 for each shareholder account which was in existence at any time during the prior month. With respect to Class Y shares, the Fund pays WRSCO a monthly fee at an annual rate of 0.15% of the average daily net assets of the class for the preceding month. The Fund also reimburses W&R and WRSCO for certain out-of-pocket costs for all classes.

As principal underwriter for the Fund’s shares, Ivy Funds Distributor, Inc. (“IFDI”) receives gross sales commissions (which are not an expense of the Fund) for Class A shares. A contingent deferred sales charge (“CDSC”) may be assessed against a shareholder’s redemption amount of

16

Class B, Class C or certain Class A shares and is paid to IFDI. During the period ended March 31, 2003, IFDI received the following amounts in gross sales commissions and deferred sales charges:

			CDSC
	Gross Sales
	Commissions		Class A	Class B		Class C
Large Cap Growth Fund		$69,362	$—	$	5,076	$	646

With respect to Class A, Class B and Class C shares, W&R pays sales commissions and all expenses in connection with the sale of the Fund’s shares, except for registration fees and related expenses. During the period ended March 31, 2003, W&R paid the following amounts:

Large Cap Growth Fund $53,742

Under a Distribution and Service Plan for Class A shares adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay a distribution and/or service fee to W&R in an amount not to exceed 0.25% of the Fund’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the distribution of the Class A shares and/or provision of personal services to Fund shareholders and/or maintenance of shareholder accounts.

Under the Distribution and Service Plan adopted by the Fund for Class B shares and Class C shares, respectively, the Fund may pay W&R a service fee not to exceed 0.25% and a distribution fee not to exceed 0.75% of the Fund’s average annual net assets attributable to that class to compensate W&R for its services in connection with the distribution of shares of that class and/or the service and/or maintenance of shareholder accounts of that class. The Class B Plan and the Class C Plan each permit W&R to receive compensation, through the distribution fee and service fee, respectively, for its distribution activities for that class, which are similar to the distribution activities described with respect to the Class A Plan, and for its activities in providing personal services to shareholders of that class and/or maintaining shareholder accounts of that class, which are similar to the corresponding activities for which it is entitled to compensation under the Class A Plan.

Under the Class Y Plan, the Fund may pay W&R a fee of up to 0.25%, on an annual basis, of the average daily net assets of its Class Y shares to compensate W&R for, either directly or through third parties, distributing the Class Y shares of that Fund, providing personal service to Class Y shareholders and/or maintaining Class Y shareholder accounts.

The Fund paid Directors’ fees of $1,227 for Large Cap Growth Fund, which are included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. IFDI is a direct subsidiary of Waddell & Reed Financial, Inc.

17

IVY CORE EQUITY FUND
ADVANTUS INDEX 500 FUND
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of Ivy Core Equity Fund and Advantus Index 500 Fund as of March 31, 2003 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of Ivy Core Equity Fund and Advantus Index 500 Fund as of March 31, 2003.

Under the terms of the Agreement and Plan of Reorganization, the combination of Advantus Index 500 Fund and Ivy Core Equity Fund will be treated as a tax-free business combination and accordingly will be accounted for by a method of accounting for tax-free mergers of investment companies (sometimes referred to as the pooling without restatement method). The acquisition would be accomplished by an acquisition of the net assets of Advantus Index 500 Fund in exchange for shares of Ivy Core Equity Fund at net asset value. Ivy Core Equity Fund will be the accounting survivor for financial statement purposes.

As of August 20, 2003, all of the securities held by Advantus Index 500 Fund would comply with the compliance guidelines and/or investment restrictions of Ivy Core Equity Fund. All reorganization costs will be borne by Advantus Capital Management, Inc. and not by the funds.

The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of Ivy Core Equity Fund and Advantus Index 500 Fund incorporated by reference in this Statement of Additional Information.

18

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
				COMMON STOCKS
			365	Air Transportation
	365		1,159	Delta Air Lines, Inc.				3,249	3,249
	1,159		2,809	FedEx Corporation				63,826	63,826
	2,809			Southwest Airlines Company				40,337	40,337
				Total		0		107,412	107,412
			3,059	Aircraft
	3,059		250,913	Boeing Company (The)				76,659	76,659
249,200	1,713		26,487	Lockheed Martin Corporation		11,849,460		81,453	11,930,913
25,800	687		172,550	Northrop Grumman Corporation		2,213,640		58,945	2,272,585
171,100	1,450		600	Raytheon Company		4,854,107		41,137	4,895,244
	600		1,776	Raytheon Company				11,022	11,022
	1,776			United Technologies Corporation				102,617	102,617
				Total		18,917,207		371,832	19,289,039
			320,378	Aluminum
317,300	3,078			Alcoa Incorporated		6,149,274		59,652	6,208,926
			475	Apparel
	475		416	Jones Apparel Group, Inc.*				13,029	13,029
	416		997	Liz Clairborne, Inc.				12,863	12,863
	997		198	Nike, Inc.				51,266	51,266
	198		425	Reebok International, Ltd.				6,504	6,504
	425			VF Corporation				15,993	15,993
				Total		0		99,655	99,655
			1,241	Banks
	1,241		1,720	Amsouth BanCorporation				24,671	24,671
	1,720		5,538	BB&T Corporation				54,060	54,060
	5,538		2,794	Bank of America Corporation				370,192	370,192
	2,794		4,292	Bank of New York Company, Inc. (The)				57,277	57,277
	4,292		851	Bank One Corporation				148,589	148,589
	851		18,953	Charter One Financial, Inc.				23,539	23,539
	18,953		658	Citigroup Inc.*				652,931	652,931
	658		2,185	Comerica Bank				24,925	24,925
	2,185		499	Fifth Third BanCorporation				109,556	109,556
	499		3,844	First Tennessee National Corporation				19,815	19,815
	3,844		785	FleetBoston Financial Corporation				91,795	91,795
	785		1,505	Huntington Bancshares, Inc.				14,593	14,593
	1,505		740	KeyCorporation				33,953	33,953
	740		4,709	Marshall & Ilsley Corporation				18,914	18,914
	4,709		1,538	MBNA Corporation				70,870	70,870
	1,538		2,200	Mellon Bank NA				32,698	32,698
	2,200		600	National City Bancorp				61,270	61,270

See Notes to Pro Forma Combined Financial Statements.

19

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	600		756	North Fork Bancorporation				17,670	17,670
	756		1,092	Northern Trust Corporation				23,020	23,020
	1,092		760	PNC Financial Services Group				46,279	46,279
	760		1,296	Regions Financial Corporation				24,624	24,624
	1,296		1,249	SouthTrust Corporation				33,087	33,087
	1,249		1,070	State Street Corporation				39,506	39,506
	1,070		1,031	SunTrust Banks, Inc.				56,336	56,336
	1,031		385,662	Synovus Financial Corporation				18,445	18,445
378,600	7,062		730	U.S. Bancorp		7,185,828		134,037	7,319,865
	730		5,012	Union Planters Corporation				19,192	19,192
	5,012		126,538	Wachovia Corporation				170,759	170,759
120,300	6,238		372	Wells Fargo & Company		5,412,297		280,648	5,692,945
	372			Zions BanCorporation				15,914	15,914
				Total		12,598,125		2,689,163	15,287,288
			92,120	Beverages
89,000	3,120		250	Anheuser-Busch Companies, Inc.		4,148,290		145,423	4,293,713
	250		9,140	Brown-Forman Corporation				19,225	19,225
	9,140		1,595	Coca-Cola Company (The)				369,987	369,987
	1,595		164	Coca-Cola Enterprises, Inc.				29,811	29,811
	164		948	Coors Company				7,954	7,954
	948		6,367	Pepsi Bottling Group, Inc.				16,998	16,998
	6,367			Pepsico, Inc.				254,680	254,680
				Total		4,148,290		844,078	4,992,368
			2,306	Broadcasting
	2,306		8,509	Clear Channel Communications, Inc.				78,220	78,220
	8,509		0	Comcast Corporation, Class A*				243,272	243,272
			140,084	Comcast Corporation, Special Class A*					0
140,084			846	Cox Communications, Inc., Class A*		4,358,013			4,358,013
	846		109,193	Univision communications, Inc.				20,735	20,735
102,700	6,493			Viacom Inc., Class B*		3,750,604		237,124	3,987,728
				Total		8,108,617		579,352	8,687,969
			643	Business Equipment and Services
	643		690	Allied Waste Industries				5,138	5,138
	690		674	Apollo Group, Inc.				34,431	34,431
	674		630	Block Financial Corporation				28,773	28,773
	630		553	Cintas Corporation				20,727	20,727
	553		231	Convergys Corporation				7,300	7,300
	231		336	Deluxe Corporation				9,270	9,270
	336		1,658	Donnelley (R. R.) & Sons Company				6,156	6,156
	1,658		2,750	Electronic Data Systems Corporation				29,181	29,181
	2,750		640	First Data Corporation				101,778	101,778
	640		1,344	Genuine Parts Company				19,526	19,526

See Notes to Pro Forma Combined Financial Statements.

20

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	1,344		1,046	Interpublic Group Companies, Inc.				12,499	12,499
	1,046		708	Office Depot, Inc.				12,374	12,374
	708		879	Omnicom Group				38,352	38,352
	879		629	Pitney Bowes, Inc.				28,058	28,058
	629		206	Robert Half International, Inc.				8,372	8,372
	206		1,675	Ryder System, Inc.				4,225	4,225
	1,675		1,047	Staples, Inc.				30,703	30,703
	1,047		319	Sungard Data Systems, Inc.				22,301	22,301
	319		2,193	TMP Worldwide, Inc.				3,423	3,423
	2,193		453	Waste Management, Inc.				46,448	46,448
	453			Waters Corporation				9,585	9,585
				Total		0		478,619	478,619
			63,624	Capital Equipment
62,300	1,324		175	Caterpillar Inc.		3,065,160		65,141	3,130,301
	175		1,187	Cummins Engine Company, Inc.				4,305	4,305
	1,187		634	Illinois Tool Works, Inc.				69,024	69,024
	634		375	Ingersoll Rand Company				24,466	24,466
	375		422	ITT Industries, Inc.				20,029	20,029
	422		475	Paccar, Inc.				21,214	21,214
	475		220	Parker Hannifin Corporation				18,402	18,402
	220			Snap-On, Inc.				5,447	5,447
				Total		3,065,160		228,027	3,293,187
			3,328	Chemicals — Petroleum and Inorganic
	3,328		90,139	Dow Chemical Company (The)				91,886	91,886
86,500	3,639		334	du Pont (E.I.) de Nemours and Company		3,361,390		141,412	3,502,802
	334		380	Goodrich (B. F.) Company				4,696	4,696
	380		961	Hercules, Inc.				3,306	3,306
	961		846	Monsanto Company				15,760	15,760
	846			Rohm & Haas Company				25,194	25,194
				Total		3,361,390		282,254	3,643,644
			119,177	Chemicals — Specialty
118,300	877		406	Air Products and Chemicals, Inc.		4,901,169		36,334	4,937,503
	406		273	Avery Dennison Corporation				23,820	23,820
	273		481	Eastman Chemical Company				7,914	7,914
	481		450	Ecolab, Inc.				23,728	23,728
	450		105	Engelhard Corp.				9,639	9,639
	105		451	Great Lakes Chemical Corporation				2,331	2,331
	451		608	Pall Corporation				9,020	9,020
	608		265	Praxair, Inc.				34,261	34,261
	265		370	Sigma-Aldrich Corporation				11,790	11,790
	370			Vulcan Materials, Inc.				11,185	11,185
				Total		4,901,169		170,022	5,071,191

See Notes to Pro Forma Combined Financial Statements.

21

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
			2,898	Communications Equipment
	2,898		270	ADC Telecommunications, Inc.				5,970	5,970
	270		1,316	Andrew Corporation				1,485	1,485
	1,316		1,524	Avaya, Inc.				2,685	2,685
	1,524		26,220	Ciena Corporation*				6,660	6,660
	26,220		607	Cisco Systems, Inc.*				338,238	338,238
	607		4,327	Comverse Technology, Inc.				6,865	6,865
	4,327		5,218	Corning Inc.				25,270	25,270
	5,218		14,420	JDS Uniphase Corporation				14,871	14,871
	14,420		1,354	Lucent Technologies, Inc.				21,197	21,197
	1,354		2,875	Novell, Inc.				2,911	2,911
	2,875		482	Qualcomm, Inc.				103,673	103,673
	482		1,454	Scientific-Atlanta, Inc.				6,623	6,623
	1,454			Tellabs, Inc.				8,419	8,419
				Total		0		544,866	544,866
			11,253	Computers — Main and Mini
	11,253		6,231	Hewlett-Packard Company				174,984	174,984
	6,231		335	International Business Machines Corporation				488,697	488,697
	335		1,197	NCR Corporation*				6,144	6,144
	1,197		2,648	Unisys Corporation				11,084	11,084
	2,648			Xerox Corporation				23,038	23,038
				Total		0		703,947	703,947
			1,231	Computers — Micro
	1,231		9,509	Apple Computer, Inc.				17,406	17,406
	9,509		1,192	Dell Computer Corporation*				259,691	259,691
	1,192		11,751	Gateway, Inc.				2,813	2,813
	11,751			Sun Microsystems, Inc.*				38,308	38,308
				Total		0		318,219	318,219
			866	Computers — Peripherals
	866		639	Adobe Systems, Inc.				26,699	26,699
	639		408	American Power Conversion Corporation				9,099	9,099
	408		781	Autodesk, Inc.				6,226	6,226
	781		629	BMC Software, Inc.				11,785	11,785
	629		2,024	Citrix Systems, Inc.				8,278	8,278
	2,024		1,295	Computer Associates International, Inc.				27,648	27,648
	1,295		8,110	Compuware Corporation				4,390	4,390
	8,110		549	EMC Corporation				58,635	58,635
	549		797	Electronic Arts, Inc.				32,193	32,193
	797		475	Intuit, Inc.				29,648	29,648
	475		324	Lexmark International Group, Inc.				31,801	31,801
	324		226,755	Mercury Interactive Corporation				9,616	9,616

See Notes to Pro Forma Combined Financial Statements.

22

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
187,300	39,455		19,426	Microsoft Corporation*		4,534,533		955,206	5,489,739
	19,426		958	Oracle Corporation*				210,753	210,753
	958		1,081	Parametric Technology Corporation				2,079	2,079
	1,081		227,100	Peoplesoft, Inc.				16,539	16,539
227,100			1,699	SAP Aktiengesellschaft, ADR		4,305,816			4,305,816
	1,699		545	Siebel Systems, Inc.				13,609	13,609
	545		769	Symantec Corporation				21,353	21,353
	769		1,443	Symbol Technologies, Inc.				6,621	6,621
	1,443			Veritas Software Corporation				25,368	25,368
				Total		8,840,349		1,507,547	10,347,896
			297	Construction Materials
	297		286	American Standard Companies, Inc.				20,425	20,425
	286		125	Black & Decker Corporation				9,970	9,970
	125		668	Crane Company				2,178	2,178
	668		562	PPG Industries, Inc.				30,113	30,113
	562		255	Sherwin-Williams Company (The)				14,854	14,854
	255			Stanley Works (The)				6,117	6,117
				Total		0		83,657	83,657
			200	Containers
	200		232	Ball Corporation				11,140	11,140
	232		497	Bemis Company, Inc.				9,758	9,758
	497			Pactiv Corporation				10,089	10,089
				Total		0		30,987	30,987
			249	Cosmetics and Toiletries
	249		889	Alberto-Culver Company				12,271	12,271
	889		3,850	Avon Products, Inc.				50,717	50,717
	3,850		367	Gillette Company (The)				119,119	119,119
	367			International Flavors and Fragrances, Inc.				11,410	11,410
				Total		0		193,517	193,517
			761	Defense
	761			General Dynamics Corporation				41,908	41,908
			343	Electrical Equipment
	343		680	Cooper Industries, Inc.				12,249	12,249
	680		1,585	Dover Corporation				16,470	16,470
	1,585		344	Emerson Electric Company				71,880	71,880
	344		330	Grainger (W. W.), Inc.				14,758	14,758
	330		195	Johnson Controls, Inc.				23,905	23,905
	195		601	Power-One, Inc.				858	858
	601		7,359	Rockwell International Corporation				12,441	12,441
	7,359			Tyco International, Ltd.				94,637	94,637

See Notes to Pro Forma Combined Financial Statements.

23

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
				Total		0		247,196	247,196
			1,259	Electronic Components
	1,259		1,343	Advanced Micro Devices				7,781	7,781
	1,343		97,852	Altera Corporation*				18,184	18,184
96,500	1,352		1,109	Analog Devices, Inc.*		2,653,750		37,180	2,690,930
	1,109		940	Applied Micro Circuits Corporation				3,615	3,615
	940		181,925	Broadcom Corporation				11,609	11,609
157,500	24,425		647	Intel Corporation		2,564,100		397,639	2,961,739
	647		1,274	Jabil Circuit, Inc.				11,323	11,323
	1,274		1,162	LSI Logic Corporation				5,758	5,758
	1,162		1,197	Linear Technology Corporation				35,871	35,871
	1,197		2,172	Maxim Integrated Products				43,236	43,236
	2,172		8,483	Micron Technology, Inc.				17,680	17,680
	8,483		582	Motorola, Inc.				70,070	70,070
	582		1,248	National Semiconductor Corporation				9,917	9,917
	1,248		522	Network Appliance, Inc.				13,965	13,965
	522		3,001	PMC-Sierra, Inc.				3,106	3,106
	3,001		6,382	Solectron Corporation				9,063	9,063
	6,382		120	Texas Instruments, Inc.				104,473	104,473
	120		1,235	Thomas and Betts Corporation				1,702	1,702
	1,235			Xilinx, Inc.				28,911	28,911
				Total		5,217,850		831,083	6,048,933
			1,660	Electronic Instruments
	1,660		6,084	Agilent Technologies, Inc.				21,829	21,829
	6,084		710	Applied Materials, Inc.*				76,537	76,537
	710		702	KLA-Tencor Corporation				25,519	25,519
	702		580	Molex, Inc.				15,079	15,079
	580		370	Novellus Systems, Inc.				15,817	15,817
	370		1,849	PerkinElmer, Inc.				3,289	3,289
	1,849		228	Sanmina Corporation				7,470	7,470
	228		663	Tektronix, Inc.				3,910	3,910
	663		503	Teradyne, Inc.				7,717	7,717
	503			Thermo Electron Corporation				9,104	9,104
				Total		0		186,271	186,271
			54,604	Farm Machinery
53,700	904		255	Deere & Company		2,108,262		35,491	2,143,753
	255			Navistar International Corporation				6,276	6,276
				Total		2,108,262		41,767	2,150,029
			852	Finance Companies
	852		510	Capital One Financial Corporation				25,569	25,569
	510		1,048	Countrywide Financial Corporation				29,325	29,325

See Notes to Pro Forma Combined Financial Statements.

24

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	1,048			Providian Financial Corporation				6,875	6,875
				Total		0		61,768	61,768
			2,302	Food and Related
	2,302		1,444	Archer-Daniels-Midland Company				24,862	24,862
	1,444		1,918	Campbell Soup Company				30,324	30,324
	1,918		1,413	Conagra, Inc.				38,513	38,513
	1,413		1,303	General Mills, Inc.				64,362	64,362
	1,303		515	Heinz (H. J.) Company				38,048	38,048
	515		1,444	Hershey Foods Corporation				32,270	32,270
	1,444		525	Kellogg Company				44,259	44,259
	525		2,853	McCormick & Company, Inc.				12,674	12,674
	2,853		404	Sara Lee Corporation				53,351	53,351
	404		2,397	Supervalu, Inc.				6,262	6,262
	2,397		849	Sysco Corporation				60,980	60,980
	849			Wrigley (William Jr.) Company				47,969	47,969
				Total		0		453,872	453,872
			231	Forest and Paper Products
	231		843	Boise Cascade Corporation				5,047	5,047
	843		1,714	Georgia-Pacific Corporation				11,718	11,718
	1,714		372	International Paper Company				57,933	57,933
	372		755	Louisiana-Pacific Corporation				2,950	2,950
	755		296	MeadWestvaco Corporation				17,199	17,199
	296		223	Sealed Air Corporation				11,878	11,878
	223		824	Temple Inland, Inc.				8,340	8,340
	824			Weyerhaeuser Company				39,412	39,412
				Total		0		154,478	154,478
			703	Furniture and Furnishings
	703		1,762	Leggett & Platt, Inc.				12,851	12,851
	1,762			Masco Corporation				32,808	32,808
				Total		0		45,659	45,659
			5,764	Health Care — Drugs
	5,764		484	Abbott Laboratories				216,784	216,784
	484		392	Allergan, Inc.				33,014	33,014
	392		50,245	AmerisourceBergen Corporation				20,580	20,580
45,500	4,745		548	Amgen, Inc.*		2,620,118		273,075	2,893,193
	548		1,701	Biogen, Inc.				16,418	16,418
	1,701		712	Cardinal Health, Inc.				96,906	96,906
	712		23,554	Chiron Corporation				26,700	26,700
22,200	1,354		799	Forest Laboratories, Inc.*		1,198,134		73,075	1,271,209
	799		795	Genzyme Surgical Products				29,124	29,124
	795		4,130	King Pharmaceuticals, Inc.				9,484	9,484

See Notes to Pro Forma Combined Financial Statements.

25

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	4,130		1,092	Lilly (Eli) & Company				236,030	236,030
	1,092		944	McKesson HBOC, Inc.				27,224	27,224
	944		8,279	Medimmune, Inc.				30,992	30,992
	8,279		271,394	Merck & Company, Inc.				453,524	453,524
251,675	19,719		134,283	Pfizer Inc.		7,842,193		614,444	8,456,637
127,373	6,910		430	Pharmacia Corporation		5,515,250		299,203	5,814,453
	430		5,407	Quintiles Transnational Corporation				5,229	5,229
	5,407		375	Schering-Plough Corporation				96,407	96,407
	375			Watson Pharmaceuticals, Inc.				10,789	10,789
				Total		17,175,695		2,568,999	19,744,694
			761	Health Care — General
	761		187	Applied Biosystems Group — Applera Corporation				12,047	12,047
	187		2,120	Bausch & Lomb, Inc.				6,150	6,150
	2,120		944	Baxter International, Inc.				39,517	39,517
	944		988	Becton Dickinson and Company				32,511	32,511
	988		1,532	Biomet, Inc.				30,282	30,282
	1,532		7,141	Boston Scientific Corporation				62,444	62,444
	7,141		900	Bristol-Myers Squibb Company				150,889	150,889
	900		66,652	IMS Health, Inc.				14,049	14,049
55,700	10,952		200	Johnson & Johnson		3,223,359		633,792	3,857,151
	200		365	Millipore Corporation				6,540	6,540
	365		666	Quest Diagnostics, Inc.				21,787	21,787
	666		4,888	St. Jude Medical, Inc.				32,468	32,468
	4,888		718	Wyeth				184,864	184,864
	718			Zimmer Holdings, Inc.				34,916	34,916
				Total		3,223,359		1,262,257	4,485,616
			250	Homebuilders, Mobile Homes
	250		200	Centex Corporation				13,590	13,590
	200		259	Kaufman and Broad Home Corporation				9,090	9,090
	259			Pulte Corporation				12,989	12,989
				Total		0		35,669	35,669
			590	Hospital Supply and Management
	590		564	Aetna, Inc.				29,087	29,087
	564		227	Anthem, Inc.				37,365	37,365
	227		543	Bard (C. R.) Inc.				14,315	14,315
	543		1,137	Cigna Corporation*				24,826	24,826
	1,137		1,845	Guidant Corporation				41,159	41,159
	1,845		865	HCA — Healthcare Company (The)				76,309	76,309
	865		573	Health Management Associates, Inc.				16,435	16,435
	573		257	Humana, Inc.				5,501	5,501
	257		73,096	Manor Care, Inc.				4,942	4,942
68,600	4,496		752	Medtronic, Inc.		3,095,232		202,860	3,298,092
	752		1,736	Stryker Corporation				51,625	51,625

See Notes to Pro Forma Combined Financial Statements.

26

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	1,736		1,143	Tenet Healthcare Corporation*				28,991	28,991
	1,143		585	Unitedhealth Group, Inc.				104,779	104,779
	585			Wellpoint Health Networks, Inc.				44,899	44,899
				Total		3,095,232		683,092	3,778,324
			446	Hotels and Gaming
	446		1,384	Harrahs Entertainment, Inc.				15,922	15,922
	1,384		318	Hilton Hotels Corporation				16,068	16,068
	318		889	International Game Technology				26,044	26,044
	889		752	Marriott International, Inc.				28,279	28,279
	752			Starwood Hotels & Resorts Worldwide, Inc.				17,890	17,890
				Total		0		104,204	104,204
			148	Household — General Products
	148		29,056	American Greetings Corporation				1,939	1,939
28,200	856		2,043	Clorox Company (The)		1,301,994		39,522	1,341,516
	2,043		554	Colgate-Palmolive Company				111,221	111,221
	554		1,946	Fortune Brands, Inc.				23,750	23,750
	1,946		926	Kimberly-Clark Corporation				88,465	88,465
	926		4,767	Newell Rubbermaid, Inc.				26,252	26,252
	4,767		120	Procter & Gamble Company				424,501	424,501
	120			Tupperware Corporation				1,658	1,658
				Total		1,301,994		717,308	2,019,302
			275	Household — Major Appliances
	275		256	Maytag Corporation				5,233	5,233
	256			Whirlpool Corporation				12,552	12,552
				Total		0		17,785	17,785
			1,847	Insurance — Life
	1,847		1,047	Aflac, Inc.				59,196	59,196
	1,047		1,062	AON Corporation				21,652	21,652
	1,062		541	Hancock (John) Financial Services, Inc.				29,502	29,502
	541		643	Jefferson-Pilot Corporation				20,818	20,818
	643		2,542	Lincoln National Corporation				18,004	18,004
	2,542		434	MetLife, Inc.				67,058	67,058
	434		872	Torchmark Corporation				15,537	15,537
	872			Unumprovident Corporation				8,546	8,546
				Total		0		240,313	240,313
			995	Insurance — Property and Casualty
	995		2,556	ACE, Ltd.				28,805	28,805
	2,556		396	Allstate Corporation				84,783	84,783
	396		93,268	AMBAC Financial Group, Inc.				20,006	20,006
83,650	9,618		1,900	American International Group, Inc.		4,136,493		475,610	4,612,103

See Notes to Pro Forma Combined Financial Statements.

27

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
1,900			107,137	Berkshire Hathaway Inc., Class B*		4,060,300			4,060,300
106,500	637		629	Chubb Corporation (The)		4,720,080		28,232	4,748,312
	629		982	Cincinnati Financial Corporation				22,059	22,059
	982		722	Hartford Financial Services Group, Inc.				34,655	34,655
	722		554	Loews Corporation				28,764	28,764
	554		387	MBIA, Inc.				21,407	21,407
	387		849	MGIC Investment Corporation				15,197	15,197
	849		522	Progressive Corporation				50,354	50,354
	522		864	Safeco Corporation				18,254	18,254
	864		3,664	St Paul Companies, Inc. (The)				27,475	27,475
	3,664		540	Travelers Property Casualty Corporation, Class B				51,699	51,699
	540			XL Capital, Ltd., Class A				38,221	38,221
				Total		12,916,873		945,522	13,862,395
			250	Leisure Time Industry
	250		2,108	Brunswick Corporation				4,750	4,750
	2,108		3,765	Carnival Corporation				50,824	50,824
	3,765		7,530	Cendant Corporation				47,816	47,816
	7,530		553	Disney (Walt) Company (The)*				128,161	128,161
	553		1,547	Hasbro, Inc.				7,681	7,681
	1,547			Mattel, Inc.				34,808	34,808
				Total		0		274,039	274,039
			532	Mining
	532		1,407	Freeport-McMoran, Inc.				9,071	9,071
	1,407		340	Newmont Mining				36,793	36,793
	340			Phelps Dodge Corporation				11,043	11,043
				Total		0		56,907	56,907
			16,481	Motion Pictures
	16,481			AOL Time Warner, Inc.*				178,984	178,984
			379	Motor Vehicle Parts
	379		460	Autozone, Inc.				26,041	26,041
	460		564	Dana Corporation				3,248	3,248
	564		2,006	Danaher Corporation				37,089	37,089
	2,006		302	Delphi Corporation				13,701	13,701
	302		390	Eaton Corporation				21,125	21,125
	390			Visteon Corporation				2,317	2,317
				Total		0		103,520	103,520
			6,765	Motor Vehicles
	6,765		2,009	Ford Motor Company				50,873	50,873
	2,009		1,138	General Motors Corporation				67,543	67,543
	1,138			Harley-Davidson, Inc.				45,190	45,190

See Notes to Pro Forma Combined Financial Statements.

28

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
				Total		0		163,605	163,605
			36,689	Multiple Industry
	36,689		3,084	General Electric Company				935,570	935,570
	3,084		505	Honeywell International, Inc.				65,874	65,874
	505		1,469	Textron, Inc.				13,867	13,867
	1,469			3M Company				191,014	191,014
				Total		0		1,206,325	1,206,325
			313	Non-Residential Construction
	313			Fluor Corporation				10,542	10,542
			69,900	Petroleum — Canada
69,900				Nabors Industries Ltd.*		2,786,913			2,786,913
			156,066	Petroleum — Domestic
155,100	966		601	Anadarko Petroleum Corporation		7,057,050		43,953	7,101,003
	601		240	Apache Corporation				37,081	37,081
	240		148,391	Ashland, Inc.				7,121	7,121
147,600	791		2,547	Burlington Resources Inc.		7,041,996		37,739	7,079,735
	2,547		580	ConocoPhillips				136,519	136,519
	580		465	Devon Energy Corporation				27,968	27,968
	465		400	EOG Resources, Inc.				18,395	18,395
	400		1,156	Kerr-McGee Corporation				16,244	16,244
	1,156		1,417	Marathon Oil Corporation				27,709	27,709
	1,417		300	Occidental Petroleum Corporation				42,453	42,453
	300		973	Sunoco, Inc.				10,971	10,971
	973			Unocal Corporation				25,600	25,600
				Total		14,099,046		431,753	14,530,799
			328	Petroleum — International
	328		3,921	Amerada Hess				14,517	14,517
	3,921		193,077	ChevronTexaco Corporation				253,493	253,493
168,268	24,809		113,300	Exxon Mobil Corporation*		5,880,967		867,074	6,748,041
113,300				Royal Dutch Petroleum Company, NY Shares		4,616,975			4,616,975
				Total		10,497,942		1,135,084	11,633,026
			252,843	Petroleum — Services
251,600	1,243		573	Baker Hughes Incorporated		7,530,388		37,203	7,567,591
	573		1,537	BJ Services Company				19,705	19,705
	1,537		140	Halliburton Company				31,862	31,862
	140		528	McDermott International, Inc.				406	406
	528		497	Nabors Industries, Ltd.				21,051	21,051
	497		320	Noble Corporation				15,616	15,616
	320		96,474	Rowan Companies, Inc.				6,291	6,291

See Notes to Pro Forma Combined Financial Statements.

29

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
94,300	2,174		1,096	Schlumberger Limited		3,584,343		82,634	3,666,977
	1,096			Transocean Offshore, Inc.				22,413	22,413
				Total		11,114,731		237,182	11,351,913
			1,028	Photographic Equipment
	1,028			Eastman Kodak Company				30,429	30,429
			324	Publishing
	324		1,005	Dow Jones and Company, Inc.				11,483	11,483
	1,005		305	Gannett Company, Inc.				70,782	70,782
	305		748	Knight Ridder, Inc.				17,843	17,843
	748		178	McGraw-Hill Companies, Inc.				41,581	41,581
	178		571	Meredith Corporation				6,796	6,796
	571		1,158	New York Times Company (The)				24,639	24,639
	1,158			Tribune Company				52,122	52,122
				Total		0		225,245	225,245
			1,307	Railroad
	1,307		801	Burlington Northern Santa Fe Corporation				32,544	32,544
	801		1,352	CSX Corporation				22,845	22,845
	1,352		952	Norfolk Southern Railway Company				25,093	25,093
	952			Union Pacific Corporation				52,360	52,360
				Total		0		132,842	132,842
			350	Real Estate Investment Trust
	350		1,526	Apartment Investment & Management Company				12,768	12,768
	1,526		993	Equity Office Properties Trust				38,837	38,837
	993		670	Equity Residential				23,902	23,902
	670		685	Plum Creek Timber Company, Inc.				14,465	14,465
	685			Simon Property Group, Inc.				24,544	24,544
				Total		0		114,515	114,515
			628	Restaurants
	628		4,650	Darden Restaurants Inc.				11,210	11,210
	4,650		1,359	McDonald’s Corporation				67,239	67,239
	1,359		431	Starbucks Corporation				35,008	35,008
	431		1,027	Wendys International, Inc.				11,857	11,857
	1,027			Yum! Brands, Inc.				24,987	24,987
				Total		0		150,300	150,300
			1,330	Retail — Food Stores
	1,330		1,378	Albertsons, Inc.				25,071	25,071
	1,378		2,813	CVS Corporation				32,865	32,865
	2,813		1,561	Kroger Company				36,991	36,991
	1,561		3,756	Safeway, Inc.				29,550	29,550

See Notes to Pro Forma Combined Financial Statements.

30

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	3,756		431	Walgreen Company				110,727	110,727
	431			Winn-Dixie Stores, Inc.				5,698	5,698
				Total		0		240,901	240,901
			995	Retail — General Merchandise
	995		1,712	AUTONATION INC.				12,686	12,686
	1,712		278	Costco Wholesale Corporation				51,411	51,411
	278		1,145	Dillards, Inc.				3,592	3,592
	1,145		628	Dollar General Corporation				13,980	13,980
	628		638	Family Dollar Stores				19,393	19,393
	638		1,264	Federated Department Stores*				17,877	17,877
	1,264		988	Kohl’s Corporation				71,517	71,517
	988		498	May Department Stores Company				19,651	19,651
	498		913	Nordstrom, Inc.				8,068	8,068
	913		105,878	Penney (J. C.) Company				17,931	17,931
104,800	1,078		1,881	Sears, Roebuck and Co.		2,530,920		26,034	2,556,954
	1,881		122,915	TJX Companies, Inc.				33,106	33,106
119,600	3,315		16,274	Target Corporation		3,499,496		96,997	3,596,493
	16,274			Wal-Mart Stores, Inc.				846,736	846,736
				Total		6,030,416		1,238,979	7,269,395
			1,124	Retail — Specialty Stores
	1,124		104,181	Bed Bath & Beyond, Inc.				38,823	38,823
103,000	1,181		405	Best Buy Co., Inc.*		2,777,910		31,852	2,809,762
	405		692	Big Lots, Inc.				4,556	4,556
	692		3,234	Circuit City Stores, Inc.				3,598	3,598
	3,234		8,575	Gap, Inc.				46,861	46,861
	8,575		1,862	Home Depot, Inc.				208,887	208,887
	1,862		2,930	Limited Brands, Inc.				23,964	23,964
	2,930		609	Lowe’s Companies, Inc.				119,603	119,603
	609		518	Radioshack Corporation				13,575	13,575
	518		768	Tiffany & Company				12,950	12,950
	768			Toys “R” Us, Inc.				6,428	6,428
				Total		2,777,910		511,096	3,289,006
			598	Savings and Loans
	598		3,472	Golden West Financial Corporation				43,014	43,014
	3,472			Washington Mutual, Inc.				122,457	122,457
				Total		0		165,472	165,472
			4,846	Security and Commodity Brokers
	4,846		354	American Express Company				161,033	161,033
	354		44,446	Bear Stearns & Company, Inc.				23,222	23,222
40,800	3,646		971	Fannie Mae		2,666,280		238,266	2,904,546
	971		2,619	Franklin Resources, Inc.				31,956	31,956

See Notes to Pro Forma Combined Financial Statements.

31

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	2,619		1,805	Freddie Mac				139,069	139,069
	1,805		7,361	Goldman Sachs Group, Inc. (The)				122,884	122,884
	7,361		739	J P Morgan Chase and Company				174,529	174,529
	739		889	Janus Capital Group, Inc.				8,417	8,417
	889		2,017	Lehman Brothers Holdings, Inc.				51,340	51,340
	2,017		3,158	Marsh and McLennan Companies, Inc.				85,985	85,985
	3,158		570	Merrill Lynch & Company, Inc.				111,793	111,793
	570		3,994	Moodys Corporation				26,351	26,351
	3,994		446	Morgan Stanley				153,170	153,170
	446		1,156	Price (T. Rowe) Group Inc.				12,095	12,095
	1,156		2,034	Principal Financial Group (The)				31,374	31,374
	2,034		4,953	Prudential Financial, Inc.				59,495	59,495
	4,953		580	Schwab (Charles) Corporation				35,761	35,761
	580			SLM Corporation				64,334	64,334
				Total		2,666,280		1,531,073	4,197,353
			204	Steel
	204		293	Allegheny Technologies, Inc.				592	592
	293		285	Nucor Corporation				11,184	11,184
	285		296	United States Steel Corporation				2,802	2,802
	296			Worthington Industries, Inc.				3,531	3,531
				Total		0		18,108	18,108
			2,160	Timesharing and Software
	2,160		701	Automatic Data Processing, Inc.				66,506	66,506
	701		1,781	Computer Sciences Corporation				22,818	22,818
	1,781		1,155	Concord EFS, Inc.				16,741	16,741
	1,155		511	eBay, Inc.				98,510	98,510
	511		722	Equifax, Inc.				10,215	10,215
	722		577	Fiserv, Inc.				22,729	22,729
	577		1,405	Nvidia Corporation				7,414	7,414
	1,405		377	Paychex, Inc.				38,595	38,595
	377		514	Qlogic Corporation				14,002	14,002
	514		2,130	Sabre Holdings Corporation				8,178	8,178
	2,130			Yahoo!, Inc.				51,163	51,163
				Total		0		356,871	356,871
			237	Tires and Rubber Products
	237		613	Cooper Tire and Rubber Company				2,891	2,891
	613			Goodyear Tire & Rubber Company				3,169	3,169
				Total		0		6,061	6,061
			7,627	Tobacco
	7,627		315	Altria Group, Inc.				228,505	228,505
	315		630	Reynolds (R. J.) Tobacco Holdings, Inc.				10,162	10,162
	630			UST, Inc.				17,388	17,388

See Notes to Pro Forma Combined Financial Statements.

32

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
				Total		0		256,055	256,055
			75,103	Trucking and Shipping
70,900	4,203			United Parcel Service, Inc., Class B		4,041,300		239,571	4,280,871
			1,951	Utilities — Electric
	1,951		453	AES Corporation				7,063	7,063
	453		580	Allegheny Energy, Inc.				2,813	2,813
	580		1,370	Ameren Corporation				22,649	22,649
	1,370		1,326	American Electric Power Company, Inc.				31,305	31,305
	1,326		1,108	Calpine Corporation				4,376	4,376
	1,108		613	Centerpoint Energy, Inc.				7,811	7,811
	613		443	Cinergy Corporation				20,627	20,627
	443		802	CMS Energy Corp				1,954	1,954
	802		594	Consolidated Edison Company of New York, Inc.				30,853	30,853
	594		618	Constellation Energy Group				16,472	16,472
	618		155,047	DTE Energy Company				23,886	23,886
153,900	1,147		3,236	Dominion Resources, Inc.		8,521,443		63,509	8,584,952
	3,236		1,301	Duke Energy Corporation				47,051	47,051
	1,301		1,200	Dynegy, Inc.				3,396	3,396
	1,200		821	Edison International*				16,428	16,428
	821		1,205	Entergy Corporation				39,531	39,531
	1,205		722	Exelon Corporation				60,744	60,744
	722		1,420	FPL Group, Inc.				42,547	42,547
	1,420		818	Mirant Corporation				2,272	2,272
	818		1,426	NiSource, Inc.				14,888	14,888
	1,426		350	PG&E Corporation				19,180	19,180
	350		641	Pinnacle West Capital Corporation				11,634	11,634
	641		893	PPL Corporation				22,826	22,826
	893		836	Progress Energy, Inc.				34,961	34,961
	836		161,568	Public Service Enterprise Group				30,673	30,673
159,000	2,568		554	Southern Company		4,521,960		73,034	4,594,994
	554		1,115	Teco Energy, Inc.				5,889	5,889
	1,115		1,456	TXU Corporation				19,903	19,903
	1,456			Xcel Energy, Inc.				18,651	18,651
				Total		13,043,403		696,925	13,740,328
			2,159	Utilities — Gas and Pipeline
	2,159		1,120	El Paso Corporation				13,062	13,062
	1,120		587	FirstEnergy Corporation				35,280	35,280
	587		487	Keyspan Corporation				18,931	18,931
	487		184	Kinder Morgan Energy Partners				21,915	21,915
	184		158	Nicor, Inc.				5,027	5,027
	158		687	Peoples Energy Corporation				5,652	5,652
	687		1,826	Sempra Energy				17,148	17,148

See Notes to Pro Forma Combined Financial Statements.

33

SHARES OR									(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY							IVY
		CORE EQUITY							CORE EQUITY
IVY	ADVANTUS	FUND			IVY		ADVANTUS		FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY		INDEX 500		PRO FORMA
FUND	FUND	COMBINED			FUND		FUND		COMBINED
	1,826			Williams Companies, Inc.				8,363	8,363
				Total		0		125,377	125,377
			1,161	Utilities — Telephone
	1,161		2,794	Alltel Corporation				51,966	51,966
	2,794		9,988	AT&T Corporation*				45,263	45,263
	9,988		200,961	AT&T Wireless Services, Inc.*				65,921	65,921
194,100	6,861		458	BellSouth Corporation		4,206,147		148,678	4,354,825
	458		1,032	Centurytel, Inc.				12,641	12,641
	1,032		3,533	Citizens Communications				10,299	10,299
	3,533		6,250	Nextel Communications, Inc.				47,307	47,307
	6,250		225,841	Qwest Communications International, Inc.				21,813	21,813
213,600	12,241		3,260	SBC Communications Inc.		4,284,816		245,554	4,530,370
	3,260		3,653	Sprint Corporation — FON Group*				38,305	38,305
	3,653		10,086	Sprint Corporation — PCS Group*				15,927	15,927
	10,086		188,000	Verizon Communications				356,540	356,540
188,000				Vodafone Group Plc, ADR		3,425,360			3,425,360
				Total		11,916,323		1,060,214	12,976,537
			6,771,819
5,722,350	1,049,469			TOTAL COMMON STOCKS		194,103,110		28,829,928	222,933,038
				SHORT-TERM SECURITIES
				Commercial Paper
			2,000	Beverages
2,000				Coca-Cola Company (The),
				1.18%, 4-15-03		1,999,082			1,999,082
			838	Chemicals — Petroleum and Inorganic
838				du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note		838,000			838,000
			1,274	Food and Related
1,274				General Mills, Inc.,
			4,000	1.4588%, Master Note		1,274,000			1,274,000
4,000			8,000	Heinz (H. J.) Co., 1.3%, 4-17-03		3,997,689			3,997,689
8,000				Sara Lee Corporation, 1.35%, 4-16-03		7,995,500			7,995,500
				Total		13,267,189		0	13,267,189
			2,543	Forest and Paper Products
2,543				Sonoco Products Co., 1.44%, 4-1-03		2,543,000			2,543,000

See Notes to Pro Forma Combined Financial Statements.

34

SHARES OR											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)				DESCRIPTION	VALUE
		IVY									IVY
		CORE EQUITY									CORE EQUITY
IVY	ADVANTUS	FUND			IVY			ADVANTUS			FUND
CORE EQUITY	INDEX 500	PRO FORMA			CORE EQUITY			INDEX 500			PRO FORMA
FUND	FUND	COMBINED			FUND			FUND			COMBINED
				Health Care — Drugs
3,000			3,000	Merck & Co., Inc., 1.2%, 5-23-03		2,994,800					2,994,800
			2,000	Household — General Products
2,000				Colgate-Palmolive Company 1.22%, 5-23-03		1,997,967					1,997,967
			128	Multiple Industry
	128		1,304	Federated Money Market Obligation Trust Prime Obligation Fund 1.270%					127,748		127,748
	1,304			One Group Institutional
			179	Prime Money Market Fund 1.290%					1,304,318		1,304,318
	179			Wells Fargo & Company — Cash
				Investment Fund 1.431%					179,463		179,463
				Total		0			1,611,528		1,611,528
			4,000	Retail — General Merchandise
4,000				Wal-Mart Stores, Inc. 1.23%, 4-1-03		4,000,000					4,000,000
27,655	1,611		29,266	Total Commercial Paper		27,640,038			1,611,528		29,251,566
				United States Government Securities Treasury Obligations
1,500			1,500	United States Treasury Bill, 1.04%, 8-7-03		1,494,453					1,494,453
				TOTAL SHORT-TERM SECURITIES		29,134,491			1,611,528		30,746,019
				TOTAL INVESTMENT SECURITIES		223,237,601			30,441,457		253,679,058
				CASH AND OTHER ASSETS, NET OF LIABILITIES		(3,257,705	)		(89,697	)	(3,347,402)
				NET ASSETS		219,979,896			30,351,760		250,331,656

Notes to Schedule of Investments

* No dividends were paid during the preceding 12 months.

See Notes to Pro Forma Combined Financial Statements.

35

Pro Forma Combined Statement of Assets and Liabilities (Unaudited)
Year Ended March 31, 2003

												Ivy
					Ivy							Core Equity
			Advantus		Core		Pro forma					Pro Forma
			Index 500		Equity		Adjustments					Combined
ASSETS
Investment securities				30,441,457		223,237,601							253,679,058
Cash						1,220							1,220
Receivable for Investment securities sold				47,741		185,275							233,016
Other Assets				97,504		369,380							466,884
Collateral for securities loaned				1,352,644									1,352,644
	Total assets			31,939,346		223,793,476		0					255,732,822
LIABILITIES
Payable to Fund shareholders				58,887		1,179,056							1,237,943
Payable for securities purchased						2,495,696							2,495,696
Payable to affiliates						109,967							109,967
Other payables				176,055		28,861							204,916
Payable upon return of securities loaned				1,352,644									1,352,644
	Total liabilities			1,587,586		3,813,580		0					5,401,166
Net Assets				30,351,760		219,979,896		0					250,331,656
Class A
		Net Assets		16,910,840		12,916,052		13,440,920					43,267,812
		Outstanding Shares		1,515,327		1,948,170		3,062,568		(a	)		6,526,065
		Net asset value per share	$	11.16	$	6.63						$	6.63
Class B
		Net Assets		11,976,620		4,570,044		(11,976,620	)				4,570,044
		Outstanding Shares		1,093,072		708,436		(1,093,072	)	(a	)		708,436
		Net asset value per share	$	10.96	$	6.45						$	6.45
Class C
		Net Assets		1,464,300		200,036,139		(1,464,300	)				200,036,139
		Outstanding Shares		133,847		30,879,641		(133,847	)	(a	)		30,879,641
		Net asset value per share	$	10.94	$	6.48						$	6.48
Class Y
		Net Assets		0		2,457,661		0					2,457,661
		Outstanding Shares		0		358,099		0		(a	)		358,099
		Net asset value per share		0	$	6.86						$	6.86
Net Assets
Capital paid In				38,914,352		266,003,035							304,917,387
Accumulated net realized gain / (loss) on investments				-6,872,054		-65,371,586							-72,243,640
Undistributed net investment income (loss)				-3,600		-6,860		0					-10,460
Net unrealized appreciation (depreciation) on investments				-1,686,938		19,355,307							17,668,369
		Total Net Assets		30,351,760		219,979,896		0					250,331,656

(a) Share adjustment — removal of old shares and addition of new shares for net assets at Class A NAV per share of surviving fund.

See Notes to Pro Forma Combined Financial Statements.

36

     The following unaudited Pro Forma Combined Statement of Operations for Ivy Core Equity Fund and Advantus Index 500 Fund has been derived from the Statements of Operations of Ivy Core Equity Fund and Advantus Index 500 Fund for the twelve months ended March 31, 2003. Such information has been adjusted to give effect to the Reorganization as if it had occurred on April 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

     The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

37

Pro Forma Combined Statement of Operations (Unaudited)
Year Ended March 31, 2003

																Ivy
																Core Equity
					Advantus			Ivy			Pro forma					Pro forma
					Index 500			Core Equity			Adjustments					Combined
Investment Income
	Income
		Dividends				589,592			3,933,053								4,522,645
		Interest and amortization				20,144			445,146								465,290
		Income from securities lending activities				1,862											1,862
			Total income			611,598			4,378,199			0					4,989,797
	Expenses
		Investment management fee				118,631			1,916,603			125,609		(a	)		2,160,843
		Transfer agent				178,688			1,020,637			(44,345	)	(b	)		1,154,980
	12b-1 service and distribution Class A					46,569			24,084			40,562		(a	)		111,215
	12b-1 service and distribution Class B					145,805			50,563			(145,805	)	(a	)		50,563
	12b-1 service and distribution Class C					16,443			2,564,935			(16,443	)	(a	)		2,564,935
	12b-1 service and distribution Class Y / Advisor								6,779								6,779
		Other				181,515			278,058			(146,888	)	(c	)		312,685
			Total expenses			687,651			5,861,659			(187,310	)				6,362,000
			Expenses reimbursement			(287,016	)		0			287,016		(a	)		0
			Net Expenses			400,635			5,861,659			99,706					6,362,000
				Net investment income		210,963			(1,483,460	)		(99,706	)				(1,372,203	)
Realized and Unrealized Gain (Loss) on Investments
	Realized net gain (loss) on securities					(2,862,399	)		(27,549,733	)		0					(30,412,132	)
	Unrealized depreciation in value of investments during the period					(8,629,940	)		(63,353,807	)		0					(71,983,747	)
		Net gain (loss) on investments				(11,492,339	)		(90,903,540	)		0					(102,395,879	)
			Net increase (decrease) in net assets resulting from operations			(11,281,376	)		(92,387,000	)		(99,706	)				(103,768,082	)

(a)	Based on the contract in effect for the surviving fund.
(b)	Based on fees for the surviving fund.
(c)	Decrease due to economies of scale achieved by merging funds.

See Notes to Pro Forma Combined Financial Statements.

38

IVY CORE EQUITY FUND and ADVANTUS INDEX 500 FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)

Note 1 — Significant Accounting Policies

Ivy Core Equity Fund and Advantus Index 500 Fund (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. Ivy Core Equity Fund’s investment objective is to seek to provide capital growth and income. Advantus Index 500 Fund’s investment objective is to seek investment results that correspond, generally, before sales charges and other Fund expenses, to the aggregate price and yield performance of the common stocks included in the Standard and Poor’s 500 Composite Stock Price Index (the S&P 500). The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.	Security valuation — Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value. Short-term debt securities denominated in foreign currencies are valued at amortized cost in that currency.
B.	Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes over the remaining lives of the bonds. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis.
C.	Foreign currency translations — All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing

39

	on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. The respective Fund combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments.
D.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, the Fund intends to pay distributions as required to avoid imposition of excise tax. Accordingly, provision has not been made for Federal income taxes.
E.	Dividends and distributions — Dividends and distributions to shareholders are recorded by each Fund on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Ivy Investment Management Company (“WRIICO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as investment manager for Ivy Core Equity Fund. WRIICO provides advice and supervises investments for which services it is paid a fee. The fee is payable by the Fund at the following annual rates:

		Annual
Fund	Net Assets Breakpoints	Rate
Ivy Core Equity Fund	Up to $1 Billion		.700	%
	Over $1 Billion up to $2 Billion		.650	%
	Over $2 Billion up to $3 Billion		.600	%
	Over $3 Billion		.550	%

The fee is accrued and paid daily. However, WRIICO has agreed to waive the Fund’s management fee on any day that the Fund’s net assets are less than $25 million, subject to WRIICO’s right to change or modify this waiver.

40

The Fund also reimburses WRIICO for certain expenses, including additional Fund-related security costs incurred by WRIICO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of the incremental security-related costs including the cost of using private transportation for WRIICO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At March 31, 2003, additional security costs amounted to $17,664 for Core Equity Fund, which is included in other expenses.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, the Fund pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average Net Asset Level	Annual Fee Rate
(in millions)	for Each Level
From $0 to $10	$	0
From $10 to $25	$	11,000
From $25 to $50	$	22,000
From $50 to $100	$	33,000
From $100 to $200	$	44,000
From $200 to $350	$	55,000
From $350 to $550	$	66,000
From $550 to $750	$	77,000
From $750 to $1,000	$	93,500
$1,000 and Over	$	110,000

In addition, for each class of shares in excess of one, each Fund pays the Agent a monthly per-class fee equal to 2.5% of the monthly base fee.

For Class A, Class B and Class C shares, the Fund pays WRSCO a monthly per account charge for shareholder servicing of $1.5042 for each shareholder account which was in existence at any time during the prior month. With respect to Class Y shares, the Fund pays WRSCO a monthly fee at an annual rate of 0.15% of the average daily net assets of the class for the preceding month. The Fund also reimburses W&R and WRSCO for certain out-of-pocket costs for all classes.

As principal underwriter for the Fund’s shares, Ivy Funds Distributor, Inc. (“IFDI”) receives gross sales commissions (which are not an expense of the Fund) for Class A shares. A contingent deferred sales charge (“CDSC”) may be assessed against a shareholder’s redemption amount of Class B, Class C or certain Class A shares and is paid to IFDI. During

41

the period ended March 31, 2003, IFDI received the following amounts in gross sales commissions and deferred sales charges:

			CDSC
	Gross Sales
	Commissions		Class A		Class B		Class C
Core Equity Fund	$	57,848	$	—	$	11,967	$	5,298

With respect to Class A, Class B and Class C shares, W&R pays sales commissions and all expenses in connection with the sale of the Fund’s shares, except for registration fees and related expenses. During the period ended March 31, 2003, W&R paid the following amounts:

Core Equity Fund $ 106,467

Under a Distribution and Service Plan for Class A shares adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay a distribution and/or service fee to W&R in an amount not to exceed 0.25% of the Fund’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the distribution of the Class A shares and/or provision of personal services to Fund shareholders and/or maintenance of shareholder accounts.

Under the Distribution and Service Plan adopted by the Fund for Class B shares and Class C shares, respectively, the Fund may pay W&R a service fee not to exceed 0.25% and a distribution fee not to exceed 0.75% of the Fund’s average annual net assets attributable to that class to compensate W&R for its services in connection with the distribution of shares of that class and/or the service and/or maintenance of shareholder accounts of that class. The Class B Plan and the Class C Plan each permit W&R to receive compensation, through the distribution fee and service fee, respectively, for its distribution activities for that class, which are similar to the distribution activities described with respect to the Class A Plan, and for its activities in providing personal services to shareholders of that class and/or maintaining shareholder accounts of that class, which are similar to the corresponding activities for which it is entitled to compensation under the Class A Plan.

Under the Class Y Plan, the Fund may pay W&R a fee of up to 0.25%, on an annual basis, of the average daily net assets of its Class Y shares to compensate W&R for, either directly or through third parties, distributing the Class Y shares of that Fund, providing personal service to Class Y shareholders and/or maintaining Class Y shareholder accounts.

The Fund paid Directors’ fees of $14,095 for Core Equity Fund, which are included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. IFDI is a direct subsidiary of Waddell & Reed Financial, Inc.

42

IVY MONEY MARKET FUND
ADVANTUS MONEY MARKET FUND
PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)

The following unaudited Pro Forma Combined Statement of Assets and Liabilities, including the unaudited Pro Forma Combined Investments of ivy Money Market Fund and Advantus Money Market Fund as of March 31, 2003 has been derived from the respective statements of assets and liabilities, including the schedules of investments, of Ivy Money Market Fund and Advantus Money Market Fund as of March 31, 2003.

Under the terms of the Agreement and Plan of Reorganization, the combination of Advantus Money Market Fund and Ivy Money Market Fund will be treated as a tax-free business combination and accordingly will be accounted for by a method of accounting for tax-free mergers of investment companies (sometimes referred to as the pooling without restatement method). The acquisition would be accomplished by an acquisition of the net assets of Advantus Money Market Fund in exchange for shares of Ivy Money Market Fund at net asset value. Ivy Money Market Fund will be the accounting survivor for financial statement purposes.

As of August 20, 2003, all of the securities held by Advantus Money Market Fund would comply with the compliance guidelines and/or investment restrictions of Ivy Money Market Fund. All reorganization costs will be borne by Advantus Capital Management, Inc. and not by the funds. The Pro Forma Combined Statement of Assets and Liabilities is presented for informational purposes only and does not purport to be indicative of the financial condition that would have resulted if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the respective financial statements and related notes of Ivy Money Market Fund and Advantus Money Market Fund incorporated by reference in this Statement of Additional Information.

43

										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
				IVY MONEY						IVY MONEY
IVY MONEY		ADVANTUS		MARKET FUND			IVY MONEY	ADVANTUS		MARKET FUND
MARKET		MONEY MARKET		PRO FORMA			MARKET	MONEY MARKET		PRO FORMA
FUND		FUND		COMBINED			FUND	FUND		COMBINED
						CORPORATE OBLIGATIONS
						Commercial Paper
						Aluminum
	750				750	Alcoa Incorporated, 1.23%, 4-1-03	750,000			750,000
						Banks
	350				350	Lloyds TSB Bank PLC, 1.24%, 4-22-03	349,747			349,747
	500				500	Wells Fargo & Company, 1.25%, 4-7-03	499,896			499,896
			1,000		1,000	1.24%, 4-30-03			999,001	999,001
						Total	849,643		999,001	1,848,644
						Beverages
			1,000		1,000	Anheuser-Busch Companies, Inc. 1.25%, 4-24-03			999,221	999,221
	414				414	Coca-Cola Company (The), 1.24%, 5-5-03	413,515			413,515
			1,200		1,200	1.23%, 5-16-03			1,198,155	1,198,155
	250				250	Diageo Capital plc, 1.23%, 4-29-03	249,761			249,761
						Total	663,276		2,197,376	2,860,652
						Business Equipment and Services
			1,000		1,000	Pitney Bowes Credit Corporation 1.3%, 4-1-03			1,000,000	1,000,000
						Chemicals — Petroleum and Inorganic
						du Pont (E.I.) de Nemours and Company:
	336				336	1.16315%, Master Note	336,000			336,000
			1,000		1,000	1.24%, 4-23-03			999,273	999,273
						Total	336,000		999,273	1,335,273
						Containers
	300				300	Bemis Company, Inc., 1.25%, 4-3-03	299,979			299,979
	400				400	Florens Container Inc. (Bank of America N.A.), 1.26%, 4-24-03	399,678			399,678
						Total	699,657		0	699,657
						Cosmetics and Toiletries
			1,000		1,000	Gillette Company (The), 1.22%, 4-11-03			999,661	999,661
						Finance Companies
	250				250	Caterpillar Financial Services Corp., 1.21%, 4-14-03	249,891			249,891
						PACCAR Financial Corp.:
	527				527	1.24%, 4-16-03	526,728			526,728
	100				100	1.25%, 4-28-03	99,906			99,906
						Total	876,525		0	876,525

See Notes to Pro Forma Combined Financial Statements.

44

										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
				IVY MONEY						IVY MONEY
IVY MONEY		ADVANTUS		MARKET FUND			IVY MONEY	ADVANTUS		MARKET FUND
MARKET		MONEY MARKET		PRO FORMA			MARKET	MONEY MARKET		PRO FORMA
FUND		FUND		COMBINED			FUND	FUND		COMBINED
						Food and Related
						Golden Peanut Co.:
	250				250	1.28%, 4-4-03	249,973			249,973
	250				250	1.25%, 4-11-03	249,913			249,913
	250				250	1.22%, 6-12-03	249,390			249,390
						Total	749,276		0	749,276
						Health Care — Drugs
			1,200		1,200	Abbott Laboratories 1.24%, 4-2-03			1,199,959	1,199,959
	900				900	Alcon Finance PLC (Nestle S.A.), 1.25%, 4-11-03	899,688			899,688
	250				250	GlaxoSmithKline Finance plc, 1.25%, 4-30-03	249,748			249,748
	500				500	Pharmacia Corporation, 1.25%, 4-2-03	499,983			499,983
			1,000		1,000	Pfizer, Inc. 1.22%,4/2/03			999,966	999,966
			1,000		1,000	Schering-Plough Corporation 1.25%, 4-2-03			999,965	999,965
						Total	1,649,419		3,199,890	4,849,309
						Health Care — General
						Johnson & Johnson:
			1,100		1,100	1.13%, 4-16-03			1,099,482	1,099,482
	800				800	1.1%, 9-18-03	795,844			795,844
						Total	795,844		1,099,482	1,895,326
						Household — General Products
			1,000		1,000	Colgate-Palmolive Company 1.23%, 5-1-03			999,000	999,000
						Kimberly-Clark Worldwide Inc.:
	300				300	1.24%, 4-7-03	299,938			299,938
	250				250	1.25%, 4-7-03	249,948			249,948
			1,800		1,800	Procter & Gamble Company (The), 1.18%, 4-25-03			1,798,584	1,798,584
						Total	549,886		2,797,584	3,347,470
						Insurance — Life
			1,100		1,100	AIG Sunamerica Global Financing II 1.19%, 4-14-03			1,099,527	1,099,527
			1,000		1,000	American General Finance Corporation 1.27%, 4-4-03			999,894	999,894
						Total	0		2,099,421	2,099,421
						Multiple Industry
			1,100		1,100	Archer-Daniels-Midland Company 1.19%, 5-13-03			1,098,473	1,098,473
	300				300	BOC Group Inc. (DE), 1.3%, 4-4-03	299,967			299,967
			1,000		1,000	Cargill, Inc. 1.24%, 4-21-03			999,311	999,311

See Notes to Pro Forma Combined Financial Statements.

45

										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
				IVY MONEY						IVY MONEY
IVY MONEY		ADVANTUS		MARKET FUND			IVY MONEY	ADVANTUS		MARKET FUND
MARKET		MONEY MARKET		PRO FORMA			MARKET	MONEY MARKET		PRO FORMA
FUND		FUND		COMBINED			FUND	FUND		COMBINED
			1,000		1,000	General Electric Capital Corporation 1.26%, 4-25-03			999,160	999,160
						Total	299,967		3,096,944	3,396,911
						Publishing
						Gannett Co.:
	800				800	1.23%, 4-10-03	799,754			799,754
			1,000		1,000	1.25%, 4-10-03			999,695	999,695
			800		800	McGraw-Hill, Inc. 1.24%, 4-14-03			799,653	799,653
						Total	799,754		1,799,348	2,599,102
						Security and Commodity Brokers
						Merrill Lynch & Co., Inc.:
			500		500	1.19%, 4-9-03			499,868	499,868
			500		500	1.21%, 5-1-03			499,508	499,508
						Total	0		999,376	999,376
						Trucking and Shipping
			1,000		1,000	United Parcel Service, Inc. 1.14%, 4-17-03			999,493	999,493
						Utilities — Telephone
						BellSouth Corporation:
			500		500	1.23%, 4-4-03			499,949	499,949
			600		600	1.23%, 4-8-03			599,856	599,856
	300				300	1.24%, 4-28-03	299,721			299,721
						SBC International Inc. (SBC Communications Inc.):
	350				350	1.24%, 4-23-03	349,735			349,735
	450				450	1.24%, 5-7-03	449,442			449,442
						Verizon Network Funding Corporation:
			540		540	1.26%, 4-7-03			539,883	539,883
	750				750	1.24%, 4-16-03	749,613			749,613
	150				150	1.24%, 4-23-03	149,886			149,886
			1,000		1,000	1.25%, 5-6-03			998,785	998,785
						Total	1,998,397		2,638,473	4,636,870
						Total Commercial Paper	$11,017,644	$	24,925,322	$35,942,966
						Commercial Paper (backed by irrevocable bank letter of credit)
						Motor Vehicles
	240				240	Hyundai Motor Finance Co. (Bank of America N.A.), 1.4%, 4-1-03	240,000			240,000
						Notes
						Banks
	600				600	Bank One, N.A., 1.29%, 5-27-03	599,945			599,945
	500				500	Wells Fargo & Company, 1.3275%, 4-1-03	500,000			500,000
						Total	1,099,945		0	1,099,945

See Notes to Pro Forma Combined Financial Statements.

46

										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
				IVY MONEY						IVY MONEY
IVY MONEY		ADVANTUS		MARKET FUND			IVY MONEY	ADVANTUS		MARKET FUND
MARKET		MONEY MARKET		PRO FORMA			MARKET	MONEY MARKET		PRO FORMA
FUND		FUND		COMBINED			FUND	FUND		COMBINED
						Business Equipment and Services
	770				770	Playworld Systems Incorporated (Wachovia Bank), 1.41%, 4-2-03	770,000			770,000
						Food and Related
			2,000		2,000	H.J. Heinz Company 144A Issue 6.561, 11-15-03			2,053,707	2,053,707
						Finance Companies
			1,500		1,500	Associates Corporation of North America 5.75%, 11-1-03			1,538,820	1,538,820
						Health Care — Drugs
	500				500	Merck & Co., Inc., 4.489%, 2-22-04 (A)	514,382			514,382
						Hospital Supply and Management
	150				150	Autumn House at Powder Mill, Inc. (Suntrust Bank), 1.35%, 4-3-03	150,000			150,000
	245				245	Meriter Management Services, Inc. (U.S. Bank Milwaukee, National Association), 1.45%, 4-2-03	245,000			245,000
						Total	395,000		0	395,000
						Retail — General Merchandise
	500				500	Wal-Mart Stores, Inc., 4.878%, 6-1-03	501,853			501,853
						Trucking and Shipping
	545				545	Volpe Family Partnership, L.P. (Wachovia Bank), 1.36%, 4-3-03	545,000			545,000
						Utilities — Telephone
	350				350	BellSouth Corporation, 4.105%, 4-26-03 (A)	350,321			350,321
						Total Notes	$4,176,501	$	3,592,527	$7,769,028
						TOTAL CORPORATE OBLIGATIONS	$15,434,145	$	28,517,849	$43,951,994
						MUNICIPAL OBLIGATIONS
						California
	850				850	Pollution Control Financing Authority, Environmental Improvement Revenue Bonds, Air Products Manufacturing Corporation, Series 1997A (Taxable), 1.22%, 5-8-03	850,000			850,000
						Louisiana
						Industrial Development Board of the Parish of Calcasieu, Inc., Environmental Revenue Bonds (CITGO Petroleum Corporation Project),

See Notes to Pro Forma Combined Financial Statements.

47

										(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)						DESCRIPTION	VALUE
				IVY MONEY						IVY MONEY
IVY MONEY		ADVANTUS		MARKET FUND			IVY MONEY	ADVANTUS		MARKET FUND
MARKET		MONEY MARKET		PRO FORMA			MARKET	MONEY MARKET		PRO FORMA
FUND		FUND		COMBINED			FUND	FUND		COMBINED
	600				600	Series 1996 (Taxable), (Westdeutsche Landesbank Girozentrale), 1.275%, 4-30-03	600,000			600,000
						New York
	325				325	The City of New York, General Obligation Bonds, Fiscal 1995 Series B, Taxable Adjustable Rate Bonds (Bayerische Landesbank Girozentrale, New York Branch), 1.33%, 4-2-03	325,000			325,000
						Washington
						Washington State Housing Finance Commission:
	250				250	Taxable Variable Rate Demand Multifamily Revenue Bonds, Mill Pointe Apartments Project, Series 1999B (U.S. Bank, National Association), 1.35%, 4-1-03	250,000			250,000
	95				95	Taxable Variable Rate Demand Multifamily Revenue Bonds, Brittany Park Project, Series 1996B (U.S. Bank of Washington, National Association), 1.35%, 4-3-03	95,000			95,000
						Total	345,000		0	345,000
						TOTAL MUNICIPAL OBLIGATIONS	$2,120,000	$	0	$2,120,000
						UNITED STATES GOVERNMENT SECURITIES
	400				400	Federal Farm Credit Banks, 1.25%, 3-19-04	400,000			400,000
						Federal Home Loan Bank:
			1,000		1,000	1.2%, 4-30-03			999,033	999,033
	250				250	1.45%, 2-24-04	250,000			250,000
	370				370	1.35%, 4-5-04	370,000			370,000
	300				300	1.3%, 4-12-04	300,000			300,000
						Federal Home Loan Mortgage Corporation:
			1,300		1,300	1.21%, 5-1-03			1,298,689	1,298,689
			1,000		1,000	1.21%, 5-2-03			998,958	998,958
	800				800	1.65%, 12-23-03	800,000			800,000
			950		950	Federal National Mortgage Association 1.21%, 4-9-03			949,745	949,745
			1,500		1,500	1.225%, 4-11-03			1,499,490	1,499,490
			1,500		1,500	1.23%, 4-29-03			1,498,565	1,498,565
			823		823	1.22%, 5-15-03			821,773	821,773
	500				500	Student Loan Marketing Association, 1.4%, 2-20-04	500,000			500,000
						United States Treasury Bills:
	300				300	1.04%, 8-7-03	298,891			298,891
	350				350	1.035%, 8-21-03	348,571			348,571
	400				400	United States Treasury Note, 5.25%, 8-15-03	405,185			405,185

See Notes to Pro Forma Combined Financial Statements.

48

											(Unaudited)
PRINCIPAL AMOUNT (000 OMITTED)					DESCRIPTION		VALUE
			IVY MONEY								IVY MONEY
IVY MONEY	ADVANTUS		MARKET FUND				IVY MONEY	ADVANTUS			MARKET FUND
MARKET	MONEY MARKET		PRO FORMA				MARKET	MONEY MARKET			PRO FORMA
FUND	FUND		COMBINED				FUND	FUND			COMBINED
					TOTAL UNITED STATES GOVERNMENT SECURITIES	$	3,672,647	$	8,066,253	$	11,738,900
					MONEY MARKET FUNDS
		821		821	Federated Prime Obligations Fund, current rate, 1.27%				821,406		821,406
		1,809		1,809	One Group Institutional Prime Money Market Fund, current rate 1.29%				1,809,457		1,809,457
		108		108	Wells Fargo & Company, current rate 1.431%				107,910		107,910
					TOTAL MONEY MARKET FUNDS	$	0	$	2,738,773	$	2,738,773
					TOTAL INVESTMENT SECURITIES	$	21,226,792	$	39,322,875	$	60,549,667
					CASH AND OTHER ASSETS, NET OF LIABILITIES		89,055		36,612		125,667
					NET ASSETS	$	21,315,847	$	39,359,487	$	60,675,334

Notes to Schedule of Investments

(A) Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2003, the total value of these securities amounted to $864,703 or 4.05% of net assets.

See Notes to Pro Forma Combined Financial Statements.

49

Pro Forma Combined Statement of Assets and Liabilities (Unaudited)
Year Ended March 31, 2003

											Ivy Money
					Ivy						Market
			Advantus		Money		Pro forma				Pro Forma
			Money Mkt		Market		Adjustments				Combined
ASSETS
Investment securities				39,322,875		21,226,792						60,549,667
Cash						29,908						29,908
Receivable for Investment securities sold												0
Other Assets				267,233		266,122						533,355
Collateral for securities loaned				0								0
	Total assets			39,590,108		21,522,822		0				61,112,930
LIABILITIES
Payable to Fund shareholders				139,383		180,758						320,141
Payable for securities purchased												0
Payable to affiliates				22,979		3,992						26,971
Other payables				68,259		22,225						90,484
Payable upon return of securities loaned				0								0
	Total liabilities			230,621		206,975		0				437,596
Net Assets				39,359,487		21,315,847		0				60,675,334
Class A
		Net Assets		39,359,487		10,547,590		0				49,907,077
		Outstanding Shares		39,359,487		10,547,590		0	(a	)		49,907,077
		Net asset value per share		1.00		1.00						1.00
Class B
		Net Assets		0		1,187,754		0				1,187,754
		Outstanding Shares		0		1,187,754		0	(a	)		1,187,754
		Net asset value per share		0.00		1.00						1.00
Class C
		Net Assets		0		9,580,503		0				9,580,503
		Outstanding Shares		0		9,580,503		0	(a	)		9,580,503
		Net asset value per share		0.00		1.00						1.00
Class Y
		Net Assets		0		0		0				0
		Outstanding Shares		0		0		0	(a	)		0
		Net asset value per share		0		0						0.00
Net Assets
Capital paid In				39,359,487		21,315,847						60,675,334
Accumulated net realized gain / (loss) on investments				0		0						0
Undistributed net investment income (loss)				0		0		0				0
Net unrealized appreciation (depreciation) on investments				0		0						0
		Total Net Assets		39,359,487		21,315,847		0				60,675,334

(a) Share adjustment — removal of old shares and addition of new shares for net assets at NAV per share of each class of surviving fund.

See Notes to Pro Forma Combined Financial Statements.

50

The following unaudited Pro Forma Combined Statement of Operations for Ivy Money Market Fund and Advantus Money Market Fund has been derived from the Statements of Operations of Ivy Money Market Fund and Advantus Money Market Fund for the twelve months ended March 31, 2003. Such information has been adjusted to give effect to the Reorganization as if it had occurred on April 1, 2002, and reflects Pro Forma adjustments that are directly attributable to the transaction and are expected to have a continuing impact.

The unaudited Pro Forma Statement of Operations is presented for informational purposes only and does not purport to be indicative of the results of operations that would have occurred if the Reorganization had been consummated on April 1, 2002. The unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes of the respective funds incorporated by reference in this Statement of Additional Information.

51

Pro Forma Combined Statement of Operations (Unaudited)
Year Ended March 31, 2003

																Ivy
																Money Market
					Advantus			Ivy			Pro forma					Pro forma
					Money Market			Money Market			Adjustments					Combined
Investment Income
	Income
		Interest and amortization				690,399			335,588								1,025,987
			Total income			690,399			335,588			0					1,025,987
	Expenses
		Investment management fee				204,486			76,352			(40,897	)	(a	)		239,941
		Transfer agent				177,787			26,180			(19,737	)	(b	)		184,230
	12b-1 service and distribution Class A					102,252			0			(102,252	)	(a	)		0
	12b-1 service and distribution Class B					0			7,457								7,457
	12b-1 service and distribution Class C					0			86,543								86,543
	12b-1 service and distribution Class Y / Advisor					0			0								0
		Other				136,971			79,995			(101,991	)	(c	)		114,975
			Total expenses			621,496			276,527			(264,877	)				633,146
			Expenses reimbursement			(275,945	)		(79,844	)		355,789		(a	)		0
			Net Expenses			345,551			196,683			90,912					633,146
				Net investment income		344,848			138,905			(90,912	)				392,841
Realized and Unrealized Gain (Loss) on Investments
	Realized net gain (loss) on securities					0			0			0					0
	Unrealized depreciation in value of investments during the period					0			0			0					0
		Net gain (loss) on investments				0			0			0					0
			Net increase (decrease) in net assets resulting from operations			344,848			138,905			(90,912	)				392,841

(a)	Based on the contract in effect for the surviving fund.
(b)	Based on fees for the surviving fund.
(c)	Decrease due to economies of scale achieved by merging funds.

See Notes to Pro Forma Combined Financial Statements.

52

IVY MONEY MARKET FUND and ADVANTUS MONEY MARKET FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)

Note 1 — Significant Accounting Policies

Ivy Money Market Fund and Advantus Money Market Fund (the “Funds”) are registered under the Investment Company Act of 1940 as diversified, open-end management investment companies. Ivy Money Market Fund’s investment objective is to seek maximum current income consistent with stability of principal. Advantus Money Market Fund’s investment objective is to seek a high level of current income to the extent consistent with the preservation of capital and maintenance of liquidity. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of the pro forma combined financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America.

A.	Security valuation — The Fund invests only in money market securities with maturities or irrevocable put options within 397 days. The Fund uses the amortized cost method of security valuation which is accomplished by valuing a security at its cost and thereafter assuming a constant amortization rate to maturity of any discount or premium.
B.	Security transactions and related investment income — Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses, if any, are calculated on the identified cost basis. Interest income is recorded on the accrual basis.
C.	Federal income taxes — It is the Fund’s policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. Accordingly, no provision has been made for Federal income taxes.
D.	Dividends to shareholders — All of the Fund’s net income is declared and recorded by the Fund as dividends payable on each day to shareholders of record as of the close of the preceding business day. Dividends are declared from the total of net investment income, plus or minus realized gains or losses on portfolio securities. Since the Fund does not expect to realize any long-term capital gains, it does not expect to pay any capital gains distributions.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

53

NOTE 2 — Investment Management And Payments To Affiliated Persons

Waddell & Reed Ivy Investment Management Company (“WRIICO”), a wholly owned subsidiary of Waddell & Reed, Inc. (“W&R”), serves as investment manager for Ivy Money Market Fund. WRIICO provides advice and supervises investments for which services it is paid a fee. The fee is payable by the Fund at the following annual rates:

		Annual
Fund	Net Assets Breakpoints	Rate
Ivy Money Market Fund All levels			400	%

The fee is accrued and paid daily. However, WRIICO has agreed to waive the Fund’s management fee on any day that the Fund’s net assets are less than $25 million, subject to WRIICO’s right to change or modify this waiver. During the period ended March 31, 2003, WRIICO voluntarily waived its fee as shown in the following table:

Money Market Fund $ 76,352

The Fund also reimburses WRIICO for certain expenses, including additional Fund-related security costs incurred by WRIICO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Fund’s share of the incremental security-related costs including the cost of using private transportation for WRIICO’s personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At March 31, 2003, additional security costs amounted to $1,688 for Money Market Fund, which is included in other expenses.

The Fund has an Accounting Services Agreement with Waddell & Reed Services Company (“WRSCO”), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, the Fund pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average Net Asset Level	Annual Fee Rate
(in millions)	for Each Level
From $0 to $10	$	0
From $10 to $25	$	11,000
From $25 to $50	$	22,000
From $50 to $100	$	33,000
From $100 to $200	$	44,000
From $200 to $350	$	55,000
From $350 to $550	$	66,000

54

Average Net Asset Level	Annual Fee Rate
(in millions)	for Each Level
From $550 to $750	$	77,000
From $750 to $1,000	$	93,500
$1,000 and Over	$	110,000

In addition, for each class of shares in excess of one, each Fund pays the Agent a monthly per-class fee equal to 2.5% of the monthly base fee.

Under the Shareholder Servicing Agreement, the Fund pays a monthly fee of $1.75 for each shareholder account that was in existence at any time during the prior month plus, for Class A shareholder accounts, $0.75 for each shareholder check processed in the prior month. The Fund also reimburses W&R and WRSCO for certain out-of-pocket costs for all classes.

As principal underwriter for the Fund’s shares, Ivy Funds Distributor, Inc. (“IFDI”) receives gross sales commissions (which are not an expense of the Fund) for Class A shares. A contingent deferred sales charge (“CDSC”) may be assessed against a shareholder’s redemption amount of Class B, Class C or certain Class A shares and is paid to IFDI. During the period ended March 31, 2003, IFDI received the following amounts in gross sales commissions and deferred sales charges:

			CDSC
	Gross Sales
	Commissions		Class A		Class B		Class C
Money Market Fund	$	—	$	—	$	5,068	$	1,302

With respect to Class A, Class B and Class C shares, W&R pays sales commissions and all expenses in connection with the sale of the Fund’s shares, except for registration fees and related expenses. During the period ended March 31, 2003, W&R paid the following amounts:

Money Market Fund $ —

Under a Distribution and Service Plan for Class A shares adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay a distribution and/or service fee to W&R in an amount not to exceed 0.25% of the Fund’s average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the distribution of the Class A shares and/or provision of personal services to Fund shareholders and/or maintenance of shareholder accounts.

Under the Distribution and Service Plan adopted by the Fund for Class B shares and Class C shares, respectively, the Fund may pay W&R a service fee not to exceed 0.25% and a distribution fee not to exceed 0.75% of the Fund’s average annual net assets attributable to that class to compensate W&R for its services in connection with the distribution of shares of that class and/or the service and/or maintenance of shareholder accounts of that class. The Class B Plan and the Class C Plan each permit W&R to receive compensation, through the distribution fee and service fee, respectively, for its distribution activities for that class, which are similar to the distribution activities described with respect to the Class A Plan, and for its activities in providing personal services to

55

shareholders of that class and/or maintaining shareholder accounts of that class, which are similar to the corresponding activities for which it is entitled to compensation under the Class A Plan.

Under the Class Y Plan, the Fund may pay W&R a fee of up to 0.25%, on an annual basis, of the average daily net assets of its Class Y shares to compensate W&R for, either directly or through third parties, distributing the Class Y shares of that Fund, providing personal service to Class Y shareholders and/or maintaining Class Y shareholder accounts.

The Fund paid Directors’ fees of $929 for Money Market Fund, which are included in other expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. IFDI is a direct subsidiary of Waddell & Reed Financial, Inc.

56

PART C

OTHER INFORMATION

Item 15. Indemnification.

     Reference is made to Article VIII of the Registrant’s Amended and Restated Declaration of Trust, dated December 10, 1992, filed with Post-Effective Amendment No. 71 and incorporated by reference herein.

     Registrant undertakes to carry out all indemnification provisions of its Articles of Incorporation, By-Laws, and the above-described contracts in accordance with the Investment Company Act Release No. 11330 (September 4, 1980) and successor releases.

     Insofar as indemnification for liability arising under the 1933 Act, as amended, may be provided to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

Item 16. Exhibits.

(1)(a)	Amended and Restated Declaration of Trust dated December 10, 1992, filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(b)	Redesignation of Shares of Beneficial Interest and Establishment and Designation of Additional Series and Classes of Shares of Beneficial Interest (No Par Value) filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(c)	Amendment to Amended and Restated Declaration of Trust, filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(d)	Amendment to Amended and Restated Declaration of Trust, filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(e)	Establishment and Designation of Additional Series (Ivy Emerging Growth Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(f)	Redesignation of Shares (Ivy Growth with Income Fund—Class A) and Establishment and Designation of Additional Class (Ivy Growth with Income Fund—Class C), filed with Post-Effective Amendment No. 102 and incorporated by reference herein

(1)(g)	Redesignation of Shares (Ivy Emerging Growth Fund—Class A, Ivy Growth Fund—Class A and Ivy International Fund—Class A), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(h)	Establishment and Designation of Additional Series (Ivy China Region Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(i)	Establishment and Designation of Additional Class (Ivy China Region Fund—Class B, Ivy Emerging Growth Fund—Class B, Ivy Growth Fund—Class B, Ivy Growth with Income Fund—Class B and Ivy International Fund—Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(j)	Establishment and Designation of Additional Class (Ivy International Fund—Class I), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(k)	Establishment and Designation of Series and Classes (Ivy Latin American Strategy Fund—Class A and Class B, Ivy New Century Fund—Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(l)	Establishment and Designation of Series and Classes (Ivy International Bond Fund—Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(m)	Establishment and Designation of Series and Classes (Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term US Government Securities Fund (now known as Ivy Short-Term Bond Fund) — Class A and Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(n)	Redesignation of Ivy Short-Term U.S. Government Securities Fund as Ivy Short-Term Bond Fund, filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(1)(o)	Redesignation of Shares (Ivy Money Market Fund—Class A and Ivy Money Market Fund—Class B), filed with Post-Effective Amendment No. 84 and incorporated by reference herein
(1)(p)	Form of Establishment and Designation of Additional Class (Ivy Bond Fund—Class C; Ivy Canada Fund—Class C; Ivy China Region Fund—Class C; Ivy Emerging Growth Fund—Class C; Ivy Global Fund—Class C; Ivy Growth Fund—Class C; Ivy Growth with Income Fund—Class C; Ivy International Fund—Class C; Ivy Latin America Strategy Fund—Class C; Ivy International Bond Fund—Class C; Ivy Money Market Fund— Class C; Ivy New Century Fund—Class C), filed with Post-Effective Amendment No. 84 and incorporated by reference herein
(1)(q)	Establishment and Designation of Series and Classes (Ivy Global Science & Technology Fund—Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 86 and incorporated by reference herein

2

(1)(r)	Establishment and designation of Series and Classes (Ivy Global Natural Resources Fund—Class A, Class B and Class C; Ivy Asia Pacific Fund—Class A, Class B and Class C; Ivy International Small Companies Fund—Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 89 and incorporated by reference herein
(1)(s)	Establishment and designation of Series and Classes (Ivy Pan-Europe Fund—Class A, Class B and Class C), filed with Post-Effective Amendment No. 92 and incorporated by reference herein
(1)(t)	Establishment and designation of Series and Classes (Ivy International Fund II—Class A, Class B, Class C and Class I), filed with Post-Effective Amendment No. 94 and incorporated by reference herein
(1)(u)	Form of Establishment and Designation of Additional Class (Ivy Asia Pacific Fund—Advisor Class; Ivy Bond Fund—Advisor Class; Ivy Canada Fund—Advisor Class; Ivy China Region Fund—Advisor Class; Ivy Emerging Growth Fund—Advisor Class; Ivy Global Fund—Advisor Class; Ivy Global Natural Resources Fund—Advisor Class; Ivy Global Science & Technology Fund—Advisor Class; Ivy Growth Fund—Advisor Class; Ivy Growth with Income Fund—Advisor Class; Ivy International Bond Fund—Advisor Class; Ivy International Fund II—Advisor Class; Ivy International Small Companies Fund—Advisor Class; Ivy Latin America Strategy Fund—Advisor Class; Ivy New Century Fund—Advisor Class; Ivy Pan-Europe Fund—Advisor Class), filed with Post-Effective Amendment No. 96 and incorporated by reference herein
(1)(v)	Redesignations of Series and Classes (Ivy Emerging Growth Fund redesignated as Ivy US Emerging Growth Fund; Ivy New Century Fund redesignated as Ivy Developing Nations Fund; and, Ivy Latin America Strategy Fund redesignated as Ivy South America Fund), filed with Post-Effective Amendment No. 97 and incorporated by reference herein
(1)(w)	Redesignation of Series and Classes and Establishment and Designation of Additional Class (Ivy International Bond Fund redesignated as Ivy High Yield Fund; Class I shares of Ivy High Yield Fund established), filed with Post-Effective Amendment No. 98 and incorporated by reference herein
(1)(x)	Establishment and designation of Series and Classes (Ivy US Blue Chip Fund—Class A, Class B, Class C, Class I and Advisor Class), filed with Post-Effective Amendment No. 101 and incorporated by reference herein
(1)(y)	Redesignation of Series and Classes (Ivy High Yield Fund redesignated as Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein
(1)(z)	Establishment and designation of Series and Classes (Ivy European Opportunities Fund — Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 110 and incorporated by reference herein

3

(1)(aa)	Establishment and designation of Series and Classes (Ivy Cundill Value Fund — Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 113 and incorporated by reference herein
(1)(bb)	Establishment and designation of Series and Classes Ivy Next Wave Internet Fund — Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 113 and incorporated by reference herein
(1)(cc)	Establishment and Designation of Additional Class (Ivy International Fund—Advisor Class), filed with Post-Effective Amendment No. 119 and incorporated by reference herein
(1)(dd)	Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Next Wave Internet Fund redesignated as Ivy International Growth Fund) filed with Post-Effective Amendment No. 118 and incorporated by reference herein
(1)(ee)	Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Developing Nations Fund redesignated as Ivy Developing Markets Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein
(1)(ff)	Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy China Region Fund redesignated as Ivy Pacific Opportunities Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein
(1)(gg)	Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy International Fund II redesignated as Ivy International Value Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein
(1)(hh)	Abolition of Series of Shares of Beneficial Interest (Ivy Growth With Income Fund, Ivy Pan-Europe Fund, Ivy South America Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein
(1)(ii)	Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Cundill Value Fund redesignated as Ivy Cundill Global Value Fund) filed with Post-Effective Amendment No. 120 and incorporated by reference herein
(1)(jj)	Establishment and Designation of Additional Class (Ivy Cundill Global Value Fund—Class Y; Ivy European Opportunities Fund—Class Y; Ivy Global Natural Resources Fund—Class Y; Ivy International Fund—Class Y; Ivy International Value Fund—Class Y; Ivy Pacific Opportunities Fund—Class Y) filed with Post-Effective Amendment No. 124 and incorporated by reference herein
(1)(kk)	Establishment and Designation of Series and Classes (Ivy Dividend Income Fund—Class A, Class B, Class C and Class Y) filed with Post-Effective Amendment No. 125 and incorporated by reference herein

4

(2)(a)	By-Laws, as amended, filed with Post-Effective Amendment No. 102 and incorporated by reference herein
(2)(b)	Amendment to the By-Laws, dated April 23, 2001, filed with Post-Effective Amendment No. 120 and incorporated by reference herein
(2)(c)	Amendment to the By-Laws, dated December 17, 2002, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(3)	[Not applicable.]
(4)	Form of Agreement and Plan of Reorganization between an Advantus Fund and Registrant (Included as Appendix B to the Prospectus/Proxy Statement comprising Part A of this Registration Statement.)
(5)(a)	Specimen Securities for Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund and Ivy Money Market Fund, filed with Post-Effective Amendment No. 49 and incorporated by reference herein
(5)(b)	Specimen Security for Ivy Emerging Growth Fund, filed with Post-Effective Amendment No. 70 and incorporated by reference herein
(5)(c)	Specimen Security for Ivy China Region Fund, filed with Post-Effective Amendment No. 74 and incorporated by reference herein
(5)(d)	Specimen Security for Ivy Latin American Strategy Fund, filed with Post-Effective Amendment No. 75 and incorporated by reference herein
(5)(e)	Specimen Security for Ivy New Century Fund, filed with Post-Effective Amendment No. 75 and incorporated by reference herein
(5)(f)	Specimen Security for Ivy International Bond Fund, filed with Post-Effective Amendment No. 76 and incorporated by reference herein
(5)(g)	Specimen Securities for Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, and Ivy Short-Term U.S. Government Securities Fund, filed with Post-Effective Amendment No. 77 and incorporated by reference herein
(6)(a)	Investment Advisory Agreement between Ivy Funds and Mackenzie Financial Corporation, filed as Exhibit (d)(12) to Post-Effective Amendment No. 102 and incorporated by reference herein
(6)(b)	Form of Supplement to Master Business Management and Investment Advisory Agreement between Ivy Funds and Ivy Management, Inc. (Ivy Pan-Europe Fund), filed as Exhibit (d)(17) to Post-Effective Amendment No. 94 and incorporated by reference herein
(6)(c)	Addendum to Master Business Management and Investment Advisory Agreement between Ivy Funds and Ivy Management, Inc. (Ivy Developing Nations Fund, Ivy South America Fund, Ivy US Emerging Growth Fund), filed

5

	as Exhibit (d)(19) to Post-Effective Amendment No. 98 and incorporated by reference herein
(6)(d)	Supplement to Master Business Management Agreement between Ivy Funds and Ivy Management, Inc. (Ivy Global Natural Resources Fund), filed as Exhibit (d)(37) to Post-Effective Amendment No. 121 and incorporated by reference herein
(6)(e)	Investment Advisory Agreement between Ivy Funds and Mackenzie Financial Corp. (Ivy Global Natural Resources Fund), filed as Exhibit (d)(38) to Post-Effective Amendment No. 121 and incorporated by reference herein
(6)(f)	Master Business Management and Investment Advisory Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(6)(g)	Master Business Management Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company (Ivy Global Natural Resources Fund), filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(6)(h)	Expense Limitation Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(6)(i)	Subadvisory Agreement between Waddell & Reed Ivy Investment Company and Henderson Investment Management Limited (Ivy European Opportunities Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(6)(j)	Subadvisory Agreement between Waddell & Reed Ivy Investment Company and Peter Cundill & Associates, Inc. (Ivy Cundill Global Value Fund), filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(6)(k)	Investment Management Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company (Ivy Dividend Income Fund), filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(6)(l)	Investment Management Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company (Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund and Ivy Value Fund), filed with Post-Effective Amendment No. 126 and incorporated by reference herein
(7)(a)	Amended and Restated Distribution Agreement filed as Exhibit (e)(20) to Post-Effective Amendment No. 120 and incorporated by reference herein
(7)(b)	Underwriting Agreement between Ivy Funds and Ivy Funds Distributor, Inc. (Ivy Dividend Income Fund), filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(8)	Not applicable.

6

(9)(a)	Custodian Agreement, as amended, filed by EDGAR on April 17, 2000 as EX-99.B(g)wrca to Post-Effective Amendment No. 14 to the Registration Statement on Form N-1A
(9)(b)	Custodian Agreement between Ivy Funds and UMB Bank, N.A., filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(9)(c)	Foreign Custody Manager Delegation Agreement between Ivy Funds and Citibank, N.A., filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(9)(d)	Revised Appendix B to Custodian Agreement between Ivy Funds and UMB Bank, n.a. (Ivy Dividend Income Fund), filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(10)(a)	Form of Rule 12b-1 Related Agreement, filed as Exhibit (m)(4) to Post-Effective Amendment No. 102 and incorporated by reference herein
(10)(b)	Supplement to Master Amended and Restated Distribution Plan for Ivy Funds Class A Shares, filed as Exhibit (m)(5) to Post-Effective Amendment No. 102 and incorporated by reference herein
(10)(c)	Supplement to Distribution Plan for Ivy Funds Class B Shares, filed as Exhibit (m)(6) to Post-Effective Amendment No. 103 and incorporated by reference herein
(10)(d)	Supplement to Master Amended and Restated Distribution Plan for Ivy Funds Class A Shares, filed as Exhibit (m)(7) to Post-Effective Amendment No. 103 and incorporated by reference herein
(10)(e)	Supplement to Distribution Plan for Ivy Funds Class B Shares, filed as Exhibit (m)(8) to Post-Effective Amendment No. 103 and incorporated by reference herein
(10)(f)	Supplement to Master Amended and Restated Distribution Plan for Ivy Funds Class A Shares, filed as Exhibit (m)(9) to Post-Effective Amendment No. 103 and incorporated by reference herein
(10)(g)	Supplement to Distribution Plan for Ivy Funds Class B Shares, filed as Exhibit (m)(10) to Post-Effective Amendment No. 103 and incorporated by reference herein
(10)(h)	Amended and Restated Distribution Plan for Ivy Funds Class A Shares, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(10)(i)	Amended and Restated Distribution Plan for Ivy Funds Class B Shares, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(10)(j)	Amended and Restated Distribution Plan for Ivy Funds Class C Shares, filed with Post-Effective Amendment No. 122 and incorporated by reference herein

7

(10)(k)	Distribution and Service Plan for Ivy Dividend Income Fund Class A Shares, filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(10)(l)	Distribution and Service Plan for Ivy Dividend Income Fund Class B Shares, filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(10)(m)	Distribution and Service Plan for Ivy Dividend Income Fund Class C Shares, filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(10)(n)	Distribution and Service Plan for Ivy Dividend Income Fund Class Y Shares, filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(10)(o)	Distribution and Service Plan for Class Y Shares, filed with Post-Effective Amendment No. 124 and incorporated by reference herein
(11)	Opinion and consent of Kirkpatrick & Lockhart LLP with respect to the legality of the securities being registered.(1)
(12)	Opinion and consent of Dorsey & Whitney LLP with respect to tax matters.(2)
(13)(a)	Transfer Agency and Shareholder Services Agreement between Ivy Funds and Ivy Management, Inc., filed as Exhibit (h)(10) to Post-Effective Amendment No. 102 and incorporated by reference herein
(13)(b)	Transfer Agency Services Agreement between PFPC Inc. and Ivy Funds, filed as Exhibit (h)(63) to Post-Effective Amendment No. 121 and incorporated by reference herein
(13)(c)	Master Administrative Services Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(13)(d)	Assignment of Master Administrative Services Agreement to Waddell & Reed Services Company, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(13)(e)	Master Fund Accounting Services Agreement between Ivy Funds and Waddell & Reed Ivy Investment Company filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(13)(f)	Assignment of Master Fund Accounting Services Agreement to Waddell & Reed Services Company, filed with Post-Effective Amendment No. 122 and incorporated by reference herein
(13)(g)	Administrative Services Agreement Supplement, dated April 9, 2003, filed with Post-Effective Amendment No. 123 and incorporated by reference herein

8

(13)(h)	Shareholder Servicing Agreement between Ivy Funds and Waddell & Reed Services Company (Ivy Dividend Income Fund), filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(13)(i)	Accounting Services Agreement between Ivy Funds and Waddell & Reed Services Company (Ivy Dividend Income Fund), filed with Post-Effective Amendment No. 123 and incorporated by reference herein
(14)(a)	Consent of Deloitte & Touche LLP with respect to financial statements of the Ivy Funds.(1)
(14)(b)	Consent of KPMG LLP with respect to financial statements of the Advantus Funds.(1)
(15)	Not applicable.
(16)	Powers of attorney.(1)
(17)(a)	Form of proxy card.(1)
(17)(b)	Form of buck slip.(1)
(17)(c)	Ivy Funds and Ivy Funds, Inc. Prospectus dated July 1, 2003.(1)
(17)(d)	Ivy Funds and Ivy Funds, Inc. Prospectus Supplement dated July 7, 2003.(1)
(17)(e)	Ivy Funds and Ivy Funds, Inc. Prospectus Supplement dated July 15, 2003.(1)
(17)(f)	Ivy Funds and Ivy Funds, Inc. Prospectus Supplement dated July 25, 2003.(1)
(17)(g)	Ivy Funds and Ivy Funds, Inc. Prospectus Supplement dated August 4, 2003.(1)
(17)(h)	Ivy Funds and Ivy Funds, Inc. Statement of Additional Information dated July 1, 2003.(1)
(17)(i)	Ivy Funds and Ivy Funds, Inc. Preliminary Prospectus for the Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund, and Ivy Value Fund (Included as Appendix D to the Prospectus/Proxy Statement comprising Part A of this Registration Statement).
(17)(j)	Ivy Funds and Ivy Funds, Inc. Preliminary Statement of Additional Information for the Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund, and Ivy Value Fund.(1)
(17)(k)	Advantus Fixed Income and Blended Funds Prospectus dated January 31, 2003.(1)
(17)(l)	Advantus Fixed Income and Blended Funds Statement of Additional Information dated January 31, 2003.(1)
(17)(m)	Advantus Equity Funds Prospectus dated November 29, 2002.(1)
(17)(n)	Advantus Equity Funds Prospectus Supplement dated February 3, 2003.(1)

9

(17)(o)	Advantus Fixed Income and Blended Funds and Advantus Equity Funds Prospectus Supplement dated April 24, 2003.(1)
(17)(p)	Advantus Fixed Income and Blended Funds and Advantus Equity Funds Prospectus Supplement dated June 18, 2003.(1)
(17)(q)	Advantus Fixed Income and Blended Funds and Advantus Equity Funds Prospectus Supplement dated August 8, 2003.(1)
(17)(r)	Advantus Fixed Income and Blended Funds and Advantus Equity Funds Prospectus Supplement dated August 20, 2003.(1)
(17)(s)	Advantus Equity Funds Statement of Additional Information dated November 29, 2003.(1)
(17)(t)	Advantus Equity Funds SAI Supplement dated May 1, 2003.(1)
(17)(u)	Ivy Funds, Inc. Annual Report dated March 31, 2003.(1)
(17)(v)	Ivy Funds Annual Report dated December 31, 2002.(1)
(17)(w)	Advantus Fixed Income and Blended Funds Annual Report for the fiscal year ended September 30, 2002.(1)
(17)(x)	Advantus Fixed Income and Blended Funds Semi-Annual Report for the period ended March 31, 2003.(1)
(17)(y)	Advantus Equity Funds Annual Report for the fiscal year ended July 31, 2002.(1)
(17)(z)	Advantus Equity Funds Semi-Annual Report for the fiscal period ended January 31, 2003.(1)

(1)	Filed herewith.
(2)	To be filed by amendment.

Item 17. Undertakings.

     (1)  The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

     (2)  The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.

10

     (3)  The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel or a copy of a ruling of the Internal Revenue Service supporting the tax consequences of the proposed reorganization within a reasonable time after receipt of such opinion or ruling.

11

SIGNATURES

     As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the city of Shawnee Mission, and the state of Kansas on the 27th day of August, 2003.

Ivy Funds

By /s/ Henry J. Herrmann      Name: Henry J. Herrmann
     Title: President

     As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title
/s/ Keith A. Tucker* Keith A. Tucker	Chairman of the Board	August 27, 2003
/s/ Henry J. Herrmann Henry J. Herrman	President and Trustee	August 27, 2003
/s/ Theodore W. Howard Theodore W. Howard	Vice President, Treasurer, Principal Financial Officer and Principal Accounting Officer	August 27, 2003
/s/ Jarold W. Boettcher* Jarold W. Boettcher	Trustee	August 27, 2003
/s/ James D. Gressett* James D. Gressett	Trustee	August 27, 2003
/s/ Joseph Harroz, Jr.* Joseph Harroz Jr.	Trustee	August 27, 2003
/s / Glendon E. Johnson* Glendon E. Johnson	Trustee	August 27, 2003
/s/ Eleanor B. Schwartz* Eleanor B. Schwartz	Trustee	August 27, 2003

12

Signatures	Title
/s/ Michael G. Smith* Michael G. Smith	Trustee	August 27, 2003
/s/ Edward M. Tighe* Edward M. Tighe	Trustee	August 27, 2003
*By /s/ Kristen A. Richards        Kristen A. Richards        Attorney-in-Fact
ATTEST:
/s/ Daniel C. Schulte Daniel C. Schulte Assistant Secretary

* Pursuant to powers of attorney filed herewith.

13 EX-99.(11) 3 c78747exv99wx11y.htm EX-(11)OPINION & CONSENT OF KIRKPATRICK & LOCKHART

Exhibit 11

August 25, 2003

Ivy Funds
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201

Ladies and Gentlemen:

     We have acted as special counsel to Ivy Funds, a business trust formed under the laws of the Commonwealth of Massachusetts (the “Trust”), in connection with the filing with the Securities and Exchange Commission (“SEC”) of a registration statement on Form N-14 (the “Registration Statement”), registering the Class A shares of beneficial interest of Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund and Ivy Value Fund, each a series of the Trust (each, an “Acquiring Fund”), (the “Shares”) to be issued pursuant to Agreements and Plans of Reorganization between the Trust on behalf of the Acquiring Funds and Advantus Spectrum Fund, Inc., Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Real Estate Securities Fund, Inc., Advantus Venture Fund, Inc. and Advantus Cornerstone Fund, Inc. (each, an “Acquired Fund”). Each Plan provides for the transfer of the Acquired Funds’ assets to the corresponding Acquiring Fund in exchange solely for a number of Shares determined in the manner specified in the Plan and the assumption by the Acquiring Fund of the liabilities of the corresponding Acquired Fund.

     In connection with rendering the opinions set forth below, we have examined the form of Plan filed as an exhibit to the Registration Statement, the Trust’s Declaration of Trust, as amended, and Bylaws, and the action of the Trust that provides for the issuance of the Shares; and we have made such other investigation as we have deemed appropriate. In rendering our opinion, we also have made the assumptions that are customary in opinion letters of this kind. We have not verified any of those assumptions.

     Our opinion, as set forth herein, is based on the facts in existence and the laws in effect on the date hereof and is limited to the federal laws of the United States of America and the laws of the Commonwealth of Massachusetts that, in our experience, generally are applicable to the issuance of shares by entities such as the Trust. We express no opinion with respect to any other laws.

     Based upon and subject to the foregoing, we are of the opinion that:

Ivy Funds
August 25, 2003
Page 2

1.

The Shares to be issued pursuant to the Plan have been duly authorized for issuance by the Trust; and

2.

When the Shares have been issued and the consideration therefore has been paid in accordance with the Plan, the Shares to be issued pursuant to the Registration Statement will be validly issued, fully paid, and non-assessable. In this regard, however, we note that the Trust is a Massachusetts business trust and, under certain circumstances, shareholders of a Massachusetts business trust could be held personally liable for the obligations of the Trust.

      This opinion is rendered solely in connection with the filing of the Registration Statement. We hereby consent to the filing of this opinion with the SEC in connection with the Registration Statement. In giving our consent we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the SEC thereunder.

Very truly yours,

 
/s/ Kirkpatrick & Lockhart LLP

EX-99.(14)(A) 4 c78747exv99wx14yxay.htm EX-(14)(A) CONSENT OF DELOITTE & TOUCHE LLP

Exhibit 14(a)

INDEPENDENT AUDITORS’ CONSENT

We consent to the use in this Registration Statement of Ivy Fund on Form N-14 of our report dated May 9, 2003 appearing in the Annual Report to Shareholders of Asset Strategy Fund, Core Equity Fund, High Income Fund, International Growth Fund, Large Cap Growth Fund, Limited-Term Bond Fund, Mid Cap Growth Fund, Money Market Fund, Municipal Bond Fund, Science and Technology Fund, Small Cap Growth Fund and Tax-Managed Equity Fund, comprising Ivy Funds, Inc. (formerly W&R Funds, Inc.), for the fiscal year ended March 31, 2003, which is also incorporated by reference in the Statement of Additional Information, which is part of such Registration Statement. We also consent to the reference to us under the caption “Custodial and Auditing Services” in the Proxy Statement/Prospectus, which also is a part of such Registration Statement.

/s/ Deloitte & Touche LLP

Kansas City, Missouri
August 26, 2003

EX-99.(14)(B) 5 c78747exv99wx14yxby.htm EX-(14)(B) CONSENT OF KPMG LLP

Exhibit 14(b)

Independent Auditors’ Consent

The Board of Directors
Advantus Bond Fund, Inc.
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus Horizon Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Advantus Spectrum Fund, Inc.
Advantus Venture Fund, Inc.:

We consent to the use of our reports dated September 6, 2002 and November 8, 2002 incorporated by reference herein and to the reference to our Firm under the heading “Other Service Providers” in this combined proxy and registration statement on Form N-14.

KPMG LLP

Minneapolis, Minnesota
August 27, 2003

EX-99.(16) 6 c78747exv99wx16y.htm EX-(16) POWERS OF ATTORNEY

Exhibit 16

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, That the undersigned, IVY FUND (hereinafter called the Corporation), and certain trustees and officers for the Corporation, do hereby constitute and appoint KEITH A. TUCKER, DANIEL C. SCHULTE and KRISTEN A. RICHARDS, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable each Corporation to comply with the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and any rules, regulations, orders or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the names of each of such trustees and officers in his/her behalf as such trustee or officer as indicated below opposite his/her signature hereto, to any Registration Statement and to any amendment or supplement to the Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 and/or the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement or amendment or supplement thereto; and each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do or cause to be done by virtue hereof.

Date: April 9, 2003 /s/ Henry J. Herrmann Henry J. Herrmann, President

/s/Keith A. Tucker	Chairman of the Board	April 9, 2003
Keith A. Tucker
/s/Henry J. Herrmann	President and Trustee	April 9, 2003
Henry J. Herrmann
/s/Theodore W. Howard Theodore W. Howard	Vice President and Treasurer	April 9, 2003
/s/Jarold W. Boettcher	Trustee	April 9, 2003
Jarold W. Boettcher

/s/James D. Gressett	Trustee	April 9, 2003
James D. Gressett
/s/Joseph Harroz, Jr.	Trustee	April 9, 2003
Joseph Harroz, Jr.
/s/Glendon E. Johnson, Jr.	Trustee	April 9, 2003
Glendon E. Johnson, Jr.
/s/Eleanor B. Schwartz	Trustee	April 9, 2003
Eleanor B. Schwartz
/s/Michael G. Smith	Trustee	April 9, 2003
Michael G. Smith
/s/Edward M. Tighe	Trustee	April 9, 2003
Edward M. Tighe
Attest:

/s/Kristen A. Richards Kristen A. Richards
Secretary

EX-99.(17)(A) 7 c78747exv99wx17yxay.htm EX-(17)(A) FORM OF PROXY CARD

Exhibit 17(a)

[NAME OF ADVANTUS FUND]

ADVANTUS FUNDS
400 ROBERT STREET NORTH
ST. PAUL, MN 55101

PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD NOVEMBER 10, 2003

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

     The undersigned appoints [Diane M. Orbison], [Donald F. Gruber] and [Eric J. Bentley], or any one of them, as proxies of the undersigned, with full power of substitution, to vote all shares of [Name of Advantus Fund] (the “Fund”) held by the undersigned on September 12, 2003, at a Special Shareholders Meeting of the Fund, to be held at the offices of Advantus Capital Management, Inc., 400 Robert Street North, St. Paul, Minnesota 55101, on Monday, November 10, 2003, at 10:00 a.m., and at any adjournment thereof, with all powers the undersigned would possess if present in person. All previous proxies given with respect to the meeting are revoked. Receipt of the Notice of Special Meeting and the accompanying Prospectus/Proxy Statement is hereby acknowledged.

     THIS PROXY WILL BE VOTED AS INSTRUCTED ON THE MATTER SET FORTH BELOW. IT IS UNDERSTOOD THAT IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED “FOR” SUCH ITEM. UPON ALL OTHER MATTERS THE PROXIES SHALL VOTE AS THEY DEEM IN THE BEST INTERESTS OF THE FUND.

     1.     To approve an Agreement and Plan of Reorganization providing for the transfer of all assets of the Fund to a mutual fund in [Ivy Fund (a Massachusetts business trust)] or [Ivy Funds, Inc. (a Maryland corporation)], in exchange for shares of that fund and the assumption by that fund of all of the Fund’s liabilities.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

     PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY. WHEN SIGNING IN A FIDUCIARY CAPACITY, SUCH AS EXECUTOR, ADMINISTRATOR, TRUSTEE, ATTORNEY, GUARDIAN, ETC., PLEASE SO INDICATE. CORPORATE AND PARTNERSHIP PROXIES SHOULD BE SIGNED BY AN AUTHORIZED PERSON INDICATING THE PERSON’S TITLE.

Dated:                           , 2003

                                                                                   
Signature(s) (Title(s), if applicable)

YOU MAY ALSO VOTE BY TOUCH TONE PHONE OR THE INTERNET. CALL TOLL FREE 1-800-690-6903 OR ACCESS WWW.PROXYWEB.COM. SEE THE ENCLOSED INSERT FOR FURTHER INSTRUCTIONS ON VOTING BY PHONE OR INTERNET.

EX-99.(17)(B) 8 c78747exv99wx17yxby.htm EX-(17)(B) FORM OF BUCK SLIP

EXHIBIT 17(b)

YOUR VOTE IS IMPORTANT!

PLEASE VOTE YOUR PROXY TODAY!

      You have three easy ways to vote — please read the accompanying proxy statement and choose the method that’s most convenient for you.

•  Vote by telephone. Call our toll-free dedicated voting number 1-800-690-6903. The voting site is open 24 hours a day, 7 days a week. For each proxy card received, enter the control number printed on the card and follow the recorded instructions. Your vote will be confirmed at the end of the call.

•  Vote on the Internet. Log on to our Internet voting web site — www.proxyweb.com and enter your control number. Follow the on-screen instructions. Vote each proxy card received separately. You may request an e-mail confirmation of your vote.

•  Vote by mail. Simply vote and sign the enclosed proxy card(s) and return them in the enclosed postage-paid reply envelope. NOTE: Please do not return your proxy cards if you vote by phone, Internet or fax.

      Please accept our thanks for your cooperation and prompt attention to this matter. Your vote is very important and will help save the expense of a follow-up request.

EX-99.(17)(C) 9 c78747exv99wx17yxcy.htm EX-(17)(C)IVY FUNDS & IVY FUNDS,INC.PROSP.-7/1/03

Exhibit(17)(c)

Prospectus

July 1, 2003

Ivy Funds

Ivy Asset Strategy Fund

Ivy Core Equity Fund

Ivy Cundill Global Value Fund

Ivy Dividend Income Fund

Ivy European Opportunities Fund

Ivy Global Natural Resources Fund

Ivy High Income Fund

Ivy International Fund

Ivy International Growth Fund

Ivy International Value Fund

Ivy Large Cap Growth Fund

Ivy Limited-Term Bond Fund

Ivy Mid Cap Growth Fund

Ivy Money Market Fund

Ivy Municipal Bond Fund

Ivy Pacific Opportunities Fund

Ivy Science and Technology Fund

Ivy Small Cap Growth Fund

Ivy Tax-Managed Equity Fund

The Securities and Exchange Commission has not approved
or disapproved the Fund's securities, or determined whether
this Prospectus is accurate or adequate. It is a criminal offense
to state otherwise.

Contents

3 AN OVERVIEW OF THE FUNDS

3 IVY ASSET STRATEGY FUND

7 IVY CORE EQUITY FUND

11 IVY CUNDILL GLOBAL VALUE FUND

16 IVY DIVIDEND INCOME FUND

19 IVY EUROPEAN OPPORTUNITIES FUND

24 IVY GLOBAL NATURAL RESOURCES FUND

29 IVY HIGH INCOME FUND

33 IVY INTERNATIONAL FUND

38 IVY INTERNATIONAL GROWTH FUND

43 IVY INTERNATIONAL VALUE FUND

48 IVY LARGE CAP GROWTH FUND

52 IVY LIMITED-TERM BOND FUND

56 IVY MID CAP GROWTH FUND

60 IVY MONEY MARKET FUND

63 IVY MUNICIPAL BOND FUND

68 IVY PACIFIC OPPORTUNITIES FUND

73 IVY SCIENCE AND TECHNOLOGY FUND

77 IVY SMALL CAP GROWTH FUND

81 IVY TAX-MANAGED EQUITY FUND

85 INVESTMENT PRINCIPLES OF THE FUNDS

85  Investment Goals, Principal Strategies
   and Other Investments

95  Risk Considerations of Principal
   Strategies and Other Investments

98 YOUR ACCOUNT

98  Choosing a Share Class

104  Ways to Set Up Your Account

105  Buying Shares

107  Selling Shares

112  Distributions and Taxes

115 THE MANAGEMENT OF THE FUNDS

115  Portfolio Management

119  Management Fee

121 FINANCIAL HIGHLIGHTS

AN OVERVIEW OF THE FUND

GOAL

Ivy Asset Strategy Fund

(formerly, W&R Asset Strategy Fund)

seeks high total return over the long term.

Principal Strategies

Ivy Asset Strategy Fund seeks to achieve its goal by allocating its assets among stocks, bonds and short-term instruments.

* The stock class includes equity securities of all types, although Waddell & Reed Ivy Investment Company (WRIICO), the Fund's investment manager, typically emphasizes a blend of value and growth potential in selecting stocks. Value stocks are those that WRIICO believes are currently selling below their true worth. Growth stocks are those whose earnings WRIICO believes are likely to grow faster than the economy. The Fund may invest in the securities of any size company.

* The bond class includes all varieties of fixed-income instruments, such as corporate or U.S. Government debt securities, with remaining maturities of more than three years. This asset class may include a significant amount, up to 35% of the Fund's total assets, of high yield/high risk bonds, or junk bonds, which include bonds rated BB and below by Standard & Poor's (S&P) and Ba and below by Moody's Corporation (Moody's) or unrated bonds deemed by WRIICO to be of comparable qua lity.

* The short-term class includes all types of short-term instruments with remaining maturities of three years or less, including high-quality money market instruments.

* Within each of these classes, the Fund may invest in both domestic and foreign securities.

The Fund selects a mix which represents the way the Fund's investments will generally be allocated over the long term as indicated below. This mix will vary over shorter time periods as WRIICO changes the Fund's holdings based on its current outlook for the different markets. These changes may be based on such factors as interest rate changes, security valuation levels and a rise in the potential for growth stocks.

Portfolio Mix

Stocks 70% (can range from 0-100%)
Bonds 25% (can range from 0-100%)
Short-term 5% (can range from 0-100%)

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Asset Strategy Fund. These include:

* WRIICO's skill in allocating the Fund's assets among different types of investments

* the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy

* an increase in interest rates, which may cause the value of the Fund's fixed-income securities, especially bonds with longer maturities, to decline

* prepayment of higher-yielding bonds held by the Fund

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

Market risk for small or medium sized companies may be greater than the market risk for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. Additionally, stock of smaller companies may experience volatile trading and price fluctuations.

Investments by the Fund in high yield/high risk bonds are more susceptible to the risk of non-payment or default, and their prices may be more volatile, than higher-rated bonds.

As well, the Fund may invest a significant portion of its assets in foreign securities. Foreign securities present additional risks such as currency fluctuations and political or economic conditions affecting the foreign countries.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Asset allocation funds are designed for investors who want to diversify among stocks, bonds and short-term instruments, in one fund. If you are looking for an investment that uses this technique in pursuit of high total return, Ivy Asset Strategy Fund may be appropriate for you. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Asset Strategy Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 15.58% (the first quarter of 2000) and the lowest quarterly return was -8.25% (the first quarter of 2001). The Class C return for the year through March 31, 2003 was -1.19%.

¹The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of broad-based, securities market indexes that are unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable contingent deferred sales charge (CDSC) for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years	10 Years
						(or Life	(or Life
	as of December 31, 2002				1 Year	of Class)	of Class)
Class C (began on 04-20-1995)
		Before Taxes1		2.31%		7.49%		7.20%
		After Taxes on Distributions1		2.00%		5.32%		5.23%
		After Taxes on Distributions and Sale of Fund Shares1		1.53%		5.65%		5.39%
Class Y (began on 12-29-1995)
		Before Taxes		3.20%		8.43%		8.37%
Class B (began on 07-03-2000)
		Before Taxes		-1.80%		-3.38%
Class A (began on 07-10-2000)
		Before Taxes		-2.84%		-3.97%
Indexes
		S&P 500 Index2		-22.10%		-0.59%		9.02%	3
		Citigroup Broad Investment Grade Index2		10.09%		7.53%		8.10%	3
		Citigroup Short-Term Index for
			1 Month Certificates of Deposit2	1.79%		4.68%		5.04%	3
		Lipper Flexible Portfolio Funds Universe Average4		-11.74%		0.80%		6.57%	3

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² Reflects no deduction for fees, expenses or taxes.

³ Index comparison begins on April 30, 1995.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Asset Strategy Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.70%	0.70%	0.70%	0.70%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.46%	0.64%	0.50%	0.38%
Total Annual Fund Operating Expenses	1.41%	2.34%	2.20%	1.33%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$710		$ 996	$1,302	$2,169
	Class B Shares	$637		$1,030	$1,350	$2,441	1
	Class C Shares	$223	2	$ 688	$1,180	$2,534
	Class Y Shares	$135		$ 421	$ 729	$1,601
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$710		$ 996	$1,302	$2,169
	Class B Shares	$237		$ 730	$1,250	$2,441	1
	Class C Shares	$223		$ 688	$1,180	$2,534
	Class Y Shares	$135		$ 421	$ 729	$1,601

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy Core Equity Fund

(formerly, W&R Core Equity Fund)

seeks to provide capital growth and income.

Principal Strategies

Ivy Core Equity Fund seeks to achieve its goals by investing primarily in common stocks of large U.S. and foreign companies with dominant market positions in their industries. The Fund invests in securities that have the potential for capital appreciation or that WRIICO, the Fund's investment manager, expects to resist market decline. Although the Fund typically invests in large companies, it may invest in securities of any size company.

WRIICO attempts to select securities with growth and income possibilities by looking at many factors including the company's:

*	profitability record	*leadership position in its industry
*	history of improving sales and profits		*stock price value
*	management	*dividend payment history

Generally, in determining whether to sell a security WRIICO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer the prospect of significant growth potential and/or the prospect of continued dividend payments. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Core Equity Fund. These include:

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* WRIICO's skill in evaluating and selecting securities for the Fund

An investment in foreign securities presents additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Core Equity Fund is designed for investors who seek capital growth and income. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Core Equity Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 17.05% (the second quarter of 1997) and the lowest quarterly return was -16.80% (the third quarter of 2002). The Class C return for the year through March 31, 2003 was -5.68%.

¹ The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless other wise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
							5 Years		10 Years
							(or Life		(or Life
	as of December 31, 2002			1 Year			of Class)		of Class)
Class C
		Before Taxes1	-23.24%			-1.03%				7.30%
		After Taxes on Distributions1	-23.24%			-2.60%				6.33%
		After Taxes on Distributions and Sale of Fund Shares1	-14.27%		2	-0.04%		2		6.63%
Class Y (began on 12-29-1995)
		Before Taxes	-22.52%			-0.19%				5.76%
Class A (began on 07-03-2000)
		Before Taxes	-27.08%			-18.55%
Class B (began on 07-11-2000)
		Before Taxes	-26.47%			-18.80%
Indexes
		S&P 500 Index3	-22.10%			-0.59%				9.34%
		Lipper Large-Cap Core Funds Universe Average4	-23.49%			-1.90%				7.55%

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

³ Reflects no deduction for fees, expenses or taxes.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Core Equity Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.70%	0.70%	0.70%	0.70%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.37%	0.65%	0.48%	0.26%
Total Annual Fund Operating Expenses	1.32%	2.35%	2.18%	1.21%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$702		$ 969	$1,257	$2,074
	Class B Shares	$638		$1,033	$1,355	$2,426	1
	Class C Shares	$221	2	$ 682	$1,169	$2,513
	Class Y Shares	$123		$ 384	$ 665	$1,466
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$702		$ 969	$1,257	$2,074
	Class B Shares	$238		$ 733	$1,255	$2,426	1
	Class C Shares	$221		$ 682	$1,169	$2,513
	Class Y Shares	$123		$ 384	$ 665	$1,466

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Cundill Global Value Fund

seeks long-term capital growth. Any income realized will be incidental.

Principal Strategies

Ivy Cundill Global Value Fund invests primarily in equity securities (including common stock, preferred stock and securities convertible into common stock) throughout the world, including emerging market countries, that the Fund's management team believes are trading below their estimated "intrinsic value."

"Intrinsic value" is the perceived realizable market value, determined through the management team's analysis of the companies' financial statements (and includes factors such as earnings, cash flows, dividends, business prospects, management capabilities and other catalysts for potentially increasing shareholder value).

To control its exposure to certain risks, the Fund may use certain derivative investment techniques (such as foreign currency exchange transactions and forward foreign currency contracts).

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Cundill Global Value Fund. These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. This is called management risk.

* Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

* Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related conversion costs; adverse tax consequences; and settlement delays.

* The risks of investing in foreign securities are more acute in countries with developing economies.

* The Fund may not be able to readily dispose of illiquid securities promptly at an acceptable price.

* The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements). The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgement of the Fund's manager as to the certain market movements is incorrect, t he risk of losses that are greater than if the derivative technique(s) had not been used.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Cundill Global Value Fund may be appropriate for investors seeking long-term growth potential, but who can accept significant fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Cundill Global Value Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Advisor Class and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Advisor Class because of variations in their respective expense structures.

The bar chart does not reflect any applicable account fees. If account fees were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 6.28% (the first quarter of 2002) and the lowest quarterly return was -11.17% (the third quarter of 2002). The Advisor Class return for the year through March 31, 2003 was -3.72%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Advisor Class shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effe ct of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Advisor Class shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years
	as of December 31, 2002			1 Year		(or Life of Class)
Advisor Class (began on 04-17-00)
		Before Taxes	-11.86%				-3.72%
		After Taxes on Distributions	-12.18%				-4.81%
		After Taxes on Distributions and Sale of Fund Shares	-7.17%		1		-3.18%	1
Class A (began on 09-04-01)
		Before Taxes	-17.22%				-14.66%
Class B (began on 09-26-01)
		Before Taxes	-16.09%				-8.15%
Class C (began on 10-19-01)
		Before Taxes	-12.88%				-7.57%
Indexes
		MSCI World Index2	-19.89%				-17.52%	3
		Lipper Global Funds Universe Average4	-19.16%				-15.90%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of April 2002 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Po rtugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.

³ Index comparison begins on April 30, 2000.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Cundill Global Value Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Advisor
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses4
	Class A	Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	1.00%	1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	None
Other Expenses	3.72%	3.72%	3.72%	3.72%
Total Annual Fund Operating Expenses	4.97%	5.72%	5.72%	4.72%
Expenses reimbursed5	2.22%	2.22%	2.22%	2.22%
Net Fund operating expenses	2.75%	3.50%	3.50%	2.50%

¹  The contingent deferred sales charge (CDSC) which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Advisor Class shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

⁴ The expense information shown has been restated to reflect current fees. Expenses reimbursed are estimated based on Class A.

⁵ WRIICO has contractually agreed to reimburse the Fund's expenses for the fiscal year ending December 31, 2003, and for the following eight years, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 2.50% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses).

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$837		$1,379	$1,946	$3,736
	Class B Shares	$753		$1,374	$1,917	$3,860	1
	Class C Shares	$353	2	$1,074	$1,817	$4,030
	Advisors Class Shares	$253		$ 779	$1,331	$3,117
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$837		$1,379	$1,946	$3,736
	Class B Shares	$353		$1,074	$1,817	$3,860	1
	Class C Shares	$353		$1,074	$1,817	$4,030
	Advisor Class Shares	$253		$ 779	$1,331	$3,117

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy Dividend Income Fund

seeks to provide income and long-term capital growth.

Principal Strategies

Ivy Dividend Income Fund seeks to achieve its goals by investing primarily in dividend-paying common stocks that WRIICO, the Fund's investment manager, believes also demonstrate favorable prospects for long-term capital growth. Although the Fund invests primarily in large companies, it may invest in companies of any size. The Fund will invest primarily in domestic securities but may also invest up to 25% of its total assets in foreign securities.

WRIICO attempts to select securities by considering a company's ability to sustain, and potentially increase, its dividend payments. It also typically considers other factors, which may include the company's:

*	established operating history	* management
*	competitive dividend yields	* leadership position in its industry
*	profitability record	* stock price value
*	history of improving sales and profits

Generally, in determining whether to sell a security, WRIICO considers many factors, including: changes in economic or market factors in general or with respect to a particular industry, changes in the market trends or other factors affecting an individual security, and changes in the relative market performance or appreciation possibilities offered by individual securities. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Dividend Income Fund. These include:

* the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* WRIICO's skill in evaluating and selecting securities for the Fund

Market risk for small to medium sized companies may be greater than the market risk for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. As well, stocks of smaller companies, and growth stocks in general, may experience volatile trading and price fluctuations.

An investment in foreign securities presents additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Dividend Income Fund is designed for investors seeking income and long-term capital growth through a portfolio of primarily dividend-paying common stocks. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Dividend Income Fund has not been in operation for a full calendar year; therefore, it does not have performance information to include in a bar chart or performance table reflecting average annual returns.

FEES AND EXPENSES

Ivy Dividend Income Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.70%	0.70%	0.70%	0.70%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses4	0.70%	0.70%	0.70%	0.59%
Total Annual Fund Operating Expenses	1.65%	2.40%	2.40%	1.54%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

⁴ The data for Other Expenses is estimated for the initial fiscal year of the Fund. Actual expenses may be higher or lower.

Example

This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

If shares are redeemed at end of period:	1 Year		3 Years
Class A Shares	$733		$1,065
Class B Shares	$643		$1,048
Class C Shares	$243	1	$ 748
Class Y Shares	$157		$ 486
If shares are not redeemed at end of period:	1 Year		3 Years
Class A Shares	$733		$1,065
Class B Shares	$243		$ 748
Class C Shares	$243		$ 748
Class Y Shares	$157		$ 486

¹ A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy European Opportunities Fund

seeks long-term capital growth by investing in the securities markets of Europe.

Principal Strategies

Ivy European Opportunities Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of European companies, which may include:

* large European companies, or European companies of any size that provide special investment opportunities (such as privatized companies, those providing exceptional value, or those engaged in initial public offerings);

* small-capitalization companies in the more developed markets of Europe

* companies operating in Europe's emerging markets

The Fund's manager uses a "bottom-up" investment approach, focusing on prospects for long-term earnings growth.

The Fund may also invest in European debt securities, up to 20% of which may be low-rated (commonly referred to as "high yield" or "junk" bonds). These securities typically are rated Ba or below by Moody's or BB or below by S&P (or are judged by the Fund's manager to be of comparable quality).

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy European Opportunities Fund. These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. This is called management risk.

* Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

* Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related conversion costs; adverse tax consequences; and settlement delays.

* The risks of investing in foreign securities are more acute in countries with developing economies.

* Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be more thinly traded and because they are subject to greater business risk. Transaction costs of smaller-company stocks may also be higher than those of larger companies.

* Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand for the securities does not continue to support the offering price. Information about the issuers of IPO securities is also difficult to acquire since they are new to the market and may not have lengthy operating histories. The Fund may engage in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse tax consequence s. The number of securities issued in an IPO is also limited, so it is likely that IPO securities will represent a smaller component of the Fund's portfolio as the Fund's assets increase (and thus have a more limited effect on the Fund's performance).

* The Fund's debt security investments are susceptible to decline in a rising interest rate environment. The risk is more acute for debt securities with longer maturities.

* The market value of debt securities also tends to vary according to the relative financial condition of the issuer. Certain of the Fund's debt security holdings may be considered below investment grade (commonly referred to as "high yield" or "junk" bonds). Low-rated debt securities are considered speculative and could weaken the Fund's returns if the issuer defaults on its payment obligations.

As with any mutual fund, the value of the Fund's shares will change, and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy European Opportunities Fund may be appropriate for investors seeking long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy European Opportunities Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 44.83% (the first quarter of 2000) and the lowest quarterly return was -21.29% (the third quarter of 2002). The Class A return for the year through March 31, 2003 was -12.80%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years
	as of December 31, 2002			1 Year		(or Life of Class)
Class A (began on 05-04-99)
		Before Taxes	-8.86%				26.80%
		After Taxes on Distributions	-8.86%				19.44%
		After Taxes on Distributions and Sale of Fund Shares	-5.44%		1		19.66%
Class B (began on 05-24-99)
		Before Taxes	-8.33%				27.25%
Class C (began on 10-24-99)
		Before Taxes	-4.49%				5.50%
Advisor Class (began on 05-03-99)
		Before Taxes	-3.33%				29.21%
Indexes
		MSCI EuropeSM Index2	-18.38%				-9.67%	3
		Lipper European Region Funds Universe Average4	-16.66%				-7.00%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International Europe Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance in Europe. As of September 2002 the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

³ Index comparison begins on April 30, 1999.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy European Opportunities Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Advisor
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount
invested or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses
	Class A	Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	1.00%	1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	None
Other Expenses	0.90%	0.92%	0.92%	0.81%
Total Annual Fund Operating Expenses	2.15%	2.92%	2.92%	1.81%

¹The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

²A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Advisor Class shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$781		$1,209	$1,663	$2,915
	Class B Shares	$695		$1,204	$1,638	$3,058	1
	Class C Shares	$295	2	$ 904	$1,538	$3,242
	Advisor Class Shares	$184		$ 569	$ 980	$2,127
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$781		$1,209	$1,663	$2,915
	Class B Shares	$295		$ 904	$1,538	$3,058	1
	Class C Shares	$295		$ 904	$1,538	$3,242
	Advisor Class Shares	$184		$ 569	$ 980	$2,127

¹Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

²A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Global Natural Resources Fund

seeks long-term growth. Any income realized will be incidental.

Principal Strategies

Ivy Global Natural Resources Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of companies of any size throughout the world that own, explore or develop natural resources and other basic commodities or supply goods and services to such companies.

For these purposes, "natural resources" generally include:

* precious metals (such as gold, silver and platinum);

* ferrous and nonferrous metals (such as iron, aluminum, copper and steel);

* strategic metals (such as uranium and titanium);

* fossil fuels and chemicals;

* forest products and agricultural commodities

* undeveloped real property

The Fund's investment manager uses an equity style that focuses on both growth and value. Companies targeted for investment have strong management and financial positions, adding balance with established low cost, low debt producers and positions that are based on anticipated commodity price trends. The Fund may have some emerging markets exposure in an attempt to achieve higher returns over the long-term.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Global Natural Resources Fund.
These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. This is called management risk.

* Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

* Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related conversation costs; adverse tax consequences; and settlement delays.

* The risks of investing in foreign securities are more acute in countries with developing economies.

* Many of the companies in which the Fund may invest have relatively small market capitalizations. Securities of smaller companies may be subject to more abrupt or erratic market movements than the securities of larger, more established companies, since smaller companies tend to be more thinly traded and because they are subject to greater business risk. Transaction costs of smaller-company stocks may also be higher than those of larger companies.

* Since the Fund can invest a significant portion of its assets in securities of companies principally engaged in natural resources activities, the Fund could experience wider fluctuations in value than funds with more diversified portfolios.

Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost assumed by natural resource companies in complying with environmental and safety regulations. Investing in physical commodities, such as gold, exposes the Fund to other risk considerations such as potentially severe price fluctuations over short periods of time and storage costs that exceed the custodial and/or brokerage costs associated with the Fund's other portfolio holdings.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Global Natural Resources Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Global Natural Resources Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 24.19% (the fourth quarter of 2001) and the lowest quarterly return was -23.28% (the fourth quarter of 1997). The Class A return for the year through March 31, 2003 was -6.00%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years	10 Years
						(or Life	(or Life
	as of December 31, 2002			1 Year		of Class)	of Class)
Class A (began on 01-01-97)
		Before Taxes	-1.35%			4.49%		4.90%
		After Taxes on Distributions	-1.57%			4.21%		3.54%
		After Taxes on Distributions and Sale of Fund Shares	-0.74%		1	3.55%		3.42%
Class B (began on 01-01-97)
		Before Taxes	-0.49%			4.79%		5.05%
Class C (began on 01-01-97)
		Before Taxes	3.46%			4.63%		4.87%
Advisor Class (began on 04-08-99)
		Before Taxes	4.46%			15.14%
Indexes
		MSCI Commodity Related Index2	-5.26%			2.26%		1.50%	3
		Lipper Natural Resources Funds Universe Average4	-6.26%			2.60%		2.72%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International Commodity Related Index is an equal-dollar weighted index of 20 stocks involved in commodity related industries such as energy, non-ferrous metals, agriculture and forest products. The index was developed with a base value of 200 as of March 15, 1996.

³ Index comparison begins on December 31, 1996.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Global Natural Resources Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Advisor
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount
invested or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses
	Class A	Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	1.00%	1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	None
Other Expenses	1.13%	1.09%	1.10%	0.98%
Total Annual Fund Operating Expenses	2.38%	3.09%	3.10%	1.98%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Advisor Class shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$802		$1,275	$1,772	$3,135
	Class B Shares	$712		$1,254	$1,720	$3,234	1
	Class C Shares	$313	2	$ 957	$1,625	$3,411
	Advisor Class Shares	$200		$ 616	$1,057	$2,282
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$802		$1,275	$1,772	$3,135
	Class B Shares	$312		$ 954	$1,620	$3,234	1
	Class C Shares	$313		$ 957	$1,625	$3,411
	Advisor Class Shares	$200		$ 616	$1,057	$2,282

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy High Income Fund

(formerly, W&R High Income Fund)

seeks, as a primary goal, high current income. As a secondary goal, the Fund seeks capital growth when consistent with its primary goal.

Principal Strategies

Ivy High Income Fund seeks to achieve its goals by investing primarily in high-yield, high-risk, fixed-income securities of U.S. and foreign issuers, the risks of which are, in the judgment of WRIICO, the Fund's investment manager, consistent with the Fund's goals. The Fund invests primarily in lower quality bonds, commonly called junk bonds, which include bonds rated BBB and below by S&P and Baa and below by Moody's or, if unrated, deemed by WRIICO to be of comparable quality. The Fund may invest an unlimited amount of its total assets in junk bonds. As well, the Fund may invest in bonds of any maturity and in companies of any size.

The Fund may invest up to 20% of its total assets in common stocks in order to seek capital growth. The Fund emphasizes a blend of value and growth in its selection of common stocks. Value stocks are those which WRIICO believes are currently selling below their true worth, while growth stocks are those whose earnings WRIICO believes are likely to grow faster than the economy.

WRIICO may look at a number of factors in selecting securities for the Fund. These include an issuer's past, current and estimated future:

*	financial strength	* borrowing requirements
*	cash flow	* responsiveness to changes in interest rates and business conditions
*	management

Generally, in determining whether to sell a debt security, WRIICO uses the same type of analysis that it uses in buying debt securities. For example, WRIICO may sell a holding if the issuer's financial strength declines, or is anticipated to decline, to an unacceptable level, or if management of the company weakens. As well, WRIICO may choose to sell an equity security if the issuer's growth potential has diminished. WRIICO may sell a security if the competitive conditions of a particular indus try have increased and it believes the Fund should, therefore, reduce its exposure to such industry. WRIICO may also sell a security if, in its opinion, the price of the security has risen to fully reflect the company's improved creditworthiness and other investments with greater potential exist. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy High Income Fund such as:

* the credit quality, earnings performance and other conditions of the companies whose securities the Fund holds

* the susceptibility of junk bonds to greater risks of non-payment or default, price volatility and lack of liquidity compared to higher-rated bonds

* an increase in interest rates, which may cause the value of bonds held by the Fund, especially bonds with longer maturities, to decline

* the mix of securities in the Fund, particularly the relative weightings in, and exposure to, different sectors and industries

* changes in the maturities of bonds owned by the Fund

* adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the skill of WRIICO in evaluating and managing the interest rate and credit risks of the Fund's portfolio

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies may have limited financial resources, limited product lines or inexperienced management.

Investments in foreign securities also present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy High Income Fund is designed for investors who primarily seek a level of current income that is higher than is normally available with securities in the higher rated categories and, secondarily, seek capital growth when consistent with the goal of income. The Fund is not suitable for all investors. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy High Income Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 6.86% (the fourth quarter of 2001) and the lowest quarterly return was -6.62% (the third quarter of 1998). The Class C return for the year through March 31,2003 was 3.08%.

¹ The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless other wise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years	10 Years
						(or Life	(or Life
	as of December 31, 2002			1 Year		of Class)	of Class)
Class C (began on 07-31-1997)
		Before Taxes1	1.58%			2.35%	3.02%
		After Taxes on Distributions1	-1.66%			-0.65%	0.08%
		After Taxes on Distributions and Sale of Fund Shares1	1.80%		2	1.04%	1.59%
Class Y (began on 12-30-1998)
		Before Taxes	2.46%			3.05%
Class A (began on 07-03-2000)
		Before Taxes	-3.43%			1.15%
Class B (began on 07-18-2000)
		Before Taxes	-2.26%			1.63%
Indexes
		Citigroup High Yield Market Index3	-1.53%			0.64%	1.40%	4
		Lipper High Current Yield Funds Universe Average5	-1.76%			-1.41%	-0.66%	4

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

³ Reflects no deduction for fees, expenses or taxes.

⁴ Index comparison begins on July 31, 1997.

⁵ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy High Income Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees4	0.63%	0.63%	0.63%	0.63%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.56%	0.73%	0.66%	0.73%
Total Annual Fund Operating Expenses	1.44%	2.36%	2.29%	1.61%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

⁴ The expenses shown for Management Fees reflect the maximum annual fee payable; however, WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund's net assets are less than $25 million, subject to WRIICO's right to change or terminate this waiver.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$713		$1,003	$1,314	$2,195
	Class B Shares	$639		$1,035	$1,358	$2,459	1
	Class C Shares	$232	2	$ 714	$1,223	$2,620
	Class Y Shares	$163		$ 506	$ 873	$1,906
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$713		$1,003	$1,314	$2,195
	Class B Shares	$239		$ 735	$1,258	$2,459	1
	Class C Shares	$232		$ 714	$1,223	$2,620
	Class Y Shares	$163		$ 506	$ 873	$1,906

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy International Fund

seeks long-term growth. Consideration of current income is secondary to this principal objective.

Principal Strategies

Ivy International Fund invests at least 80% of its net assets in equity securities (including common stock, preferred stock and securities convertible into common stock) principally traded in European, Pacific Basin and Latin American markets.

To enhance potential return, the Fund may invest in countries with new or comparatively undeveloped economies.

WRIICO, the Fund's investment manager, uses an investment approach that focuses on:

* analyzing a company's financial statements;

* taking advantage of overvalued or undervalued markets

* building a portfolio that is diversified by both region and sector

Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy International Fund. These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. This is called management risk.

* Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related co nversation costs; adverse tax consequences; and settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy International Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy International Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund’s performance from year to year and by showing how the Fund’s average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund’s other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund’s Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund’s past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund’s performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 16.41% (the fourth quarter of 1998) and the lowest quarterly return was -23.02% (the third quarter of 2002). The Class A return for the year through March 31, 2003 was –6.30%.

Average Annual Total Returns

The table below compares the Fund’s average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund’s returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund#146;s actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
							5 Years		10 Years
							(or Life		(or Life
	as of December 31, 2002			1 Year			of Class)		of Class)
Class A
		Before Taxes	–25.51%			–8.76%			3.80%
		After Taxes on Distributions	–25.51%			–10.38%			2.52%
		After Taxes on Distributions and Sale of Fund Shares	–15.66%		1	–5.62%		1	3.80%
Class B (began on 10-22-93)
		Before Taxes	–25.12%			–8.67%			0.31%
Class C (began on 04-30-96)
		Before Taxes	–22.00%			–8.54%			–3.64%
Advisor Class (began on 08-31-00)
		Before Taxes	–18.71%
Indexes
		MSCI EAFE Index2	–15.94%			–2.89%			4.00%
		Lipper International Funds Universe Average3	–16.67%			–2.63%			4.76%

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund’s shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of April 2002 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

³ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy International Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Advisor
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount
invested or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses
	Class A		Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares		Shares	Shares	Shares
Management Fees	1.00%		1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.20%	4	1.00%	1.00%	None
Other Expenses	0.69%		0.85%	0.83%	0.60%
Total Annual Fund Operating Expenses	1.89%		2.85%	2.83%	1.60%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Advisor Class shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

⁴ The annual service fee for Class A shares of the Fund may equal up to 0.25% on net assets attributable to outstanding shares issued on or after January 1, 1992. Since the calculation of the annual service fee does not take into account shares outstanding prior to January 1, 1992, this arrangement results in a rate of service fee that is lower than 0.25% of the net assets attributable to outstanding Class A shares of the Fund.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$756		$1,135	$1,538	$2,659
	Class B Shares	$688		$1,183	$1,604	$2,944	1
	Class C Shares	$286	2	$ 877	$1,494	$3,157
	Advisor Class Shares	$162		$ 500	$ 861	$1,878
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$756		$1,135	$1,538	$2,659
	Class B Shares	$288		$ 883	$1,504	$2,944	1
	Class C Shares	$286		$ 877	$1,494	$3,157
	Advisor Class Shares	$162		$ 500	$ 861	$1,878

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy International Growth Fund

(formerly, W&R International Growth Fund)

seeks, as a primary goal, long-term appreciation of capital. As a secondary goal, the Fund seeks current income.

Principal Strategies

Ivy International Growth Fund seeks to achieve its goals by investing primarily in common stocks of foreign companies that WRIICO, the Fund's investment manager, believes have the potential for long-term growth represented by economic expansion within a country or region, as well as the privatization and/or restructuring of particular industries. The Fund emphasizes growth stocks, which are securities of companies whose earnings WRIICO believes are likely to grow faster than the economy. The Fu nd primarily invests in issuers of developed countries, and the Fund may invest in companies of any size.

WRIICO may look at a number of factors in selecting securities for the Fund's portfolio. These include:

* a company's growth and earnings potential
* management of the company	* applicable economic, market and political conditions of the country in which the company is located
* industry position of the company
* strength of the industry

Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities of that type. For example, WRIICO may sell a security if it believes the security no longer offers significant growth potential, if it believes the management of the company has weakened, and/or there exists political or economic instability in the issuer's country. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy International Growth Fund. These include:

* changes in foreign exchange rates, which may affect the value of the securities the Fund holds

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the earnings performance, credit quality and other conditions of the issuers whose securities the Fund holds

* WRIICO's skill in evaluating and selecting securities for the Fund

Investing in foreign securities presents additional risks, such as currency fluctuations and political or economic conditions affecting the foreign country. Accounting and disclosure standards also differ from country to country, which makes obtaining reliable research information more difficult. There is the possibility that, under unusual international monetary or political conditions, the Fund's assets might be more volatile than would be the case with other investment choices.

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies are more likely to have limited financial resources, limited product lines or inexperienced management.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy International Growth Fund is designed for investors seeking long-term appreciation of capital by investing primarily in securities issued by foreign companies. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy International Growth Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 67.07% (the fourth quarter of 1999) and the lowest quarterly return was -18.66% (the third quarter of 2002). The Class C return for the year through March 31, 2003 was -8.64%.

¹ The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless other wise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
							5 Years			10 Years
							(or Life			(or Life
	as of December 31, 2002			1 Year			of Class)			of Class)
Class C
		Before Taxes1	-19.88%			1.82%			5.53%
		After Taxes on Distributions1	-19.88%			-0.94%			3.31%
		After Taxes on Distributions and Sale of Fund Shares1	-12.21%		2	2.21%		2	4.68%
Class Y (began on 12-29-1995)
		Before Taxes	-18.85%			2.89%			7.28%
Class A (began on 07-03-2000)
		Before Taxes	-23.90%			-26.98%
Class B (began on 07-10-2000)
		Before Taxes	-23.33%			-27.07%
Indexes
		MSCI EAFE Index3	-15.94%			-2.89%			-20.51%
		Lipper International Funds Universe Average4	-16.67%			-2.63%			4.76%

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

³ Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of April 2002 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy International Growth Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee
(as a percentage of amount
redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.85%	0.85%	0.85%	0.85%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	1.01%	1.38%	1.09%	0.55%
Total Annual Fund Operating Expenses	2.11%	3.23%	2.94%	1.65%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$777		$1,198	$1,644	$2,876
	Class B Shares	$726		$1,295	$1,788	$3,270	1
	Class C Shares	$297	2	$ 910	$1,548	$3,261
	Class Y Shares	$168		$ 520	$ 897	$1,955
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$777		$1,198	$1,644	$2,876
	Class B Shares	$326		$ 995	$1,688	$3,270	1
	Class C Shares	$297		$ 910	$1,548	$3,261
	Class Y Shares	$168		$ 520	$ 897	$1,955

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy International Value Fund

seeks, as a primary goal, long-term capital growth. Consideration of current income is secondary to this principal objective.

Principal Strategies

Ivy International Value Fund invests at least 80% of its net assets in equity securities (including common stock, preferred stock and securities convertible into common stock) principally traded in European, Pacific Basin and Latin American markets.

WRIICO, the Fund's investment manager, uses a disciplined value approach while looking for investment opportunities around the world (including countries with new or comparatively undeveloped economies). Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental.

To control its exposure to certain risks, the Fund might engage in foreign currency exchange transactions and forward foreign currency contracts.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy International Value Fund. These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

* Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

* The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements). The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgement of the Fund's manager as to the certain market movements is incorrect, t he risk of losses that are greater than if the derivative technique(s) had not been used.

* Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the manager's opinion, undervalued. If the manager's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the manager has placed on it.

Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related co nversation costs; adverse tax consequences; and settlement delays. The risks of investing in foreign securities are more acute in countries with developing economies.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy International Value Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy International Value Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 16.49% (the fourth quarter of 1998) and the lowest quarterly return was -22.75% (the third quarter of 2002). The Class A return for the year through March 31, 2003 was -7.06%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years		10 Years
						(or Life		(or Life
	as of December 31, 2002			1 Year		of Class)		of Class)
Class A (began on 05-13-97)
		Before Taxes	-20.77%			-3.67%		-5.11%
		After Taxes on Distributions	-20.77%			-3.92%		-5.32%
		After Taxes on Distributions and Sale of Fund Shares	-12.75%		1	-2.92%	1	-4.01%	1
Class B (began on 05-13-97)
		Before Taxes	-21.66%			-3.87%		-5.38%
Class C (began on 05-13-97)
		Before Taxes	-18.39%			-3.69%		-5.22%
Advisor Class (began on 02-23-98)
		Before Taxes	-17.51%			-4.08%
Indexes
		MSCI EAFE Index2	-15.94%			-2.89%		-3.20%	3
		Lipper International Funds Universe Average4	-16.67%			-2.63%		-2.70%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. As of April 2002 the MSCI EAFE Index consisted of the following 21 developed market country indices: Australia, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

³ Index comparison begins on May 31, 1997.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy International Value Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Advisor
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount
invested or redemption value)	None	2		5%		1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%			None		None	2.00%

Annual Fund Operating Expenses
	Class A	Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	1.00%	1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	None
Other Expenses	1.07%	1.05%	1.05%	1.05%
Total annual Fund operating expenses	2.32%	3.05%	3.05%	2.05%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A and Advisor Class shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$797		$1,258	$1,744	$3,078
	Class B Shares	$708		$1,242	$1,701	$3,192	1
	Class C Shares	$308	2	$ 942	$1,601	$3,365
	Advisor Class Shares	$207		$ 637	$1,094	$2,357
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$797		$1,258	$1,744	$3,078
	Class B Shares	$308		$ 942	$1,601	$3,192	1
	Class C Shares	$308		$ 942	$1,601	$3,365
	Advisor Class Shares	$207		$ 637	$1,094	$2,357

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Large Cap Growth Fund

(formerly, W&R Large Cap Growth Fund)

seeks the appreciation of your investment.

Principal Strategies

Ivy Large Cap Growth Fund seeks to achieve its goal by investing primarily in a diversified portfolio of common stocks issued by growth-oriented, large to medium sized U.S. and foreign companies that WRIICO, the Fund's investment manager, believes have appreciation possibilities. Growth stocks are those whose earnings WRIICO believes are likely to grow faster than the economy. Although WRIICO anticipates the majority of the Fund's investments to be in large to medium sized companies, the Fund m ay invest in companies of any size.

WRIICO attempts to select securities with appreciation possibilities by looking at many factors. These include:

* the company's market position, product line, technological position and prospects for increased earnings

* the management capability of the company being considered

* the short-term and long-term outlook for the industry being analyzed

* changes in economic and political conditions

WRIICO may also analyze the demands of investors for the security relative to its price. Securities may be chosen when WRIICO anticipates a development that might have an effect on the value of a security.

In general, WRIICO may sell a security if it determines that the security no longer presents sufficient appreciation potential; this may be caused by, or be an effect of, changes in the industry of the issuer, loss by the company of its competitive position, and/or poor use of resources. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Large Cap Growth Fund. These include:

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the skill of WRIICO in evaluating and selecting securities for the Fund

Market risk for medium sized companies may be greater than the market risk for large companies. Such companies are more likely to have limited financial resources and inexperienced management. As well, stock of these companies may experience volatile trading and price fluctuations.

The Fund may invest a portion of its assets in foreign securities. Foreign securities present additional risks such as currency fluctuations and political or economic conditions affecting the foreign countries.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Large Cap Growth Fund is designed for investors seeking long-term investment growth. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Large Cap Growth Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 11.88% (the fourth quarter of 2001) and the lowest quarterly return was -18.97% (the first quarter of 2001). The Class A return for the year through March 31, 2003 was 0.84%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years
	as of December 31, 2002			1 Year		(or Life of Class)
Class A (began on 06-30-2000)
		Before Taxes	-24.39%				-14.10%
		After Taxes on Distributions	-24.39%				-14.24%
		After Taxes on Distributions and Sale of Fund Shares	-14.98%		1		-11.01%	1
Class C (began on 07-03-2000)
		Before Taxes	-20.54%				-12.91%
Class B (began on 07-06-2000)
		Before Taxes	-24.25%				-14.50%
Class Y (began on 07-06-2000)
		Before Taxes	-19.64%				-12.07%
Indexes
		S&P 500 Index2	-22.10%				-17.07%	3
		Lipper Large-Cap Growth Funds Universe Average4	-28.63%				-27.34%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes.

³ Index comparison begins on June 30, 2000.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Large Cap Growth Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees4	0.70%	0.70%	0.70%	0.70%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.71%	1.61%	0.92%	0.51%
Total Annual Fund Operating Expenses	1.66%	3.31%	2.62%	1.46%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

⁴ The expenses shown for Management Fees reflect the maximum annual fee payable; however, WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund's net assets are less than $25 million, subject to WRIICO's right to change or terminate this waiver.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$734		$1,068	$1,425	$2,427
	Class B Shares	$734		$1,318	$1,826	$3,221	1
	Class C Shares	$265	2	$ 814	$1,390	$2,954
	Class Y Shares	$149		$ 462	$ 797	$1,746
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$734		$1,068	$1,425	$2,427
	Class B Shares	$334		$1,018	$1,726	$3,221	1
	Class C Shares	$265		$ 814	$1,390	$2,954
	Class Y Shares	$149		$ 462	$ 797	$1,746

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Limited-Term Bond Fund

(formerly, W&R Limited-Term Bond Fund)

seeks to provide a high level of current income consistent with preservation
of capital.

Principal Strategies

Ivy Limited-Term Bond Fund seeks to achieve its goal by investing primarily in investment-grade debt securities (including bonds rated BBB and higher by S&P and Baa and higher by Moody's or, if unrated, judged by WRIICO, the Fund's investment manager, to be of comparable quality) of U.S. issuers, including corporate bonds, mortgage-backed securities and U.S. Government securities. The Fund seeks to identify relative value opportunities between these sectors of the fixed-income market. The F und maintains a dollar-weighted average maturity of not less than two years and not more than five years, and the Fund may invest in companies of any size.

WRIICO may look at a number of factors in selecting securities for the Fund's portfolio. These include:

* the security's current coupon	* the creditworthiness of the particular issuer (if not backed by the full faith and credit of the U.S. Treasury)
* the maturity of the security
* the relative value of the security	* prepayment risks for mortgage-backed securities and other debt securities with call provisions

Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Limited-Term Bond Fund. These include:

* an increase in interest rates, which may cause the value of the Fund's fixed-income securities, especially bonds with longer maturities, to decline

* the credit quality, earnings performance and other conditions of the issuers whose securities the Fund holds

* prepayment of higher-yielding bonds and mortgage-backed securities held by the Fund

* adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* WRIICO's skill in evaluating and managing the interest rate and credit risks of the Fund

Market risk for small or medium sized companies may be greater than that for large companies. For example, smaller companies are more likely to have limited financial resources, limited product lines or inexperienced management.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Limited-Term Bond Fund is designed for investors seeking a high level of current income consistent with preservation of capital. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Limited-Term Bond Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 4.52% (the second quarter of 1995) and the lowest quarterly return was -1.99% (the first quarter of 1994). The Class C return for the year through March 31, 2003 was 0.82%.

¹ The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (4.25%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after tax returns depend on an investor's tax situation and may differ from those shown. After tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years		10 Years
						(or Life		(or Life
	as of December 31, 2002			1 Year		of Class)		of Class)
Class C
		Before Taxes1			4.05%		4.93%		4.94%
		After Taxes on Distributions1			2.65%		3.15%		3.20%
		After Taxes on Distributions and Sale of Fund Shares1			2.80%		3.40%		3.40%
Class Y (began on 12-29-1995)
		Before Taxes			4.99%		5.90%		5.68%
Class B (began on 07-03-2000)
		Before Taxes			0.05%		5.49%
Class A (began on 08-17-2000)
		Before Taxes			0.54%		5.48%
Indexes
		Citigroup 1-5 Years
		Treasury/Government Sponsored/Corporate Index2			8.08%		7.16%		6.65%
		Lipper Short-Intermediate Investment Grade
			Debt Funds Universe Average3		6.63%		6.19%		6.02%

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² Reflects no deduction for fees, expenses or taxes.

³ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Limited-Term Bond Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	4.25%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.50%	0.50%	0.50%	0.50%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.35%	0.52%	0.47%	0.36%
Total Annual Fund Operating Expenses	1.10%	2.02%	1.97%	1.11%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$532		$760	$1,005	$1,708
	Class B Shares	$605		$934	$1,188	$2,109	1
	Class C Shares	$200	2	$618	$1,062	$2,296
	Class Y Shares	$113		$353	$ 612	$1,352
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$532		$760	$1,005	$1,708
	Class B Shares	$205		$634	$1,088	$2,109	1
	Class C Shares	$200		$618	$1,062	$2,296
	Class Y Shares	$113		$353	$ 612	$1,352

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Mid Cap Growth Fund

(formerly, W&R Mid Cap Growth Fund)

seeks the growth of your investment.

Principal Strategies

Ivy Mid Cap Growth Fund seeks to achieve its goal by investing primarily in common stocks of U.S. and foreign companies whose market capitalizations are within the range of capitalizations of companies comprising the Russell Mid-Cap Growth Index (Russell Mid-Cap) and that WRIICO, the Fund's investment manager, believes offer above-average growth potential.

In selecting companies, WRIICO may look at a number of factors, such as:

* new or innovative products or services

* adaptive or creative management

* strong financial and operational capabilities
to sustain growth

* market potential

* profit potential

Generally, in determining whether to sell a stock, WRIICO uses the same type of analysis that it uses when buying stocks. For example, WRIICO may sell a holding if the company no longer meets the desired capitalization range or if the company position weakens in the industry or market. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Mid Cap Growth Fund. These include:

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy

* the skill of WRIICO in evaluating and selecting securities for the Fund

Market risk for medium sized companies may be greater than that for large companies. Medium sized companies may have limited financial resources and less experienced management compared to large companies. Stocks of medium sized companies may experience volatile trading and price fluctuations.

Also, the Fund may invest, to a lesser extent, in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Mid Cap Growth Fund is designed for investors who are willing to accept greater risks than are present with many other mutual funds. The Fund is not intended for investors who desire assured income and conservation of capital. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Mid Cap Growth Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 12.41% (the fourth quarter of 2001) and the lowest quarterly return was -16.60% (the third quarter of 2002). The Class A return for the year through March 31, 2003 was -1.04%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years
	as of December 31, 2002			1 Year		(or Life of Class)
Class A (began on 06-30-2000)
		Before Taxes	-30.11%				-15.29%
		After Taxes on Distributions	-30.11%				-15.79%
		After Taxes on Distributions and Sale of Fund Shares	-18.48%		1		-11.92%	1
Class C (began on 07-03-2000)
		Before Taxes	-26.52%				-14.11%
Class B (began on 07-06-2000)
		Before Taxes	-29.97%				-15.58%
Class Y (began on 07-10-2000)
		Before Taxes	-25.57%				-14.01%
Indexes
		Russell Mid-Cap Growth Index2	-27.40%				-26.93%	3
		Lipper Mid-Cap Growth Funds Universe Average4	-28.33%				-25.91%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes.

³ Index comparison begins on June 30, 2000.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Mid Cap Growth Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees4	0.85%	0.85%	0.85%	0.85%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.94%	1.69%	1.15%	0.64%
Total Annual Fund Operating Expenses	2.04%	3.54%	3.00%	1.74%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

⁴ The expenses shown for Management Fees reflect the maximum annual fee payable; however, WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund's net assets are less than $25 million, subject to WRIICO's right to change or terminate this waiver.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$770		$1,178	$1,610	$2,808
	Class B Shares	$757		$1,385	$1,936	$3,469	1
	Class C Shares	$303	2	$ 927	$1,577	$3,318
	Class Y Shares	$177		$ 548	$ 944	$2,052
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$770		$1,178	$1,610	$2,808
	Class B Shares	$357		$1,085	$1,836	$3,469	1
	Class C Shares	$303		$ 927	$1,577	$3,318
	Class Y Shares	$177		$ 548	$ 944	$2,052

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Money Market Fund

(formerly, W&R Money Market Fund)

seeks maximum current income consistent with stability of principal.

Principal Strategies

Ivy Money Market Fund seeks to achieve its goal by investing in U.S. dollar-denominated, high-quality money market obligations and instruments. High quality indicates that the securities will be rated in one of the two highest categories by the requisite nationally recognized statistical rating organization (NRSRO), as defined in Rule 2a-7 of the Investment Company Act of 1940, as amended, or if unrated, will be of comparable quality as determined by WRIICO, the Fund's investment manager. The F und seeks, as well, to maintain a net asset value (NAV) of $1.00 per share. The Fund maintains a dollar-weighted average maturity of 90 days or less, and the Fund invests only in securities with a remaining maturity of not more than 397 calendar days.

Principal Risks of Investing in the Fund

Because Ivy Money Market Fund owns different types of money market obligations and instruments, a variety of factors can affect its investment performance, such as:

* an increase in interest rates, which can cause the value of the Fund's holdings, especially securities with longer maturities, to decline

* the credit quality and other conditions of the issuers whose securities the Fund holds

* adverse bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* WRIICO's skill in evaluating and managing the interest rate and credit risks of the Fund

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Who May Want to Invest

Ivy Money Market Fund is designed for investors who are risk-averse and seek to preserve principal while earning current income and saving for short-term needs. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Money Market Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance and by showing the Fund's average annual total returns for the periods shown.

The bar chart presents the average annual total return for Class A shares. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The performance table shows average annual total returns for each class.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 1.28% (the first quarter of 2001) and the lowest quarterly return was 0.32% (the second quarter of 2002). The Class A return for the year through March 31, 2003 was 0.24%. As of December 31, 2002, the 7-day yield was equal to 1.12%. Yields are compiled by annualizing the average daily dividend per share during the time period for which the yield is presented.

Average Annual Total Returns
		5 Years
as of December 31, 2002	1 Year	(or Life of Class)
Class A (began on 06-30-2000)	1.40%		3.12%
Class C (began on 07-03-2000)	0.33%		2.05%
Class B (began on 07-12-2000)	0.29%		1.88%

FEES AND EXPENSES

Ivy Money Market Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C
(fees paid directly from your investment)	Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)		None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)		None		5%		1%
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)2		None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C
(expenses that are deducted from Fund assets)	Shares	Shares	Shares
Management Fees3	0.40%	0.40%	0.40%
Distribution and Service (12b-1) Fees	None	1.00%	1.00%
Other Expenses	0.51%	1.08%	1.04%
Total Annual Fund Operating Expenses	0.91%	2.48%	2.44%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

³ The expenses shown for Management Fees reflect the maximum annual fee payable; however, WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund's net assets are less than $25 million, subject to WRIICO's right to change or terminate this waiver.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$ 93		$ 290	$ 504	$1,120
	Class B Shares	$651		$1,073	$1,421	$2,424	1
	Class C Shares	$247	2	$ 761	$1,301	$2,776
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$ 93		$ 290	$ 504	$1,120
	Class B Shares	$251		$ 773	$1,321	$2,424	1
	Class C Shares	$247		$ 761	$1,301	$2,776

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Municipal Bond Fund

(formerly, W&R Municipal Bond Fund)

seeks to provide income that is not subject to Federal income tax.

Principal Strategies

Ivy Municipal Bond Fund seeks to achieve its goal by investing primarily in tax-exempt municipal bonds, mainly of investment grade and of any maturity. Municipal bonds mean obligations the interest on which is not includable in gross income for Federal income tax purposes. However, a significant portion, up to 40%, of the Fund's dividends paid to shareholders each year may be a tax preference item for purposes of the Federal alternative minimum tax (AMT).

The Fund diversifies its holdings between two main types of municipal bonds:

* general obligation bonds, which are backed by the full faith, credit and taxing power of the governmental authority

* revenue bonds, which are payable only from specific sources, such as the revenue from a particular project, a special tax, lease payments and/or appropriated funds. Revenue bonds include certain private activity bonds (PABs), which finance privately operated facilities. Revenue bonds also include housing bonds that finance pools of single family home mortgages and multi-family project mortgages and student loan bonds that finance pools of student loans

WRIICO primarily utilizes a top-down management style that de-emphasizes aggressive interest rate strategies. WRIICO attempts to enhance fund performance by utilizing opportunities presented by the shape and slope of the yield curve, while keeping the overall fund duration relatively neutral to the fund's stated benchmark. As an overlay to this core strategy, WRIICO attempts to identify and exploit relative value opportunities that exist between sectors, states (including U.S. possessions), sec urity structures and ratings categories. Relative attractiveness to other taxable fixed income asset classes, as well as municipal market supply/demand patterns are monitored closely for opportunities.

Prudent diversification between sectors, states, security structures, position sizes and ratings categories is strongly emphasized, to reduce overall portfolio risk and performance volatility.

WRIICO may look at a number of factors in selecting securities for the Fund's portfolio. These include:

* the security's current coupon

* the maturity of the security

* the relative value of the security

* the creditworthiness of the particular issuer or of the private company involved

* the structure of the security, including whether it has a put or a call feature

Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that is used in buying securities in order to determine whether the security continues to be a desired investment for the Fund. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

Because Ivy Municipal Bond Fund primarily owns different types of securities issued by municipal authorities, a variety of factors can affect its investment performance, such as:

* an increase in interest rates, which may cause the value of a bond held by the Fund, especially bonds with longer maturities and zero coupon bonds, to decline

* prepayment of asset-backed securities or mortgage-backed securities (prepayment risk)

* prepayment of higher-yielding bonds when interest rates decline (optional call risk)

* changes in the maturities of bonds owned by the Fund

* the credit quality of the issuers whose securities the Fund owns or of the private companies involved in PAB-financed projects

* the local economic, political or regulatory environment affecting bonds owned by the Fund, including legislation affecting the tax status of municipal bond interest

* failure of a bond's interest to qualify as tax-exempt

* adverse bond and stock market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* WRIICO's skill in evaluating and managing the interest rate and credit risks of the Fund's portfolio

* changes and shifts in the shape of the yield curve which may result in certain maturities underperforming others

A significant portion of the Fund's dividends attributable to municipal bond interest may be a tax preference item; this would have the effect of reducing the Fund's return to any investor whose AMT liability was increased by the Fund's dividends.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Municipal Bond Fund is designed for investors seeking current income that is primarily free from Federal income tax, through a diversified portfolio. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Municipal Bond Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 8.36% (the first quarter of 1995) and the lowest quarterly return was -7.14% (the first quarter of 1994). The Class C return for the year through March 31, 2003 was 1.00%.

¹ The returns shown are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (4.25%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless otherwise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after tax returns depend on an investor's tax situation and may differ from those shown. After tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
					5 Years		10 Years
					(or Life		(or Life
	as of December 31, 2002		1 Year		of Class)		of Class)
Class C
		Before Taxes1		7.48%		3.62%		5.25%
		After Taxes on Distributions1		7.46%		3.44%		5.08%
		After Taxes on Distributions and Sale of Fund Shares1		5.85%		3.57%		4.97%
Class Y (began on 12-30-1998)
		Before Taxes		8.26%		4.05%
Class B (began on 08-08-2000)
		Before Taxes		3.45%		5.28%
Class A (began on 09-15-2000)
		Before Taxes		3.83%		5.50%
Indexes
		Lehman Brothers Municipal Bond Index2		9.60%		6.06%		6.71%
		Lipper General Municipal Debt Funds Universe Average3		8.36%		4.62%		5.80%

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² Reflects no deduction for fees, expenses or taxes.

³ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Municipal Bond Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A	Class B	Class C	Class Y
(fees paid directly from your investment)	Shares	Shares	Shares	Shares
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.25%	None	None	None
Maximum Deferred Sales Charge (Load)1 (as a percentage of lesser of amount invested or redemption value)	None 2	5%	1%	None
Redemption fee/exchange fee (as a percentage of amount redeemed, if applicable)3	None	None	None	None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.53%	0.53%	0.53%	0.53%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.37%	0.43%	0.49%	0.60%
Total Annual Fund Operating Expense	1.15%	1.96%	2.02%	1.38%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$537		$775	$1,031	$1,763
	Class B Shares	$599		$915	$1,157	$2,074	1
	Class C Shares	$205	2	$634	$1,088	$2,348
	Class Y Shares	$140		$437	$ 755	$1,657
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$537		$775	$1,031	$1,763
	Class B Shares	$199		$615	$1,057	$2,074	1
	Class C Shares	$205		$634	$1,088	$2,348
	Class Y Shares	$140		$437	$ 755	$1,657

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOALS

Ivy Pacific Opportunities Fund

seeks, as a primary goal, long-term capital growth. Consideration of current income is secondary to this principal objective.

Principal Strategies

Ivy Pacific Opportunities Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of companies such as those whose securities are traded mainly on markets in the Pacific region, organized under the laws of a Pacific region country or issued by any company with more than half of its business in the Pacific region. Examples of Pacific region c ountries include China, Hong Kong, Malaysia, Sri Lanka, Australia and India. Although it is permitted to invest in Japan, the Fund does not currently anticipate doing so.

The Fund's manager uses an investment approach that focuses on analyzing a company's financial statements and taking advantage of overvalued or undervalued markets. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Pacific Opportunities Fund. These include:

* Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund.

* Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected.

* Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related conversation costs; adverse tax consequences; and settlement delays.

The risks of investing in foreign securities are more acute in countries with developing economies. Since the Fund normally invests a substantial portion of its assets in these countries, it is exposed to the following additional risks: securities that are even less liquid and more volatile than those in more developed foreign countries; unusually long settlement delays; less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions o n foreign ownership or prohibitions against reparation of assets); abrupt changes in exchange rate regime or monetary policy; unusually large currency fluctuations and currency conversion costs; and high national debt levels (which may impede an issuer payment of principal and/or interest on external debt).

Investing in the Pacific region involves special risks beyond those described above. For example, certain Pacific region countries may be vulnerable to trade barriers and other protectionist measures that could have an adverse effect on the value of the Fund's portfolio. The limited size of the markets for some Pacific region securities can also make them more susceptible to investor perceptions, which can impact their value and liquidity.

Events in any one country may impact the other countries or the region as a whole. As a result, events in the region will generally have a greater effect on the Fund than if the Fund were more geographically diversified, which may result in greater losses and volatility. Increased social or political unrest in some or all of these countries could cause further economic and market uncertainty.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Pacific Opportunities Fund may be appropriate for investors seeking long-term growth potential, but who can accept potentially dramatic fluctuations in capital value in the short term. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Pacific Opportunities Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 40.73% (the second quarter of 1999) and the lowest quarterly return was -30.21% (the fourth quarter of 1997). The Class A return for the year through March 31, 2003 was -3.69%.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years		10 Years
						(or Life		(or Life
	as of December 31, 2002			1 Year		of Class)		of Class)
Class A (began on 10-22-93)
		Before Taxes	-16.41%			-6.29%		-5.41%
		After Taxes on Distributions	-16.41%			-6.54%		-5.68%
		After Taxes on Distributions and Sale of Fund Shares	-10.08%		1	-4.94%	1	-4.14%	1
Class B (began on 10-22-93)
		Before Taxes	-15.86%			-6.23%		-5.60%
Class C (began on 04-30-96)
		Before Taxes	-12.21%			-5.96%		-6.84%
Advisor Class (began on 02-10-98)
		Before Taxes	-11.84%			-5.41%
Indexes
		MSCI Asia Pacific Free (excluding Japan) Index2	-5.11%			-1.46%		-3.03%	3
		Lipper Pacific Ex-Japan Funds Universe Average4	-7.97%			-0.15%		-4.91%	3

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Reflects no deduction for fees, expenses or taxes. The Morgan Stanley Capital International Asia Pacific Free (excluding Japan) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Far East, excluding Japan. As of April 2002 the MSCI Asia Pacific Free (excluding Japan) Index consisted of the following 9 developed and emerging market country indices: China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Sin gapore Free, Taiwan and Thailand.

³ Index performance is calculated from October 31, 1993.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Pacific Opportunities Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B	Class C	Advisor
(fees paid directly from your investment)	Shares		Shares	Shares	Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%		None	None	None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount
invested or redemption value)	None	2	5%	1%	None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	2.00%		2.00%	2.00%	2.00%

Annual Fund Operating Expenses4
	Class A	Class B	Class C	Advisor
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	1.00%	1.00%	1.00%	1.00%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	None
Other Expenses	2.27%	2.27%	2.27%	2.27%
Total Annual Fund Operating Expenses	3.52%	4.27%	4.27%	3.27%
Expenses reimbursed5	0.77%	0.77%	0.77%	0.77%
Net Fund operating expenses	2.75%	3.50%	3.50%	2.50%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Fund shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge.

⁴ The expense information shown has been restated to reflect current fees. Expenses reimbursed are estimated based on Class A.

⁵ WRIICO has contractually agreed to reimburse the Fund's expenses for the fiscal year ending December 31, 2003, and for the following eight years, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 2.50% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses).

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$837		$1,379	$1,946	$3,568
	Class B Shares	$753		$1,374	$1,917	$3,693	1
	Class C Shares	$353	2	$1,074	$1,817	$3,863
	Advisor Class Shares	$252		$ 772	$1,319	$2,906
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$837		$1,379	$1,946	$3,568
	Class B Shares	$353		$1,074	$1,817	$3,693	1
	Class C Shares	$353		$1,074	$1,817	$3,863
	Advisor Class Shares	$252		$ 772	$1,319	$2,906

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Science and Technology Fund

(formerly, W&R Science and Technology Fund)

seeks long-term capital growth.

Principal Strategies

Ivy Science and Technology Fund seeks to achieve its goal of growth by concentrating its investments primarily in the equity securities of U.S. and foreign science and technology companies. Science and technology companies are companies whose products, processes or services, in the opinion of WRIICO, the Fund's investment manager, are being or are expected to be significantly benefited by the use or commercial application of scientific or technological developments or discoveries. As well, the Fund may invest in companies that utilize science and/or technology to improve their existing business even though the business is not within the science and technology industries. The Fund may invest in companies of any size.

WRIICO typically emphasizes growth potential in selecting stocks; that is, WRIICO seeks companies in which earnings are likely to grow faster than the economy. WRIICO may look at a number of factors in selecting securities for the Fund's portfolio. These include the issuer's:

* growth potential	* industry position
* earnings potential	* applicable economic and market conditions
* management

Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities in order to determine whether the security has ceased to offer significant growth potential, has become overvalued and/or whether the company prospects of the issuer have deteriorated. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principl Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Science and Technology Fund. These include:

* the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the science and technology industries

* the volatility of securities of science and technology companies due, in part, to the competitiveness of the industry

* rapid obsolescence of products or processes of companies in which the Fund invests

* government regulation in the science and technology industry

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* WRIICO's skill in evaluating and selecting securities for the Fund

Market risk for small to medium sized companies may be greater than that for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. As well, stocks of smaller companies may experience volatile trading and price fluctuations.

The Fund may invest, to a lesser extent, in foreign securities. Investments in foreign securities present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Science and Technology Fund is designed for investors who seek long-term capital growth by investing in an actively managed Fund that concentrates in securities of science and technology companies. This Fund is not suitable for all investors. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Science and Technology Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

In the period shown in the chart, the highest quarterly return was 82.61% (the fourth quarter of 1999) and the lowest quarterly return was -23.25% (the second quarter of 2000). The Class C return for the year through March 31, 2003 was -1.70%.

¹ The returns shown are based on the performance of the Fund's prior Class B. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

² A substantial portion of the Fund's returns during this period is attributable to investments in initial public offerings (IPOs). No assurance can be given that the Fund will continue to be able to invest in IPOs to the same extent as it has in the past or that future IPOs in which the Fund invests will have as equally beneficial an impact on performance.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless other wise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
							5 Years	10 Years
							(or Life	(or Life
	as of December 31, 2002			1 Year			of Class)	of Class)
Class C (began on 07-31-1997)
		Before Taxes1	-26.57%			13.05%		12.42%
		After Taxes on Distributions1	-26.57%			11.73%		11.22%
		After Taxes on Distributions and Sale of Fund Shares1	-16.32%		2	11.82%		11.25%
Class Y (began on 06-09-1998)
		Before Taxes	-25.67%			10.91%
Class A (began on 07-03-2000)
		Before Taxes	-30.16%			-23.33%
Class B (began on 07-03-2000)
		Before Taxes	-29.72%			-22.98%
Indexes
		Goldman Sachs Technology Industry Composite Index3	-40.27%			-3.26%		-5.08%	4
		Lipper Science & Technology Funds Universe Average5	-43.01%			-3.03%		-3.87%	4

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

³ Reflects no deduction for fees, expenses or taxes.

⁴ Index comparison begins on July 31, 1997.

⁵ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Science and Technology Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.85%	0.85%	0.85%	0.85%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.70%	1.14%	0.82%	0.34%
Total Annual Fund Operating Expenses	1.80%	2.99%	2.67%	1.44%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$747		$1,109	$1,494	$2,569
	Class B Shares	$702		$1,224	$1,672	$3,025	1
	Class C Shares	$270	2	$ 829	$1,415	$3,003
	Class Y Shares	$147		$ 456	$ 787	$1,724
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$747		$1,109	$1,494	$2,569
	Class B Shares	$302		$ 924	$1,572	$3,025	1
	Class C Shares	$270		$ 829	$1,415	$3,003
	Class Y Shares	$147		$ 456	$ 787	$1,724

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Small Cap Growth Fund

(formerly, W&R Small Cap Growth Fund)

seeks growth of capital.

Principal Strategies

Ivy Small Cap Growth Fund seeks to achieve its goal by investing primarily in common stocks of domestic and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category (small cap stocks). The Fund emphasizes relatively new or unseasoned companies in their early stages of development or smaller companies positioned in new or emerging industries where there is opportunity for rapid growth.

In selecting companies, WRIICO, the Fund's investment manager, seeks companies whose earnings, it believes, are likely to grow faster than the economy. WRIICO may look at a number of factors regarding a company, such as:

* aggressive or creative management	* entry into new or emerging industries
* technological or specialized expertise	* growth in earnings/growth in sales
* new or unique products or services

Generally, in determining whether to sell a security, WRIICO uses the same type of analysis that it uses in buying securities. For example, WRIICO may sell a security if it determines that the stock no longer offers significant growth potential, which may be due to a change in the business or management of the company or a change in the industry of the company. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Small Cap Growth Fund. These include:

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* the mix of securities in the Fund, particularly the relative weightings in, and exposure to, different sectors and industries

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* WRIICO's skill in evaluating and selecting securities for the Fund

The Fund may invest in foreign securities, which present additional risks such as currency fluctuations and political or economic conditions affecting the foreign country.

Market risk for small to medium sized companies may be greater than that for large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. Stock of smaller companies may also experience volatile trading and price fluctuations.

Due to the nature of the Fund's permitted investments, primarily the small cap stocks of new and/or unseasoned companies, companies in their early stages of development or smaller companies in new or emerging industries, the Fund may be subject to the following additional risks:

* products offered may fail to sell as anticipated

* a period of unprofitability may be experienced before a company develops the expertise and clientele to succeed in an industry

* the company may never achieve profitability

* economic, market and technological factors may cause the new industry itself to lose favor with the public

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Small Cap Growth Fund is designed for investors willing to accept greater risks than are present with many other mutual funds. It is not intended for those investors who desire assured income and conservation of capital. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Small Cap Growth Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

The bar chart presents the average annual total returns for Class C shares and shows how performance has varied from year to year over the past ten calendar years. The returns for the Fund's other classes of shares during these periods were different from those of Class C shares because of variations in their respective expense structure.

The bar chart does not reflect any deferred sales charge that you may be required to pay upon redemption of the Fund's Class C shares. If the deferred sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

 In the period shown in the chart, the highest quarterly return was 40.97% (the fourth quarter of 1999) and the lowest quarterly return was -23.83% (the third quarter of 2001). The Class C return for the year through March 31, 2003 was 1.77%.

¹ The returns shown are based on the performance of the Fund's prior Class B. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the applicable CDSC for Class B and Class C shares, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless other wise noted).

The table also shows average annual returns, for Class C shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and the Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class C shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
							5 Years	10 Years
							(or Life	(or Life
	as of December 31, 2002			1 Year			of Class)	of Class)
Class C
		Before Taxes1	-25.82%			7.15%		12.47%
		After Taxes on Distributions1	-25.82%			3.33%		9.92%
		After Taxes on Distributions and Sale of Fund Shares1	-15.85%		2	6.42%		10.83%
Class Y (began on 12-29-1995)
		Before Taxes	-25.17%			8.07%		9.36%
Class A (began on 07-03-2000)
		Before Taxes	-29.53%			-19.62%
Class B (began on 07-06-2000)
		Before Taxes	-28.97%			-18.57%
Indexes
		Russell 2000 Growth Index3	-30.22%			-6.56%		2.60%
		Lipper Small-Cap Growth Funds Universe Average4	-29.72%			-2.31%		5.54%

¹ The returns shown for Class C shares are based on the performance of the Fund's prior Class B shares. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B's performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

² After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

³ Reflects no deduction for fees, expenses or taxes.

⁴ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Small Cap Growth Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund:

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees	0.85%	0.85%	0.85%	0.85%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	0.44%	0.77%	0.46%	0.24%
Total Annual Fund Operating Expenses	1.54%	2.62%	2.31%	1.34%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$723		$1,033	$1,366	$2,304
	Class B Shares	$665		$1,114	$1,490	$2,688	1
	Class C Shares	$234	2	$ 721	$1,235	$2,646
	Class Y Shares	$136		$ 425	$ 734	$1,613
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$723		$1,033	$1,366	$2,304
	Class B Shares	$265		$ 814	$1,390	$2,688	1
	Class C Shares	$234		$ 721	$1,235	$2,646
	Class Y Shares	$136		$ 425	$ 734	$1,613

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

AN OVERVIEW OF THE FUND

GOAL

Ivy Tax-Managed Equity Fund

(formerly, W&R Tax-Managed Equity Fund)

seeks long-term growth of capital while minimizing taxable gains and income to shareholders.

Principal Strategies

Ivy Tax-Managed Equity Fund seeks to achieve its goal by investing primarily in a diversified portfolio of common stocks of U.S. and foreign companies that WRIICO, the Fund's investment manager, considers to be high in quality and attractive in their long-term investment potential. The Fund seeks stocks that are favorably priced in relation to their fundamental value and will likely grow over time. While the Fund typically invests in the common stocks of large to medium sized U.S. companies, it may invest in companies of any size, any industry or any country in order to achieve its goal.

WRIICO manages the Fund using an investment strategy that is sensitive to the potential impact of Federal income tax on shareholders' investment returns. The Fund's tax-sensitive investment strategy is intended to lead to lower distributions of income and realized capital gains than funds managed without regard to Federal income tax consequences.

In selecting companies, WRIICO typically invests for the long term and selects securities that it believes offer strong opportunities for long-term growth of capital and that are attractively valued. While WRIICO primarily invests in growth stocks, it may also purchase value stocks. Value stocks are those that WRIICO believes are currently selling below their true worth.

When deciding to sell a security, WRIICO considers the negative tax impact of realizing capital gains and, if applicable, the positive tax impact of realizing capital losses. However, WRIICO may sell a security at a realized gain if it determines that the potential tax cost is outweighed by the risk of owning the security, or if more attractive investment opportunities are available. In addition, redemptions by shareholders may force the Fund to sell securities at an inappropriate time, potenti ally resulting in realized gains.

Principal Risks of Investing in the Fund

A variety of factors can affect the investment performance of Ivy Tax-Managed Equity Fund. These include:

* the skill of WRIICO in evaluating and selecting securities for the Fund

* the earnings performance, credit quality and other conditions of the companies whose securities the Fund holds

* the mix of securities in the Fund, particularly the relative weightings in, and exposure to, different sectors and industries that may result in performance less favorable than another investment mix might have produced

* adverse stock and bond market conditions, sometimes in response to general economic or industry news, that may cause the prices of the Fund's holdings to fall as part of a broad market decline

* the Fund's tax-sensitive investment strategy failing to limit distributions of taxable income and net realized capital gains as contemplated

Market risk for small companies may be greater than that for medium and large companies. Smaller companies are more likely to have limited financial resources and inexperienced management. Stocks of smaller companies, and growth stocks in general, may also experience volatile trading and price fluctuations.

As with any mutual fund, the value of the Fund's shares will change and you could lose money on your investment. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Who May Want to Invest

Ivy Tax-Managed Equity Fund is designed for long-term taxable investors. If you are investing for the short-term (less than one year), you may suffer negative tax consequences. Market conditions may limit the Fund's ability to realize capital losses or to avoid dividend income. While the Fund tries to reduce the extent to which shareholders incur taxes on Fund distributions of income and net realized gains, the Fund does expect to distribute taxable income and/or net capital gains from time to time. Investors may realize capital gains when they sell their shares. You should consider whether the Fund fits your particular investment objectives.

PERFORMANCE

Ivy Tax-Managed Equity Fund

The bar chart and performance table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual total returns for the periods shown compare with those of a broad measure of market performance and a peer group average.

In the period shown in the chart, the highest quarterly return was 7.04% (the fourth quarter of 2001) and the lowest quarterly return was -17.55% (the first quarter of 2001). The Class A return for the year through March 31, 2003 was 0.88%. The bar chart presents the average annual total returns for Class A and shows how performance has varied from year to year. The returns for the Fund's other classes of shares during these periods were different from those of Class A shares because of variations in their respective expense structure.

The bar chart does not reflect any sales charge that you may be required to pay upon purchase of the Fund's Class A shares. If the sales charge were included, the returns would be less than those shown.

The bar chart and the performance table assume payment of dividends and other distributions in shares. As with all mutual funds, the Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.

Note that the performance information in the bar chart and performance table is based on calendar-year periods, while the information shown in the Financial Highlights section of this Prospectus and in the Fund's shareholder reports is based on the Fund's fiscal year.

Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be different than the results shown herein. Please check the Ivy web site at www.ivyfunds.com for more current performance information.

Average Annual Total Returns

The table below compares the Fund's average annual total returns to that of a broad-based securities market index that is unmanaged, and to a Lipper average that is a composite of mutual funds with goals similar to that of the Fund. The Fund's returns include the maximum sales charge for Class A shares (5.75%) and the CDSC for Class B and Class C shares, if applicable, treat dividend and capital gain distributions as reinvested and assume you sold your shares at the end of each period (unless o therwise noted).

The table also shows average annual returns, for Class A shares, on a before tax and after-tax basis. Return Before Taxes shows the actual change in the value of the Fund shares over the periods shown, but does not reflect the impact of taxes on Fund distributions or the sale of Fund shares. The two after-tax returns take into account taxes that may be associated with owning Fund shares. Return After Taxes on Distributions is a Fund's actual performance, adjusted by the effect of taxes on distributions made by the Fund during the period shown. Return After Taxes on Distributions and Sale of Fund Shares is further adjusted to reflect the tax impact on any change in the value of Fund shares as if they had been sold on the last day of the period.

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts, or to shares held by non-taxable entities.

After-tax returns are shown only for Class A shares. After-tax returns for other Classes may vary.

	Average Annual Total Returns
						5 Years
	as of December 31, 2002			1 Year		(or Life of Class)
Class A (began on 06-30-2000)
		Before Taxes	-19.98%				-22.08%
		After Taxes on Distributions	-19.98%				-22.08%
		After Taxes on Distributions and Sale of Fund Shares	-12.27%		1		-16.94%	1
Class C (began on 07-06-2000)
		Before Taxes	-15.93%				-21.16%
Class B (began on 07-13-2000)
		Before Taxes	-19.17%				-22.43%
Class Y2
Indexes
		S&P 500 Index3	-22.10%				-17.07%	4
		Lipper Large-Cap Growth Funds Universe Average5	-28.63%				-27.34%	4

¹ After tax returns may be better than before tax returns due to an assumed tax benefit from losses on a sale of the Fund's shares at the end of the period.

² Class Y shares have been offered to the public since June 30, 2000. As of March 31, 2003, there have been no Class Y shares issued. Therefore, there is no Class Y return information to be included in the table.

³ Reflects no deduction for fees, expenses or taxes.

⁴ Index comparison begins on June 30, 2000.

⁵ Lipper Average is net of fees and expenses.

FEES AND EXPENSES

Ivy Tax-Managed Equity Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder Fees
	Class A		Class B		Class C		Class Y
(fees paid directly from your investment)	Shares		Shares		Shares		Shares
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)	5.75%			None		None		None
Maximum Deferred Sales Charge (Load)1
(as a percentage of lesser of amount invested
or redemption value)	None	2		5%		1%		None
Redemption fee/exchange fee (as a percentage
of amount redeemed, if applicable)3	None			None		None		None

Annual Fund Operating Expenses
	Class A	Class B	Class C	Class Y
(expenses that are deducted from Fund assets)	Shares	Shares	Shares	Shares
Management Fees4	0.65%	0.65%	0.65%	0.65%
Distribution and Service (12b-1) Fees	0.25%	1.00%	1.00%	0.25%
Other Expenses	1.26%	1.43%	1.63%	1.28%
Total Annual Fund Operating Expenses	2.16%	3.08%	3.28%	2.18%

¹ The CDSC which is imposed on the lesser of amount invested or redemption value of Class B shares, declines from 5% for redemptions made within the first year of purchase, to 4% for redemptions made within the second year, to 3% for redemptions made within the third and fourth years, to 2% for redemptions made within the fifth year, to 1% for redemptions made within the sixth year and to 0% for redemptions made after the sixth year. For Class C shares, a 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after purchase. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

² A 1% CDSC may be imposed on purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

³ If you choose your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account.

⁴ The expenses shown for Management Fees reflect the maximum annual fee payable; however, WRIICO has voluntarily agreed to waive its investment management fee on any day if the Fund's net assets are less than $25 million, subject to WRIICO's right to change or terminate this waiver.

	Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for each time period specified, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
	If shares are redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$781		$1,212	$1,668	$2,925
	Class B Shares	$711		$1,251	$1,716	$3,175	1
	Class C Shares	$331	2	$1,010	$1,712	$3,576
	Class Y Shares	$221		$ 682	$1,169	$2,513
	If shares are not redeemed at end of period:	1 Year		3 Years	5 Years	10 Years
	Class A Shares	$781		$1,212	$1,668	$2,925
	Class B Shares	$311		$ 951	$1,616	$3,175	1
	Class C Shares	$331		$1,010	$1,712	$3,576
	Class Y Shares	$221		$ 682	$1,169	$2,513

¹ Reflects annual operating expenses of Class A shares after conversion of Class B shares into Class A shares 8 years after the month in which the shares were purchased.

² A 1% CDSC applies to the lesser of amount invested or redemption value of Class C shares redeemed within twelve months after the purchase date. Solely for purposes of determining the number of months from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month. Therefore, this number does not reflect the effect of the CDSC.

THE INVESTMENT PRINCIPLES OF THE FUNDS

Investment Goals, Principal Strategies and Other Investments

Ivy Asset Strategy Fund: The Fund seeks to achieve its goal of high total return over the long term by allocating its assets among a diversified portfolio of stocks, bonds, and short-term instruments. There is no guarantee, however, that the Fund will achieve its goal.

Allocating assets among different types of investments allows the Fund to take advantage of opportunities wherever they may occur, but also subjects the Fund to the risks of a given investment type. Stock values generally fluctuate in response to the activities of individual companies and general market and economic conditions. The values of bonds and short-term instruments generally fluctuate due to changes in interest rates and due to the credit quality of the issuer.

WRIICO regularly reviews the Fund's allocation of assets and makes changes to favor investments that it believes provide the best opportunity to achieve the Fund's goal. Although WRIICO uses its expertise and resources in choosing investments and in allocating assets, WRIICO's decisions may not always be beneficial to the Fund.

Generally, the mix of assets in the Fund will change from time to time depending on WRIICO's assessment of the market for each asset class. The allowable range and approximate percentage of the mix for each asset class, as a percentage of the Fund's total assets, are listed below. Some types of investments, such as indexed securities, may fall into more than one asset class.

	Portfolio Mix
	Stocks 70% (can range from 0-100%)
	Bonds 25% (can range from 0-100%)
	Short-term 5% (can range from 0-100%)

WRIICO tries to balance the Fund's investment risks against potentially higher total returns by reducing the stock class allocation during stock market down cycles and typically increasing the stock class allocation during periods of strongly positive market performance. Generally, WRIICO makes asset shifts among classes gradually over time. WRIICO considers various factors when it decides to sell a security, such as an individual security's performance and/or if it is an appropriate time to va ry the Fund's mix.

As a defensive measure, the Fund may increase its holdings in the bond or short-term asset classes when WRIICO believes that there is a potential bear market, prolonged downturn in stock prices or significant loss in stock value; the Fund may also invest in derivative instruments for both defensive and speculative purposes. WRIICO may, as a temporary defensive measure, invest up to all of the Fund's assets in:

* money market instruments rated A-1 by S&P or Prime 1 by Moody's, or unrated securities judged by WRIICO to be of equivalent quality

* precious metals

Although WRIICO may seek to preserve appreciation in the Fund by taking a defensive position, doing so may prevent

the Fund from achieving its investment objective.

Ivy Core Equity Fund: The Fund seeks to achieve its goals of capital growth and income by investing, during normal market conditions, in common stocks of large, high quality U.S., and to a lesser extent foreign, companies that are well-known, have been consistently profitable and have dominant positions in their industries. Under normal market conditions, the Fund will invest at least 80% of its net assets in equity securities, primarily common stocks and securities convertible into common stocks. There is no guarantee, however, that the Fund will achieve its goals.

When WRIICO views stocks with high yields as less attractive than other common stocks, the Fund may hold lower-yielding common stocks because of their prospects for appreciation. When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (typically, investment grade) including commercial paper, short-term U.S. Government securities and/or preferred stocks. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy Cundill Global Value Fund: The Fund seeks to achieve its goal of long-term capital growth by investing primarily in the equity securities of companies throughout the world.

The investment approach of Peter Cundill & Associates, Inc. ("Cundill"), the Fund's sub-advisor, is based on a contrarian "value" philosophy. Cundill looks for securities that are trading below their estimated intrinsic value. To determine the intrinsic value of a particular company, Cundill focuses primarily on the company's financial statements. Cundill also considers factors such as earnings, dividends, business prospects, management capabilities and potential catalysts (such as a change in management) to realize shareholder value. A security is purchased when the price reflects a significant discount to Cundill's estimate of the company's intrinsic value. Given the bottom-up or company-specific approach, Cundill does not forecast economies or corporate earnings and does not rely on market timing.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy Dividend Income Fund: The Fund seeks to achieve its goals of income and long-term capital growth and income by investing primarily in dividend-paying common stocks that WRIICO believes also demonstrate favorable prospects for long-term capital growth. There is no guarantee, however, that the Fund will achieve its goal.

The Fund will, under normal market conditions, invest at least 80% of its net assets in dividend-paying equity securities, which may include without limitation dividend-paying common stock, preferred stocks or convertible preferred stock. The Fund may also invest up to 25% of its total assets in foreign securities. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other class of securities, including such entity's debt securities, preferred stock and other senior equity securities. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. Preferred stock generally has a preference as to dividends and liquidation over an issuer's common stock but ranks junior to debt securities in an issuer's capital structure. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of di rectors. Preferred stock also may be subject to optional or mandatory redemption provisions. The ability of common stocks and preferred stocks to generate income is dependent on the earnings and continuing declaration of dividends by the issuers of such securities. A convertible security is a bond, debenture, note, preferred stock, warrant or other security that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities generally have characteristics similar to both debt and equity securities. The value of convertible securities tends to decline as interest rates rise and, because of the conversion fe ature, tends to vary with fluctuations in the market value of the underlying securities. Convertible securities ordinarily provide a stream of income with generally higher yields than those of common stock of the same or similar issuers. Convertible securities generally rank senior to common stock in a corporation's capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities generally do not participate directly in any dividend increases or decreases of the underlying securities although the market prices of convertible securities may be affected by any such dividend changes or other changes in the underlying securities.

While the Fund invests primarily in dividend-paying equity securities, it may also invest up to 20% of its net assets in debt securities in seeking to achieve its goal. To the extent the Fund invests in debt securities, the Fund intends to primarily invest in investment-grade debt securities.

At times, when WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities including short-term cash equivalent securities. By taking a temporary defensive position, the Fund may not achieve its goal.

Ivy European Opportunities Fund: The Fund seeks to achieve its goal of long-term capital growth by investing primarily in the equity securities of companies located or otherwise doing business in European countries and covering a broad range of economic and industry sectors. The Fund may also invest a significant portion of its assets in European debt securities, up to 20% of which is considered below investment grade (commonly referred to as "high yield" or "junk" bo nds). The Fund's manager follows a "bottom-up" approach to investing, which focuses on prospects for long-term earnings growth. Company selection is generally based on an analysis of a wide range of financial indicators (such as growth, earnings, cash, book and enterprise value), as well as factors such as market position, competitive advantage and management strength. Country and section allocation decisions are driven by the company selection process.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy Global Natural Resources Fund: The Fund seeks to achieve its goal of long-term growth by investing primarily in the equity securities of companies throughout the world that own, explore or develop natural resources and other basic commodities or that supply goods and services to such companies. The Fund's investment manager targets for investment well managed companies that are expected to increase shareholder value through successful exploration and development o f natural resources, balancing the Fund's portfolio with low cost, low debt producers that have outstanding asset bases, and positions that are based on anticipated commodity price trends. Additional emphasis is placed on sectors that are out of favor but appear to offer the most significant recovery potential over a one to three year period. All investment decisions are reviewed systematically and cash reserves may be allowed to build up when valuations seem unattractive. The Fund's investment manager atte mpts to minimize risk through diversifying the Fund's portfolio by commodity, country, issuer and asset class.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy High Income Fund: The Fund seeks to achieve its goal of a high level of current income and its secondary goal of capital growth by investing primarily in a diversified portfolio of high-yield, high-risk, fixed-income securities, the risks of which are, in the judgment of WRIICO, consistent with the Fund's goals. There is no guarantee, however, that the Fund will achieve its goals.

The Fund primarily owns debt securities; however, it may also own, to a lesser degree, preferred stocks, common stocks and convertible securities. In general, the high income that the Fund seeks is paid by debt securities rated in the lower rating categories of the established rating services or unrated securities that are determined by WRIICO to be of comparable quality; these include bonds rated BBB and lower by S&P, or Baa or lower by Moody's. Lower-quality debt securities, which include junk bonds, are considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than higher-quality securities and may decline significantly in periods of general economic difficulty.

The Fund limits its acquisition of common stocks so that no more than 20% of its total assets will consist of common stocks and no more than 10% of its total assets will consist of non-dividend-paying common stocks.

The Fund may invest an unlimited amount of assets in foreign securities. At this time, however, the Fund does not intend to invest a significant amount of its assets in foreign securities.

When WRIICO believes that a full or partial temporary defensive position is desirable, due to present or anticipated market or economic conditions, WRIICO may take any one or more of the following steps with respect to the Fund's assets:

* shorten the average maturity of the Fund's debt holdings

* hold cash or cash equivalents (short-term investments, such as commercial paper and certificates of deposit)

* emphasize investment-grade debt securities

By taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy International Fund: The Fund seeks to achieve its principal goal of long-term capital growth by investing primarily in equity securities principally traded in European, Pacific Basin and Latin American markets. The Fund invests in a variety of economic sectors and industry segments to reduce the effects of price volatility in any one area, and usually is invested in at least three different countries. The Fund's investment manager focuses on expanding foreign econ omies and companies that generally have at least $1 billion in capitalization at the time of investment and a solid history of operations. Individual securities are selected on the basis of various indicators (such as earnings, cash flow, assets and long-term growth potential) and are reviewed for fundamental financial strength.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy International Growth Fund: The Fund seeks to achieve its goal of long-term capital appreciation, with current income as a secondary goal, by investing primarily in a diversified portfolio of common stocks of growth-oriented foreign issuers. Growth securities are those whose earnings, WRIICO believes, are likely to have strong growth over several years. The Fund may also invest, to a lesser extent, in preferred stocks and debt securities. The debt securities may be of any maturity and will typically be investment grade. There is no guarantee, however, that the Fund will achieve its goals.

Under normal conditions, the Fund invests at least 80% of its net assets in foreign securities and at least 65% of its total assets in issuers of at least three foreign countries. The Fund generally limits its holdings so that no more than 75% of its total assets are invested in issuers of a single foreign country.

When WRIICO believes that a temporary defensive position is desirable, it may invest up to all of the Fund's assets in debt securities (including commercial paper and short-term U.S. Government securities) and/or preferred stocks; it may avoid investment in volatile emerging markets and increase investments in more stable, developed countries and industries; it may use forward currency contracts to hedge specific foreign currencies; and it may also invest up to all of the Fund's assets in domes tic securities. By taking a temporary defensive position, the Fund may not achieve its investment objectives.

Ivy International Value Fund: The Fund seeks to achieve its primary goal of long-term capital growth by investing in equity securities principally traded in European, Pacific Basin and Latin American markets. The Fund invests in a variety of economic sectors and industry segments to reduce the effects of price volatility in any one area. The Fund's investment manager seeks out rapidly expanding foreign economies and companies that generally have at least $1 billion in capitalization at the time of investment and a solid history of operations. Other factors that the Fund's manager considers in selecting particular countries include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using a value approach, which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, dividend yield and price/replacement cost. Securities purch ased are believed to be attractively valued on one or more of these measures relative to a broad universe of comparable securities.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other

money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy Large Cap Growth Fund: The Fund seeks to achieve its goal of appreciation of your investment through a diversified holding of securities, primarily those issued by large to medium sized U.S. and foreign companies that WRIICO believes have appreciation possibilities. The Fund will, under normal market conditions, invest at least 80% of its net assets in large cap growth securities. There is no guarantee, however, that the Fund will achieve its goal.

The Fund invests primarily in common stocks but may also own, to a lesser extent, preferred stocks, convertible securities and debt securities, typically of investment grade and of any maturity. As well, the Fund may invest up to 25% of its total assets in foreign securities.

At times, as a temporary defensive measure, the Fund may invest up to all of its assets in either debt securities (which may include money market instruments held as cash reserves), preferred stocks or both. The Fund may also use options and futures contracts for defensive purposes. By taking a temporary defensive position the Fund may not achieve its investment objective.

Ivy Limited-Term Bond Fund: The Fund seeks to achieve its goal of providing a high level of current income consistent with preservation of capital by investing primarily in a diversified portfolio of investment-grade, limited-term debt securities (securities with a dollar-weighted average maturity of two to five years) of U.S. issuers, including U.S. Government securities, which are securities issued or guaranteed by the U.S. Government or its agencies or instrumental ities, collateralized mortgage obligations and other asset-backed securities. Under normal market conditions, the Fund will invest at least 80% of its net assets in bonds with limited-term maturities. The Fund may also own, to a lesser extent, common stocks and convertible securities, including convertible preferred stocks in certain circumstances. There is no guarantee, however, that the Fund will achieve its goal.

The maturity of an asset-backed security is the estimated average life of the security based on certain prescribed models or formulas used by WRIICO. The maturity of other types of debt securities is the earlier of the call date or the maturity date, as appropriate.

When WRIICO believes that a temporary defensive position is desirable, it may take certain steps with respect to the Fund's assets, including any one or more of the following:

* shorten the average maturity of the Fund's investments

* hold short-term securities, cash or cash equivalents

* invest up to all of the Fund's assets in U.S. Treasury securities

By taking a temporary defensive position the Fund may not achieve its investment objective.

Ivy Mid Cap Growth Fund: The Fund seeks to achieve its goal of growth of your investment by investing primarily in a diversified portfolio of common stocks of U.S. and foreign companies whose market capitalizations are within the range of capitalizations of companies comprising Russell Mid-Cap and that WRIICO believes offer above-average growth potential. For this purpose, the Fund considers a company's capitalization at the time the Fund acquires the company's securi ties, and the company need not be listed in Russell Mid-Cap. Companies whose capitalization falls outside the range of Russell Mid-Cap after purchase continue to be considered medium capitalization companies for purpose of the Fund's investment policy. The Fund will, under normal market conditions, invest at least 80% of its net assets in mid cap securities. There is no guarantee, however, that the Fund will achieve its goal.

In addition to common stocks, the Fund may invest in convertible securities, preferred stocks and debt securities of any maturity and mostly of investment grade. The Fund may also invest up to 25% of its total assets in foreign securities.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper and short-term securities issued by the U.S. Government or its agencies or instrumentalities), preferred stocks or both. As well, the Fund may choose to invest in companies whose sales and

earnings growth are generally stable through a variety of economic conditions. The Fund may also use options and futures contracts for defensive pur poses. By taking a defensive position the Fund may not achieve its investment objective.

Ivy Money Market Fund: The Fund seeks to achieve its goal of maximum current income consistent with stability of principal by investing in a diversified portfolio of high-quality money market instruments in accordance with the requirements of Rule 2a-7 (Rule 2a-7) under the Investment Company Act of 1940, as amended (1940 Act). There is no guarantee, however, that the Fund will achieve its goal.

The Fund invests only in the following U.S. dollar-denominated money market obligations and instruments:

* U.S. government obligations (including obligations of U.S. government agencies and instrumentalities)

* bank obligations and instruments secured by bank obligations, such as letters of credit

* commercial paper

* corporate debt obligations, including variable rate master demand notes

* Canadian government obligations

* certain other obligations (including municipal obligations) guaranteed as to principal and interest by a bank in whose obligations the Fund may invest or a by corporation in whose commercial paper the Fund may invest

The Fund only invests in bank obligations if they are obligations of a bank subject to regulation by the U.S. Government (including foreign branches of these banks) or obligations of a foreign bank having total assets of at least $500 million, and instruments secured by any such obligations.

WRIICO may look at a number of factors in selecting securities for the Fund's portfolio. These include:

* the credit quality of the particular issuer or guarantor of the security

* the maturity of the security

* the relative value of the security

Generally, in determining whether to sell a security, WRIICO uses the same analysis that it uses in buying securities to determine if the security no longer offers adequate return or no longer complies with Rule 2a-7. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash.

Ivy Municipal Bond Fund: The Fund seeks to achieve its goal to provide income that is not subject to Federal income tax by investing primarily in a diversified portfolio of municipal bonds. There is no guarantee, however, that the Fund will achieve its goal.

As used in this Prospectus, municipal bonds mean obligations the interest on which is not includable in gross income for Federal income tax purposes. The Fund and WRIICO rely on the opinion of bond counsel for the issuer in determining whether the interest on such issuer's obligations is excludable from gross income for Federal income tax purposes. The Fund anticipates that not more than 40% of the dividends it will pay to shareholders, annually, will be treated as a tax preference item for AMT purposes.

Municipal bonds are issued by a wide range of state and local governments, agencies and authorities for various purposes. The two main types of municipal bonds are general obligation bonds and revenue bonds. For general obligation bonds, the issuer has pledged its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from specific sources; these may include revenues from a particular project or class of projects, a special tax, lease payme nts, appropriated funds or other revenue source. PABs are revenue bonds issued by or on behalf of public

authorities to obtain funds to finance privately operated facilities. The Fund may invest 25% or more of its total assets in PABs, in securities the payment of principal and interest on which is derived from revenue of similar projects, or in municipal bonds of issuers located in the same geographic area. The Fund will not, however, have more than 25% of its total assets in PABs issued for any one indust ry or in any one state. Other municipal obligations include lease obligations of municipal authorities or entities and participations in these obligations and housing bonds that finance pools of single family home mortgages and multi-family project mortgages, as well as student loan bonds that finance pools of student loans.

At least 80% of the Fund's net assets will be invested, during normal market conditions, in municipal bonds of investment grade.

The Fund may invest up to 10% of its total assets in taxable debt securities other than municipal bonds. These must be either:

* U.S. Government securities

* obligations of domestic banks and certain savings and loan associations

* commercial paper rated at least A by S&P or Moody's

* any of the foregoing obligations subject to repurchase agreements

Subject to its policies regarding the amount of Fund assets invested in municipal bonds and taxable debt securities and its other investment limitations, the Fund may invest in other types of securities and use certain other instruments in seeking to achieve the Fund's goal.

When WRIICO believes that a temporary defensive position is desirable, it may take certain steps with respect to the Fund's assets, including any one or more of the following:

* shorten the average maturity of the Fund's investments

* hold taxable obligations, subject to the limitations stated above

* emphasize debt securities of a higher quality than those the Fund would ordinarily hold

* hedge exposure to interest rate risk by investing in futures contracts, options on futures contracts and other similar derivative instruments

By taking a temporary defensive position, the Fund may not achieve its investment objective.

Income from taxable obligations, repurchase agreements and derivative instruments will be subject to Federal income tax. At this time, the Fund has limited exposure to futures contracts and similar derivative instruments. The Fund does, and may in the future, hold a portion of its assets in municipal bonds for which the applicable interest rate formula varies inversely with prevailing interest rates or otherwise may expose the bond to greater sensitivity to interest rate changes.

Ivy Pacific Opportunities Fund: The Fund seeks to achieve its goal of long-term capital growth by investing primarily in equity securities of companies traded mainly on markets in the Pacific region, issued by companies organized under the laws of a Pacific region country or issued by any company with more than half of its business in the Pacific region. Examples of Pacific region countries include China, Hong Kong, Malaysia, Sri Lanka, Australia and India. The Fund u sually invests in at least three different countries, and does not intend to concentrate its investments in any particular industry. The countries in which the Fund invests are selected on the basis of a mix of factors that include long-term economic growth prospects, anticipated inflation levels, and the effect of applicable government policies on local business conditions. The Fund is managed using an approach which focuses on financial ratios such as price/earnings, price/book value, price/cash flow, div idend yield and price/replacement cost. Securities purchased are believed to be attractively valued on one or more of these measures relative to

a broad universe of comparable securities.

The Fund may from time to time take a defensive position, and invest without limit in U.S. Government securities, investment-grade debt securities, and cash and cash equivalents such as commercial paper, short term notes and other money market securities. However, by taking a temporary defensive position the Fund may not achieve its investment objectives.

Ivy Science and Technology Fund: The Fund seeks to achieve its goal of long-term capital growth by investing primarily in the equity securities of science and technology companies. Science and technology companies are companies whose products, processes or services, in WRIICO's opinion, are being or are expected to be significantly benefited by the use or commercial application of scientific or technological discoveries. As well, the Fund may invest in companies that utilize science and/or technology to improve their existing business even though the business, itself, is not within the science and technology industries. There is no guarantee, however, that the Fund will achieve its goal. Under normal economic and market conditions, the Fund will invest at least 80% of its net assets in securities of science or technology companies or companies benefited by the application of scientific or technological discoveries.

The Fund may invest in, but is not limited to, areas such as:

* aerospace and defense electronics	* electronics and energy
* biotechnology	* electronic media
* business machines	* genomics
* cable and broadband access	* internet and internet-related services
* communications and electronic equipment	* medical devices and drugs
* computer software and services	* medical and hospital supplies and services
* computer systems	* office equipment and supplies

The Fund primarily owns common stocks; however, it may invest, to a lesser extent, in preferred stocks, debt securities and convertible securities. The Fund may invest a limited amount of its assets in foreign securities.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in U.S. Government securities or other debt securities, mostly of investment grade. The Fund may also invest in options and futures contracts for hedging purposes. By taking a temporary defensive position the Fund may not achieve its investment objective.

Ivy Small Cap Growth Fund: The Fund seeks to achieve its goal of growth of capital by investing primarily in small cap common stocks of companies that are relatively new or unseasoned, companies in their early stages of development, or smaller companies positioned in new or emerging industries where there is an opportunity for rapid growth. The Fund may occasionally invest in securities of larger companies that, in WRIICO's opinion, are being fundamentally changed or revitalized, have a position that is considered strong relative to the market as a whole or otherwise offer unusual opportunities for above average growth.

The Fund considers a company's capitalization at the time the Fund acquires the company's common stock. Common stock of a company whose capitalization exceeds the range of the Lipper, Inc. Small Cap Category after purchase will not be sold solely because of its increased capitalization. The Fund will, under normal market conditions, invest at least 80% of its net assets in small cap stocks. There is no guarantee, however, that the Fund will achieve its goal.

In addition to common stocks, the Fund may also invest in securities convertible into common stocks, preferred stocks and debt securities that are mostly of investment grade. The Fund may invest up to 10% of its total assets in foreign securities.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper and short-term U.S. Government securities) and/or preferred stocks. The Fund may also invest in more established companies, those with longer operating histories than many small cap companies. By taking a temporary defensive position, the Fund may not achieve its investment objective.

Ivy Tax-Managed Equity Fund: The Fund seeks to achieve its goal of long-term growth of capital while minimizing taxable gains and income to shareholders by investing primarily in a diversified portfolio of common stocks of U.S. and foreign companies that WRIICO considers to be high in quality and attractive in their long-term investment potential. The Fund seeks stocks that are favorably priced in relation to their fundamental value and will, likely, grow over time.

The Fund attempts to achieve high after-tax returns for its shareholders by balancing investment considerations and tax considerations. The Fund seeks to minimize income distributions and distributions of realized net short-term gains (taxed as ordinary income), as well as distributions of realized net long-term gains. The Fund seeks to achieve returns primarily in the form of price appreciation (not subject to current tax until shares are redeemed). There is no guarantee, however, that the Fun d will achieve its goal.

WRIICO ordinarily uses one or more of the following strategies in its management of the Fund:

* a long-term, low turnover approach to investing

* an emphasis on lower-yielding securities to require distribution of little, if any, taxable income

* an attempt to avoid net realized short-term gains

* in the sale of portfolio securities, selection of the most tax-favored lots

* selective tax-advantaged hedging techniques as an alternative to taxable sales

The Fund will, under normal market conditions, invest at least 80% of its net assets in equity securities, primarily common stocks and securities convertible into common stocks. The Fund emphasizes growth stocks; however, it may also invest in value stocks. As well, the Fund may invest in preferred stocks and debt securities that are mostly of investment grade. The Fund may also invest up to 25% of its total assets in foreign securities.

When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper and short-term U.S. Government securities) and/or preferred stocks. By taking a temporary defensive position, the Fund may not achieve its investment objective.

Notwithstanding the Fund's use of tax-management investment strategies, the Fund may have taxable income and may realize taxable capital gains from time to time. In addition, investors purchasing Fund shares when the Fund has large undistributed realized capital gains could receive a significant part of the purchase price of their shares back as a taxable capital gain distribution. Over time, securities with unrealized gains may comprise a substantial portion of the Fund's assets. As well, stat e or Federal tax laws or regulations may be amended at any time and may include adverse changes to applicable tax rates or capital gain holding periods.

All Funds

Each Fund may also invest in and use certain other types of instruments in seeking to achieve its goal(s). For example, each Fund (other than Ivy Money Market Fund) is permitted to invest in options, futures contracts, asset-backed securities and other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured.

You will find more information about each Fund's permitted investments and strategies, as well as the restrictions that apply to them, in its Statement of Additional Information (SAI).

Risk Considerations of Principal Strategies and Other Investments

Risks exist in any investment. Each Fund is subject to market risk, financial risk and, in some cases, prepayment risk.

* Market risk is the possibility of a change in the price of the security. The prices of common stocks and other equity securities generally fluctuate more than those of other investments. A Fund may lose a substantial part, or even all, of its investment in a company's stock. Growth stocks may experience greater price volatility than value stocks. To the extent a Fund invests in fixed income securities, the price of a fixed income security may be affected by changes in interest rates. Bonds with longer maturities are more interest-rate sensitive. For example, if interest rates increase, the value of a bond with a longer maturity is more likely to decrease. Because of market risk, the share price of each Fund (other than Ivy Money Market Fund) will likely change as well.

* Financial risk is based on the financial situation of the issuer of the security. The financial risk of a Fund may depend, for example, on the earnings performance of the issuer of stock held by the Fund. To the extent a Fund invests in debt securities, the financial risk of the Fund may also depend on the credit quality of the securities and the financial condition of the issuer in which it invests.

* Prepayment risk is the possibility that, during periods of falling interest rates, a debt security with a high stated interest rate will be prepaid before its expected maturity date.

Certain types of each Fund's authorized investments and strategies, such as foreign securities, junk bonds, derivative instruments and precious metals involve special risks. Depending on how much a Fund invests or uses these strategies, these special risks may become significant.

Derivative Investment Techniques: The Funds (other than Ivy Money Market Fund) may, but are not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements). Among the derivative techniques the Funds might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions.

Using put and call options could cause a Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation a Fund can realize on its investments, or by causing a Fund to hold a security it might otherwise sell.

Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Funds could cause losses on the hedging instrument that are greater than gains in the value of the Funds' position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, a Fun d might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium.

Foreign Currencies: Foreign securities may be denominated in foreign currencies. The value of a Fund's investments, as measured in U.S. dollars, may be affected unfavorably by changes in foreign currency exchange rates and exchange control regulations. Currency conversion can also be costly.

Foreign Currency Exchange Transactions and Forward Foreign Currency Contracts: The Funds (not including Ivy Money Market Fund) may, but are not required to, use foreign currency exchange transactions and forward foreign currency contracts to hedge certain market risks (such as interest rates, currency exchange rates and broad or specific market movement). These investment techniques involve a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent a Fund's judgment as to certain market movements is incorrect, the risk of losses that are greater than if the investment technique had not been used. For example, there may be an imperfect correlation between a Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Funds from achieving the intended hedge or expose the Fund to the risk of curr ency exchange loss. These investment techniques also tend to limit any potential gain that might result from an increase in the value of the hedged position.

Foreign Securities: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect a Fund's performance unfavorably, depending upon

prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve b rokerage costs and tax considerations that are not usually present in the U.S. markets.

Other factors that can affect the value of a Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions ma y also be delayed due to local restrictions or communication problems, which can cause a Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines).

Growth Stock Risk: Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.

Low-Rated Debt Securities: In general, low-rated debt securities (commonly referred to as "high yield" or "junk" bonds) offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. For this reason, these bonds are considered speculative and could significantly weaken a Fund's returns.

Municipal Bonds: For PABs in which Ivy Municipal Bond Fund may invest, credit quality is generally dependent on the credit standing of the company involved. To the extent that this Fund invests in municipal bonds the payment of principal and interest on which is derived from revenue of similar projects, or in municipal bonds of issuers located in the same geographic area, the Fund may be more susceptible to the risks associated with economic, political or regulatory o ccurrences that might adversely affect particular projects or areas. You will find more information in the SAI about the types of projects underlying the municipal bonds in which Ivy Municipal Bond Fund may invest from time to time and a discussion of the risks associated with such projects.

Precious Metals and Other Physical Commodities: Ivy Global Natural Resources Fund can invest in precious metals and other physical commodities. Commodities trading is generally considered speculative because of the significant potential for investment loss. Among the factors that could affect the value of the Fund's investments in commodities are cyclical economic conditions, sudden political events and adverse international monetary policies. Markets for precious met als and other commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The Fund may also pay more to store and accurately value its commodity holdings than it does with its other portfolio investments.

Special Emerging Market Concerns: The risks of investing in foreign securities are heightened in countries with new or developing economies. Among these additional risks are the following:

* securities that are even less liquid and more volatile than those in more developed foreign countries;

* less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets);

* increased settlement delays;

* unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply);

* abrupt changes in exchange rate regime or monetary policy;

* unusually large currency fluctuations and currency conversion costs (see "Foreign Currencies" above)

* high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt)

Value Stock Risk: Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the investment manager's opinion, undervalued. If the investment manager's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the investment manager has placed on it.

Because each Fund owns different types of investments, its performance will be affected by a variety of factors. The value of a Fund's investments and the income it generates will vary from day to day, generally reflecting changes in interest rates, market conditions, and other company and economic news. Performance will also depend on the investment manager's skill in selecting investments and, with respect to Ivy Asset Strategy Fund, on WRIICO's skill in allocating assets.

Ivy Asset Strategy Fund, Ivy Cundill Global Value Fund and Ivy International Growth Fund may each actively trade securities in seeking to achieve its goals. Doing so may increase transaction costs (which may reduce performance) and increase distributions paid by the Fund, which would increase your taxable income.

YOUR ACCOUNT

Choosing a Share Class

Each class of shares offered in this prospectus has its own sales charge, if any, and expense structure. The decision as to which class of shares of a Fund is best suited to your needs depends on a number of factors that you should discuss with your financial advisor. Some factors to consider are how much you plan to invest and how long you plan to hold your investment. If you are investing a substantial amount and plan to hold your shares for a long time, Class A shares may be the most appropr iate for you. If you are investing a lesser amount, you may want to consider Class B shares (if investing for at least seven years) or Class C shares (if investing for less than seven years). Class B and Class C shares are not available for investments of $2 million or more. Class Y shares and Advisor Class shares are designed for institutional investors and others investing through certain intermediaries.

Since your objectives may change over time, you may want to consider another class when you buy additional Fund shares. All of your future investments in a Fund will be made in the class you select when you open your account, unless you inform the Fund otherwise, in writing, when you make a future investment.

General Comparison of Class A, Class B and Class C Shares
Class A	Class B	Class C
Initial sales charge	No initial sales charge	No initial sales charge
No deferred sales charge1	Deferred sales charge on	A 1% deferred sales charge on
	shares you sell within six	shares you sell within twelve
	years after purchase	months after purchase
Maximum distribution and/or	Maximum distribution and	Maximum distribution and
service (12b-1) fees of 0.25%	service (12b-1) fees of 1.00%	service (12b-1) fees of 1.00%
For an investment of $2 million	Converts to Class A shares	Does not convert to Class A
or more, only Class A shares	8 years after the month in which	shares, so annual expenses
are available	the shares were purchased, thus	do not decrease
	reducing future annual expenses
	For an investment of $300,000
	or more, your financial advisor
	typically will recommend
	purchase of Class A shares due
	to a reduced sales charge and
	lower annual expenses

¹ A 1% CDSC may apply to purchases of $2 million or more of Class A shares that are redeemed within twelve months of purchase.

General Comparison of Class A, Class B and Class C Shares -- Ivy Money Market Fund
Class A	Class B	Class C
No Initial sales charge	No initial sales charge	No initial sales charge
Funds Plus Service optional	Funds Plus Service typically	Funds Plus Service typically
	required for direct investment	required for direct investment
No deferred sales charge	Deferred sales charge on	A 1% deferred sales charge on
	shares you sell within six	shares you sell within twelve
	years after purchase	months after purchase
No distribution and service	Maximum distribution and	Maximum distribution and
(12b-1) fees	service (12b-1) fees of 1.00%	service (12b-1) fees of 1.00%
For an investment of $2 million	Converts to Class A shares	Does not convert to Class A
or more, only Class A shares	8 years after the month in which	shares, so annual expenses
are available	the shares were purchased, thus	do not decrease
	reducing future annual expenses

Each Fund has adopted a Distribution and/or Service Plan (Plan) pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (1940 Act) for each of its Class A, Class B,
Class C shares. Under the Class A Plan, a Fund may pay Ivy Funds Distributor, Inc. (IFDI) a fee of up to 0.25%, on an annual basis, of the average daily net assets of the Class A shares. This fee is to reimburse and/or compensate IFDI for, either directly or through third parties, distributing the Fund's Class A shares, providing personal service to Class A shareholders and/or maintaining Class A shareholder accounts. Under the Class B Plan and the Class C Plan, each Fund may pay IFDI, on an annual basis, a service fee of up to 0.25% of the average daily net assets of that class to compensate IFDI for, either directly or through third parties, providing personal service to shareholders of that class and/or maintaining shareholder accounts for that class and a distribution fee of up to 0.75% of the average daily net assets of that class to compensate IFDI for, either directly or through third parties, distributing shares of that class. No payment of the distribution fee will be made, and no deferred sales char ge will be paid, to IFDI by any Fund if, and to the extent that, the aggregate distribution fees paid by the Fund and the deferred sales charges received by IFDI with respect to the Fund's Class B or Class C shares would exceed the maximum amount of such charges that IFDI is permitted to receive under the NASD rules as then in effect.

Each of Ivy Asset Strategy Fund, Ivy Core Equity Fund, Ivy Dividend Income Fund, Ivy High Income Fund, Ivy International Growth Fund, Ivy Large Cap Growth Fund, Ivy Limited-Term Bond Fund, Ivy Mid Cap Growth Fund, Ivy Municipal Bond Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund and Ivy Tax-Managed Equity

Fund has adopted a Plan for its Class Y shares. Under the Class Y Plan for these Funds, each Fund may pay IFDI a fee of up to 0.25%, on an annual basis, of the average daily net assets of the Fund's Class Y shares to compensate IFDI for, either directly or through third parties, distributing the Class Y shares of that Fund, providing service to Class Y shareholders and/or maintaining Class Y shareholder accounts.

Because the fees of a class are paid out of the assets of that class on an ongoing basis, over time such fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

Class A shares are subject to an initial sales charge when you buy them (other than Ivy Money Market Fund), based on the amount of your investment, according to the tables below. As noted, Class A shares pay an annual 12b-1 fee of up to 0.25% of average Class A net assets, except Class A shares of Ivy International Fund issued prior to January 1, 1992 are not subject to an ongoing service fee. For this Fund, the annual service fee attributable to the Class A shares of the Fund may equal up to 0.25% of the net assets issued on or after January 1, 1992. The ongoing expenses of this class are lower than those for Class B or Class C shares and typically higher than those for Class Y shares or Advisor Class shares.

All Funds (except Ivy Limited-Term Bond Fund, Ivy Municipal Bond Fund and Ivy Money Market Fund)

Size of Purchase
		Sales Charge	Reallowance
	Sales Charge	as Approximate	to Dealers as
	as Percent of	Percent of	Percent of
	Offering Price	Amount Invested	Offering Price
under $100,000	5.75%	6.10%	5.00%
$100,000 to less than $200,000	4.75	4.99	4.00
$200,000 to less than $300,000	3.50	3.63	2.80
$300,000 to less than $500,000	2.50	2.56	2.00
$500,000 to less than $1,000,000	1.50	1.52	1.20
$1,000,000 to less than $2,000,000	1.00	1.01	0.75
$2,000,000 and over	0.001	0.001	0.50

Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund

Size of Purchase
		Sales Charge	Reallowance
	Sales Charge	as Approximate	to Dealers as
	as Percent of	Percent of	Percent of
	Offering Price	Amount Invested	Offering Price
Under $100,000	4.25%	4.44%	3.60%
$100,000 to less than $300,000	3.25	3.36	2.75
$300,000 to less than $500,000	2.50	2.56	2.00
$500,000 to less than $1,000,000	1.50	1.52	1.20
$1,000,000 to less than $2,000,000	1.00	1.01	0.75
$2,000,000 and over	0.001	0.001	0.50

¹ No sales charge is payable at the time of purchase on investments of $2 million or more, although for such investments the Fund may impose a CDSC of 1.00% on certain redemptions made within twelve months of the purchase. The CDSC is

assessed on an amount equal to the lesser of the then current market value or the cost of the shares being redeemed. Accordingly, no sales charge is imposed on increases in net asset value above the initial purchase price.

IFDI or its affiliates may pay additional compensation from its own resources to securities dealers based upon the value of shares of a Fund owned by the dealer for its own account or for its customers, including compensation for shares of the Funds purchased by customers of such dealers without payment of a sales charge.

Sales Charge Reductions and Waivers

Lower sales charges are available by:

* Combining additional purchases of Class A shares of any of the funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc. except Class A shares of Ivy Money Market Fund unless acquired by exchange for Class A shares on which a sales charge was paid (or as a dividend or distribution on such acquired shares), with the net asset value (NAV) of Class A shares already held (Rights of Accumulation)²

* Grouping all purchases of Class A shares of the funds referenced above, except shares of Ivy Money Market Fund, made during a thirteen-month period (Letter of Intent)²

* Grouping purchases by certain related persons²

Additional information and applicable forms are available from your financial advisor.

² Clients of Waddell & Reed, Inc. may also combine purchases of Class A shares of any of the funds in the Waddell & Reed Advisors Family of Funds, except Class A shares of Waddell & Reed Advisors Cash Management, Inc.

Sales Charge Waivers for Certain Investors

Class A shares may be purchased at NAV by:

* Shareholders investing through certain investment advisors and financial planners who charge a management, consulting or other fee for their services

* The Trustees and officers of the Ivy Fund, the Directors and officers of Ivy Funds, Inc. or of any affiliated entity of WRIICO, employees of IFDI and its affiliates, financial advisors of Waddell & Reed and its affiliates and the spouse, children, parents, children's spouses and spouse's parents of each, including purchases into certain retirement plans and certain trusts for these individuals

* New Shareholders, if the purchase is made with the proceeds of the redemption of shares of a mutual fund which is not within the Waddell & Reed Advisors Family of Funds or Ivy Family of Funds and the purchase is made within sixty (60) days of such redemption

* Participants in a 401(k) plan or a 457 plan having 100 or more eligible employees that are participants, and the shares are held in individual plan participant accounts on the Fund's records

* The Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI.

* Friends of the Firm which include certain persons who have an existing relationship with IFDI or any of its affiliates

You will find more information in the Fund's SAI about sales charge reductions and waivers.

Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption amount of Class B, Class C or certain Class A shares and paid to IFDI, as further described below. The purpose of the CDSC is to compensate IFDI for the costs incurred by it in connection with the sale of the Fund's Class B or Class C shares or certain Class A shares. The CDSC will not be imposed on shares representing payment of dividends or other distributions and will be assessed on an amount equal to the lesser of the then current market value or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. Solely for purposes of determining the number of months or years from the time of any payment for the purchase of shares, all payments during a month are totaled and deemed to have been made on the first day of the month.

To keep your CDSC as low as possible, each time you place a request to redeem shares, the Fund assumes that a redemption is made first of shares not subject to a CDSC (including shares which represent reinvested dividends and distributions), and then of shares that represent the lowest sales charge.

Unless instructed otherwise, a Fund, when requested to redeem a specific dollar amount, will redeem additional shares of the applicable class that are equal in value to the CDSC. For example, should you request a $1,000 redemption and the applicable CDSC is $27, the Fund will redeem shares having an aggregate NAV of $1,027, absent different instructions. The shares redeemed for payment of the CDSC are not subject to a CDSC.

Class B shares are not subject to an initial sales charge when you buy them. However, you may pay a CDSC if you sell your Class B shares within six years of their purchase, based on the table below. As noted above, Class B shares pay an annual 12b-1 service fee of up to 0.25% of average net assets and a distribution fee of up to 0.75% of average net assets. Over time, these fees will increase the cost of your investment and may cost you more than if you had purchased Class A shares. Class B shares, and any dividends and distributions paid on such shares, automatically convert to Class A shares eight years after the end of the month in which the shares were purchased. Such conversion will be on the basis of the relative net asset values per share, without the imposition of any sales load, fee or other charge. The conversion from Class B shares to Class A shares is not considered a taxable event for Federal income tax purposes.

The Fund will redeem your Class B shares at their NAV next calculated after receipt of a written request for redemption in good order, subject to the CDSC identified below.

CDSC on Shares Sold Within Year		As % of Amount Subject to Charge
	1	5.0%
	2	4.0%
	3	3.0%
	4	3.0%
	5	2.0%
	6	1.0%
	7+	0.0%

In the table, a year is a 12-month period. In applying the CDSC, all purchases are considered to have been made on the first day of the month in which the purchase was made.

For example, if a shareholder opens an account on July 14, 2003, then redeems all Class B shares on July 12, 2004, the shareholder will pay a CDSC of 4%, the rate applicable to redemptions made within the second year of purchase.

Class C shares are not subject to an initial sales charge when you buy them, but if you sell your Class C shares within twelve months after purchase, you will pay a 1% CDSC, which will be applied to the lesser of amount invested or redemption value of the shares redeemed. For purposes of the CDSC, purchases of Class C shares within a month will be considered as being purchased on the first day of the month. As noted above, Class C shares pay an annual 12b-1 service fe e of up to 0.25% of average net assets and an annual distribution fee of up to 0.75% of average net assets. Over time, these fees will increase the cost of your investment and may cost you more than if you had purchased Class A shares. Class C shares do not convert to any other class; therefore, if you anticipate holding the shares for seven years or longer, Class C shares may not be appropriate.

The CDSC will not apply in the following circumstances:

* redemptions of shares requested within one year of the shareholder's death or disability, provided the Fund is notified of the death or disability at the time of the request and furnished proof of such event satisfactory to IFDI

* redemptions of shares made to satisfy required minimum distributions after age 70 1/2 from a qualified retirement plan, a required minimum distribution from an individual retirement account, Keogh plan or custodial account under section 403(b)(7) of the Internal Revenue Code of 1986, as amended (Code), a tax-free return of an excess contribution, or that otherwise results from the death or disability of the employee, as well as in connection with redempt ions by any tax-exempt employee benefit plan for which, as a result of a subsequent law or legislation, the continuation of its investment would be improper

* redemptions of shares purchased by current or retired Trustees or Directors of the Funds, Directors of affiliated companies, current or retired officers of the Funds, employees of IFDI and its affiliates, financial advisors of Waddell & Reed and its affiliates, and by the members of the immediate families of such persons

* redemptions of shares made pursuant to a shareholder's participation in any systematic withdrawal service adopted for a Fund (The service and this exclusion from the CDSC do not apply to a one-time withdrawal)

* redemptions the proceeds of which are reinvested within forty-five (45) days in shares of the same class of the Fund as that redeemed

* for Class C shares, redemptions made by shareholders that have purchased shares of the Fund through certain group plans that have selling agreements with IFDI and that are administered by a third party and/or for which brokers not affiliated with IFDI provide administrative or recordkeeping services

* the exercise of certain exchange privileges

* redemptions effected pursuant to the Fund's right to liquidate a shareholder's account if the aggregate NAV of the shares is less than $500, or less than $250 for Ivy Money Market Fund

* redemptions effected by another registered investment company by virtue of a merger or other reorganization with a Fund or redemptions by a former shareholder of such investment company of shares of the Fund acquired pursuant to such reorganization

These exceptions may be modified or eliminated by a Fund at any time without prior notice to shareholders, except with respect to redemptions effected pursuant to the Fund's right to liquidate a shareholder's shares, which requires certain notice.

Class Y shares are not subject to a sales charge. Class Y shares pay an annual 12b-1 distribution and/or service fee of up to 0.25% of average net assets.¹

Class Y shares are only available for purchase by:

* participants of employee benefit plans established under section 403(b) or section 457, or qualified under section 401 of the Code, including 401(k) plans, when the plan has 100 or more eligible employees that are participants and holds the shares in an omnibus account on the Fund's records, and an unaffiliated third party provides administrative, distribution and/or other support services to the plan

* banks, trust institutions, investment fund administrators and other third parties investing for their own accounts or for the accounts of their customers where such investments for customer accounts are held in an omnibus account on the Fund's records, and to which entity an unaffiliated third party provides administrative, distribution and/or other support services

* government entities or authorities and corporations whose investment within the first twelve months after initial investment is $10 million or more and to which entity an unaffiliated third party provides certain administrative,

distribution and/or other support services

* certain retirement plans and trusts for employees of Waddell & Reed and its affiliates

Advisor Class shares are not subject to a sales charge or annual 12b-1 fees.¹

Advisor Class shares are offered only to the following investors:

* trustees or other fiduciaries purchasing shares for employee benefit plans that are sponsored by organizations that have at least 1,000 employees

* any account with assets of at least $10,000 if (a) a financial planner, trust company, bank trust department or registered investment adviser has investment discretion, and where the investor pays such person as compensation for his advice and other services an annual fee of at least 0.50% on the assets in the account, or (b) such account is established under a "wrap fee" program and the account holder pays the sponsor of the program an annual fee of at least 0.50% on the assets in the account

* officers and Board members of the Ivy Fund (and their relatives)

* directors or employees of Waddell & Reed Financial, Inc. or its affiliates

* directors, officers, partners, registered representatives, employees and retired employees (and their relatives) of dealers having a sales agreement with IFDI (or trustees or custodians of any qualified retirement plan or IRA established for the benefit of any such person.)

¹Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund do not currently offer Class Y shares. Advisor Class shares are offered only by this group of Funds.

Ways to Set Up Your Account

The different ways to set up (register) your account are listed below.

Individual or Joint Tenants

For your general investment needs

Individual accounts are owned by one person. Joint accounts have two or more owners (tenants).

Business or Organization

For investment needs of corporations, associations, partnerships, institutions or other groups

Retirement and other Tax-Advantaged Savings Plans

To shelter your savings from income taxes

Retirement and other tax-advantaged savings plans allow individuals to shelter investment income and capital gains from current income taxes. In addition, contributions to these accounts (other than Roth IRAs and Coverdell Education Savings Accounts) may be tax-deductible.

* Individual Retirement Accounts (IRAs) allow certain individuals under age 70 1/2, with earned income, to invest up to the Annual Dollar Limit per year. For the 2002 through 2004 calendar years, the Annual Dollar Limit is $3,000. For

individuals who have attained age 50 by the last day of the calendar year for which a contribution is made, the Annual Dollar Limit also allows a catch-up contribution. The maximum annual catch-up contribution is $500 for the 2002 through 2005 calendar years. An individual's maximum IRA contribution for a taxable year is reduced by the amount of any contributions that individual makes to a Roth IRA for that year. The maximum annual contribution for an individual and his or her spouse is two times the Annual Dollar Limit or, if less, the couple's combined earned income for the tax year.

* IRA Rollovers retain special tax advantages for certain distributions from employer-sponsored retirement plans.

* Roth IRAs allow certain individuals to make nondeductible contributions up to the Annual Dollar Limit per year (as identified above). The maximum annual contribution for an individual and his or her spouse is two times the Annual Dollar Limit or, if less, the couple's combined earned income for the taxable year. Withdrawals of earnings may be tax-free if the account is at least five years old and certain other requirements are met.

* Coverdell Education Savings Accounts (formerly, Education IRAs) are established for the benefit of a minor, with nondeductible contributions up to $2000 per taxable year, and permit tax-free withdrawals to pay the qualified education expenses of the beneficiary.

* Simplified Employee Pension Plans (SEP-IRAs) provide small business owners or those with self-employed income (and their eligible employees) with many of the same advantages and contribution limits as a profit sharing plan but with fewer administrative requirements.

* Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established by small employers to contribute to, and allow their employees to contribute a portion of their wages on a pre-tax basis to, retirement accounts. This plan-type generally involves fewer administrative requirements than 401(k) or other qualified plans.

* Keogh Plans allow self-employed individuals to make tax-deductible contributions for themselves of up to 100% of their adjusted annual earned income, with a maximum of $40,000.

* Pension and Profit-Sharing Plans, including 401(k) Plans, allow corporations and nongovernmental tax-exempt organizations of all sizes and/or their employees to contribute a percentage of the employees' wages or other amounts on a tax-deferred basis. These accounts need to be established by the administrator or trustee of the plan.

* 403(b) Custodial Accounts are available to employees of public school systems, churches and certain types of charitable organizations.

*457 Accounts allow employees of state and local governments and certain charitable organizations to contribute a portion of their compensation on a tax-deferred basis.

Gifts or Transfers to a Minor

To invest for a child's education or other future needs

These custodial accounts provide a way to give money to a child and obtain tax benefits. An individual can give up to $11,000 a year per child free of Federal transfer tax consequences. Depending on state laws, you can set up a custodial account under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA).

Trust

For money being invested by a trust

The trust must be established before an account can be opened, or you may use a trust form made available by IFDI. Contact your financial advisor for the form.

Buying Shares

You may buy shares of each of the Funds through IFDI and through third parties that have entered into selling arrangements with IFDI. To open your account you must complete and sign an application. Your financial advisor can help you with any questions you might have.

By mail: To purchase any class of shares by check, make your check payable to Ivy Funds Distributor, Inc. Mail the check, along with your completed application, to:

Ivy Funds Distributor, Inc.

P. O. Box 29217

Shawnee Mission, Kansas

66201-9217

By wire: To purchase shares of the Fund by wire, you must first obtain an account number by calling 800-777-6472, then mail a completed application to IFDI at the above address, or fax it to 800-532-2749. Instruct your bank to wire the amount you wish to invest, along with the account number and registration, to UMB Bank, n.a., ABA Number 101000695, DDA Number 98-0000-797-8.

The price to buy a share of a Fund, called the offering price, is calculated every business day.

The offering price of a share (the price to buy one share of a particular class) is the next NAV calculated per share of that class plus, for Class A shares, the applicable sales charge.

In the calculation of a Fund's NAV:

* The securities in the Fund's portfolio that are listed or traded on an exchange are valued primarily using market prices.

* Bonds are generally valued according to prices quoted by an independent pricing service.

* Short-term debt securities are valued at amortized cost, which approximates market value.

* Other investment assets for which market prices are unavailable are valued at their fair value by or at the direction of a Fund's Board of Directors or Board of Trustees.

Each Fund is open for business every day the New York Stock Exchange (NYSE) is open. The Funds normally calculate their NAVs as of the close of business of the NYSE, normally 4 p.m. Eastern time, except that an option or futures contract held by a Fund may be priced at the close of the regular session of any other securities exchange on which that instrument is traded.

As noted, some of the Funds may invest in securities listed on foreign exchanges which may trade on Saturdays or on U.S. national business holidays when the NYSE is closed. Consequently, the NAV of Fund shares may be significantly affected on days when a Fund does not price its shares and when you are not able to purchase or redeem a Fund's shares. Similarly, if an event materially affecting the value of foreign investments or foreign currency exchange rates occurs prior to the close of busines s of the NYSE but after the time their values are otherwise determined, such investments or exchange rates may be valued at their fair value as determined in good faith by or under the direction of each Fund's Board of Trustees or Board of Directors.

When you place an order to buy shares, your order will be processed at the next offering price calculated after your order is received and accepted. Note the following:

* All of your purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. Neither cash nor post-dated checks will be accepted.

* If you buy shares by check, and then sell those shares by any method other than by exchange to another fund in the Ivy Family of Funds, the payment may be delayed for up to ten (10) days from the date of purchase to ensure that your previous investment has cleared.

* If you purchase shares of a Fund from certain broker-dealers, banks or other authorized third parties, the Fund will be deemed to have received your purchase order when that third party (or its designee) has received your order. Your order will receive the offering price next calculated after the order has been received in proper form by the authorized third party (or its designee). You should consult that firm to determine the time by which it must rece ive your order for you to purchase shares of a Fund at that day's price.

* Dealers that perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients' permission to perform those transactions, and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly.

When you sign your account application, you will be asked to certify that your Social Security number or other taxpayer number is correct and whether you are subject to backup withholding for failing to report income to the Internal Revenue Service.

IFDI reserves the right to reject any purchase orders, including purchases by exchange, and it and the Funds reserve the right to discontinue offering Fund shares for purchase.

Minimum Investments
	For Class A, Class B and Class C:
	To Open an Account	$500 (per Fund)
	For certain exchanges	$100 (per Fund)
	For certain retirement accounts and accounts
	opened with Automatic Investment Service	$50 (per Fund)
	For certain retirement accounts and accounts
	opened through payroll deductions	$25 (per Fund)
	To Add to an Account	Any amount
	For certain exchanges	$100 (per Fund)
	For Automatic Investment Service	$25 (per Fund)
For Class Y:
To Open an Account
	For a government entity or authority	$10 million
	or for a corporation	(within first twelve months)
	For other eligible investors	Any amount
	To Add to an Account	Any amount
	For Advisor Class:
	To Open an Account	$10,000
	To Add to an Account	$250

Adding to Your Account

Subject to the minimums described above, you can make additional investments of any amount at
any time.

By mail: Make your check payable to Ivy Funds Distributor, Inc. Mail the check to IFDI, along with the detachable form that accompanies the confirmation of a prior purchase or your year-to-date statement, or a letter stating your account number, the account registration, the Fund and the class of shares that you wish to purchase.

By wire: Instruct your bank to wire the amount you wish to invest, along with the account number and registration, to UMB Bank, n.a., ABA Number 101000695, DDA Number 98-0000-797-8.

By Automatic Investment Method: You can authorize to have funds electronically drawn each month from your bank account through Electronic Funds Transfer ("EFT") and invested as a purchase of shares into your Fund account. Complete the appropriate sections of the Account Application.

If you purchase shares of the Fund from certain broker-dealers, banks or other authorized third parties, additional purchases may be made through those firms.

Selling Shares

You can arrange to take money out of your Fund account at any time by selling (redeeming) some or all of your shares.

The redemption price (price to sell one share of a particular class of the Fund) is the NAV per share of that Fund class, subject to any applicable CDSC.

By mail: Complete an Account Service Request form, available from your financial advisor, or write a letter of instruction with:

* the name on the account registration

* the Fund's name

* the account number

* the dollar amount or number, and the class, of shares to be redeemed

* any other applicable requirements listed in the table on page 109

Deliver the form or your letter to:

Ivy Client Services

c/o Waddell & Reed Services Company

P. O. Box 29217

Shawnee Mission, Kansas

66201-9217

Unless otherwise instructed, a check will be sent to the address on the account. For your protection, the address of record must not have been changed within 30 days prior to your redemption request.

By telephone: If you have elected this method in your application or by subsequent authorization, call 800-777-6472, or fax your request to 800-532-2749, and give your instructions to redeem your shares (redemption must be equal to or greater than $1,000.00) and make payment by wire to your predesignated bank account or by check to you at the address on the account. For your protection, banking wire information must be established on your account for a minimum of 30 days before a wire redemption will be processed. Requests by telephone can only be accepted for amounts up
to $50,000.

By Internet: You need to have selected the Internet option on your Account Application. Once your request for this option has been processed (which may take up to 10 days), you may place your redemption order at www.ivyfunds.com. For your protection, your redemption proceeds will be mailed to your address of record, which may not have been changed within 30 days prior to your redemption request.

To sell Class A shares of Ivy Money Market Fund by check: If you have elected this method in your application or by subsequent authorization, the Fund will provide you with forms or checks drawn on UMB Bank, n.a. You may make these checks payable to the order of an payee in any amount of $250 or more.

When you place an order to sell shares, your shares will be sold at the next NAV calculated, subject to any applicable CDSC, after receipt of a written request for redemption in good order by Ivy Client Services (on behalf of Waddell & Reed Services Company) at the address listed above. Note the following:

* If more than one person owns the shares, each owner must sign the written request.

* If you recently purchased the shares by check, the Fund may delay payment of redemption proceeds. You may arrange for the bank upon which the purchase check was drawn to provide telephone or written assurance, satisfactory to the Fund, that the check has cleared and been honored. If you do not, payment of the redemption proceeds on these shares will be delayed until the earlier of ten (10) days from the date of purchase or the date the Fund can verify that yo ur purchase check has cleared and been honored.

* Redemptions may be suspended or payment dates postponed on days when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted or as permitted by the Securities and Exchange Commission.

* Payment is normally made in cash, although under extraordinary conditions redemptions may be made in portfolio securities when the Fund's Board of Directors determines that conditions exist making cash payments undesirable. A Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.

* If you purchased shares of a Fund from certain broker-dealers, banks or other authorized third parties, you may sell those shares through those firms, some of which may charge you a fee and may have additional requirements to sell Fund shares. The Fund will be deemed to have received your order to sell shares when that firm (or its designee) has received your order. Your order will receive the NAV of the redeemed Class, subject to any applicable CDSC, next ca lculated after the order has been received in proper form by the authorized firm (or its designee). You should consult that firm to determine the time by which it must receive your order for you to sell shares at that day's price.

* Dealers that perform account transactions for their clients by participating in NETWORKING through the National Securities Clearing Corporation are responsible for obtaining their clients' permission to perform those transactions, and are responsible to their clients who are shareholders of the Fund if the dealer performs any transaction erroneously or improperly.

Special Requirements for Selling Shares
Account Type	Special Requirements
Individual or Joint Tenant	The written instructions must be signed by all persons required to
	sign for transactions, exactly as their names appear on the account.
Sole Proprietorship	The written instructions must be signed by the individual owner
	of the business.
UGMA, UTMA	The custodian must sign the written instructions indicating capacity
	as custodian.
Retirement Account	The written instructions must be signed by a properly authorized
	person.
Trust	The trustee must sign the written instructions indicating capacity
	as trustee. If the trustee's name is not in the account registration,
	provide a currently certified copy of the trust document.
Business or Organization	At least one person authorized by corporate resolution to act on
	the account must sign the written instructions.
Conservator, Guardian	The written instructions must be signed by the person properly
or Other Fiduciary	authorized by court order to act in the particular fiduciary capacity.

A Fund may require a signature guarantee in certain situations such as:

* a redemption request made by a corporation, partnership or fiduciary

* a redemption request made by someone other than the owner of record

* the check is made payable to someone other than the owner of record

This requirement is to protect you and the Funds from fraud. You can obtain a signature guarantee from most banks and securities dealers, but not from a notary public.

Each Fund reserves the right to redeem at NAV all of your Fund shares in your account if the aggregate NAV of those shares is less than $500, or less than $250 for Ivy Money Market Fund. The Fund will give you notice and sixty (60) days to purchase a sufficient number of additional shares to bring the aggregate NAV of your shares in that Fund to $500. These redemptions will not be subject to a CDSC. The Fund will not apply its redemption right to individual retirement plan accounts or to accounts which have an aggregate NAV of less than $500 due to market forces.

You may reinvest, without charge, all or part of the amount of Class A shares of a Fund you redeemed by sending to the Fund the amount you want to reinvest. The reinvested amounts must be received by the Fund within forty-five (45) days after the date of your redemption. You may do this only once with Class A shares of a Fund.

The CDSC will not apply to the proceeds of Class A (as applicable), Class B or Class C shares of a Fund which are redeemed and then reinvested in shares of the same class of the Fund within forty-five (45) days after such redemption. IFDI will, with your reinvestment, restore an amount equal to the CDSC attributable to the amount reinvested by adding the CDSC amount to your reinvestment. For purposes of determining a future CDSC, the reinvestment will be treated as a new investment. You may do this only once as to Class B shares of a Fund and once as to Class C shares of a Fund. This privilege may be eliminated or modified at any time without prior notice to shareholders.

Payments of principal and interest on loans made pursuant to a 401(a) qualified plan (if such loans are permitted by the plan) may be reinvested, without payment of a sales charge, in Class A shares of any of the Funds in which the plan may invest.

Telephone Transactions

The Funds and their agents will not be liable for following instructions communicated by telephone that they reasonably believe to be genuine. Waddell & Reed Services Company (WRSCO), the Funds' transfer agent, will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If WRSCO fails to do so, WRSCO may be liable for losses due to unauthorized or fraudulent instructions. Current procedures relating to instructions

communicated by telephone include tape recording instructions, requiring personal identification and providing written confirmations of transactions effected pursuant to such instructions.

Shareholder Services

We provide a variety of services to help you manage your account.

Personal Service

Your local financial advisor is available to provide personal service. Additionally, a toll-free call, 800-777-6472, connects you to a Client Services Representative or our automated customer telephone service. During normal business hours, our Client Services staff is available to answer your questions or update your account records. At almost any time of the day or night, you may access your account information from a touch-tone phone, or from our web site, www.ivyfunds.co m, to:

* obtain information about your accounts

* obtain price information about other funds in the Ivy Family of Funds

* obtain a Fund's current prospectus

* request duplicate statements

* transact certain account activity, including exchange privileges and redemption of shares

Reports

Statements and reports sent to you include the following:

* confirmation statements (after every purchase, other than those purchases made through Automatic Investment Service, and after every exchange, transfer or redemption)

* year-to-date statements (quarterly)

* annual and semiannual reports to shareholders (every six months)

To avoid sending duplicate copies of materials to households and thereby reduce expenses, only one copy of the most recent prospectus, annual and semiannual reports of the Funds may be mailed to Shareholders having the same last name and address in the Fund's records. The consolidation of these mailings, called householding, benefits the Fund through reduced mailing expense. You may call the telephone number listed for Client Services if you need additional copies.

Exchanges

Except as otherwise noted, you may sell your shares and buy shares of the same Class of another Fund in the Ivy Family of Funds without the payment of an additional sales charge if you exchange Class A shares or without payment of a CDSC when you exchange Class B or Class C shares. For Class B and Class C shares, or Class A shares to which the CDSC would otherwise apply, the time period for the CDSC will continue to run. You may sell your Advisor Class or Class Y shares of any of the Funds and buy either Advisor Class or Class Y shares of another Fund or Class A shares of Ivy Money Market Fund.

You may exchange any Class A shares of Ivy Limited-Term Bond and Ivy Municipal Bond Funds that you have held for at least six months and any Class A shares of these Funds acquired as payment of a dividend or distribution for Class A shares of any other Fund in the Ivy Family of Funds. You may exchange Class A shares of Ivy Limited-Term Bond and

Ivy Municipal Bond Funds that you have held for less than six months only for Class A shares of Ivy Limited-Term Bond, Ivy Municipal Bond and Ivy Money Market Funds.

You may exchange only into Funds that are legally permitted for sale in your state of residence. Currently, each fund within the Ivy Family of Funds may only be sold within the United States and the Commonwealth of Puerto Rico, except that Ivy Cundill Global Value Fund, Ivy Global Natural Resources Fund, Ivy Pacific Opportunities Fund and the Advisor Class shares of Ivy International Fund are not eligible for sale in the Commonwealth of Puerto Rico. Note that exchanges out of a Fund may have ta x consequences for you. Before exchanging into a Fund, read its prospectus.

How to Exchange

By mail: Send your written exchange request to Ivy Client Services at the address on page 108 of
this Prospectus.

By telephone: Call IFDI at 800-777-6472 to authorize an exchange transaction. To process your exchange order by telephone, you must have telephone exchange privileges on your account. IFDI employs reasonable procedures that require personal identification prior to acting on exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such procedures, the Fund or IFDI may be liable for any losses due to unauthorized o r fraudulent telephone instructions.

By Internet: You will be allowed to exchange by Internet if (1) you can provide proper identification information; and (2) you have established the Internet trading option.

Important Exchange Information

* You must exchange into the same share class you currently own (except that you may exchange Class Y shares or Advisor Class shares of any of the Funds for Class A shares of Ivy Money Market Fund).

* Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes.

* It is the policy of the Funds to discourage the use of the exchange privilege for the purpose of timing short term market fluctuations. The Funds may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used.

Automatic Transactions for Class A, Class B and Class C Shareholders

Regular Investment Plans allow you to transfer money into your Fund account, or between Fund accounts, automatically. While Regular Investment Plans do not guarantee a profit and will not protect you against loss in a declining market, they can be an excellent way to invest for retirement, a home, educational expenses and other long-term financial goals.

Systematic Withdrawal Plan lets you set up ongoing monthly, quarterly, semiannual or annual redemptions from your account.

Certain restrictions and fees imposed by the plan custodian may also apply for retirement accounts. Speak with your financial advisor for more information.

	Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
		Minimum Amount	Minimum Frequency
		$25 (per Fund)	Monthly
Funds Plus Service
To move money from Ivy Money Market Fund to a Fund whether in the same or a different account but in the same class
		Minimum Amount	Minimum Frequency
		$100 (per Fund)	Monthly

Distributions and Taxes

Distributions

Each Fund distributes substantially all of its net investment income and net capital gains to its shareholders each year.

Usually, a Fund distributes net investment income at the following times: Ivy Core Equity Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Value Fund, Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund, Ivy Pacific Opportunities Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund and Ivy Tax-Managed Equity Fund, annually in December; and Ivy Asset Strategy Fund and Ivy Dividend Income Fund, quarterly in March, June, September and December. Ivy High Income Fund, Ivy Limited-Term Bond Fund, Ivy Money Market Fund and Ivy Municipal Bond Fund declare dividends from net investment income daily and pay them monthly. Net capital gains (and any net gains from foreign currency transactions) ordinarily are distributed by each Fund in December. Ordinarily, dividends are paid on shares starting on the day after they are issued and through the day they are redeemed.

Distribution Options. When you open an account, you may specify on your application how you want to receive your distributions. Each Fund offers two options:

1. Share Payment Option. Your dividends, capital gains and other distributions with respect to a class will be automatically paid in additional shares of the same class of the Fund. If you do not indicate a choice on your application, you will be assigned this option.

2. Cash Option. You will be sent a check for your dividends, capital gains and other distributions if the total distribution is equal to or greater than five dollars. If the distribution is less than five dollars, it will be automatically paid in additional shares of the same class of the Fund.

For retirement accounts, all distributions are automatically paid in additional shares.

Taxes

As with any investment, you should consider how your investment in a Fund will be taxed. If your account is not a retirement account or other tax-advantaged savings plan (or you are not otherwise exempt from income tax), you should be aware of the following tax implications:

Taxes on distributions. You may be subject to tax as a result of income generated at the Fund level, to the extent the Fund makes actual or deemed distributions of such income to you. Dividends from the Fund's investment company taxable income (which includes net short-term capital gains and net gains from certain foreign currency transactions), if any, generally are taxable to you as ordinary income whether received in cash or paid in additional Fund shares, unless s uch dividends are "qualified dividend income" eligible for the reduced rate of tax on long-term capital gains, as described below. Distributions of the Fund's net capital gains (the excess of net long-term capital gains over net short-term capital loss), when designated as such, are taxable to you as long-term capital gains, whether received in cash or paid in additional Fund shares and regardless of the length of time you have owned your shares. For Federal income tax purposes, long-term capital gains gene rally are taxed at a maximum rate of 15% for noncorporate shareholders. As a result of changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003, "qualified dividend income" received by noncorporate shareholders is taxed as net capital gain. The portion of the dividends that the Fund pays which is attributable to qualified dividend income received by the Fund will qualify for such treatment in the hands of noncorporate shareholders of the Fund.

Each Fund notifies you after each calendar year-end as to the amounts of dividends and other distributions paid (or deemed paid) to you for that year.

Distributions by Ivy Municipal Bond Fund that are designated by it as exempt-interest dividends generally may be

excluded by you from your gross income. A portion of the exempt-interest dividends paid by Ivy Municipal Bond Fund is expected to be attributable to interest on certain bonds that must be treated, by you, as a tax preference item for purposes of calculating your liability, if any, for the AMT; the Fund anticipates such portion will not be more than 40% of the dividends it will pay, a nnually, to its shareholders. Ivy Municipal Bond Fund will provide you with information concerning the amount of distributions that is a tax preference item after the end of each calendar year. Shareholders who may be subject to the AMT should consult with their tax advisers concerning investment in the Fund.

Entities or other persons who are substantial users (or persons related to substantial users) of facilities financed by PABs should consult their tax advisers before purchasing Ivy Municipal Bond Fund shares because, for users of certain of these facilities, the interest on those bonds is not exempt from Federal income tax. For these purposes, the term substantial user is defined generally to include a non-exempt person who regularly uses, in trade or business, a part of a facility financed fr om the proceeds of PABs.

A portion of the dividends paid by a Fund, whether received in cash or paid in additional Fund shares, may be eligible for the dividends received deduction allowed to corporations. The eligible portion may not exceed the aggregate dividends received by a Fund from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends received deduction are subject indirectly to the Federal alternative minimum tax.

None of the dividends paid by Ivy Limited-Term Bond Fund, Ivy Municipal Bond Fund or Ivy Money Market Fund are expected to be eligible for this deduction.

Taxes on transactions. Your redemption of Fund shares will result in a taxable gain or loss to you, depending on whether the redemption proceeds are more or less than what you paid for the redeemed shares (which normally includes any sales charge paid).

An exchange of Fund shares for shares of any other fund in the Ivy Family of Funds generally will have similar tax consequences. However, special rules apply when you dispose of a Fund's Class A shares through a redemption or exchange within ninety (90) days after your purchase and then reacquire Class A shares of that Fund or acquire Class A shares of another fund in the Ivy Family of Funds without paying a sales charge due to the forty-five (45) day reinvestment privilege or exchange privileg e. See Your Account -- Selling Shares. In these cases, any gain on the disposition of the original Class A Fund shares will be increased, or loss decreased, by the amount of the sales charge you paid when those shares were acquired, and that amount will increase the adjusted basis of the shares subsequently acquired. In addition, if you purchase shares of a Fund within thirty (30) days before or after redeeming other shares of the Fund (regardless of class) at a loss, part or all of that loss will no t be deductible and will increase the basis of the newly purchased shares.

Withholding. Each Fund must withhold a portion of all dividends and capital gains distributions and redemption proceeds payable to individuals and certain other noncorporate shareholders who do not furnish the Fund with a correct taxpayer identification number. Withholding at that rate is also required from dividends and capital gains distributions payable to shareholders who are otherwise subject to backup withholding.

State and local income taxes. The portion of the dividends a Fund pays that is attributable to interest earned on U.S. Government securities generally is not subject to state and local income taxes, although distributions by any Fund to its shareholders of net realized gains on the sale of those securities are fully subject to those taxes. You should consult your tax adviser to determine the taxability in your state and locality of dividends and other distributions by the Funds.

The foregoing is only a summary of some of the important Federal income tax considerations generally affecting each Fund and its shareholders; you will find more information in the SAI. There may be other Federal, state or local tax considerations applicable to a particular investor. You are urged to consult your own tax adviser.

THE MANAGEMENT OF THE FUNDS

Portfolio Management

The Funds, other than Ivy Global Natural Resources Fund, are managed by WRIICO, subject to the authority of the Board of Trustees of Ivy Fund and the Board of Directors of Ivy Funds, Inc. WRIICO provides investment advice to each of the Funds in Ivy Funds, Inc. and supervises each such Fund's investments. WRIICO provides business management services to each of the Funds in Ivy Fund and investment advisory services to all of the Funds in Ivy Fund other than Ivy Global Natural Resources Fund. WRI ICO has served as investment manager to Ivy Fund since December 31, 2002,¹ and to Ivy Funds, Inc. since June 30, 2003. WRIICO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Prior to June 30, 2003, Waddell & Reed Investment Management Company (WRIMCO) served as the investment manager for each of the Funds in the Ivy Funds, Inc. On June 30, 2003, WRIMCO assigned the Investment Management Agreement with Ivy Funds, Inc. (formerly W&R Funds, Inc.) to WRIIC O.

Cundill, an SEC-registered investment adviser located at Suite A1, 1470 East Valley Road, P.O. Box 50133, Montecito, California, 93150-0133, serves as subadvisor to Ivy Cundill Global Value Fund under an agreement with WRIICO. Cundill began operations in 1984, and as of December 31, 2002 (along with its affiliates) had approximately $1.8 billion in assets under management. For its services, Cundill receives a fee from WRIICO that is equal, on an annual basis, to 0.50% of Ivy Cundill Global Valu e Fund's average net assets.

Under an agreement between WRIICO and Henderson Global Investors (North America) Inc. ("HGINA"), HGINA serves as subadvisor to Ivy European Opportunities Fund. WRIICO pays HGINA for its services a fee payable monthly at an annual rate of 0.45% of the first $100,000,000 of net assets and 0.40% thereafter of the portion of the Fund's average daily net assets managed by HGINA. Henderson Investment Management Ltd. ("Henderson"), 4 Broadgate Avenue, London, England EC2M 2DA, under a subadvisory agre ement with HGINA, serves as subadvisor to the Fund. For the period from January 1, 2002 to December 16, 2002 WRIICO paid Henderson for its services a fee that was equal on an annual basis to 0.22% of each Fund's average daily net assets. Henderson is an indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located in New South Wales, Australia.

Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S 3B5, serves as the investment adviser to Ivy Global Natural Resources Fund and is responsible for selecting Ivy Global Natural Resources Funds' portfolio investments. MFC has been an investment counsel and mutual fund manager in Toronto for more than 34 years, and as of December 31, 2002 had over $21.8 billion in assets under management. For its services, MFC receives a fee from the Fund that is equal, on an annual basis, to 0.50% of the Fund's average net assets.

Ivy Asset Strategy Fund: Michael L. Avery is primarily responsible for the management of the equity portion of the Ivy Asset Strategy Fund. Mr. Avery has held his Fund responsibilities since January 1997. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From March 1995 to March 1998, Mr. Avery was Vice President of, and Director of Research for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr. Avery has served as the portfolio manager for investment companies managed by WRIMCO since February 1994, has served as the Director of Research for WRIMCO and its predecessor since August 1987, and has been an employee of such since June 1981. He holds a BS degree in Business Administration from the University of Missouri, and an MBA with emphasis on finance from Saint Louis University.

Daniel J. Vrabac is primarily responsible for the management of the fixed-income portion of the Asset Strategy Fund. Mr. Vrabac has held his Fund responsibilities since January 1997. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From May 1994 to March 1998, Mr. Vrabac was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr. Vr abac has been an employee of WRIMCO since May 1994. He earned a BA degree in economics from Duquesne University, and holds an MBA with emphasis in Investments and Finance from Indiana University.

Ivy Core Equity Fund: James D. Wineland is primarily responsible for the management of the Ivy Core Equity Fund. Mr. Wineland has held his Fund responsibilities since July 1997. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From March 1995 to March 1998 Mr. Wineland was Vice President of, and a portfolio manager for, Waddell & Reed Asset M anagement Company. Mr. Wineland has served as the portfolio manager for investment companies managed by WRIMCO and its predecessor since January 1988 and has been an employee of such since November 1984. He graduated from the United States Military Academy at West Point, and earned an MBA at the University of Kansas. Mr. Wineland is a Chartered Financial Analyst.

Ivy Dividend Income Fund: David P. Ginther is primarily responsible for the management of the Ivy Dividend Income Fund. He has held his Fund responsibilities since the inception of the Fund. He is Senior Vice President of WRIICO, Vice President of WRIMCO and portfolio manager for another investment company for which WRIMCO serves as investment manager, and has been an employee of WRIMCO since 1995. Mr. Ginther holds a BS degree in accounting from Kansas State Universi ty, and has earned the designation of Certified Public Accountant.

Ivy High Income Fund: Louise D. Rieke is primarily responsible for the management of the Ivy High Income Fund. Ms. Rieke has held her Fund responsibilities since July 1997. She is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From November 1985 to March 1998, Ms. Rieke was Vice President of, and a portfolio manager for, Waddell & Reed Asset Mana gement Company, a former affiliate of WRIMCO. Ms. Rieke has served as the portfolio manager for investment companies managed by WRIMCO and its predecessor since July 1986 and has been an employee of such since May 1971. She received a BS degree in Accounting from Kansas State University, and holds an MBA from the University of Missouri at Kansas City. Ms. Rieke has earned the designation of Certified Public Accountant, and is a Chartered Financial Analyst.

Ivy Cundill Global Value Fund: The Fund is managed by investment professionals who are supported by a team of research analysts who are responsible for providing information on regional and country-specific economic and political developments and monitoring individual companies.

F. Peter Cundill, founder and majority shareholder has over 32 years of value-investing experience and has managed MFC's Cundill Value Fund since 1975. He is a Chartered Financial Analyst, a Chartered Accountant and holds a Bachelor of Commerce degree from McGill University, Montreal.

Hiok Hhu Ng, Portfolio Manager, assists in the management of the Fund. Mr. Ng holds a degree in finance from the University of British Columbia and is a Chartered Financial Analyst. He has been with Cundill since receiving his degree in 1998.

Ivy European Opportunities Fund: Stephen Peak, Executive Director of Henderson and head of Henderson's European equities team, is primarily responsible for is the management of the Ivy European Opportunities Fund. Formerly a director and portfolio manager with Touche Remnant & Co., Mr. Peak has 28 years of investment experience. He joined Henderson in 1986.

Ivy Global Natural Resources Fund: Frederick Sturm, a Senior Vice President of MFC, is primarily responsible for the management of the Ivy Global Natural Resources Fund. He has managed the Fund since its inception. Mr. Sturm joined MFC in 1983. He is a Chartered Financial Analyst and holds a graduate degree in commerce and finance from the University of Toronto.

Ivy International Fund, Ivy International Growth Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund: Thomas A. Mengel is primarily responsible for the management of the Ivy International Fund, Ivy International Growth Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund. Mr. Mengel has held his Fund responsibilities for Ivy International Growth Fund since May 1996, and for each of Ivy International Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund since December 2002. Mr. Mengel is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. He is a graduate of the University of Berlin with a degree in Business, Finance and Economics.

Ivy Large Cap Growth Fund: Daniel P. Becker is primarily responsible for the management of the Ivy Large Cap Growth Fund. Mr. Becker has held his Fund responsibilities since the inception of the Fund. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From January 1995 to March 1998, Mr. Becker was Vice President of, and a portfolio manager for, Wa ddell & Reed Asset Management Company. Mr. Becker has been an employee of WRIMCO and its predecessor since October 1989, initially serving as an investment analyst, and has served as a portfolio manager for WRIMCO since January 1997. He earned a BS degree in Mathematical Economics from the University of Wisconsin, and holds an MS degree with an emphasis in Finance, Investments and Banking from the University of Wisconsin Graduate School of Business. Mr. Becker is a Chartered Financial Analyst.

Ivy Limited-Term Bond Fund: W. Patrick Sterner is primarily responsible for the management of the Ivy Limited-Term Bond Fund. Mr. Sterner has held his Fund responsibilities since September 1992. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. From August 1992 to March 1998, Mr. Sterner was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. He has been an employee of WRIMCO since August 1992. Mr. Sterner earned a degree in Business Administration from the University of Kansas, and is a Chartered Financial Analyst.

Ivy Mid Cap Growth Fund: Kimberly A. Scott is primarily responsible for the management of the Ivy Mid Cap Growth Fund. Ms. Scott has held her Fund responsibilities since February 2001. She is Senior Vice President of WRIICO, Vice President of WRIMCO, Vice President of the Fund and Vice President of another investment company managed by WRIMCO. Ms. Scott served as an investment analyst with WRIMCO from April 1999 to February 2001. From 1994 to 1999, she was an equity a nalyst for Bartlett & Company. Ms. Scott earned a BS in microbiology from the University of Kansas, and holds an MBA from the University of Cincinnati. She is a Chartered Financial Analyst.

Ivy Money Market Fund: Mira Stevovich is primarily responsible for the management of the Ivy Money Market Fund. Ms. Stevovich has held her Fund responsibilities since the inception of the Fund. She is Senior Vice President of WRIICO, Vice President of WRIMCO, Vice President and Assistant Treasurer of the Fund and Vice President and Assistant Treasurer of other investment companies for which WRIMCO serves as investment manager. Ms. Stevovich has served as the Portfolio Manager for investment companies managed by WRIMCO since May 1998 and has been an employee of WRIMCO and its predecessor since March 1987. Ms. Stevovich earned a BA degree from Colorado Womens College. She holds an MA degree in Soviet and East European Studies and an MBA degree from the University of Kansas. Ms. Stevovich is a Chartered Financial Analyst.

Ivy Municipal Bond Fund: Bryan J. Bailey is primarily responsible for the management of the Ivy Municipal Bond Fund. Mr. Bailey has held his Fund responsibilities since June 2000. He is Senior Vice President of WRIICO, Vice President of WRIMCO, Vice President of the Fund and Vice President of another investment company for which WRIMCO serves as investment manager. Mr. Bailey had served as the Assistant Portfolio Manager for investment companies managed by WRIMCO sinc e January 1999 and has been an employee of WRIMCO since July 1993. Mr. Bailey earned a BS degree in business from Indiana University, and an MBA in financial management/statistics from the University of Chicago Graduate School of Business. He is a Chartered Financial Analyst.

Ivy Science and Technology Fund: Zachary H. Shafran is primarily responsible for the management of the Ivy Science and Technology Fund. Mr. Shafran has held his responsibilities since February 2001. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. Mr. Shafran served as an investment analyst with WRIMCO and its predecessor from June 1990 to Januar y 1996 and has served as a portfolio manager since January 1996. Mr. Shafran earned a BSBA degree in Business and an MBA with an emphasis in Finance from the University of Missouri at Kansas City.

Ivy Small Cap Growth Fund: Grant P. Sarris is primarily responsible for the management of the Ivy Small Cap Growth Fund. Mr. Sarris has held his Fund responsibilities since May 1998. He is Senior Vice President of WRIICO and WRIMCO, Vice President of the Fund and Vice President of other investment companies for which WRIMCO serves as investment manager. Mr. Sarris had served as an investment analyst with WRIMCO from October 1991 until January 1996 and had served as As sistant Portfolio Manager of Small Cap Growth Fund from January 1996 until May 1998. Mr. Sarris graduated from the University of Wisconsin with a BA degree in Japanese Language and Literature. He earned an MBA with an emphasis in Finance from the University of Minnesota, and is a Chartered Financial Analyst.

Ivy Tax-Managed Equity Fund: Barry M. Ogden is primarily responsible for the management of the Ivy Tax-Managed Equity Fund. Mr. Ogden has held his Fund responsibilities since January 2002. He is Senior Vice President of WRIICO, Vice President of WRIMCO, Vice President of the Fund and Vice President of another investment company for which WRIMCO serves as investment manager. Mr. Ogden has served as Assistant Portfolio Manager for investment companies managed by WRIMCO since January 1999 and has been an employee of WRIMCO since July 1994. He graduated from the University of Kansas with a BS degree in accounting, and has earned the designation of Certified Public Accountant. Mr. Ogden is a Chartered Financial Analyst.

Other members of WRIICO's investment management department provide input on market outlook, economic conditions, investment research and other considerations relating to a Fund's investments.

Management Fee

Like all mutual funds, the Funds pay fees related to their daily operations. Expenses paid out of each Fund's assets are reflected in its share price or dividends; they are neither billed directly to shareholders nor deducted from shareholder accounts.

Each Fund pays a management fee to WRIICO (except that Ivy Global Natural Resources Fund pays a management fee to MFC) for providing investment advice and supervising its investments. Each Fund also pays other expenses, which are explained in the SAI.

The management fee is payable by a Fund at the annual rates of:

* Ivy Money Market Fund: 0.40% of net assets

* Ivy Limited-Term Bond Fund: 0.50% of net assets up to $500 million, 0.45% of net assets over $500 million and up to $1 billion, 0.40% of net assets over $1 billion and up to $1.5 billion, and 0.35% of net assets over $1.5 billion

* Ivy Municipal Bond Fund: 0.525% of net assets up to $500 million, 0.50% of net assets over $500 million and up to $1 billion, 0.45% of net assets over $1 billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion

* Ivy High Income Fund: 0.625% of net assets up to $500 million, 0.60% of net assets over $500 million and up to $1 billion, 0.55% of net assets over $1 billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion

* Ivy Tax-Managed Equity Fund: 0.65% of net assets up to $1 billion, 0.60% of net assets over $1 billion and up to $2 billion, 0.55% of net assets over $2 billion and up to $3 billion, and 0.50% of net assets over $3 billion

* Ivy Asset Strategy Fund, Ivy Core Equity Fund, Ivy Dividend Income Fund, Ivy Large Cap Growth Fund: 0.70% of net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of net assets over $3 billion.

* Ivy International Growth Fund, Ivy Mid Cap Growth Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund: 0.85% of net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion

* Ivy European Opportunities Fund: 1.00% of net assets up to $250 million; 0.85% of net assets over $250 million and up to $500 million, and 0.75% of net assets over $500 million

* Ivy International Fund: 1.00% of net assets up to $2 billion, 0.90% of net assets over $2 billion and up to $2.5 billion, 0.80% of net assets over $2.5 billion and up to $3 billion, and 0.70% of net assets over $3 billion

* Ivy Cundill Global Value Fund, Ivy Global Natural Resources Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund: 1.00% of net assets

Management fees for the following Funds as a percent of the Fund's net assets for its fiscal year ended March 31, 2003 were:

		Management Fee
Fund	Management Fees Paid1	without Voluntary Waiver1
Ivy Asset Strategy Fund	0.70%	na
Ivy Core Equity Fund	0.70%	na
Ivy High Income Fund	0.00%	0.63%
Ivy International Growth Fund	0.85%	na
Ivy Large Cap Growth Fund	0.57%	0.70%
Ivy Limited-Term Bond Fund	0.50%	na
Ivy Mid Cap Growth Fund	0.00%	0.85%
Ivy Money Market Fund	0.00%	0.40%
Ivy Municipal Bond Fund	0.53%	na
Ivy Science and Technology Fund	0.85%	na
Ivy Small Cap Growth Fund	0.85%	na
Ivy Tax-Managed Equity Fund	0.00%	0.65%

¹ WRIICO has voluntarily agreed to waive its management fee for any day that a Fund's net assets are less than $25 million, subject to WRIICO's right to change or modify this waiver.

Management fees for the following Funds as a percent of the Fund's net assets for its fiscal year ended December 31, 2002 were:

Fund	Management Fees Paid
Ivy Cundill Global Value Fund	1.00%
Ivy European Opportunities Fund	1.00%
Ivy Global Natural Resources Fund	1.00%
Ivy International Fund	1.00%
Ivy International Value Fund	1.00%
Ivy Pacific Opportunities Fund	1.00%

¹ Until December 31, 2002, Ivy Management, Inc. (IMI) provided business management services to the Ivy Funds and investment advisory services to the Ivy Funds. On December 31,2002, IMI, an indirect wholly owned subsidiary of Waddell & Reed Financial,Inc. (Waddell & Reed) and a wholly owned subsidiary of Ivy Acquisition Corporation (IAC), merged with and into IAC, a wholly owned subsidiary of Waddell & Reed. Upon effectiveness of the merger, IAC changed its name to Wa ddell and Reed Ivy Investment Company (WRIICO), and WRIICO assumed all of IMI's duties with respect to the Ivy Funds.

FINANCIAL HIGHLIGHTS

The following information is to help you understand the financial performance of each of the classes of each Fund for the fiscal periods shown. Certain information reflects financial results for a single Fund share. Total return shows how much your investment would have increased (or decreased) during each period, assuming reinvestment of all dividends and distributions.

The information for the Funds in the Ivy Funds, Inc. has been audited by Deloitte & Touche LLP, whose independent auditors' report, along with each Fund's financial statements for the fiscal year ended March 31, 2003, is included in the Funds' Annual Report to Shareholders, which is incorporated by reference into its Statement of Additional information. The annual report contains additional performance information and will be made available upon request and without charge.

The Financial Highlights for the fiscal year ended December 31, 2002, for the Funds in Ivy Fund have been audited by Deloitte & Touche LLP, independent auditors, whose report thereon appears in the Ivy Fund's Annual Report to Shareholders, which is incorporated by reference into its Statement of Additional information. The annual report contains additional performance information and will be made available upon request and without charge. The Financial Highlights for the fiscal years e nded on or before December 31, 2001 for the Funds in Ivy Fund, have been audited by other independent auditors whose report thereon is incorporated by reference into the Statement of Additional information.

IVY ASSET STRATEGY FUND

(formerly, W&R Asset Strategy Fund)

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$11.33	$0.16	$(0.16)	$0.00	$(0.15)		$(0.00)	$(0.15)	$11.18
4-1-01 to 3-31-02	11.98	0.25	(0.40)	(0.15)	(0.30)		(0.20)	(0.50)	11.33
7-10-00a to 3-31-01	15.22	0.15	(0.60)	(0.45)	(0.13)		(2.66)	(2.79)	11.98
Class B
4-1-02 to 3-31-03	$11.32	$0.05	$(0.15)	$(0.10)	$(0.05)		$(0.00)	$(0.05)	$11.17
4-1-01 to 3-31-02	11.97	0.17	(0.41)	(0.24)	(0.21)		(0.20)	(0.41)	11.32
7-3-00a to 3-31-01	15.21	0.07	(0.60)	(0.53)	(0.05)		(2.66)	(2.71)	11.97
Class Ce
4-1-02 to 3-31-03	$11.32	$0.05	$(0.14)	$(0.09)	$(0.06)		$(0.00)	$(0.06)	$11.17
4-1-01 to 3-31-02	11.97	0.19	(0.43)	(0.24)	(0.21)		(0.20)	(0.41)	11.32
4-1-00 to 3-31-01	15.21	0.11	(0.62)	(0.51)	(0.07)		(2.66)	(2.73)	11.97
4-1-99 to 3-31-00	11.20	0.03	4.33	4.36	(0.05)		(0.30)	(0.35)	15.21
4-1-98 to 3-31-99	11.42	0.15	0.05	0.20	(0.16)		(0.26)	(0.42)	11.20
Class Y
4-1-02 to 3-31-03	$11.33	$0.11	$(0.10)	$0.01	$(0.16)		$(0.00)	$(0.16)	$11.18
4-1-01 to 3-31-02	11.98	0.28	(0.42)	(0.14)	(0.31)		(0.20)	(0.51)	11.33
4-1-00 to 3-31-01	15.26	0.24	(0.63)	(0.39)	(0.23)		(2.66)	(2.89)	11.98
4-1-99 to 3-31-00	11.21	0.15	4.33	4.48	(0.13)		(0.30)	(0.43)	15.26
4-1-98 to 3-31-99	11.43	0.26	0.05	0.31	(0.27)		(0.26)	(0.53)	11.21

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) For the fiscal year ended March 31, 2001.

^(e) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

^(f) Not shown due to rounding.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	0.00%b	$9	1.40%	1.23%	109.38%
4-1-01 to 3-31-02	-1.25b	4	1.45	2.28	143.38
7-10-00a to 3-31-01	-3.77b	2	1.26c	2.26c	214.77d
Class B
4-1-02 to 3-31-03	-0.92%	$3	2.35%	0.31%	109.38%
4-1-01 to 3-31-02	-2.03	3	2.25	1.50	143.38
7-3-00a to 3-31-01	-4.35	2	2.15c	1.37c	214.77d
Class Ce
4-1-02 to 3-31-03	-0.79%	$51	2.20%	0.46%	109.38%
4-1-01 to 3-31-02	-1.98	47	2.20	1.59	143.38
4-1-00 to 3-31-01	-4.22	54	2.15	0.86	214.77
4-1-99 to 3-31-00	39.60	52	2.24	0.24	204.12
4-1-98 to 3-31-99	1.79	30	2.32	1.38	168.17
Class Y
4-1-02 to 3-31-03	0.08%	$1	1.32%	1.34%	109.38%
4-1-01 to 3-31-02	-1.14	1	1.33	2.44	143.38
4-1-00 to 3-31-01	-3.39	1	1.32	1.71	214.77
4-1-99 to 3-31-00	40.85	1	1.33	1.14	204.12
4-1-98 to 3-31-99	2.75	--f	1.45	2.25	168.17

IVY CORE EQUITY FUND

(formerly, W&R Core Equity Fund^a)

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$ 8.89	$(0.08)	$(2.18)	$(2.26)	$(0.00)		$(0.00)	$(0.00)	$6.63
4-1-01 to 3-31-02	9.51	(0.20)	(0.11)	(0.31)	(0.00)		(0.31)	(0.31)	8.89
7-3-00b to 3-31-01	13.89	(0.00)	(2.00)	(2.00)	(0.00)		(2.38)	(2.38)	9.51
Class B
4-1-02 to 3-31-03	$ 8.74	$(0.06)	$(2.23)	$(2.29)	$(0.00)		$(0.00)	$(0.00)	$6.45
4-1-01 to 3-31-02	9.44	(0.14)	(0.25)	(0.39)	(0.00)		(0.31)	(0.31)	8.74
7-11-00b to 3-31-01	14.10	(0.05)	(2.23)	(2.28)	(0.00)		(2.38)	(2.38)	9.44
Class Cf,g
4-1-02 to 3-31-03	$ 8.76	$(0.04)	$(2.24)	$(2.28)	$(0.00)		$(0.00)	$(0.00)	$ 6.48
4-1-01 to 3-31-02	9.45	(0.08)	(0.30)	(0.38)	(0.00)		(0.31)	(0.31)	8.76
4-1-00 to 3-31-01	13.76	(0.11)	(1.82)	(1.93)	(0.00)		(2.38)	(2.38)	9.45
4-1-99 to 3-31-00	11.52	(0.01)	2.71	2.70	(0.03)		(0.43)	(0.46)	13.76
4-1-98 to 3-31-99	12.24	0.03	0.82	0.85	(0.01)		(1.56)	(1.57)	11.52
Class Yf
4-1-02 to 3-31-03	$9.19	$0.04	$(2.37)	$(2.33)	$(0.00)		$(0.00)	$(0.00)	$6.86
4-1-01 to 3-31-02	9.82	(0.11)	(0.21)	(0.32)	(0.00)		(0.31)	(0.31)	9.19
4-1-00 to 3-31-01	14.08	(0.04)	(1.84)	(1.88)	(0.00)		(2.38)	(2.38)	9.82
4-1-99 to 3-31-00	11.78	0.06	2.80	2.86	(0.13)		(0.43)	(0.56)	14.08
4-1-98 to 3-31-99	12.46	0.12	0.84	0.96	(0.08)		(1.56)	(1.64)	11.78

^(a) Core Equity Fund (formerly Total Return Fund) changed its name effective October 2, 2000.

^(b) Commencement of operations of the class.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Annualized.

^(e) For the fiscal year ended March 31, 2001.

^(f) Per share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998.

^(g) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. Per share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	-25.42%c	$13	1.31%	0.28%	39.13%
4-1-01 to 3-31-02	-3.18c	9	1.26	-0.11	22.36
7-3-00b to 3-31-01	-16.72c	4	1.18d	-0.11d	39.02e
Class B
4-1-02 to 3-31-03	-26.20%	$5	2.36%	-0.76%	39.13%
4-1-01 to 3-31-02	-4.06	6	2.18	-1.04	22.36
7-11-00b to 3-31-01	-18.50	5	2.11d	-1.02d	39.02e
Class Cf,g
4-1-02 to 3-31-03	-26.03%	$200	2.18%	-0.58%	39.13%
4-1-01 to 3-31-02	-3.94	356	2.05	-0.91	22.36
4-1-00 to 3-31-01	-16.40	440	1.97	-0.93	39.02
4-1-99 to 3-31-00	23.98	585	1.98	-0.12	75.64
4-1-98 to 3-31-99	7.47	508	1.93	0.30	54.73
Class Yf
4-1-02 to 3-31-03	-25.35%	$2	1.20%	0.40%	39.13%
4-1-01 to 3-31-02	-3.18	4	1.17	-0.03	22.36
4-1-00 to 3-31-01	-15.62	2	1.15	-0.11	39.02
4-1-99 to 3-31-00	24.96	2	1.16	0.67	75.64
4-1-98 to 3-31-99	8.37	1	1.15	1.10	54.73

IVY CUNDILL GLOBAL VALUE FUND

		Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$ 9.64	$0.00b	$(1.17)	$(1.17)	$(0.00)		$(0.08)	$(0.08)	$8.39
9-4-01a to 12-31-01	10.15	0.01	(0.23)	(0.22)	(0.02)		(0.27)	(0.29)	9.64
Class B
1-1-02 to 12-31-02	$9.61	$(0.05)b	$(1.16)	$(1.21)	$(0.00)		$(0.08)	$(0.08)	$8.32
9-26-01a to 12-31-01	9.26	0.01	0.62	0.63	(0.02)		(0.26)	(0.28)	9.61
Class C
1-1-02 to 12-31-02	$9.57	$(0.07)b	$(1.16)	$(1.23)	$(0.00)		$(0.08)	$(0.08)	$8.26
10-19-01a to 12-31-01	9.44	0.01	0.40	0.41	(0.02)		(0.26)	(0.28)	9.57
Advisor Class
1-1-02 to 12-31-02	$ 9.55	$0.04b	$(1.17)	$(1.13)	$(0.00)		$(0.08)	$(0.08)	$8.34
1-1-01 to 12-31-01	10.07	0.03	(0.25)	(0.22)	(0.02)		(0.28)	(0.30)	9.55
4-19-00a to 12-31-00	10.00	0.05	0.41	0.46	(0.19)		(0.20)	(0.39)	10.07

^(a) Commencement of operations of the class.

^(b) Based on average shares outstanding.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Not shown due to rounding.

^(e) Annualized.

				Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	-12.17%c	$ 1	2.28%	4.97%	0.02%	-2.67%	122	%
9-4-01a to 12-31-01	-2.07c	--d	4.47e	31.77e	0.94e	-26.36e	57
Class B
1-1-02 to 12-31-02	-12.62%	$2	2.84%	5.53%	-0.54%	-3.23%	122	%
9-26-01a to 12-31-01	6.91	1	6.04e	39.53e	0.60e	-32.89e	57
Class C
1-1-02 to 12-31-02	-12.88%	$--d	3.10%	5.79%	-0.80%	-3.49%	122	%
10-19-01a to 12-31-01	4.44	--d	7.71e	51.61e	0.99e	-42.91e	57
Advisor Class
1-1-02 to 12-31-02	-11.86%	$2	1.83%	4.52%	0.47%	-2.22%	122	%
1-1-01 to 12-31-01	-2.13	1	1.40	10.30	0.37	-8.53	57
4-19-00a to 12-31-00	4.66	1	1.95e	19.15e	0.70e	-16.50e	53

IVY EUROPEAN OPPORTUNITIES FUND

		Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$13.65	$ 0.01b	$(0.46)c	$ (0.45)	$(0.00)		$(0.00)	$(0.00)	$13.20
1-1-01 to 12-31-01	17.25	(0.08)	(3.49)c	(3.57)	(0.00)		(0.03)	(0.03)	13.65
1-1-00 to 12-31-00	17.13	(0.07)	0.82	0.75	(0.00)		(0.63)	(0.63)	17.25
5-4-99a to 12-31-99	10.01	0.00	16.35	16.35	(0.01)		(9.22)	(9.23)	17.13
Class B
1-1-02 to 12-31-02	$13.54	$(0.10)b	$ (0.51)	$ (0.61)	$(0.00)		$(0.00)	$(0.00)	$12.93
1-1-01 to 12-31-01	17.26	(0.20)	(3.49)	(3.69)	(0.00)		(0.03)	(0.03)	13.54
1-1-00 to 12-31-00	17.13	(0.18)	0.83	0.65	(0.00)		(0.52)	(0.52)	17.26
5-24-99a to 12-31-99	10.21	(0.01)	16.15	16.14	(0.00)		(9.22)	(9.22)	17.13
Class C
1-1-02 to 12-31-02	$13.59	$(0.10)b	$(0.51)	$(0.61)	$(0.00)		$(0.00)	$(0.00)	$12.98
1-1-01 to 12-31-01	17.32	(0.22)	(3.48)	(3.70)	(0.00)		(0.03)	(0.03)	13.59
1-1-00 to 12-31-00	17.13	(0.22)	0.88	0.66	(0.00)		(0.47)	(0.47)	17.32
10-24-99a to 12-31-99	11.57	(0.01)	6.00	5.99	(0.01)		(0.42)	(0.43)	17.13
Advisor Class
1-1-02 to 12-31-02	$13.80	$0.06b	$(0.52)	$(0.46)	$(0.00)		$(0.00)	$(0.00)	$13.34
1-1-01 to 12-31-01	17.39	(0.02)	(3.54)	(3.56)	(0.00)		(0.03)	(0.03)	13.80
1-1-00 to 12-31-00	17.23	(0.02)	0.85	0.83	(0.00)		(0.67)	(0.67)	17.39
5-3-99a to 12-31-99	10.01	0.00	16.46	16.46	(0.02)		(9.22)	(9.24)	17.23

^(a) Commencement of operations of the class.

^(b) Based on average shares outstanding.

^(c) Includes redemption fees added to paid-in capital.

^(d) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(e) Annualized.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	-3.30%c,d	$20	2.15%	2.15%	0.06%	0.06%	69	%
1-1-01 to 12-31-01	-20.67c,d	31	2.15	2.17	-0.44	-0.46	66
1-1-00 to 12-31-00	4.51d	55	na	1.83	na	-0.36	46
5-4-99a to 12-31-99	215.58d	14	2.22e	6.10e	-0.15e	-4.03e	108
Class B
1-1-02 to 12-31-02	-4.51%	$25	2.92%	2.92%	-0.70%	-0.70%	69	%
1-1-01 to 12-31-01	-21.35	34	2.89	2.91	-1.18	-1.20	66
1-1-00 to 12-31-00	4.12	57	na	2.59	na	-1.12	46
5-24-99a to 12-31-99	209.41	6	2.96e	6.84e	-0.89e	-5.97e	108
Class C
1-1-02 to 12-31-02	-4.49%	$19	2.92%	2.92%	-0.70%	-0.70%	69	%
1-1-01 to 12-31-01	-21.32	25	2.91	2.93	-1.20	-1.22	66
1-1-00 to 12-31-00	3.98	50	na	2.58	na	-1.11	46
10-24-99a to 12-31-99	51.80	8	2.96e	6.84e	-0.89e	-4.77e	108
Advisor Class
1-1-02 to 12-31-02	-3.33%	$6	1.81%	1.81%	0.40%	0.40%	69	%
1-1-01 to 12-31-01	-20.44	9	1.72	1.74	-0.00	-0.02	66
1-1-00 to 12-31-00	5.01	19	na	1.55	na	-0.09	46
5-3-99a to 12-31-99	217.16	5	1.93e	5.81e	0.14e	-3.74e	108

IVY GLOBAL NATURAL RESOURCES FUND

				Selected Per-Share Data
		Increase (Decrease) From Investment Operations				Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains	Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$11.05	$(0.11)a	$ 0.63b	$ 0.52	$(0.00)	$(0.07)	$(0.07)	$11.50
1-1-01 to 12-31-01	9.74	0.04a	1.45	1.49	(0.18)	(0.00)	(0.18)	11.05
1-1-00 to 12-31-00	8.91	(0.07)	0.95	0.88	(0.05)	(0.00)	(0.05)	9.74
1-1-99 to 12-31-99	6.32	0.00a	2.59	2.59	(0.00)	(0.00)	(0.00)	8.91
1-1-98 to 12-31-98	9.01	0.03	(2.68)	(2.65)	(0.04)	(0.00)	(0.04)	6.32
Class B
1-1-02 to 12-31-02	$10.81	$(0.19)a	$ 0.57	$ 0.38	$(0.00)	$(0.00)	$(0.00)	$11.19
1-1-01 to 12-31-01	9.56	(0.02)a	1.42	1.40	(0.15)	(0.00)	(0.15)	10.81
1-1-00 to 12-31-00	8.77	(0.09)	0.90	0.81	(0.02)	(0.00)	(0.02)	9.56
1-1-99 to 12-31-99	6.27	(0.04)a	2.54	2.50	(0.00)	(0.00)	(0.00)	8.77
1-1-98 to 12-31-98	9.00	(0.04)	(2.65)	(2.69)	(0.04)	(0.00)	(0.04)	6.27
Class C
1-1-02 to 12-31-02	$10.61	$(0.18)a	$ 0.55	$ 0.37	$(0.00)	$(0.01)	$(0.01)	$10.97
1-1-01 to 12-31-01	9.40	(0.02)a	1.39	1.37	(0.16)	(0.00)	(0.16)	10.61
1-1-00 to 12-31-00	8.63	(0.07)	0.89	0.82	(0.05)	(0.00)	(0.05)	9.40
1-1-99 to 12-31-99	6.21	(0.04)a	2.46	2.42	(0.00)	(0.00)	(0.00)	8.63
1-1-98 to 12-31-98	9.00	(0.14)	(2.61)	(2.75)	(0.04)	(0.00)	(0.04)	6.21
Advisor Class
1-1-02 to 12-31-02	$11.02	$(0.07)a	$0.56	$0.49	$(0.00)	$(0.08)	$(0.08)	$11.43
1-1-01 to 12-31-01	9.74	0.09a	1.43	1.52	(0.24)	(0.00)	(0.24)	11.02
1-1-00 to 12-31-00	8.90	(0.05)	0.95	0.90	(0.06)	(0.00)	(0.06)	9.74
4-8-99e to 12-31-99	7.00	0.02a	1.88	1.90	(0.00)	(0.00)	(0.00)	8.90

^(a) Based on average shares outstanding.

^(b) Includes redemption fees added to paid-in capital.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Not shown due to rounding.

^(e) Commencement of operations of the class.

^(f) Annualized.

^(g) For the fiscal year ended December 31, 1999.

				Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	4.66%b,c	$17	2.22%	2.38%	-0.91%	-1.07%	67	%
1-1-01 to 12-31-01	15.40c	8	2.25	3.71	0.38	-1.08	169
1-1-00 to 12-31-00	9.86c	6	2.29	4.54	-0.69	-2.94	134
1-1-99 to 12-31-99	40.98c	6	2.16	4.53	0.02	-2.35	157
1-1-98 to 12-31-98	-29.35c	1	2.22	5.75	0.29	-3.24	98
Class B
1-1-02 to 12-31-02	3.52%	$9	2.93%	3.09%	-1.62%	-1.78%	67	%
1-1-01 to 12-31-01	14.73	5	2.87	4.33	-0.24	-1.70	169
1-1-00 to 12-31-00	9.27	3	2.80	5.05	-1.20	-3.45	134
1-1-99 to 12-31-99	39.87	3	2.71	5.08	-0.53	-2.90	157
1-1-98 to 12-31-98	-29.82	1	2.90	6.43	-0.39	-3.92	98
Class C
1-1-02 to 12-31-02	3.46%	$ 5	2.94%	3.10%	-1.64%	-1.80%	67	%
1-1-01 to 12-31-01	14.62	2	2.86	4.32	-0.23	-1.69	169
1-1-00 to 12-31-00	9.49	1	2.70	4.95	-1.10	-3.35	134
1-1-99 to 12-31-99	38.97	--	2.73	5.10	-0.55	-2.92	157
1-1-98 to 12-31-98	-30.49	--d	3.57	7.10	-1.06	-4.59	98
Advisor Class
1-1-02 to 12-31-02	4.46%	$ 1	1.82%	1.98%	-0.51%	-0.67	67	%
1-1-01 to 12-31-01	15.71	--d	1.78	3.24	0.85	-0.61	169
1-1-00 to 12-31-00	10.17	--d	2.02	4.27	-0.42	-2.67	134
4-8-99e to 12-31-99	27.14	--d	1.87f	4.24f	0.31f	-2.06f	157	g

IVY HIGH INCOME FUND

(formerly, W&R High Income Fund)

				Selected Per-Share Data
		Increase (Decrease) From Investment Operations				Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends Declared From Net Investment Income	Distributions From Realized Gains	Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$8.48	$0.64	$(0.41)	$0.23	$(0.64)	$(0.00)	$(0.64)	$8.07
4-1-01 to 3-31-02	8.54	0.74	(0.06)	0.68	(0.74)	(0.00)	(0.74)	8.48
7-3-00a to 3-31-01	9.04	0.58	(0.50)	0.08	(0.58)	(0.00)	(0.58)	8.54
Class B
4-1-02 to 3-31-03	$8.48	$0.56	$(0.41)	$0.15	$(0.56)	$(0.00)	$(0.56)	$8.07
4-1-01 to 3-31-02	8.54	0.68	(0.06)	0.62	(0.68)	(0.00)	(0.68)	8.48
7-18-00a to 3-31-01	9.03	0.48	(0.49)	(0.01)	(0.48)	(0.00)	(0.48)	8.54
Class Cf
4-1-02 to 3-31-03	$ 8.48	$0.57	$(0.41)	$0.16	$(0.57)	$(0.00)	$(0.57)	$8.07
4-1-01 to 3-31-02	8.54	0.68	(0.06)	0.62	(0.68)	(0.00)	(0.68)	8.48
4-1-00 to 3-31-01	9.27	0.73	(0.73)	0.00	(0.73)	(0.00)	(0.73)	8.54
4-1-99 to 3-31-00	9.94	0.69	(0.67)	0.02	(0.69)	(0.00)	(0.69)	9.27
4-1-98 to 3-31-99	10.79	0.63	(0.82)	(0.19)	(0.63)	(0.03)	(0.66)	9.94
Class Y
4-1-02 to 3-31-03	$8.48	$0.64	$(0.41)	$0.23	$(0.64)	$(0.00)	$(0.64)	$8.07
4-1-01 to 3-31-02	8.54	0.75	(0.06)	0.69	(0.75)	(0.00)	(0.75)	8.48
4-1-00 to 3-31-01	9.27	0.78	(0.73)	0.05	(0.78)	(0.00)	(0.78)	8.54
4-1-99 to 3-31-00	9.94	0.77	(0.67)	0.10	(0.77)	(0.00)	(0.77)	9.27
12-30-98a to 3-31-99	9.97	0.20	0.00	0.20	(0.20)	(0.03)	(0.23)	9.94

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) For the fiscal year ended March 31, 2001.

^(e) Not shown due to rounding.

^(f) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

^(g) For the fiscal year ended March 31, 1999.

				Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Waiver	Ratio of Expenses to Average Net Assets without Waiver	Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver	Ratio of Net Investment Income (Loss) to to Average Net Assets without Waiver	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	3.02%b	$6	0.91%	1.44%	7.83%	7.30%	52.20%
4-1-01 to 3-31-02	8.46b	2	0.84	1.14	9.00	8.70	82.42
7-3-00a to 3-31-01	0.90b	--e	1.05c	1.42c	9.01c	8.64c	114.89d
Class B
4-1-02 to 3-31-03	2.06%	$2	1.84%	2.37%	6.90%	6.37%	52.20%
4-1-01 to 3-31-02	7.64	1	1.74	2.36	8.09	7.47	82.42
7-18-00a to 3-31-01	0.09	1	1.85c	2.50c	8.30c	7.65c	114.89d
Class Cf
4-1-02 to 3-31-03	2.15%	$18	1.74%	2.27%	7.05%	6.52%	52.20%
4-1-01 to 3-31-02	7.58	17	1.82	2.46	8.01	7.36	82.42
4-1-00 to 3-31-01	0.18	19	1.78	2.41	8.38	7.75	114.89
4-1-99 to 3-31-00	0.17	23	2.17	2.26	7.16	7.07	71.31
4-1-98 to 3-31-99	-1.72	25	2.20	--	6.29	--	50.98
Class Y
4-1-02 to 3-31-03	3.03%	$4	1.08%	1.61%	7.22%	6.69%	52.20%
4-1-01 to 3-31-02	8.50	--e	0.79	1.08	8.99	8.71	82.42
4-1-00 to 3-31-01	0.79	--e	1.20	1.62	8.95	8.52	114.89
4-1-99 to 3-31-00	0.94	--e	1.40	1.46	7.85	7.79	71.31
12-30-98a to 3-31-99	2.45	--e	0.26c	--	8.55c	--	50.98g

IVY INTERNATIONAL FUND

		Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$20.69	$0.06a	$ (4.40)b	$ (4.34)	$(0.00)		$(0.00)	$(0.00)	$16.35
1-1-01 to 12-31-01	26.20	0.05	(5.56)b	(5.51)	(0.00)		(0.00)	(0.00)	20.69
1-1-00 to 12-31-00	47.09	0.19	(12.44)	(12.25)	(0.04)		(8.60)	(8.64)	26.20
1-1-99 to 12-31-99	41.20	0.30	8.31	8.61	(0.24)		(2.48)	(2.72)	47.09
1-1-98 to 12-31-98	39.03	0.37	2.50	2.87	(0.35)		(0.35)	(0.70)	41.20
Class B
1-1-02 to 12-31-02	$20.03	$(0.12)a	$ (4.29)	$ (4.41)	$(0.00)		$(0.00)	$(0.00)	$15.62
1-1-01 to 12-31-01	25.64	(0.21)	(5.40)	(5.61)	(0.00)		(0.00)	(0.00)	20.03
1-1-00 to 12-31-00	46.78	(0.17)	(12.33)	(12.50)	(0.04)		(8.60)	(8.64)	25.64
1-1-99 to 12-31-99	40.97	(0.06)	8.27	8.21	(0.00)		(2.40)	(2.40)	46.78
1-1-98 to 12-31-98	38.82	0.00	2.50	2.50	(0.00)		(0.35)	(0.35)	40.97
Class C
1-1-02 to 12-31-02	$19.90	$(0.11)a	$ (4.27)	$ (4.38)	$(0.00)		$(0.00)	$(0.00)	$15.52
1-1-01 to 12-31-01	25.46	(0.21)	(5.35)	(5.56)	(0.00)		(0.00)	(0.00)	19.90
1-1-00 to 12-31-00	46.57	(0.19)	(12.28)	(12.47)	(0.04)		(8.60)	(8.64)	25.46
1-1-99 to 12-31-99	40.79	(0.05)	8.23	8.18	(0.00)		(2.40)	(2.40)	46.57
1-1-98 to 12-31-98	38.64	0.00	2.50	2.50	(0.00)		(0.35)	(0.35)	40.79
Advisor Class
1-1-02 to 12-31-02	$20.67	$(0.24)a	$(3.58)	$(3.82)	$(0.00)		$(0.00)	$(0.00)	$16.85
1-1-01 to 12-31-01	26.25	0.01	(5.59)	(5.58)	(0.00)		(0.00)	(0.00)	20.67
8-31-00d to 12-31-00	40.05	0.02	(5.18)	(5.16)	(0.04)		(8.60)	(8.64)	26.25

^(a) Based on average shares outstanding.

^(b) Includes redemption fees added to paid-in capital.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Commencement of operations of the class.

^(e) Not shown due to rounding.

^(f) Annualized.

^(g) For the fiscal year ended December 31, 2000.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	-20.96%b,c	$ 127	1.89%	1.89%	na	0.32%	34	%
1-1-01 to 12-31-01	-21.03b,c	345	1.60	1.66	0.18%	0.12	43
1-1-00 to 12-31-00	-17.26c	588	na	1.66	na	0.37	91
1-1-99 to 12-31-99	21.05c	1,574	na	1.66	na	0.63	7
1-1-98 to 12-31-98	7.34c	1,614	na	1.58	na	0.83	15
Class B
1-1-02 to 12-31-02	-22.00%	$ 68	2.85%	2.85%	na	-0.64%	34	%
1-1-01 to 12-31-01	-21.88	137	2.54	2.60	-0.76%	-0.82	43
1-1-00 to 12-31-00	-17.95	281	na	2.50	na	-0.47	91
1-1-99 to 12-31-99	20.15	541	na	2.42	na	-0.13	7
1-1-98 to 12-31-98	6.43	543	na	2.41	na	-0.01	15
Class C
1-1-02 to 12-31-02	-22.00%	$ 14	2.83%	2.83%	na	-0.62%	34	%
1-1-01 to 12-31-01	-21.84	26	2.54	2.60	-0.76%	-0.82	43
1-1-00 to 12-31-00	-17.97	57	na	2.49	na	-0.46	91
1-1-99 to 12-31-99	20.16	143	na	2.42	na	-0.13	7
1-1-98 to 12-31-98	6.46	154	na	2.40	na	0.01	15
Advisor Class
1-1-02 to 12-31-02	-18.71%	$--e	3.46%	3.46%	na	-1.24%	34	%
1-1-01 to 12-31-01	-21.26	--e	1.69	1.75	0.09%	0.03	43
8-31-00d to 12-31-00	-12.09	--e	na	2.10f	na	-0.08f	91	g

IVY INTERNATIONAL GROWTH FUND

(formerly, W&R International Growth Fund)

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$ 9.82	$(0.03)	$(2.22)	$(2.25)	$(0.00)		$(0.00)	$(0.00)	$ 7.57
4-1-01 to 3-31-02	12.03	(0.17)	(2.01)	(2.18)	(0.00)		(0.03)	(0.03)	9.82
7-3-00a to 3-31-01	24.33	(0.02)	(6.46)	(6.48)	(0.00)		(5.82)	(5.82)	12.03
Class B
4-1-02 to 3-31-03	$ 9.65	$(0.11)	$(2.19)	$(2.30)	$(0.00)		$(0.00)	$(0.00)	$ 7.35
4-1-01 to 3-31-02	11.94	(0.19)	(2.07)	(2.26)	(0.00)		(0.03)	(0.03)	9.65
7-10-00a to 3-31-01	24.59	(0.09)	(6.74)	(6.83)	(0.00)		(5.82)	(5.82)	11.94
Class Ce
4-1-02 to 3-31-03	$ 9.69	$(0.08)	$ (2.21)	$ (2.29)	$(0.00)		$(0.00)	$(0.00)	$ 7.40
4-1-01 to 3-31-02	11.96	(0.11)	(2.13)	(2.24)	(0.00)		(0.03)	(0.03)	9.69
4-1-00 to 3-31-01	28.58	(0.17)	(10.63)	(10.80)	(0.00)		(5.82)	(5.82)	11.96
4-1-99 to 3-31-00	15.58	(0.34)	15.14	14.80	(0.00)		(1.80)	(1.80)	28.58
4-1-98 to 3-31-99	15.04	(0.07)	1.55	1.48	(0.00)		(0.94)	(0.94)	15.58
Class Y
4-1-02 to 3-31-03	$10.55	$(0.16)	$ (2.22)	$ (2.38)	$(0.00)		$(0.00)	$(0.00)	$ 8.17
4-1-01 to 3-31-02	12.87	(0.18)	(2.11)	(2.29)	(0.00)		(0.03)	(0.03)	10.55
4-1-00 to 3-31-01	29.86	(0.17)	(11.00)	(11.17)	(0.00)		(5.82)	(5.82)	12.87
4-1-99 to 3-31-00	16.08	(1.41)	16.99	15.58	(0.00)		(1.80)	(1.80)	29.86
4-1-98 to 3-31-99	15.35	0.05	1.62	1.67	(0.00)		(0.94)	(0.94)	16.08

^a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) For the fiscal year ended March 31, 2001.

^(e) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	-22.91%b	$5	2.10%	-0.10%	107.62%
4-1-01 to 3-31-02	-18.12b	7	1.89	-0.49	133.83
7-3-00a to 3-31-01	-29.73b	5	1.72c	-0.31c	103.03d
Class B
4-1-02 to 3-31-03	-23.83%	$2	3.24%	-1.22%	107.62%
4-1-01 to 3-31-02	-18.93	2	2.89	-1.42	133.83
7-10-00a to 3-31-01	-30.89	2	2.61c	-1.30c	103.03d
Class Ce
4-1-02 to 3-31-03	-23.63%	$ 46	2.93%	-0.86%	107.62%
4-1-01 to 3-31-02	-18.73	74	2.62	-1.03	133.83
4-1-00 to 3-31-01	-40.45	123	2.36	-1.03	103.03
4-1-99 to 3-31-00	97.89	233	2.37	-1.48	125.71
4-1-98 to 3-31-99	10.36	100	2.35	-0.53	116.25
Class Y
4-1-02 to 3-31-03	-22.56%	$11	1.63%	0.39%	107.62%
4-1-01 to 3-31-02	-17.79	8	1.52	-0.11	133.83
4-1-00 to 3-31-01	-39.91	7	1.44	-0.02	103.03
4-1-99 to 3-31-00	99.74	5	1.48	-0.80	125.71
4-1-98 to 3-31-99	11.41	1	1.44	0.36	116.25

IVY INTERNATIONAL VALUE FUND

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations				Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$ 9.10	$0.08a	$(1.53)b	$(1.45)	$(0.00)		$(0.00)	$(0.00)	$ 7.65
1-1-01 to 12-31-01	11.01	0.07	(1.96)b	(1.89)	(0.02)		(0.00)	(0.02)	9.10
1-1-00 to 12-31-00	11.99	0.14	(1.01)	(0.87)	(0.04)		(0.07)	(0.11)	11.01
1-1-99 to 12-31-99	9.48	0.09	2.54	2.63	(0.10)		(0.02)	(0.12)	11.99
1-1-98 to 12-31-98	8.98	0.08	0.52	0.60	(0.08)		(0.02)	(0.10)	9.48
Class B
1-1-02 to 12-31-02	$ 8.97	$ 0.01a	$(1.66)	$(1.65)	$(0.00)		$(0.00)	$(0.00)	$ 7.32
1-1-01 to 12-31-01	10.94	(0.02)	(1.93)	(1.95)	(0.02)		(0.00)	(0.02)	8.97
1-1-00 to 12-31-00	11.91	0.02	(0.96)	(0.94)	(0.01)		(0.02)	(0.03)	10.94
1-1-99 to 12-31-99	9.42	0.01	2.51	2.52	(0.01)		(0.02)	(0.03)	11.91
1-1-98 to 12-31-98	8.93	0.01	0.51	0.52	(0.01)		(0.02)	(0.03)	9.42
Class C
1-1-02 to 12-31-02	$ 8.97	$ 0.01a	$(1.66)	$(1.65)	$(0.00)		$(0.00)	$(0.00)	$ 7.32
1-1-01 to 12-31-01	10.94	(0.02)	(1.93)	(1.95)	(0.02)		(0.00)	(0.02)	8.97
1-1-00 to 12-31-00	11.92	0.02	(0.97)	(0.95)	(0.01)		(0.02)	(0.03)	10.94
1-1-99 to 12-31-99	9.42	0.02	2.51	2.53	(0.01)		(0.02)	(0.03)	11.92
1-1-98 to 12-31-98	8.93	0.01	0.51	0.52	(0.01)		(0.02)	(0.03)	9.42
Advisor Class
1-1-02 to 12-31-02	$ 9.14	$0.10a	$(1.70)	$(1.60)	$(0.00)		$(0.00)	$(0.00)	$ 7.54
1-1-01 to 12-31-01	11.03	0.11	(1.98)	(1.87)	(0.02)		(0.00)	(0.02)	9.14
1-1-00 to 12-31-00	11.99	0.50	(1.33)	(0.83)	(0.05)		(0.08)	(0.13)	11.03
1-1-99 to 12-31-99	9.48	0.04	2.64	2.68	(0.10)		(0.07)	(0.17)	11.99
2-23-98a to 12-31-98	9.63	0.11	(0.13)	(0.02)	(0.11)		(0.02)	(0.13)	9.48

^(a) Based on average shares outstanding.

^(b) Includes redemption fees added to paid-in capital.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Not shown due to rounding.

^(e) Commencement of operations of the class.

^(f) Annualized.

^(g) For the fiscal year ended December 31, 1998

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	-15.93%b,c	$ 8	1.77%	2.32%	0.91%	0.36%		48	%
1-1-01 to 12-31-01	-17.17b,c	13	1.77	2.15	0.58	0.20		39
1-1-00 to 12-31-00	-7.25c	24	1.74	1.92	0.96	0.78		36
1-1-99 to 12-31-99	27.79c	33	1.72	1.87	0.92	0.77		21
1-1-98 to 12-31-98	6.63c	25	1.74	1.88	0.80	0.66		16
Class B
1-1-02 to 12-31-02	-18.39%	$28	2.50%	3.05%	0.18%	-0.37%		48	%
1-1-01 to 12-31-01	-17.84	46	2.50	2.88	-0.15	-0.53		39
1-1-00 to 12-31-00	-7.94	76	2.51	2.69	0.20	0.02		36
1-1-99 to 12-31-99	26.81	95	2.51	2.66	0.12	-0.03		21
1-1-98 to 12-31-98	5.84	81	2.49	2.63	0.05	-0.09		16
Class C
1-1-02 to 12-31-02	-18.39%	$ 9	2.50%	3.05%	0.18%	-0.37%		48	%
1-1-01 to 12-31-01	-17.84	16	2.51	2.89	-0.16	-0.54		39
1-1-00 to 12-31-00	-7.97	30	2.51	2.69	0.19	0.01		36
1-1-99 to 12-31-99	26.91	44	2.49	2.64	0.14	-0.01		21
1-1-98 to 12-31-98	5.79	40	2.52	2.66	0.03	-0.11		16
Advisor Class
1-1-02 to 12-31-02	-17.51%	$--d	1.50%	2.05%	1.18%	0.63%		48	%
1-1-01 to 12-31-01	-17.03	--d	1.47	1.85	0.89	0.51		39
1-1-00 to 12-31-00	-6.90	1	1.35	1.53	1.36	1.18		36
1-1-99 to 12-31-99	28.30	3	1.38	1.53	1.25	1.10		21
2-23-98e to 12-31-98	-0.15	1	1.32f	1.45f	1.23f	1.10f		16	g

IVY LARGE CAP GROWTH FUND

(formerly, W&R Large Cap Growth Fund)

		Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains	Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$ 9.21	$(0.03)	$(1.94)	$(1.97)	$(0.00)	$(0.00)	$(0.00)	$7.24
4-1-01 to 3-31-02	9.48	(0.04)	(0.23)	(0.27)	(0.00)	(0.00)	(0.00)	9.21
6-30-00a to 3-31-01	10.00	0.05	(0.45)	(0.40)	(0.06)	(0.06)	(0.12)	9.48
Class B
4-1-02 to 3-31-03	$ 9.05	$(0.14)	$(1.92)	$(2.06)	$(0.00)	$(0.00)	$(0.00)	$6.99
4-1-01 to 3-31-02	9.44	(0.16)	(0.23)	(0.39)	(0.00)	(0.00)	(0.00)	9.05
7-6-00a to 3-31-01	10.02	(0.03)	(0.49)	(0.52)	(0.00)	(0.06)	(0.06)	9.44
Class C
4-1-02 to 3-31-03	$ 9.10	$(0.10)	$(1.92)	$(2.02)	$(0.00)	$(0.00)	$(0.00)	$7.08
4-1-01 to 3-31-02	9.45	(0.12)	(0.23)	(0.35)	(0.00)	(0.00)	(0.00)	9.10
7-3-00a to 3-31-01	10.00	(0.00)	(0.48)	(0.48)	(0.01)	(0.06)	(0.07)	9.45
Class Y
4-1-02 to 3-31-03	$ 9.22	$(0.30)	$(1.66)	$(1.96)	$(0.00)	$(0.00)	$(0.00)	$7.26
4-1-01 to 3-31-02	9.48	(0.01)	(0.25)	(0.26)	(0.00)	(0.00)	(0.00)	9.22
7-6-00a to 3-31-01	10.02	0.09	(0.50)	(0.41)	(0.07)	(0.06)	(0.13)	9.48

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) Not shown due to rounding.

				Ratios and Supplemental Data
	For the Period From		Total Return	Net Assets End of Period (in Millions)		Ratio of Expenses to Average Net Assets with Waiver		Ratio of Expenses to Average Net Assets without Waiver		Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver		Ratio of Net Investment Income (Loss) to Average Net Assets without Waiver		Portfolio Turnover Rate
Class A
	4-1-02 to 3-31-03	-21.39%b			$21		1.28%		1.66%		-0.23%		-0.61%	71.98%
	4-1-01 to 3-31-02	-2.85b			20		1.58		1.69		-0.38		-0.49	98.59
	6-30-00a to 3-31-01	-4.27b			19		1.13c		1.34c		0.89c		0.68c	75.42
Class B
	4-1-02 to 3-31-03	-22.76%			$2		2.93%		3.31%		-1.87%		-2.25%	71.98%
	4-1-01 to 3-31-02	-4.13			2		2.98		3.19		-1.79		-2.00	98.59
	7-6-00a to 3-31-01	-5.32			2		2.53c		3.00c		-0.60c		-1.07c	75.42
Class C
	4-1-02 to 3-31-03	-22.28%			$4		2.26%		2.64%		-1.20%		-1.58%	71.98%
	4-1-01 to 3-31-02	-3.60			7		2.51		2.68		-1.31		-1.48	98.59
	7-3-00a to 3-31-01	-4.93			7		2.06c		2.44c		-0.08c		-0.46c	75.42
Class Y
	4-1-02 to 3-31-03	-21.26%			$1		1.05%		1.43%		-0.00%		-0.38%	71.98%
	4-1-01 to 3-31-02	-2.74			1		1.36		1.45		-0.20		-0.29	98.59
	7-6-00a to 3-31-01	-4.38			--d		1.13c		1.34c		1.11c		0.90c	75.42

IVY LIMITED-TERM BOND FUND

(formerly, W&R Limited-Term Bond Fund)

		Selected Per-Share Data
				Increase (Decrease) From Investment Operations						Less Distributions
	For the Period From	Net Asset Value Beginning of Period		Net Investment Income (Loss)		Net Gain (Loss) on Investments (Realized and Unrealized)		Total From Investment Operations		Dividends Declared From Net Investment Income		Distributions From Realized Gains		Total Distributions		Net Asset Value End of Period
Class A
	4-1-02 to 3-31-03		$10.20		$0.36		$0.25		$0.61		$(0.36)		$(0.00)		$(0.36)	$10.45
	4-1-01 to 3-31-02		10.17		0.51		0.03		0.54		(0.51)		(0.00)		(0.51)	10.20
	8-17-00a to 3-31-01		9.84		0.36		0.33		0.69		(0.36)		(0.00)		(0.36)	10.17
Class B
	4-1-02 to 3-31-03		$10.20		$0.27		$0.25		$0.52		$(0.27)		$(0.00)		$(0.27)	$10.45
	4-1-01 to 3-31-02		10.17		0.42		0.03		0.45		(0.42)		(0.00)		(0.42)	10.20
	7-3-00a to 3-31-01		9.80		0.36		0.37		0.73		(0.36)		(0.00)		(0.36)	10.17
Class Cg
	4-1-02 to 3-31-03		$10.20		$0.27		$ 0.25		$0.52		$(0.27)		$(0.00)		$(0.27)	$10.45
	4-1-01 to 3-31-02		10.17		0.42		0.03		0.45		(0.42)		(0.00)		(0.42)	10.20
	4-1-00 to 3-31-01		9.76		0.48		0.41		0.89		(0.48)		(0.00)		(0.48)	10.17
	4-1-99 to 3-31-00		10.16		0.47		(0.40)		0.07		(0.47)		(0.00)		(0.47)	9.76
	4-1-98 to 3-31-99		10.14		0.44		0.02		0.46		(0.44)		(0.00)		(0.44)	10.16
Class Y
	4-1-02 to 3-31-03		$10.20		$0.36		$ 0.25		$0.61		$(0.36)		$(0.00)		$(0.36)	$10.45
	4-1-01 to 3-31-02		10.17		0.51		0.03		0.54		(0.51)		(0.00)		(0.51)	10.20
	4-1-00 to 3-31-01		9.76		0.59		0.41		1.00		(0.59)		(0.00)		(0.59)	10.17
	4-1-99 to 3-31-00		10.16		0.57		(0.40)		0.17		(0.57)		(0.00)		(0.57)	9.76
	4-1-98 to 3-31-99		10.14		0.53		0.02		0.55		(0.53)		(0.00)		(0.53)	10.16

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Not shown due to rounding.

^(d) Annualized.

^(e) Because the Fund's net assets exceeded $25 million for the entire period,there is no waiver of expenses.
Therefore, no ratio is provided.

^(f) For the fiscal year ended March 31, 2001.

^(g) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

			Ratios and Supplemental Data
	For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Waiver			Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver	Ratio of Expenses to Average Net Assets without Waiver	Portfolio Turnover Rate		Ratio of Net Investment Income (Loss) to to Average Net Assets without Waiver
Class A
	4-1-02 to 3-31-03	6.15%b	$40	1.09%		--%e		3.32%		--%e	49.41%
	4-1-01 to 3-31-02	5.42b	6	1.04	1.19			4.76	4.61		32.97
	8-17-00a to 3-31-01	7.01b	--c	0.85d	1.09d			5.83d	5.59d		16.10f
	Class B
	4-1-02 to 3-31-03	5.18%	$5	2.01%		--%e		2.47%		--%e	49.41%
	4-1-01 to 3-31-02	4.52	1	1.88	2.15			4.02	3.76		32.97
	7-3-00a to 3-31-01	7.54	--c	1.81d	2.33d			4.91d	4.39d		16.10f
	Class Cg
	4-1-02 to 3-31-03	5.22%	$30	1.98%		--%e	2.59%			--%e	49.41%
	4-1-01 to 3-31-02	4.46	20	1.94	2.21			4.04	3.77		32.97
	4-1-00 to 3-31-01	9.48	18	1.82	2.34			4.97	4.44		16.10
	4-1-99 to 3-31-00	0.73	19	1.81	2.19			4.75	4.37		37.02
	4-1-98 to 3-31-99	4.65	21	2.11		--		4.34		--	32.11
	Class Y
	4-1-02 to 3-31-03	6.14%	$2	1.09%		--%e		3.42%		--%e	49.41%
	4-1-01 to 3-31-02	5.41	1	1.04	1.18			4.97	4.83		32.97
	4-1-00 to 3-31-01	10.56	2	0.83	1.07			5.95	5.71		16.10
	4-1-99 to 3-31-00	1.69	1	0.69	0.84			6.03	5.88		37.02
	4-1-98 to 3-31-99	5.60	--c	1.20		--		5.25		--	32.11

IVY MID CAP GROWTH FUND

(formerly, W&R Mid Cap Growth Fund)

		Selected Per-Share Data
				Increase (Decrease) From Investment Operations					Less Distributions
	For the Period From	Net Asset Value Beginning of Period		Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)		Total From Investment Operations		Dividends From Net Investment Income	Distributions From Realized Gains	Total Distributions	Net Asset Value End of Period
Class A
	4-1-02 to 3-31-03	$ 8.91	$(0.05)			$(2.19)		$(2.24)	$(0.00)d	$(0.00)	$(0.00)	$6.67
	4-1-01 to 3-31-02	9.11	0.02			(0.17)		(0.15)	(0.05)	(0.00)	(0.05)	8.91
	6-30-00a to 3-31-01	10.00	0.11			(0.65)		(0.54)	(0.06)	(0.29)	(0.35)	9.11
Class B
	4-1-02 to 3-31-03	$ 8.81	$(0.14)			$(2.18)		$(2.32)	$(0.00)	$(0.00)	$(0.00)	$6.49
	4-1-01 to 3-31-02	9.07	(0.09)			(0.17)		(0.26)	(0.00)	(0.00)	(0.00)	8.81
	7-6-00a to 3-31-01	10.01	0.02			(0.66)		(0.64)	(0.01)	(0.29)	(0.30)	9.07
Class C
	4-1-02 to 3-31-03	$ 8.85	$(0.10)			$(2.19)		$(2.29)	$(0.00)	$(0.00)	$(0.00)	$6.56
	4-1-01 to 3-31-02	9.08	(0.05)			(0.18)		(0.23)	(0.00)	(0.00)	(0.00)	8.85
	7-3-00a to 3-31-01	10.00	0.04			(0.66)		(0.62)	(0.01)	(0.29)	(0.30)	9.08
Class Y
	4-1-02 to 3-31-03	$ 8.91	$(0.01)			$(2.20)		$(2.21)	$(0.03)	$(0.00)	$(0.03)	$6.67
	4-1-01 to 3-31-02	9.11	0.00			(0.14)		(0.14)	(0.06)	(0.00)	(0.06)	8.91
	7-10-00a to 3-31-01	10.23	0.11			(0.88)		(0.77)	(0.06)	(0.29)	(0.35)	9.11

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) Not shown due to rounding.

			Ratios and Supplemental Data
	For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Waiver	Ratio of Expenses to Average Net Assets without Waiver	Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver		Ratio of Net Investment Income (Loss) to to Average Net Assets without Waiver	Portfolio Turnover Rate
Class A
	4-1-02 to 3-31-03	-25.13%b	$14	1.17%	2.02%	-0.49%	-1.34%	35.89%
	4-1-01 to 3-31-02	-1.67b	15	1.17	1.84	0.34	-0.33	39.05
	6-30-00a to 3-31-01	-5.88b	11	1.01c	1.65c	1.85c	1.21c	110.18
Class B
	4-1-02 to 3-31-03	-26.33%	$2	2.73%	3.58%	-2.05%	-2.90%	35.89%
	4-1-01 to 3-31-02	-2.87	2	2.49	3.90	-0.95	-2.37	39.05
	7-6-00a to 3-31-01	-6.85	2	2.40c	3.93c	0.44c	-1.09c	110.18
Class C
	4-1-02 to 3-31-03	-25.88%	$3	2.18%	3.03%	-1.50%	-2.35%	35.89%
	4-1-01 to 3-31-02	-2.53	4	2.10	3.30	-0.55	-1.74	39.05
	7-3-00a to 3-31-01	-6.58	4	1.99c	3.26c	0.84c	-0.43c	110.18
Class Y
	4-1-02 to 3-31-03	-24.86%	$--d	0.86%	1.71%	-0.18%	-1.03%	35.89%
	4-1-01 to 3-31-02	-1.52	--d	0.83	1.30	0.50	0.03	39.05
	7-10-00a to 3-31-01	-7.97	--d	1.03c	1.68c	1.77c	1.11c	110.18

IVY MONEY MARKET FUND

(formerly, W&R Money Market Fund)

	Selected Per-Share Data
	Increase From Investment Operations		Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Less Dividends Declared	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$1.00	$0.0124	$(0.0124)	$1.00
4-1-01 to 3-31-02	1.00	0.0259	(0.0259)	1.00
6-30-00a to 3-31-01	1.00	0.0413	(0.0413)	1.00
Class B
4-1-02 to 3-31-03	$1.00	$0.0015	$(0.0015)	$1.00
4-1-01 to 3-31-02	1.00	0.0147	(0.0147)	1.00
7-12-00a to 3-31-01	1.00	0.0299	(0.0299)	1.00
Class C
4-1-02 to 3-31-03	$1.00	$0.0019	$(0.0019)	$1.00
4-1-01 to 3-31-02	1.00	0.0157	(0.0157)	1.00
7-3-00a to 3-31-01	1.00	0.0332	(0.0332)	1.00

^(a) Commencement of operations of the class.

^(b) Annualized.

^(c) Not shown due to rounding.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Waiver	Ratio of Expenses to Average Net Assets without Waiver	Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver	Ratio of Net Investment Income (Loss) to to Average Net Assets without Waiver
Class A
4-1-02 to 3-31-03	1.25%	$10	0.52%	0.92%	1.26%	0.86%
4-1-01 to 3-31-02	2.70	5	0.81	1.03	2.60	2.38
6-30-00a to 3-31-01	4.11	5	0.92b	1.18b	5.49b	5.23b
Class B
4-1-02 to 3-31-03	0.16%	$1	1.59%	2.06%	0.14%	-0.33%
4-1-01 to 3-31-02	1.55	1	1.88	2.39	1.33	0.82
7-12-00a to 3-31-01	2.97	--c	2.29b	2.94b	4.05b	3.41b
Class C
4-1-02 to 3-31-03	0.20%	$10	1.56%	1.99%	0.18%	-0.25%
4-1-01 to 3-31-02	1.63	7	1.81	2.31	1.58	1.08
7-3-00a to 3-31-01	3.32	10	1.98b	2.54b	4.34b	3.78b

IVY MUNICIPAL BOND FUND

(formerly, W&R Municipal Bond Fund)

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends Declared From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$10.61	$0.42	$0.49	$0.91	$(0.42)		$(0.00)	$(0.42)	$11.10
4-1-01 to 3-31-02	10.52	0.47	0.09	0.56	(0.47)		(0.00)	(0.47)	10.61
9-15-00a to 3-31-01	10.33	0.26	0.19	0.45	(0.26)		(0.00)	(0.26)	10.52
Class B
4-1-02 to 3-31-03	$10.61	$0.33	$0.49	$0.82	$(0.33)		$(0.00)	$(0.33)	$11.10
4-1-01 to 3-31-02	10.52	0.32	0.09	0.41	(0.32)		(0.00)	(0.32)	10.61
8-8-00a to 3-31-01	10.26	0.22	0.26	0.48	(0.22)		(0.00)	(0.22)	10.52
Class Cf
4-1-02 to 3-31-03	$10.61	$0.32	$ 0.49	$0.81	$(0.32)		$(0.00)	$(0.32)	$11.10
4-1-01 to 3-31-02	10.52	0.37	0.09	0.46	(0.37)		(0.00)	(0.37)	10.61
4-1-00 to 3-31-01	10.11	0.40	0.41	0.81	(0.40)		(0.00)	(0.40)	10.52
4-1-99 to 3-31-00	11.24	0.42	(1.11)	(0.69)	(0.42)		(0.02)	(0.44)	10.11
4-1-98 to 3-31-99	11.45	0.42	0.10	0.52	(0.42)		(0.31)	(0.73)	11.24
Class Y
4-1-02 to 3-31-03	$10.61	$0.40	$ 0.49	$0.89	$(0.40)		$(0.00)	$(0.40)	$11.10
4-1-01 to 3-31-02	10.52	0.44	0.09	0.53	(0.44)		(0.00)	(0.44)	10.61
4-1-00 to 3-31-01	10.11	0.47	0.41	0.88	(0.47)		(0.00)	(0.47)	10.52
4-1-99 to 3-31-00	11.24	0.48	(1.11)	(0.63)	(0.48)		(0.02)	(0.50)	10.11
12-30-98a to 3-31-99	11.58	0.13	(0.03)	0.10	(0.13)		(0.31)	(0.44)	11.24

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) For the fiscal year ended March 31, 2001.

^(e) Not shown due to rounding.

^(f) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

^(g) Recommencement of operations of the class.

^(h) For the fiscal year ended March 31, 1999.

		Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	8.71%b	$3	1.15%	3.79%	40.03%
4-1-01 to 3-31-02	5.38b	2	1.17	4.37	36.41
9-15-00a to 3-31-01	4.32b	1	1.21c	4.69c	34.78d
Class B
4-1-02 to 3-31-03	7.81%	$1	1.96%	2.98%	40.03%
4-1-01 to 3-31-02	3.97	--e	2.44	3.09	36.41
8-8-00a to 3-31-01	4.66	--e	2.82c	3.11c	34.78d
Class Cf
4-1-02 to 3-31-03	7.75%	$25	2.03%	2.95%	40.03%
4-1-01 to 3-31-02	4.40	24	2.13	3.44	36.41
4-1-00 to 3-31-01	8.22	26	2.13	3.94	34.78
4-1-99 to 3-31-00	-6.21	28	1.98	3.94	16.95
4-1-98 to 3-31-99	4.64	43	1.88	3.68	41.53
Class Y
4-1-02 to 3-31-03	8.52%	$--e	1.33%	3.64%	40.03%
4-1-01 to 3-31-02	5.10	--e	1.44	4.09	36.41
4-1-00 to 3-31-01	9.04	--e	1.47	4.61	34.78
4-1-99 to 3-31-00	-5.69	--e	1.40	4.52	16.95
12-30-98g to 3-31-99	0.80	--e	1.00c	4.40c	41.53h

IVY PACIFIC OPPORTUNITIES FUND

	Selected Per-Share Data
		Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)	Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
1-1-02 to 12-31-02	$6.72	$ 0.01a	$(0.77)b	$(0.76)	$(0.00)		$(0.00)	$(0.00)	$5.96
1-1-01 to 12-31-01	7.42	(0.03)a	(0.66)b	(0.69)	(0.01)		(0.00)	(0.01)	6.72
1-1-00 to 12-31-00	9.15	0.07	(1.74)	(1.67)	(0.06)		(0.00)	(0.06)	7.42
1-1-99 to 12-31-99	6.30	0.08	2.86	2.94	(0.08)		(0.01)	(0.09)	9.15
1-1-98 to 12-31-98	8.04	0.13	(1.78)	(1.65)	(0.09)		(0.00)	(0.09)	6.30
Class B
1-1-02 to 12-31-02	$6.56	$(0.04)a	$(0.77)	$(0.81)	$(0.00)		$(0.00)	$(0.00)	$5.75
1-1-01 to 12-31-01	7.33	(0.08)a	(0.68)	(0.76)	(0.01)		(0.00)	(0.01)	6.56
1-1-00 to 12-31-00	9.04	0.01	(1.71)	(1.70)	(0.01)		(0.00)	(0.01)	7.33
1-1-99 to 12-31-99	6.24	0.02	2.81	2.83	(0.02)		(0.01)	(0.03)	9.04
1-1-98 to 12-31-98	7.96	0.05	(1.73)	(1.68)	(0.04)		(0.00)	(0.04)	6.24
Class C
1-1-02 to 12-31-02	$6.55	$(0.03)a	$(0.77)	$(0.80)	$(0.00)		$(0.00)	$(0.00)	$5.75
1-1-01 to 12-31-01	7.31	(0.08)a	(0.67)	(0.75)	(0.01)		(0.00)	(0.01)	6.55
1-1-00 to 12-31-00	9.07	0.01	(1.71)	(1.70)	(0.06)		(0.00)	(0.06)	7.31
1-1-99 to 12-31-99	6.25	0.02	2.82	2.84	(0.01)		(0.01)	(0.02)	9.07
1-1-98 to 12-31-98	7.94	0.08	(1.75)	(1.67)	(0.02)		(0.00)	(0.02)	6.25
Advisor Class
1-1-02 to 12-31-02	$6.59	$ 0.04a	$(0.82)	$(0.78)	$(0.00)		$(0.00)	$(0.00)	$5.81
1-1-01 to 12-31-01	7.30	(0.02)a	(0.68)	(0.70)	(0.01)		(0.00)	(0.01)	6.59
1-1-00 to 12-31-00	9.03	0.12a	(1.82)	(1.70)	(0.03)		(0.00)	(0.03)	7.30
1-1-99 to 12-31-99	6.27	0.04	2.86	2.90	(0.13)		(0.01)	(0.14)	9.03
2-10-98e to 12-31-98	7.89	0.08	(1.62)	(1.54)	(0.08)		(0.00)	(0.08)	6.27

^(a) Based on average shares outstanding.

^(b) Includes redemption fees added to paid-in capital.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Not shown due to rounding.

^(e) Commencement of operations of the class.

^(f) Annualized.

^(g) For the fiscal year ended December 31, 1998.

			Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets with Reimbursement	Ratio of Expenses to Average Net Assets without Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets with Reimbursement	Ratio of Net Investment Income (Loss) to Average Net Assets without Reimbursement	Portfolio Turnover Rate
Class A
1-1-02 to 12-31-02	-11.31%b,c	$ 5	2.21%	3.52%	0.20%	-1.11%	16%
1-1-01 to 12-31-01	-9.29b,c	6	2.21	3.57	-0.49	-1.85	82
1-1-00 to 12-31-00	-18.25c	9	2.16	3.10	0.83	-0.11	108
1-1-99 to 12-31-99	46.72c	13	2.19	2.84	1.01	0.36	23
1-1-98 to 12-31-98	-20.56c	9	2.30	2.86	1.60	1.04	56
Class B
1-1-02 to 12-31-02	-12.35%	$3	2.96%	4.27	-0.55%	-1.86%	16%
1-1-01 to 12-31-01	-10.35	4	2.95	4.31	-1.22	-2.58	82
1-1-00 to 12-31-00	-18.80	6	2.92	3.86	0.07	-0.87	108
1-1-99 to 12-31-99	45.33	8	2.97	3.62	0.24	-0.41	23
1-1-98 to 12-31-98	-21.04	6	3.08	3.64	0.82	0.26	56
Class C
1-1-02 to 12-31-02	-12.21%	$1	2.94%	4.25%	-0.53%	-1.84%	16%
1-1-01 to 12-31-01	-10.25	1	2.90	4.26	-1.18	-2.54	82
1-1-00 to 12-31-00	-18.79	2	3.03	3.97	-0.03	-0.97	108
1-1-99 to 12-31-99	45.41	1	3.03	3.68	0.18	-0.47	23
1-1-98 to 12-31-98	-21.02	1	2.98	3.54	0.92	0.36	56
Advisor Class
1-1-02 to 12-31-02	-11.84%	$--d	1.74%	3.05	0.67%	-0.64%	16%
1-1-01 to 12-31-01	-9.58	--d	2.03	3.39	-0.31	-1.67	82
1-1-00 to 12-31-00	-18.77	--d	1.77	2.71	1.23	0.29	108
1-1-99 to 12-31-99	46.29	--d	1.79	2.44	1.42	0.77	23
2-10-98e to 12-31-98	-19.56	--d	2.92f	3.48f	0.98f	0.42f	56g

IVY SCIENCE AND TECHNOLOGY FUND

(formerly, W&R Science and Technology Fund)

	Selected Per-Share Data
			Increase (Decrease) From Investment Operations				Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)		Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$18.19	$(0.32)		$(3.70)	$(4.02)	$(0.00)		$(0.00)	$(0.00)	$14.17
4-1-01 to 3-31-02	17.93	(0.45)		0.73	0.28	(0.00)		(0.02)	(0.02)	18.19
7-3-00a to 3-31-01	34.91	0.02		(9.35)	(9.33)	(0.00)		(7.65)	(7.65)	17.93
Class B
4-1-02 to 3-31-03	$17.88	$(0.34)		$(3.77)	$(4.11)	$(0.00)		$(0.00)	$(0.00)	$13.77
4-1-01 to 3-31-02	17.80	(0.38)		0.48	0.10	(0.00)		(0.02)	(0.02)	17.88
7-3-00a to 3-31-01	34.91	(0.06)		(9.40)	(9.46)	(0.00)		(7.65)	(7.65)	17.80
Class Ce
4-1-02 to 3-31-03	$17.97	$(0.25)		$ (3.84)	$ (4.09)	$(0.00)		$(0.00)	$(0.00)	$13.88
4-1-01 to 3-31-02	17.83	(0.24)		0.40	0.16	(0.00)		(0.02)	(0.02)	17.97
4-1-00 to 3-31-01	45.03	(0.12)		(19.43)	(19.55)	(0.00)		(7.65)	(7.65)	17.83
4-1-99 to 3-31-00	17.45	(0.95)		28.77	27.82	(0.00)		(0.24)	(0.24)	45.03
4-1-98 to 3-31-99	12.01	(0.09)		5.53	5.44	(0.00)		(0.00)	(0.00)	17.45
Class Y
4-1-02 to 3-31-03	$18.54	$(0.26)		$ (3.77)	$ (4.03)	$(0.00)		$(0.00)	$(0.00)	$14.51
4-1-01 to 3-31-02	18.21	(0.51)		0.86	0.35	(0.00)		(0.02)	(0.02)	18.54
4-1-00 to 3-31-01	45.36	(0.01)		(19.49)	(19.50)	(0.00)		(7.65)	(7.65)	18.21
4-1-99 to 3-31-00	17.65	(6.09)		34.04	27.95	(0.00)		(0.24)	(0.24)	45.36
6-9-98a to 3-31-99	12.20	0.01		5.44	5.45	(0.00)		(0.00)	(0.00)	17.65

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) For the fiscal year ended March 31, 2001.

^(e) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999.

^(f) Not shown due to rounding.

^(g) For the fiscal year ended March 31, 1999.

			Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	-22.10%b	$14	1.79%	-0.92%	74.48%
4-1-01 to 3-31-02	1.56b	12	1.75	-0.76	90.92
7-3-00a to 3-31-01	-31.95b	6	1.70c	0.26c	111.25d
Class B
4-1-02 to 3-31-03	-22.99%	$4	3.00%	-2.12%	74.48%
4-1-01 to 3-31-02	0.56	4	2.75	-1.73	90.92
7-3-00a to 3-31-01	-32.37	3	2.53c	-0.55c	111.25d
Class Ce
4-1-02 to 3-31-03	-22.76%	$ 70	2.67%	-1.77%	74.48%
4-1-01 to 3-31-02	0.89	112	2.45	-1.40	90.92
4-1-00 to 3-31-01	-47.49	134	2.27	-0.44	111.25
4-1-99 to 3-31-00	159.75	283	2.20	-1.68	44.19
4-1-98 to 3-31-99	45.30	44	2.57	-1.26	51.00
Class Y
4-1-02 to 3-31-03	-21.74%	$3	1.41%	-0.53%	74.48%
4-1-01 to 3-31-02	1.92	3	1.39	-0.43	90.92
4-1-00 to 3-31-01	-47.00	1	1.35	0.47	111.25
4-1-99 to 3-31-00	158.67	2	1.36	-0.96	44.19
6-9-98a to 3-31-99	44.67	--f	0.62c	0.54c	51.00g

IVY SMALL CAP GROWTH FUND

(formerly, W&R Small Cap Growth Fund^a)

	Selected Per-Share Data
			Increase (Decrease) From Investment Operations			Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)		Net Gain (Loss) on Investments (Realized and Unrealized)	Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains		Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$10.59	$(0.23)		$(2.11)	$(2.34)	$(0.00)		$(0.00)	$(0.00)	$ 8.25
4-1-01 to 3-31-02	9.43	(0.59)		1.75	1.16	(0.00)		(0.00)	(0.00)	10.59
7-3-00b to 3-31-01	19.64	(0.02)		(4.74)	(4.76)	(0.00)		(5.45)	(5.45)	9.43
Class B
4-1-02 to 3-31-03	$10.40	$(0.21)		$(2.18)	$(2.39)	$(0.00)		$(0.00)	$(0.00)	$ 8.01
4-1-01 to 3-31-02	9.36	(0.26)		1.30	1.04	(0.00)		(0.00)	(0.00)	10.40
7-6-00b to 3-31-01	19.26	(0.06)		(4.39)	(4.45)	(0.00)		(5.45)	(5.45)	9.36
Class Cf,g
4-1-02 to 3-31-03	$10.44	$(0.16)		$(2.21)	$(2.37)	$(0.00)		$(0.00)	$(0.00)	$ 8.07
4-1-01 to 3-31-02	9.38	(0.16)		1.22	1.06	(0.00)		(0.00)	(0.00)	10.44
4-1-00 to 3-31-01	21.64	(0.10)		(6.71)	(6.81)	(0.00)		(5.45)	(5.45)	9.38
4-1-99 to 3-31-00	14.74	(0.18)		10.22	10.04	(0.00)		(3.14)	(3.14)	21.64
4-1-98 to 3-31-99	14.29	(0.11)		2.91	2.80	(0.00)		(2.35)	(2.35)	14.74
Class Yf
4-1-02 to 3-31-03	$11.39	$(0.11)		$(2.39)	$(2.50)	$(0.00)		$(0.00)	$(0.00)	$ 8.89
4-1-01 to 3-31-02	10.14	(0.34)		1.59	1.25	(0.00)		(0.00)	(0.00)	11.39
4-1-00 to 3-31-01	22.65	(0.20)		(6.86)	(7.06)	(0.00)		(5.45)	(5.45)	10.14
4-1-99 to 3-31-00	15.21	(0.15)		10.73	10.58	(0.00)		(3.14)	(3.14)	22.65
4-1-98 to 3-31-99	14.55	0.00		3.01	3.01	(0.00)		(2.35)	(2.35)	15.21

^(a) Small Cap Growth Fund (formerly Growth Fund) changed its name effective June 30, 2000.

^(b) Commencement of operations of the class.

^(c) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(d) Annualized.

^(e) For the fiscal year ended March 31, 2001.

^(f) Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998.

^(g) The financial data shown for a Class C share are based on the financial data for a share of the fund's prior Class B.
On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced
operations on October 4, 1999. Per-share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.

			Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Assets	Ratio of Net Investment Income (Loss) to Average Net Assets	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	-22.10%c	$20	1.54%	-1.22%	30.63%
4-1-01 to 3-31-02	12.30c	16	1.39	-0.93	28.77
7-3-00b to 3-31-01	-28.30c	4	1.49d	-0.39d	47.85e
Class B
4-1-02 to 3-31-03	-22.98%	$7	2.64%	-2.31%	30.63%
4-1-01 to 3-31-02	11.11	8	2.43	-1.94	28.77
7-6-00b to 3-31-01	-27.29	5	2.31d	-1.18d	47.85e
Class Cf,g
4-1-02 to 3-31-03	-22.70%	$273	2.31%	-1.98%	30.63%
4-1-01 to 3-31-02	11.30	435	2.20	-1.70	28.77
4-1-00 to 3-31-01	-35.17	459	2.12	-0.81	47.85
4-1-99 to 3-31-00	73.38	801	2.11	-0.90	82.24
4-1-98 to 3-31-99	21.61	425	2.10	-0.90	51.41
Class Yf
4-1-02 to 3-31-03	-21.95%	$42	1.33%	-1.00%	30.63%
4-1-01 to 3-31-02	12.33	48	1.31	-0.83	28.77
4-1-00 to 3-31-01	-34.67	21	1.30	-0.02	47.85
4-1-99 to 3-31-00	74.71	17	1.30	-0.09	82.24
4-1-98 to 3-31-99	22.73	8	1.18	0.08	51.41

IVY TAX-MANAGED EQUITY FUND

(formerly, W&R Tax-Managed Equity Fund)

					Selected Per-Share Data
			Increase (Decrease) From Investment Operations				Less Distributions
For the Period From	Net Asset Value Beginning of Period	Net Investment Income (Loss)		Net Gain (Loss) on Investments (Realized and Unrealized)		Total From Investment Operations	Dividends From Net Investment Income	Distributions From Realized Gains	Total Distributions	Net Asset Value End of Period
Class A
4-1-02 to 3-31-03	$ 6.43	$(0.03)		$(0.67)		$(0.70)	$(0.00)	$(0.00)	$(0.00)	$5.73
4-1-01 to 3-31-02	7.19	(0.08)		(0.68)		(0.76)	(0.00)	(0.00)	(0.00)	6.43
6-30-00a to 3-31-01	10.00	(0.00)		(2.81)		(2.81)	(0.00)	(0.00)	(0.00)	7.19
Class B
4-1-02 to 3-31-03	$ 6.31	$(0.11)		$(0.62)		$(0.73)	$(0.00)	$(0.00)	$(0.00)	$5.58
4-1-01 to 3-31-02	7.12	(0.13)		(0.68)		(0.81)	(0.00)	(0.00)	(0.00)	6.31
7-13-00a to 3-31-01	10.06	(0.05)		(2.89)		(2.94)	(0.00)	(0.00)	(0.00)	7.12
Class C
4-1-02 to 3-31-03	$ 6.32	$(0.12)		$(0.63)		$(0.75)	$(0.00)	$(0.00)	$(0.00)	$5.57
4-1-01 to 3-31-02	7.13	(0.19)		(0.62)		(0.81)	(0.00)	(0.00)	(0.00)	6.32
7-6-00a to 3-31-01	10.01	(0.06)		(2.82)		(2.88)	(0.00)	(0.00)	(0.00)	7.13

^(a) Commencement of operations of the class.

^(b) Total return calculated without taking into account the sales load deducted on an initial purchase.

^(c) Annualized.

^(d) Not shown due to rounding.

				Ratios and Supplemental Data
For the Period From	Total Return	Net Assets End of Period (in Millions)	Ratio of Expenses to Average Net Waiver	Ratio of Expenses to Average Net Assets without Waiver	Ratio of Net Investment Income (Loss) to Average Net Assets with Waiver	Ratio of Net Investment Income (Loss) to Average Net Assets without Waiver	Portfolio Turnover Rate
Class A
4-1-02 to 3-31-03	-10.89%b	$4	1.50%	2.15%	-0.67%	-1.32%	145.24%
4-1-01 to 3-31-02	-10.57b	4	1.62	2.17	-0.92	-1.46	95.60
6-30-00a to 3-31-01	-28.10b	4	1.27c	1.80c	-0.09c	-0.62c	73.46
Class B
4-1-02 to 3-31-03	-11.57%	$--d	2.47%	3.12%	-1.63%	-2.28%	145.24%
4-1-01 to 3-31-02	-11.38	--d	2.56	3.42	-1.86	-2.71	95.60
7-13-00a to 3-31-01	-29.22	--d	2.45c	3.48c	-1.74c	-2.77c	73.46
Class C
4-1-02 to 3-31-03	-11.87%	$1	2.64%	3.29%	-1.81%	-2.46%	145.24%
4-1-01 to 3-31-02	-11.36	1	2.76	3.69	-2.07	-2.99	95.60
7-6-00a to 3-31-01	-28.77	--d	2.35c	3.34c	-1.52c	-2.50c	73.46

This page for your notes and calculations.

IVY FUNDS

Custodian
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64106

Legal Counsel
Bell, Boyd & Lloyd LLC
Three First National Plaza
70 West Madison Street
Suite 3300
Chicago, Illinois 60602-4207

Independent Auditors
Deloitte & Touche llp
1010 Grand Boulevard
Kansas City, Missouri
64106-2232

Investment Manager
Waddell & Reed Ivy Investment Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-777-6472

Distributor
Ivy Funds Distributor, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-777-6472

Transfer Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-777-6472

Accounting Services Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-777-6472

IVY FUNDS

You can get more information about each Fund in the --

* Statement of Additional Information (SAI), which contains detailed information about a Fund, particularly the investment policies and practices. You may not be aware of important information about a Fund unless you read both the Prospectus and the SAI. The current SAI is on file with the Securities and Exchange Commission (SEC) and it is incorporated into this Prospectus by reference (that is, the SAI is legally part of the Prospectus).

* Annual and Semiannual Reports to Shareholders, which detail a Fund's actual investments and include financial statements as of the close of the particular annual or semiannual period. The annual report also contains a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during the year covered by the report.

To request a copy of the Funds' current SAI or copies of the most recent Annual and Semiannual reports, without charge, or for other inquiries, contact the Fund or Ivy Funds Disributor, Inc. at the address and telephone number below. Copies of the SAI, Annual and/or Semiannual reports may also be requested via e-mail at request@waddell.com.

Information about the Funds (including the current SAI and most recent Annual and Semiannual Reports) is available from the SEC's web site at http://www.sec.gov and may also be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov or from the SEC's Public Reference Room in Washington, D.C. You can find out about the operation of the Public Reference Room and applicable copying charges by calling 202-942-8090.

The Funds' SEC file numbers are as follows:

 Ivy Funds, Inc. 811-6569

 Ivy Fund: 811-01028

IVY FUNDS DISTRIBUTOR, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

913-236-2000

800-777-5472

WRP3300 (7-03) 526863

IVY FUNDS, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

913-236-2000

800-777-6472

July 1, 2003

EX-99.(11)

exv99wx11y

EX-99.(14)(A)

exv99wx14yxay

EX-99.(14)(B)

exv99wx14yxby

EX-99.(16)

exv99wx16y

EX-99.(17)(A)

exv99wx17yxay

EX-99.(17)(B)

exv99wx17yxby

EX-99.(17)(C)

exv99wx17yxcy

EX-99.(17)(D)

Exhibit (17)(d)

IVY FUNDS

Ivy Asset Strategy Fund
Ivy Core Equity Fund
Ivy Cundill Global Value Fund
Ivy Dividend Income Fund
Ivy European Opportunities Fund
Ivy Global Natural Resources Fund
Ivy High Income Fund
Ivy International Fund
Ivy International Growth Fund
Ivy International Value Fund
Ivy Large Cap Growth Fund
Ivy Limited-Term Bond Fund
Ivy Mid Cap Growth Fund
Ivy Money Market Fund
Ivy Municipal Bond Fund
Ivy Pacific Opportunities Fund
Ivy Science and Technology Fund
Ivy Small Cap Growth Fund
Ivy Tax-Managed Equity Fund

Supplement Dated July 7, 2003 To Prospectus Dated July 1, 2003

The following information replaces the disclosure regarding the purchase of Class A shares at Net Asset Value (NAV) in the section entitled "Sales Charge Waivers for Certain Investors"

Class A shares may be purchased at NAV by:

*	Shareholders investing through certain investment advisors and financial planners who charge a management, consulting or other fee for their services
*	The Trustees and officers of the Ivy Fund, the Directors and officers of Ivy Funds, Inc. or of any affiliated entity of WRIICO, employees of IFDI and its affiliates, financial advisors of Waddell & Reed and its affiliates and the spouse, children, parents, children's spouses and spouse's parents of each, including purchases into certain retirement plans and certain trusts for these individuals
*	Until December 31, 2003, clients of Legend Equities Corporation if the purchase is made with the proceeds of the redemption of shares of a mutual fund which is not within the Ivy Family of Funds or the Waddell & Reed Advisors Funds and the purchase is made within sixty (60) days of such redemption
*	Participants in a 401(k) plan or a 457 plan having 100 or more eligible employees that are participants, and the shares are held in individual plan participant accounts on the Fund's records
*	The Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see "Group Systematic Investment Program" in the SAI.
*	Friends of the Firm which include certain persons who have an existing relationship with IFDI or any of its affiliates

You will find more information in the Fund's SAI about sales charge reductions and waivers.

WRS3300A
527617 EX-99.(17)(E) 11 c78747exv99wx17yxey.htm EX-(17)(E)IVY FUNDS&IVY FUNDSINC PROSPSUPP-7/15/03

Exhibit (17)(e)

Page 1 of 1

IVY FUNDS

Ivy Asset Strategy Fund
Ivy Core Equity Fund
Ivy Cundill Global Value Fund
Ivy Dividend Income Fund
Ivy European Opportunities Fund
Ivy Global Natural Resources Fund
Ivy High Income Fund
Ivy International Fund
Ivy International Growth Fund
Ivy International Value Fund
Ivy Large Cap Growth Fund
Ivy Limited-Term Bond Fund
Ivy Mid Cap Growth Fund
Ivy Money Market Fund
Ivy Municipal Bond Fund
Ivy Pacific Opportunities Fund
Ivy Science and Technology Fund
Ivy Small Cap Growth Fund
Ivy Tax-Managed Equity Fund

Supplement Dated July 15, 2003 To Prospectus Dated July 1, 2003
(and supplemented July 7, 2003)

Effective July 15, 2003:

The following information replaces the disclosure regarding selling Class A shares by check in the Section entitled “Selling Shares”:

To sell Class A shares of Ivy Money Market Fund and Ivy Limited-Term Bond Fund by check: If you have elected this method in your application or by subsequent authorization, the Fund will provide you with forms or checks drawn on UMB Bank, n.a. You may make these checks payable to the order of any payee in any amount of $250 or more.

EX-99.(17)(F) 12 c78747exv99wx17yxfy.htm EX-(17)(F)IVY FUNDS&IVY FUNDSINC PROSPSUPP-7/25/03

Exhibit (17)(f)

IVY FUNDS

Ivy Asset Strategy Fund
Ivy Core Equity Fund
Ivy Cundill Global Value Fund
Ivy Dividend Income Fund
Ivy European Opportunities Fund
Ivy Global Natural Resources Fund
Ivy High Income Fund
Ivy International Fund
Ivy International Growth Fund
Ivy International Value Fund
Ivy Large Cap Growth Fund
Ivy Limited-Term Bond Fund
Ivy Mid Cap Growth Fund
Ivy Money Market Fund
Ivy Municipal Bond Fund
Ivy Pacific Opportunities Fund
Ivy Science and Technology Fund
Ivy Small Cap Growth Fund
Ivy Tax-Managed Equity Fund

Supplement Dated July 25, 2003 To Prospectus Dated July 1, 2003
(and supplemented July 7, 2003 and July 15, 2003)

1.	The following Funds now offer Class Y shares:
	Ivy Cundill Global Value Fund
	Ivy European Opportunities Fund
	Ivy Global Natural Resources Fund
	Ivy International Fund
	Ivy International Value Fund
	Ivy Pacific Opportunities Fund

The general information and disclosure in the Prospectus regarding Class Y shares also applies to the Class Y shares of each of the above-referenced Funds.

2. The following supplements the information in the “Fees and Expenses” section for:

IVY CUNDILL GLOBAL VALUE FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])		2.00	%

Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets([2])
		Management fees	1.00	%
		Distribution and/or service (12b-1) fees	0.25	%
		Other expenses	3.78	%

Page 2 of 6

Total annual Fund operating expenses	5.03	%
Expenses reimbursed([3])	2.28	%
Net Fund operating expenses	2.75	%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee.

([2]) The expense information shown above has been restated to reflect current fees. Expenses reimbursed are estimates based on Class A expenses for the fiscal year ended December 31, 2002.

([3]) The Fund’s Investment Manager has contractually agreed to reimburse the Fund’s expenses for the fiscal year ending December 31, 2003, and for the following eight years, to the extent necessary to ensure that the Fund’s Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 2.50% of the Fund’s average net assets (excluding 12b-1 fees and certain other expenses).

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	278	$	853	$	1,454	$	3,362

3.          The following supplements the information in the “Fees and Expenses” section for:

IVY EUROPEAN OPPORTUNITIES FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])		2.00	%

Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets
		Management fees([2])	1.00	%
		Distribution and/or service (12b-1) fees	0.25	%
		Other expenses	0.96	%
		Total annual Fund operating expenses	2.21	%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee.

([2]) Management fees are reduced to 0.85% for net assets over $250 million, and reduced to 0.75% on net assets over $500 million.

Page 3 of 6

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	224	$	691	$	1,185	$	2,544

4.          The following supplements the information in the “Fees and Expenses” section for:

IVY GLOBAL NATURAL RESOURCES FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])		2.00	%

Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets
		Management fees	1.00	%
		Distribution and/or service (12b-1) fees	0.25	%
		Other expenses	1.19	%
		Total annual Fund operating expenses	2.44	%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee.

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	247	$	761	$	1,301	$	2,776

5.          The following supplements the information in the “Fees and Expenses” section for:

IVY INTERNATIONAL FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Page 4 of 6

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])			2.00	%
Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets
		Management fees([2])	1.00	%
		Distribution and/or service (12b-1) fees	0.25	%
		Other expenses	0.75	%
		Total annual Fund operating expenses	2.00	%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee.

([2]) Management fees are reduced to 0.90% for net assets over $2.0 billion, and reduced to 0.80% on net assets over $2.5 billion and reduced to 0.70% for net assets over $3.0 billion.

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	203	$	627	$	1,078	$	2,327

6.          The following supplements the information in the “Fees and Expenses” section for:

IVY INTERNATIONAL VALUE FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])		2.00	%

Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets
		Management fees	1.00	%
		Distribution and/or service (12b-1) fees	0.25	%
		Other expenses	1.13	%
		Total annual Fund operating expenses	2.38	%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00%

Page 5 of 6

redemption/exchange fee.

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	241	$	742	$	1,270	$	2,716

7.          The following supplements the information in the “Fees and Expenses” section for:

IVY PACIFIC OPPORTUNITIES FUND

Fees and Expenses
The following tables describe the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:

Shareholder Fees
	fees paid directly from your investment
		Maximum sales charge (load) imposed on purchase (as a % of offering price)	None
		Maximum deferred sales charge (load) (as a % of purchase price)	None
		Redemption fee/exchange fee (as a % of amount redeemed, if applicable) ([1])		2.00	%

Estimated Annual Fund Operating Expenses
	expenses that are deducted from Fund assets([2])
		Management fees	1.00%
		Distribution and/or service (12b-1) fees	0.25%
		Other expenses	2.18%
		Total annual Fund operating expenses	3.43%
		Expenses reimbursed([3])	0.68%
		Net Fund operating expenses	2.75%

([1]) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class Y shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee.

([2]) The expense information shown above has been restated to reflect current fees. Expenses reimbursed are estimates based on Class A expenses for the fiscal year ended December 31, 2002.

([3]) The Fund’s Investment Manager has contractually agreed to reimburse the Fund’s expenses for the fiscal year ending December 31, 2003, and for the following eight years, to the extent necessary to ensure that the Fund’s Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 2.50% of the Fund’s average net assets (excluding 12b-1 fees and certain other expenses).

Example
This example is intended to help you compare the cost of investing in the shares of the Fund with the cost of investing in other mutual funds. The example assumes that (a) you invest $10,000 in the particular class of shares for the time periods specified and then redeem all of your shares at the end of those periods, (b) your investment has a 5% return each year, and (c) the expenses remain the same. Although your actual costs may

Page 6 of 6

be higher or lower, based on these assumptions, your costs would be:

	1 Year		3 Years		5 Years		10 Years
Class Y Shares	$	278	$	853	$	1,454	$	3,164

8.          The Advisor Class of shares of the following Funds is closed to new investors:

Ivy Cundill Global Value Fund
Ivy European Opportunities Fund
Ivy Global Natural Resources Fund
Ivy International Fund
Ivy International Value Fund
Ivy Pacific Opportunities Fund

Advisor Class shareholders may exchange into Class Y shares of any of the funds in the Ivy Family of Funds or into Class A shares of Ivy Money Market Fund.

WRS3300C

EX-99.(17)(G) 13 c78747exv99wx17yxgy.htm EX-(17)(G)IVY FUNDS&IVY FUNDS,INC.PROSPSUPP-8/4/03

Exhibit (17)(g)

IVY FUNDS
 
Ivy Asset Strategy Fund
Ivy Core Equity Fund
Ivy Cundill Global Value Fund
Ivy Dividend Income Fund
Ivy European Opportunities Fund
Ivy Global Natural Resources Fund
Ivy High Income Fund
Ivy International Fund
Ivy International Growth Fund
Ivy International Value Fund
Ivy Large Cap Growth Fund
Ivy Limited-Term Bond Fund
Ivy Mid Cap Growth Fund
Ivy Money Market Fund
Ivy Municipal Bond Fund
Ivy Pacific Opportunities Fund
Ivy Science and Technology Fund
Ivy Small Cap Growth Fund
Ivy Tax-Managed Equity Fund

Supplement Dated August 4, 2003 To Prospectus Dated July 1, 2003
(and supplemented July 25, 2003, July 15, 2003 and July 7, 2003)

The following information replaces the disclosure regarding the management of Ivy Small Cap Growth Fund in the Section entitled "Portfolio Management":

The Ivy Small Cap Growth Fund is managed by the small cap growth team of Waddell & Reed Ivy Investment Company (WRIICO).  Gilbert Scott is primarily responsible for the management of the fund.  Mr. Scott joined Waddell & Reed in 1997 and has been assistant portfolio manager of small cap growth institutional accounts since September 2000.  He is a vice president of WRIICO and of Waddell & Reed Investment Management Company (WRIMCO).  Mark G. Seferovich is the senior member of the small cap growth team.  Mr. Seferovich joined Waddell & Reed in 1989 and served as portfolio manager of Waddell & Reed's small cap growth mutual funds from September 1992 through September 2002.  Mr. Seferovich currently is primarily responsible for managing small cap growth institutional accounts of WRIMCO, and, as the senior member of the team, provides oversight to the small cap growth team.  He is a senior vice president of WRIICO and WRIMCO.

WRS3300D

527826
EX-99.(17)(H) 14 c78747exv99wx17yxhy.htm EX-(17)(H)IVY FUNDS & IVY FUNDS,INC. SAI - 7/1/03

Exhibit (17)(h)

July 1, 2003

STATEMENT OF ADDITIONAL INFORMATION

           This Statement of Additional Information (SAI) is not a prospectus. Investors should read this SAI in conjunction with the prospectus (Prospectus) for Ivy Funds, Inc. (the Funds) dated July 1, 2003, which may be obtained from the Funds or its principal underwriter and distributor, Ivy Funds Distributor, Inc. (IFDI), at the address or telephone number shown above.

           The Financial Statements, including notes thereto, are incorporated herein by reference. They are contained in the Funds' Annual Report to Shareholders, dated March 31, 2003, which may also be obtained from the Funds or IFDI at the address or telephone number above.

TABLE OF CONTENTS

Fund History

The Fund, Its Investments, Related Risks and Limitations

Management of the Fund

Control Persons and Principal Holders of Securities

Investment Advisory and Other Services

Brokerage Allocation and Other Practices

Capital Stock

Purchase, Redemption and Pricing of Shares

Taxation of the Fund

Underwriter

Performance Information

Financial Statements

Appendix A

           Ivy Funds, Inc. was organized as a Maryland corporation on January 29, 1992. Prior to June 30, 2003, the corporation was known as W&R Funds, Inc.^SM Prior to June 30, 2000, it was known as Waddell & Reed Funds, Inc.^SM Ivy Funds, Inc. is comprised of twelve series: Ivy Asset Strategy Fund, Ivy Core Equity Fund, Ivy High Income Fund, Ivy International Growth Fund, Ivy Large Cap Growth Fund, Ivy Limited-Term Bond Fund, Ivy Mid Cap Growth Fund, Ivy Money Market Fund, Ivy Municipal Bond Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund and Ivy Tax-Managed Equity Fund. Prior to June 30, 2003, the Funds were known as W&R Asset Strategy Fund, W&R Core Equity Fund, W&R High Income Fund, W&R International Growth Fund, W&R Large Cap Growth Fund, W&R Limited-Term Bond Fund, W&R Mid Cap Growth Fund, W&R Money Market Fund, W&R Municipal Bond Fund, W&R Science and Technology Fund, W&R Small Cap Growth Fund and W&R Tax-Managed Equity Fund, respectively. Prior to October 2, 2000, Core Equity Fund was known as Total Return Fund. Prior to June 30, 2000, Small Cap Growth Fund was known as Growth Fund.

THE FUND, ITS INVESTMENTS, RELATED RISKS AND LIMITATIONS

           Ivy Asset Strategy Fund, Ivy Core Equity Fund, Ivy High Income Fund, Ivy International Growth Fund, Ivy Large Cap Growth Fund, Ivy Limited-Term Bond Fund, Ivy Mid Cap Growth Fund, Ivy Money Market Fund, Ivy Municipal Bond Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund and Ivy Tax-Managed Equity Fund is each a mutual fund; an investment that pools shareholders' money and invests it toward a specified goal. Each Fund is a series of Ivy Funds, Inc., an open-ended diversified management investment company.

           This SAI supplements the information contained in the Prospectus and contains more detailed information about the investment strategies and policies the Funds' investment manager, Waddell & Reed Ivy Investment Company (WRIICO), may employ and the types of instruments in which a Fund may invest, in pursuit of the Fund's goal(s). A summary of the risks associated with these instrument types and investment practices is included as well.

           WRIICO might not buy all of these instruments or use all of these techniques, or use them to the full extent permitted by a Fund's investment policies and restrictions. WRIICO buys an instrument or uses a technique only if it believes that doing so will help a Fund achieve its goal(s). See Investment Restrictions and Limitations for a listing of the fundamental and non-fundamental, or operating, investment restrictions and policies of each Fund.

Ivy Asset Strategy Fund

           Ivy Asset Strategy Fund allocates its assets among the following classes, or types, of investments:

           The short-term class includes all types of domestic and foreign securities and money market instruments with remaining maturities of three years or less. WRIICO will seek to maximize total return within the short-term asset class by taking advantage of yield differentials between different instruments, issuers, and currencies. Short-term instruments may include corporate debt securities, such as commercial paper and notes; government securities issued by U.S. or foreign governments or their agencies or instrumentalities; bank deposits and other financial institution obligations; repurchase agreements involving any type of security in which the Fund may invest; and other similar short-term instruments. These instruments may be denominated in U.S. dollars or a foreign currency.

           The bond class includes all varieties of domestic and foreign fixed-income securities with remaining maturities greater than three years. WRIICO seeks to maximize total return within the bond class by adjusting Ivy Asset Strategy Fund's investments in securities with different credit qualities, maturities, and coupon or dividend rates, and by seeking to take advantage of yield differentials between securities. Securities in this class may include bonds, notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and asset-backed securities, domestic and foreign government and government agency securities, zero coupon bonds, and other intermediate and long-term securities. As with the short-term class, these securities may be denominated in U.S. dollars or a foreign currency. Ivy Asset Strategy Fund may not invest more than 35% of its total assets in lower quality, high-yielding debt securities.

           The stock class includes domestic and foreign equity securities of all types (other than adjustable rate preferred stocks, which are included in the bond class). WRIICO seeks to maximize total return within this asset class by allocating assets to industry sectors expected to benefit from major trends, and to individual stocks that WRIICO believes to have superior growth potential. Securities in the stock class may include common stocks, fixed-rate preferred stocks (including convertible preferred stocks), warrants, rights, depositary receipts, securities of investment companies, and other equity securities issued by companies of any size, located anywhere in the world.

           WRIICO seeks to take advantage of yield differentials by considering the purchase or sale of instruments when differentials on spreads between various grades and maturities of such instruments approach extreme levels relative to long-term norms.

           In making asset allocation decisions, WRIICO typically evaluates projections of risk, market conditions, economic conditions, volatility, yields, and returns.

           The ability of Ivy Asset Strategy Fund to purchase and hold precious metals such as gold, silver and platinum may allow it to benefit from a potential increase in the price of precious metals or stability in the price of such metals at a time when the value of securities may be declining. For example, during periods of declining stock prices, the price of gold may increase or remain stable, while the value of the stock market may be subject to a general decline.

           Precious metal prices are affected by various factors, such as economic conditions, political events and monetary policies. As a result, the price of gold, silver or platinum may fluctuate widely. The sole source of return to Ivy Asset Strategy Fund from such investments will be gains realized on sales; a negative return will be realized if the metal is sold at a loss. Investments in precious metals do not provide a yield. Ivy Asset Strategy Fund's direct investment in precious metals is limited by tax considerations. See Taxes.

Ivy High Income Fund

           Ivy High Income Fund may invest in certain high-yield, high-risk, non-investment grade debt securities rated BB or below by Standard & Poor's (S&P) or Ba or below by Moody's Corporation (Moody's) or, if unrated, judged by WRIICO to be of equivalent quality (commonly referred to as junk bonds). The market for such securities may differ from that for investment grade debt securities. See the discussion below for information about the risks associated with non-investment grade debt securities. See Appendix A to this SAI for a more complete description of bond ratings.

Ivy Money Market Fund

           Ivy Money Market Fund may only invest in the money market obligations and instruments listed below. In addition, as a money market fund, and in order for the Fund to use the amortized cost method of valuing its portfolio securities, the Fund must comply with Rule 2a-7 (Rule 2a-7) under the Investment Company Act of 1940, as amended (1940 Act). Under Rule 2a-7, investments are limited to those that are U.S. dollar denominated and that are rated in one of the two highest rating categories by the requisite nationally recognized statistical rating organization (NRSRO) or are comparable

unrated securities. See Appendix A to this SAI for a description of some of these ratings. In addition, Rule 2a-7 limits investments in securities of any one issuer (except U.S. Government securities) to no more than 5% of the Fund's total assets. Investments in securities rated in the second highest rating category by the requisite NRSRO or comparable unrated securities are limited to no more than 5% of the Fund's total assets, with investment in such securities of any one issuer (except U.S. Government securities) being limited to the greater of one percent of the Fund's total assets or $1,000,000. In accordance with Rule 2a-7, the Fund may invest in securities with a remaining maturity of not more than 397 calendar days. See further discussion under Determination of Offering Price.

           (1) U.S. Government Securities: See the section entitled U.S. Government Securities.

           (2) Bank Obligations and Instruments Secured Thereby: Subject to the limitations described above, time deposits, certificates of deposit, bankers' acceptances and other bank obligations if they are obligations of a bank subject to regulation by the U.S. Government (including obligations issued by foreign branches of these banks) or obligations issued by a foreign bank having total assets equal to at least U.S. $500,000,000, and instruments secured by any such obligation. A bank includes commercial banks and savings and loan associations. Time deposits are monies kept on deposit with U.S. banks or other U.S. financial institutions for a stated period of time at a fixed rate of interest. At present, bank time deposits are not considered by the Board of Directors or WRIICO to be readily marketable. There may be penalties for the early withdrawal of such time deposits, in which case, the yield of these investments will be reduced.

           (3) Commercial Paper Obligations Including Variable Rate Master Demand Notes: Commercial paper rated as described above. A variable rate master demand note represents a purchasing/selling arrangement of short-term promissory notes under a letter agreement between a commercial paper issuer and an institutional investor.

           (4) Corporate Debt Obligations: Corporate debt obligations if they are rated as described above.

           (5) Canadian Government Obligations: Obligations of, or obligations guaranteed by, the Government of Canada, a Province of Canada or any agency, instrumentality or political subdivision of that Government or any Province. The Fund will not invest in Canadian Government obligations if more than 10% of the value of its total assets would then be so invested, subject to the diversification requirements applicable to the Money Market Fund.

           (6) Certain Other Obligations: Obligations other than those listed in (1) through (5) (including municipal obligations) only if any such other obligation is guaranteed as to principal and interest by either a bank or a corporation in whose securities the Fund is eligible to invest under Rule 2a-7.

           The value of the obligations and instruments in which the Fund invests will fluctuate depending in large part on changes in prevailing interest rates. If these rates go up after the Fund buys an obligation or instrument, its value may go down; if these rates go down, its value may go up. Changes in interest rates will be more quickly reflected in the yield of a portfolio of short-term obligations than in the yield of a portfolio of long-term obligations.

Securities - General

           The main types of securities in which the Funds may invest include common stocks, preferred stocks, debt securities and convertible securities. Although common stocks and other equity securities have a history of long-term growth in value, their prices tend to fluctuate in the short term, particularly those of smaller companies. A Fund (other than Ivy Money Market Fund) may invest in preferred stocks rated in any rating category of the established rating services or, if unrated, judged by WRIICO to be of equivalent quality, subject to each Fund's limitations. Debt securities have varying levels of sensitivity to changes in interest rates and varying degrees of quality. As a general matter, however, when interest rates rise, the values of fixed-rate debt securities fall and, conversely, when interest rates fall, the values of fixed-rate debt securities rise. Similarly, long-term bonds are generally more sensitive to interest rate changes than short-term bonds.

           The Fund may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. Convertible securities generally have higher yields than common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities, are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics, and provide the potential for capital appreciation if the market price of the underlying common stock increases.

           The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value. A convertible security may be subject to redemption at the option of the issuer at a price established in the security's offering document. If a convertible security held by the Fund is called for redemption, the Fund will be required to convert it into the underlying stock, sell it to a third party or permit the issuer to redeem the security. Convertible securities are typically issued by smaller capitalized companies whose stock prices may be volatile. Thus, any of these actions could have an adverse effect on the Fund's ability to achieve its investment objectives.

           The Fund may also invest in a type of convertible preferred stock that pays a cumulative, fixed dividend that is senior to, and expected to be in excess of, the dividends paid on the common stock of the issuer. At the mandatory conversion date, the preferred stock is converted into not more than one share of the issuer's common stock at the call price that was established at the time the preferred stock was issued. If the price per share of the related common stock on the mandatory conversion date is less than the call price, the holder of the preferred stock will nonetheless receive only one share of common stock for each share of preferred stock (plus cash in the amount of any accrued but unpaid dividends). At any time prior to the mandatory conversion date, the issuer may redeem the preferred stock upon issuing to the holder a number of shares of common stock equal to the call price of the preferred stock in effect on the date of redemption divided by the market value of the common stock, with such market value typically determined one or two trading days prior to the date notice of redemption is given. The issuer must also pay the holder of the preferred stock cash in an amount equal to any accrued but unpaid dividends on the preferred stock. This convertible preferred stock is subject to the same market risk as the common stock of the issuer, except to the extent that such risk is mitigated by the higher dividend paid on the preferred stock. The opportunity for equity appreciation afforded by an investment in such convertible preferred stock, however, is limited, because in the event the market value of the issuer's common stock increases to or above the call price of the preferred stock, the issuer may (and would be expected to) call the preferred stock for redemption at the call price. This convertible preferred stock is also subject to credit risk with regard to the ability of the issuer to pay the dividend established upon issuance of the preferred stock. Generally, however,

the market value of the convertible preferred stock is less volatile than the related common stock of the issuer.

           Lower quality debt securities (commonly called junk bonds) are considered to be speculative and involve greater risk of default or price changes due to changes in the issuer's creditworthiness. The market prices of these securities may fluctuate more than high-quality securities and may decline significantly in periods of general economic difficulty. The market for lower-rated debt securities may be thinner and less active than that for higher-rated debt securities, which can adversely affect the prices at which the former are sold. Adverse publicity and changing investor perceptions may decrease the values and liquidity of lower-rated debt securities, especially in a thinly traded market. Valuation becomes more difficult and judgment plays a greater role in valuing lower-rated debt securities than with respect to securities for which more external sources of quotations and last sale information are available. Since the risk of default is higher for lower-rated debt securities, WRIICO's research and credit analysis are an especially important part of managing securities of this type held by a Fund. WRIICO continuously monitors the issuers of lower-rated debt securities in a Fund's portfolio in an attempt to determine if the issuers will have sufficient cash flow and profits to meet required principal and interest payments. A Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interests of security holders if it determines this to be in the best interest of the Fund's shareholders.

           A Fund (other than Ivy Money Market Fund) may invest in debt securities rated in any rating category of the established rating services, subject to each Fund's limitations, including securities rated in the lowest category (securities rated D by S&P and C by Moody's). Debt securities rated D by S&P or C by Moody's are in payment default or are regarded as having extremely poor prospects of ever attaining any real investment standing. Debt securities rated at least BBB by S&P or Baa by Moody's are considered to be investment grade debt securities; however, securities rated BBB or Baa may have speculative characteristics. In addition, a Fund will treat unrated securities judged by WRIICO to be of equivalent quality to a rated security as having that rating.

           While credit ratings are only one factor WRIICO relies on in evaluating high-yield debt securities, certain risks are associated with credit ratings. Credit ratings evaluate the safety of principal and interest payments, not market value risk. Credit ratings for individual securities may change from time to time, and a Fund may retain a portfolio security whose rating has been changed.

           Each of the Funds (other than Ivy Money Market Fund and Ivy Municipal Bond Fund) may purchase debt securities whose principal amount at maturity is dependent upon the performance of a specified equity security. The issuer of such debt securities, typically an investment banking firm, is unaffiliated with the issuer of the equity security to whose performance the debt security is linked. Equity-linked debt securities differ from ordinary debt securities in that the principal amount received at maturity is not fixed, but is based on the price of the linked equity security at the time the debt security matures. The performance of equity-linked debt securities depends primarily on the performance of the linked equity security and may also be influenced by interest rate changes. In addition, although the debt securities are typically adjusted for diluting events such as stock splits, stock dividends and certain other events affecting the market value of the linked equity security, the debt securities are not adjusted for subsequent issuances of the linked equity security for cash. Such an issuance could adversely affect the price of the debt security. In addition to the equity risk relating to the linked equity security, such debt securities are also subject to credit risk with regard to the issuer of the debt security. In general, however, such debt securities are less volatile than the equity securities to which they are linked.

           Each Fund (other than Ivy Money Market Fund and Ivy Municipal Bond Fund) may invest in

convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of common stock of the same or different issuer within a particular period of time at a specified price or formula. Convertible securities generally have higher yields than common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities, are less subject to fluctuation in value than the underlying stock because they have fixed income characteristics, and provide the potential for capital appreciation if the market price of the underlying common stock increases.

           The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security's investment value.

           Each of the Funds (other than Ivy Money Market Fund and Ivy Municipal Bond Fund) may also invest in a type of convertible preferred stock that pays a cumulative, fixed dividend that is senior to, and expected to be in excess of, the dividends paid on the common stock of the issuer. At the mandatory conversion date, the preferred stock is converted into not more than one share of the issuer's common stock at the call price that was established at the time the preferred stock was issued. If the price per share of the related common stock on the mandatory conversion date is less than the call price, the holder of the preferred stock will nonetheless receive only one share of common stock for each share of preferred stock (plus cash in the amount of any accrued but unpaid dividends). At any time prior to the mandatory conversion date, the issuer may redeem the preferred stock upon issuing to the holder a number of shares of common stock equal to the call price of the preferred stock in effect on the date of redemption divided by the market value of the common stock, with such market value typically determined one or two trading days prior to the date notice of redemption is given. The issuer must also pay the holder of the preferred stock cash in an amount equal to any accrued but unpaid dividends on the preferred stock. This convertible preferred stock is subject to the same market risk as the common stock of the issuer, except to the extent that such risk is mitigated by the higher dividend paid on the preferred stock. The opportunity for equity appreciation afforded by an investment in such convertible preferred stock, however, is limited, because in the event the market value of the issuer's common stock increases to or above the call price of the preferred stock, the issuer may (and would be expected to) call the preferred stock for redemption at the call price. This convertible preferred stock is also subject to credit risk with regard to the ability of the issuer to pay the dividend established upon issuance of the preferred stock. Generally, convertible preferred stock is less volatile than the related common stock of the issuer.

Specific Securities and Investment Practices

           Bank Deposits

           Among the debt securities in which the Funds may invest are deposits in banks (represented by certificates of deposit or other evidence of deposit issued by such banks) of varying maturities. The Federal Deposit Insurance Corporation insures the principal of such deposits, currently to the extent of $100,000 per bank. Bank deposits are not marketable, and a Fund may invest in them only within the limit mentioned under Illiquid Investments unless such obligations are payable at principal amount plus accrued interest on demand or within seven days after demand.

           Borrowing

           The Funds, other than Ivy Mid Cap Growth Fund, may borrow money, but only from banks

and for temporary, emergency or extraordinary purposes. If a Fund does borrow money, its share price may be subject to greater fluctuation until the borrowing is paid off.

           From time to time Ivy Mid Cap Growth Fund may increase its ownership of securities by borrowing on an unsecured basis at fixed rates of interest and investing the borrowed funds. Any such borrowing will be made only from banks and only to the extent that the value of the Fund's assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing. This 300% limit is contained in the 1940 Act. If the value of the Fund's assets so computed should fail to meet the 300% asset coverage requirement, the Fund is required within three days to reduce its bank debt to the extent necessary to meet that requirement and may have to sell a portion of its investments at a time when independent investment judgment would not dictate such sale.

           Interest on money borrowed is an expense that Ivy Mid Cap Growth Fund would not otherwise incur, so that it may have little or no net investment income during periods of substantial borrowings. Borrowing for investment increases both investment opportunity and risk. Since substantially all of the Fund's assets may fluctuate in value, but borrowing obligations are fixed, the net asset value per share correspondingly will tend to increase and decrease more when the portfolio assets increase or decrease in value than would otherwise be the case. This factor is known as leverage.

           Foreign Securities and Currencies

           The Funds (other than Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund) may invest in the securities of foreign issuers, including depositary receipts. In general, depositary receipts are securities convertible into and evidencing ownership of securities of foreign corporate issuers, although depositary receipts may not necessarily be denominated in the same currency as the securities into which they may be converted. American depositary receipts, in registered form, are U. S. dollar-denominated receipts typically issued by a U.S. bank or trust company evidencing ownership of the underlying securities. International depositary receipts and European depositary receipts, in bearer form, are foreign receipts evidencing a similar arrangement and are designed for use by non-U.S. investors and traders in non-U.S. markets. Global depositary receipts are designed to facilitate the trading of securities of foreign issuers by U.S. and non-U.S. investors and traders.

           WRIICO believes that there are investment opportunities as well as risks by investing in foreign securities. Individual foreign economies may differ favorably or unfavorably from the U.S. economy or each other in such matters as gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Individual foreign companies may also differ favorably or unfavorably from domestic companies in the same industry. Foreign currencies may be stronger or weaker than the U.S. dollar or than each other. Thus, the value of securities denominated in or indexed to foreign currencies, and the value of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. WRIICO believes that a Fund's ability to invest its assets abroad might enable it to take advantage of these differences and strengths where they are favorable.

           However, foreign securities and foreign currencies involve additional significant risks, apart from the risks inherent in U.S. investments. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer's financial conditions and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions and custodial costs, are generally higher than for

U.S. investments.

           Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers and securities markets may be subject to less government supervision. Foreign securities trading practices, including those involving the release of assets in advance of payment, may involve increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may also be difficult to enforce legal rights in foreign countries.

           Investing abroad also involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, or other government intervention. There may be greater possibility of default by foreign governments or government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic, or social instability, military action or unrest, or adverse diplomatic developments. There is no assurance that WRIICO will be able to anticipate these potential events or counter their effects.

           The considerations noted above generally are intensified in developing countries. A developing country is a nation that, in WRIICO's opinion, is likely to experience long-term gross domestic product growth above that expected to occur in the United States, the United Kingdom, France, Germany, Italy, Japan and Canada. Developing countries may have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities.

           Certain foreign securities impose restrictions on transfer within the United States or to U.S. persons. Although securities subject to transfer restrictions may be marketable abroad, they may be less liquid than foreign securities of the same class that are not subject to such restrictions.

           Each of the Funds (other than Ivy Limited-Term Bond Fund, Ivy Money Market Fund and Ivy Municipal Bond Fund) may purchase and sell foreign currency and invest in foreign currency deposits and may enter into forward currency contracts. The Funds may incur a transaction charge in connection with the exchange of currency. Currency conversion involves dealer spreads and other costs, although commissions are not usually charged. See, Options, Futures and Other Strategies - Forward Currency Contracts.

           Investments in obligations of domestic branches of foreign banks will be considered domestic securities if WRIICO has determined that the nature and extent of Federal and state regulation and supervision of the branch in question is substantially equivalent to Federal or state chartered domestic banks doing business in the same jurisdiction.

           Illiquid Investments

           Illiquid investments are investments that cannot be sold or otherwise disposed of in the ordinary course of business within seven days at approximately the price at which they are valued. Investments currently considered to be illiquid include:

           (1)           repurchase agreements not terminable within seven days;

           (2)           restricted securities not determined to be liquid pursuant to guidelines established by

the Fund's Board of Directors;

           (3)           non-government stripped fixed-rate mortgage-backed securities;

           (4)           bank deposits, unless they are payable at principal amount plus accrued interest on demand or within seven days after demand;

           (5)           over-the-counter (OTC) options (options not traded on an exchange) and their underlying collateral;

           (6)           securities for which market quotations are not readily available;

           (7)           securities involved in swap, cap, floor and collar transactions; and

           (8)           direct debt instruments.

           The assets used as cover for OTC options written by a Fund will be considered illiquid unless the OTC options are sold to qualified dealers who agree that the Fund may repurchase any OTC option it writes at a maximum price to be calculated by a formula set forth in the option agreement. The cover for an OTC option written subject to this procedure would be considered illiquid only to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option.

           If through a change in values, net assets, or other circumstances, a Fund were in a position where more than 10% or 15%, as applicable, of its net assets were invested in illiquid securities, it would seek to take appropriate steps to protect liquidity.

           Indexed Securities

           Each Fund may purchase indexed securities subject to its operating policy regarding derivative instruments. Indexed securities are securities the value of which varies in relation to the value of other securities, securities indexes, currencies, precious metals or other commodities, or other financial indicators. Subject to the requirements of Rule 2a-7, Ivy Money Market Fund may purchase securities the value of which varies in relation to the value of financial indicators such as other securities, securities indexes or interest rates, as long as the indexed securities are U.S. dollar-denominated. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or statistic. The performance of indexed securities depends to a great extent on the performance of the security, currency or other instrument to which they are indexed and may also be influenced by interest rate changes in the United States and abroad. At the same time, indexed securities are subject to the credit risks associated with the issuer of the security and their values may decline substantially if the issuer's creditworthiness deteriorates. Indexed securities may be more volatile than the underlying investments. Gold-indexed securities, for example, typically provide for a maturity value that depends on the price of gold, resulting in a security whose price tends to rise and fall together with gold prices. Currency-indexed securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies, and may offer higher yields than U.S. dollar-denominated securities of equivalent issuers. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a foreign-denominated instrument, or their maturity value may decline when foreign currencies increase, resulting in a security whose price characteristics are similar to a put on the

underlying currency. Currency-indexed securities may also have prices that depend on the values of a number of different foreign currencies relative to each other.

           Recent issuers of indexed securities have included banks, corporations, and certain U.S. Government agencies. WRIICO will use its judgment in determining whether indexed securities should be treated as short-term instruments, bonds, stocks, or as a separate asset class for purposes of Ivy Asset Strategy Fund's investment allocations, depending on the individual characteristics of the securities. Certain indexed securities that are not traded on an established market may be deemed illiquid.

           Investment Company Securities

           Certain Funds may purchase securities of closed-end investment companies. Ivy Asset Strategy Fund may purchase securities of open-end and closed-end investment companies subject to the restrictions and limitations of the 1940 Act. As a shareholder in an investment company, the Fund would bear its pro rata share of that investment company's expenses, which could result in duplication of certain fees, including management and administrative fees.

           Lending Securities

           Securities loans may be made on a short-term or long-term basis for the purpose of increasing a Fund's income. If a Fund lends securities, the borrower pays the Fund an amount equal to the dividends or interest on the securities that the Fund would have received if it had not lent the securities. The Fund also receives additional compensation. Under a Fund's current securities lending procedures, the Fund may lend securities only to broker-dealers and financial institutions deemed creditworthy by WRIICO.

           Any securities loans that a Fund makes must be collateralized in accordance with applicable regulatory requirements (the Guidelines). At the time of each loan, the Fund must receive collateral equal to no less than 100% of the market value of the securities loaned. Under the present Guidelines, the collateral must consist of cash, U.S. Government securities or bank letters of credit, at least equal in value to the market value of the securities lent on each day that the loan is outstanding. If the market value of the lent securities exceeds the value of the collateral, the borrower must add more collateral so that it at least equals the market value of the securities lent. If the market value of the securities decreases, the borrower is entitled to a return of the excess collateral.

           There are two methods of receiving compensation for making loans. The first is to receive a negotiated loan fee from the borrower. This method is available for all three types of collateral. The second method, which is not available when letters of credit are used as collateral, is for a Fund to receive interest on the investment of the cash collateral or to receive interest on the U.S. Government securities used as collateral. Part of the interest received in either case may be shared with the borrower.

           The letters of credit that a Fund may accept as collateral are agreements by banks (other than the borrowers of the Fund's securities), entered into at the request of the borrower and for its account and risk, under which the banks are obligated to pay to the Fund, while the letter is in effect, amounts demanded by the Fund if the demand meets the terms of the letter. The Fund's right to make this demand secures the borrower's obligations to it. The terms of any such letters and the creditworthiness of the banks providing them (which might include the Fund's custodian bank) must be satisfactory to WRIICO. The Fund will make loans only under rules of the New York Stock Exchange (NYSE), which presently require the borrower to give the securities back to the Fund within five business days

after the Fund gives notice to do so. If the Fund loses its voting rights on securities loaned, it will have the securities returned to it in time to vote them if a material event affecting the investment is to be voted on. The Fund may pay reasonable finder's, administrative and custodian fees in connection with loans of securities.

           Some, but not all, of these rules are necessary to meet requirements of certain laws relating to securities loans. These rules will not be changed unless the change is permitted under these requirements. The requirements do not cover the rules which may be changed without shareholder vote as to (1) whom securities may be loaned, (2) the investment of cash collateral, or (3) voting rights.

           There may be risks of delay in receiving additional collateral from the borrower if the market value of the securities loaned increases, as well as risks of delay in recovering the securities loaned or even loss of rights in collateral should the borrower fail financially.

           Loans and Other Direct Debt Instruments

           Direct debt instruments are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Ivy Asset Strategy Fund may invest in direct debt instruments, subject to its policies regarding the quality of debt securities.

           Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Direct debt instruments may not be rated by any nationally recognized rating service. If Ivy Asset Strategy Fund does not receive scheduled interest or principal payments on such indebtedness, the Fund's share price and yield could be adversely affected. Loans that are fully secured offer the Fund more protections than an unsecured loan in the event of non-payment of scheduled interest or principal. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower's obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks, and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and principal when due.

           Investments in loans through direct assignment of a financial institution's interests with respect to a loan may involve additional risks to Ivy Asset Strategy Fund. For example, if a loan is foreclosed, the Fund could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary. Direct debt instruments that are not in the form of securities may offer less legal protection to the Fund in the event of fraud or misrepresentation. In the absence of definitive regulatory guidance, the Fund relies on WRIICO's research in an attempt to avoid situations where fraud or misrepresentation could adversely affect the Fund.

           A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, Ivy Asset Strategy Fund has direct recourse against the borrower, it may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of the Fund were determined to be subject to the claims of the

agent's general creditors, the Fund might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest.

           Investments in direct debt instruments may entail less legal protection for Ivy Asset Strategy Fund. Direct indebtedness purchased by the Fund may include letters of credit, revolving credit facilities, or other standby financing commitments obligating the Fund to pay additional cash on demand. These commitments may have the effect of requiring the Fund to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid. The Fund will set aside appropriate liquid assets in a segregated custodial account to cover its potential obligations under standby financing commitments.

           For purposes of the limitations on the amount of total assets that Ivy Asset Strategy Fund will invest in any one issuer or in issuers within the same industry, the Fund generally will treat the borrower as the issuer of indebtedness held by the Fund. In the case of loan participations where a bank or other lending institution serves as financial intermediary between the Fund and the borrower, if the participation does not shift to the Fund the direct debtor-creditor relationship with the borrower, Securities and Exchange Commission (SEC) interpretations require the Fund, in appropriate circumstances, to treat both the lending bank or other lending institution and the borrower as issuers for these purposes. Treating a financial intermediary as an issuer of indebtedness may restrict the Fund's ability to invest in indebtedness related to a single financial intermediary, or a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies and industries.

           Money Market Instruments

           Money market instruments are high-quality, short-term debt instruments that generally present minimal credit risk. They may include U.S. Government securities, commercial paper and other short-term corporate obligations, certificates of deposit and other financial institution obligations. These instruments may carry fixed or variable interest rates.

           Mortgage-Backed and Asset-Backed Securities

           Mortgage-Backed Securities. Mortgage-backed securities represent direct or indirect participations in, or are secured by and payable from, mortgage loans secured by real property and include single- and multi-class pass-through securities and collateralized mortgage obligations. Multi-class pass-through securities and collateralized mortgage obligations are collectively referred to in this SAI as CMOs. Some CMOs are directly supported by other CMOs, which in turn are supported by mortgage pools. Investors typically receive payments out of the interest and principal on the underlying mortgages. The portions of the payments that investors receive, as well as the priority of their rights to receive payments, are determined by the specific terms of the CMO class.

           The U.S. Government mortgage-backed securities in which the Fund may invest include mortgage-backed securities issued or guaranteed as to the payment of principal and interest (but not as to market value) by the Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae), or Federal Home Loan Mortgage Corporation (Freddie Mac). Other mortgage-backed securities are issued by private issuers, generally originators of and investors in mortgage loans, including savings associations, mortgage bankers, commercial banks, investment bankers and special purpose entities. Payments of principal and interest (but not the market value) of such private mortgage-backed securities may be supported by pools of mortgage loans or other mortgage-backed securities that are guaranteed, directly or indirectly, by the U.S. Government or one of its agencies or instrumentalities, or they may be issued without any government guarantee of the

underlying mortgage assets but with some form of non-government credit enhancement. These credit enhancements do not protect investors from changes in market value.

           The Funds may purchase mortgage-backed securities issued by both government and non-government entities such as banks, mortgage lenders or other financial institutions. Other types of mortgage-backed securities will likely be developed in the future, and the Funds may so invest as long as WRIICO determines that such investments are consistent with the Fund's goals and investment policies.

           Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities are created when a U.S. Government agency or a financial institution separates the interest and principal components of a mortgage-backed security and sells them as individual securities. The holder of the principal-only security (PO) receives the principal payments made by the underlying mortgage-backed security, while the holder of the interest-only security (IO) receives interest payments from the same underlying security.

           For example, IO classes are entitled to receive all or a portion of the interest, but none (or only a nominal amount) of the principal payments, from the underlying mortgage assets. If the mortgage assets underlying an IO experience greater than anticipated principal prepayments, then the total amount of interest allocable to the IO class, and therefore the yield to investors, generally will be reduced. In some instances, an investor in an IO may fail to recoup all of the investor's initial investment, even if the security is guaranteed by the U.S. Government or considered to be of the highest quality. Conversely, PO classes are entitled to receive all or a portion of the principal payments, but none of the interest, from the underlying mortgage assets. PO classes are purchased at substantial discounts from par, and the yield to investors will be reduced if principal payments are slower than expected. IOs, POs and other CMOs involve special risks, and evaluating them requires special knowledge.

           Asset-Backed Securities. Asset-backed securities have structural characteristics similar to mortgage-backed securities, as discussed above. However, the underlying assets are not first lien mortgage loans or interests therein, but include assets such as motor vehicle installment sales contracts, other installment sale contracts, home equity loans, leases of various types of real and personal property and receivables from revolving credit (credit card) agreements. Such assets are securitized through the use of trusts or special purpose corporations. Payments or distributions of principal and interest may be guaranteed up to a certain amount and for a certain time period by a letter of credit or pool insurance policy issued by a financial institution unaffiliated with the issuer, or other credit enhancements may be present. The value of asset-backed securities may also depend on the creditworthiness of the servicing agent for the loan pool, the originator of the loans or the financial institution providing the credit enhancement.

           Special Characteristics of Mortgage-Backed and Asset-Backed Securities. The yield characteristics of mortgage-backed and asset-backed securities differ from those of traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that principal may be prepaid at any time because the underlying mortgage loans or other obligations generally may be prepaid at any time. Prepayments on a pool of mortgage loans are influenced by a variety of economic, geographic, social and other factors, including changes in mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity in the mortgaged properties and servicing decisions. Generally, however, prepayments on fixed-rate mortgage loans will increase during a period of falling interest rates and decrease during a period of rising interest rates. Similar factors apply to prepayments on asset-backed securities, but the receivables underlying asset-backed securities generally are of a shorter maturity and thus are likely to

experience substantial prepayments. Such securities, however, often provide that for a specified time period the issuers will replace receivables in the pool that are repaid with comparable obligations. If the issuer is unable to do so, repayment of principal on the asset-backed securities may commence at an earlier date.

           The rate of interest on mortgage-backed securities is lower than the interest rates paid on the mortgages included in the underlying pool due to the annual fees paid to the servicer of the mortgage pool for passing through monthly payments to certificate holders and to any guarantor and due to any yield retained by the issuer. Actual yield to the holder may vary from the coupon rate, even if adjustable, if the mortgage-backed securities are purchased or traded in the secondary market at a premium or discount. In addition, there is normally some delay between the time the issuer receives mortgage payments from the servicer and the time the issuer makes the payments on the mortgage-backed securities, and this delay reduces the effective yield to the holder of such securities.

           Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. The average life of pass-through pools varies with the maturities of the underlying mortgage loans. A pool's term may be shortened by unscheduled or early payments of principal on the underlying mortgages. Because prepayment rates of individual pools vary widely, it is not possible to predict accurately the average life of a particular pool. In the past, a common industry practice has been to assume that prepayments on pools of fixed-rate 30-year mortgages would result in a 12-year average life for the pool. At present, mortgage pools, particularly those with loans with other maturities or different characteristics, are priced on an assumption of average life determined for each pool. In periods of declining interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising interest rates, the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Changes in the rate or speed of these payments can cause the value of the mortgage backed securities to fluctuate rapidly. However, these effects may not be present, or may differ in degree, if the mortgage loans in the pools have adjustable interest rates or other special payment terms, such as a prepayment charge. Actual prepayment experience may cause the yield of mortgage-backed securities to differ from the assumed average life yield.

           The market for privately issued mortgage-backed and asset-backed securities is smaller and less liquid than the market for U.S. Government mortgage-backed securities. CMO classes may be specifically structured in a manner that provides any of a wide variety of investment characteristics, such as yield, effective maturity and interest rate sensitivity. As market conditions change, however, and especially during periods of rapid or unanticipated changes in market interest rates, the attractiveness of some CMO classes and the ability of the structure to provide the anticipated investment characteristics may be reduced. These changes can result in volatility in the market value and in some instances reduced liquidity, of the CMO class.

           Municipal Bonds

           Municipal bonds are issued by a wide range of state and local governments, agencies and authorities for various purposes. The two main kinds of municipal bonds are general obligation bonds and revenue bonds. In general obligation bonds, the issuer has pledged its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable only from specific sources; these may include revenues from a particular facility or class of facilities or special tax or other revenue source.

           A special class of bonds issued by state and local government authorities and agencies are

private activity bonds (PABs). Only those PABs the interest on which is free from Federal income taxation (although the interest may be an item of tax preference for purposes of the Federal alternative minimum tax (AMT)) will be considered municipal bonds for purposes of Ivy Municipal Bond Fund's investment policies. In general, PABs are revenue bonds and are issued by or on behalf of public authorities to obtain funds to finance privately operated facilities. They generally depend for their credit quality on the credit standing of the company involved. Therefore, to the extent the Fund invests a significant amount of its total assets in bonds issued by entities in any one industry, it will be subject to the risks inherent in the industry to which the issuer belongs.

           For example, a hospital's gross receipts and net income available to service its debt are influenced by demand for hospital services, the ability of the hospital to provide the services required, management and medical capabilities, economic developments in the service area, efforts by insurers and government agencies to limit rates and expenses, confidence in the hospital, service area economic developments, competition, availability and expense of malpractice insurance, Medicaid and Medicare funding, and possible Federal legislation limiting the rates of increase of hospital charges. Significant events impacting the hospital industry in any one of these areas might adversely affect the industry's ability to service its debt or to pay principal when due.

           Life care facilities are an alternative form of long-term housing for the elderly. They are subject to a wide variety of risks. Primarily, the projects must maintain adequate occupancy levels to be able to provide revenues adequate to maintain debt service payments. Moreover, since a portion of housing, medical care and other services may be financed by an initial deposit it is important that the facility maintain adequate financial reserves to secure estimated actuarial liabilities. The ability of management to accurately forecast inflationary cost pressures weighs importantly in the process. The facilities may also be impacted by regulatory cost restrictions applied to health care delivery in general, particularly state regulations or changes in Medicare and Medicaid payments or qualifications, or restrictions imposed by medical insurance companies. They may also face competition from alternative health care or conventional housing facilities in the private or public sector.

           Municipal leases and participation interests therein are another specific type of municipal bond. The factors that WRIICO considers in determining whether any rated municipal lease obligations are liquid include the following: (1) the frequency of trades and quotes for the obligations; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the securities; (4) the nature of marketplace trades, including the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer; (5) the likelihood that the marketability of the obligation will be maintained through the time the instrument is held; (6) the credit quality of the issuer and the lessee; and (7) the essentiality to the lessee of the property covered by the lease. Unrated municipal lease obligations are considered illiquid. These obligations, which may take the form of a lease, an installment purchase, or a conditional sale contract, are issued by state and local governments and authorities to acquire land and a variety of equipment and facilities. The Funds have not held and do not intend to hold such obligations directly as a lessor of the property but may from time to time purchase a participation interest in a municipal obligation from a bank or other third party. A participation interest gives a Fund a specified, undivided interest in the obligation in proportion to its purchased interest in the total amount of the obligation.

           Municipal leases frequently have risks distinct from those associated with general obligation or revenue bonds. State constitutions and statutes set forth requirements that states or municipalities must meet to incur debt, including voter referenda, interest rate limits or public sale requirements. Leases, installment purchases or conditional sale contracts have evolved as means for governmental

issuers to acquire property and equipment without being required to meet these constitutional and statutory requirements. Many leases and contracts include non-appropriation clauses providing that the governmental issuer has no obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the legislative body on a yearly or other periodic basis. Non-appropriation clauses free the issuer from debt issuance limitations. In determining the liquidity of a municipal lease obligation, WRIICO will differentiate between direct interests in municipal leases and municipal lease-backed securities, the latter of which may take the form of a lease-backed revenue bond, a tax-exempt asset-backed security or any other investment structure using a municipal lease-purchased agreement as its base. While the former may present liquidity issues, the latter are based on a well-established method of securing payment of a municipal lease obligation.

           WRIICO and the Funds rely on the opinion of bond counsel for the issuer in determining whether the interest on such issuers obligations is excludable from gross income for Federal income tax purposes. If a court holds that interest on an obligation held by Ivy Municipal Bond Fund is not excludable from gross income for Federal income tax purposes, the Fund will sell the obligation as soon as possible, but it might incur a loss upon such sale.

           With respect to ratings of municipal bonds (see, Appendix A), now or in the future, S&P or Moody's may use different rating designations for municipal bonds depending on their maturities on issuance or other characteristics. For example, Moody's currently rates the top four categories of municipal notes (i.e., municipal bonds generally with a maturity at the time of issuance ranging from six months to three years) as MIG 1, MIG 2, MIG 3 and MIG 4. A Fund is not required to dispose of any municipal bond if its rating falls below the rating required for its purchase, nor does such a fall in rating affect the amount of unrated municipal bonds that a Fund may buy.

           Options, Futures and Other Strategies

           General. WRIICO may use certain options, futures contracts (sometimes referred to as futures), options on futures contracts, forward currency contracts, swaps, caps, floors, collars, indexed securities and other derivative instruments (collectively, Financial Instruments) to attempt to enhance income or yield or to attempt to hedge a Fund's investments. The strategies described below may be used in an attempt to manage the risks of a Fund's investments that can affect fluctuation in its net asset value (NAV).

           Generally, a Fund may purchase and sell any type of Financial Instrument. However, as an operating policy, a Fund will only purchase or sell a particular Financial Instrument if the Fund is authorized to invest in the type of asset by which the return on, or value of, the Financial Instrument is primarily measured. If a Fund is authorized to invest in foreign securities, it may purchase and sell foreign currency derivatives.

           Hedging strategies can be broadly categorized as short hedges and long hedges. A short hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential declines in the value of one or more investments held in a Fund's portfolio. Thus, in a short hedge, the Fund takes a position in a Financial Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged.

           Conversely, a long hedge is a purchase or sale of a Financial Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that a Fund intends to acquire. Thus, in a long hedge, the Fund takes a position in a Financial Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an anticipatory hedge

transaction, the Fund does not own a corresponding security and, therefore, the transaction does not relate to a security the Fund owns. Rather, it relates to a security that the Fund intends to acquire. If the Fund does not complete the hedge by purchasing the security it anticipated purchasing, the effect on the Fund's holdings is the same as if the transaction were entered into for speculative purposes.

           Financial Instruments on securities generally are used to attempt to hedge against price movements in one or more particular securities positions that a Fund owns or intends to acquire. Financial Instruments on indexes, in contrast, generally are used to attempt to hedge against price movements in market sectors in which a Fund has invested or expects to invest. Financial Instruments on debt securities may be used to hedge either individual securities or broad debt market sectors.

           The use of Financial Instruments is subject to applicable regulations of the SEC, the several exchanges upon which they are traded and the Commodity Futures Trading Commission (CFTC). In addition, a Fund's ability to use Financial Instruments is limited by tax considerations. See Taxes.

           In addition to the instruments, strategies and risks described below, WRIICO expects to discover additional opportunities in connection with Financial Instruments and other similar or related techniques. These new opportunities may become available as WRIICO develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new Financial Instruments or other techniques are developed. WRIICO may utilize these opportunities to the extent that they are consistent with a Fund's goal(s) and permitted by a Fund's investment limitations and applicable regulatory authorities. A Fund might not use any of these strategies, and there can be no assurance that any strategy used will succeed. The Funds' Prospectus or SAI will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus.

           Special Risks. The use of Financial Instruments involves special considerations and risks, certain of which are described below. In general, these techniques may increase the volatility of a Fund and may involve a small investment of cash relative to the magnitude of the risk assumed. Risks pertaining to particular Financial Instruments are described in the sections that follow:

           (1)           Successful use of most Financial Instruments depends upon WRIICO's ability to predict movements of the overall securities, currency and interest rate markets, which requires different skills than predicting changes in the prices of individual securities. There can be no assurance that any particular strategy will succeed, and use of Financial Instruments could result in a loss, regardless of whether the intent was to reduce risk or increase return.

           (2)           There might be imperfect correlation, or even no correlation, between price movements of a Financial Instrument and price movements of the investments being hedged. For example, if the value of a Financial Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculation or other pressures on the markets in which Financial Instruments are traded. The effectiveness of hedges using Financial Instruments on indexes will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged.

           Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized contracts available will not match a Fund's current or anticipated investments exactly. A Fund may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Fund's

other investments.

           Options and futures prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Fund's investments well. Options and futures prices are affected by such factors as current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. A Fund may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments.

           (3)           If successful, the above-discussed strategies can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements. However, such strategies can also reduce opportunity for gain by offsetting the positive effect of favorable price movements. For example, if a Fund entered into a short hedge because WRIICO projected a decline in the price of a security in the Fund's portfolio, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Financial Instrument. Moreover, if the price of the Financial Instrument declined by more than the increase in the price of the security, the Fund could suffer a loss. In either such case, the Fund would have been in a better position had it not attempted to hedge at all.

           (4)           As described below, a Fund might be required to maintain assets as cover, maintain segregated accounts or make margin payments when it takes positions in Financial Instruments involving obligations to third parties (i.e., Financial Instruments other than purchased options). If the Fund were unable to close out its positions in such Financial Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair the Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time.

           (5)           A Fund's ability to close out a position in a Financial Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of the other party to the transaction (counterparty) to enter into a transaction closing out the position. Therefore, there is no assurance that any position can be closed out at a time and price that is favorable to the Fund.

           Cover. Transactions using Financial Instruments, other than purchased options, expose a Fund to an obligation to another party. Each Fund will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash or liquid assets in an account with its custodian in the prescribed amount as determined daily. A Fund will not enter into any such transactions unless it owns either (1) an offsetting (covered) position in securities, currencies or other options, futures contracts or forward contracts, or (2) cash and liquid assets with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above.

           Assets used as cover or held in an account cannot be sold while the position in the

corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of a Fund's assets to cover or to segregated accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations.

           Options. A call option gives the purchaser the right to buy, and obligates the writer to sell, the underlying investment at the agreed-upon price during the option period. A put option gives the purchaser the right to sell, and obligates the writer to buy, the underlying investment at the agreed-upon price during the option period. Purchasers of options pay an amount, known as a premium, to the option writer in exchange for the right under the option contract.

           The purchase of call options can serve as a long hedge, and the purchase of put options can serve as a short hedge. Writing put or call options can enable a Fund to enhance income or yield by reason of the premiums paid by the purchasers of such options. However, if the market price of the security underlying a put option declines to less than the exercise price of the option, minus the premium received, the Fund would expect to suffer a loss.

           Writing call options can serve as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and the Fund will be obligated to sell the security or currency at less than its market value. If the call option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

           Writing put options can serve as a limited long hedge because increases in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security or currency depreciates to a price lower than the exercise price of the put option, it can be expected that the put option will be exercised and the Fund will be obligated to purchase the security or currency at more than its market value. If the put option is an OTC option, the securities or other assets used as cover would be considered illiquid to the extent described under Illiquid Investments.

           The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options that expire unexercised have no value.

           A Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, the Fund may terminate its obligation under a call or put option that it had written by purchasing an identical call or put option; this is known as a closing purchase transaction. Conversely, the Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Closing transactions permit the Fund to realize profits or limit losses on an option position prior to its exercise or expiration.

           A type of put that a Fund may purchase is an optional delivery standby commitment, which is entered into by parties selling debt securities to the Fund. An optional delivery standby commitment gives the Fund the right to sell the security back to the seller on specified terms. This right is provided as an inducement to purchase the security.

           Risks of Options on Securities. Options offer large amounts of leverage, which will result in a Fund's NAV being more sensitive to changes in the value of the related instrument. Each Fund may purchase or write both exchange-traded and OTC options. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed that, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Fund and its counterparty (usually a securities dealer or a bank) with no clearing organization guarantee. Thus, when a Fund purchases an OTC option, it relies on the counterparty from whom it purchased the option to make or take delivery of the underlying investment upon exercise of the option. Failure by the counterparty to do so would result in the loss of any premium paid by the Fund as well as the loss of any expected benefit of the transaction.

           A Fund's ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market, and there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the counterparty, or by a transaction in the secondary market if any such market exists. There can be no assurance that a Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the counterparty, the Fund might be unable to close out an OTC option position at any time prior to its expiration.

           If a Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by a Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised.

           Options on Indexes. Puts and calls on indexes are similar to puts and calls on securities or futures contracts except that all settlements are in cash and gain or loss depends on changes in the index in question rather than on price movements in individual securities or futures contracts. When a Fund writes a call on an index, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from the Fund an amount of cash if the closing level of the index upon which the call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the index and the exercise price of the call times a specified multiple (multiplier), which determines the total dollar value for each point of such difference. When a Fund buys a call on an index, it pays a premium and has the same rights as to such call as are indicated above. When a Fund buys a put on an index, it pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Fund's exercise of the put, to deliver to the Fund an amount of cash if the closing level of the index upon which the put is based is less than the exercise price of the put, which amount of cash is determined by the multiplier, as described above for calls. When a Fund writes a put on an index, it receives a premium and the purchaser of the put has the right, prior to the expiration date, to require the Fund to deliver to it an amount of cash equal to the difference between the closing level of the index and the exercise price times the multiplier if the closing level is less than the exercise price.

           Risks of Options on Indexes. The risks of investment in options on indexes may be greater than options on securities. Because index options are settled in cash, when a Fund writes a call on an index it cannot provide in advance for its potential settlement obligations by acquiring and holding the underlying securities. A Fund can offset some of the risk of writing a call index option by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie the index and, as a result, bears a risk that the value of the securities held will

vary from the value of the index.

           Even if a Fund could assemble a portfolio that exactly reproduced the composition of the underlying index, it still would not be fully covered from a risk standpoint because of the timing risk inherent in writing index options. When an index option is exercised, the amount of cash that the holder is entitled to receive is determined by the difference between the exercise price and the closing index level on the date when the option is exercised. As with other kinds of options, the Fund as the call writer will not learn that the Fund has been assigned until the next business day at the earliest. The time lag between exercise and notice of assignment poses no risk for the writer of a covered call on a specific underlying security, such as a common stock, because there the writer's obligation is to deliver the underlying security, not to pay its value as of a fixed time in the past. So long as the writer already owns the underlying security, it can satisfy its settlement obligations by simply delivering it, and the risk that its value may have declined since the exercise date is borne by the exercising holder. In contrast, even if the writer of an index call holds securities that exactly match the composition of the underlying index, it will not be able to satisfy its assignment obligations by delivering those securities against payment of the exercise price. Instead, it will be required to pay cash in an amount based on the closing index value on the exercise date. By the time it learns that it has been assigned, the index may have declined, with a corresponding decline in the value of its portfolio. This timing risk is an inherent limitation on the ability of index call writers to cover their risk exposure by holding securities positions.

           If a Fund has purchased an index option and exercises it before the closing index value for that day is available, it runs the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the Fund will be required to pay the difference between the closing index value and the exercise price of the option (times the applicable multiplier) to the assigned writer.

           OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size and strike price, the terms of OTC options (options not traded on an exchange) generally are established through negotiation with the other party to the option contract. While this type of arrangement allows a Fund great flexibility to tailor the option to its needs, OTC options generally involve greater risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded.

           Generally, OTC foreign currency options used by a Fund are European-style options. This means that the option is only exercisable immediately prior to its expiration. This is in contrast to American-style options, which are exercisable at any time prior to the expiration date of the option.

           Futures Contracts and Options on Futures Contracts. The purchase of futures contracts or call options on futures contracts can serve as a long hedge, and the sale of futures contracts or the purchase of put options on a futures contract can serve as a short hedge. Writing call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing call options on securities or indexes. Similarly, writing put options on futures contracts can serve as a limited long hedge. Futures contracts and options on futures contracts can also be purchased and sold to attempt to enhance income or yield.

           In addition, futures contract strategies can be used to manage the average duration of a Fund's fixed-income portfolio. If WRIICO wishes to shorten the average duration of a Fund's fixed-income portfolio, the Fund may sell a debt futures contract or a call option thereon, or purchase a put option on that futures contract. If WRIICO wishes to lengthen the average duration of a Fund's fixed-income portfolio, the Fund may buy a debt futures contract or a call option thereon, or sell a put option

thereon.

           No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract the Fund is required to deposit initial margin in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.

           Subsequent variation margin payments are made to and from the futures broker daily as the value of the futures position varies, a process known as marking-to-market. Variation margin does not involve borrowing, but rather represents a daily settlement of the Fund's obligations to or from a futures broker. When a Fund purchases an option on a futures contract, the premium paid plus transaction costs is all that is at risk. In contrast, when a Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.

           Purchasers and sellers of futures contracts and options on futures contracts can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures contracts and options on futures contracts may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position.

           Under certain circumstances, futures contracts exchanges may establish daily limits on the amount that the price of a futures contract or an option on a futures contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.

           If a Fund were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option or to maintain cash or liquid assets in an account.

           Risks of Futures Contracts and Options Thereon. The ordinary spreads between prices in the cash and futures markets (including the options on futures market), due to differences in the natures of those markets, are subject to the following factors which may create distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions, which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting

transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of general interest rate, currency exchange rate or stock market trends by WRIICO may still not result in a successful transaction. WRIICO may be incorrect in its expectations as to the extent of various interest rate, currency exchange rate or stock market movements or the time span within which the movements take place.

           Index Futures. The risk of imperfect correlation between movements in the price of an index futures contract and movements in the price of the securities that are the subject of the hedge increases as the composition of a Fund's portfolio diverges from the securities included in the applicable index. The price of the index futures contract may move more than or less than the price of the securities being hedged. If the price of the index futures contract moves less than the price of the securities that are the subject of the hedge, the hedge will not be fully effective but, if the price of the securities being hedged has moved in an unfavorable direction, the Fund would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage will be partially offset by the futures contract. If the price of the futures contract moves more than the price of the securities, the Fund will experience either a loss or a gain on the futures contract that will not be completely offset by movements in the price of the securities that are the subject of the hedge. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the index futures contract, a Fund may buy or sell index futures contracts in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of the securities being hedged is more than the historical volatility of the prices of the securities included in the index. It is also possible that, where a Fund has sold index futures contracts to hedge against decline in the market, the market may advance and the value of the securities held in the portfolio may decline. If this occurred, the Fund would lose money on the futures contract and also experience a decline in value of its portfolio securities. However, while this could occur for a very brief period or to a very small degree, over time the value of a diversified portfolio of securities will tend to move in the same direction as the market indexes on which the futures contracts are based.

           Where index futures contracts are purchased to hedge against a possible increase in the price of securities before a Fund is able to invest in them in an orderly fashion, it is possible that the market may decline instead. If the Fund then concludes not to invest in them at that time because of concern as to possible further market decline or for other reasons, it will realize a loss on the futures contract that is not offset by a reduction in the price of the securities it had anticipated purchasing.

           Foreign Currency Hedging Strategies -- Special Considerations. Each Fund (other than Ivy Limited-Term Bond Fund, Ivy Money Market Fund and Ivy Municipal Bond Fund) may use options and futures contracts on foreign currencies (including the euro), as described above, and forward foreign currency contracts (forward currency contracts), as described below, to attempt to hedge against movements in the values of the foreign currencies in which the Fund's securities are denominated or to attempt to enhance income or yield. Currency hedges can protect against price movements in a security that a Fund owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes.

           A Fund might seek to hedge against changes in the value of a particular currency when no Financial Instruments on that currency are available or such Financial Instruments are more expensive

than certain other Financial Instruments. In such cases, the Fund may seek to hedge against price movements in that currency by entering into transactions using Financial Instruments on another currency or a basket of currencies, the values of which WRIICO believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Financial Instrument will not correlate perfectly with movements in the price of the currency subject to the hedging transaction is magnified when this strategy is used.

           The value of Financial Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Financial Instruments, a Fund could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots.

           There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Financial Instruments until they reopen.

           Settlement of transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, a Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country.

           Forward Currency Contracts. Each Fund (other than Ivy Limited-Term Bond Fund, Ivy Money Market Fund and Ivy Municipal Bond Fund) may enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (term) from the date of the forward currency contract agreed upon by the parties, at a price set at the time of the forward currency contract. These forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers.

           Such transactions may serve as long hedges; for example, a Fund may purchase a forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Fund intends to acquire. Forward currency contract transactions may also serve as short hedges; for example, a Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security or a dividend or interest payment denominated in a foreign currency.

           A Fund may also use forward currency contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if the Fund owned securities denominated in euros, it could enter into a forward currency contract to sell euros in return for U.S. dollars to hedge against possible declines in the euro's value. Such a hedge, sometimes referred to as a position hedge, would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The Fund could also hedge the position by

selling another currency expected to perform similarly to the euro. This type of hedge, sometimes referred to as a proxy hedge, could offer advantages in terms of cost, yield or efficiency, but generally would not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.

           A Fund also may use forward currency contracts to attempt to enhance income or yield. The Fund could use forward currency contracts to increase its exposure to foreign currencies that WRIICO believes might rise in value relative to the U.S. dollar, or shift its exposure to foreign currency fluctuations from one country to another. For example, if the Fund owned securities denominated in a foreign currency and WRIICO believed that currency would decline relative to another currency, it might enter into a forward currency contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency.

           The cost to a Fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on a principal basis, no fees or commissions are involved. When the Fund enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the counterparty to do so would result in the loss of any expected benefit of the transaction.

           As is the case with futures contracts, purchasers and sellers of forward currency contracts can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward currency contracts, with the result that closing transactions generally can be made for forward currency contracts only by negotiating directly with the counterparty. Thus, there can be no assurance that the Fund will in fact be able to close out a forward currency contract at a favorable price prior to maturity. In addition, in the event of insolvency of the counterparty, the Fund might be unable to close out a forward currency contract at any time prior to maturity. In either event, the Fund would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or liquid assets in an account.

           The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the forward currency contract has been established. Thus, a Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain.

           Normally, consideration of the prospect for currency parities will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, WRIICO believes that it is important to have the flexibility to enter into such forward currency contracts when it determines that the best interests of the Fund will be served.

           Successful use of forward currency contracts depends on WRIICO's skill in analyzing and predicting currency values. Forward currency contracts may substantially change a Fund's exposure to changes in currency exchange rates and could result in losses to the Fund if currencies do not perform as WRIICO anticipates. There is no assurance that WRIICO's use of forward currency contracts will be advantageous to a Fund or that WRIICO will hedge at an appropriate time.

           Combined Positions. A Fund may purchase and write options in combination with each other, or in combination with futures contracts or forward contracts, to adjust the risk and return characteristics of its overall position. For example, the Fund may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.

           Turnover. A Fund's options and futures contracts activities may affect its turnover rate and brokerage commission payments. The exercise of calls or puts written by a Fund, and the sale or purchase of futures contracts, may cause it to sell or purchase related investments, thus increasing its turnover rate. Once a Fund has received an exercise notice on an option it has written, it cannot effect a closing transaction in order to terminate its obligation under the option and must deliver or receive the underlying securities at the exercise price. The exercise of puts purchased by a Fund may also cause the sale of related investments, also increasing turnover; although such exercise is within the Fund's control, holding a protective put might cause it to sell the related investments for reasons that would not exist in the absence of the put. A Fund will pay a brokerage commission each time it buys or sells a put or call or purchases or sells a futures contract. Such commissions may be higher than those that would apply to direct purchases or sales.

           Swaps, Caps, Floors and Collars. Each Fund may enter into swaps, caps, floors and collars to preserve a return or a spread on a particular investment or portion of its portfolio, to protect against any increase in the price of securities the Fund anticipates purchasing at a later date or to attempt to enhance yield. Swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive cash flows on a notional principal amount, e.g., an exchange of floating rate payments for fixed-rate payments. The purchase of a cap entitles the purchaser, to the extent that a specified index exceeds a predetermined value, to receive payments on a notional principal amount from the party selling the cap. The purchase of a floor entitles the purchaser, to the extent that a specified index falls below a predetermined value, to receive payments on a notional principal amount from the party selling the floor. A collar combines elements of buying a cap and selling a floor.

           Swap agreements, including caps, floors and collars, can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield because these agreements may affect the Fund's exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage-backed security values, corporate borrowing rates or other factors such as security prices or inflation rates.

           Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if the Fund agrees to exchange payments in U.S. dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps, floors and collars have an effect similar to buying or writing options.

           The creditworthiness of firms with which a Fund enters into swaps, caps, floors or collars will be monitored by WRIICO. If a firm's creditworthiness declines, the value of the agreement would be

likely to decline, potentially resulting in losses. If a default occurs by the other party to such transaction, the Fund will have contractual remedies pursuant to the agreements related to the transaction.

           The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid assets having an aggregate NAV at least equal to the accrued excess will be maintained in an account with the Fund's custodian that satisfies the requirements of the 1940 Act. Each Fund will also establish and maintain such account with respect to its total obligations under any swaps that are not entered into on a net basis and with respect to any caps or floors that are written by the Fund. WRIICO and the Funds believe that such obligations do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Fund's borrowing restrictions. The position of the SEC is that assets involved in swap transactions are illiquid and are, therefore, subject to the limitations on investing in illiquid securities.

           Repurchase Agreements

           Each Fund may purchase securities subject to repurchase agreements. The Fund will not enter into a repurchase transaction that will cause more than 10% or 15%, as applicable, of the Fund's net assets to be invested in illiquid investments, which include repurchase agreements not terminable within seven days. See, Illiquid Investments. A repurchase agreement is an instrument under which the Fund purchases a security and the seller (normally a commercial bank or broker-dealer) agrees, at the time of purchase, that it will repurchase the security at a specified time and price. The amount by which the resale price is greater than the purchase price reflects an agreed-upon market interest rate effective for the period of the agreement. The return on the securities subject to the repurchase agreement may be more or less than the return on the repurchase agreement.

           The majority of the repurchase agreements in which a Fund will engage are overnight transactions, and the delivery pursuant to the resale typically will occur within one to five days of the purchase. The primary risk is that the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the delivery date and that amount is greater than the resale price of the underlying securities and other collateral held by the Fund. In the event of bankruptcy or other default by the seller, there may be possible delays and expenses in liquidating the underlying securities or other collateral, decline in their value and loss of interest. The return on such collateral may be more or less than that from the repurchase agreement. A Fund's repurchase agreements will be structured so as to fully collateralize the loans. In other words, the value of the underlying securities, which will be held by the Fund's custodian bank or by a third party that qualifies as a custodian under Section 17(f) of the 1940 Act, is and, during the entire term of the agreement, will remain at least equal to the value of the loan, including the accrued interest earned thereon. Repurchase agreements are entered into only with those entities approved by WRIICO.

           Restricted Securities

           Restricted securities are securities that are subject to legal or contractual restrictions on resale. However, restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, as amended, or in a registered public offering. Where registration is required, a Fund may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to seek registration of the security.

           There are risks associated with investments in restricted securities in that there can be no assurance of a ready market for resale. Also, the contractual restrictions on resale might prevent the Fund from reselling the securities at a time when such sale would be desirable. Restricted securities that are traded in foreign markets are often subject to restrictions that prohibit resale to U.S. persons or entities or permit sales only to foreign broker-dealers who agree to limit their resale to such persons or entities. The buyer of such securities must enter into an agreement that, usually for a limited period of time, it will resell such securities subject to such restrictions. Restricted securities in which the Fund seeks to invest need not be listed or admitted to trading on a foreign or domestic exchange and may be less liquid than listed securities. Certain restricted securities, e.g., Rule 144A securities, may be determined to be liquid in accordance with guidelines adopted by the Board of Directors. See Illiquid Investments.

           U.S. Government Securities

           Securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (U.S. Government securities) are high quality debt instruments issued or guaranteed as to principal or interest by the U.S. Treasury or an agency or instrumentality of the U.S. Government. These securities include Treasury Bills (which mature within one year of the date they are issued), Treasury Notes (which have maturities of one to ten years) and Treasury Bonds (which generally have maturities of more than ten years). All such Treasury securities are backed by the full faith and credit of the United States.

           U.S. Government agencies and instrumentalities that issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Fannie Mae, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Ginnie Mae, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Freddie Mac, Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the Resolution Funding Corporation and the Student Loan Marketing Association.

           Securities issued or guaranteed by U.S. Government agencies and instrumentalities are not always supported by the full faith and credit of the United States. Some, such as securities issued by the Federal Home Loan Banks, are backed by the right of the agency or instrumentality to borrow from the Treasury. Other securities, such as securities issued by Fannie Mae, are supported only by the credit of the instrumentality and by a pool of mortgage assets. If the securities are not backed by the full faith and credit of the United States, the owner of the securities must look principally to the agency issuing the obligation for repayment and may not be able to assert a claim against the United States in the event that the agency or instrumentality does not meet its commitment.A Fund will invest in securities of agencies and instrumentalities only if WRIICO is satisfied that the credit risk involved is acceptable.

           U.S. Government securities may include mortgage-backed securities issued or guaranteed as to the payment of principal and interest by U.S. Government agencies or instrumentalities including, but not limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities include pass-through securities, participation certificates and collateralized mortgage obligations. See, Mortgage-Backed and Asset-Backed Securities. Timely payment of principal and interest on Ginnie Mae pass-throughs is guaranteed by the full faith and credit of the United States. Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government, but their obligations are not backed by the full faith and credit of the United States. It is possible that the availability and the marketability (i.e., liquidity) of the securities discussed in this section could be adversely affected by actions of the U.S. Government to tighten the availability of its credit.

           Variable or Floating Rate Instruments

           Variable or floating rate instruments (including notes purchased directly from issuers) bear variable or floating interest rates and may carry rights that permit holders to demand payment of the unpaid principal balance plus accrued interest from the issuers or certain financial intermediaries on dates prior to their stated maturities. Floating rate securities have interest rates that change whenever there is a change in a designated base rate while variable rate instruments provide for a specified periodic adjustment in the interest rate. These formulas are designed to result in a market value for the instrument that approximates its par value.

           Warrants and Rights

           Warrants are options to purchase equity securities at specified prices for a specific period of time. Their prices do not necessarily move parallel to the prices of the underlying securities. Rights are similar to warrants but normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and warrants have no voting rights, receive no dividends, and have no rights with respect to the assets of the issuer. Warrants and rights are highly volatile and, therefore, more susceptible to sharp decline in value than the underlying security might be. They are also generally less liquid than an investment in the underlying securities.

           When-Issued and Delayed-Delivery Transactions

           Each Fund may purchase securities in which it may invest on a when-issued or delayed-delivery basis or sell them on a delayed-delivery basis. In either case payment and delivery for the securities take place at a future date. The securities so purchased or sold are subject to market fluctuation; their value may be less or more when delivered than the purchase price paid or received. When purchasing securities on a when issued or delayed-delivery basis, the Fund assumes the rights and risks of ownership, including the risk of price and yield fluctuations. No interest accrues to the Fund until delivery and payment is completed. When the Fund makes a commitment to purchase securities on a when-issued or delayed-delivery basis, it will record the transaction and thereafter reflect the value of securities in determining its NAV per share. When the Fund sells securities on a delayed-delivery basis, the Fund does not participate in further gains or losses with respect to the securities. When the Fund makes a commitment to sell securities on a delayed-delivery basis, it will record the transaction and thereafter value the securities at the sale price in determining the Fund's NAV per share. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the Fund could miss a favorable price or yield opportunity, or could suffer a loss.

           Ordinarily the Fund purchases securities on a when-issued or delayed-delivery basis with the intention of actually taking delivery of the securities. However, before the securities are delivered to the Fund and before it has paid for them (the settlement date), the Fund could sell the securities if WRIICO decides it is advisable to do so for investment reasons. The Fund will hold aside or segregate cash or other securities, other than those purchased on a when-issued or delayed-delivery basis, at least equal to the amount it will have to pay on the settlement date; these other securities may, however, be sold at or before the settlement date to pay the purchase price of the when-issued or delayed-delivery securities.

           Zero Coupon Securities

           Zero coupon securities are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity or do not specify a future date when the securities begin to pay

current interest; instead, they are sold at a deep discount from their face value and are redeemed at face value when they mature. Because zero coupon securities do not pay current income, their prices can be very volatile when interest rates change and generally are subject to greater price fluctuations in response to changing interest rates than prices of comparable debt obligations that make current distributions of interest in cash.

           A Fund may invest in zero coupon securities that are stripped U.S. Treasury notes and bonds, zero coupon bonds of corporate or municipal issuers and other securities that are issued with original issue discount (OID). The Federal tax law requires that a holder of a security with OID accrue a ratable portion of the OID on the security as income each year, even though the holder may receive no interest payment on the security during the year. Accordingly, although a Fund will receive no payments on its zero coupon securities prior to their maturity or disposition, it will have current income attributable to those securities and includable in the dividends it pays to its shareholders. The Fund will pay those dividends from its cash assets or by liquidation of portfolio securities, if necessary, at a time when it otherwise might not have done so. The Fund may realize capital gains or losses from those sales, which would increase or decrease its taxable income and/or net capital gains.

           A broker-dealer creates a derivative zero by separating the interest and principal components of a U.S. Treasury security and selling them as two individual securities. CATS (Certificates of Accrual on Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are examples of derivative zeros.

           The Federal Reserve Bank creates STRIPS (Separate Trading of Registered Interest and Principal of Securities) by separating the interest and principal components of an outstanding U.S. Treasury security and selling them as individual securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also be separated in this fashion. Original issue zeros are zero coupon securities originally issued by the U.S. Government, a government agency, or a corporation in zero coupon form.

Investment Restrictions and Limitations

           Certain of the Funds' investment restrictions and other limitations are described in this SAI. The following are each Fund's fundamental investment restrictions set forth in their entirety, which, like each Fund's goal(s), cannot be changed without shareholder approval for the affected Fund. For this purpose, shareholder approval means the approval, at a meeting of Fund shareholders, by the lesser of (1) the holders of 67% or more of a Fund's shares represented at the meeting, if more than 50% of the Fund's outstanding shares are present in person or by proxy or (2) more than 50% of the Fund's outstanding shares. If a percentage restriction is adhered to at the time of an investment or transaction, later changes in the percentage resulting from a change in value of portfolio securities or amount of total assets will not be considered a violation of the restriction.

(1) Each Fund (other than Ivy Asset Strategy Fund) may not buy real estate, any nonliquid interests in real estate investment trusts or interests in real estate limited partnerships; however, each of these Funds may buy obligations or instruments that it otherwise may buy even though the issuer invests in real estate or interests in real estate. Ivy Asset Strategy Fund may not invest in real estate limited partnerships or purchase or sell real estate unless acquired as a result of ownership of securities (but this shall not prevent this Fund from

	purchasing and selling securities issued by companies or other entities or investment vehicles that deal in real estate or interests therein, nor shall this prevent this Fund from purchasing interests in pools of real estate mortgage loans);
(2)	Each Fund (other than Ivy Asset Strategy Fund) may not acquire shares of an investment company that issues redeemable securities. Each Fund (other than Ivy Limited-Term Bond Fund, Ivy Money Market Fund or Ivy Municipal Bond Fund) may buy shares of an investment company that does not issue redeemable securities if the Fund does so in a regular transaction in the open market and in compliance with the requirements of the 1940 Act. Each of these Funds may purchase such securities if, as a result of such purchase, no more than 10% of its total assets are invested in such securities.
	As operating policies, Ivy High Income Fund and Ivy Science and Technology Fund do not intend to invest more than 5% of their respective total assets in such securities; Ivy Asset Strategy Fund may purchase shares of another investment company subject to the restrictions and limitations of the 1940 Act;
	Notwithstanding the foregoing, each of the Funds (other than Ivy Limited-Term Bond Fund, Ivy Money Market Fund or Ivy Municipal Bond Fund) may also acquire investment company shares as part of a merger, consolidation or other reorganization;
(3)	The following applies to each of Ivy Core Equity Fund, Ivy Small Cap Growth Fund, Ivy Limited-Term Bond Fund, Ivy Municipal Bond Fund, Ivy International Growth Fund, Ivy Asset Strategy Fund, Ivy Science and Technology Fund, Ivy Mid Cap Growth Fund and Ivy Money Market Fund:
	The Fund may not lend money or other assets, other than through certain limited types of loans; however, each Fund may buy debt securities and other obligations consistent with its goal(s) and its other investment policies and restrictions, may enter into repurchase agreements (see Repurchase Agreements) and, except Ivy Municipal Bond Fund, may lend its portfolio securities to the extent allowed, and in accordance with the requirements, under the 1940 Act and as consistent with its goal(s) and its other investment policies and restrictions;
	The following interpretation applies to, but is not part of, this fundamental restriction: the Fund's investments in master notes and similar instruments will not be considered to be the making of a loan.
	The following applies to Ivy High Income Fund, Large Cap Growth Fund and Ivy Tax-Managed Equity Fund:

	The Fund may not make loans, except that the Fund may purchase or hold debt instruments in accordance with its investment objective and policies, lend Fund securities in accordance with its investment objective and policies and enter into repurchase agreements, to the extent allowed, and in accordance with the requirements, under the 1940 Act. For purposes of this restriction, the participation of the Fund in a credit facility whereby the Fund mayu directly lend and borrow money for temporary purposes, privided that the loans are made in accordance with an order of exemption from the Securities and Exchange Commission and any conditions thereto, will not be considered the making of a loan.
(4)	No Fund may invest for the purpose of exercising control or management of another issuer;
(5)	No Fund may sell securities short (unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short) or purchase securities on margin, except that (1) this policy does not prevent a Fund from entering into short positions in foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments, (2) a Fund may obtain such short-term credits as are necessary for the clearance of transactions, and (3) a Fund may make margin payments in connection with futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments;
(6)	No Fund may engage in the underwriting of securities of other issuers, except to the extent that, in connection with the disposition of portfolio securities, the Fund may be deemed an underwriter under Federal securities laws;
(7)	No Fund may invest in a security if, as a result, it would own more than 10% of the outstanding voting securities of an issuer, or if more than 5% of a Fund's total assets would be invested in securities of that issuer, provided that U.S. Government securities are not subject to this limitation and up to 25% of the total assets of each Fund may be invested without regard to these restrictions;
(8)	No Fund (other than Ivy Science and Technology Fund) may buy a security, except for U.S. Government securities, if, as a result, 25% or more of the Fund's total assets would then be invested in securities of issuers having their principal business activities in the same industry, except for municipal bonds (other than PABs) for Ivy Municipal Bond Fund and except for bank obligations and instruments for Ivy Money Market Fund;

(9)	Ivy Money Market Fund and Ivy Municipal Bond Fund may not purchase warrants;
(10)	Each Fund (other than Ivy Asset Strategy Fund) may not purchase or sell physical commodities; however, this policy does not prevent these Funds (other than Ivy Money Market Fund, Ivy Limited-Term Bond Fund or Ivy Municipal Bond Fund) from purchasing and selling foreign currency, futures contracts, options, forward contracts, swaps, caps, floors, collars and other financial instruments. Ivy Asset Strategy Fund may not purchase or sell physical commodities, except that this Fund may purchase and sell precious metals for temporary, defensive purposes; however, this policy shall not prevent this Fund from purchasing and selling foreign currency, futures contracts, options, forward contracts, swaps, caps, collars, floors and other financial instruments;
(11)	No Fund may issue senior securities. Each Fund may, however, issue additional series and classes of shares in accordance with the Articles of Incorporation.
	Each Fund (other than Ivy Asset Strategy Fund, Ivy High Income Fund, Large Cap Growth Fund, Ivy Tax-Managed Equity Fund and Ivy Mid Cap Growth Fund) may not borrow money, except that these Funds may borrow money (and pledge assets in connection therewith) from banks for temporary, extraordinary or emergency purposes but only up to 5% of their respective total assets (10% of the total assets of Ivy Money Market Fund).
	Ivy Asset Strategy Fund, Ivy High Income Fund, Large Cap Growth Fund and Ivy Tax-Managed Equity Fund may each borrow money only for temporary, emergency or extraordinary purposes (not for leveraging or investment) in an amount not exceeding 33 1/3% of the value of its total assets (less liabilities other than borrowings). Any borrowings that come to exceed 33 1/3% of the value of Ivy Asset Strategy Fund's total assets by reason of a decline in net assets will be reduced within three days to the extent necessary to comply with the 33 1/3% limitation. For purposes of this limitation, three days means three days, exclusive of Sundays and holidays.
	Ivy Money Market Fund may not pledge, mortgage, or hypothecate assets as security for indebtedness except to secure permitted borrowings;
(12)	Each Fund (except Ivy Asset Strategy Fund) may not invest in interests in oil, gas or mineral leases or mineral development programs, including oil and gas limited partnerships;

(13)	At least 80% of Ivy Municipal Bond Fund's net assets will be invested during normal market conditions in municipal bonds; and
(14)	No Fund may participate on a joint, or a joint and several basis, in any trading account in securities.

The method of determining who is an issuer for purposes of the 5% limitation in fundamental restriction (7) is non-fundamental. In particular, in applying this limitation:

(a)	For municipal bonds created by a particular government but backed only by the assets and revenues of a subdivision of that government, such as an agency, instrumentality, authority or other subdivision, the Fund considers such subdivision to be the issuer;
(b)	For PABs, the nongovernmental user of facilities financed by the user is considered a separate issuer; and
(c)	Ivy Municipal Bond Fund considers a guarantee of a municipal bond to be a separate security that would be given a value and included in the limitation if the value of all municipal bonds created by the guarantor and owned by the Fund exceeds 10% of the value of the Fund's total assets.

The following investment restrictions are not fundamental and may be changed by the Board of Directors without shareholder approval:

(1)

During normal market conditions, at least 80% of the net assets of Ivy Small Cap Growth Fund will be invested in small-cap growth stocks; at least 80% of the net assets of Ivy Large Cap Growth Fund will be invested in large-cap growth stocks; at least 80% of the net assets of Ivy Mid Cap Growth Fund will be invested in mid-cap growth stocks; and at least 80% of Ivy Tax-Managed Equity Fund's net assets will be invested in equity securities.

(2)

During normal market conditions, at least 80% of Ivy International Growth Fund's net assets will be invested in foreign securities and at least 65% of its total assets will be invested in at least three different countries outside the United States. Ivy International Growth Fund may not purchase a foreign security if, as a result of such purchase, more than 75% of its total assets would be invested in issuers of any one foreign country.

(3)	During normal market conditions, Ivy Science and Technology Fund will invest at least 80% of its net assets in securities of science and technology companies or companies that benefit from the application of science and/or technology innovations.
(4)	Ivy High Income Fund will not purchase a common stock if, as a result, more than 20% of its total assets would be invested in common stocks. This 20% limit includes common stocks acquired on conversion of convertible securities, on exercise of warrants or call options or in any other voluntary manner. The Fund does not currently intend to invest more than 10% of its total assets in non-dividend-paying common stocks.
(5)	Ivy Municipal Bond Fund does not intend to invest more than 50% of its total assets in PABs. Up to 10% of Ivy Municipal Bond Fund's total assets may be invested in debt securities other than municipal bonds. The Fund will have less than 25% of its total assets invested in securities of issuers located in any single state.
(6)	At least 80% of Ivy Limited-Term Bond Fund's net assets will be invested during normal market conditions in bonds.
(7)	Ivy Money Market Fund may not purchase the securities of any one issuer (other than U.S. Government securities) if, as a result of such purchase, more than 5% of its total assets would be invested in the securities of any one issuer, as determined in accordance with Rule 2a-7; provided, however, the Fund may invest up to 25% of its total assets in first tier securities of a single issuer for a period of up to 3 business days after purchase. The Fund may rely on this exception only as to one issuer at a time. Ivy Money Market Fund may not invest more than 5% of its total assets in securities rated in the second highest rating category by the requisite rating organization(s) or comparable unrated securities, with investments in such securities of any one issuer (except U.S. Government securities) limited to the greater of 1% of the Fund's total assets or $1,000,000, as determined in accordance with Rule 2a-7.
(8)	Each Fund (other than Ivy Asset Strategy Fund, Ivy High Income Fund and Ivy Money Market Fund) does not currently intend to invest in non-investment grade debt securities and unrated securities judged by WRIICO to be of equivalent quality if, as a result, more than 5% of its total assets, respectively, would consist of such investments. Ivy Asset Strategy Fund may not invest more than 35% of its total assets in non-investment grade debt securities. Ivy High Income Fund may invest all of its assets in non-investment grade debt securities. Ivy Limited-Term Bond Fund does not currently intend to invest more than 50% of its total assets in securities rated in the lowest tier of investment grade debt securities (those rated BBB by S&P or Baa by Moody's). At least 80% of Ivy Municipal Bond Fund's net assets will consist of municipal bonds of investment grade. Ivy Money Market Fund may not invest in

non-investment grade debt securities.

(9)	Subject to the diversification requirements of Rule 2a-7, Ivy Money Market Fund may invest up to 10% of its total assets in Canadian Government obligations. Ivy Money Market Fund may not invest more than 25% of its total assets in a combination of foreign obligations and instruments.
(10)	Ivy Asset Strategy Fund currently intends to limit its investments in foreign securities, under normal market conditions, to no more than 50% of its total assets. Ivy High Income Fund may invest an unlimited amount of its total assets in foreign securities.
(11)	Each of Ivy Core Equity Fund and Ivy Small Cap Growth Fund may invest up to 10% of its net assets, and Ivy Science and Technology Fund may invest up to 20% of its net assets, in foreign securities. Each of Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund and Ivy Tax-Managed Equity Fund may invest up to 25% of its total assets, respectively, in foreign securities. Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund may not invest in foreign securities.
(12)	Ivy Asset Strategy Fund, Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund do not currently intend to invest more than 5% of their respective total assets in when-issued and delayed delivery transactions.
(13)	Each Fund may not purchase a security if, as a result, more than 10% (15% for Ivy Asset Strategy Fund, Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund and Ivy Tax-Managed Equity Fund) of its net assets would consist of illiquid investments.
(14)	Each Fund (other than Ivy Money Market Fund) is permitted to invest in options, futures contracts, asset-backed securities and other derivative instruments only if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured.
(15)	To the extent that a Fund enters into futures contracts, options on futures contracts or options on foreign currencies traded on a CFTC-regulated exchange, in each case other than for bona fide hedging purposes (as defined by the CFTC), the aggregate initial margin and premiums required to establish those positions (excluding the amount by which options are in-the-money at the time of purchase) will not exceed 5% of the liquidation value of that Fund's portfolio, after taking into account unrealized profits and unrealized losses on any contracts the Fund has entered into. (In general, a call option on a futures contract is in-the-money if the value of the underlying futures contract exceeds the strike, i.e., exercise, price of the call; a put option on a futures contract is in-the-money if the value of the underlying futures

	contract is exceeded by the strike price of the put.) This policy does not limit to 5% the percentage of a Fund's total assets that are at risk in futures contracts, options on futures contracts and currency options.
(16)	Ivy Asset Strategy Fund may borrow money only from a bank. The Fund will not purchase any security while borrowings representing more than 5% of its total assets are outstanding.
(17)	Ivy Mid Cap Growth Fund may borrow only from banks and only to the extent that the value of its assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing.
(18)	Ivy Asset Strategy Fund does not currently intend to invest in money market instruments rated below the highest rating category by S&P or Moody's, or if unrated, judged by WRIICO to be of equivalent quality; provided, however, that the Fund may invest in a money market instrument rated below the highest rating category by S&P or Moody's if such instrument is subject to a letter of credit or similar unconditional credit enhancement that is rated A-1 by S&P or P-1 by Moody's, or if unrated, judged by WRIICO to be of equivalent quality.
(19)	Ivy Asset Strategy Fund does not currently intend to lend assets other than securities to other parties, except by acquiring loans, loan participations, or other forms of direct debt instruments. (This limitation does not apply to purchases of debt securities and other obligations or to repurchase agreements.)
(20)	Ivy Asset Strategy Fund does not currently intend to invest in oil, gas, or other mineral exploration or development programs or leases.
(21)	Ivy Money Market Fund will not invest in any security whose interest rate or principal amount to be repaid, or timing of repayments, varies or floats with the value of a foreign currency, the rate of interest payable on foreign currency borrowings, or with any interest rate or currency other than U.S. dollars.

           An investment policy or limitation that states a maximum percentage of a Fund's assets that may be so invested or prescribes quality standards is typically applied immediately after, and based on, a Fund's acquisition of an asset. Accordingly, a subsequent change in the asset's value, net assets, or other circumstances will not be considered when determining whether the investment complies with a Fund's investment policies and limitations.

Portfolio Turnover

           A portfolio turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities for a year and dividing it by the monthly average of the market value of such securities during the year, excluding certain short-term securities. A Fund's turnover rate may vary greatly from year to year as well as within a particular year and may be affected by cash requirements for the redemption of its shares.

           The portfolio turnover rates for the fiscal years ended March 31, 2003 and 2002 for each of the Funds were as follows:

	2003	2002
Ivy Asset Strategy Fund	109.38%	143.38%
Ivy Core Equity Fund	39.13%	22.36%
Ivy High Income Fund	52.20%	82.42%
Ivy International Growth Fund	107.62%	133.83%
Ivy Large Cap Growth Fund	71.98%	98.59%
Ivy Limited-Term Bond Fund	49.41%	32.97%
Ivy Mid Cap Growth Fund	35.89%	39.05%
Ivy Money Market Fund	NA	NA
Ivy Municipal Bond Fund	40.03%	36.41%
Ivy Science and Technology Fund	74.48%	90.92%
Ivy Small Cap Growth Fund	30.63%	28.77%
Ivy Tax-Managed Equity Fund	145.24%	95.60%

           The portfolio turnover rate for the common stock portion of Ivy Asset Strategy Fund's portfolio for the fiscal year ended March 31, 2003 was 106.16%; the rate for the remainder of the portfolio was 110.49%.

           The turnover rate Ivy Asset Strategy Fund and Ivy International Growth Fund is a regular component of their investment style. Ivy Tax-Managed Equity Fund experienced a higher turnover rate for the fiscal year ending March 31, 2003 due to a change in the portfolio manager (as of January 2002) and his continued effort to modify the holdings of this Fund to reflect his style of managing the assets.

           A high turnover rate will increase transaction costs and commission costs that will be borne by the Funds and could generate taxable income or loss.

MANAGEMENT OF THE FUNDS

Directors and Officers

           The Board of Directors (the Board) oversees the operations of the Funds, which number 13 portfolios, and is responsible for the overall management and supervision of its affairs in accordance with the laws of the State of Maryland. The members of the Board are also Trustees for, and similarly

oversee the operations of, each of the 8 funds in the Ivy Fund, which, together with the Funds, comprise the Ivy Family of Funds. The Waddell & Reed Fund Complex is comprised of the Ivy Family of Funds and the Advisors Fund Complex, which is comprised of each of the funds in the Waddell & Reed Advisors Funds (21 portfolios), W&R Target Funds, Inc. (12 portfolios) and Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios). Prior to June 3, 2003, the Funds were part of the Advisors Fund Complex, and the Directors who comprised the Board for the Funds were also Members of the Board of Directors for each of the other fund groups in the Advisors Fund Complex. At a Shareholders meeting held June 3, 2003, the Shareholders elected to the Board, as Directors for the Funds, the same individuals who are Trustees for each of the Funds in Ivy Fund. Four of the Directors for the Funds also oversee all of the funds in the Advisors Fund Complex.

           The Board appoints officers and delegates to them the management of the day-to-day operations of each of the Funds, based on policies reviewed and approved by the Board and general oversight by the Board.

           The address for each Director and Executive Officer in the following tables is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Each Director and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The Directors who are not "interested persons" of the Funds within the meaning of Section 2(a)(19) of the 1940 Act ("Disinterested Directors") and their principal occupations during the past five years are:

Name and Age	Position(s) Held with the Funds	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Total Number of Funds  Overseen	Other Directorships  Held
Jarold W. Boettcher (63)	Director	Director since June 3, 2003	President of Boettcher Enterprises, Inc. (agriculture products and services) since 1979; President of Boettcher Supply, Inc. (electrical and plumbing supplies distributor) since 1979; President of Boettcher Aerial, Inc. (Aerial Ag Applicator) since 1983	21	Director of Guaranty State Bank & Trust Co.; Director of Guaranty, Inc.

Name and Age	Position(s) Held with the Funds	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Total Number of Funds  Overseen	Other Directorships  Held
James D. Gressett (53)	Director	Director since June 3, 2003	CEO of PacPizza, Inc. (Pizza Hut franchise) since 2000; Secretary of Street Homes, LLP (homebuilding company) since 2001; President of Alien, Inc. (real estate development), 1997 to 2001	21	Director of Collins Financial Services, a debt recovery company
Joseph Harroz, Jr. (36)	Director	5 years	General Counsel, University of Oklahoma, Cameron University and Rogers State University; University-wide Vice President of the University of Oklahoma since 1994; Adjunct Professor of Law, University of Oklahoma College of Law; Managing Member, Harroz Investment, LLC (commercial real estate), since 1998; Managing Member, JHJ Investments, LLC (commercial real estate) since 2002	57	Co-Lead Independent Director of each of the funds in the Advisors Funds Complex (36 portfolios overseen)
Glendon E. Johnson, Jr. (51)	Director	Director since June 3, 2003	Of Counsel, Lee & Smith, PC (law firm) since 1996; Member/Manager, Castle Valley Ranches, LLC (ranching) since 1995	21	None

Name and Age	Position(s) Held with the Funds	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Total Number of Funds  Overseen	Other Directorships  Held
Eleanor B. Schwartz (66)	Director	8 years	Professor Emeritus, University of Missouri, since 2003; Professor of Business Administration, University of Missouri--Kansas City 1980-2003; Chancellor of University of Missouri--Kansas City, 1991-1999	57	Director of each of the funds in the Advisors Funds Complex (36 portfolios overseen)
Michael G. Smith (59)	Director	Director since June 3, 2003	Retired; formerly, Managing Director--Institutional Sales, Merrill Lynch, 1983-1999	21	Director, Executive Board, Cox Business School, Southern Methodist University (since 1998); Director, Northwestern Mutual Life Series Funds & Mason Street Advisors Funds (since February, 2003) (29 portfolios overseen)
Edward M. Tighe (60)	Director	Director since June 3, 2003	Chairman, CEO and Director of JBE Technology Group, Inc. (telecommunications and computer network consulting); CEO and Director of Asgard Holding, LLC (computer network and security services); President of Global Mutual Fund Services; President and CEO of Global Technology	21	Director of Hansberger Institutional Funds (2 portfolios overseen)

           The Directors considered by the Funds and its counsel to be "interested persons" (as defined in the 1940 Act) of the Funds or of their investment manager because of their employment by Waddell & Reed Financial, Inc. (Waddell & Reed) or its subsidiaries are:

Name and Age	Position(s) Held with    the Funds	Term of Office and Length of Time Served	Principal Occupation(s) During Past 5 Years	Total Number of Funds  Overseen	Other Directorships Held
Keith A. Tucker (58)	Director and Chairman	Director 10 years Chairman 5 years	Chairman of the Board, Director and CEO of Waddell & Reed; Chairman of the Board of Waddell & Reed, Inc.; Chairman of the Board and Director of Waddell & Reed Investment Management Company (WRIMCO); Chairman of the Board and Director of Waddell & Reed Services Co.; President and CEO of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Waddell & Reed Development, Inc.; Chairman of the Board of Waddell & Reed Distributors, Inc.	57	Chairman of the Board and Director of the Advisors Funds Complex (36 portfolios overseen)
Henry J. Herrmann (60)	Director and President	Director 5 years President 2 years	Chairman of the Board, CEO and President of WRIICO; President, Chief Investment Officer and Director of Waddell & Reed; President and CEO of WRIMCO; Chief Investment Officer of WRIMCO; Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Executive Vice President of Waddell & Reed Financial Services, Inc.; formerly, Chairman of the Board of Austin, Calvert & Flavin, Inc.	57	Chairman of the Board and Director, Ivy Services Inc. ("ISI"); Director of WRI; Director of Waddell & Reed Development, Inc.; Director of Waddell & Reed Services Co.; Director of Austin Calvert & Flavin, Inc.; Director and President of the Advisors Funds Complex (36 portfolios overseen)

           The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Herrmann, who is President, the Fund's officers are:

NAME, ADDRESS AND AGE	POSITION(S) HELD WITH THE TRUST	TERM OF OFFICE: OFFICER SINCE	PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Theodore W. Howard Age: 60	Treasurer, Vice President, Principal Accounting Officer and Principal Financial Officer	Treasurer, Vice President, Principal Accounting Officer 11 years Principal Financial Officer 2 years	Senior Vice President of WRSCO; Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of the Funds and each of the funds in the Advisors Funds Complex.; Vice President and Treasurer of Ivy Fund; formerly, Vice President of WRSCO
Kristen A. Richards Age: 35	Vice President and Secretary	3 years	Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO and WRIICO; Vice President, Secretary and Associate General Counsel of each of the funds in the Waddell & Reed Fund Complex; formerly, Assistant Secretary of the Funds and each of the funds in the Waddell & Reed Advisors Funds and W&R Target Funds, Inc.; formerly, Compliance Officer of WRIMCO

NAME, ADDRESS AND AGE	POSITION(S) HELD WITH THE TRUST	TERM OF OFFICE: OFFICER SINCE	PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Daniel C. Schulte Age: 37	Vice President and Assistant Secretary	3 years	Vice President, Secretary and General Counsel of Waddell & Reed; Senior Vice President, Secretary and General Counsel of Waddell & Reed, WRIMCO and WRSCO; Senior Vice President, Assistant Secretary and General Counsel of WRIICO and ISI; Vice President, General Counsel and Assistant Secretary of each of the funds in the Waddell & Reed Fund Complex; formerly, Assistant Secretary of Waddell & Reed; formerly, an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C.

           Committees of the Board of Directors

           The Board has established the following committees: Audit Committee, Executive Committee, Nominating Committee, Valuation Committee and Investment Review Committee. The respective duties and current memberships are:

Audit Committee. The Audit Committee meets with the Funds' independent auditors, internal auditors and corporate officers to discuss the scope and results of the annual audit of the Fund, to review financial statements, reports, compliance matters, and to discuss such other matters as the Committee deems appropriate or desirable. The Audit Committee acts as a liaison between the Funds' independent auditors and the full Board of Directors. Michael G. Smith, Jarold Boettcher and Glendon E. Johnson, Jr. are the members of the Audit Committee. During the fiscal year ended March 31, 2003, the Audit Committee met four times.

Executive Committee. When the Board is not in session, the Executive Committee has and may exercise any or all of the powers of the Board in the management of the business and affairs of the Funds except the power to increase or decrease the size of, or fill vacancies on, the Board, and except as otherwise provided by law. Keith A. Tucker, Henry J. Herrmann and Edward M. Tighe are the members of the Executive Committee. During the fiscal year ended March 31, 2003, the Executive Committee did not meet.

Nominating Committee. The Nominating Committee evaluates, selects and recommends to the Board candidates for disinterested directors. Joseph Harroz, Jr., Eleanor B. Schwartz and James D. Gressett are the members of the Nominating Committee. During the fiscal year ended March 31, 2003, the Nominating Committee met once.

Valuation Committee. The Valuation Committee reviews and considers valuation recommendations by management for securities for which market quotations are not available, and values such securities and other assets at fair value as determined in good faith under procedures established by the Board. Keith A. Tucker and Henry J. Herrmann are the members of the Valuation Committee. During the fiscal year ended March 31, 2003, the Committee met 14 times.

Investment Review Committee. The Investment Review Committee considers such matters relating to the investment management of the funds in the Fund Complex as the Committee may, from time to

time, determine warrant review, such as investment management policies and strategies, investment performance, risk management techniques and securities trading practices, and may make recommendations as to these matters to the Board. During the fiscal year ended March 31, 2003, the committee met once.

OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2002

           The following table provides information regarding shares of the Funds owned by each Director, as well as the aggregate dollar range of shares owned, by each Director, within the Waddell & Reed Fund Complex.

DISINTERESTED DIRECTORS

Director	Dollar Range of Fund Shares Owned	Aggregate Dollar Range of Fund Shares Owned in All Funds within the Waddell & Reed Fund Complex
Jarold W. Boettcher1	$0	$0
James D. Gressett1	$0	$0
Joseph Harroz, Jr.	$0	over $100,000
Glendon E. Johnson, Jr.1	$0	$0
Eleanor B. Schwartz	$0	$0
Michael G. Smith1	$0	$0
Edward M. Tighe1	$0	$10,001 to $50,000

INTERESTED DIRECTORS

Director	Dollar Range of Fund Shares Owned	Aggregate Dollar Range of Fund Shares Owned in All Funds within the Waddell & Reed Fund Complex
Henry J. Herrmann	$0	over $100,000
Keith A. Tucker	$0	over $100,000

The following Directors have each deferred a portion of their annual compensation. The values of these deferred accounts are:

Director	Dollar Range of Fund Shares Deemed to be Owned	Aggregate Dollar Range of Shares Deemed to be Owned in all Funds within the Fund Complex
James D. Gressett1	$0	$1 to $10,000
Joseph Harroz, Jr.	$0	$10,001 to $50,000

Director	Dollar Range of Fund Shares Deemed to be Owned	Aggregate Dollar Range of Shares Deemed to be Owned in all Funds within the Fund Complex
Eleanor B. Schwartz	$0	$1 to $10,000
Michael G. Smith1	$0	$1 to $10,000
Edward M. Tighe1	$0	$1 to $10,000

           ¹Not a Director on December 31, 2002.

           During the fiscal year ended March 31, 2003, the Funds were part of the Advisors Fund Complex,and the Directors then serving received the following fees for service as a director:

COMPENSATION TABLE

Director	Aggregate Compensation  From Fund	Total Compensation From Fund and Advisors Fund Complex1
--------	------------	------------
Henry J. Herrmann   Keith A. Tucker    James M. Concannon 2 John A. Dillingham 2 David P. Gardner 2 Linda K. Graves 2 Joseph Harroz, Jr.  John F. Hayes2 Robert L. Hechler 2 Glendon E. Johnson 2 William T. Morgan3 Frank J. Ross, Jr. 2 Eleanor B. Schwartz   Frederick Vogel III 2	$ 0  0 3,738 3,738 3,738 3,738 3,738 3,579 1,118 3,738 3,738 3,738 3,738 3,738	$ 0  0 74,000 74,000  74,000 74,000 74,000  70,750  22,000  74,000 74,000 74,000  74,000  74,000

¹No pension or retirement benefits have been accrued as a part of Fund expenses.

²No longer serving as a Director as of June 3, 2003.

³Mr. Morgan resigned from the Board of Directors for the Waddell & Reed Advisors Funds, W&R Funds, W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. effective June 1, 2002.

           The officers are paid by WRIICO or its affiliates.

           The Board has created an honorary position of Director Emeritus, whereby an incumbent Director who has attained the age of 70 may, or if elected on or after May 31, 1993 and has attained the age of 75 must, resign his or her position as Director and, unless he or she elects otherwise, will serve as Director Emeritus provided the Director has served as a Director of the Funds for at least five years which need not have been consecutive. A Director Emeritus receives fees in recognition of his or her past services whether or not services are rendered in his or her capacity as Director Emeritus, but he or she has no authority or responsibility with respect to the management of the Funds. Messrs. Henry L. Bellmon, Jay B. Dillingham, William T. Morgan, Doyle Patterson, Ronald K. Richey and Paul S. Wise retired as Directors of the Funds, and each serves as Director Emeritus.

Code of Ethics

           The Funds, WRIICO and IFDI have adopted a Code of Ethics under Rule 17j-1 of the 1940 Act that permits their respective directors, officers and employees to invest in securities, including securities that may be purchased or held by a Fund. The Code of Ethics subjects covered personnel to certain restrictions that include prohibited activities, pre-clearance requirements and reporting obligations.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

The following table sets forth information with respect to the Funds, as of May 31, 2003, regarding beneficial ownership of Fund shares.

Frank H Armstrong (TOD)	Tax-Managed Equity Fund
610 Harry S Truman Dr	Class B	5,816	10.97%
Upper Marlboro MD 20774-2062
William Thomas Ashby &	Municipal Bond Fund
Nelle M Ashby Co-ttees	Class B	2,596	7.02%
The William Thomas Ashby Sr
Revoc Living Trust
105 Stratford
Summerville SC 29485-8636

Marie D Burns Ttee		Tax-Managed Equity Fund
U/A dtd 03-30-1989		Class B	3,106	5.86%
Fred & Marie Dube Trust
FBO Fred Dube
2070 World Parkway Blvd Apt 36
Clearwater FL 33763-3646
Charles Schwab & Co Inc		Core Equity Fund
Special Custody A/C		Class Y	141,676	38.94%
	for the Benefit of
	Customers	Small Cap Growth Fund
ATTN: Mutual Funds		Class Y	313,214	9.47%
101 Montgomery St
San Francisco CA		International Growth Fund
	94104-4122	Class Y	17,126	1.64%
		Science and Technology Fund
		Class Y	34,342	20.09%
		Large Cap Growth Fund
		Class Y	52,382	59.79%
		Mid Cap Growth Fund
		Class Y	41,302	85.49%
Carolyn Cioffi (TOD)		Municipal Bond Fund
1 Rollwood Dr		Class B	1,874	5.07%
Guilford CT 06437-2845
Connecticut Gen		Small Cap Growth Fund
	Life Insurance Co	Class Y	174,621	5.28%
280 Trumbull St
Hartford CT 06103-3509
Marjorie M Cosel Trustee		Municipal Bond Fund
U/A Dtd Mar 11 1987		Class A	27,411	12.53%
Marjorie M Cosel Rev Trust
1675 Comstock Ave

Los Angeles CA 90024-5300
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
Cummings Prop Mangment		High Income Fund
	Inc Ttee	Class B	19,775	15.82%
U/A dtd 04-15-1997
FBO Joseph M Sterner
200 W Cummings Park
Woburn MA 01801-6504
Steven G Dangberg &		Municipal Bond Fund
Sharon M Dangberg Jtn Ros		Class B	1,959	5.30%
835 Daniel Drive
Reno NV 89509-2314
Pauline W Dickson (TOD)		Limited-Term Bond Fund
5600 Pioneers Blvd Apt 216		Class B	14,881	6.07%
Lincoln NE 68506-5175
Fiduciary Trust Co		Asset Strategy Fund
	NH Cust	Class B	17,436	7.04%
IRA
FBO Dolores W Dillon
4 Highfield Ln
Wayne PA 19087-2760
Donaldson Lufkin		Limited-Term Bond Fund
	Jenrette	Class A	103,294	8.33%
Securities Corp Inc
P. O. Box 2052		International Growth Fund
Jersey City NJ		Class A	87,799	11.50%
	07303-2052
Robert Egbert &		Municipal Bond Fund
Joan Egbert &		Class A	73,696	33.68%
Co-Ttees U/A Dtd August 21 1991

2902 Sailor Ave
Ventura CA 93001-4156
Fiduciary Trust Co		High Income Fund
	NH Cust	Class B	6,948	5.56%
IRA Rollover
FBO Paul S Fantaski
585 Route 366
Apollo PA 15613-9234
Vincent A Feraudo &		Municipal Bond Fund
Cynthia L Savage Jtn Ros		Class B	544	1.47%
4515 Woodlawn Ave N
Seattle WA 98103-6742		Tax-Managed Equity Fund
		Class B	3,111	5.87%
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
Joan G Ford Tr		High Income Fund
U/A Dtd 08-29-1990		Class A	30,755	9.28%
Joan G Ford 1990 Revocable Trust
40 Sunrise Ave
Mill Valley CA 94941-3339
Ronald A & Thomas A		Asset Strategy Fund
	Hawthorne Tr	Class A	49,885	12.31%
Central City Scale Inc
Qualified 401(k) Plan
FBO Ronald A Hawthorne
P O Box 197
Central City NE 68826-0197
Richard L Henderson &		Tax-Managed Equity Fund
Bess A Henderson		Class B	2,753	5.20%
	Jtn Ros (TOD)
721 Bristol Ct
Liberty MO 64068-2900

Joseph D Horvath		Asset Strategy Fund
310 Prince St		Class B	13,022	5.26%
Bordentown NJ 08505-1717
Fiduciary Trust Co		Money Market Fund
	NH Cust	Class B	51,975	9.20%
IRA
FBO Jerome A Infantino Sr
321 Wood Rd
Rochester NY 14626-3238
David Johnson Tr		Core Equity Fund
Church TSA Archdiocese		Class Y	209,817	57.66%
	of OK
FBO Unallocated Assets		Small Cap Growth Fund
Church Sponsored		Class Y	168,825	5.10%
	403(B) Plan
P O Box 32180		Limited-Term Bond Fund
Oklahoma City OK		Class Y	44,064	47.68%
	73123-0380
		International Growth Fund
		Class Y	82,710	7.93%
		Asset Strategy Fund
		Class Y	52,689	91.51%
Dennis Kidwell &		Tax-Managed Equity Fund
	Bennie Kidwell Jtn Ros	Class C	10,226	7.68%
401 S Fann St
Anaheim CA 92804-2619
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
Fiduciary Trust Co		Limited-Term Bond Fund
	NH Cust	Class B	13,207	5.38%

IRA Rollover
FBO Judy Knudsen
2260 Cherry St
Lunden WA 98264-9031
Fiduciary Trust Co		Money Market Fund
	NH Cust	Class B	221,086	39.14%
IRA Rollover
FBO Allan T Lane
P O Box 265
Ennis MT 59729-0265
Lyle N Larkin &		Municipal Bond Fund
	Maryann Larkin	Class A	16,084	7.35%
Co-Ttees UA Dtd 09-02-1998
Larkin Family Trust
261 N Thora St
Orange CA 92869-3140
Carol N Lemieux &		Tax-Managed Equity Fund
Gerard R Lemieux Ten Com		Class A	45,872	6.59%
4845 Spurgin Rd
Missoula MT 59804-4552
Fiduciary Trust Co		High Income Fund
	NH Cust	Class B	6,640	5.31%
IRA Rollover
FBO Paula V Martin
3440 SW Macvicar Ave
Topeka KS 66611-1840
Millennium Trust		Small Cap Growth Fund
	Company, LLC	Class Y	301,937	9.13%
Cust Funds 975C
15255 S 94th Ave Ste 300
Orland Park IL 60462-3897
Richard V Morgera MD Tr		Money Market Fund
Family Medicenter Inc		Class B	28,653	5.07%
Profit Sharing Plan
FBO Unallocated Assets
203 Prospect Ave

Middletown RI 02842-5605
Otha B Nance &		Municipal Bond Fund
V Zoann Nance Jtn Ros		Class B	17,145	46.38%
1529 South Kemensky Ave
Chicago IL 60623-1949
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
National Financial		Core Equity Fund
	Services Corp	Class Y	1,956	0.54%
FBO Various Customers
ATTN: Mutual Funds Dept		Small Cap Growth Fund
	5th Floor	Class Y	1,338,993	40.49%
200 Liberty St
One World Financial		International Growth Fund
	Center	Class Y	122,195	11.71%
New York NY 10281-1003
		Science and Technology Fund
		Class Y	59,328	34.70%
National Investor		High Income Fund
	Services Corp	Class Y	244	6.35%
for the Exclusive Benefit
of our Customers
55 Water St Fl 32
New York NY 10041-0028
Nationwide Trust		Core Equity Fund
	Company FSB	Class A	83,566	8.06%
C/O IPO Portfolio Accounting
P O Box 182029		Small Cap Growth Fund
Columbus OH 43218-2029		Class A	197,679	11.53%
		Limited-Term Bond Fund
		Class A	50,713	4.09%

		International Growth Fund
		Class A	26,529	3.48%
		Asset Strategy Fund
		Class A	73,449	18.14%
		Science and Technology Fund
		Class A	94,058	14.03%
		High Income Fund
		Class A	18,159	5.48%
Northern Trust Company		International Growth Fund
FBO Schwartz		Class Y	294,618	28.24%
	Charitable Remainder
Unit Trust
P O Box 92956
Chicago IL 60675-2956
Luverne J Olson &		Tax-Managed Equity Fund
Nancy G Olson Jtn Ros		Class B	2,833	5.35%
4024 Third Street NW
Rochester MN 55901-7564
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
Lee Dester Pool (TOD)		Municipal Bond Fund
Thomas Pool		Class B	6,571	17.78%
3344 205th St
Olympia Flds IL 60461-1407
Lloyd E Potter &		Tax-Managed Equity Fund
	Nellie M Potter	Class B	4,759	8.98%
Co-Ttees U/A dtd 02-02-2001
Lloyd & Nellie M Potter Trust
1280 Happy Hollow Rd
Napoleon MO 64074-9114

Prudential Securities		International Growth Fund
	Inc	Class Y	278,185	26.66%
Special Custody for the
	Benefit of the Client
ATTN: Mutual Funds
1 New York Plz
New York NY 10292-0001
Quad City Bank &		International Growth Fund
	Trust Co Cust	Class Y	56,766	5.44%
For St Ambrose University
3551 7th St Suite 100
Moline IL 61265-6156
Rosemary Riley (TOD)		Tax-Managed Equity Fund
326 S Davis St		Class B	3,743	7.06%
Ottumwa IA 52501-5007
Fiduciary Trust Co		High Income Fund
	NH Cust	Class B	11,287	9.03%
IRA
FBO Donald P Sanford
P O Box 1570
La Conner WA 98257-1570
Marilyn L Shoemaker		Money Market Fund
5248 Cobblecreek Rd		Class B	84,958	15.04%
Salt Lake City UT 84117-6787
Trust Company of America		Money Market Fund
FBO 65		Class A	6,724,057	50.86%
PO Box 6503
Englewood CO 80155-6503

			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
UMBSC & Co		Small Cap Growth Fund
FBO Pittsburg State		Class Y	239,742	7.25%
	University
C/O Trust Dept - George Root
P O Box 419692
Kansas City MO 64141-6692
UMBSC & Co		Limited-Term Bond Fund
FBO VFW Veterans		Class Y	45,377	49.10%
	Service Fund
P O Box 419260
Kansas City MO 64141-6260
Fiduciary Trust Co		Money Market Fund
	NH Cust	Class C	526,124	6.75%
IRA Rollover
FBO C A Vallombroso
30 Dorchester Ln
Branford CT 06405-2819
Verb & Co		International Growth Fund
4380 SW Macadam Ave		Class Y	94,310	9.04%
	Ste 450
Portland OR 97201-6407
Waddell & Reed Inc		Large Cap Growth Fund
ATTN: Waddell & Reed		Class A	302,959	14.77%
	Controller
P O Box 29217		Mid Cap Growth Fund
Shawnee Mission KS		Class A	311,637	18.94%
	66201-9217
		Tax-Managed Equity Fund
		Class A	300,000	43.07%
		Money Market Fund
		Class A	3,217,691	24.34%
		Municipal Bond Fund

		Class Y	207	100.00%
		High Income Fund
		Class Y	271	7.04%
			Shares owned
Name and Address			Beneficially
of Beneficial Owner		Class	or of Record	Percent
-------------------		-----	------------	-------
Waddell & Reed		International Growth Fund
	Financial, Inc.	Class Y	62,170	5.96%
401(k) and Thrift Plan
6300 Lamar Avenue		Asset Strategy Fund
Overland Park KS 66201		Class Y	3,878	6.74%
		Science and Technology Fund
		Class Y	76,543	44.77%
		High Income Fund
		Class Y	3,270	85.14%
Woman's Club of Oakmont		Tax-Managed Equity Fund
P O Box 165		Class B	4,167	7.86%
Oakmont PA 15139-0165

           As of May 31, 2003, all of the Directors and officers of the Funds, as a group, owned less than 1% of the outstanding shares of the Funds.

INVESTMENT ADVISORY AND OTHER SERVICES

The Management Agreement

           On August 31, 1992, Ivy Funds, Inc. (formerly, W&R Funds, Inc.) entered into an Investment Management Agreement (Management Agreement) with Waddell & Reed Investment Management Company (WRIMCO). On June 30, 2003, the Management Agreement was assigned to WRIICO, an affiliate of WRIMCO and a subsidiary of Waddell & Reed Financial, Inc. Such assignment was approved by the Funds' Board of Directors, including a majority of the Disinterested Directors, at a

meeting held on May 21, 2003. Under the Management Agreement, WRIICO is employed to supervise the investments of the Funds and provide investment advice to the Funds. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. WRIICO also serves as investment manager to each of the funds in Ivy Fund, a Massachusetts Business Trust.

           The Management Agreement permits WRIICO, or an affiliate of WRIICO, to enter into a separate agreement for transfer agency services (the Shareholder Servicing Agreement) and a separate agreement for accounting services (the Accounting Services Agreement) with the Funds. The Management Agreement contains detailed provisions as to the matters to be considered by the Board of Directors prior to approving any Shareholder Servicing Agreement or Accounting Services Agreement.

           WRIMCO and/or its predecessors have served as investment manager to each of the registered investment companies in the Waddell & Reed Advisors Funds, Ivy Funds, Inc. (until June 30, 2003), W&R Target Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. since each company's inception. Waddell & Reed, Inc. serves as principal underwriter for Ivy Funds, Inc. (prior to June 16, 2003), Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc., and acts as principal underwriter and distributor for variable life insurance and variable annuity policies for which W&R Target Funds, Inc. is the underlying investment vehicle. As of June 16, 2003, the Underwriting Agreement between Waddell & Reed, Inc. and Ivy Funds, Inc. (formerly W&R Funds, Inc.) was assigned to IFDI, as a meeting of the Board of Directors held on May 21, 2003. IFDI also serves as the distributor of the Ivy Fund.

           The Management Agreement was renewed by the Board of Directors at the meeting held August 21, 2002, and will continue in effect for the period from October 1, 2002, through September 30, 2003, unless sooner terminated. The Management Agreement was assigned to WRIICO by the Board of Directors at a meeting held on May 21, 2003. The Management Agreement provides that it may be renewed year to year, provided that any such renewal has been specifically approved, at least annually, by (i) the Board of Directors, or by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Funds, and (ii) the vote of a majority of the Directors who are not deemed to be "interested persons" (as defined in the 1940 Act) of the Funds or WRIICO (the Disinterested Directors). The Management Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party, and that the Management Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act).

           In connection with their consideration of the Management Agreement as to the Funds, the Disinterested Directors met separately with independent legal counsel. In determining whether to renew the Management Agreement as to the Funds, the Disinterested Directors, as well as the Board of Directors, considered a number of factors, including: the nature and quality of investment management services to be provided to the Funds by WRIMCO, including WRIMCO's investment management expertise and the personnel, resources and experience of WRIMCO; the cost to WRIMCO in providing its services under the Management Agreement and WRIMCO's profitability; whether the Funds and their shareholders will benefit from economies of scale; whether WRIMCO or any of its affiliates will receive ancillary benefits that should be taken into consideration in evaluating the investment management fee payable by the Funds; and the investment management fees paid by comparable investment companies.

Shareholder Services

           Under the Shareholder Servicing Agreement entered into between the Funds and Waddell & Reed Services Company (WRSCO), a subsidiary of Waddell & Reed, WRSCO performs shareholder servicing functions, including the maintenance of shareholder accounts, the issuance, transfer and redemption of shares, distribution of dividends and payment of redemptions, the furnishing of related information to the Funds and handling of shareholder inquiries. A new Shareholder Servicing Agreement, or amendments to the existing one, may be approved by the Board of Directors without shareholder approval.

Accounting Services

           Under the Accounting Services Agreement entered into between the Funds and WRSCO, WRSCO provides the Funds with bookkeeping and accounting services and assistance, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. A new Accounting Services Agreement, or amendments to an existing one, may be approved by the Board of Directors without shareholder approval.

Payments for Management, Accounting and Shareholder Services

           Under the Management Agreement, for WRIICO's management services, the Funds pay WRIICO a fee as described in the Prospectuses. The management fees paid to WRIMCO during the fiscal years ended March 31, 2003, 2002 and 2001 for each of the Funds then in existence were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$ 415,430	$ 399,103	$ 401,818
Ivy Core Equity Fund	1,916,603	2,893,713	3,869,543
Ivy High Income Fund	19,492 including the voluntary waiver, 138,958 excluding the voluntary waiver	0 including the voluntary waiver, 123,648 excluding the voluntary waiver	0
Ivy International Growth Fund	646,928	950,632	1,544,356
Ivy Large Cap Growth Fund	79,402 including the voluntary waiver, 172,560 excluding the voluntary waiver	154,239 including the voluntary waiver, 190,189 excluding the voluntary waiver	69,709 including the voluntary waiver, 182,888 excluding the voluntary waiver1

	2003	2002	2001
Ivy Limited-Term Bond Fund	266,026	57,632 including the voluntary waiver, 117,992 excluding the voluntary waiver	0 including the voluntary waiver, 95,901 excluding the voluntary waiver
Ivy Mid Cap Growth Fund	0 including the voluntary waiver, 152,532 excluding the voluntary waiver	0 including the voluntary waiver, 165,431 excluding the voluntary waiver	0 including the voluntary waiver, 78,270 excluding the voluntary waiver1
Ivy Money Market Fund	0 including the voluntary waiver, 76,352 excluding the voluntary waiver	0 including the voluntary waiver, 56,110 excluding the voluntary waiver	0 including the voluntary waiver, 20,736 excluding the voluntary waiver1
Ivy Municipal Bond Fund	145,332	141,690	138,980
Ivy Science and Technology Fund	856,293	1,208,793	1,723,401
Ivy Small Cap Growth Fund	3,163,275	4,399,320	5,539,787
Ivy Tax-Managed Equity Fund	0 including the voluntary waiver, 31,791 excluding the voluntary waiver	0 including the voluntary waiver, 36,744 excluding the voluntary waiver	0 including the voluntary waiver, 25,656 excluding the voluntary waiver1

¹For the period from 6/30/00, the date of the initial public offering, to 3/31/01.

           For purposes of calculating the daily fee, the Funds do not include money owed to them by IFDI for shares which it has sold but not yet paid to the Funds. The Funds accrue and pay this fee daily.

           Under the Shareholder Servicing Agreement, effective December 1, 2001, with respect to Class A, Class B and Class C shares, each Fund paid WRSCO a monthly fee, payable on the first day of each month, for each account of the Fund which was in existence during any portion of the immediately preceding month, as follows:

Ivy Asset Strategy Fund	$1.5792
Ivy High Income Fund	$1.6958
Ivy Limited-Term Bond Fund	$1.6958
Ivy Municipal Bond Fund	$1.6958
Ivy International Growth Fund	$1.5042

Ivy Large Cap Growth Fund	$1.5042
Ivy Mid Cap Growth Fund	$1.5042
Ivy Science and Technology Fund	$1.5042
Ivy Small Cap Growth Fund	$1.5042
Ivy Tax-Managed Equity Fund	$1.5042
Ivy Core Equity Fund	$1.5042

           For Ivy Money Market Fund, an amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month and, in addition, for Class A shares, the Fund also pays WRSCO a monthly fee of $0.75 for each shareholder check it processes.

           With respect to Class Y shares, each Fund pays WRSCO an amount payable on the first day of each month equal to 1/12 of .15 of 1% of the average daily net assets of the Class for the preceding month.

           Prior to December 1, 2001, with respect to Class A, Class B and Class C shares, each Fund paid WRSCO a monthly fee, payable on the first day of each month, for each account of the Fund which was in existence during any portion of the immediately preceding month, as follows:

Ivy Asset Strategy Fund	$1.4125
Ivy High Income Fund	$1.6125
Ivy Limited-Term Bond Fund	$1.6125
Ivy Municipal Bond Fund	$1.6125
Ivy International Growth Fund	$1.3375
Ivy Large Cap Growth Fund	$1.3375
Ivy Mid Cap Growth Fund	$1.3375
Ivy Science and Technology Fund	$1.3375
Ivy Small Cap Growth Fund	$1.3375
Ivy Tax-Managed Equity Fund	$1.3375
Ivy Core Equity Fund	$1.3375

           For Ivy Money Market Fund, an amount payable on the first day of each month of $1.75 for each account of the Fund which was in existence during any portion of the immediately preceding month and, in addition, for Class A shares, the Fund also paid WRSCO a monthly fee of $0.75 for each shareholder check it processed.

           Each Fund also pays certain out-of-pocket expenses of WRSCO, including: long distance telephone communications costs; microfilm and storage costs for certain documents; forms, printing and mailing costs; charges of any sub-agent used by Agent in performing services under the Shareholder Servicing Agreement; and costs of legal and special services not provided by WRIICO or WRSCO.

           Under the Accounting Services Agreement, each Fund pays WRSCO a monthly fee of one-

twelfth of the annual fee shown in the following table.

Accounting Services Fee

Average Net Asset Level	Annual Fee
(all dollars in millions)	Rate for Each Fund
-----------------------------	-----------------------
From $ 0 to $ 10	$ 0
From $ 10 to $ 25	$ 11,000
From $ 25 to $ 50	$ 22,000
From $ 50 to $ 100	$ 33,000
From $ 100 to $ 200	$ 44,000
From $ 200 to $ 350	$ 55,000
From $ 350 to $ 550	$ 66,000
From $ 550 to $ 750	$ 77,000
From $ 750 to $1,000	$ 93,500
$1,000 and Over	$110,000

           Plus, for each class of shares in excess of one, each Fund pays WRSCO a monthly per-class fee equal to 2.5% of the monthly base fee.

           Fees paid to WRSCO during the fiscal years ended March 31, 2003, 2002 and 2001 for each of the Funds then in existence were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$35,475	$35,475	$33,194
Ivy Core Equity Fund	60,110	70,950	73,510
Ivy High Income Fund	13,796	11,825	11,065
Ivy International Growth Fund	35,475	44,344	47,592
Ivy Large Cap Growth Fund	17,738	20,694	10,8401
Ivy Limited-Term Bond Fund	31,533	16,752	11,065
Ivy Mid Cap Growth Fund	11,825	11,825	5,9131
Ivy Money Market Fund	11,550	11,550	1,9251
Ivy Municipal Bond Fund	23,650	23,650	22,129
Ivy Science and Technology Fund	39,417	47,300	50,548
Ivy Small Cap Growth Fund	64,052	74,892	76,467
Ivy Tax-Managed Equity Fund	0	0	01

¹For the period from 6/30/00, the date of the initial public offering, to 3/31/01.

           Since each Fund pays a management fee for investment supervision and an accounting services fee for accounting services as discussed above, WRIICO and WRSCO, respectively, pay all of their own expenses, except as otherwise noted in the respective agreements, in providing these services, unless otherwise referenced in the applicable agreement. Amounts paid by a Fund under the Shareholder Servicing Agreement are described above. WRIICO and its affiliates pay the Directors and officers of Ivy Funds who are affiliated with WRIICO and its affiliates. The Funds pay the fees and expenses of the other Directors.

           Each Fund pays all of its other expenses. These include, for each Fund, the costs of materials sent to shareholders, audit and outside legal fees, taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees payable by the Funds under Federal or other securities laws and to the Investment Company Institute and nonrecurring and extraordinary expenses, including litigation and indemnification relating to litigation.

Distribution Services

           IFDI has served as principal underwriter and distributor to the Funds since June 16, 2003. Prior to June 16, 2003, Waddell & Reed, Inc. served as principal underwriter and distributor to the Funds. On June 16, 2003, Waddell & Reed, Inc. assigned the Principal Underwriting Agreement with Ivy Funds, Inc. (formerly W&R Funds, Inc.) to IFDI; such assignment was approved by the Funds' Board of Directors, including a majority of the Disinterested Directors, at a meeting held on May 21, 2003. Pursuant to the Principal Underwriting Agreement, IFDI offers the Fund's shares through financial advisors of Waddell & Reed, Inc. and Legend Equities Corporation (Legend) and sales managers and through other broker-dealers, banks and other appropriate intermediaries (the sales force). In distributing shares through its sales force, IFDI will pay commissions and incentives to the sales force at or about the time of sale and will incur other expenses including costs for prospectuses, sales literature, advertisements, sales office maintenance, processing of orders and general overhead with respect to its efforts to distribute the Fund's shares.

           Under the Distribution and Service Plan (the Plan) for Class A shares adopted by the Funds pursuant to Rule 12b-1 under the 1940 Act, (Rule 12b-1) each Fund (other than Ivy Money Market Fund) may pay IFDI a fee not to exceed 0.25% of the Fund's average annual net assets attributable to Class A shares, paid daily, to compensate IFDI for its costs and expenses in connection with, either directly or through others, the distribution of the Class A shares and/or the provision of personal services to Class A shareholders and/or maintenance of Class A shareholder accounts.

           Under the Plans adopted for Class B shares and Class C shares respectively, each Fund may pay IFDI a service fee not to exceed 0.25% of the Fund's average annual net assets attributable to that class, paid daily, to compensate IFDI for its services, either directly or through others, in connection with the provision of personal services to shareholders of that class and/or the maintenance of shareholder accounts of that class and a distribution fee not to exceed 0.75% of the Fund's average annual net assets attributable to that class, paid daily, to compensate IFDI for its services, either directly or through others, in connection with the distribution of shares of that class. Under the Plan adopted for Class Y shares, each Fund pays IFDI daily a distribution and/or service fee not to exceed, on an annual basis, 0.25% of the Fund's average annual net assets attributable to that class, paid daily,

to compensate IFDI for its services, either directly or through others, in connection with the distribution of shares of that class.

           IFDI offers the Funds' shares through its financial advisors, registered representatives and sales managers and through other broker-dealers, banks and other appropriate intermediaries (the sales force). In distributing shares through its sales force, IFDI will pay commissions and incentives to the sales force at or about the time of sale and will incur other expenses including costs for prospectuses, sales literature, advertisements, sales office maintenance, processing of orders and general overhead with respect to its efforts to distribute the Funds' shares, as applicable. The Plans permit IFDI to receive compensation for the class-related distribution activities through the distribution fee, subject to the limit contained in the Plan. The Plans also contemplate that IFDI may be compensated for its activities in connection with: compensating, training and supporting registered financial advisors, sales managers and/or other appropriate personnel in providing personal services to shareholders of each Fund and/or maintaining shareholder accounts; increasing services provided to shareholders of each Fund by office personnel located at field sales offices; engaging in other activities useful in providing personal service to shareholders of each Fund and/or maintenance of shareholder accounts; and its arrangements with broker-dealers who may regularly sell shares of the Funds, and other third parties, for providing shareholder services and/or maintaining shareholder accounts with respect to Fund shares. Each Plan and the Underwriting Agreement contemplate that IFDI may be compensated for these class-related distribution efforts through the distribution fee.

           The sales force and other parties may be paid continuing compensation based on the value of the shares held by shareholders to whom the member of the sales force is assigned to provide personal services, and IFDI or WRSCO, as well as other parties may also provide services to shareholders through telephonic means and written communications. IFDI may pay other broker-dealers a portion of the fees it receives under the respective Plans as well as other compensation in connection with the distribution of Fund shares.

           For the fiscal period ended March 31, 2003, the Funds paid (or accrued) the following amounts to Waddell & Reed, Inc. as distribution fees and service fees under the Class A Plan for each of the Funds:

Fund	Distribution Fees	Service Fees
Ivy Asset Strategy Fund	$900	$15,222
Ivy Core Equity Fund	1,400	22,684
Ivy High Income Fund	500	8,707
Ivy International Growth Fund	1,500	14,542
Ivy Large Cap Growth Fund	3,000	39,758
Ivy Limited-Term Bond Fund	2,500	54,332
Ivy Mid Cap Growth Fund	2,600	29,035
Ivy Municipal Bond Fund	400	6,135
Ivy Science and Technology Fund	2,500	26,863
Ivy Small Cap Growth Fund	2,900	38,668
Ivy Tax-Managed Equity Fund	500	9,166

           For the fiscal period ended March 31, 2003, the Funds paid (or accrued) the following amounts

to Waddell & Reed, Inc. as distribution fees and service fees under the Class B Plan for each of the Funds:

Fund	Distribution Fees	Service Fees
Ivy Asset Strategy Fund	$21,921	$7,307
Ivy Core Equity Fund	37,922	12,641
Ivy High Income Fund	8,829	2,943
Ivy International Growth Fund	14,580	4,860
Ivy Large Cap Growth Fund	14,947	4,982
Ivy Limited-Term Bond Fund	25,493	8,498
Ivy Mid Cap Growth Fund	11,934	3,978
Ivy Money Market Fund	5,048 including the voluntary waiver, 5,593 excluding the voluntary waiver	1,864
Ivy Municipal Bond Fund	3,278	1,093
Ivy Science and Technology Fund	29,214	9,738
Ivy Small Cap Growth Fund	52,759	17,586
Ivy Tax-Managed Equity Fund	2,155	718

           For the fiscal year ended March 31, 2003, the Funds paid (or accrued) the following amounts to Waddell & Reed, Inc. as distribution fees and service fees under the Class C Plan for each of the Funds:

Fund	Distribution Fees	Service Fees
Ivy Asset Strategy Fund	$369,488	$123,163
Ivy Core Equity Fund	1,923,701	641,234
Ivy High Income Fund	130,183	43,394
Ivy International Growth Fund	440,418	146,806
Ivy Large Cap Growth Fund	36,514	12,171
Ivy Limited-Term Bond Fund	194,224	64,741
Ivy Mid Cap Growth Fund	25,241	8,414
Ivy Money Market Fund	61,961 including the voluntary waiver, 64,907 excluding the voluntary waiver	21,636
Ivy Municipal Bond Fund	184,949	61,650

Ivy Science and Technology Fund	617,990	205,997
Ivy Small Cap Growth Fund	2,367,681	789,227
Ivy Tax-Managed Equity Fund	5,534	1,845

           For the fiscal year ended March 31, 2003, the Funds paid (or accrued) the following amounts to Waddell & Reed, Inc. as distribution fees and service fees under the Class Y Plan for each of the Funds:

Fund	Distribution and Service Fees
Ivy Asset Strategy Fund	$1,872
Ivy Core Equity Fund	6,779
Ivy High Income Fund	957
Ivy International Growth Fund	24,253
Ivy Large Cap Growth Fund	1,745
Ivy Limited-Term Bond Fund	3,295
Ivy Mid Cap Growth Fund	847
Ivy Municipal Bond Fund	8
Ivy Science and Technology Fund	6,912
Ivy Small Cap Growth Fund	82,672
Ivy Tax-Managed Equity Fund	NA

           In the current environment of low interest rates, IFDI has voluntarily agreed to reimburse sufficient distribution and service fees to any class of Ivy Money Market Fund in order to insure the yield of that class remains at or above 0.05%.

The only Directors or interested persons, as defined in the 1940 Act, of the Funds who have a direct or indirect financial interest in the operation of a Plan are the officers and Directors who are also officers of either IFDI or its affiliate(s) or who are shareholders of Waddell & Reed Financial, Inc., the indirect parent company of IFDI. Each Plan is anticipated to benefit the applicable Fund and its shareholders affected by the particular Plan through IFDI's activities not only to distribute the affected shares of the Funds but also to provide personal services to shareholders of the affected class and thereby promote the maintenance of their accounts with the Funds. Each Fund anticipates that shareholders of a particular class may benefit to the extent that IFDI's activities are successful in increasing the assets of that Fund class, through increased sales or reduced redemptions, or a combination of these, and reducing a shareholder's share of Fund and class expenses. Increased Fund assets may also provide greater resources with which to pursue the goal(s) of a Fund. Further, continuing sales of shares may also reduce the likelihood that it will be necessary to liquidate portfolio securities, in amounts or at times that may be disadvantageous to a Fund, to meet redemption demands. In addition, each Fund anticipates that the revenues from the Plans will provide IFDI with greater resources to make the financial commitments necessary to continue to improve the quality and level of services to each Fund and its affected shareholders.

           To the extent that IFDI incurs expenses for which compensation may be made under the Plans that relate to distribution and service activities also involving another fund in the Ivy Family of Funds, IFDI typically determines the amount attributable to the Fund's expenses under the Plans on the basis of a combination of the respective classes' relative net assets and number of shareholder accounts.

           All classes of the Funds are offered through IFDI, Waddell & Reed, Inc., Legend and third-party broker-dealers. IFDI may pay other broker-dealers a portion of the fees it receives under the respective Plans as well as other compensation in connection with the distribution of Fund shares, including the following: 1) for Class A shares purchased at NAV by clients of Legend Equities Corporation (Legend), IFDI (or its affiliate) may pay Waddell & Reed, Inc. and Legend 1.00% of net assets invested; 2) for the purchase of Class B shares, IFDI (or its affiliate) may pay Waddell & Reed, Inc. and Legend 4.00% of net assets invested; 3) for the purchase of Class C shares, IFDI (or its affiliate) may pay Waddell & Reed, Inc. and Legend 1.00% of net assets invested.

           Each Plan and the Underwriting Agreement and its assignment to IFDI were approved by the Board of Directors, including the Directors who are not interested persons of the Funds or of IFDI and who have no direct or indirect financial interest in the operations of the Plans or any agreement referred to in the Plans (hereafter the Plan Directors).

           Among other things, the Plan for each class provides that (1) IFDI will submit to the Directors at least quarterly, and the Directors will review, reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made, (2) the Plan will continue in effect only so long as it is approved at least annually, and any material amendments thereto are approved by the Directors including the Plan Directors acting in person at a meeting called for that purpose, (3) payments under the Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of that class of each affected Fund, and (4) while the Plan remains in effect, the selection and nomination of the Directors who are Plan Directors shall be committed to the discretion of the Plan Directors.

Custodial and Auditing Services

           The custodian for each Fund is UMB Bank, n.a., 928 Grand Boulevard, Kansas City, Missouri. In general, the custodian is responsible for holding each Fund's cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard, Kansas City, Missouri, the Funds' independent auditors, audits the Funds' financial statements and prepares the Funds' tax returns.

BROKERAGE ALLOCATION AND OTHER PRACTICES

           One of the duties undertaken by WRIICO pursuant to the Management Agreement is to arrange for the purchase and sale of securities for the portfolio of each Fund. With respect to Ivy Limited-Term Bond Fund, Ivy Money Market Fund, Ivy Municipal Bond Fund and Ivy High Income Fund, many purchases are made directly from issuers or from underwriters, dealers or banks. Purchases from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers will include the spread between the bid and the asked prices. Otherwise, transactions in securities other than those for which an exchange is the primary market are generally effected with dealers acting as principals or market makers. Brokerage commissions are paid primarily for effecting transactions in securities traded on an exchange and otherwise only if it appears likely that a better price or execution can be obtained. The individuals who manage the Funds may manage other advisory accounts with similar investment objectives. It can be anticipated that the manager will frequently, yet not always, place concurrent orders for all or most accounts for which the manager has responsibility or WRIICO may otherwise combine orders for a Fund with those of other funds in the

Ivy Family of Funds, or other accounts for which it has investment discretion, including accounts affiliated with WRIICO. WRIICO, at its discretion, may aggregate such orders. Under current written procedures, transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each fund or advisory account, except where the combined order is not filled completely. In this case, for a transaction not involving an initial public offering (IPO), WRIICO will ordinarily allocate the transaction pro rata based on the orders placed, subject to certain variances provided for in the written procedures. For a partially filled IPO order, subject to certain variances specified in the written procedures, WRIICO generally allocates the shares as follows: the IPO shares are initially allocated pro rata among the included funds and/or advisory accounts grouped according to investment objective, based on relative total assets of each group; and the shares are then allocated within each group pro rata based on relative total assets of the included funds and/or advisory accounts, except that (a) within a group having a small cap-related investment objective, shares are allocated on a rotational basis after taking into account the impact of the anticipated initial gain on the value of the included fund or advisory account and (b) within a group having a mid-cap-related investment objective, shares are allocated based on the portfolio manager's judgment, including but not limited to such factors as the fund's or advisory account's investments strategies and policies, cash availability, any minimum investment policy, liquidity, anticipated term of the investment and current securities positions.

           In all cases, WRIICO seeks to implement its allocation procedures to achieve a fair and equitable allocation of securities among its funds and other advisory accounts. Sharing in large transactions could affect the price a Fund pays or receives or the amount it buys or sells. As well, a better negotiated commission may be available through combined orders.

           To effect the portfolio transactions of a Fund, WRIICO is authorized to engage broker-dealers (brokers) which, in its best judgment based on relevant factors, will implement the policy of the Fund to seek best execution (prompt and reliable execution at the best price obtainable) for reasonable and competitive commissions. WRIICO need not seek competitive commission bidding but is expected to minimize the commissions paid to the extent consistent with the interests and policies of the Funds. Subject to review by the Board of Directors, such policies include the selection of brokers which provide execution and/or research services and or other services, including pricing or quotation services, directly or through others (research and brokerage services) considered by WRIICO to be useful or desirable for its investment management of the Fund and/or the other funds and accounts for which WRIICO has investment discretion.

           Such research and brokerage services are, in general, defined by reference to Section 28(e) of the Securities Exchange Act of 1934 as including (1) advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities and purchasers or sellers; (2) furnishing analyses and reports; or (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement and custody). Investment discretion is, in general, defined as having authorization to determine what securities shall be purchased or sold for an account or making those decisions even though someone else has responsibility.

           The commissions paid to brokers that provide such research and/or brokerage services may be higher than the commission another qualified broker would charge for effecting comparable transactions if a good faith determination is made by WRIICO that the commission is reasonable in relation to the research or brokerage services provided. Subject to the foregoing considerations, WRIICO may also consider sales of Fund shares as a factor in the selection of broker-dealers to execute portfolio transactions. No allocation of brokerage or principal business is made to provide any other benefits to WRIICO.

           The investment research provided by a particular broker may be useful only to one or more of the other advisory accounts of WRIICO, and investment research received for the commissions of those other accounts may be useful both to the Funds and one or more of such other accounts. To the extent that electronic or other products provided by such brokers to assist WRIICO in making investment management decisions are used for administration or other non-research purposes, a reasonable allocation of the cost of the product attributable to its non-research use is made by WRIICO.

           Such investment research (which may be supplied by a third party at the request of a broker) includes information on particular companies and industries as well as market, economic or institutional activity areas. It serves to broaden the scope and supplement the research activities of WRIICO; serves to make available additional views for consideration and comparisons; and enables WRIICO to obtain market information on the price of securities held in a Fund's portfolio or being considered for purchase.

           The Funds may also use brokerage to pay for pricing or quotation services to value securities.

           The table below sets forth the brokerage commissions paid by each of the Funds then in existence during the fiscal years ended March 31, 2003, 2002 and 2001. These figures do not include principal transactions or spreads or concessions on principal transactions, i.e., those in which a Fund sells securities to a broker-dealer firm or buys from a broker-dealer firm securities owned by it.

	2003	2002	2001
Ivy Asset Strategy Fund	$124,840	$227,635	$203,332
Ivy Core Equity Fund	422,434	349,642	442,608
Ivy High Income Fund	1,262	743	2,275
Ivy International Growth Fund	397,694	636,691	835,016
Ivy Large Cap Growth Fund	50,870	59,331	31,789
Ivy Limited-Term Bond Fund	---	---	---
Ivy Mid Cap Growth Fund	26,742	24,477	15,528
Ivy Municipal Bond Fund	---	1,277	7,529
Ivy Science and Technology Fund	279,087	279,635	162,423
Ivy Small Cap Growth Fund	386,831	238,679	211,750
Ivy Tax-Managed Equity Fund	13,963	12,989	8,911
	------------	-----------	-----------
Total	$1,703,723	$1,831,099	$1,921,161

           The next table shows for each of the Funds the transactions, other than principal transactions, which were directed to broker-dealers who provided research services as well as execution and the brokerage commissions paid during the fiscal year ended March 31, 2003 for each of the Funds. These transactions were allocated to these broker-dealers by the internal allocation procedures described above.

Fund	Amount of Transactions	Brokerage Commissions
Ivy Asset Strategy Fund	$27,210,955	$ 60,427
Ivy Core Equity Fund	211,951,309	343,065
Ivy High Income Fund	267,241	762
Ivy International Growth Fund	6,005,367	11,150
Ivy Large Cap Growth Fund	26,304,292	41,372
Ivy Limited-Term Bond Fund	---	---
Ivy Mid Cap Growth Fund	7,206,935	14,108
Ivy Municipal Bond Fund	---	---
Ivy Science and Technology Fund	76,462,232	166,204
Ivy Small Cap Growth Fund	72,180,432	163,073
Ivy Tax-Managed Equity Fund	3,654,253	5,445
	----------------	---------------
Total	$431,243,016	$805,606

           As of March 31, 2003, each of the following Funds held securities issued by their respective regular broker-dealers, as follows: International Growth Fund owned Credit Suisse Group and UBS AG securities in the aggregate amounts of $678,769 and $352,552, respectively. Credit Suisse Group is the parent of Credit Suisse First Boston Corporation (The), a regular broker of the Fund. UBS AG is the parent of UBS Warburg LLC, a regular broker of the Fund. Large Cap Growth Fund owned Bank of America Corporation and Goldman Sachs Group, Inc. securities in the aggregate amounts of $634,980 and $619,528, respectively. Bank of America Corporation is the parent of Banc of America Securities LLC, a regular broker of the Fund. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Fund. Tax-Managed Equity Fund owned Goldman Sachs Group, Inc., Merrill Lynch & Co., Inc. and Morgan Stanley securities in the aggregate amounts of $34,040, $24,780 and $23,010, respectively. Goldman Sachs Group, Inc. is the parent of Goldman, Sachs & Co., a regular broker of the Fund. Merrill Lynch & Co., Inc. is the parent of Merrill Lynch, Pierce, Fenner & Smith Inc., a regular broker of the Fund. Morgan Stanley is the parent of Morgan Stanley & Co. Incorporated, a regular broker of the Fund.

CAPITAL STOCK

The Shares of the Funds

           The shares of each of the Funds represents an interest in that Fund's securities and other assets and in its profits or losses. Each fractional share of a class has the same rights, in proportion, as a full share of that class.

           Each Fund offers four classes of its shares: Class A, Class B, Class C and Class Y (except Ivy Money Market Fund does not offer Class Y shares). Each class of a Fund represents an interest in the same assets of the Fund and differs as follows: each class of shares has exclusive voting rights pertaining to matters appropriately limited to that class; Class A shares are subject to an initial sales charge and to an ongoing distribution and service fee and certain Class A shares are subject to a CDSC; Class B and Class C shares are subject to a CDSC and to ongoing distribution and service fees; Class B shares convert to Class A shares eight years after the month in which the shares were purchased, and such conversion will be made, without charge or fee, on the basis of the relative NAV of the two classes; and Class Y shares, which are designated for institutional and other eligible investors, have no sales charge and are not subject to a CDSC but are subject to an ongoing distribution and service fee that differs in amount from that of the Class B and Class C shares. Each class may bear differing amounts of certain class-specific expenses; and each class has a separate exchange privilege. The Funds do not anticipate that there will be any conflicts between the interests of holders of the different classes of shares of the same Fund by virtue of those classes. On an ongoing basis, the Board of Directors will consider whether any such conflict exists and, if so, take appropriate action. Each share of a Fund is entitled to equal voting, dividend, liquidation and redemption rights, except that due to the differing expenses borne by the four classes, dividends and liquidation proceeds of Class B and Class C shares are expected to be lower than for Class A shares of the same Fund. Each fractional share of a class has the same rights, in proportion, as a full share of that class. Shares are fully paid and nonassessable when purchased.

           The Funds do not hold annual meetings of shareholders; however, certain significant corporate matters, such as the approval of a new investment advisory agreement or a change in a fundamental investment policy, which require shareholder approval will be presented to shareholders at a meeting called by the Board of Directors for such purpose.

           Special meetings of shareholders may be called for any purpose upon receipt by a Fund of a request in writing signed by shareholders holding not less than 25% of all shares entitled to vote at such meeting, provided certain conditions stated in the Bylaws are met. There will normally be no meeting of the shareholders for the purpose of electing directors until such time as less than a majority of directors holding office have been elected by shareholders, at time which the directors then in office will call a shareholders' meeting for the election of directors. To the extent that Section 16(c) of the 1940 Act applies to a Fund, the directors are required to call a meeting of shareholders for the purpose of voting upon the question of removal of any director when requested in writing to do so by the shareholders of record of not less than 10% of the Fund's outstanding shares.

           Each share of each Fund (regardless of class) is entitled to one vote. On certain matters such as the election of Directors, all shares of the twelve Funds vote together as a single class. On other matters affecting a particular Fund, the shares of that Fund vote together as a separate class, such as with respect to a change in an investment restriction of a particular Fund, except that as to matters for which a separate vote of a class is required by the 1940 Act or which affects the interests of one or more particular classes, the affected shareholders vote as a separate class. In voting on a Management Agreement, approval by the shareholders of a Fund is effective as to that Fund whether or not enough votes are received from the shareholders of the other Funds to approve the Management Agreement for the other Funds.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Purchase of Shares

Minimum Initial and Subsequent Investments

           For Class A, Class B and Class C shares, initial investments must be at least $500 (per Fund) with the exceptions described in this paragraph. A $100 minimum initial investment pertains to exchanges of shares from one Fund to another Fund. A $50 minimum initial investment pertains to purchases for certain retirement plan accounts and to accounts for which an investor has arranged, at the time of initial investment, to make subsequent purchases for the account by having regular monthly withdrawals of $25 or more made from a bank account. A minimum initial investment of $25 is applicable to purchases made through payroll deduction or certain retirement plan accounts for or by employees of IFDI, WRIICO, and their affiliates. Except with respect to certain exchanges and automatic withdrawals from a bank account, a shareholder may make subsequent investments of any amount. See, Exchanges for Shares of Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

           For Class Y shares, investments by government entities or authorities or by corporations must total at least $10 million within the first twelve months after initial investment. There is no initial investment minimum for other Class Y investors.

Reduced Sales Charges (Applicable to Class A Shares only)

           Account Grouping

           Large purchases of Class A shares are subject to lower sales charges. The schedule of sales charges appears in the Prospectuses. For the purpose of taking advantage of the lower sales charges available for large purchases, a purchase in any of categories 1 through 7 listed below made by an individual or deemed to be made by an individual may be grouped with purchases in any other of these categories:

1.	Purchases by an individual for his or her own account (includes purchases under the Ivy Funds Revocable Trust Form);
2.	Purchases by that individual's spouse purchasing for his or her own account (includes Ivy Funds Revocable Trust Form of spouse);
3.	Purchases by that individual or his or her spouse in their joint account;
4.	Purchases by that individual or his or her spouse for the account of their child under age 21;

5.	Purchase by any custodian for the child of that individual or spouse in a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account;
6.	Purchases by that individual or his or her spouse for his or her individual retirement account (IRA), or salary reduction plan account under Section 457 of the Internal Revenue Code of 1986, as amended (the Code), provided that such purchases are subject to a sales charge (see Net Asset Value Purchases), tax-sheltered annuity account (TSA) or Keogh Plan account, provided that the individual and spouse are the only participants in the Keogh Plan; and
7.	Purchases by a trustee under a trust where that individual or his or her spouse is the settlor (the person who establishes the trust).
	For the foregoing categories, an individual's domestic partner is treated as his or her spouse.
	Examples:
	A.	Grandmother opens a UGMA account for grandson A; Grandmother has an account in her own name; A's father has an account in his own name; the UGMA account may be grouped with A's father's account but may not be grouped with Grandmother's account;
	B.	H establishes a trust naming his children as beneficiaries and appointing himself and his bank as co-trustees; a purchase made in the trust account is eligible for grouping with an IRA account of W, H's wife;
	C.	H's will provides for the establishment of a trust for the benefit of his minor children upon H's death; his bank is named as trustee; upon H's death, an account is established in the name of the bank, as trustee; a purchase in the account may be grouped with an account held by H's wife in her own name.
	D.	X establishes a trust naming herself as trustee and R, her son, as successor trustee and R and S as beneficiaries; upon X's death, the account is transferred to R as trustee; a purchase in the account may not be grouped with R's individual account. If X's spouse, Y, was successor trustee, this purchase could be grouped with Y's individual account.

           All purchases of Class A shares made for a participant in a multi-participant Keogh plan may

be grouped only with other purchases made under the same plan; a multi-participant Keogh plan is defined as a plan in which there is more than one participant where one or more of the participants is other than the spouse of the owner/employer.

Example A:	H has established a Keogh plan; he and his wife W are the only participants in the plan; they may group their purchases made under the plan with any purchases in categories 1 through 7 above.
Example B:	H has established a Keogh Plan; his wife, W, is a participant and they have hired one or more employees who also become participants in the plan; H and W may not combine any purchases made under the plan with any purchases in categories 1 through 7 above; however, all purchases made under the plan for H, W or any other employee will be combined.

           All purchases of Class A shares made under a qualified employee benefit plan of an incorporated business will be grouped. A qualified employee benefit plan is established pursuant to Section 401 of the Code. All qualified employee benefit plans of any one employer or affiliated employers will also be grouped. An affiliate is defined as an employer that directly, or indirectly, controls or is controlled by or is under control with another employer. All qualified employee benefit plans of an employer who is a franchisor and those of its franchisee(s) may also be grouped.

Example: Corporation X sets up a defined benefit plan; its subsidiary, Corporation Y, sets up a 401(k) plan; all contributions made under both plans will be grouped.

           All purchases of Class A shares made under a simplified employee pension plan (SEP), payroll deduction plan or similar arrangement adopted by an employer or affiliated employers (as defined above) may be grouped provided that the employer elects to have all such purchases grouped at the time the plan is set up. If the employer does not make such an election, the purchases made by individual employees under the plan may be grouped with the other accounts of the individual employees described above in Account Grouping.

           Account grouping as described above is available under the following circumstances.

One-time Purchases

           A one-time purchase of Class A shares in accounts eligible for grouping may be combined for purposes of determining the availability of a reduced sales charge. In order for an eligible purchase to be grouped, the investor must advise IFDI at the time the purchase is made that it is eligible for grouping and identify the accounts with which it may be grouped.

Example: H and W open an account in the Fund and invest $75,000; at the same time, H's parents open up three UGMA accounts for H and W's three minor children and invest $10,000 in each child's name; the combined purchase of $105,000 of Class A shares is subject to a reduced sales load of 4.75% provided that IFDI is advised that the purchases are entitled to grouping.

Rights of Accumulation

           If Class A shares are held in any account and an additional purchase of Class A shares is made in that account or in any account eligible for grouping with that account, the additional purchase is combined with the NAV of the existing account(s) as of the date the new purchase is accepted by IFDI for the purpose of determining the availability of a reduced sales charge.

Example: H is a current Class A shareholder who invested in one of the Funds three years ago. His account has a NAV of $80,000. His wife, W, now wishes to invest $20,000 in Class A shares of that (or another) Fund. W's purchase will be combined with H's existing account and will be entitled to a reduced sales charge of 4.75%. H's original purchase was subject to a full sales charge and the reduced charge does not apply retroactively to that purchase.

           In order to be entitled to Rights of Accumulation, the purchaser must inform IFDI that the purchaser is entitled to a reduced charge and provide IFDI with the name and number of the existing account(s) with which the purchase may be combined.

           Letter of Intent

           The benefit of a reduced sales charge for larger purchases of Class A shares is also available under a Letter of Intent (LOI). By signing an LOI form, which is available from IFDI, the purchaser indicates an intention to invest in Class A shares, over a 13-month period, a dollar amount which is sufficient to qualify for a reduced sales charge. The 13-month period begins on the date the first purchase made under the LOI is accepted by IFDI. Each purchase made from time to time under the LOI is treated as if the purchaser were buying at one time the total amount which he or she intends to invest. The sales charge applicable to all purchases of Class A shares made under the terms of the LOI will be the sales charge in effect on the beginning date of the 13-month period.

           In determining the amount which the purchaser must invest in order to qualify for a reduced sales charge under an LOI, the investor's Rights of Accumulation (see above) will be taken into account; that is, Class A shares already held in the same account in which the purchase is being made or in any account eligible for grouping with that account, as described above, will be included.

Example: H signs an LOI indicating his intent to invest in his own name a dollar amount sufficient to entitle him to purchase Class A shares at the sales charge applicable to a purchase of $100,000. H has an IRA account and the Class A shares held under the IRA in a Fund have a NAV as of the date the LOI is accepted by IFDI of $15,000; H's wife, W, has an account in her own name invested in another Fund which charges the same sales load as the Fund, with a NAV as of the date of

acceptance of the LOI of $10,000; H needs to invest $75,000 in Class A shares over the 13-month period in order to qualify for the reduced sales load applicable to a purchase of $100,000.

           A copy of the LOI signed by a purchaser will be returned to the purchaser after it is accepted by IFDI and will set forth the dollar amount of Class A shares which must be purchased within the 13-month period in order to qualify for the reduced sales charge.

           The minimum initial investment under an LOI is 5% of the dollar amount which must be invested under the LOI. An amount equal to 5% of the purchase required under the LOI will be held in escrow. If a purchaser does not, during the period covered by the LOI, invest the amount required to qualify for the reduced sales charge under the terms of the LOI, he or she will be responsible for payment of the sales charge applicable to the amount actually invested. The additional sales charge owed on purchases of Class A shares made under an LOI which is not completed will be collected by redeeming part of the shares purchased under the LOI and held in escrow unless the purchaser makes payment of this amount to IFDI within 20 days of IFDI's request for payment.

           If the actual amount invested is higher than the amount an investor intends to invest, and is large enough to qualify for a sales charge lower than that available under the LOI, the lower sales charge will apply.

           An LOI does not bind the purchaser to buy, or IFDI to sell, the shares covered by the LOI.

           With respect to LOIs for $2,000,000 or purchases otherwise qualifying for no sales charge under the terms of the LOI, the initial investment must be at least $200,000.

           The value of any shares redeemed during the 13-month period which were acquired under the LOI will be deducted in computing the aggregate purchases under the LOI.

           LOIs are not available for purchases made under an SEP where the employer has elected to have all purchases under the SEP grouped.

           Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

           Reduced sales charges for larger purchases of Class A shares apply to purchases of any of the Class A shares of any of the funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc. subject to a sales charge. A purchase of Class A shares, or Class A shares held, in any of the funds in the Ivy Family of Funds and/or Waddell & Reed InvestEd Portfolios, Inc. subject to a sales charge will be treated as an investment in the Fund in determining the applicable sales charge. For these purposes, Class A shares of Ivy Money Market Fund that were acquired by exchange of another Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. Class A shares on which a sales charge was paid, plus the shares paid as dividends on those acquired shares, are also taken into account.

           To obtain a reduced sales charge, clients of Waddell & Reed, Inc. and Legend may also combine purchases of Class A shares of any of the funds in the Waddell & Reed Advisors Family of Funds, except Class A shares of Waddell & Reed Advisors Cash Management, Inc.

Net Asset Value Purchases of Class A Shares

           Class A shares of a Fund may be purchased at NAV by the Directors and officers of the Fund or of any affiliated entity of IFDI, employees of IFDI or of any of its affiliates, financial advisors of IFDI and its affiliates and the spouse, children, parents, children's spouses and spouse's parents of each such Director, officer, employee and financial advisor. Child includes stepchild; parent includes stepparent. Purchases of Class A shares in an IRA sponsored by IFDI of its affiliates established for any of these eligible purchasers may also be at NAV. Purchases of Class A shares in any tax-qualified retirement plan under which the eligible purchaser is the sole participant may also be made at NAV. Trusts under which the grantor and the trustee or a co-trustee are each an eligible purchaser are also eligible for NAV purchases of Class A shares. Employees include retired employees. A retired employee is an individual separated from service from IFDI, or from an affiliated company with a vested interest in any Employee Benefit plan sponsored by IFDI or any of its affiliated companies. Financial advisors include retired financial advisors. A retired financial advisor is any financial advisor who was, at the time of separation from service from IFDI, a Senior Financial Advisor. A custodian under UGMA or UTMA purchasing for the child or grandchild of any employee or financial advisor may purchase Class A shares at NAV whether or not the custodian himself is an eligible purchaser.

           Until December 31, 2003, Class A shares may be purchased at NAV by persons who are clients of Legend if the purchase is made with the proceeds of the redemption of shares of a mutual fund which is not within the Waddell & Reed Advisors Funds or Ivy Funds, Inc. and the purchase is made within 60 days of such redemption.

           Shares may be issued at NAV in a merger, acquisition or exchange offer made pursuant to a plan of reorganization to which the Fund is a party.

           Purchases of Class A shares by Friends of the Firm which include certain persons who have an existing relationship with IFDI or any of its affiliates may be made at NAV.

           Retirement plan accounts held in the Waddell & Reed Advisors Retirement Plan, offered and distributed by Nationwide Investment Services Corporation through Nationwide Trust Company, FSB retirement programs.

           Direct Rollovers from the Waddell & Reed Advisors Retirement Plan.

           Purchases of Class A shares in a 401(k) plan or a 457 plan having 100 or more eligible employees, and the shares are held in individual plan participant accounts on the Fund's records, may be made at NAV.

           Purchases of Class A shares by certain clients investing through a qualified fee-based program offered by a third party that has made arrangements to sell shares of the Funds may be made at NAV.

Reasons for Differences in the Public Offering Price of Class A Shares

           As described herein and in the Prospectus, there are a number of instances in which a Fund's Class A shares are sold or issued on a basis other than at the maximum public offering price, that is, the NAV plus the highest sales charge. Some of these instances relate to lower or eliminated sales charges for larger purchases of Class A shares, whether made at one time or over a period of time as

under an LOI or Rights of Accumulation. See the table of breakpoints in sales charges in the Prospectus for the Class A shares. The reasons for these quantity discounts are, in general, that (1) they are traditional and have long been permitted in the industry and are therefore necessary to meet competition as to sales of shares of other funds having such discounts, (2) certain quantity discounts are required by rules of the National Association of Securities Dealers, Inc. (as is elimination of sales charges on the reinvestment of dividends and distributions), and (3) they are designed to avoid an unduly large dollar amount of sales charge on substantial purchases in view of reduced selling expenses. Quantity discounts are made available to certain related persons for reasons of family unity and to provide a benefit to tax-exempt plans and organizations.

           In general, the reasons for the other instances in which there are reduced or eliminated sales charges for Class A shares are as follows. Exchanges at NAV are permitted because a sales charge has already been paid on the shares exchanged. Sales of Class A shares without a sales charge are permitted to Directors, officers and certain others due to reduced or eliminated selling expenses and since such sales may aid in the development of a sound employee organization, encourage responsibility and interest in a Fund and an identification with its aims and policies. Limited reinvestments of redemptions of Class A shares at no sales charge are permitted to attempt to protect against mistaken or not fully informed redemption decisions. Class A shares may be sold without a sales charge in plans of reorganization due to reduced or eliminated sales expenses and since, in some cases, such shares are exempted by the 1940 Act from the otherwise applicable requirements as to sales charges. Reduced or eliminated sales charges may also be used for certain short-term promotional activities by IFDI. In no case in which there is a reduced or eliminated sales charge are the interests of existing Class A shareholders adversely affected since, in each case, the Fund receives the NAV per share of all shares sold or issued.

Systematic Withdrawal Plan for Class A, Class B and Class C Shareholders

           If you qualify, you may arrange to receive through the Systematic Withdrawal Plan (Service) regular monthly, quarterly, semiannual or annual payments by redeeming on an ongoing basis Class A, Class B or Class C shares that you own of any of the funds in the Ivy Family of Funds. It would be a disadvantage to an investor to make additional purchases of Class A shares while the Service is in effect because it would result in duplication of sales charges. Class B and Class C shares, and certain Class A shares to which the CDSC otherwise applies, that are redeemed under the Service are not subject to a CDSC provided the amount withdrawn does not exceed, annually, 12% of the account value. Applicable forms to start the Service are available through Waddell & Reed Services Company.

           The maximum amount of the withdrawal for annual withdrawals is 12% of the value of your account at the time the Service is established. As noted above, the withdrawal proceeds are not subject to the CDSC, but only within these percentage limitations. The minimum withdrawal is $50. The Service, and this exclusion from the CDSC, do not apply to a one-time withdrawal.

           To qualify for the Service, you must have invested at least $10,000 in Class A, Class B or Class C shares which you still own of any of the funds in the Ivy Family of Funds; or, you must own Class A, Class B or Class C shares having a value of at least $10,000. The value for this purpose is the value at the current offering price.

           You can choose to have shares redeemed to receive:

           1. a monthly, quarterly, semiannual or annual payment of $50 or more;

           2. a monthly payment, which will change each month, equal to one-twelfth of a percentage of

the value of the shares in the Account; (you select the percentage); or

           3. a monthly or quarterly payment, which will change each month or quarter, by redeeming a number of shares fixed by you (at least five shares).

           Shares are redeemed on the 20th day of the month in which the payment is to be made, or on the prior business day if the 20th is not a business day. Payments are made within five days of the redemption.

           The dividends and distributions on shares of a class you have made available for the Service are paid in additional shares of that class. All payments under the Service are made by redeeming shares, which may involve a gain or loss for tax purposes. To the extent that payments exceed dividends and distributions, the number of shares you own will decrease. When all of the shares in an account are redeemed, you will not receive any further payments. Thus, the payments are not an annuity, an income or a return on your investment.

           You may, at any time, change the manner in which you have chosen to have shares redeemed to any of the other choices originally available to you. You may, at any time, redeem part or all of the shares in your account; if you redeem all of the shares, the Service is terminated. The Fund can also terminate the Service by notifying you in writing.

           After the end of each calendar year, information on shares redeemed will be sent to you to assist you in completing your Federal income tax return.

Exchanges for Shares of Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

           Class A Share Exchanges

           Once a sales charge has been paid on shares of a fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc., these shares and any shares added to them from dividends or distributions paid in shares may be freely exchanged for corresponding shares of another fund in Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. and, for clients of Waddell & Reed, Inc. or Legend, another fund in Waddell & Reed Advisors Funds. The shares you exchange must be worth at least $100 or you must already own shares of a fund in Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. into which you want to exchange.

           Except where the special rules described below apply, you may exchange Class A shares you own in a Fund for Class A shares of another fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios and, for clients of Waddell & Reed, Inc. or Legend, for Class A shares of a fund in Waddell & Reed Advisors Funds, without charge if (1) a sales charge was paid on these shares, or (2) the shares were received in exchange for shares for which a sales charge was paid, or (3) the shares were acquired from reinvestment of dividends and distributions paid on such shares. There may have been one or more such exchanges so long as a sales charge was paid on the shares originally purchased. Also, shares acquired without a sales charge because the purchase was $2 million or more will be treated the same as shares on which a sales charge was paid.

           Special rules apply to Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund shares.

Class A shares of one of these Funds may be exchanged for Class A shares of another fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. (or, for customers of Waddell & Reed, Inc. or Legend, for Class A shares of a fund within Waddell & Reed Advisors Funds) only if (1) you received the shares to be exchanged as a result of one or more exchanges of shares on which a maximum sales charge was originally paid (currently, 5.75%), or (2) the shares to be exchanged have been held for at least six months from the date of the original purchase. However, you may exchange, and these restrictions do not apply to exchanges of, Class A shares of Ivy Limited-Term Bond, Ivy Municipal Bond Fund or Ivy Money Market Fund (and, for clients of Waddell & Reed, Inc. or Legend, Class A shares of Waddell & Reed Advisors Municipal Bond Fund, Inc., Waddell & Reed Advisors Municipal High Income Fund, Inc., Waddell & Reed Advisors Fixed Income Funds, Inc. or Waddell & Reed Advisors Cash Management, Inc.).

           Subject to the above rules regarding sales charges, you may have a specific dollar amount of Class A shares of Ivy Money Market Fund automatically exchanged each month into Class A shares of any other fund in Ivy Family of Funds, provided you already own Class A shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among the Class A shares of different Funds so long as each fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

           Class B Share Exchanges

           You may exchange Class B shares of one Fund for Class B shares of another Fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc., and, for clients of Waddell & Reed, Inc. or Legend, for Class B shares of a fund in Waddell & Reed Advisors Funds without charge.

           The redemption of a Fund's Class B shares as part of an exchange is not subject to the deferred sales charge. For purposes of computing the deferred sales charge, if any, applicable to the redemption of the shares acquired in the exchange, those acquired shares are treated as having been purchased when the original redeemed shares were purchased.

           You may have a specific dollar amount of Class B shares of Ivy Money Market Fund automatically exchanged each month into Class B shares of any other fund in the Ivy Family of Funds, provided you already own Class B shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among different Funds so long as each Fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

           Class C Share Exchanges

           You may exchange Class C shares of one Fund for Class C shares of another Fund or Waddell & Reed InvestEd Portfolios, Inc., and for customers of Waddell & Reed, Inc. or Legend, for Class C shares of a fund in the Waddell & Reed Advisors Funds without charge.

           The redemption of a Fund's Class C shares as part of an exchange is not subject to the deferred sales charge. For purposes of computing the deferred sales charge, if any, applicable to the redemption of the shares acquired in the exchange, those acquired shares are treated as having been purchased when the original redeemed shares were purchased.

           You may have a specific dollar amount of Class C shares of Ivy Money Market Fund automatically exchanged each month into Class C shares of any other fund in the Ivy Family of

Funds, provided you already own Class C shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among different Funds so long as each Fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

           Class Y Share Exchanges

           Class Y shares of a Fund may be exchanged for Class Y shares of any other Fund or for Class A shares of Ivy Money Market Fund, and, for clients of Waddell & Reed, Inc. or Legend, for Class Y shares of a fund within Waddell & Reed Advisors Funds.

           General Exchange Information

           You may exchange only into Funds that are legally permitted for sale in your state of residence. Currently, each Fund within Ivy Family of Funds, Waddell & Reed Advisors Funds and Waddell & Reed InvestEd Portfolios, Inc. may be sold only within the United States and the Commonwealth of Puerto Rico, except that Ivy Cundill Global Value Fund, Ivy Global Natural Resources Fund, Ivy Pacific Opportunities Fund and the Advisor Class shares of Ivy International Fund are not eligible for sale in the Commonwealth of Puerto Rico.

           Ivy International Growth Fund will deduct a redemption fee of 2.00% from any redemption or exchange proceeds if you sell or exchange your Class A or Class Y shares after holding them less than 30 days. These fees are paid to the Fund, and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short term shareholder trading. If you bought your shares on different days, the "first-in, first-out" (FIFO) method is used to determine the holding period. Under this method, the shares you held longest will be redeemed first for purposes of determining whether the redemption fee applies. The redemption fee does not apply to shares that were acquired through reinvestment of distributions and generally is waived for shares purchased through certain retirement and educational plans, and programs and through certain fee-based asset allocation programs. In addition, the fee waiver does not apply to any IRA or SEP-IRA accounts. Ivy International Growth Fund reserves the right to modify the terms of or terminate the redemption/exchange fee at any time.

           The exchange will be made at the NAVs next determined after receipt of your written request in good order by the Funds. When you exchange shares, the total shares you receive will have the same aggregate NAV as the total shares you exchange.

           These exchange rights may be eliminated or modified at any time by the Funds, upon notice in certain circumstances. The Funds will typically limit activity deemed to be market timing by restricting the amount of exchanges permitted by a shareholder.

Retirement Plans and Other Tax-Advantaged Savings Accounts

           Your account may be set up as a funding vehicle for a retirement plan or other tax-advantaged savings account. For individual taxpayers meeting certain requirements, IFDI offers model or prototype documents for the following retirement plans and other accounts. All of these accounts involve investment in shares of one or more of the Funds (other than Ivy Municipal Bond Fund or Ivy Tax-Managed Equity Fund) and, for Clients of Waddell & Reed, Inc. or Legend, shares of certain

other funds in Waddell & Reed Advisors Funds. The dollar limits specified below are for 2003 for Federal income tax purposes and may change for subsequent years.

           Individual Retirement Accounts (IRAs). Investors having eligible earned income may set up a plan that is commonly called an IRA. Under a traditional IRA, an investor can contribute each year up to 100% of his or her earned income, up to the Annual Dollar Limit per year (provided the investor has not reached age 70 1/2). For the 2002 through 2004 calendar years, the Annual Dollar Limit is $3,000. For individuals who have attained age 50 by the last day of the calendar year for which the contribution is made, the Annual Dollar Limit also allows a catch-up contribution. The maximum annual catch-up contribution is $500 for the 2002 through 2005 calendar years. For a married couple, the maximum annual contribution is two times the Annual Dollar Limit (the Annual Dollar Limit for each spouse) or, if less, the couple's combined earned income for the taxable year, even if one spouse had no earned income. Generally, the contributions are deductible unless: 1) the investor (or, if married, either spouse) is an active participant in an employer-sponsored retirement plan; and 2) their adjusted gross income exceeds certain levels. A married investor who is not an active participant, who files jointly with his or her spouse and whose combined adjusted gross income does not exceed $150,000 is not affected by his or her spouse's active participant status.

           An investor may also use a traditional IRA to receive a rollover contribution that is either (a) a direct rollover distribution from an employer's plan or (b) a rollover of an eligible distribution paid to the investor from an employer's plan or another IRA. To the extent a rollover contribution is made to a traditional IRA, the distribution will not be subject to Federal income tax until distributed from the IRA. A direct rollover generally applies to any distribution from an employer's plan (including a custodial account under Section 403(b)(7) of the Code or a government plan under Section 457 of the Code, but not an IRA) other than certain periodic payments, required minimum distributions and other specified distributions. In a direct rollover, the eligible rollover distribution is paid directly to the IRA, not to the investor. If, instead, an investor receives payment of an eligible rollover distribution, all or a portion of that distribution generally may be rolled over to an IRA within 60 days after receipt of the distribution. Because mandatory Federal income tax withholding applies to any eligible rollover distribution that is not paid in a direct rollover, investors should consult their tax advisers or pension consultants as to the applicable tax rules. If you already have an IRA, you may have the assets in that IRA transferred directly to an IRA offered by IFDI.

           Roth IRAs. Investors having eligible earned income and whose adjusted gross income (or combined adjusted gross income, if married) does not exceed certain levels, may establish and contribute up to the Annual Dollar Limit per tax year to a Roth IRA (or to any combination of Roth and traditional IRAs). For a married couple, the annual maximum is two times the Annual Dollar Limit (the Annual Dollar Limit for each spouse) or, if less, the couple's combined earned income for the taxable year, even if one spouse had no earned income.

           In addition, for an investor whose adjusted gross income does not exceed $100,000 (and who is not a married person filing a separate return), certain distributions from traditional IRAs may be rolled over to a Roth IRA and any of the investor's traditional IRAs may be converted into a Roth IRA; these rollover distributions and conversions are, however, subject to Federal income tax.

           Contributions to a Roth IRA are not deductible; however, earnings accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject to Federal income tax if the account has been held for at least five years and the account holder has reached age 59 1/2 (or certain other conditions apply).

           Coverdell Education Savings Accounts (formerly, Education IRAs). Although not

technically for retirement savings, Coverdell Education Savings Accounts provide a vehicle for saving for a child's education. A Coverdell Education Savings Account may be established for the benefit of any minor, and any person whose adjusted gross income does not exceed certain levels may contribute up to $2000 to a Coverdell Education Savings Account (or to each of multiple Coverdell Education Savings Accounts), provided that no more than $2000 may be contributed for any year to Coverdell Education Savings Accounts for the same beneficiary. Contributions are not deductible and may not be made after the beneficiary reaches age 18 (except that this age limit does not apply to a beneficiary with "special needs," as defined in the Code). Earnings accumulate tax-free, and withdrawals are not subject to tax if used to pay the qualified education expenses of the beneficiary (or certain members of his or her family).

           Simplified Employee Pension (SEP) plans. Employers can make contributions to SEP-IRAs established for employees. Generally an employer may contribute up to 25% of compensation, subject to certain maximums, per year for each employee.

           Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer with 100 or fewer eligible employees that does not sponsor another active retirement plan may sponsor a SIMPLE plan to contribute to its employees' retirement accounts. A SIMPLE plan can be in the form of either an IRA or a 401(k) plan. In general, an employer can choose to match employee contributions dollar-for-dollar (up to 3% of an employee's compensation) or may contribute to all eligible employees 2% of their compensation, whether or not they defer salary to their retirement plans. SIMPLE plans involve fewer administrative requirements, generally, than traditional 401(k) or other qualified plans.

           Keogh Plans. Keogh plans, which are available to self-employed individuals, are defined contribution plans that may be either a money purchase plan or a profit-sharing plan. As a general rule, an investor under a defined contribution Keogh plan can contribute, for 2002, up to 25% of his or her annual earned income, with a maximum of $40,000.

           457 Plans. If an investor is an employee of a state or local government or of certain types of charitable organizations, he or she may be able to enter into a deferred compensation arrangement in accordance with Section 457 of the Code.

           TSAs - Custodial Accounts and Title I Plans. If an investor is an employee of a public school system, a church or certain types of charitable organizations, he or she may be able to enter into a deferred compensation arrangement through a custodial account under Section 403(b)(7) of the Code. Some organizations have adopted Title I plans, which are funded by employer contributions in addition to employee deferrals.

           Pension and Profit-Sharing Plans, including 401(k) Plans. With a 401(k) plan, employees can make tax-deferred contributions to a plan to which the employer may also contribute, usually on a matching basis. An employee may defer each year the lesser of 100% of income or $11,000 of compensation for 2002, which may be increased each year based on cost-of-living adjustments.

           More detailed information about these arrangements and applicable forms are available from IFDI. These tax-advantaged savings plans and other accounts may be treated differently under state tax law and may involve complex tax questions as to premature distributions and other matters. Investors should consult their tax adviser or pension consultant.

Redemptions

           The Prospectus gives information as to redemption procedures. Redemption payments are

made within seven (7) days from receipt of a request in good order, unless delayed because of emergency conditions as determined by the SEC, when the NYSE is closed other than for weekends or holidays, or when trading on the NYSE is restricted. Payment is made in cash, although under extraordinary conditions redemptions may be made in portfolio securities. Payment for redemptions of shares of the Funds may be made in portfolio securities when the Board of Directors determines that conditions exist making cash payments undesirable. Redemptions made in securities will be made only in readily marketable securities. Securities used for payment of redemptions are valued at the price used in figuring NAV. There would be brokerage costs to the redeeming shareholder in selling such securities. Each Fund, however, has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.

Reinvestment Privilege

           The Funds offer a one-time reinvestment privilege that allows you to reinvest without charge all or part of any amount of Class A shares you redeem from the Fund by sending to the Fund the amount you wish to reinvest. The amount you return will be reinvested in Class A shares at the NAV next calculated after the Fund receives the returned amount. Your written request to reinvest and the amount to be reinvested must be received within forty-five (45) days after your redemption request was received, and the Fund must be offering Class A shares at the time your reinvestment request is received. You can do this only once as to Class A shares of a Fund. You do not lose this privilege by redeeming shares to invest the proceeds at NAV in a Keogh plan or an IRA.

           There is also a reinvestment privilege for Class B and Class C shares and, where applicable, certain Class A shares under which you may reinvest in the Fund all or part of any amount of the shares you redeemed and have the corresponding amount of the CDSC, if any, which you paid restored to your account by adding the amount of that charge to the amount you are reinvesting in shares of the same class. If Fund shares of that class are then being offered, you can put all or part of your redemption payment back into such shares at the NAV next calculated at the time your request is received. Your written request to do this must be received within forty-five (45) days after your redemption request was received. You can do this only once as to Class B and Class C shares of the Fund. For purposes of determining future CDSC, the reinvestment will be treated as a new investment. You do not lose this privilege by redeeming shares to invest the proceeds at NAV in a Keogh plan or an IRA.

Mandatory Redemption of Certain Small Accounts

           Each of the Funds has the right to require the redemption of shares held under any account or any plan if the aggregate NAV of such shares (taken at cost or value as the Board of Directors may determine) is less than $500 or, for Ivy Money Market Fund, less than $250. The Board has no intent to require redemptions in the foreseeable future. If it should elect to require redemptions, shareholders who are affected will receive prior written notice and will be permitted 60 days to bring their accounts up to the minimum before this redemption is processed. Ivy Money Market Fund may charge a fee of $1.75 per month on all accounts with a NAV of less than $250, except for retirement plan accounts.

Determination of Offering Price

           The NAV of each class of the shares of a Fund is the value of the assets of that class, less the class's liabilities, divided by the total number of outstanding shares of that class.

           Class A shares of the Funds are sold at their next determined NAV plus the sales charge described in the Prospectuses. The sales charge is paid to IFDI. The price makeup as of March 31, 2003, which is the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, was as follows:

Ivy Asset Strategy Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$11.18
Add: selling commission (5.75% of offering
	price)	0.68
	------
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$11.86
	======
Ivy Core Equity Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$6.63
Add: selling commission (5.75% of offering
	price)	0.40
	------
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$7.03
	======
Ivy High Income Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$8.07
Add: selling commission (5.75% of offering
	price)	0.49
	-----

Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$8.56
	=====
Ivy International Growth Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$7.57
Add: selling commission (5.75% of offering
	price)	0.46
	------
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$8.03
	======
Ivy Large Cap Growth Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$7.24
Add: selling commission (5.75% of offering
	price)	0.44
	------
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$7.68
	======
Ivy Limited-Term Bond Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$10.45
Add: selling commission (4.25% of offering
	price)	0.46
	------

Maximum offering price per Class A share
	(Class A NAV divided by 95.75%)	$10.91
	======
Ivy Mid Cap Growth Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$6.67
Add: selling commission (5.75% of offering
	price)	0.41
	-----
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$7.08
	=====
Ivy Municipal Bond Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$11.10
Add: selling commission (4.25% of offering
	price)	0.49
	------
Maximum offering price per Class A share
	(Class A NAV divided by 95.75%)	$11.59
	======
Ivy Science and Technology Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$14.17
Add: selling commission (5.75% of offering
	price)	0.86
	------

Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$15.03
	======
Ivy Small Cap Growth Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$8.25
Add: selling commission (5.75% of offering
	price)	0.50
	------
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$8.75
	======
Ivy Tax-Managed Equity Fund
NAV per Class A share (Class A
	net assets divided by Class A shares
	outstanding)	$5.73
Add: selling commission (5.75% of offering
	price)	0.35
	-----
Maximum offering price per Class A share
	(Class A NAV divided by 94.25%)	$6.08
	=====

           The offering price of a Class A share is its NAV next calculated following acceptance of a purchase request, in good order, plus the sales charge, as applicable. The offering price of a Class B share, Class C share, Class Y share or certain Class A shares is the applicable Class NAV next calculated following acceptance of a purchase request, in good order. The number of shares you receive for your purchase depends on the next offering price after IFDI, or an authorized third party, properly receives and accepts your order. You will be sent a confirmation after your purchase (except for automatic transactions) which will indicate how many shares you have purchased.

           IFDI need not accept any purchase order, and it or the Funds may determine to discontinue

offering Fund shares for purchase.

           The NAV and offering price per share are computed once on each day that the NYSE is open for trading as of the later of the close of the regular session of the NYSE or the close of the regular session of any other securities or commodities exchange on which an option or futures contract held by a Fund is traded. The NYSE annually announces the days on which it will not be open for trading. The most recent announcement indicates that the NYSE will not be open on the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may close on other days. The NAV will likely change every business day, since typically the value of the assets and the number of shares outstanding change every business day. Ivy Money Market Fund is designed so that the value of each share of each class of the Fund (the NAV per share) will remain fixed at $1.00 per share except under extraordinary circumstances.

           The securities in the portfolio of each Fund, except as otherwise noted, that are listed or traded on a stock exchange, are valued on the basis of the last sale on that day or, lacking any sales, at a price that is the mean between the closing bid and asked prices. Other securities that are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Bonds, other than convertible bonds, are valued using a third-party pricing system. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Short-term debt securities are valued at amortized cost, which approximates market value. When market quotations are not readily available, securities and other assets are valued at fair value as determined in good faith under procedures established by, and under the general supervision and responsibility of, the Board of Directors.

           Options and futures contracts purchased and held by a Fund are valued at the last sales price thereof on the securities or commodities exchanges on which they are traded, or, if there are no transactions, at the mean between bid and asked prices. Ordinarily, the close of the regular session for options trading on national securities exchanges is 4:10 p.m. Eastern time and the close for the regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures contracts will be valued with reference to established futures exchanges. The value of a futures contract purchased by a Fund will be either the closing price of that contract or the bid price. Conversely, the value of a futures contract sold by a Fund will be either the closing purchase price or the asked price.

           When a Fund writes a put or call, an amount equal to the premium received is included in the Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is marked-to-market (that is, treated as sold for its fair market value) to reflect the current market value of the put or call. If a call a Fund wrote is exercised, the proceeds received on the sale of the related investment are increased by the amount of the premium the Fund received. If a Fund exercised a call it purchased, the amount paid to purchase the related investment is increased by the amount of the premium paid. If a put written by a Fund is exercised, the amount that the Fund pays to purchase the related investment is decreased by the amount of the premium it received. If a Fund exercises a put it purchased, the amount the Fund receives from the sale of the related investment is reduced by the amount of the premium it paid. If a put or call written by a Fund expires, it has a gain in the amount of the premium; if a Fund enters into a closing purchase transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction.

           Foreign currency exchange rates are generally determined prior to the close of trading of the regular session of the NYSE. Occasionally events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of the regular

session of trading on the NYSE, which events will not be reflected in a computation of a Fund's NAV on that day. If events materially affecting the value of such investments or currency exchange rates occur during such time period, the investments will be valued at their fair value as determined in good faith by or under the direction of the Board of Directors. The foreign currency exchange transactions of a Fund conducted on a spot (i.e., cash) basis are valued at the spot rate for purchasing or selling currency prevailing on the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than one-tenth of one percent due to the costs of converting from one currency to another.

           Optional delivery standby commitments are valued at fair value under the general supervision and responsibility of the Funds' Board of Directors. They are accounted for in the same manner as exchange-listed puts.

           Ivy Money Market Fund operates under Rule 2a-7 which permits it to value its portfolio on the basis of amortized cost. The amortized cost method of valuation is accomplished by valuing a security at its cost and thereafter assuming a constant amortization rate to maturity of any discount or premium, and does not reflect the impact of fluctuating interest rates on the market value of the security. This method does not take into account unrealized gains or losses.

           While the amortized cost method provides some degree of certainty in valuation, there may be periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield on the Fund's shares may tend to be higher than a like computation made by a fund with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio instruments and changing its dividends based on these changing prices. Thus, if the use of amortized cost by the Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in the Fund's shares would be able to obtain a somewhat higher yield than would result from investment in such a fund, and existing investors in the Fund's shares would receive less investment income. The converse would apply in a period of rising interest rates.

           Under Rule 2a-7, the Board of Directors must establish procedures designed to stabilize, to the extent reasonably possible, the Fund's price per share as computed for the purpose of sales and redemptions at $1.00. Such procedures must include review of the Fund's portfolio holdings by the Board at such intervals as it may deem appropriate and at such intervals as are reasonable in light of current market conditions to determine whether the Fund's NAV calculated by using available market quotations deviates from the per share value based on amortized cost.

           For the purpose of determining whether there is any deviation between the value of the Fund's portfolio based on amortized cost and that determined on the basis of available market quotations, if there are readily available market quotations, investments are valued at the mean between the bid and asked prices. If such market quotations are not available, the investments will be valued at their fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Board of Directors, including being valued at prices based on market quotations for investments of similar type, yield and duration.

           Under Rule 2a-7, if the extent of any deviation between the NAV per share based upon available market quotations and the NAV per share based on amortized cost exceeds one-half of 1%, the Board must promptly consider what action, if any, will be initiated. When the Board believes that the extent of any deviation may result in material dilution or other unfair results to investors or existing shareholders, it is required to take such action as it deems appropriate to eliminate or reduce to the extent reasonably practicable such dilution or unfair results. Such actions could include the sale

of portfolio securities prior to maturity to realize capital gains or losses or to shorten average portfolio maturity, withholding dividends or payment of distributions from capital gains, redemptions of shares in kind, or establishing a NAV per share using available market quotations.

           The procedures which the Board of Directors has adopted include changes in the dividends payable by the Fund under specified conditions, as further described under Taxes and Payments to Shareholders. The purpose of this portion of the procedures is to provide for the automatic taking of one of the actions which the Board of Directors might take should it otherwise be required to consider taking appropriate action.

TAXATION OF THE FUND

General

           Each Fund has qualified since its inception for treatment as a regulated investment company (RIC) under the Code, so that it is relieved of Federal income tax on that part of its investment company taxable income (consisting generally of taxable net investment income, net short-term capital gains and, for certain Funds, net gains from certain foreign currency transactions, determined without regard to any deduction for dividends paid) that it distributes to its shareholders. To continue to qualify for treatment as a RIC, a Fund must distribute to its shareholders for each taxable year at least 90% of the sum of its investment company taxable income plus, in the case of Ivy Municipal Bond Fund, its net interest income excludable from gross income under Section 103(a) of the Code and must meet several additional requirements. With respect to each Fund, these requirements include the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies or other income (including gains from options, futures contracts or forward currency contracts) derived with respect to its business of investing in securities or those currencies; (2) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities that are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund's total assets and that does not represent more than 10% of the issuer's outstanding voting securities; and (3) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer.

           Investments in precious metals would have adverse tax consequences for Ivy Asset Strategy Fund and its shareholders if it either (1) derived more than 10% of its gross income in any taxable year from the disposition of precious metals and from other income that does not qualify under the Income Requirement or (2) held precious metals in such quantities that the Fund failed to satisfy the 50% Diversification Requirement for any quarter. Ivy Asset Strategy Fund intends to continue to manage its portfolio so as to avoid failing to satisfy those requirements for these reasons.

           If a Fund failed to qualify for treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary corporation on the full amount of its taxable income for that year (even if it distributed that income to its shareholders) and (2) the shareholders would treat all distributions out of its earnings and profits, including distributions of net capital gains and, for Ivy Municipal Bond Fund, distributions that otherwise would be exempt-interest dividends described below, as dividends (that is,

ordinary income). In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for RIC treatment.

           Dividends and distributions declared by a Fund in December of any year and payable to its shareholders of record on a date in that month are deemed to have been paid by the Fund and received by the shareholders in December even if the Fund pays them during the following January. Accordingly, those dividends and distributions will be taxed to the shareholders for the year in which that December falls.

           If Fund shares are sold at a loss after being held for six months or less, the loss will be treated as a long-term, instead of short-term, capital loss to the extent of any distributions received on those shares. Investors also should be aware that if they purchase shares shortly before the record date for a dividend or distribution, they will receive some portion of the purchase price back as a taxable dividend or distribution.

           Each Fund will be subject to a nondeductible 4% excise tax (Excise Tax) to the extent it fails to distribute, by the end of any calendar year, substantially all of its ordinary income for that year and capital gains net income for the one-year period ending on October 31 of that year, plus certain other amounts. For these purposes, a Fund may defer into the next calendar year net capital loss incurred between November 1 and the end of the current calendar year. It is the policy of each Fund to pay sufficient dividends and distributions each year to avoid imposition of the Excise Tax.

Income from Foreign Securities

           Dividends and interest received, and gains realized, by a Fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (foreign taxes) that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

           If more than 50% of the value of Ivy International Growth Fund's total assets at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible to, and may, file an election with the Internal Revenue Service that will enable its shareholders, in effect, to receive the benefit of the foreign tax credit with respect to any foreign taxes paid by it. Pursuant to any such election, Ivy International Growth Fund would treat those taxes as dividends paid to its shareholders and each shareholder would be required to (1) include in gross income, and treat as paid by the shareholder, the shareholder's proportionate share of those taxes, (2) treat the shareholder's share of those taxes and of any dividend paid by that Fund that represents income from foreign or U.S. possessions sources as the shareholder's own income from those sources and (3) either deduct the taxes deemed paid by the shareholder in computing the shareholder's taxable income or, alternatively, use the foregoing information in calculating the foreign tax credit against the shareholder's Federal income tax. Ivy International Growth Fund will report to its shareholders shortly after each taxable year their respective shares of that Fund's income from sources within foreign countries and U.S. possessions and foreign taxes it paid, if it makes this election. Individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign taxes included on Forms 1099 and all of whose foreign-source income is qualified passive income may elect each year to be exempt from the extremely complicated foreign tax credit limitation, in which event they would be able to claim a foreign tax credit without having to file the detailed Form 1116 that otherwise is required.

           Each of Ivy Asset Strategy Fund, Ivy Core Equity Fund, Ivy High Income Fund, Ivy

International Growth Fund, Ivy Large Cap Growth Fund, Ivy Mid Cap Growth Fund, Ivy Science and Technology Fund, Ivy Small Cap Growth Fund, and Ivy Tax-Managed Equity Fund may invest in the stock of passive foreign investment companies (PFICs). A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, a Fund will be subject to Federal income tax on a portion of any excess distribution received on the stock of a PFIC or of any gain on disposition of the stock (collectively PFIC income), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.

           If a Fund invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF), then in lieu of the foregoing tax and interest obligation, the Fund will be required to include in income each year its pro rata share of the QEF's annual ordinary earnings and net capital gain -- which probably would have to be distributed by the Fund to satisfy the Distribution Requirement and avoid imposition of the Excise Tax -- even if those earnings and gain were not distributed to the Fund by the QEF. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.

           A Fund may elect to mark to market its stock in any PFIC. Marking-to-market, in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC's stock over a Fund's adjusted basis therein as of the end of that year. Pursuant to the election, a Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock included by the Fund for prior taxable years under the election (and under regulations proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). A Fund's adjusted basis in each PFIC's stock with respect to which it makes this election will be adjusted to reflect the amounts of income included and deductions taken under the election.

Foreign Currency Gains and Losses

           Under Section 988 of the Code, gains or losses (1) from the disposition of foreign currencies, including forward currency contracts, (2) except in certain circumstances, from options and forward contracts on foreign currencies (and on financial instruments involving foreign currencies) and from notional principal contracts (e.g., swaps, caps, floors, and collars) involving payments denominated in foreign currencies, (3)on the disposition of each debt security denominated in a foreign currency that are attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of its disposition and (4) that are attributable to fluctuations in exchange rates that occur between the time a Fund accrues interest, dividends or other receivables, or expenses or other liabilities, denominated in a foreign currency and the time the Fund actually collects the receivables or pays the liabilities, generally are treated as ordinary income or loss. These gains or losses may increase or decrease the amount of a Fund's investment company taxable income to be distributed to its shareholders as ordinary income, rather than affecting the amount of its net capital gain.

Income from Financial Instruments and Foreign Currencies

           The use of hedging and option income strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Fund realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures contracts and forward currency contracts a Fund derives with respect to its business of investing in securities, will be treated as qualifying income under the Income Requirement.

           Any income a Fund earns from writing options is treated as short-term capital gains. If the Fund enters into a closing purchase transaction, it will have a short-term capital gain or loss based on the difference between the premium it receives for the option it wrote and the premium it pays for the option it buys. If an option written by the Fund lapses without being exercised, the premium it receives also will be a short-term capital gain. If such an option is exercised and the Fund thus sells the securities subject to the option, the premium the Fund receives will be added to the exercise price to determine the gain or loss on the sale.

           Certain futures contracts, forward currency contracts and listed non-equity options (that is, certain listed options, such as those on a broad-based securities index) in which the Funds may invest will be Section 1256 contracts. Section 1256 contracts a Fund holds at the end of its taxable year, other than contracts subject to a mixed straddle election the Fund made, are marked-to-market (that is, treated as sold at that time for their fair market value) for Federal income tax purposes, with the result that unrealized gains or losses are treated as though they were realized. Sixty percent of any net gains or losses recognized on these deemed sales, and 60% of any net realized gains or losses from any actual sales of Section 1256 contracts, are treated as long-term capital gains or losses, and the balance is treated as short-term capital gains or losses. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax. A Fund may need to distribute any mark-to-market gains to its shareholders to satisfy the Distribution Requirement and/or avoid imposition of the Excise Tax, even though it may not have closed the transactions and received cash to pay the distributions.

           Code Section 1092 (dealing with straddles) also may affect the taxation of options, futures contracts and forward currency contracts in which the Funds may invest. That section defines a straddle as offsetting positions with respect to actively traded personal property; for these purposes, options, futures contracts and forward currency contracts are positions in personal property. Section 1092 generally provides that any loss from the disposition of a position in a straddle may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these rules may postpone the recognition of loss that would otherwise be recognized under the mark-to-market rules discussed above. The regulations under Section 1092 also provide certain wash sale rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and short sale rules applicable to straddles. If a Fund makes certain elections, the amount, character and timing of the recognition of its gains and losses from the affected straddle positions will be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to the Funds are not entirely clear.

           If a Fund has an appreciated financial position -- generally, an interest (including an interest through an option, futures or forward currency contract or short sale) with respect to any stock, debt instrument (other than straight debt) or partnership interest the fair market value of which exceeds its adjusted basis - -- and enters into a constructive sale of the position, the Fund will be treated as having made an actual sale thereof, with the result that it will recognize gain at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or a futures or forward

currency contract a Fund or a related person enters into with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction of a Fund during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Fund's risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities).

Corporate Zero Coupon and Payment-in-Kind Securities

           Certain Funds may acquire zero coupon or other corporate securities issued at a discount. As a holder of those securities, a Fund must include in its income the portion of the discount that accrues on them during the taxable year, even if the Fund receives no corresponding payment on the securities during the year. Similarly, a Fund must include in its gross income securities it receives as payment-in-kind securities. Because a Fund annually must distribute substantially all of its investment company taxable income, including any accreted discount and other non-cash income, to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, it may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from the Fund's cash assets or from the proceeds of sales of portfolio securities, if necessary. The Fund may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gains.

Ivy Municipal Bond Fund

           Dividends paid by Ivy Municipal Bond Fund will qualify as exempt-interest dividends, and thus will be excludable from its shareholders' gross income, if the Fund satisfies the additional requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consists of securities the interest on which is excludable from gross income under section 103(a); the Fund intends to continue to satisfy this requirement. The aggregate dividends excludable from all shareholders' gross income may not exceed the Fund's net tax-exempt income. Ivy Municipal Bond Fund uses the average annual method to determine the exempt income portion of each distribution, and the percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of its income that was tax-exempt during the period covered by the distribution. The treatment of dividends from the Fund under state and local income tax laws may differ from the treatment thereof under the Code.

           If the Fund's shares are sold at a loss after being held for six months or less, the loss will be disallowed to the extent of any exempt-interest dividends received on those shares. Tax-exempt interest attributable to certain PABs (including a proportionate part of the exempt-interest dividends paid by the Fund attributable thereto) is a tax preference item for purposes of the AMT. Exempt-interest dividends received by a corporate shareholder also may be indirectly subject to the AMT without regard to whether the Fund's tax-exempt interest was attributable to PABs.

           Up to 85% of social security and railroad retirement benefits may be included in taxable income for recipients whose adjusted gross income (including tax-exempt income such as the Fund's exempt-interest dividends) plus 50% of their benefits exceeds certain base amounts. Exempt-interest dividends from the Fund still are tax-exempt to the extent described above; they are only included in the calculation of whether a recipient's income exceeds the established amounts.

           If the Fund invests in any instruments that generate taxable income, under the circumstances described in its Prospectus, distributions of the income earned thereon will be taxable to the Fund's shareholders as ordinary income to the extent of its earnings and profits. Moreover, if the Fund realizes capital gains as a result of market transactions, any distribution of those gains will be taxable to its shareholders. There also may be collateral Federal income tax consequences regarding the receipt of exempt-interest dividends by shareholders such as S corporations, financial institutions, and property and casualty insurance companies. A shareholder falling into any such category should consult its tax adviser concerning its investment in shares of the Fund.

UNDERWRITER

           IFDI acts as principal underwriter and distributor of the Funds' shares pursuant to an underwriting agreement (the Underwriting Agreement). The Underwriting Agreement requires IFDI to use its best efforts to sell the shares of the Funds but is not exclusive, and permits and recognizes that IFDI also distributes shares of other investment companies and other securities. Shares are sold on a continuous basis. IFDI is not required to sell any particular number of shares, and sells shares only for purchase orders received. Under this agreement, IFDI pays the costs of sales literature, including the costs of shareholder reports used as sales literature. IFDI has served as principal underwriter and distributor to Ivy Funds, Inc. since June 16, 2003. Prior to June 16, 2003, Waddell & Reed, Inc. served as principal underwriter and distributor to Ivy Funds, Inc. On June 16, 2003, Waddell & Reed, Inc. assigned the Principal Underwriting Agreement with Ivy Funds, Inc. (formerly W&R Funds, Inc.) to IFDI, and such was approved by the Board of Directors on May 21, 2003.

           The aggregate dollar amounts of underwriting commissions for each Fund for Class A shares for the fiscal years ended March 31, 2003, 2002 and 2001 were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$ 44,257	49,220	55,325
Ivy Core Equity Fund	57,848	99,876	96,329
Ivy High Income Fund	68,060	26,214	10,912
Ivy International Growth Fund	25,086	43,432	90,757
Ivy Large Cap Growth Fund	69,362	93,171	240,775
Ivy Limited-Term Bond Fund	304,314	76,997	3,780
Ivy Mid Cap Growth Fund	69,276	94,488	162,467
Ivy Money Market Fund	---	---	---
Ivy Municipal Bond Fund	4,102	9,628	4,133
Ivy Science and Technology Fund	58,512	92,478	137,599
Ivy Small Cap Growth Fund	135,333	151,481	127,764
Ivy Tax-Managed Equity Fund	11,805	13,670	46,961

           The aggregate dollar amounts of underwriting commissions for the Funds for Class B shares for the fiscal years ended March 31, 2003, 2002 and 2001 were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$7,456	9,074	693
Ivy Core Equity Fund	11,967	6,559	3,712
Ivy High Income Fund	1,763	2,063	46
Ivy International Growth Fund	3,373	5,074	19
Ivy Large Cap Growth Fund	5,076	13,047	425
Ivy Limited-Term Bond Fund	9,546	878	---
Ivy Mid Cap Growth Fund	5,227	9,288	352
Ivy Money Market Fund	5,068	3,530	---
Ivy Municipal Bond Fund	60	0	---
Ivy Science and Technology Fund	6,600	8,035	1,046
Ivy Small Cap Growth Fund	14,141	9,820	629
Ivy Tax-Managed Equity Fund	816	1,081	---

           The aggregate dollar amounts of underwriting commissions for the Funds for Class C shares for the fiscal years ended March 31, 2003, 2002 and 2001 were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$ 1,583	2,201	2,300
Ivy Core Equity Fund	5,298	9,889	16,363
Ivy High Income Fund	607	585	235
Ivy International Growth Fund	956	1,901	15,985
Ivy Large Cap Growth Fund	646	1,293	1,334
Ivy Limited-Term Bond Fund	1,971	706	343
Ivy Mid Cap Growth Fund	895	1,264	1,009
Ivy Money Market Fund	1,302	4,554	2,709
Ivy Municipal Bond Fund	1,459	1,013	562
Ivy Science and Technology Fund	3,203	4,189	37,148
Ivy Small Cap Growth Fund	6,708	8,311	27,077
Ivy Tax-Managed Equity Fund	26	241	404

           The amounts retained for each Fund for the fiscal years ended March 31, 2003, 2002 and 2001 were as follows:

	2003	2002	2001
Ivy Asset Strategy Fund	$---	---	---
Ivy Core Equity Fund	---	---	---
Ivy High Income Fund	8,301	3,759	---
Ivy International Growth Fund	---	---	---
Ivy Large Cap Growth Fund	21,342	29,821	31,259
Ivy Limited-Term Bond Fund	68,871	15,907	---
Ivy Mid Cap Growth Fund	25,221	28,804	18,016
Ivy Money Market Fund	545	---	2,709
Ivy Municipal Bond Fund	---	---	---
Ivy Science and Technology Fund	---	---	---
Ivy Small Cap Growth Fund	---	---	---
Ivy Tax-Managed Equity Fund	4,319	4,963	11,478

PERFORMANCE INFORMATION

           IFDI or the Funds may, from time to time, publish for one or more of the Funds total return information, yield information and/or performance rankings in advertisements and sales materials.

Average Annual Total Returns (Before Taxes)

           Each Fund, when advertising average annual total return before taxes for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending redeemable value of such investment according to the following formula:

n
P(1 + T)	=	ERV
Where: P	=	a hypothetical initial payment of $1,000
T	=	average annual total return
n	=	period covered by computation expressed in years
ERV	=	ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion).

           The calculation for average annual total returns before taxes is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

           The ending redeemable value (variable "ERV" in the formula) is determined by assuming complete redemption of the hypothetical investment and the deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period.

           The average annual total return quotations for the Class A shares of each Fund with the maximum sales load deducted as of March 31, 2003, the date of the most recent balance sheet

included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-5.76%	-3.97%	7-10-00
Ivy Core Equity Fund	-29.71%	-18.70%	7-3-00
Ivy High Income Fund	-2.90%	2.24%	7-3-00
Ivy International Growth Fund	-27.35%	-27.24%	7-3-00
Ivy Large Cap Growth Fund	-25.91%	-12.66%	6-30-00
Ivy Limited-Term Bond Fund	1.64%	5.36%	8-17-00
Ivy Mid Cap Growth Fund	-29.43%	-14.35%	6-30-00
Ivy Municipal Bond Fund	4.09%	5.44%	9-15-00
Ivy Science and Technology Fund	-26.58%	-21.91%	7-3-00
Ivy Small Cap Growth Fund	-26.58%	-17.44%	7-3-00
Ivy Tax-Managed Equity Fund	-16.01%	-20.07%	6-30-00

           The average annual total return quotations for the Class A shares of each Fund without sales load deducted as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	0.00%	-1.85%	7-10-00
Ivy Core Equity Fund	-25.42%	-16.93%	7-3-00
Ivy High Income Fund	3.02%	4.47%	7-3-00
Ivy International Growth Fund	-22.91%	-25.65%	7-3-00
Ivy Large Cap Growth Fund	-21.39%	-10.76%	6-30-00
Ivy Limited-Term Bond Fund	6.15%	7.12%	8-17-00
Ivy Mid Cap Growth Fund	-25.13%	-12.48%	6-30-00
Ivy Municipal Bond Fund	8.71%	7.26%	9-15-00
Ivy Science and Technology Fund	-22.10%	-20.21%	7-3-00
Ivy Small Cap Growth Fund	-22.10%	-15.64%	7-3-00
Ivy Tax-Managed Equity Fund	-10.89%	-18.33%	6-30-00

           The average annual total return quotations for the Class B shares of each Fund with the maximum deferred sales charge deducted as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-4.87%	-3.52%	7-3-00
Ivy Core Equity Fund	-29.15%	-19.02%	7-11-00
Ivy High Income Fund	-1.74%	2.63%	7-18-00
Ivy International Growth Fund	-26.88%	-27.42%	7-10-00
Ivy Large Cap Growth Fund	-25.85%	-13.15%	7-6-00
Ivy Limited-Term Bond Fund	1.18%	5.30%	7-3-00
Ivy Mid Cap Growth Fund	-29.28%	-14.72%	7-6-00
Ivy Municipal Bond Fund	3.81%	5.19%	8-8-00
Ivy Science and Technology Fund	-26.07-3.44%	-21.66%	7-3-00
Ivy Small Cap Growth Fund	-26.06%	-16.55%	7-6-00
Ivy Tax-Managed Equity Fund	-15.11%	-20.41%	7-13-00

           The average annual total return quotations for the Class B shares of each Fund without the maximum deferred sales charge deducted as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-0.92%	-2.67%	7-3-00
Ivy Core Equity Fund	-26.20%	-18.30%	7-11-00
Ivy High Income Fund	2.06%	3.58%	7-18-00
Ivy International Growth Fund	-23.83%	-26.85%	7-10-00
Ivy Large Cap Growth Fund	-12.18%	-22.76%	7-6-00
Ivy Limited-Term Bond Fund	5.18%	6.30%	7-3-00
Ivy Mid Cap Growth Fund	-26.33%	-13.79%	7-6-00
Ivy Municipal Bond Fund	7.81%	6.22%	8-8-00
Ivy Science and Technology Fund	-22.99%	-21.01%	7-3-00
Ivy Small Cap Growth Fund	-15.93%	-22.98%	7-6-00
Ivy Tax-Managed Equity Fund	-11.57%	-19.51%	7-13-00

           The average annual total return quotations for the Class C shares of each fund as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Five-Year Period from 4-1-98 to 3-31-03	Ten-Year Period from 4-1-93 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-0.79%	5.77%	NA	6.81%	4-20-951
Ivy Core Equity Fund	-26.03%	-4.57%	6.23%	NA	9-21-921
Ivy High Income Fund	2.15%	1.62	NA	3.44%	7-31-971
Ivy International Growth Fund	-23.63%	-4.19%	4.33%	NA	9-21-921
Ivy Large Cap Growth Fund	-22.28%	NA	NA	-11.64%	7-3-00
Ivy Limited-Term Bond Fund	5.22%	4.87%	4.64%	NA%	9-21-921
Ivy Mid Cap Growth Fund	-25.88%	NA	NA	-13.36%	7-3-00
Ivy Municipal Bond Fund	7.75%	3.62%	4.86%	NA%	9-21-921
Ivy Science and Technology Fund	-22.76%	9.08	NA	11.52%	7-31-971
Ivy Small Cap Growth Fund	-22.70%	3.30%	12.71%	NA%	9-21-921
Ivy Tax-Managed Equity Fund	-11.87%	NA	NA	-19.30%	7-6-00

The returns shown are based on the performance of the Fund's prior Class B. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

           ¹Date of initial public offering of prior Class B shares.

           Ivy International Growth Fund, formerly W&R International Growth Fund (formerly Global Income Fund) changed its name and investment objective effective April 20, 1995. Prior to this change, this Fund's policies related to providing a high level of current income rather than long-term appreciation.

           The average annual total return quotations for Class Y shares as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is

incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Five-Year Period from 4-1-98 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	0.08%	6.70%	7.93%	12-29-95
Ivy Core Equity Fund	-25.35%	-3.75%	4.74%	12-29-95
Ivy High Income Fund	3.03%	NA	3.66%	12-30-98
Ivy International Growth Fund	-22.56%	-3.17%	5.75%	12-29-95
Ivy Large Cap Growth Fund	-21.26%	NA	-10.77%	7-6-00
Ivy Limited-Term Bond Fund	6.14%	5.84%	5.63%	12-29-95
Ivy Mid Cap Growth Fund	-24.86%	NA	-13.16%	7-10-00
Ivy Municipal Bond Fund	8.52%	NA	4.09%	12-30-981
Ivy Science and Technology Fund	-21.74%	NA	10.01%	6-9-98
Ivy Small Cap Growth Fund	-21.95%	4.20%	9.34%	12-29-95
Ivy Tax-Managed Equity Fund	NA	NA	NA	NA

¹All outstanding shares were redeemed on 6-23-97. Operations of the class recommenced on 12-30-98.

Average Annual Total Returns (After Taxes on Distributions)

           Each Fund, when advertising average annual total return after taxes on distributions for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending value of such investment according to the following formula:

n
P(1 + T)	=	ATVD
Where: P	=	a hypothetical initial payment of $1,000
T	=	average annual total return (after taxes on distributions)
n	=	period covered by computation expressed in years
ATVD	=	ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemption.

           The calculation for average annual total returns after taxes on distributions is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund, less taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

           The ending value (variable "ATVD" in the formula) is determined by assuming complete redemption of the hypothetical investment after deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period. The Fund assumes that the redemption has no tax consequences.

           The Fund calculates the taxes due on any distributions by applying the applicable tax rates to each component of the distributions (i.e., ordinary income, short-term capital gain, long-term capital gain). The taxable amount and tax character of each distribution will be as specified by the Fund on the dividend declaration date, unless adjusted to reflect subsequent recharacterizations of distributions. Distributions are adjusted to reflect the Federal tax impact of the distribution on an individual taxpayer on the reinvestment date. The effect of applicable tax credits, such as the foreign tax credit, are taken into account in accordance with Federal tax law. The Fund calculates taxes due on any distributions using the highest individual marginal Federal income tax rates in effect on the reinvestment date. Note that the required tax rates may vary over the measurement period. The Fund has disregarded any potential tax liabilities other than Federal tax liabilities (e.g., state and local taxes); the effect of phaseouts of certain exemptions, deductions, and credits at various income levels; and the impact of the Federal alternative minimum tax.

           The quotations for average annual total return after taxes on distributions for the Class A shares of the following Funds with the maximum sales load deducted as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Large Cap Growth Fund	-25.91%	-12.78%	6-30-00
Ivy Mid Cap Growth Fund	-29.44%	-14.81%	6-30-00
Ivy Tax-Managed Equity Fund	-16.01%	-20.07%	6-30-00

           The quotations for average annual total return after taxes on distributions for the Class C shares of the following Funds as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02to 3-31-03	Five-Year Period from 4-1-98 to 3-31-03	Ten-Year Period from 4-1-93 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-1.00%	3.66%	NA	4.90%	4-20-951
Ivy Core Equity Fund	-26.03%	-6.07%	5.28%	NA%	9-21-921
Ivy High Income Fund	-0.92%	-1.35%	NA	0.52%	7-31-971
Ivy International Growth Fund	-23.63%	-6.80%	2.17%	NA%	9-21-921
Ivy Limited-Term Bond Fund	3.96%	3.14%	2.92%	NA%	9-21-921
Ivy Municipal Bond Fund	7.74%	3.44%	4.69%	NA%	9-21-921
Ivy Science and Technology Fund	-22.76%	7.81%	NA	10.37%	7-31-97
Ivy Small Cap Growth Fund	-22.70%	-0.38%	10.16%	NA%	9-21-921

The returns shown are based on the performance of the Fund's prior Class B. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

           ¹Date of initial public offering of prior Class B shares.

Average Annual Total Returns (After Taxes on Distributions and Redemption of Shares)

           Each Fund, when advertising average annual total return after taxes on distributions and redemption for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending value of such investment according to the following formula:

n
P(1 + T)	=	ATVDR
Where: P	=	a hypothetical initial payment of $1,000
T	=	average annual total return (after taxes on distributions and redemption)
n	=	period covered by computation expressed in years
ATVDR	=	ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions and redemption.

           The calculation for average annual total returns after taxes on distributions and redemption is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund, less taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

           The Fund calculates the taxes due on any distributions as described above under Average Annual Total Returns (After Taxes on Distributions).

           The ending value (variable "ATVDR" in the formula) is determined by assuming complete redemption of the hypothetical investment after deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period. The Fund calculates the capital gain or loss upon redemption by subtracting the tax basis from the redemption proceeds (after deducting any non-recurring charges). The Fund separately tracks the basis of shares acquired through the $1,000 initial hypothetical investment and each subsequent purchase through reinvested distributions. In determining the basis for a reinvested distribution, the Fund includes the distribution net of taxes assumed paid from the distribution. Tax basis is adjusted for any distributions representing returns of capital and any other tax basis adjustments that would apply to an individual taxpayer, as permitted by applicable Federal tax law.

           The amount and character (e.g., short-term or long-term) of capital gain or loss upon redemption is separately determined for shares acquired through the hypothetical $1,000 initial investment and each subsequent purchase through reinvested distributions. The Fund does not assume that shares acquired through reinvestment of distributions have the same holding period as the initial $1,000 investment. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions.

           The Fund calculates capital gain taxes (or the benefit resulting from tax losses) using the highest Federal individual capital gains tax rate for gains of the appropriate character in effect on the redemption date and in accordance with Federal tax law applicable on the redemption date. The Fund assumes that a shareholder has sufficient capital gains of the same character from other investments to offset any capital losses from the redemption so that the taxpayer may deduct the capital losses in full.

           The quotations for average annual total return after taxes on distributions and redemption of

shares for the Class A shares of the following Funds with the maximum sales load deducted as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Large Cap Growth Fund	-16.84%	-9.87%	6-30-00
Ivy Mid Cap Growth Fund	-19.13%	-11.15%	6-30-00
Ivy Tax-Managed Equity Fund	-10.41%	-15.36%	6-30-00

           The quotations for average annual total return after taxes on distributions and redemption of shares for the Class C shares of the following Funds as of March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for the periods shown were as follows:

	One-Year Period from 4-1-02to 3-31-03	Five-Year Period from 4-1-98 to 3-31-03	Ten-Year Period from 4-1-93 to 3-31-03	Period from Class Inception to 3-31-03	Date of Class Inception
Ivy Asset Strategy Fund	-0.46%	4.24%	NA	5.09%	4-20-951
Ivy Core Equity Fund	-16.92%	-2.74%	5.76%	5.76%	9-21-921
Ivy High Income Fund	1.78%	0.40%	NA	1.88%	7-31-971
Ivy International Growth Fund	-15.36%	-2.39%	3.83%	NA%	9-21-921
Ivy Limited-Term Bond Fund	3.52%	3.36%	3.15%	NA%	9-21-921
Ivy Municipal Bond Fund	6.11%	3.55%	4.62%	NA%	9-21-921
Ivy Science and Technology Fund	-14.80%	8.41%	NA	10.47%	7-31-97
Ivy Small Cap Growth Fund	-14.76%	3.13%	11.02%	NA%	9-21-921

The returns shown are based on the performance of the Fund's prior Class B. On March 24, 2000, that Class B was combined with and redesignated as Class C, which had commenced operations on October 4, 1999. The prior Class B performance has been adjusted to reflect the current CDSC structure applicable to Class C. Accordingly, these returns reflect no CDSC since it only applies to Class C shares held for twelve months or less.

           ¹Date of initial public offering of prior Class B shares.

           Non-standardized performance information may also be presented that may not reflect the initial front-end sales charge or the deferred sales charge.

           A Fund may also quote unaveraged or cumulative total return for a class which reflects the change in value of an investment in that class over a stated period of time. Cumulative total returns will be calculated according to the formula indicated above but without averaging the rate for the number of years in the period.

Yield

           Yield refers to the income generated by an investment in a Fund over a given period of time. A yield quoted for a class of a Fund is computed by dividing the net investment income per share of that class earned during the period for which the yield is shown by the maximum offering price per share of that class on the last day of that period according to the following formula:

6
Yield	=	2 ((((a - b)/cd)+1) -1)
Where with respect to a particular class of the Fund:
a	=	dividends and interest earned during the period.
b	=	expenses accrued for the period (net of reimbursements).
c	=	the average daily number of shares of the class outstanding during the period that were entitled to receive dividends.
d	=	the maximum offering price per share of the class on the last day of the period.

           The yields computed according to the formula for the 30-day period ended on March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for Class A shares of each of Ivy High Income Fund, Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund are:

Ivy High Income Fund	5.89%
Ivy Limited-Term Bond Fund	1.96%
Ivy Municipal Bond Fund	3.07%

           The yields computed according to the formula for the 30-day period ended on March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for Class B shares of each of Ivy High Income Fund, Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund are:

Ivy High Income Fund	5.28%
Ivy Limited-Term Bond Fund	1.17%
Ivy Municipal Bond Fund	2.40%

           The yields computed according to the formula for the 30-day period ended on March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for Class C shares of each of Ivy High Income Fund, Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund are:

Ivy High Income Fund	5.42%
Ivy Limited-Term Bond Fund	1.28%
Ivy Municipal Bond Fund	2.38%

           The yield computed according to the formula for the 30-day period ended on March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, for Class Y shares of each of Ivy High Income Fund, Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund are:

Ivy High Income Fund	6.50%
Ivy Limited-Term Bond Fund	2.11%
Ivy Municipal Bond Fund	3.01%

           Ivy Municipal Bond Fund may also advertise or include in sales materials its tax equivalent yield, which is calculated by applying the stated income tax rate to only the net investment income exempt from taxation according to a standard formula which provides for computation of tax equivalent yield by dividing that portion of the Fund's yield which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax-exempt.

           The tax equivalent yield for shares of Ivy Municipal Bond Fund computed according to the formula for the 30-day period ended on March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, is:

Class	10%	15%	25%	28%	33%	35%
A shares	Not available	Not available	Not available	Not available	Not available	Not available
B shares	Not available	Not available	Not available	Not available	Not available	Not available
C shares	Not available	Not available	Not available	Not available	Not available	Not available
Y shares	Not available	Not available	Not available	Not available	Not available	Not available

           The following information relates to Ivy Money Market Fund. There are two methods by which yield is calculated for a specified time period for a class of shares of the Fund. The first method, which results in an amount referred to as the "current yield," assumes an account containing exactly one share of the applicable class at the beginning of the period. The NAV of this share will be $1.00, except under extraordinary circumstances. The net change in the value of the account during the period is then determined by subtracting this beginning value from the value of the account at the end of the period which will include all dividends accrued for a share of such class; however, capital changes are excluded from the calculation, i.e., realized gains and losses from the sale of securities and unrealized appreciation and depreciation. However, so that the change will not reflect the capital changes to be excluded, the dividends used in the yield computation may not be the same as the dividends actually declared, as certain realized gains and losses and, under unusual circumstances, unrealized gains and losses (see Purchase, Redemption and Pricing of Shares), will be taken into account in the calculation of dividends actually declared. Instead, the dividends used in the yield calculation will be those which would have been declared if the capital changes had not affected the dividends.

           This net change in the account value is then divided by the value of the account at the beginning of the period (i.e., normally $1.00 as discussed above) and the resulting figure (referred to as the base period return) is then annualized by multiplying it by 365 and dividing it by the number of days in the period with the resulting current yield figure carried to at least the nearest hundredth of one percent.

           The second method results in a figure referred to as the "effective yield." This represents an annualization of the current yield with dividends reinvested daily. Effective yield is calculated by compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result and rounding the result to the nearest hundredth of one percent according to the following formula:

365/7

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)] - 1

           The yield for Ivy Money Market Fund's Class A shares, Class B shares and Class C shares as calculated above for the seven days ended March 31, 2003, the date of the most recent balance sheet included in the Funds' Annual Report to Shareholders, which is incorporated into this SAI by reference, was 0.95%, 0.05% and 0.05%, respectively. The effective yield calculated for the same period was 0.95%, 0.05% and 0.05%, respectively.

           Changes in yields primarily reflect different interest rates received by a Fund as its portfolio

securities change. Yield is also affected by portfolio quality, portfolio maturity, type of securities held and operating expenses.

Performance Rankings and Other Information

           IFDI or the Funds may also publish, for one or more of the twelve Funds, in advertisements or sales material performance rankings as published by recognized independent mutual fund statistical services such as Lipper Analytical Services, Inc., or by publications of general interest such as The Wall Street Journal, Business Week, Barron's, Fortune, Morningstar, etc. Each class of a Fund may also compare its performance to that of other selected mutual funds or selected recognized market indicators such as the Standard & Poor's 500 Composite Stock Price Index and the Dow Jones Industrial Average. Performance information may be quoted numerically or presented in a table, graph or other illustration. In connection with a ranking, a Fund may provide additional information, such as the particular category to which it related, the number of funds in the category, the criteria upon which the ranking is based, and the effect of sales charges, fee waivers and/or expense reimbursements.

           Performance information for a Fund may be accompanied by information about market conditions and other factors that affected the Fund's performance for the period(s) shown.

           All performance information that a Fund advertises or includes in sales material is historical in nature and is not intended to represent or guarantee future results. The value of a Fund's shares when redeemed may be more or less than their original cost.

FINANCIAL STATEMENTS

           The Financial Statements, including notes thereto, for the fiscal year ended March 31, 2003 are incorporated herein by reference. They are contained in the Funds' Annual Report to Shareholders, dated March 31, 2003, which is available upon request.

APPENDIX A

           The following are descriptions of some of the ratings of securities which the Fund may use. The Fund may also use ratings provided by other nationally recognized statistical rating organizations in determining the securities eligible for investment.

DESCRIPTION OF BOND RATINGS

           Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A Standard & Poor's (S&P) corporate bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment of creditworthiness may take into consideration obligors such as guarantors, insurers or lessees.

           The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

           The ratings are based on current information furnished to S&P by the issuer or obtained by

S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

           The ratings are based, in varying degrees, on the following considerations:

           1.           Likelihood of default -- capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;

           2.           Nature of and provisions of the obligation;

           3.           Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

           AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.

           AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay interest and repay principal is very strong, and debt rated AA differs from AAA issues only in a small degree.

           A -- Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

           BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.

           BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.

           BB -- Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.

           B -- Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.

           CCC -- Debt rated CCC has a currently indefinable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and

repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.

           CC -- The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.

           C -- The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

           CI -- The rating CI is reserved for income bonds on which no interest is being paid.

           D -- Debt rated D is in payment default. It is used when interest payments or principal payments are not made on a due date even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace periods. The D rating will also be used upon a filing of a bankruptcy petition if debt service payments are jeopardized.

           Plus (+) or Minus (-) -- To provide more detailed indications of credit quality, the ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

           NR -- Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

           Debt Obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.

           Bond Investment Quality Standards: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories (AAA, AA, A, BBB, commonly known as investment grade ratings) are generally regarded as eligible for bank investment. In addition, the laws of various states governing legal investments may impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally.

           Moody's Corporation. A brief description of the applicable Moody's Corporation (Moody's) rating symbols and their meanings follows:

           Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edge. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

           Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements

present which make the long-term risks appear somewhat larger than in Aaa securities.

           A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.

           Baa -- Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Some bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

NOTE: Bonds within the above categories which possess the strongest investment attributes are designated by the symbol 1 following the rating.

           Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during good and bad times over the future. Uncertainty of position characterizes bonds in this class.

           B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

           Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

           Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

           C -- Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Description of Preferred Stock Ratings

           Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer.

           The preferred stock ratings are based on the following considerations:

1.           Likelihood of payment - capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation;

2.           Nature of, and provisions of, the issue;

3.           Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.

           AAA -- This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations.

           AA -- A preferred stock issue rated AA also qualifies as a high-quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.

           A -- An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

           BBB -- An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the 'A' category.

           BB, B, CCC - -- Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and CCC the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

           CC -- The rating CC is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying.

           C -- A preferred stock rated C is a non-paying issue.

           D -- A preferred stock rated D is a non-paying issue with the issuer in default on debt instruments.

           NR -- This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

           Plus (+) or minus (-) -- To provide more detailed indications of preferred stock quality, the rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

           A preferred stock rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

           Moody's Investors Service, Inc. Because of the fundamental differences between preferred stocks and bonds, a variation of Moody's familiar bond rating symbols is used in the quality ranking of preferred stock. The symbols are designed to avoid comparison with bond quality in absolute terms. It should always be borne in mind that preferred stock occupies a junior position to bonds within a particular capital structure and that these securities are rated within the universe of preferred stocks.

           Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating classification; the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

           Preferred stock rating symbols and their definitions are as follows:

           aaa -- An issue which is rated aaa is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.

           aa -- An issue which is rated aa is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future.

           a -- An issue which is rated a is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the aaa and aa classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.

           baa -- An issue which is rated baa is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time.

           ba -- An issue which is rated ba is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.

           b -- An issue which is rated b generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small.

           caa -- An issue which is rated caa is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments.

           ca -- An issue which is rated ca is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments.

           c -- This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

DESCRIPTION OF NOTE RATINGS

           Standard and Poor's, a division of The McGraw-Hill Companies, Inc. An S&P note rating reflects the liquidity factors and market access risks unique to notes. Notes maturing in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment.

           --Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue is to be treated as a note).

           --Source of Payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note).

           The note rating symbols and definitions are as follows:

           SP-1 Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation.

           SP-2 Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

           SP-3 Speculative capacity to pay principal and interest.

           Moody's Investors Service, Inc. Moody's Short-Term Loan Ratings -- Moody's ratings for state and municipal short-term obligations will be designated Moody's Investment Grade (MIG). This distinction is in recognition of the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower are uppermost in importance in short-term borrowing, while various factors of major importance in bond risk are of lesser importance over the short run. Rating symbols and their meanings follow:

           MIG 1 -- This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

           MIG 2 -- This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.

           MIG 3 -- This designation denotes favorable quality. All security elements are accounted for but this is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.

           MIG 4 -- This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

           Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. Issuers rated A are further referred to by use of numbers 1, 2

and 3 to indicate the relative degree of safety. Issues assigned an A rating (the highest rating) are regarded as having the greatest capacity for timely payment. An A-1 designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. An A-2 rating indicates that capacity for timely payment is satisfactory; however, the relative degree of safety is not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment; however, they are more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. A C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default, which occurs when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period.

           Moody's Corporation commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's employs the designations of Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. Issuers rated Prime 1 have a superior capacity for repayment of short-term promissory obligations and repayment capacity will normally be evidenced by (1) lending market positions in well established industries; (2) high rates of return on Funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime 2 also have a strong capacity for repayment of short-term promissory obligations as will normally be evidenced by many of the characteristics described above for Prime 1 issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation; capitalization characteristics, while still appropriate, may be more affected by external conditions; and ample alternate liquidity is maintained. Issuers rated Prime 3 have an acceptable capacity for repayment of short-term promissory obligations, as will normally be evidenced by many of the characteristics above for Prime 1 issuers, but to a lesser degree. The effect of industry characteristics and market composition may be more pronounced; variability in earnings and profitability may result in changes in the level of debt protection measurements and requirement for relatively high financial leverage; and adequate alternate liquidity is maintained.

           Fitch Ratings-National Short-term Credit Ratings

           F1-Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under Fitch Ratings' national rating scale, this rating is assigned to the best credit risk relative to all others in the same country and is normally assigned to all financial commitments issued or guaranteed by the government. Where the credit risk is particularly strong, a + is added to the assigned rating.

           F2-Indicates a satisfactory capacity for timely payment of financial commitments relative other issuers in the same country. However, the margin of safety is not as great as in the case of the higher ratings.

           F3-Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, such capacity is more susceptible to near-term adverse changes than for financial commitments in higher rated categories.

           B-Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Such capacity is highly susceptible to near-term

adverse changes in financial and economic conditions.

           C-Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issues in the same country. Capacity or meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.

           D-Indicates actual or imminent payment default.

           Notes to Short-term national rating:

           + or - may be appended to a national rating to denote relative status within a major rating category. Such suffixes are not added to Short-term national ratings other than F1.

           Ratings Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or maintained. Rating Watch is typically resolved over a relatively short period. EX-99.(17)(J) 15 c78747exv99wx17yxjy.htm EX-(17)(J)IVY FUNDS&IVY FUNDS,INC.PRELIMINARY SAI

EXHIBIT (17)(j)

Ivy Balanced Fund
Ivy Bond Fund
Ivy International Balanced Fund
Ivy Mortgage Securities Fund
Ivy Real Estate Securities Fund
Ivy Small Cap Value Fund
Ivy Value Fund

series of
IVY FUNDS
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
STATEMENT OF ADDITIONAL INFORMATION
_________________, 2003

     Ivy Funds (the “Trust”) is an open-end management investment company that currently consists of eight portfolios. This Statement of Additional Information (“SAI”) relates to the Class A, B, C and Y shares of the Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Mortgage Securities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund, and Ivy Value Fund, (each a “Fund” and, collectively, the “Funds”). The other eight portfolios of the Trust are described in separate prospectuses and SAIs.

     This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated      , 2003, as supplemented from time to time (the “Prospectus”), which may be obtained upon request and without charge from the Trust at the Distributor’s address and telephone number printed below.

Investment Manager
Waddell & Reed Ivy Investment Company (“WRIICO”)
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217

Distributor
Ivy Funds Distributor, Inc. (“IFDI”)
6300 Lamar Avenue
Shawnee Mission, Kansas 66201
P. O. Box 29217-9217

TABLE OF CONTENTS

General Information

Investments Objectives, Strategies and Limitations

Investment Restrictions

Portfolio Turnover

Management of the Funds

Principal Holders of Securities

Investment Advisory and Other Services

Brokerage Allocation

Proxy Voting Policy

Capital Stock

Purchase, Redemption and Pricing of Shares

Taxation of the Fund

Underwriter

Performance Information

Appendix A

GENERAL INFORMATION

     Each Fund is organized as a separate, diversified portfolio of Ivy Funds (the “Trust”), an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. Each Fund is newly organized, and has not commenced operations as of the date of this SAI.

     Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that WRIICO or a sub-advisor, in its discretion, might, but is not required to, use in managing each Fund’s portfolio assets. For example, WRIICO or a sub-advisor may, as the case may be, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund’s overall investment strategy, from time to time have a material impact on that Fund’s performance.

INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS

     Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions “Summary” and “Additional Information About Strategies and Risks.” Descriptions of each Fund’s policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund’s investment techniques, are set forth below.

     Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund’s asset level or other circumstances beyond a Fund’s control, will not be considered a violation.

Fund Names And Investment Policies

     Ivy Mortgage Securities Fund, Ivy Bond Fund, Ivy Real Estate Securities Fund and Ivy Small Cap Value Fund have names that suggest a focus on a particular type of investment. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the “1940 Act”), each of those Funds has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, “assets” means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Fund’s policy to invest at least 80% of its assets in such a manner is not a “fundamental” one, which means that it may be changed without the vote of a majority of the Fund’s outstanding shares as defined in the 1940 Act. However, Rule 35d-1 requires that shareholders be given written notice at least 60 days prior to any change by a Fund of its 80% investment policy.

Equity Securities Of Small Capitalization Companies

     The Ivy Small Cap Value Fund will invest primarily in equity securities issued by small capitalization companies. Ivy International Balanced Fund and Ivy Balanced Fund, and to the extent specified by the Prospectus, Ivy Value Fund and Ivy Real Estate Securities Fund may also invest in such securities. Small capitalization companies may be in a relatively early stage of development or may produce goods and services which have favorable prospects for growth due to increasing demand or developing markets. Frequently, such companies have a small management group and single product or product-line expertise that may result in an enhanced entrepreneurial spirit and greater focus which allow such firms to be successful. WRIICO, or the respective Fund’s investment sub-advisor, believes that such companies may develop into significant business enterprises and that an investment in such companies offers a greater opportunity for capital appreciation than an investment in larger more

established entities. However, small capitalization companies frequently retain a large part of their earnings for research, development and investment in capital assets, so that the prospects for immediate dividend income are limited.

     While securities issued by smaller capitalization companies have historically produced better market results than the securities of larger issuers, there is no assurance that they will continue to do so or that the Fund will invest specifically in those companies which produce those results. Because of the risks involved, the Fund is not intended to constitute a complete investment program.

Debt And Money Market Securities

     Each of the Funds may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. The debt instruments in which these Funds may invest include the following:

• Corporate obligations which at the time of purchase are rated within the four highest grades assigned by Standard & Poor’s Corporation (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) or any other national rating service, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be. To the extent that the Fund invests in securities rated BBB or Baa by S&P or Moody’s, respectively, it will be investing in securities which have speculative elements. As an operating policy, Ivy International Balanced Fund will not invest more than 5% of its assets in debt securities rated BBB by S&P or Baa by Moody’s. In addition, Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may also invest up to 10% of their respective net assets in securities rated BB or Ba by S&P or Moody’s, respectively, and Ivy Small Cap Value Fund may also invest up to 10% of its net assets in securities (including convertible securities) rated at least B- by S&P or by B3 by Moody’s. See “Low Rated Securities,” below. For a description of the ratings used by Moody’s and S&P, see Appendix A below.

• Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.

• Debt obligations of banks.

     Ivy Bond Fund may also purchase U.S. dollar denominated debt securities of foreign governments and companies which are publicly traded in the United States and rated within the four highest grades assigned by S&P or Moody’s.

     In addition to the instruments described above, which will generally be long-term, but may be purchased by a Fund within one year of the date of a security’s maturity, a Fund may also purchase other high quality securities including:

• Obligations (including certificates of deposit and bankers acceptances) of U.S. banks, savings and loan associations, savings banks which have total assets (as of the date of their most recent annual financial statements at the time of investment) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks and U.S. branches or agencies of foreign banks which meet the above-stated asset size; and obligations of any U.S. banks, savings and loan associations

	and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations purchased does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation.
•	Obligations of the International Bank for Reconstruction and Development.
•	Commercial paper (including variable amount master demand notes) issued by U.S. corporations or affiliated foreign corporations and rated (or guaranteed by a company whose commercial paper is rated) at the date of investment Prime-1 by Moody’s or A-1 by S&P or, if not rated by either Moody’s or S&P, issued by a corporation having an outstanding debt issue rated Aa or better by Moody’s or AA or better by S&P and, if issued by an affiliated foreign corporation, such commercial paper (not to exceed in the aggregate 10% of such Fund’s (other than Ivy Mortgage Securities Fund’s) net assets) is U.S. dollar denominated and not subject at the time of purchase to foreign tax withholding.

     A Fund may also invest in securities which are unrated if WRIICO or a sub-advisor, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of “split-rated” securities, which result when nationally- recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody’s), it is each Fund’s general policy to classify such securities at the higher rating level where, in the judgment of WRIICO or sub-advisor, as the case may be, such classification reasonably reflects the security’s quality and risk.

     The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in each Fund’s net asset value.

     A Fund may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is each Fund’s general policy to dispose of such down-graded securities except when, in the judgment of WRIICO or sub-advisor, as the case may be, it is to the Fund’s advantage to continue to hold such securities. In no event, however, will any Fund hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Fund. This 5% is in addition to securities which the Fund may otherwise purchase under its usual investment policies.

Low Rated Securities

     Ivy Value Fund and Ivy Small Cap Value Fund may also invest up to 10% of their respective net assets in debt securities (including convertible debt securities), which at the time of acquisition are rated at least B- or B3 by S&P or Moody’s, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or if not rated, are of equivalent investment quality as determined by WRIICO, or sub- advisor, as the case may be. Ivy Balanced Fund, Ivy Mortgage Securities Fund, and Ivy Bond Fund may invest up to 10% of their respective net assets in corporate bonds and mortgage-related securities, including

convertible securities, which, at the time of acquisition, are rated BB or Ba by S&P or Moody’s, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub- advisor, as the case may be. Each Fund (except for Ivy Real Estate Securities Fund) may also hold an additional 5% of its net assets in securities rated below “investment grade” (i.e. below BBB) where such securities were either investment grade or eligible low rated securities at the time of purchase but subsequently down-graded to a rating not otherwise eligible for purchase by the Fund (see “Debt and Money Market Securities” above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called “junk bonds.” These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments.

     Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish a Fund’s ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Fund’s shares.

     Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of a Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher rated securities.

     Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, a Fund may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession.

Convertible Securities

     Each of Funds (except Ivy International Balanced Fund) may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. The total return and yield of lower quality (high yield/high risk) convertible bonds can be expected to fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not

as much as common stocks. Ivy Value Fund, Ivy Balanced Fund, and Ivy Small Cap Value Fund will limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least B- by S&P or B3 by Moody’s, or if not rated by S&P of Moody’s, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be. See “Low Rated Securities” above. Ivy Bond Fund, Real Estates Securities Fund, and Ivy Mortgage Securities Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BB or Ba by S&P or Moody’s, respectively, or if not rated by S&P or Moody’s, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be.

U.S. Government Obligations

     These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association (“GNMA”), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association (“FNMA”).

Obligations Of Non-Domestic Banks

     Each Fund may invest in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks, which may involve somewhat greater opportunity for income than the other money market instruments in which such Funds invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and financial recordkeeping standards as, domestic banks. A Fund will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and

agencies of foreign banks.

Mortgage-Related Securities

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may invest in mortgage-related securities (including securities which represent interests in pools of mortgage loans) issued by government (some of which may be U.S. Government agency issued or guaranteed securities as described herein) and non-government entities such as banks, mortgage lenders or other financial institutions. These securities may include both collateralized mortgage obligations and stripped mortgage-backed securities. Mortgage loans are originated and formed into pools by various organizations, including the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and various private organizations including commercial banks and other mortgage lenders. Payments on mortgage-related securities generally consist of both principal and interest, with occasional repayments of principal due to refinancings, foreclosures or certain other events. Some mortgage-related securities, such as collateralized mortgage obligations, make payments of both principal and interest at a variety of intervals. Certain mortgage-related securities, such as GNMA securities, entitle the holder to receive such payments, regardless of whether or not the mortgagor makes loan payments; certain mortgage-related securities, such as FNMA securities, guarantee the timely payment of interest and principal; certain mortgage-related securities, such as FHLMC securities, guarantee the timely payment of interest and ultimate collection of principal; and certain mortgage- related securities contain no such guarantees but may offer higher rates of return. No mortgage-related securities guarantee a Fund’s yield or the price of its shares.

     Each of these Funds expects its investments in mortgage-related securities to be primarily in high-grade mortgage-related securities either (a) issued by GNMA, FNMA or FHLMC or other United States Government owned or sponsored corporations or (b) rated A or better by S&P or Moody’s, or rated at a comparable level by another independent publicly- recognized rating agency, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be. Each of these Funds may invest in mortgage-related securities rated BBB or Baa by S&P or Moody’s, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be, when deemed by WRIICO or sub-advisor to be consistent with the Fund’s respective investment objective. To the extent that a Fund invests in securities rated BBB or Baa by S&P or Moody’s, respectively, it will be investing in securities which have speculative elements. Each of these Funds may also invest up to 10% of its assets in mortgage-related securities rated BB or Ba by S&P or Moody’s, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be. See “Low Rated Securities,” above. Ivy Mortgage Securities Fund may not invest more than 35% of its total assets in securities rated BBB or Baa or lower by S&P or Moody’s, respectively. For further information about the characteristics and risks of mortgage-related securities, and for a description of the ratings used by Moody’s and S&P, see Appendix A.

U.S. Government Mortgage-Related Securities

     A governmental (i.e., backed by the full faith and credit of the U.S. Government) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal

and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.

     Government-related (i.e., not backed by the full faith and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases residential mortgages from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government.

     FHLMC is a corporate instrumentality of the U.S. Government and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is publicly traded. FHLMC issues Participation Certificates (“PCs”) which represent interests in mortgages from FHLMC’s national portfolio. FHLMC guarantees the timely payment of interest and principal on most PCs. There are some PCs, however, on which FHLMC guarantees the timely payment of interest but only the ultimate payment of principal. PCs are not backed by the full faith and credit of the U.S. Government.

Non-Governmental Mortgage-Related Securities

     Ivy Mortgage Securities Fund, Ivy Balanced Fund, and Ivy Bond Fund may invest in non-governmental mortgage-related securities. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential and commercial mortgage loans. Such issuers may in addition be the originators and servicers of the underlying mortgage loans as well as the guarantors of the mortgage- related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government- related pools because there are no direct or indirect government guarantees of payments in the former pools. However, timely payment of interest and principal of these pools is supported by various forms of insurance, guarantees and credit enhancements, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets a Fund’s investment quality standards. There can be no assurance that the private insurers can meet their obligations under the policies. Each of these Funds may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers WRIICO or sub-advisor, as the case may be, determines that the securities meet the Fund’s quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. A Fund will not purchase mortgage-related securities or any other assets which in WRIICO’s or sub-advisor’s opinion are illiquid if, as a result, more than 15% of the value of the Fund’s net assets will be illiquid.

Collateralized Mortgage Obligations

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may invest in collateralized mortgage obligations (“CMOs”), in which several different series of bonds or certificates secured by pools of mortgage-backed securities or mortgage loans, are issued. The series differ from each other in terms of the priority rights which each has to receive cash flows with the CMO from the underlying collateral. Each CMO

series may also be issued in multiple classes. Each class of a CMO series, often referred to as a “tranche,” is usually issued at a specific coupon rate and has a stated maturity. The underlying security for the CMO may consist of mortgage-backed securities issued or guaranteed by U.S. Government agencies or whole loans. CMOs backed by U.S. Government agency securities retain the credit quality of such agency securities and therefore present minimal credit risk. CMOs backed by whole loans typically carry various forms of credit enhancements to protect against credit losses and provide investment grade ratings. Unlike traditional mortgage pass-through securities, which simply pass through interest and principal on a pro rata basis as received, CMOs allocate the principal and interest from the underlying mortgages among the several classes or tranches of the CMO in many ways. All residential, and some commercial, mortgage-related securities are subject to prepayment risk. A CMO does not eliminate that risk, but, by establishing an order of priority among the various tranches for the receipt and timing of principal payments, it can reallocate that risk among the tranches. Therefore, the stream of payments received by a CMO bondholder may differ dramatically from that received by an investor holding a traditional pass-through security backed by the same collateral.

     In the traditional form of CMO, interest is paid currently on all tranches but principal payments are applied sequentially to retire each tranche in order of stated maturity. Traditional sequential payment CMOs have evolved into numerous more flexible forms of CMO structures which can vary frequency of payments, maturities, prepayment risk and performance characteristics. The differences between these new types of CMOs relate primarily to the manner in which each varies the amount and timing of principal and interest received by each tranche from the underlying collateral. Under all but the sequential payment structures, specific tranches of CMOs have priority rights over other tranches with respect to the amount and timing of cash flow from the underlying mortgages.

     The primary risk associated with any mortgage security is the uncertainty of the timing of cash flows; specifically, uncertainty about the possibility of either the receipt of unanticipated principal in falling interest rate environments (prepayment or call risk) or the failure to receive anticipated principal in rising interest rate environments (extension risk). In a CMO, that uncertainty may be allocated to a greater or lesser degree to specific tranches depending on the relative cash flow priorities of those tranches. By establishing priority rights to receive and reallocate payments of prepaid principal, the higher priority tranches are able to offer better call protection and extension protection relative to the lower priority classes in the same CMO. For example, when insufficient principal is received to make scheduled principal payments on all tranches, the higher priority tranches receive their scheduled premium payments first and thus bear less extension risk than lower priority tranches. Conversely, when principal is received in excess of scheduled principal payments on all tranches (call risk), the lower priority tranches are required to receive such excess principal until they are retired and thus bear greater prepayment risk than the higher priority tranches. Therefore, depending on the type of CMO purchased, an investment may be subject to a greater or lesser risk of prepayment, and experience a greater or lesser volatility in average life, yield, duration and price, than other types of mortgage-related securities. A CMO tranche may also have a coupon rate which resets periodically at a specified increment over an index. These floating rate CMOs are typically issued with lifetime caps on the level to which the floating coupon rate is allowed to rise. Each of these Funds may invest in such securities, usually subject to a cap, provided such securities satisfy the same requirements regarding cash flow priority applicable to the Fund’s purchase of CMOs generally. CMOs are typically traded over the counter rather than on centralized exchanges. Because CMOs of the type purchased by the Fund tend to have relatively more predictable yields and

are relatively less volatile, they are also generally more liquid than CMOs with greater prepayment risk and more volatile performance profiles.

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may also purchase CMOs known as “accrual” or “Z” bonds. An accrual or Z bond holder is not entitled to receive cash payments until one or more other classes of the CMO have been paid in full from payments on the mortgage loans underlying the CMO. During the period in which cash payments are not being made on the Z tranche, interest accrues on the Z tranche at a stated rate, and this accrued interest is added to the amount of principal which is due to the holder of the Z tranche. After the other classes have been paid in full, cash payments are made on the Z tranche until its principal (including previously accrued interest which was added to principal, as described above) and accrued interest at the stated rate have been paid in full. Generally, the date upon which cash payments begin to be made on a Z tranche depends on the rate at which the mortgage loans underlying the CMO are prepaid, with a faster prepayment rate resulting in an earlier commencement of cash payments on the Z tranche. Like a zero coupon bond, during its accrual period the Z tranche of a CMO has the advantage of eliminating the risk of reinvesting interest payments at lower rates during a period of declining market interest rates. At the same time, however, and also like a zero coupon bond, the market value of a Z tranche can be expected to fluctuate more widely with changes in market interest rates than would the market value of a tranche which pays interest currently. Changes in market interest rates also can be expected to influence prepayment rates on the mortgage loans underlying the CMO of which a Z tranche is a part. As noted above, such changes in prepayment rates will affect the date at which cash payments begin to be made on a Z tranche, and therefore also will influence its market value. As an operating policy, Ivy Mortgage Securities Fund, Ivy Balanced Fund, and Ivy Bond Fund will not purchase a Z bond if the respective Fund’s aggregate investment in Z bonds which are then still in their accrual periods would exceed 20% of the Fund’s total assets (Z bonds which have begun to receive cash payments are not included for purposes of this 20% limitation).

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may also invest in inverse or reverse floating CMOs. Inverse or reverse floating CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index. Accordingly, the coupon rate will increase as interest rates decrease. A Fund would be adversely affected, however, by the purchase of such CMOs in the event of an increase in interest rates since the coupon rate will decrease as interest rates increase, and, like other mortgage-related securities, the value will decrease as interest rates increase. Inverse or reverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs, and usually carry a lower cash flow priority. As an operating policy, Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund will treat inverse floating rate CMOs as illiquid and, therefore, will limit its investments in such securities, together with all other illiquid securities, to 15% of such Fund’s net assets.

Stripped Mortgage-Backed Securities

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may invest in stripped mortgage-backed securities. Stripped mortgage- backed securities represent undivided ownership interests in a pool of mortgages, the cash flow of which has been separated into its interest and principal components. “IOs” (interest only securities) receive the interest portion of the cash flow while “POs” (principal only securities) receive the principal portion. Stripped mortgage-backed securities may be issued by U.S. Government agencies or by private issuers. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates, unlike other mortgage-backed securities (which tend to move in the opposite direction compared to interest rates). Under the

Internal Revenue Code of 1986, as amended, POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the Fund.

     The cash flows and yields on standard IO and PO classes are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. For example, a rapid or slow rate of principal payments may have a material adverse effect on the performance and prices of IOs or POs, respectively. If the underlying mortgage assets experience greater than anticipated prepayments of principal, an investor may fail to recoup fully its initial investment in an IO class of a stripped mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived from a full faith and credit obligation (i.e., a GNMA). Conversely, if the underlying mortgage assets experience slower than anticipated prepayments of principal, the price on a PO class will be affected more severely than would be the case with a traditional mortgage- backed security, but unlike IOs, an investor will eventually recoup fully its initial investment provided no default of the guarantor occurs. As an operating policy, a Fund will limit its investments in IOs and POs to 15% of the Fund’s net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Fund’s net assets) except to the extent such securities are deemed liquid by WRIICO or sub- advisor, as the case may be, in accordance with standards established by the Trust’s Board of Trustees. See “Restricted and Illiquid Securities” below.

Asset-Backed And Stripped Asset-Backed Securities

     Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may invest in asset-backed securities rated within the four highest grades assigned by Moody’s or S&P, or, if not rated, are of equivalent investment quality as determined by WRIICO or sub-advisor, as the case may be. Asset- backed securities usually represent interests in pools of consumer loans (typically trade, credit card or automobile receivables). The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, the quality of the servicing of the receivables, and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities may depend on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security may be difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Some asset-backed transactions are structured with a “revolving period” during which the principal balance of the asset-backed security is maintained at a fixed level, followed by a period of rapid repayment. This structure is intended to insulate holders of the asset-backed security from prepayment risk to a significant extent. Asset-backed securities may be classified as pass- through certificates or collateralized obligations.

     Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support.

     Asset-backed securities issued in the form of debt instruments, also known as collateralized obligations, are generally issued as the debt of a

special purpose entity organized solely for the purpose of owning such assets and issuing such debt. The assets collateralizing such asset-backed securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support, the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related asset-backed securities.

     To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction or through a combination of such approaches.

     Asset-backed securities may be stripped to create interest-only and principal-only securities in the same manner as mortgage-backed securities. See “Stripped Mortgage-Backed Securities,” above. The value of asset-backed IOs also tends to move in the same direction as changes in interest rates, unlike other asset-backed (or mortgage-backed) securities, which tend to move in the opposite direction compared to interest rates. As with stripped mortgage-backed securities, the cash flows and yields on asset-backed IOs and POs are also extremely sensitive to the rate of principal payments on the related underlying assets. See “Stripped Mortgage-Backed Securities,” above. As an operating policy, a Fund will limit its investment in IOs and POs to 15% of the Fund’s net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Fund’s net assets) except to the extent such securities are deemed liquid by WRIICO or sub-advisor, as the case may be, in accordance with standards established by the Trust’s Board of Trustees. See “Restricted and Illiquid Securities” below.

Direct Investments In Mortgages — Whole Loans

     Ivy Mortgage Securities Fund, Ivy Bond Fund, and Ivy Balanced Fund may invest up to 10% of the value of its net assets directly in mortgages securing residential or commercial real estate (i.e., the Fund becomes the mortgagee). Such investments are not “mortgage-related securities” as described above. They are normally available from lending institutions which group together a number of mortgages for resale (usually from 10 to 50 mortgages) and which act as servicing agent for the purchaser with respect to, among other things, the receipt of principal and interest payments. (Such investments are also referred to as “whole loans”.) The vendor of such mortgages receives a fee from a Fund for acting as servicing agent. The vendor does not provide any insurance or guarantees covering the repayment of principal or interest on the mortgages. Unlike pass-through securities, whole loans constitute direct investment in mortgages inasmuch as a Fund, rather than a financial intermediary, becomes the mortgagee with respect to such loans purchased by the Fund. At present, such investments are considered to be illiquid by WRIICO or sub- advisor, as the case may be. The Fund will invest in such mortgages only if its investment advisor or sub-advisor has determined through an examination of the mortgage loans and their originators (which may include an examination of such factors as percentage of family income dedicated to loan service and the relationship between loan value and market value)

that the purchase of the mortgages should not represent a significant risk of loss to the Fund.

Foreign Securities

     Ivy Real Estate Securities Fund, Ivy Balanced Fund, Ivy Bond Fund, Ivy Mortgage Securities Fund, and Ivy Small Cap Value Fund may invest up to 10% of the market value of its total assets in securities of foreign issuers which are not traded in the U.S. (Securities of foreign issuers which are U.S. dollar denominated and issued and publicly traded in the U.S., usually in the form of sponsored American Depositary Receipts (ADRs), are not considered foreign securities for this purpose and are not subject to this 10% limitation. Each of Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund, and Ivy Balanced Fund may not, however, invest more than 10% of its total assets in ADRs.). Such securities are typically publicly traded but may in some cases be issued as private placements (each Fund will treat private placement securities as illiquid securities which, when aggregated with all other illiquid securities, may not exceed 15% of the Fund’s net assets). Ivy Value Fund may invest up to 25% of its total assets in securities of foreign issuers which are not publicly traded in the U.S., and is under no restrictions with respect to ADRs. In addition, Ivy International Balanced Fund may invest in foreign securities without limitation.

     Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, a Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. A Fund may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories.

     Furthermore, Ivy International Balanced Fund may invest in securities issued by governments, governmental agencies and companies located in developing market countries. The Fund considers countries having developing markets to be all countries that are generally considered to be developing or emerging countries by the International Bank for Reconstruction and Development (more commonly referred to as the World Bank) and the International Finance Corporation, as well as countries that are classified by the United Nations or otherwise regarded by their

authorities as developing. Currently, the countries not included in this category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland. In addition, developing market securities means (i) securities of companies the principal securities trading market for which is a developing market country, as defined above, (ii) securities, traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such developing market countries or sales made in such developing market countries or (iii) securities of companies organized under the laws of, and with a principal office in, a developing market country. Ivy International Balanced Fund will at all times, except during temporary defensive periods, maintain investments in at least three countries having developing markets.

     An American Depositary Receipt (“ADR”) is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. An ADR is sponsored if the original issuing company has selected a single U.S. bank to serve as its U.S. depositary and transfer agent. This relationship requires a deposit agreement which defines the rights and duties of both the issuer and depositary. Companies that sponsor ADRs must also provide their ADR investors with English translations of company information made public in their own domiciled country. Sponsored ADR investors also generally have the same voting rights as ordinary shareholders, barring any unusual circumstances. ADRs which meet these requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are created at the initiative of a broker or bank reacting to demand for a specific foreign stock. The broker or bank purchases the underlying shares and deposits them in a depositary. Unsponsored shares issued after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they do not generally include voting rights.

     In addition, Ivy International Balanced Fund may invest in European Depositary Receipts, which are receipts evidencing an arrangement with a European bank similar to that for ADRs and which are designed for use in the European securities markets. European Depository Receipts are not necessarily denominated in the currency of the underlying security.

Investments In Russia

     Ivy International Balanced Fund may invest in securities of Russian companies, which involves risks and special considerations not typically associated with investing in United States securities markets. Since the breakup of the Soviet Union at the end of 1991, Russia has experienced dramatic political and social change. The political system in Russia is emerging from a long history of extensive state involvement in economic affairs. The country is undergoing a rapid transition from a centrally- controlled command system to a market-oriented, democratic model. The Fund may be affected unfavorably by political or diplomatic developments, social instability, changes in government policies, taxation and interest rates, currency repatriation restrictions and other political and economic developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalization and confiscation of assets and changes in legislation relating to foreign ownership.

     The planned economy of the former Soviet Union was run with qualitatively different objectives and assumptions from those prevalent in a market system and Russian businesses do not have any recent history of operating within a market-oriented economy. In general, relative to companies operating in Western economies, companies in Russia are characterized by a lack of: (i) management with experience of operating in a market economy; (ii) modern technology; and, (iii) a sufficient capital

base with which to develop and expand their operations. It is unclear what will be the future effect on Russian companies, if any, of Russia’s continued attempts to move toward a more market-oriented economy. Russia’s economy has experienced severe economic recession, if not depression, since 1990 during which time the economy has been characterized by high rates of inflation, high rates of unemployment, declining gross domestic product, deficit government spending, and a devaluing currency. The economic reform program has involved major disruptions and dislocations in various sectors of the economy, and those problems have been exacerbated by growing liquidity problems. Further, Russia presently receives significant financial assistance from a number of countries through various programs. To the extent these programs are reduced or eliminated in the future, Russian economic development may be adversely impacted.

     The Russian securities markets are substantially smaller, less liquid and significantly more volatile than the securities markets in the United States. In addition, there is little historical data on these securities markets because they are of recent origin. A substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges and over-the-counter markets. A limited number of issuers represent a disproportionately large percentage of market capitalization and trading volume. Although evolving rapidly, even the largest of Russia’s stock exchanges are not well developed compared to Western stock exchanges. The actual volume of exchange-based trading in Russia is low and active on-market trading generally occurs only in the shares of a few private companies. Most secondary market trading of equity securities occurs through over-the-counter trading facilitated by a growing number of licensed brokers. Shares are traded on the over-the-counter market primarily by the management of enterprises, investment funds, short-term speculators and foreign investors. The securities of Russian companies are mostly traded over-the-counter and, despite the large number of stock exchanges, there is still no organized public market for such securities. This may increase the difficulty of valuing the Fund’s investments. No established secondary markets may exist for many of the securities in which the Fund may invest. Reduced secondary market liquidity may have an adverse effect on market price and the Fund’s ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging country securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales.

     Because of the recent formation of the securities markets as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration transactions are subject to significant risks not normally associated with investments in the United States and other more developed markets. Ownership of shares (except where shares are held through depositories that meet the requirements of the 1940 Act) is defined according to entries in the company’s share register and normally evidenced by extracts from the register or in certain limited cases by formal share certificates. However, there is not a central registration system and these services are carried out by the companies themselves or by registrars located throughout Russia. These registrars are not necessarily subject to effective state supervision and its possible for the Fund to lose its registration through fraud, negligence and even mere oversight. The laws and regulations in Russia affecting Western investment business continue to evolve in an unpredictable manner. Russian laws and regulations, particularly those involving taxation, foreign investment and trade, title to property or securities, and transfer of title, applicable to the Fund’s activities are relatively new

and can change quickly and unpredictably in a manner far more volatile than in the United States or other developed market economies. Although basic commercial laws are in place, they are often unclear or contradictory and subject to varying interpretation, and may at any time be amended, modified, repealed or replaced in a manner adverse to the interest of the Fund. There is still lacking a cohesive body of law and precedents normally encountered in business environments. Foreign investment in Russian companies is, in certain cases, legally restricted. Sometimes these restrictions are contained in constitutional documents of an enterprise which are not publicly available. Russian foreign investment legislation currently guarantees the right of foreign investors to transfer abroad income received on investments such as profits, dividends and interest payments. This right is subject to settlement of all applicable taxes and duties. However, more recent legislation governing currency regulation and control guarantees the right to export interest, dividends and other income on investments, but does not expressly permit the repatriation of capital from the realization of investments. Current practice is to recognize the right to repatriation of capital. Authorities currently do not attempt to restrict repatriation beyond the extent of the earlier law. No guarantee can be made, however, that amounts representing realization of capital of income will be capable of being remitted. If, for any reason, the Fund were unable to distribute an amount equal to substantially all of its investment company taxable income (as defined for U.S. tax purposes) within applicable time periods, the Fund would not qualify for the favorable U.S. federal income tax treatment afforded to regulated investment companies, or, even if it did so qualify, it might become liable for income and excise taxes on undistributed income.

     Russian courts lack experience in commercial dispute resolution and many of the procedural remedies for enforcement and protection of legal rights typically found in Western jurisdictions are not available in Russia. There remains uncertainty as to the extent to which local parties and entities, including Russian state authorities, will recognize the contractual and other rights of the parties with which they deal. Accordingly, there will be difficulty and uncertainty in the Fund’s ability to protect and enforce its rights against Russian state and private entities. There is also no assurance that the Russian courts will recognize or acknowledge that the Fund has acquired title to any property or securities in which the Fund invests, or that the Fund is the owner of any property or security held in the name of a nominee which has acquired such property or security on behalf of the Fund, because there is at present in Russia no reliable system or legal framework regarding the registration of titles. There can be no assurance that this difficulty in protecting and enforcing rights in Russia will not have a material adverse effect on the Fund and its operations. Difficulties are likely to be encountered enforcing judgments of foreign courts within Russia or of Russian courts in foreign jurisdictions due to the limited number of countries which have signed treaties for mutual recognition of court judgments with Russia.

Currency Exchange Transactions

     Spot Exchange Transactions. Ivy International Balanced Fund usually effects currency exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange will be incurred when the Fund converts assets from one currency to another. Further, the Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations. For example, in order to realize the value of a foreign investment, the Fund must convert that value, as denominated in its foreign currency, into U.S. dollars using the applicable currency exchange rate. The exchange rate represents the current price of a U.S. dollar relative to that foreign currency; that is, the amount of such foreign currency required to buy one U.S. dollar. If

the Fund holds a foreign security which has appreciated in value as measured in the foreign currency, the level of appreciation actually realized by the Fund may be reduced or even eliminated if the foreign currency has decreased in value relative to the U.S. dollar subsequent to the date of purchase. In such a circumstance, the cost of a U.S. dollar purchased with that foreign currency has gone up and the same amount of foreign currency purchases fewer dollars than at an earlier date.

     Forward Exchange Contracts. Ivy International Balanced Fund also has the authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which such Portfolios may invest for speculative purposes. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. These forward foreign currency exchange contracts may involve the sale of U.S. dollars and the purchase of a foreign currency, or may be foreign cross-currency contracts involving the sale of one foreign currency and the purchase of another foreign currency (such foreign cross-currency contracts may be considered a hedging rather than a speculative strategy if the Fund’s commitment to purchase the new (more favorable) currency is limited to the market value of the Fund’s securities denominated in the old (less favorable) currency — see “Foreign Currency Hedging Transactions,” below). Because these transactions are not entered into for hedging purposes, the Fund’s custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase currency on a forward basis. The prediction of currency movements is extremely difficult and the successful execution of a speculative strategy is highly uncertain.

Foreign Currency Hedging Transactions

     Forward Exchange Contracts. Ivy International Balanced Fund has authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which the Fund will invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and prices set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. The Fund’s dealings in forward foreign exchange contracts entered into for the purpose of hedging will be limited to hedging involving specific transactions, portfolio positions or foreign cross-currency hedging.

     Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Fund arising from the purchase and sale of portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. (An example of a transaction hedge is when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to “lock in” the price of the security in a particular currency). Position hedging is the sale of forward foreign exchange contracts into U.S. dollars with respect to portfolio security positions denominated or quoted in such foreign currency. (An example of a position hedge is if the Fund’s sub-advisor believes that a foreign currency — for example the Japanese yen — may suffer a decline against another currency — for example the U.S. dollar — it may enter into a forward sale contract to sell an amount of the foreign currency expected to decline — the Japanese yen — that approximates the value of some or all of the Fund’s investment securities denominated in the Japanese yen). Foreign cross-currency hedging occurs when the Fund’s

investment sub-advisor believes a particular foreign currency may enjoy a substantial movement against another foreign currency and the sub-advisor decides to enter into a forward contract to sell the less favorable foreign currency in which certain Fund securities are denominated and to buy the more favorable foreign currency in an amount not to exceed the total market value of the Fund’s securities denominated in the less favorable currency.

     The prediction of short-term currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain.

     It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver.

     If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Fund entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell.

     Currency Futures Contracts. Ivy International Balanced Fund may also enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies (“foreign currency futures”). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Fund’s portfolio securities or adversely affect the prices of securities that the Fund intends to purchase at a later date. The successful use of foreign currency futures will usually depend on the ability of the Fund’s investment sub-advisor to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses.

Closed-End Investment Companies

     Some countries, such as South Korea, Chile and India, have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the Investment Company Act of 1940, Ivy International Balanced Fund may invest up to 10% of its total assets in securities of closed-end investment companies. This restriction on investments in securities of closed-end investment companies may limit opportunities for the Fund to invest indirectly in certain developing markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the Fund acquires shares of closed-end investment companies, shareholders would bear both their proportionate share of expenses of the Fund (including management

and advisory fees) and, indirectly, the expenses of such closed-end investment companies.

Real Estate Investment Trust Securities

     Ivy Value Fund, Ivy Balanced Fund, and Ivy Real Estate Securities Fund may invest in securities issued by real estate investment trusts. A real estate investment trust (“REIT”) is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), and must distribute to shareholders annually 95% or more of its taxable income. Moreover, at the end of each quarter of its taxable year, at least 75% of the value of its total assets must be represented by real estate assets, cash and cash items and U.S. government securities.

     REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Fund investments in REITs will consist of equity REITs.

Loans Of Portfolio Securities

     For the purpose of realizing additional income, each Fund may make secured loans of portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Fund assets, however, for purposes of compliance with any requirement described in a Fund’s prospectus that the Fund invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). Securities loans are made to broker-dealers or financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent. The collateral received will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Fund does not expect to pay commissions or other front-end fees (including finders fees) in connection with loans of securities (but in some cases may do so), a portion of the additional income realized will be shared with the Fund’s custodian for arranging and administering such loans. The Fund has a right to call each loan and obtain the securities on five business days’ notice. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by WRIICO or sub-advisor, as the case may be, to be of good standing and to have sufficient financial responsibility, and will not be

made unless, in the judgment of WRIICO or sub-advisor, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Fund makes loans of portfolio securities is monitored by WRIICO or sub-advisor throughout the term of each loan.

     Deutsche Bank AG acts as the securities lending agent on behalf of the Ivy International Balanced Fund. It has obtained an SEC exemptive order through its affiliate, Bankers Trust Company, which allows securities lending cash collateral to be invested in a single money market fund (affiliated with Deutsche Bank and Bankers Trust Company) in amounts which are not subject to the limits of sections 12(d)(1)(A) and 12(d)(1)(B) of the Investment Company Act of 1940. The effect of this is that up to one-third of the total assets of the Ivy International Balanced Fund can be invested in such a money market fund in connection with the securities lending program.

Restricted And Illiquid Securities

     Each Fund may invest up to 15% of its net assets in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be “illiquid” if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. “Restricted securities” are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the “1933 Act”). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the “SEC”), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, a Fund may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. A Fund may be required to bear the expenses of registration of such restricted securities.

     The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain “qualified institutional buyers” pursuant to Rule 144A under the 1933 Act). Additionally, WRIICO or sub-advisor, as the case may be, believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. Each Fund may invest without limitation in these forms of restricted securities if such securities are deemed by WRIICO or sub-advisor to be liquid in accordance with standards established by the Trust’s Board of Trustees. Under these guidelines, WRIICO or sub-advisor must consider (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of a Fund’s illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities.

     If through the appreciation of restricted securities or the depreciation of unrestricted securities, a Fund is in a position where more than 15% of its net assets are invested in restricted and other illiquid securities, the Fund will take appropriate steps to protect

liquidity.

When-Issued Securities And Forward Commitments

     Ivy Mortgage Securities Fund, Ivy Balanced, Ivy Bond Fund, Ivy Real Estate Securities Fund, and Ivy International Balanced Fund may each purchase securities offered on a “when-issued” basis and may purchase or sell securities on a “forward commitment” basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by a Fund and settlement, no payment is made for the securities purchased by the Fund and, thus, no interest accrues to the Fund from the transaction.

     The use of when-issued transactions and forward commitments enables a Fund to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, a Fund might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Fund anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of WRIICO or sub-advisor, as the case may be to correctly anticipate increases and decreases in interest rates and prices of securities. If WRIICO or sub-advisor anticipates a rise in interest rates and a decline in prices and, accordingly, a Fund sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Fund will have lost the opportunity to profit from the price increase. If the investment advisor or sub-advisor anticipates a decline in interest rates and a rise in prices, and, accordingly, the Fund sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Fund will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this hedging strategy, whether WRIICO or sub-advisor is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in a Fund’s net asset value.

     When-issued securities and forward commitments may be sold prior to the settlement date, but, except for mortgage dollar roll transactions (as discussed below), a Fund enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. Each of these Funds may hold a when-issued security or forward commitment until the settlement date, even if the Fund will incur a loss upon settlement. To facilitate transactions in when- issued securities and forward commitments, a Fund’s custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Fund, the portfolio securities themselves. If a Fund, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a

forward commitment, it can incur a gain or loss. (At the time a Fund makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.)

     Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, and Ivy Mortgage Securities Fund may also enter into such transactions to generate incremental income. In some instances, the third-party seller of when-issued or forward commitment securities may determine prior to the settlement date that it will be unable or unwilling to meet its existing transaction commitments without borrowing securities. If advantageous from a yield perspective, a Fund may, in that event, agree to resell its purchase commitment to the third-party seller at the current market price on the date of sale and concurrently enter into another purchase commitment for such securities at a later date. As an inducement for a Fund to “roll over” its purchase commitment, the Fund may receive a negotiated fee. These transactions, referred to as “mortgage dollar rolls,” are entered into without the intention of actually acquiring securities. For a description of mortgage dollar rolls and the Funds that may invest in such transactions, see “Mortgage Dollar Rolls” below.

     The purchase of securities on a when-issued or forward commitment basis exposes the Fund to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. A Fund’s purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Fund’s assets that are subject to market risk to an amount that is greater than the Fund’s net asset value, which could result in increased volatility of the price of the Fund’s shares. No more than 30% of the value of such Fund’s (other than Ivy International Balanced Fund’s) total assets will be committed to when- issued or forward commitment transactions, and of such 30%, no more than two-thirds (i.e., 20% of its total assets) may be invested in mortgage dollar rolls. No more than 20% of the value of Ivy International Balanced Fund’s total assets will be committed to when-issued or forward commitment transactions.

Mortgage Dollar Rolls

     In connection with its ability to purchase securities on a when- issued or forward commitment basis, Ivy Bond Fund, Ivy Balanced Fund, and Ivy Mortgage Securities Fund may enter into mortgage “dollar rolls” in which a Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. In a mortgage dollar roll, a Fund gives up the right to receive principal and interest paid on the securities sold. However, a Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase plus any fee income received. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of a Fund compared with what such performance would have been without the use of mortgage dollar rolls. A Fund will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the ability of WRIICO or sub-advisor, as the case may be, to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. In addition, the use

of mortgage dollar rolls by a Fund while remaining substantially fully invested increases the amount of the Fund’s assets that are subject to market risk to an amount that is greater than the Fund’s net asset value, which could result in increased volatility of the price of the Fund’s shares.

     For financial reporting and tax purposes, mortgage dollar rolls are considered as two separate transactions: one involving the sale of a security and a separate transaction involving a purchase. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a “financing” rather than as a separate sale and purchase transactions.

Reverse Repurchase Agreements

     Ivy Balanced Fund may also enter into reverse repurchase agreements. Reverse repurchase agreements are the counterparts of repurchase agreements, by which the Fund sells a security and agrees to repurchase the security from the buyer at an agreed upon price and future date. Because certain of the incidents of ownership of the security are retained by the Fund, reverse repurchase agreements may be considered a form of borrowing by the Fund from the buyer, collateralized by the security. The Fund uses the proceeds of a reverse repurchase agreement to purchase other money market securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The Fund utilizes reverse repurchase agreements when the interest income to be earned from investment of the proceeds of the reverse repurchase transaction exceeds the interest expense of the transaction.

     The use of reverse repurchase agreements by the Fund allows it to leverage its portfolio. While leveraging offers the potential for increased yield, it magnifies the risks associated with the Fund’s investments and reduces the stability of the Fund’s net asset value per share. To limit this risk, the Fund will not enter into a reverse repurchase agreement if all such transactions, together with any money borrowed, exceed 5% of the Fund’s net assets. In addition, when entering into reverse repurchase agreements, the Fund will deposit and maintain in a segregated account with its custodian liquid assets, such as cash or cash equivalents and other appropriate short-term securities and high grade debt obligations, in an amount equal to the repurchase price (which shall include the interest expense of the transaction).

Repurchase Agreements

     Each Fund (except the Ivy Mortgage Securities Fund) may enter into repurchase agreements. Repurchase agreements are agreements by which a Fund purchases a security and obtains a simultaneous commitment from the seller (a member bank of the Federal Reserve System or, if permitted by law or regulation and if the Board of Trustees of the Fund has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom a Fund enters into repurchase agreements is monitored by the Fund’s investment sub-advisor throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford a Fund the opportunity to earn a return on temporarily available cash. A Fund’s custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement

(including any accrued interest), a Fund promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, a Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights.

Futures Contracts And Options On Futures Contracts

     Futures Contracts. Consistent with its investment objectives and strategies, each Fund may enter into interest rate futures contracts, stock index futures contracts and foreign currency futures contracts. (Unless otherwise specified, interest rate futures contracts, stock index futures contracts and foreign currency futures contracts are collectively referred to as “futures contracts.”)

     A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract’s closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be “exercised” at any other time during their term.

     Interest rate futures contracts currently are traded on a variety of fixed income securities, including long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association modified pass-through mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate futures contracts include contracts on indexes of municipal securities. Foreign currency futures contracts currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits.

     Stock index futures contracts include contracts on the S&P 500 Index and other broad-based stock market indexes, as well as contracts based on narrower market indexes or indexes of securities of particular industry groups. A stock index assigns relative values to the common stocks included in the index and the index fluctuates with the value of the common stocks so included. The parties to a stock index futures contract agree to make a cash settlement on a specific future date in an amount determined by the value of the stock index on the last trading day of the contract. The amount is a specified dollar amount times the difference between the value of the index on the last trading day and the value on the day the contract was struck.

     Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures

contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Fund’s current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Fund’s securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Fund’s securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Fund.

     Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.

     The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as “initial margin.” Subsequent payments to and from the broker, referred to as “variation margin,” are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as “marking to the market.”

     U.S. futures contracts may be purchased or sold only on an exchange, known as a “contract market,” designated by the Commodity Futures Trading Commission (“CFTC”) for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. Futures contracts may also be traded on foreign exchanges.

     Options On Futures Contracts. Each Fund also may purchase and sell put and call options on futures contracts and enter into closing transactions with respect to such options to terminate existing positions. Each Fund may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or purchasing and selling the underlying futures contracts.

     An option on a futures contract provides the holder with the right to enter into a “long” position in the underlying futures contract, in the case of a call option, or a “short” position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position.

     A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader’s profit or loss on the transaction.

     Options on futures contracts that are written or purchased by a Fund on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges.

     Risks of Futures Contracts and Options on Futures Contracts. The use of futures contracts and options on futures contracts will expose a Fund to additional investment risks and transactions costs. Risks include:

• the risk that interest rates, securities prices or currency markets will not move in the direction that WRIICO or sub-advisor anticipates;

• an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged;

• the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits;

• leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Fund’s initial investment in that instrument; and

• the risk that the counterparty to an instrument will fail to perform its obligations.

     Regulatory Matters. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Fund will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. The CFTC, a federal agency, regulates trading activity on the exchanges pursuant to the Commodity Exchange Act, as amended.

     The CFTC requires the registration of “commodity pool operators,” defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or

property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company wishing to avoid commodity pool operator status use futures and options positions only (a) for “bona fide hedging purposes” (as defined in CFTC regulations) or (b) for other purposes so long as aggregate initial margins and premiums required in connection with non- hedging positions do not exceed 5% of the liquidation value of the investment company’s portfolio. Any investment company wishing to claim the exclusion provided in Rule 4.5 must file a notice of eligibility with both the CFTC and the National Futures Association. Before engaging in transactions involving futures contracts, the Funds will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary.

     For examples of futures contracts and their tax treatment, see Appendix B to this Statement of Additional Information.

Options

     Each Fund may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Fund will limit the total market value of securities against which it may write call or put options to 20% of its total assets. In addition, no Fund will commit more than 5% of its total assets to premiums when purchasing put or call options.

     A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Fund writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Fund writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised.

     Each Fund may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Fund owns against a decline in price, the manager may purchase a put option on the underlying security; i.e., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Each Fund receives premiums from writing call or put options, which it retains whether or not the options are exercised.

     By writing a call option, a Fund might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Fund might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Fund purchases a put or call option, any loss to the Fund is limited to the premium paid

for, and transaction costs paid in connection with, the option.

     Options On Securities. An option on a security provides the purchaser, or “holder,” with the right, but not the obligation, to purchase, in the case of a “call” option, or sell, in the case of a “put” option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the “premium.” The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or “writer,” however, is potentially unlimited, unless the option is “covered.” A call option written by a Fund is “covered” if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian. A put option written by a Fund is “covered” if the Fund maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer’s obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise.

     Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market.

     Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded.

     In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not.

     Options On Stock Indexes. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put)

the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed “index multiplier.” The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market.

     A Fund will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Fund’s advisor or sub-advisor, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Funds will secure put options on stock indexes by segregating assets equal to the option’s exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations.

     The index underlying a stock option index may be a “broad-based” index, such as the Standard & Poor’s 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor’s 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included.

Warrants

     Each of the Funds (except Ivy Mortgage Securities Fund) may invest in warrants. Warrants are instruments that allow investors to purchase underlying shares at a specified price (exercise price) at a given future date. The market price of a warrant is determined by market participants by the addition of two distinct components: (1) the price of the underlying shares less the warrant’s exercise price, and (2) the warrant’s premium that is attributed to volatility and leveraging power. Warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities.

     It is not expected that Ivy Bond Fund will invest in common stocks or equity securities other than warrants, but it may retain for reasonable periods of time up to 5% of its total assets in common stocks acquired upon conversion of debt securities or preferred stocks or upon exercise of warrants.

Warrants With Cash Extractions

     Ivy International Balanced Fund may also invest up to 5% of its assets in warrants used in conjunction with the cash extraction method. If an investor wishes to replicate an underlying share, the investor can use the warrant with cash extraction method by purchasing warrants and holding cash. The cash component would be determined by subtracting the market

price of the warrant from the underlying share price.

     For example, assume one share for company “Alpha” has a current share price of $40 and issued warrants can be converted one for one share at an exercise price of $31 exercisable two years from today. Also assume that the market price of the warrant is $10 ($40 – $31 + $1) because investors are willing to pay a premium ($1) for previously stated reasons. If an investor wanted to replicate an underlying share by engaging in a warrant with cash extraction strategy, the amount of cash the investor would need to hold for every warrant would be $30 ($40 – $10 = $30). A warrant with cash extraction is, thus, simply a synthetically created quasi-convertible bond.

     If an underlying share issues no or a low dividend and has an associated warrant with a market price that is low relative to its share price, a warrant with cash extraction may provide attractive cash yields and minimize capital loss risk, provided the underlying share is also considered a worthy investment. For example, assume Alpha’s share is an attractive investment opportunity and its share pays no dividend. Given the information regarding Alpha provided above, also assume that short- term cash currently yields 5% per year and that the investor plans to hold the investment at least two years, barring significant near-term capital appreciation. If the share price were to fall below $30, the warrant with cash extraction strategy would yield a lower loss than the underlying share because an investor cannot lose more than the purchase cost of the warrant (capital risk minimized). The cash component for this strategy would yield $3.08 after two years (compound interest). The total value of the underlying investment would be $43.08 versus $40.00 for the non- yielding underlying share (attractive yield). Finally, it is important to note that this strategy will not be pursued if it is not economically more attractive than underlying shares.

Index Depositary Receipts

     Ivy Value Fund, Ivy Balanced Fund and Ivy Small Cap Value Fund may invest up to 10% of its total assets in one or more types of depositary receipts (“DRs”) as a means of tracking the performance of a designated stock index while maintaining liquidity. No more than 5% of a Fund’s total assets may be invested in any one DR. The Fund may invest in S&P 500 Depositary Receipts (“SPDRs”), which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts (“MidCap SPDRs”), which track the S&P MidCap 400 Index; and “Dow Industrial Diamonds,” which track the Dow Jones Industrial Average, or in other DRs which track indexes, provided that such investments are consistent with a Fund’s investment objective as determined by WRIICO or sub-advisor. Each of these securities represents shares of ownership of a long term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index.

     DRs carry a price which equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by a Fund).

     Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of a Fund’s assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments.

Short Sales Against The Box

     Each Fund may sell securities “short against the box.” Whereas a short sale is the sale of a security a Fund does not own, a short sale is “against the box” if, at all times during which the short position is open, a Fund owns at least an equal amount of the securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Funds have no present intention to sell securities short in this fashion.

Defensive Purposes

     Each Fund (other than Ivy Real Estate Securities Fund) may invest up to 20% of its net assets in cash or cash items. Ivy Real Estate Securities Fund may invest approximately 5% of its net assets in cash or cash items. In addition, for temporary or defensive purposes, each Fund may invest in cash or cash items without limitation. The “cash items” in which each Fund may invest, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers’ acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Fund; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); and other similar high-quality short-term United States dollar-denominated obligations.

INVESTMENT RESTRICTIONS

     Each of the Funds is “diversified” as defined in the Investment Company Act of 1940. This means that at least 75% of the value of the Fund’s total assets is represented by cash and cash items, government securities, securities of other investment companies, and securities of other issuers, which for purposes of this calculation, are limited in respect of any one issuer to an amount not greater in value than 5% of the Fund’s total assets and to not more than 10% of the outstanding voting securities of such issuer.

     In addition to the foregoing limitations, each Fund is subject to certain “fundamental” investment restrictions, described below, which may not be changed without the vote of a “majority” of the Fund’s outstanding shares. As used in the applicable Prospectus and this Statement of Additional Information, “majority” means the lesser of (i) 67% of a Fund’s outstanding shares present at a meeting of the holders if more than 50% of the outstanding shares are present in person or by proxy or (ii) more than 50% of a Fund’s outstanding shares. Each Fund is also subject to certain other investment restrictions which are not fundamental and may be changed by vote of the Board of Trustees without further shareholder approval.

Fundamental Restrictions

1.	Policy Regarding Borrowing and the Issuance of Senior Securities.
	The Fund will not borrow money or issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction.
2.	Policy Regarding Concentration in a Particular Industry.
	Ivy Bond Fund, Ivy International Balanced Fund, Ivy Balanced Fund, Ivy Value Fund and Small Cap Fund.

	The Fund will not concentrate its investments in a particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction.
	Ivy Mortgage Securities Fund.
	Under normal market conditions, the Fund will concentrate its investments in the mortgage and mortgage-finance industry. The Fund will not concentrate its investments in any other particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction.
	Ivy Real Estate Securities Fund.
	Under normal market conditions, the Fund will concentrate its investments in the real estate or real estate related industry. The Fund will not concentrate its investments in any other particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction.
3.	Policy Regarding Investments in Real Estate.
	The Fund will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or interests therein or in securities of companies that deal in real estate or mortgages.
4.	Policy Regarding Investments in Commodities.
	The Fund will not purchase physical commodities or contracts relating to physical commodities.
5.	Policy Regarding Lending.
	The Fund may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction.
6.	Policy Regarding Underwriting of Securities.
	The Fund will not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter, under the federal securities laws, in connection with the disposition of portfolio securities.

Non-Fundamental Restrictions

7.	The Fund will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets.
8.	The Fund will use futures contracts and options on futures contracts only (a) for “bona fide hedging purposes” (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of liquidation value of the Fund’s portfolio.
9.	The Fund may mortgage, pledge or hypothecate its assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation.
10.	The Fund may not make short sales of securities, other than short sales “against the box.”
11.	The Fund may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts.
12.	The Fund will not invest more than 15% of its net assets in illiquid securities.
13.	The total market value of securities against which the Fund may write call or put options will not exceed 20% of the Fund’s total assets. In addition, the Fund will not commit more than 5% of its total assets to premiums when purchasing put or call options.

     With respect to each of the Funds, any investment policy set forth in the Prospectus, under “Investment Objectives and Policies” above, or any restriction set forth above which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after an acquisition of securities or utilization of assets and results therefrom, or unless the Investment Company Act of 1940 provides otherwise.

PORTFOLIO TURNOVER

     Each Fund purchases securities that are believed by WRIICO or a sub- advisor, as the case may be, to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as “portfolio turnover” and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of proceeds in other securities. Each Fund’s portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining each Fund’s portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. A high turnover rate will increase transaction costs and commission costs that will be borne by the Fund and could generate taxable income or loss to the shareholder.

     Ivy Mortgage Securities Fund’s investment activities may result in the Fund’s engaging in a considerable amount of trading of securities held for less than one year. Accordingly, it can be expected that the Fund will have a higher turnover rate, and thus a higher incidence of brokerage and other costs, than might be expected from investment companies which invest substantially all of their funds on a long-term basis.

     Each of the Ivy Balanced Fund, Ivy Bond Fund, Ivy International Balanced Fund, Ivy Value Fund, and Ivy Real Estate Securities Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Rate of portfolio turnover is not a limiting factor, however, and particular holdings may be sold at any time, if, in the opinion of WRIICO or sub-advisor, as the case may be, such a sale is advisable. Frequent changes may result in higher brokerage and other costs for the Fund. The Fund does not emphasize short-term trading profits.

     Ivy International Balanced Fund also makes changes in its portfolio securities which are considered advisable in light of market conditions. The Fund does not emphasize short-term trading profits.

MANAGEMENT OF THE FUNDS

Trustees and Officers

     The Board of Trustees (the “Board”) oversees the operations of the Funds, which number 15 portfolios, and is responsible for the overall management and supervision of its affairs in accordance with the laws of the State of Massachusetts. The members of the Board are also Directors for, and similarly oversee the operations of, each of the 13 funds in the Ivy Funds, Inc., which, together with the Funds, comprise the Ivy Family of Funds. The Waddell & Reed Fund Complex is comprised of the Ivy Family of Funds and the Advisors Fund Complex, which is comprised of each of the funds in the Waddell & Reed Advisors Funds (21 portfolios), W&R Target Funds, Inc. (15 portfolios) and Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios). Four of the Trustees for the Funds also oversee all of the funds in the Advisors Fund Complex.

The Board appoints officers and delegates to them the management of the day-to-day operations of each of the Funds, based on policies reviewed and approved by the Board and general oversight by the Board.

     The address for each Trustee and Executive Officer in the following tables is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Each Trustee and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The Trustees who are not “interested persons” of the Funds within the meaning of Section 2(a)(19) of the 1940 Act (“Independent Trustees”) and their principal occupations during the past five years are:

		Term of Office	Principal	Total
Name,		and	Occupation(s)	Number of		Other
Address,	Position(s)	Length of	During Past	Funds		Directorships
And Age	Held with Fund	Time Served	5 Years	Overseen		Held
Jarold W. Boettcher (62)	Trustee	Trustee since December 16, 2002	President of Boettcher Enterprises, Inc. (agriculture products and services) since 1979; President of Boettcher Supply, Inc. (electrical and plumbing supplies distributor) since 1979; President of Boettcher Aerial, Inc. (Aerial Ag Applicator) since 1983		28	Director of Guaranty State Bank & Trust Co.; Director of Guaranty, Inc.
James D. Gressett (52)	Trustee	Trustee since December 16, 2002	CEO of PacPizza, Inc. (Pizza Hut franchise) since 2000; Secretary of Street Homes, LLP (homebuilding company) since 2001; President of Alien, Inc. (real estate development), 1997 to 2001		28	Director of Collins Financial Services, a debt recovery company

		Term of Office	Principal	Total
Name,		and	Occupation(s)	Number of		Other
Address,	Position(s)	Length of	During Past	Funds		Directorships
And Age	Held with Fund	Time Served	5 Years	Overseen		Held
Joseph Harroz, Jr. (36)	Trustee	Trustee since December 16, 2002	General Counsel, University of Oklahoma, Cameron University and Rogers State University; University-wide Vice President of the University of Oklahoma since 1994; Adjunct Professor of Law, University of Oklahoma College of Law; Managing Member, Harroz Investment, LLC (commercial real estate), since 1998; Managing Member, JHJ Investments, LLC (commercial real estate) since 2002		67	Co-Lead Independent Director of each of the funds in the Advisors Fund Complex (39 portfolios overseen)
Glendon E. Johnson, Jr. (51)	Trustee	Trustee since December 16, 2002	Of Counsel, Lee & Smith, PC (law firm) since 1996; Member/Manager, Castle Valley Ranches, LLC (ranching) since 1995		28	None

		Term of Office	Principal	Total
Name,		and	Occupation(s)	Number of		Other
Address,	Position(s)	Length of	During Past	Funds		Directorships
And Age	Held with Fund	Time Served	5 Years	Overseen		Held
Eleanor B. Schwartz (66)	Trustee	Trustee since December 16, 2002	Professor Emeritus, formerly Professor of Business Administration, University of Missouri—Kansas City since 1980; Chancellor of University of Missouri—Kansas City, 1991-1999		67	Director of each of the funds in the Advisors Fund Complex (39 portfolios overseen).
Michael G. Smith (58)	Trustee	Trustee since December 16, 2002	Retired; formerly, Managing Director—Institutional Sales, Merrill Lynch, 1983-1999		28	Director, Executive Board, Cox Business School, Southern Methodist University (since 1998); Director, Northwestern Mutual Life Series Funds & Mason Street Advisors Funds (since February, 2003) (29 portfolios overseen).
Edward M. Tighe (60)	Trustee	3 years	Chairman, CEO and Director of JBE Technology Group, Inc. (telecommunications and computer network consulting); CEO and Director of Asgard Holding LLC (computer network and security services); President of Global Mutual Fund Services.; President and CEO of Global Technology		28	Director of Hansberger Institutional Funds (2 portfolios overseen).

	Position(s)	Term of Office	Principal	Total Number		Other
	Held with	and Length of	Occupation(s)	of Funds		Directorships
Name and Age	the Funds	Time Served	During Past 5 Years	Overseen		Held
Keith A. Tucker (58)	Director and Chairman	since December 16, 2002	Chairman of the Board, Director and CEO of Waddell & Reed; Chairman of the Board of Waddell & Reed, Inc.; Chairman of the Board and Director of Waddell & Reed Investment Management Company; Chairman of the Board and Director of Waddell & Reed Services Co. (WRSCO); President and CEO of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Waddell & Reed Development, Inc.; Chairman of the Board of Waddell & Reed Distributors, Inc.		67	Chairman of the Board and Director of the Advisors Funds Complex (39 portfolios overseen)

	Position(s)	Term of Office	Principal	Total Number		Other
	Held with	and Length of	Occupation(s)	of Funds		Directorships
Name and Age	the Funds	Time Served	During Past 5 Years	Overseen		Held
Henry J. Herrmann (60)	Director and President	since December 16, 2002	Chairman of the Board, CEO and President of WRIICO; President, Chief Investment Officer and Director of Waddell & Reed; President and CEO of WRIMCO; Chief Investment Officer of WRIMCO; Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Executive Vice President of Waddell & Reed Financial Services, Inc.; formerly, Chairman of the Board of Austin, Calvert & Flavin, Inc.		67	Chairman of the Board and Director, Ivy Services Inc. (“ISI”); Director of WRI; Director of Waddell & Reed Development, Inc.; Director of WRSCO; Director of Austin Calvert & Flavin, Inc.; Director and President of the Advisors Funds Complex (39 portfolios overseen)

     The Board has appointed officers who are responsible for the day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. In addition to Mr. Herrmann, who is President, the Fund’s officers are:

			PRINCIPAL
NAME,ADDRESS	POSITION(S) HELD	TERM OF OFFICE:	OCCUPATION(S)
AND AGE	WITH THE FUNDS	OFFICER SINCE	DURING PAST 5 YEARS
Theodore W. Howard   Age: 60	Treasurer and Vice President,	since December 16, 2002	Senior Vice President of WRSCO; Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of the Funds and each of the funds in the Advisors Funds Complex and of Ivy Funds, Inc.; Vice President of WRSCO

			PRINCIPAL
NAME,ADDRESS	POSITION(S) HELD	TERM OF OFFICE:	OCCUPATION(S)
AND AGE	WITH THE FUNDS	OFFICER SINCE	DURING PAST 5 YEARS
Kristen A. Richards   Age: 35	Vice President and Secretary	since December 16, 2002	Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO and WRIICO; Vice President, Secretary and Associate General Counsel of each of the funds in the Waddell & Reed Fund Complex; formerly, Assistant Secretary of the Funds and each of the funds in the Waddell & Reed Advisors Funds, Ivy Funds, Inc. and W&R Target Funds, Inc.; formerly, Compliance Officer of WRIMCO

			PRINCIPAL
NAME,ADDRESS	POSITION(S) HELD	TERM OF OFFICE:	OCCUPATION(S)
AND AGE	WITH THE FUNDS	OFFICER SINCE	DURING PAST 5 YEARS
Daniel C. Schulte   Age: 37	Vice President and Assistant Secretary	since December 16, 2002	Vice President, Secretary and General Counsel of Waddell & Reed; Senior Vice President, Secretary and General Counsel of Waddell & Reed, WRIMCO and WRSCO; Senior Vice President, Assistant Secretary and General Counsel of WRIICO and ISI; Vice President, General Counsel and Assistant Secretary of each of the funds in the Waddell & Reed Fund Complex; formerly, Assistant Secretary of Waddell & Reed; formerly, an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C.

The Board has an Audit Committee, an Executive Committee, a Valuation Committee, and a Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. As of December 17, 2002, the Audit Committee consists of Michael G. Smith, Jarold W. Boettcher and Glendon E. Johnson, Jr. During the last fiscal year, the Audit Committee held 4 meetings.

The function of the Executive Committee is to act as necessary on behalf of the full Board. When the Board is not in session, the Executive Committee has and may exercise any or all of the powers of the Board in the management of the business and affairs of the Fund except the power to increase or decrease the size of, or fill vacancies on the Board, and except as otherwise prohibited by law. As of December 17, 2002, the Executive Committee consists of Keith A. Tucker, Henry J. Herrmann and Edward M. Tighe. During the last fiscal year, Executive Committee did not meet.

The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. As of December 17, 2002, the Valuation Committee consists of Keith A. Tucker and Henry J. Herrmann. During the last fiscal year, the Valuation Committee met 4 times.

The function of the Governance Committee is to consider the responsibilities and actions of the Board of Trustees. As of December 17, 2002, the Governance Committee consists of Joseph Harroz, Jr., Eleanor B. Schwartz and James D. Gressett. During the last fiscal year, the Governance Committee held 4 meetings.

Compensation Table

Ivy Fund
(fiscal year ended December 31, 2002)

		PENSION OR		TOTAL COMPENSATION
	AGGREGATE	RETIREMENT BENEFITS	ESTIMATED ANNUAL	FROM TRUST AND FUND
	COMPENSATION	ACCRUED AS PART OF	BENEFITS UPON	COMPLEX PAID TO
NAME, POSITION	FROM TRUST	FUND EXPENSES	RETIREMENT	TRUSTEES*
John S. Anderegg, Jr. (Trustee through December 16, 2002)	$23,000	N/A	N/A	$23,000
Jarold W. Boettcher	$0	N/A	N/A	$0
Stanley Channick (Trustee through December 16, 2002)	$24,000	N/A	N/A	$24,000
Roy J. Glauber (Trustee through December 16, 2002)	$24,000	N/A	N/A	$24,000
James D. Gressett (Trustee)	$0	N/A	N/A	$0
Joseph Harroz, Jr. (Trustee)	$0	N/A	N/A	$0
Henry J. Herrmann (Trustee and President)	$0	N/A	N/A	$0
Glendon E. Johnson, Jr. (Trustee)	$0	N/A	N/A	$0
Joseph G. Rosenthal (Trustee through December 16, 2002)	$24,000	N/A	N/A	$24,000
Eleanor B. Schwartz (Trustee)	$0	N/A	N/A	$0

		PENSION OR		TOTAL COMPENSATION
	AGGREGATE	RETIREMENT BENEFITS	ESTIMATED ANNUAL	FROM TRUST AND FUND
	COMPENSATION	ACCRUED AS PART OF	BENEFITS UPON	COMPLEX PAID TO
NAME, POSITION	FROM TRUST	FUND EXPENSES	RETIREMENT	TRUSTEES*
Richard N. Silverman (Trustee through December 16, 2002)	$24,000	N/A	N/A	$24,000
Michael G. Smith (Trustee)	$0	N/A	N/A	$0
J. Brendan Swan (Trustee through December 16, 2002)	$24,000	N/A	N/A	$24,000
Edward M. Tighe (Trustee)	$24,000	N/A	N/A	$24,000
Keith A. Tucker (Trustee and Chairman)	$0	N/A	N/A	$0

* Prior to July 1, 2003, the Fund complex was comprised solely of of Ivy Fund.

PRINCIPAL HOLDERS OF SECURITIES

     There are no outstanding shares of the Funds.

     Personal Investments By Employees Of WRIICO, IFDI, the Investment Sub-Advisors and the Trust. WRIICO, IFDI and the Trust have adopted a Code of Ethics which is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Code of Ethics permits employees of WRIICO, IFDI and the Trust to engage in personal securities transactions, including with respect to securities held by one or more Funds, subject to certain requirements and restrictions.

INVESTMENT ADVISORY AND OTHER SERVICES

Business Management And Investment Advisory Services

     Waddell & Reed Ivy Investment Company (“WRIICO”), 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission KS 66201-9217, provides business management and investment advisory services to the Funds. WRIICO is an SEC registered investment advisor with approximately $1.6 billion in assets under management as of December 31, 2002.

     Advantus Capital Management, Inc. (“Advantus Capital”), an SEC-

registered investment advisor located at 400 Robert Street North, St. Paul, Minnesota 55101, serves as investment sub-advisor to Ivy Real Estate Securities Fund, Ivy Mortgage Securities Fund and Ivy Bond Fund under an agreement with WRIICO. Advantus Capital had approximately $13 billion in assets under management as of June 30, 2003. For its services, Advantus Capital receives fees from WRIICO pursuant to the following schedule:

	Fee Payable to Advantus Capital as a Percentage of
Fund Name	the Fund’s Average Net Assets
Ivy Bond Fund		0.27	%
Ivy Mortgage Securities Fund		0.30	%
Ivy Real Estate Securities Fund		0.55	%

     Templeton Investment Counsel, LLC (“Templeton Counsel”), an SEC- registered investment advisor located at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394 serves as investment sub-advisor to the Ivy International Balanced Fund under an agreement with WRIICO. Templeton Counsel provides investment advice, and generally conducts the investment management program for the investments of the Fund. At June 30, 2003, Templeton Counsel had approximately $     billion in assets under management. For its services, Templeton Counsel receives fees from WRIICO pursuant to the following schedule:

		Fee Payable to Templeton Counsel as a Percentage of
Fund Name		the Fund’s Average Net Assets
Ivy International		Assets	Fee
	Balanced Fund	On the first $100 million	0.50%
		On the next $100 million	0.35%
		On the next $250 million	0.30%
		On all assets exceeding $450 million	0.25%

     State Street Research & Management Company (State Street Research), an SEC-registered investment advisor located at One Financial Center, Boston, Massachusetts 02111 serves as investment sub-advisor to the Ivy Small Cap Value Fund under an agreement with WRIICO. State Street Research provides investment advice, and generally conducts the investment management program for the Fund. At June 30, 2003, State Street Research had approximately $     billion in assets under management. For its services, State Street Research receives fees from WRIICO pursuant to the following schedule:

	Fee Payable to State Street as a Percentage of
Fund Name	the Fund’s Average Net Assets
Ivy Small Cap Value Fund		0.50	%

     Each Fund pays WRIICO a monthly fee for providing business management and investment advisory services at the following annual rates (as a percentage of the Fund’s average net assets:

Fund Name Fee Payable to WRIICO as a Percentage of the Fund’s Average Net Assets

Ivy Balanced Fund	Net Assets	Fee
	Up to $1 billion	0.70% of net assets
	Over $1 billion and up to $2 billion	0.65% of net assets
	Over $2 billion and up to $3 billion	0.60% of net assets
	Over $3 billion	0.55% of net assets

Ivy Bond Fund	Net Assets	Fee
	Up to $500 million	0.525% of net assets
	Over $500 million and up to $1 billion	0.50% of net assets
	Over $1 billion and up to $1.5 billion	0.45% of net assets
	Over $1.5 billion	0.40% of net assets

Ivy International
Balanced Fund	Net Assets	Fee
	Up to $1 billion	0.70% of net assets
	Over $1 billion and up to $2 billion	0.65% of net assets
	Over $2 billion and up to $3 billion	0.60% of net assets
	Over $3 billion	0.55% of net assets

Ivy Mortgage
Securities Fund	Net Assets	Fee
	Up to $500 million	0.50% of net assets

Ivy Mortgage
Securities Fund	Net Assets	Fee
	Over $500 million and up to $1 billion	0.45% of net assets
	Over $1 billion and up to $1.5 billion	0.40% of net assets
	Over $1.5 billion	0.35% of net assets

Ivy Real Estate
Securities Fund	Net Assets	Fee
	Up to $1 billion	0.90% of net assets
	Over $1 billion and up to $2 billion	0.87% of net assets
	Over $2 billion and up to $3 billion	0.84% of net assets
	Over $3 billion	0.80% of net assets

Ivy Small Cap Value Fund	Net Assets	Fee
	Up to $1 billion	0.85% of net assets
	Over $1 billion and up to $2 billion	0.83% of net assets
	Over $2 billion and up to $3 billion	0.80% of net assets
	Over $3 billion	0.76% of net assets

Ivy Value Fund	Net Assets	Fee
	Up to $1 billion	0.70% of net assets
	Over $1 billion and up to $2 billion	0.65% of net assets
	Over $2 billion and up to $3 billion	0.60% of net assets
	Over $3 billion	0.55% of net assets

     The Agreement obligates WRIICO to make investments for the account of each Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Code relating to regulated investment companies, subject to policy decisions adopted by the Board. WRIICO also determines the securities to be purchased or sold by each Fund and places orders with

brokers or dealers who deal in such securities.

     Under the Agreement, WRIICO also provides certain business management services. WRIICO is obligated to (1) coordinate with each Fund’s Custodian and monitor the services it provides to each Fund; (2) coordinate with and monitor any other third parties furnishing services to each Fund; (3) provide each Fund with necessary office space, telephones and other communications facilities as are adequate for the Fund’s needs; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by each Fund or by WRIICO acting in some other capacity pursuant to a separate agreement or arrangements with each Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Trust as may be required by applicable Federal or state law; (6) authorize and permit WRIICO’s directors, officers and employees who may be elected or appointed as trustees or officers of the Trust to serve in such capacities; and (7) take such other action with respect to the Trust, after approval by the Trust as may be required by applicable law, including without limitation the rules and regulations of the SEC and of state securities commissions and other regulatory agencies.

     Under the Agreement, the Trust pays the following expenses: (1) the fees and expenses of the Trust’s Independent Trustees; (2) the salaries and expenses of any of the Trust’s officers who are not affiliated with WRIICO; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust’s Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust’s legal existence and of shareholders’ meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations.

     The Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of the Fund, on 60 days’ written notice to WRIICO, or by WRIICO on 60 days’ written notice to the Trust. The Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act).

     In approving the investment advisory agreement, the Board considered a number of factors, including: (1) Waddell & Reed’s organizational structure and senior personnel; (2) Waddell & Reed’s operations and, in particular, its mutual fund advisory and distribution activities; and (3) the personnel, operations and financial condition, and investment management capabilities, methodologies, and performance of WRIICO as investment advisor and manager to the Ivy Fund.

     Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that WRIICO is deemed to owe a fiduciary duty to each Fund and approved the investment advisory agreement.

Distribution Services

     IFDI, a wholly-owned subsidiary of WRIICO, formerly known as Ivy Mackenzie Distributors, Inc., serves as the principal underwriter and distributor of Ivy Fund’s shares pursuant to a Distribution Agreement with the Trust dated      , 2003, (the “Distribution Agreement”). IFDI

distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IFDI. IFDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IFDI is not obligated to sell any specific amount of Fund shares.

     Each Fund has authorized IFDI to accept on its behalf purchase and redemption orders. IFDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund’s behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary’s authorized designee, accepts the order. Client orders will be priced at the Fund’s Net Asset Value next computed after an authorized intermediary or the intermediary’s authorized designee accepts them.

     Pursuant to the Distribution Agreement, IFDI is entitled to deduct a commission on all Class A Fund shares sold equal to the difference, if any, between the public offering price, as set forth in each Fund’s then- current prospectus, and the net asset value on which such price is based. Out of that commission, IFDI may reallow to dealers such concessions as IFDI may determine from time to time. In addition, IFDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus.

     Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses.

     The Distribution Agreement will continue in effect initially for two years and for successive one-year periods thereafter, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IFDI on 60 days’ written notice to the Fund or by the Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days’ written notice to IFDI. The Distribution Agreement shall terminate automatically in the event of its assignment.

     Payments to Dealers. IFDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, IFDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. IFDI will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses.

     Rule 18f-3 Plan. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company’s board of directors/trustees and filed with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other

rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of each Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) each Fund’s Class B shares will convert automatically into Class A shares of that Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion.

     Rule 12b-1 Distribution Plans. The Trust has adopted on behalf of each Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to each Fund’s Class A, Class B, Class C and Class Y shares (each, a “Plan”). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit each Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of each Fund’s shares, although it is impossible to know for certain the level of sales and redemptions of the Fund’s shares in the absence of a Plan or under an alternative distribution arrangement.

     Under each Plan, each Fund pays IFDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B, Class C or Class Y shares, as the case may be. For Class A, B and C shares, this fee is a reimbursement to IFDI for service fees paid by IFDI. For Class Y shares, this fee is compensation to IFDI for service fees paid by IFDI. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of shares of each Fund, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to a Fund’s Class A, Class B, or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. The Class Y Plan permits compensation of the service fee by the Fund to IFDI and is not dependent on IFDI’s expenses incurred.

     Under each Fund’s Class B and Class C Plans, each Fund also pays IFDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. This fee is paid to IFDI as compensation and is not dependent on IFDI’s expenses incurred. IFDI may reallow to dealers all or a portion of the service and distribution fees as IFDI may determine from time to time. The distribution fee compensates IFDI for expenses incurred in connection with activities primarily intended to result in the sale of each Fund’s Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IFDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC.

     Among other things, each Plan provides that (1) IFDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any

material amendment thereto is approved, by the votes of a majority of the Board, including the Independent Trustees, cast in person at a meeting called for that purpose; (3) payments by any Fund under each Plan shall not be materially increased without the affirmative vote of the holders of a majority of the outstanding shares of the relevant class; and (4) while each Plan is in effect, the selection and nomination of Independent Trustees, as defined below, shall be committed to the discretion of the then current Independent Trustees.

     IFDI may make payments for distribution assistance and for administrative and accounting services from resources that may include the management fees paid by each Fund. IFDI also may make payments (such as the service fee payments described above) to unaffiliated broker-dealers, banks, investment advisors, financial institutions and other entities for services rendered in the distribution of a Fund’s shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IFDI.

     Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class.

     If the Distribution Agreement or the Distribution Plans are terminated (or not renewed) with respect to any of the Ivy Funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed).

Custodian

     Pursuant to a Custodian Agreement with the Trust, UMB Bank, n.a. (the “Custodian”), located at 928 Grand Boulevard, Kansas City, Missouri 64106, maintains custody of the assets of each Fund held in the United States. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of each Fund’s foreign securities.

Fund Accounting Services

     Pursuant to a Fund Accounting Services Agreement, WRIICO provides certain accounting and pricing services for each Fund. As of March 18, 2003, WRIICO has assigned its responsibilities under the Fund Accounting Services Agreement to Waddell & Reed Services Company (“WRSCO”). As compensation for those services, each Fund pays WRSCO a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of each Fund at the preceding month end at the following rates:

Fund's Average Daily Net Assets for			Monthly
the Month			Fee
		$0 - $10 million	$	0
	$10 - $25 million		$	917
	$25 - $50 million		$	1,833

Fund's Average Daily Net Assets for		Monthly
the Month		Fee
	$50 - $100 million	$	2,750
$100 - $200 million		$	3,666
$200 - $350 million		$	4,583
$350 - $550 million		$	5,500
$550 - $750 million		$	6,417
$750 - $1.0 billion		$	7,792
$1.0 billion and over		$	9,167

     In addition, for each class of shares in excess of one, the Fund pays WRSCO a monthly per-class fee equal to 2.5% of the monthly base fee.

     Each Fund also pays monthly a fee paid at the annual rate of .01% or one basis point for the first $1 billion of assets with no fee charged for assets in excess of $1 billion. This fee may be voluntarily waived, by WRSCO, until Fund assets are at least $10 million.

Shareholder Services

     Under the Shareholder Servicing Agreement entered into between the Funds and WRSCO, WRSCO performs shareholder servicing functions, including the maintenance of shareholder accounts, the issuance, transfer and redemption of shares, distribution of dividends and payment of redemptions, the furnishing of related information to the Funds and handling of shareholder inquiries. A new Shareholder Servicing Agreement, or amendments to the existing one, may be approved by the Board of Trustees without shareholder approval.

     Under the Shareholder Servicing Agreement, with respect to Class A, Class B and Class C shares, each Fund paid WRSCO a monthly fee, payable on the first day of each month, for each account of the Fund which was in existence during any portion of the immediately preceding month, as follows:

Ivy Balanced Fund	$	1.5792
Ivy Bond Fund	$	1.6958
Ivy International Balanced Fund	$	1.5792
Ivy Mortgage Securities Fund	$	1.6958
Ivy Real Estate Securities Fund	$	1.5792
Ivy Small Cap Value Fund	$	1.5792
Ivy Value Fund	$	1.5792

     With respect to Class Y shares, each Fund pays WRSCO an amount payable on the first day of each month equal to 1/12 of .15 of 1% of the average daily net assets of the Class for the preceding month.

Auditors

     Deloitte & Touche LLP, located at 1010 Grand Boulevard, Kansas City, Missouri, has been selected as auditors for the Trust. The audit services performed by Deloitte & Touche LLP include audits of the annual financial statements of each of the funds of the Trust. Other services provided by Deloitte & Touche LLP principally relate to filings with the SEC and the preparation of the funds’ tax returns.

BROKERAGE ALLOCATION

     Subject to the overall supervision by the Board, WRIICO, Advantus Capital, Templeton Counsel, and State Street Research (the “Advisors”), place orders for the purchase and sale of each Fund’s portfolio securities. Purchases and sales of securities on a securities exchange are effected through brokers who charge a commission for their services. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Funds for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to

the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, the Advisors attempt to deal directly with the principal market makers, except in those circumstances where the Advisors believe that a better price and execution are available elsewhere.

     The Advisors select broker-dealers to execute transactions and evaluate the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms’ professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by the Advisors in servicing all of their accounts. In addition, not all of these services may be used by the Advisors in connection with the services they provide to the Funds or the Trust. The Advisors may also consider sales of shares of Ivy Funds as a factor in the selection of broker-dealers. The Advisors may choose broker- dealers that provide the Advisors with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if the Advisors view the commissions as reasonable in relation to the value of the brokerage and/or research services. The Advisors will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services.

     Brokerage commissions vary from year to year in accordance with the extent to which a particular Fund is more or less actively traded.

     Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that the Advisors deem to be a desirable investment for each Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund’s shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states.

PROXY VOTING POLICY

The Funds have delegated all proxy voting responsibilities to their Advisors. WRIICO has established guidelines that reflect what it believes are desirable principles of corporate governance.

Listed below are several reoccurring issues and WRIICO’s corresponding positions.

Board of Trustees Issues:

WRIICO generally supports proposals requiring that a majority of the Board consist of outside, or independent, trustees.

WRIICO generally votes against proposals to limit or eliminate liability for monetary damages for violating the duty of care.

WRIICO generally votes against indemnification proposals that would expand coverage to more serious acts such as negligence, willful or intentional misconduct, derivation of improper personal benefit, absence of good faith, reckless disregard for duty, and unexcused pattern of inattention. The success of a corporation in attracting and retaining qualified directors and officers, in the best interest of shareholders, is partially dependent on its ability to provide some satisfactory level of protection from personal financial risk. WRIICO will support such protection so long as it does not exceed reasonable standards.

WRIICO generally votes against proposals requiring the provision for cumulative voting in the election of directors as cumulative voting may allow a minority group of shareholders to cause the election of one or more directors.

Corporate Governance Issues:

WRIICO generally supports proposals to ratify the appointment of independent accountants/auditors unless reasons exist which cause it to vote against the appointment.

WRIICO generally votes against proposals to restrict or prohibit the right of shareholders to call special meetings.

WRIICO generally votes against proposals which include a provision to require a supermajority vote to amend any charter or bylaw provision, or to approve mergers or other significant business combinations.

WRIICO generally votes for proposals to authorize an increase in the number of authorized shares of common stock.

WRIICO generally votes against proposals for the adoption of a Shareholder Rights Plan (sometimes “Purchase Rights Plan”). It believes that anti- takeover proposals are generally not in the best interest of shareholders. Such a Plan gives the Board virtual veto power over acquisition offers which may well offer material benefits to shareholders.

Executive/Employee Issues:

WRIICO will generally vote for proposals to establish an Employee Stock Ownership Plan (ESOP) as long as the size of the Plan is reasonably limited.

Political Activity:

WRIICO will generally vote against proposals relating to corporate political activity or contributions, or to require the publication of reports on political activity or contributions made by political action committees (PAC’s) sponsored or supported by the corporation. PAC contributions are generally made with funds contributed voluntarily by employees, and provide positive individual participation in the political process of a democratic society. In addition, Federal and most state laws require full disclosure of political contributions made by PAC’s. This is public information and available to all interested parties.

Conflicts of Interest Between WRIICO and the Funds:

WRIICO will use the following three-step process to address conflicts of interest: (1) WRIICO will attempt to identify any potential conflicts of interest; (2) WRIICO will then determine if the conflict as identified is

material; and (3) WRIICO will follow the procedures established below to ensure that its proxy voting decisions are based on the best interests of the Funds and are not the product of a material conflict. The attached Exhibit A includes sample proxy voting conflict of interest procedures.

I.     Identifying Conflicts of Interest: WRIICO will evaluate the nature of its relationships to assess which, if any, might place its interests, as well as those of its affiliates, in conflict with those of the fund’s shareholders on a proxy voting matter. WRIICO will review any potential conflicts that involve the following four general categories to determine if there is a conflict and if so, if the conflict is material:

• Business Relationships - WRIICO will review any situation for a material conflict where WRIICO manages money for a company or an employee group, manages pension assets, administers employee benefit plans, leases office space from a company, or provides brokerage, underwriting, insurance, banking or consulting services to a company or if it is determined that WRIICO (or an affiliate) otherwise has a similar significant relationship with a third party such that the third party might have an incentive to encourage WRIICO to vote in favor of management.

• Personal Relationships - WRIICO will review any situation where it (or an affiliate) has a personal relationship with other proponents of proxy proposals, participants in proxy contests, corporate directors, or candidates for directorships to determine if a material conflict exists.

• Familial Relationships - WRIICO will review any situation where it (or an affiliate) has a known familial relationship relating to a company (e.g., a spouse or other relative who serves as a director of a public company or is employed by the company) to determine if a material conflict exists.

WRIICO will designate an individual or committee to review and identify proxies for potential conflicts of interest on an ongoing basis.

II.     “Material Conflicts”: WRIICO will review each relationship identified as having a potential conflict based on the individual facts and circumstances. For purposes of this review, WRIICO will attempt to detect those relationships deemed material based on the reasonable likelihood that they would be viewed as important by the average shareholder.

In considering the materiality of a conflict, WRIICO will take a two-step approach:

• Financial Materiality - A relationship will be considered presumptively non-material unless the relationship represents 5% or more of WRIICO’s annual revenue. If the relationship involves an affiliate, the “material” benchmark will be 15% or more of WRIICO’s annual revenue.

• Non-Financial Materiality - WRIICO will review all known relationships of portfolio managers and senior management for improper influence.

III. Procedures to Address Material Conflicts: WRIICO will use the following techniques to vote proxies that have been determined to present a “Material Conflict.”

• Use a Proxy Voting Service for Specific Proposals - As a primary means of voting material conflicts, WRIICO will vote per the recommendation of an independent proxy voting service (Institutional Shareholder Services (“ISS”) or another independent third party if a recommendation from ISS is unavailable).

• Client directed - If the Material Conflict arises from WRIICO’s management of a third party account and the client provides voting

	instructions on a particular vote, WRIICO will vote according to the directions provided by the client.
•	Use a Predetermined Voting Policy - If no directives are provided by either ISS or the client, WRIICO may vote material conflicts pursuant to the pre-determined Proxy Voting Policies, established herein, should such subject matter fall sufficiently within the identified subject matter. If the issue involves a material conflict and WRIICO chooses to use a predetermined voting policy, WRIICO will not be permitted to vary from the established voting policies established herein.
•	Seek Board Guidance - If the Material Conflict does not fall within one of the situations referenced above, WRIICO may seek guidance from the Funds’ Board of Trustees on matters involving a conflict. Under this method, WRIICO will disclose the nature of the conflict to the Fund Board and obtain the Board’s consent or direction to vote the proxies. WRIICO may use the Board Guidance to vote proxies for its non-mutual fund clients.

CAPITAL STOCK

     The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights.

     The Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. The Trustees have currently authorized the following series, each of which represents a fund: Ivy Balanced Fund, Ivy Bond Fund, Ivy Cash Reserves Fund, Ivy Cundill Global Value Fund, Ivy Dividend Income Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy International Fund, Ivy International Balanced Fund, Ivy International Value Fund, Ivy Mortgage Securities Fund, Ivy Pacific Opportunities Fund, Ivy Real Estate Securities Fund, Ivy Small Cap Value Fund, and Ivy Value Fund. The Trustees have further authorized the issuance of Class A, Class B, Class C and Class Y shares of each of these Funds(except Ivy Cash Reserves Fund does not offer Class Y shares). The Trustees had also authorized the issuance of the following classes, which are now closed to further investment: Advisor Class shares for Ivy European Opportunities Fund, Ivy International Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund, as well as Class I shares for, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund and Ivy International Value Fund. Under the Declaration of Trust, the Trustees may terminate any Fund without shareholder approval. This might occur, for example, if a Fund does not reach or fails to maintain an economically viable size.

     Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust’s By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund’s Class A, Class B, Class C. or Class Y shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund,

then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent certified public accountants, will be voted upon collectively by the shareholders of all funds of the Trust.

     As used in this SAI and the Prospectus, the phrase “majority vote of the outstanding shares” of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust).

     With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust.

     The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust.

     The Trust’s shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees.

     Under Massachusetts law, the Trust’s shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Purchase of Shares

Minimum Initial and Subsequent Investments

     For Class A, Class B and Class C shares, initial investments must be at least $500 (per Fund) with the exceptions described in this paragraph. A $100 minimum initial investment pertains to exchanges of shares from one Fund to another Fund. A $50 minimum initial investment pertains to purchases for certain retirement plan accounts and to accounts for which an investor has arranged, at the time of initial investment, to make subsequent purchases for the account by having regular monthly withdrawals of $25 or more made from a bank account. A minimum initial investment of $25 is applicable to purchases made through payroll deduction or certain

retirement plan accounts for or by employees of IFDI, WRIICO, and their affiliates. Except with respect to certain exchanges and automatic withdrawals from a bank account, a shareholder may make subsequent investments of any amount. See, Exchanges for Shares of Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

     For Class Y shares, investments by government entities or authorities or by corporations must total at least $10 million within the first twelve months after initial investment. There is no initial investment minimum for other Class Y investors.

Reduced Sales Charges (Applicable to Class A Shares only)

     Account Grouping

     Large purchases of Class A shares are subject to lower sales charges. The schedule of sales charges appears in the Prospectuses. For the purpose of taking advantage of the lower sales charges available for large purchases, a purchase in any of categories 1 through 7 listed below made by an individual or deemed to be made by an individual may be grouped with purchases in any other of these categories:

1.	Purchases by an individual for his or her own account (includes purchases under the Ivy Funds Revocable Trust Form);
2.	Purchases by that individual’s spouse purchasing for his or her own account (includes Ivy Funds Revocable Trust Form of spouse);
3.	Purchases by that individual or his or her spouse in their joint account;
4.	Purchases by that individual or his or her spouse for the account of their child under age 21;
5.	Purchase by any custodian for the child of that individual or spouse in a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account;
6.	Purchases by that individual or his or her spouse for his or her individual retirement account (IRA), or salary reduction plan account under Section 457 of the Internal Revenue Code of 1986, as amended (the Code), provided that such purchases are subject to a sales charge (see Net Asset Value Purchases), tax-sheltered annuity account (TSA) or Keogh Plan account, provided that the individual and spouse are the only participants in the Keogh Plan; and
7.	Purchases by a trustee under a trust where that individual or his or her spouse is the settlor (the person who establishes the trust).

          For the foregoing categories, an individual’s domestic partner is treated as his or her spouse.

          Examples:

A.	Grandmother opens a UGMA account for grandson A; Grandmother has an account in her own name; A’s father has an account in his own name; the UGMA account may be grouped with A’s father’s account but may not be grouped with Grandmother’s account;
B.	H establishes a trust naming his children as beneficiaries and appointing himself and his bank as co-trustees; a purchase made in the trust account is eligible for grouping with an IRA account of W, H’s wife;

C.	H’s will provides for the establishment of a trust for the benefit of his minor children upon H’s death; his bank is named as trustee; upon H’s death, an account is established in the name of the bank, as trustee; a purchase in the account may be grouped with an account held by H’s wife in her own name.
D.	X establishes a trust naming herself as trustee and R, her son, as successor trustee and R and S as beneficiaries; upon X’s death, the account is transferred to R as trustee; a purchase in the account may not be grouped with R’s individual account. If X’s spouse, Y, was successor trustee, this purchase could be grouped with Y’s individual account.

     All purchases of Class A shares made for a participant in a multi- participant Keogh plan may be grouped only with other purchases made under the same plan; a multi-participant Keogh plan is defined as a plan in which there is more than one participant where one or more of the participants is other than the spouse of the owner/employer.

Example A:	H has established a Keogh plan; he and his wife W are the only participants in the plan; they may group their purchases made under the plan with any purchases in categories 1 through 7 above.
Example B:	H has established a Keogh Plan; his wife, W, is a participant and they have hired one or more employees who also become participants in the plan; H and W may not combine any purchases made under the plan with any purchases in categories 1 through 7 above; however, all purchases made under the plan for H, W or any other employee will be combined.

     All purchases of Class A shares made under a qualified employee benefit plan of an incorporated business will be grouped. A qualified employee benefit plan is established pursuant to Section 401 of the Code. All qualified employee benefit plans of any one employer or affiliated employers will also be grouped. An affiliate is defined as an employer that directly, or indirectly, controls or is controlled by or is under control with another employer. All qualified employee benefit plans of an employer who is a franchisor and those of its franchisee(s) may also be grouped.

Example: Corporation X sets up a defined benefit plan; its subsidiary, Corporation Y, sets up a 401(k) plan; all contributions made under both plans will be grouped.

     All purchases of Class A shares made under a simplified employee pension plan (SEP), payroll deduction plan or similar arrangement adopted by an employer or affiliated employers (as defined above) may be grouped provided that the employer elects to have all such purchases grouped at the time the plan is set up. If the employer does not make such an election, the purchases made by individual employees under the plan may be grouped with the other accounts of the individual employees described above in Account Grouping.

     Account grouping as described above is available under the following circumstances.

     One-time Purchases

     A one-time purchase of Class A shares in accounts eligible for grouping may be combined for purposes of determining the availability of a reduced sales charge. In order for an eligible purchase to be grouped, the investor must advise IFDI at the time the purchase is made that it is eligible for grouping and identify the accounts with which it may be grouped.

Example: H and W open an account in the Fund and invest $75,000; at the same time, H’s parents open up three UGMA accounts for H and W’s three minor children and invest $10,000 in each child’s name; the combined purchase of $105,000 of Class A shares is subject to a reduced sales load of 4.75% provided that IFDI is advised that the purchases are entitled to grouping.

Rights of Accumulation

     If Class A shares are held in any account and an additional purchase of Class A shares is made in that account or in any account eligible for grouping with that account, the additional purchase is combined with the NAV of the existing account(s) as of the date the new purchase is accepted by IFDI for the purpose of determining the availability of a reduced sales charge.

Example: H is a current Class A shareholder who invested in one of the Funds three years ago. His account has a NAV of $80,000. His wife, W, now wishes to invest $20,000 in Class A shares of that (or another) Fund. W’s purchase will be combined with H’s existing account and will be entitled to a reduced sales charge of 4.75%. H’s original purchase was subject to a full sales charge and the reduced charge does not apply retroactively to that purchase.

     In order to be entitled to Rights of Accumulation, the purchaser must inform IFDI that the purchaser is entitled to a reduced charge and provide IFDI with the name and number of the existing account(s) with which the purchase may be combined.

Letter of Intent

     The benefit of a reduced sales charge for larger purchases of Class A shares is also available under a Letter of Intent (LOI). By signing an LOI form, which is available from IFDI, the purchaser indicates an intention to invest in Class A shares, over a 13-month period, a dollar amount which is sufficient to qualify for a reduced sales charge. The 13-month period begins on the date the first purchase made under the LOI is accepted by IFDI. Each purchase made from time to time under the LOI is treated as if the purchaser were buying at one time the total amount which he or she intends to invest. The sales charge applicable to all purchases of Class A shares made under the terms of the LOI will be the sales charge in effect on the beginning date of the 13-month period.

     In determining the amount which the purchaser must invest in order to qualify for a reduced sales charge under an LOI, the investor’s Rights of Accumulation (see above) will be taken into account; that is, Class A shares already held in the same account in which the purchase is being made or in any account eligible for grouping with that account, as described above, will be included.

Example: H signs an LOI indicating his intent to invest in his own name a dollar amount sufficient to entitle him to purchase Class A shares at the sales charge applicable to a purchase of $100,000. H has an IRA account and the Class A shares held under the IRA in a Fund have a NAV as of the date the LOI is accepted by IFDI of $15,000; H’s wife, W, has an account in her own name invested in another Fund which charges the same sales load as the Fund, with a NAV as of the date of acceptance of the LOI of $10,000; H needs to invest $75,000 in Class A shares over the 13-month period in order to qualify for the reduced sales load applicable to a purchase of $100,000.

     A copy of the LOI signed by a purchaser will be returned to the purchaser after it is accepted by IFDI and will set forth the dollar amount of Class A shares which must be purchased within the 13-month period in order to qualify for the reduced sales charge.

     The minimum initial investment under an LOI is 5% of the dollar amount which must be invested under the LOI. An amount equal to 5% of the purchase required under the LOI will be held in escrow. If a purchaser does not, during the period covered by the LOI, invest the amount required to qualify for the reduced sales charge under the terms of the LOI, he or she will be responsible for payment of the sales charge applicable to the amount actually invested. The additional sales charge owed on purchases of Class A shares made under an LOI which is not completed will be collected by redeeming part of the shares purchased under the LOI and held in escrow unless the purchaser makes payment of this amount to IFDI within 20 days of IFDI’s request for payment.

     If the actual amount invested is higher than the amount an investor intends to invest, and is large enough to qualify for a sales charge lower than that available under the LOI, the lower sales charge will apply.

     An LOI does not bind the purchaser to buy, or IFDI to sell, the shares covered by the LOI.

     With respect to LOIs for $2,000,000 or purchases otherwise qualifying for no sales charge under the terms of the LOI, the initial investment must be at least $200,000.

     The value of any shares redeemed during the 13-month period which were acquired under the LOI will be deducted in computing the aggregate purchases under the LOI.

     LOIs are not available for purchases made under an SEP where the employer has elected to have all purchases under the SEP grouped.

     Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

     Reduced sales charges for larger purchases of Class A shares apply to purchases of any of the Class A shares of any of the funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc. subject to a sales charge. A purchase of Class A shares, or Class A shares held, in any of the funds in the Ivy Family of Funds and/or Waddell & Reed InvestEd Portfolios, Inc. subject to a sales charge will be treated as an investment in the Fund in determining the applicable sales charge. For these purposes, Class A shares of Ivy Money Market Fund that were acquired by exchange of another Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. Class A shares on which a sales charge was paid, plus the shares paid as dividends on those acquired shares, are also taken into account.

     To obtain a reduced sales charge, clients of Waddell & Reed, Inc. and Legend may also combine purchases of Class A shares of any of the funds in the Waddell & Reed Advisors Family of Funds, except Class A shares of Waddell & Reed Advisors Cash Management, Inc.

Net Asset Value Purchases of Class A Shares

     Class A shares of a Fund may be purchased at NAV by the Trustees and officers of the Funds or of any affiliated entity of IFDI, employees of IFDI or of any of its affiliates, financial advisors of IFDI and its affiliates and the spouse, children, parents, children’s spouses and spouse’s parents of each such Director, officer, employee and financial advisor. Child includes stepchild; parent includes stepparent. Purchases of Class A shares in an IRA sponsored by IFDI of its affiliates established

for any of these eligible purchasers may also be at NAV. Purchases of Class A shares in any tax-qualified retirement plan under which the eligible purchaser is the sole participant may also be made at NAV. Trusts under which the grantor and the trustee or a co-trustee are each an eligible purchaser are also eligible for NAV purchases of Class A shares. Employees include retired employees. A retired employee is an individual separated from service from IFDI, or from an affiliated company with a vested interest in any Employee Benefit plan sponsored by IFDI or any of its affiliated companies. Financial advisors include retired financial advisors. A retired financial advisor is any financial advisor who was, at the time of separation from service from IFDI, a Senior Financial Advisor. A custodian under UGMA or UTMA purchasing for the child or grandchild of any employee or financial advisor may purchase Class A shares at NAV whether or not the custodian himself is an eligible purchaser.

     Shares may be issued at NAV in a merger, acquisition or exchange offer made pursuant to a plan of reorganization to which the Fund is a party.

     Purchases of Class A shares by Friends of the Firm which include certain persons who have an existing relationship with IFDI or any of its affiliates may be made at NAV.

     The Merrill Lynch Daily K Plan (the “Plan”), provided the Plan has at least $3 million in assets or over 500 or more eligible employees. Class B shares of the Funds are made available to Plan participants at NAV without a CDSC if the Plan has less than $3 million in assets or fewer than 500 eligible employees. For further information see “Group Systematic Investment Program” in the SAI.

     Purchases of Class A shares in a 401(k) plan or a 457 plan having 100 or more eligible employees, and the shares are held in individual plan participant accounts on the Fund’s records, may be made at NAV.

     Shareholders investing through certain investment advisors and financial planners who charge a management, consulting or other fee for their services.

Reasons for Differences in the Public Offering Price of Class A Shares

     As described herein and in the Prospectus, there are a number of instances in which a Fund’s Class A shares are sold or issued on a basis other than at the maximum public offering price, that is, the NAV plus the highest sales charge. Some of these instances relate to lower or eliminated sales charges for larger purchases of Class A shares, whether made at one time or over a period of time as under an LOI or Rights of Accumulation. See the table of breakpoints in sales charges in the Prospectus for the Class A shares. The reasons for these quantity discounts are, in general, that (1) they are traditional and have long been permitted in the industry and are therefore necessary to meet competition as to sales of shares of other funds having such discounts, (2) certain quantity discounts are required by rules of the National Association of Securities Dealers, Inc. (as is elimination of sales charges on the reinvestment of dividends and distributions), and (3) they are designed to avoid an unduly large dollar amount of sales charge on substantial purchases in view of reduced selling expenses. Quantity discounts are made available to certain related persons for reasons of family unity and to provide a benefit to tax-exempt plans and organizations.

     In general, the reasons for the other instances in which there are reduced or eliminated sales charges for Class A shares are as follows. Exchanges at NAV are permitted because a sales charge has already been paid on the shares exchanged. Sales of Class A shares without a sales charge are permitted to Trustees, officers and certain others due to reduced or eliminated selling expenses and since such sales may aid in the development of a sound employee organization, encourage responsibility and interest in

a Fund and an identification with its aims and policies. Limited reinvestments of redemptions of Class A shares at no sales charge are permitted to attempt to protect against mistaken or not fully informed redemption decisions. Class A shares may be sold without a sales charge in plans of reorganization due to reduced or eliminated sales expenses and since, in some cases, such shares are exempted by the 1940 Act from the otherwise applicable requirements as to sales charges. Reduced or eliminated sales charges may also be used for certain short-term promotional activities by IFDI. In no case in which there is a reduced or eliminated sales charge are the interests of existing Class A shareholders adversely affected since, in each case, the Fund receives the NAV per share of all shares sold or issued.

Systematic Withdrawal Plan for Class A, Class B and Class C Shareholders

     If you qualify, you may arrange to receive through the Systematic Withdrawal Plan (Service) regular monthly, quarterly, semiannual or annual payments by redeeming on an ongoing basis Class A, Class B or Class C shares that you own of any of the funds in the Ivy Family of Funds. It would be a disadvantage to an investor to make additional purchases of Class A shares while the Service is in effect because it would result in duplication of sales charges. Class B and Class C shares, and certain Class A shares to which the CDSC otherwise applies, that are redeemed under the Service are not subject to a CDSC provided the amount withdrawn does not exceed, annually, 12% of the account value. Applicable forms to start the Service are available through Waddell & Reed Services Company.

     The maximum amount of the withdrawal for annual withdrawals is 12% of the value of your account at the time the Service is established. As noted above, the withdrawal proceeds are not subject to the CDSC, but only within these percentage limitations. The minimum withdrawal is $50. The Service, and this exclusion from the CDSC, do not apply to a one-time withdrawal.

     To qualify for the Service, you must have invested at least $10,000 in Class A, Class B or Class C shares which you still own of any of the funds in the Ivy Family of Funds; or, you must own Class A, Class B or Class C shares having a value of at least $10,000. The value for this purpose is the value at the current offering price.

     You can choose to have shares redeemed to receive:

     1.     a monthly, quarterly, semiannual or annual payment of $50 or more;

     2.     a monthly payment, which will change each month, equal to one- twelfth of a percentage of the value of the shares in the Account; (you select the percentage); or

     3.     a monthly or quarterly payment, which will change each month or quarter, by redeeming a number of shares fixed by you (at least five shares).

     Shares are redeemed on the 20th day of the month in which the payment is to be made, or on the prior business day if the 20th is not a business day. Payments are made within five days of the redemption.

     The dividends and distributions on shares of a class you have made available for the Service are paid in additional shares of that class. All payments under the Service are made by redeeming shares, which may involve a gain or loss for tax purposes. To the extent that payments exceed dividends and distributions, the number of shares you own will decrease. When all of the shares in an account are redeemed, you will not receive any further payments. Thus, the payments are not an annuity, an income or a return on your investment.

     You may, at any time, change the manner in which you have chosen to have shares redeemed to any of the other choices originally available to you. You may, at any time, redeem part or all of the shares in your account; if you redeem all of the shares, the Service is terminated. The Fund can also terminate the Service by notifying you in writing.

     After the end of each calendar year, information on shares redeemed will be sent to you to assist you in completing your Federal income tax return.

Group Systematic Investment Program

     Shares of each Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Funds or IFDI do not organize, offer or administer any such programs. However, depending upon the size of the program, the Funds or IFDI may waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of a Fund are purchased in conjunction with IRAs, such group systematic investment programs are not entitled to special tax benefits under the Code. The Funds reserve the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, as described in the Prospectus, to shareholders using group systematic investment programs.

     Class A shares of each Fund are made available to Merrill Lynch Daily K Plan (the “Plan”) participants at NAV without an initial sales charge if:

(I)	the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. (“MLAM”) that are made available pursuant to a Service Agreement between Merrill Lynch and the fund’s principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the “Applicable Investments”);
(ii)	the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or
(iii)	the Plan has 500 or more eligible employees, as determined by Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement.

     Alternatively, Class B shares of each Fund are made available to Plan participants at NAV without a CDSC if the Plan conforms with the requirements for eligibility set forth in (i) through (iii) above but either does not meet the $3 million asset threshold or does not have 500 or more eligible employees.

     Plans recordkept on a daily basis by Merrill Lynch or an independent recordkeeper under a contract with Merrill Lynch that are currently investing in Class B shares of any Fund convert to Class A shares once the Plan has reached $5 million invested in Applicable Investments, or 10 years after the date of the initial purchase by a participant under the Plan—the

Plan will receive a Plan level share conversion.

Exchanges for Shares of Other Funds in the Ivy Family of Funds and Waddell & Reed InvestEd Portfolios, Inc.

Class A Share Exchanges

     Once a sales charge has been paid on shares of a fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc., these shares and any shares added to them from dividends or distributions paid in shares may be freely exchanged for corresponding shares of another fund in Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. and, for clients of Waddell & Reed, Inc. or Legend, another fund in Waddell & Reed Advisors Family of Funds. The shares you exchange must be worth at least $100 or you must already own shares of a fund in Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. into which you want to exchange.

     Except where the special rules described below apply, you may exchange Class A shares you own in a Fund for Class A shares of another fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios and, for clients of Waddell & Reed, Inc. or Legend, for Class A shares of a fund in Waddell & Reed Advisors Family of Funds, without charge if (1) a sales charge was paid on these shares, or (2) the shares were received in exchange for shares for which a sales charge was paid, or (3) the shares were acquired from reinvestment of dividends and distributions paid on such shares. There may have been one or more such exchanges so long as a sales charge was paid on the shares originally purchased. Also, shares acquired without a sales charge because the purchase was $2 million or more will be treated the same as shares on which a sales charge was paid.

     Special rules apply to Ivy Limited-Term Bond Fund and Ivy Municipal Bond Fund shares. Class A shares of one of these Funds may be exchanged for Class A shares of another fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc. (or, for customers of Waddell & Reed, Inc. or Legend, for Class A shares of a fund within Waddell & Reed Advisors Family of Funds) only if (1) you received the shares to be exchanged as a result of one or more exchanges of shares on which a maximum sales charge was originally paid (currently, 5.75%), or (2) the shares to be exchanged have been held for at least six months from the date of the original purchase. However, you may exchange, and these restrictions do not apply to exchanges of, Class A shares of Ivy Limited-Term Bond, Ivy Municipal Bond Fund or Ivy Money Market Fund (and, for clients of Waddell & Reed, Inc. or Legend, Class A shares of Waddell & Reed Advisors Municipal Bond Fund, Inc., Waddell & Reed Advisors Municipal High Income Fund, Inc., Waddell & Reed Advisors Fixed Income Funds, Inc. or Waddell & Reed Advisors Cash Management, Inc.).

     Subject to the above rules regarding sales charges, you may have a specific dollar amount of Class A shares of Ivy Money Market Fund automatically exchanged each month into Class A shares of any other fund in Ivy Family of Funds, provided you already own Class A shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among the Class A shares of different Funds so long as each fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

Class B Share Exchanges

     You may exchange Class B shares of one Fund for Class B shares of another Fund in the Ivy Family of Funds or Waddell & Reed InvestEd Portfolios, Inc., and, for clients of Waddell & Reed, Inc. or Legend, for Class B shares of a fund in Waddell & Reed Advisors Family of Funds without charge.

     The redemption of a Fund’s Class B shares as part of an exchange is not subject to the deferred sales charge. For purposes of computing the deferred sales charge, if any, applicable to the redemption of the shares acquired in the exchange, those acquired shares are treated as having been purchased when the original redeemed shares were purchased.

     You may have a specific dollar amount of Class B shares of Ivy Money Market Fund automatically exchanged each month into Class B shares of any other fund in the Ivy Family of Funds, provided you already own Class B shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among different Funds so long as each Fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

Class C Share Exchanges

     You may exchange Class C shares of one Fund for Class C shares of another Fund or Waddell & Reed InvestEd Portfolios, Inc., and for customers of Waddell & Reed, Inc. or Legend, for Class C shares of a fund in the Waddell & Reed Advisors Family of Funds without charge.

     The redemption of a Fund’s Class C shares as part of an exchange is not subject to the deferred sales charge. For purposes of computing the deferred sales charge, if any, applicable to the redemption of the shares acquired in the exchange, those acquired shares are treated as having been purchased when the original redeemed shares were purchased.

     You may have a specific dollar amount of Class C shares of Ivy Money Market Fund automatically exchanged each month into Class C shares of any other fund in the Ivy Family of Funds, provided you already own Class C shares of the fund. The shares of Ivy Money Market Fund which you designate for automatic exchange must be worth at least $100, which may be allocated among different Funds so long as each Fund receives a value of at least $25. Minimum initial investment and minimum balance requirements apply to such automatic exchange service.

Class Y Share Exchanges

     Class Y shares of a Fund may be exchanged for Class Y shares of any other Fund or for Class A shares of Ivy Money Market Fund, and, for clients of Waddell & Reed, Inc. or Legend, for Class Y shares of a fund within Waddell & Reed Advisors Family of Funds.

General Exchange Information

     You may exchange only into Funds that are legally permitted for sale in your state of residence. Currently, each Fund within Ivy Family of Funds, Waddell & Reed Advisors Family of Funds and Waddell & Reed InvestEd Portfolios, Inc. may be sold only within the United States and the Commonwealth of Puerto Rico, except that Ivy Cundill Global Value Fund, Ivy Global Natural Resources Fund and Ivy Pacific Opportunities Fund are not eligible for sale in the Commonwealth of Puerto Rico.

     The exchange will be made at the NAVs next determined after receipt of your written request in good order by the Funds. When you exchange shares, the total shares you receive will have the same aggregate NAV as the total shares you exchange.

     These exchange rights may be eliminated or modified at any time by the Funds, upon notice in certain circumstances. The Funds will typically limit activity deemed to be market timing by restricting the amount of exchanges permitted by a shareholder.

     Ivy International Balanced Fund will deduct a redemption/exchange fee of 2.00% from any redemption or exchange proceeds if you sell or exchange your Class A or Class Y shares after holding them less than 30 days. These fees are paid to the Fund, and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short term shareholder trading. If you bought your shares on different days, the “first-in, first-out” (FIFO) method is used to determine the holding period. Under this method, the shares you held longest will be redeemed first for purposes of determining whether the redemption fee applies. The redemption fee does not apply to shares that were acquired through reinvestment of distributions and generally is waived for shares purchased through certain retirement and educational plans, and programs and through certain fee-based asset allocation programs. However, the fee waiver does not apply to any IRA or SEP-IRA accounts. Ivy International Balanced Fund reserves the right to modify the terms of or terminate the redemption/exchange fee at any time.

Retirement Plans and Other Tax-Advantaged Savings Accounts

     Your account may be set up as a funding vehicle for a retirement plan or other tax-advantaged savings account. For individual taxpayers meeting certain requirements, IFDI offers model or prototype documents for the following retirement plans and other accounts. All of these accounts involve investment in shares of one or more of the Funds in the Ivy Family of Funds (other than Ivy Municipal Bond Fund or Ivy Tax-Managed Equity Fund) and, for clients of Waddell & Reed, Inc. or Legend, shares of certain other funds in Waddell & Reed Advisors Funds. The dollar limits specified below are for 2003 for Federal income tax purposes and may change for subsequent years.

     Individual Retirement Accounts (IRAs). Investors having eligible earned income may set up a plan that is commonly called an IRA. Under a traditional IRA, an investor can contribute each year up to 100% of his or her earned income, up to the Annual Dollar Limit per year (provided the investor has not reached age 70 1/2). For the 2002 through 2004 calendar years, the Annual Dollar Limit is $3,000. For individuals who have attained age 50 by the last day of the calendar year for which the contribution is made, the Annual Dollar Limit also allows a catch-up contribution. The maximum annual catch-up contribution is $500 for the 2002 through 2005 calendar years. For a married couple, the maximum annual contribution is two times the Annual Dollar Limit (the Annual Dollar Limit for each spouse) or, if less, the couple’s combined earned income for the taxable year, even if one spouse had no earned income. Generally, the contributions are deductible unless: 1) the investor (or, if married, either spouse) is an active participant in an employer-sponsored retirement plan; and 2) their adjusted gross income exceeds certain levels. A married investor who is not an active participant, who files jointly with his or her spouse and whose combined adjusted gross income does not exceed $150,000 is not affected by his or her spouse’s active participant status.

     An investor may also use a traditional IRA to receive a rollover contribution that is either (a) a direct rollover distribution from an employer’s plan or (b) a rollover of an eligible distribution paid to the investor from an employer’s plan or another IRA. To the extent a rollover contribution is made to a traditional IRA, the distribution will not be subject to Federal income tax until distributed from the IRA. A direct rollover generally applies to any distribution from an employer’s plan (including a custodial account under Section 403(b)(7) of the Code or a government plan under Section 457 of the Code, but not an IRA) other than certain periodic payments, required minimum distributions and other specified distributions. In a direct rollover, the eligible rollover distribution is paid directly to the IRA, not to the investor. If, instead,

an investor receives payment of an eligible rollover distribution, all or a portion of that distribution generally may be rolled over to an IRA within 60 days after receipt of the distribution. Because mandatory Federal income tax withholding applies to any eligible rollover distribution that is not paid in a direct rollover, investors should consult their tax advisers or pension consultants as to the applicable tax rules. If you already have an IRA, you may have the assets in that IRA transferred directly to an IRA offered by IFDI.

     Roth IRAs. Investors having eligible earned income and whose adjusted gross income (or combined adjusted gross income, if married) does not exceed certain levels, may establish and contribute up to the Annual Dollar Limit per tax year to a Roth IRA (or to any combination of Roth and traditional IRAs). For a married couple, the annual maximum is two times the Annual Dollar Limit (the Annual Dollar Limit for each spouse) or, if less, the couple’s combined earned income for the taxable year, even if one spouse had no earned income.

     In addition, for an investor whose adjusted gross income does not exceed $100,000 (and who is not a married person filing a separate return), certain distributions from traditional IRAs may be rolled over to a Roth IRA and any of the investor’s traditional IRAs may be converted into a Roth IRA; these rollover distributions and conversions are, however, subject to Federal income tax.

     Contributions to a Roth IRA are not deductible; however, earnings accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject to Federal income tax if the account has been held for at least five years and the account holder has reached age 59 1/2 (or certain other conditions apply).

     Coverdell Education Savings Accounts (formerly, Education IRAs). Although not technically for retirement savings, Coverdell Education Savings Accounts provide a vehicle for saving for a child’s education. A Coverdell Education Savings Account may be established for the benefit of any minor, and any person whose adjusted gross income does not exceed certain levels may contribute up to $2000 to a Coverdell Education Savings Account (or to each of multiple Coverdell Education Savings Accounts), provided that no more than $2000 may be contributed for any year to Coverdell Education Savings Accounts for the same beneficiary. Contributions are not deductible and may not be made after the beneficiary reaches age 18 (except that this age limit does not apply to a beneficiary with “special needs,” as defined in the Code). Earnings accumulate tax- free, and withdrawals are not subject to tax if used to pay the qualified education expenses of the beneficiary (or certain members of his or her family).

     Simplified Employee Pension (SEP) plans. Employers can make contributions to SEP-IRAs established for employees. Generally an employer may contribute up to 25% of compensation, subject to certain maximums, per year for each employee.

     Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer with 100 or fewer eligible employees that does not sponsor another active retirement plan may sponsor a SIMPLE plan to contribute to its employees’ retirement accounts. A SIMPLE plan can be in the form of either an IRA or a 401(k) plan. In general, an employer can choose to match employee contributions dollar-for-dollar (up to 3% of an employee’s compensation) or may contribute to all eligible employees 2% of their compensation, whether or not they defer salary to their retirement plans. SIMPLE plans involve fewer administrative requirements, generally, than traditional 401(k) or other qualified plans.

     Keogh Plans. Keogh plans, which are available to self-employed

individuals, are defined contribution plans that may be either a money purchase plan or a profit-sharing plan. As a general rule, an investor under a defined contribution Keogh plan can contribute, for 2002, up to 25% of his or her annual earned income, with a maximum of $40,000.

     457 Plans. If an investor is an employee of a state or local government or of certain types of charitable organizations, he or she may be able to enter into a deferred compensation arrangement in accordance with Section 457 of the Code.

     TSAs — Custodial Accounts and Title I Plans. If an investor is an employee of a public school system, a church or certain types of charitable organizations, he or she may be able to enter into a deferred compensation arrangement through a custodial account under Section 403(b)(7) of the Code. Some organizations have adopted Title I plans, which are funded by employer contributions in addition to employee deferrals.

     Pension and Profit-Sharing Plans, including 401(k) Plans. With a 401(k) plan, employees can make tax-deferred contributions to a plan to which the employer may also contribute, usually on a matching basis. An employee may defer each year the lesser of 100% of income or $11,000 of compensation for 2002, which may be increased each year based on cost-of- living adjustments.

     More detailed information about these arrangements and applicable forms are available from IFDI. These tax-advantaged savings plans and other accounts may be treated differently under state tax law and may involve complex tax questions as to premature distributions and other matters. Investors should consult their tax adviser or pension consultant.

Redemptions

     The Prospectus gives information as to redemption procedures. Redemption payments are made within seven (7) days from receipt of a request in good order, unless delayed because of emergency conditions as determined by the SEC, when the NYSE is closed other than for weekends or holidays, or when trading on the NYSE is restricted. Payment is made in cash, although under extraordinary conditions redemptions may be made in portfolio securities. Payment for redemptions of shares of the Funds may be made in portfolio securities when the Board of Trustees determines that conditions exist making cash payments undesirable. Redemptions made in securities will be made only in readily marketable securities. Securities used for payment of redemptions are valued at the price used in figuring NAV. There would be brokerage costs to the redeeming shareholder in selling such securities. Each Fund, however, has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day period for any one shareholder.

Reinvestment Privilege

     The Funds offer a one-time reinvestment privilege that allows you to reinvest without charge all or part of any amount of Class A shares you redeem from the Fund by sending to the Fund the amount you wish to reinvest. The amount you return will be reinvested in Class A shares at the NAV next calculated after the Fund receives the returned amount. Your written request to reinvest and the amount to be reinvested must be received within forty-five (45) days after your redemption request was received, and the Fund must be offering Class A shares at the time your reinvestment request is received. You can do this only once as to Class A shares of a Fund. You do not lose this privilege by redeeming shares to invest the proceeds at NAV in a Keogh plan or an IRA.

     There is also a reinvestment privilege for Class B and Class C shares

and, where applicable, certain Class A shares under which you may reinvest in the Fund all or part of any amount of the shares you redeemed and have the corresponding amount of the CDSC, if any, which you paid restored to your account by adding the amount of that charge to the amount you are reinvesting in shares of the same class. If Fund shares of that class are then being offered, you can put all or part of your redemption payment back into such shares at the NAV next calculated at the time your request is received. Your written request to do this must be received within forty- five (45) days after your redemption request was received. You can do this only once as to Class B and Class C shares of the Fund. For purposes of determining future CDSC, the reinvestment will be treated as a new investment. You do not lose this privilege by redeeming shares to invest the proceeds at NAV in a Keogh plan or an IRA.

Mandatory Redemption of Certain Small Accounts

     Each of the Funds has the right to require the redemption of shares held under any account or any plan if the aggregate NAV of such shares (taken at cost or value as the Board of Trustees may determine) is less than $500. The Board has no intent to require redemptions in the foreseeable future. If it should elect to require redemptions, shareholders who are affected will receive prior written notice and will be permitted 60 days to bring their accounts up to the minimum before this redemption is processed.

Determination of Offering Price

     The NAV of each class of the shares of a Fund is the value of the assets of that class, less the class’s liabilities, divided by the total number of outstanding shares of that class.

     Class A shares of the Funds are sold at their next determined NAV plus the sales charge described in the Prospectus. The sales charge is paid to IFDI, the Fund’s underwriter.

     The offering price of a Class A share is its NAV next calculated following acceptance of a purchase request, in good order, plus the sales charge, as applicable. The offering price of a Class B share, Class C share, Class Y share or certain Class A shares is the applicable Class NAV next calculated following acceptance of a purchase request, in good order. The number of shares you receive for your purchase depends on the next offering price after IFDI, or an authorized third party, properly receives and accepts your order. You will be sent a confirmation after your purchase (except for automatic transactions) which will indicate how many shares you have purchased.

     IFDI need not accept any purchase order, and it or the Trust may determine to discontinue offering Fund shares for purchase.

     The NAV and offering price per share are computed once on each day that the NYSE is open for trading as of the later of the close of the regular session of the NYSE or the close of the regular session of any other securities or commodities exchange on which an option or futures contract held by a Fund is traded. The NYSE annually announces the days on which it will not be open for trading. The most recent announcement indicates that the NYSE will not be open on the following days: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may close on other days. The NAV will likely change every business day, since typically the value of the assets and the number of shares outstanding change every business day.

     The securities in the portfolio of the Funds, except as otherwise noted, that are listed or traded on a stock exchange, are valued on the

basis of the last sale on that day or, lacking any sales, at a price that is the mean between the closing bid and asked prices. Other securities that are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Bonds, other than convertible bonds, are valued using a third- party pricing system. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Short-term debt securities are valued at amortized cost, which approximates market value. When market quotations are not readily available, securities and other assets are valued at fair value as determined in good faith under procedures established by, and under the general supervision and responsibility of, the Board of Trustees.

     Options and futures contracts purchased and held by a Fund are valued at the last sales price thereof on the securities or commodities exchanges on which they are traded, or, if there are no transactions, at the mean between bid and asked prices. Ordinarily, the close of the regular session for options trading on national securities exchanges is 4:10 p.m. Eastern time and the close for the regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures contracts will be valued with reference to established futures exchanges. The value of a futures contract purchased by a Fund will be either the closing price of that contract or the bid price. Conversely, the value of a futures contract sold by a Fund will be either the closing purchase price or the asked price.

     When the Fund writes a put or call, an amount equal to the premium received is included in the Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is marked-to-market (that is, treated as sold for its fair market value) to reflect the current market value of the put or call. If a call the Fund wrote is exercised, the proceeds received on the sale of the related investment are increased by the amount of the premium the Fund received. If the Fund exercised a call it purchased, the amount paid to purchase the related investment is increased by the amount of the premium paid. If a put written by a Fund is exercised, the amount that the Fund pays to purchase the related investment is decreased by the amount of the premium it received. If a Fund exercises a put it purchased, the amount the Fund receives from the sale of the related investment is reduced by the amount of the premium it paid. If a put or call written by a Fund expires, it has a gain in the amount of the premium; if a Fund enters into a closing purchase transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction.

     Foreign currency exchange rates are generally determined prior to the close of trading of the regular session of the NYSE. Occasionally events affecting the value of foreign investments and such exchange rates occur between the time at which they are determined and the close of the regular session of trading on the NYSE, which events will not be reflected in a computation of the Fund’s NAV on that day. If events materially affecting the value of such investments or currency exchange rates occur during such time period, investments will be valued at their fair value as determined in good faith by or under the direction of the Board of Trustees. The foreign currency exchange transactions of a Fund conducted on a spot (that is, cash) basis are valued at the spot rate for purchasing or selling currency prevailing on the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than one-tenth of one percent due to the costs of converting from one currency to another.

     Optional delivery standby commitments are valued at fair value under the general supervision and responsibility of the Trust’s Board of Trustees. They are accounted for in the same manner as exchange-listed puts.

TAXATION OF THE FUND

General

     Each Fund intends to qualify for treatment as a regulated investment company (RIC) under the Code, so that it is relieved of Federal income tax on that part of its investment company taxable income (consisting generally of taxable net investment income, net short-term capital gains and net gains from certain foreign currency transactions, determined without regard to any deduction for dividends paid) that it distributes to its shareholders. To qualify for treatment as a RIC, the Fund must distribute to its shareholders for each taxable year at least 90% of the sum of its investment company taxable income and must meet several additional requirements. These requirements include the following: (1) the Fund must derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies or other income (including gains from options, futures contracts or forward currency contracts) derived with respect to its business of investing in securities or those currencies; (2) at the close of each quarter of the Fund’s taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities that are limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of the Fund’s total assets and that does not represent more than 10% of the issuer’s outstanding voting securities; and (3) at the close of each quarter of the Fund’s taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. Government securities or the securities of other RICs) of any one issuer.

     If the Fund failed to qualify for treatment as a RIC for any taxable year, (1) it would be taxed as an ordinary corporation on the full amount of its taxable income for that year (even if it distributed that income to its shareholders) and (2) the shareholders would treat all distributions out of its earnings and profits, including distributions of net capital gains, as dividends (that is, ordinary income). In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying for RIC treatment.

     Dividends and distributions declared by the Fund in December of any year and payable to its shareholders of record on a date in that month are deemed to have been paid by the Fund and received by the shareholders in December even if the Fund pays them during the following January. Accordingly, those dividends and distributions will be taxed to the shareholders for the year in which that December falls.

     You may be subject to tax as a result of income generated at the Fund level, to the extent the Fund makes actual or deemed distributions of such income to you. Dividends from the Fund’s investment company taxable income (which includes net short-term capital gains and net gains from certain foreign currency transactions), if any, generally are taxable to you as ordinary income whether received in cash or paid in additional Fund shares, unless such dividends are “qualified dividend income” eligible for the reduced rate of tax on long-term capital gains, as described below. Distributions of the Fund’s net capital gains (the excess of net long-term capital gains over net short-term capital loss), when designated as such, are taxable to you as long-term capital gains, whether received in cash or paid in additional Fund shares and regardless of the length of time you have owned your shares. For Federal income tax purposes, long-term capital gains generally are taxed at a maximum rate of 15% for noncorporate shareholders. As a result of changes made by the Jobs and Growth Tax Relief Reconciliation Act of 2003, “qualified dividend income” received by noncorporate shareholders is taxed as net capital gain. The portion of the

dividends that the Fund pays which is attributable to qualified dividend income received by the Fund will qualify for such treatment in the hands of noncorporate shareholders of the Fund.

     If Fund shares are sold at a loss after being held for six months or less, the loss will be treated as a long-term, instead of short-term, capital loss to the extent of any distributions received on those shares. Investors also should be aware that if they purchase shares shortly before the record date for a dividend or distribution, they will receive some portion of the purchase price back as a taxable dividend or distribution.

     The Funds will be subject to a nondeductible 4% excise tax (Excise Tax) to the extent it fails to distribute, by the end of any calendar year, substantially all of its ordinary income for that year and capital gains net income for the one-year period ending on October 31 of that year, plus certain other amounts. For these purposes, a Fund may defer into the next calendar year net capital loss incurred between November 1 and the end of the current calendar year. It is the policy of the Fund to pay sufficient dividends and distributions each year to avoid imposition of the Excise Tax.

Income from Foreign Securities

     Dividends and interest received, and gains realized, by the Fund on foreign securities may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions (foreign taxes) that would reduce the yield and/or total return on its securities. Tax conventions between certain countries and the United States may reduce or eliminate foreign taxes, however, and many foreign countries do not impose taxes on capital gains in respect of investments by foreign investors.

     The Fund may invest in the stock of passive foreign investment companies (PFICs). A PFIC is any foreign corporation (with certain exceptions) that, in general, meets either of the following tests: (1) at least 75% of its gross income is passive or (2) an average of at least 50% of its assets produce, or are held for the production of, passive income. Under certain circumstances, the Fund will be subject to Federal income tax on a portion of any excess distribution received on the stock of a PFIC or of any gain on disposition of the stock (collectively, PFIC income), plus interest thereon, even if the Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in the Fund’s investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders.

     If the Fund invests in a PFIC and elects to treat the PFIC as a qualified electing fund (QEF), then in lieu of the foregoing tax and interest obligation, the Fund will be required to include in income each year its pro rata share of the QEF’s annual ordinary earnings and net capital gain — which the Fund probably would have to distribute to satisfy the Distribution Requirement and avoid imposition of the Excise Tax — even if the QEF did not distribute those earnings and gain to the Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements thereof.

     The Fund may elect to mark to market its stock in any PFIC. Marking- to-market, in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of a PFIC’s stock over the Fund’s adjusted basis therein as of the end of that year. Pursuant to the election, the Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock the Fund included in income for prior taxable years under the election (and under regulations

proposed in 1992 that provided a similar election with respect to the stock of certain PFICs). The Fund’s adjusted basis in each PFIC’s stock with respect to which it makes this election will be adjusted to reflect the amounts of income included and deductions taken under the election.

Foreign Currency Gains and Losses

     Under Section 988 of the Code, gains or losses (1) from the disposition of foreign currencies, including forward currency contracts, (2) except in certain circumstances, from options and forward contracts on foreign currencies (and on financial instruments involving foreign currencies) and from notional principal contracts (e.g., swaps, caps, floors, and collars) involving payments denominated in foreign currencies, (3)on the disposition of each debt security denominated in a foreign currency that are attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security and the date of its disposition and (4) that are attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest, dividends or other receivables, or expenses or other liabilities, denominated in a foreign currency and the time the Fund actually collects the receivables or pays the liabilities, generally are treated as ordinary income or loss. These gains or losses may increase or decrease the amount of the Fund’s investment company taxable income to be distributed to its shareholders as ordinary income, rather than affecting the amount of its net capital gain.

Income from Financial Instruments and Foreign Currencies

     The use of hedging and option income strategies, such as writing (selling) and purchasing options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses the Fund realizes in connection therewith. Gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations), and gains from options, futures contracts and forward currency contracts the Fund derives with respect to its business of investing in securities or foreign currencies, will be treated as qualifying income under the Income Requirement.

     Any income the Fund earns from writing options is treated as short- term capital gains. If the Fund enters into a closing purchase transaction, it will have a short-term capital gain or loss based on the difference between the premium it receives for the option it wrote and the premium it pays for the option it buys. If an option written by the Fund lapses without being exercised, the premium it receives also will be a short-term capital gain. If such an option is exercised and the Fund thus sells the securities subject to the option, the premium the Fund receives will be added to the exercise price to determine the gain or loss on the sale.

     Certain futures contracts, forward currency contracts and listed non- equity options (that is, certain listed options, such as those on a broad- based securities index) in which the Fund may invest will be Section 1256 contracts. Section 1256 contracts the Fund holds at the end of its taxable year, other than contracts subject to a mixed straddle election the Fund made, are marked-to-market (that is, treated as sold at that time for their fair market value) for Federal income tax purposes, with the result that unrealized gains or losses are treated as though they were realized. Sixty percent of any net gains or losses recognized on these deemed sales, and 60% of any net realized gains or losses from any actual sales of Section 1256 contracts, are treated as long-term capital gains or losses, and the balance is treated as short-term capital gains or losses. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax. The Fund may need to distribute any mark-to-market gains to its shareholders to satisfy the Distribution Requirement and/or avoid imposition of the Excise Tax, even though it may not have closed the transactions and received cash

to pay the distributions.

     Code Section 1092 (dealing with straddles) also may affect the taxation of options, futures contracts and forward currency contracts in which the Fund may invest. That section defines a straddle as offsetting positions with respect to actively traded personal property; for these purposes, options, futures contracts and forward currency contracts are positions in personal property. Section 1092 generally provides that any loss from the disposition of a position in a straddle may be deducted only to the extent the loss exceeds the unrealized gain on the offsetting position(s) of the straddle. In addition, these rules may postpone the recognition of loss that would otherwise be recognized under the mark-to- market rules discussed above. The regulations under Section 1092 also provide certain wash sale rules, which apply to transactions where a position is sold at a loss and a new offsetting position is acquired within a prescribed period, and short sale rules applicable to straddles. If the Fund makes certain elections, the amount, character and timing of the recognition of its gains and losses from the affected straddle positions will be determined under rules that vary according to the elections made. Because only a few of the regulations implementing the straddle rules have been promulgated, the tax consequences of straddle transactions to the Fund are not entirely clear.

     If the Fund has an appreciated financial position — generally, an interest (including an interest through an option, futures or forward currency contract or short sale) with respect to any stock, debt instrument (other than straight debt) or partnership interest the fair market value of which exceeds its adjusted basis — and enters into a constructive sale of the position, the Fund will be treated as having made an actual sale thereof, with the result that it will recognize gain at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or a futures or forward currency contract the Fund or a related person enters into with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any transaction of the Fund during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Fund holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Fund’s risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities).

Corporate Zero Coupon and Payment-in-Kind Securities

     The Fund may acquire zero coupon or other corporate securities issued at a discount. As a holder of those securities, the Fund must include in its income the portion of the discount that accrues on them during the taxable year, even if the Fund receives no corresponding payment on the securities during the year. Similarly, the Fund must include in its gross income securities it receives as payment-in-kind securities. Because the Fund annually must distribute substantially all of its investment company taxable income, including any accreted discount and other non-cash income, to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, it may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions will be made from the Fund’s cash assets or from the proceeds of sales of portfolio securities, if necessary. The Fund may realize capital gains or losses from those sales, which would increase or decrease its investment company taxable income and/or net capital gains.

UNDERWRITER

     IFDI acts as principal underwriter and distributor of the Fund’s shares pursuant to an underwriting agreement entered into between IFDI and the Fund (the Distribution Agreement). The Distribution Agreement requires IFDI to use its best efforts to sell the shares of the Fund but is not exclusive, and permits and recognizes that IFDI also distributes shares of other investment companies and other securities. Shares are sold on a continuous basis. IFDI is not required to sell any particular number of shares, and sells shares only for purchase orders received. Under this agreement, IFDI pays the costs of sales literature, including the costs of shareholder reports used as sales literature.

PERFORMANCE INFORMATION

     IFDF or the Funds may, from time to time, publish the Fund’s total return information and/or performance rankings in advertisements and sales materials.

Average Annual Total Returns (Before Taxes)

     Each Fund, when advertising average annual total return before taxes for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending redeemable value of such investment according to the following formula:

     P(1 + T){superscript n} = ERV

Where:	P =	a hypothetical initial payment of $1,000
	T =	average annual total return
	n =	period covered by computation expressed in years
	ERV =	ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion).

     The calculation for average annual total returns before taxes is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

     The ending redeemable value (variable “ERV” in the formula) is determined by assuming complete redemption of the hypothetical investment and the deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period.

Average Annual Total Returns (After Taxes on Distributions)

     Each Fund, when advertising average annual total return after taxes on distributions for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending value of such investment according to the following formula:

     P(1 + T){superscript n} = ATVD

Where:	P =	a hypothetical initial payment of $1,000
	T =	average annual total return (after taxes on distributions)
	n =	period covered by computation expressed in years
	ATVD =	ending value of a hypothetical $1,000 payment made at

the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions but not after taxes on redemption.

     The calculation for average annual total returns after taxes on distributions is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund, less taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

     The ending value (variable “ATVD” in the formula) is determined by assuming complete redemption of the hypothetical investment after deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period. The Fund assumes that the redemption has no tax consequences.

     The Fund calculates the taxes due on any distributions by applying the applicable tax rates to each component of the distributions (i.e., ordinary income, short-term capital gain, long-term capital gain). The taxable amount and tax character of each distribution will be as specified by the Fund on the dividend declaration date, unless adjusted to reflect subsequent recharacterizations of distributions. Distributions are adjusted to reflect the Federal tax impact of the distribution on an individual taxpayer on the reinvestment date. The effect of applicable tax credits, such as the foreign tax credit, are taken into account in accordance with Federal tax law. The Fund calculates taxes due on any distributions using the highest individual marginal Federal income tax rates in effect on the reinvestment date. Note that the required tax rates may vary over the measurement period. The Fund has disregarded any potential tax liabilities other than Federal tax liabilities (e.g., state and local taxes); the effect of phaseouts of certain exemptions, deductions, and credits at various income levels; and the impact of the Federal alternative minimum tax.

Average Annual Total Returns (After Taxes on Distributions and Redemption of Shares)

     Each Fund, when advertising average annual total return after taxes on distributions and redemption for a class of its shares, computes such return by determining the average annual compounded rate of return during specified periods that equates the initial amount invested to the ending value of such investment according to the following formula:

     P(1 + T){superscript n} = ATVDR

Where:	P =	a hypothetical initial payment of $1,000
	T =	average annual total return (after taxes on distributions and redemption)
	n =	period covered by computation expressed in years
	ATVDR =	ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion), after taxes on fund distributions and redemption.

     The calculation for average annual total returns after taxes on distributions and redemption is made assuming that (1) the maximum sales load (or other charges deducted from payments) is deducted from the initial $1,000 investment; and (2) all distributions by the Fund, less taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period.

     The Fund calculates the taxes due on any distributions as described above under Average Annual Total Returns (After Taxes on Distributions).

     The ending value (variable “ATVDR” in the formula) is determined by assuming complete redemption of the hypothetical investment after deduction of all non-recurring charges and the applicable sales charge at the end of the measuring period. The Fund calculates the capital gain or loss upon redemption by subtracting the tax basis from the redemption proceeds (after deducting any non-recurring charges). The Fund separately tracks the basis of shares acquired through the $1,000 initial hypothetical investment and each subsequent purchase through reinvested distributions. In determining the basis for a reinvested distribution, the Fund includes the distribution net of taxes assumed paid from the distribution. Tax basis is adjusted for any distributions representing returns of capital and any other tax basis adjustments that would apply to an individual taxpayer, as permitted by applicable Federal tax law.

     The amount and character (e.g., short-term or long-term) of capital gain or loss upon redemption is separately determined for shares acquired through the hypothetical $1,000 initial investment and each subsequent purchase through reinvested distributions. The Fund does not assume that shares acquired through reinvestment of distributions have the same holding period as the initial $1,000 investment. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions.

     The Fund calculates capital gain taxes (or the benefit resulting from tax losses) using the highest Federal individual capital gains tax rate for gains of the appropriate character in effect on the redemption date and in accordance with Federal tax law applicable on the redemption date. The Fund assumes that a shareholder has sufficient capital gains of the same character from other investments to offset any capital losses from the redemption so that the taxpayer may deduct the capital losses in full.

     The Fund may also quote unaveraged or cumulative total return for a class which reflects the change in value of an investment in that class over a stated period of time. Cumulative total returns will be calculated according to the formula indicated above but without averaging the rate for the number of years in the period.

Yield

     Yield refers to the income generated by an investment in a Fund over a given period of time. A yield quoted for a class of a Fund is computed by dividing the net investment income per share of that class earned during the period for which the yield is shown by the maximum offering price per share of that class on the last day of that period according to the following formula:

     Yield = 2 ((((a – b)/cd)+1) –1)⁶

Where with respect to a particular class of the Fund:

a	=	dividends and interest earned during the period.
b	=	expenses accrued for the period (net of reimbursements).
c	=	the average daily number of shares of the class outstanding during the period that were entitled to receive dividends.
d	=	the maximum offering price per share of the class on the last day of the period.

     Changes in yields primarily reflect different interest rates received by a Fund as its portfolio securities change. Yield is also affected by portfolio quality, portfolio maturity, type of securities held and operating expenses.

FINANCIAL STATEMENTS

     No Financial Statements for the Funds contained in this SAI are provided, as these Funds have not been in operation prior to the date of this SAI. Financial Statements for the Advantus predecessor of each Fund are included in the Advantus Funds’ financial statements, which have been audited by KPMG LLP, independent accountants, whose report, along with each Fund’s financial statements, is included in the annual report of the predecessor of each Fund, and are incorporated herein by reference. The annual report contains additional performance information and will be made available upon request and without charge.

APPENDIX A

     The following are descriptions of some of the ratings of securities which the Fund may use. The Fund may also use ratings provided by other nationally recognized statistical rating organizations in determining the securities eligible for investment.

DESCRIPTION OF BOND RATINGS

          Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. A Standard & Poor’s (S&P) corporate bond rating is a current assessment of the creditworthiness of an obligor with respect to a specific obligation. This assessment of creditworthiness may take into consideration obligors such as guarantors, insurers or lessees.

     The debt rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment as to market price or suitability for a particular investor.

     The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

     The ratings are based, in varying degrees, on the following considerations:

1.	Likelihood of default — capacity and willingness of the obligor as to the timely payment of interest and repayment of principal in accordance with the terms of the obligation;
2.	Nature of and provisions of the obligation;
3.	Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

     AAA — Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.

     AA — Debt rated AA also qualifies as high quality debt. Capacity to pay interest and repay principal is very strong, and debt rated AA differs from AAA issues only in a small degree.

     A — Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

     BBB — Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.

     BB, B, CCC, CC, C — Debt rated BB, B, CCC, CC and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.

     BB — Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.

     B — Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.

     CCC — Debt rated CCC has a currently indefinable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.

     CC — The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.

     C — The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

     CI — The rating CI is reserved for income bonds on which no interest is being paid.

     D — Debt rated D is in payment default. It is used when interest payments or principal payments are not made on a due date even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace periods. The D rating will also be used upon a filing of a bankruptcy petition if debt service payments are jeopardized.

     Plus (+) or Minus (-) — To provide more detailed indications of credit quality, the ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

     NR — Indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

     Debt Obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.

     Bond Investment Quality Standards: Under present commercial bank regulations issued by the Comptroller of the Currency, bonds rated in the top four categories (AAA, AA, A, BBB, commonly known as investment grade ratings) are generally regarded as eligible for bank investment. In addition, the laws of various states governing legal investments may impose certain rating or other standards for obligations eligible for investment by savings banks, trust companies, insurance companies and fiduciaries generally.

     Moody’s Corporation. A brief description of the applicable Moody’s Corporation (Moody’s) rating symbols and their meanings follows:

     Aaa — Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edge. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

     Aa — Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.

     A — Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.

     Baa — Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Some bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

NOTE: Bonds within the above categories which possess the strongest investment attributes are designated by the symbol 1 following the rating.

     Ba — Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during good and bad times over the future. Uncertainty of position characterizes bonds in this class.

     B — Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may

be small.

     Caa — Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

     Ca — Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

     C — Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Description of Preferred Stock Ratings

     Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P preferred stock rating is an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. A preferred stock rating differs from a bond rating inasmuch as it is assigned to an equity issue, which issue is intrinsically different from, and subordinated to, a debt issue. Therefore, to reflect this difference, the preferred stock rating symbol will normally not be higher than the debt rating symbol assigned to, or that would be assigned to, the senior debt of the same issuer.

     The preferred stock ratings are based on the following considerations:

1.	Likelihood of payment — capacity and willingness of the issuer to meet the timely payment of preferred stock dividends and any applicable sinking fund requirements in accordance with the terms of the obligation;
2.	Nature of, and provisions of, the issue;
3.	Relative position of the issue in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights.

     AAA — This is the highest rating that may be assigned by Standard & Poor’s to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations.

     AA — A preferred stock issue rated AA also qualifies as a high- quality fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated AAA.

     A — An issue rated A is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

     BBB — An issue rated BBB is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the ‘A’ category.

     BB, B, CCC — Preferred stock rated BB, B, and CCC are regarded, on balance, as predominantly speculative with respect to the issuer’s capacity to pay preferred stock obligations. BB indicates the lowest degree of speculation and CCC the highest degree of speculation. While such issues will likely have some quality and protective characteristics, these are

outweighed by large uncertainties or major risk exposures to adverse conditions.

     CC — The rating CC is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying.

     C — A preferred stock rated C is a non-paying issue.

     D — A preferred stock rated D is a non-paying issue with the issuer in default on debt instruments.

     NR — This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.

     Plus (+) or minus (-) — To provide more detailed indications of preferred stock quality, the rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

     A preferred stock rating is not a recommendation to purchase, sell, or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained by S&P from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.

          Moody’s Investors Service, Inc. Because of the fundamental differences between preferred stocks and bonds, a variation of Moody’s familiar bond rating symbols is used in the quality ranking of preferred stock. The symbols are designed to avoid comparison with bond quality in absolute terms. It should always be borne in mind that preferred stock occupies a junior position to bonds within a particular capital structure and that these securities are rated within the universe of preferred stocks.

          Note: Moody’s applies numerical modifiers 1, 2 and 3 in each rating classification; the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid- range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

     Preferred stock rating symbols and their definitions are as follows:

     aaa — An issue which is rated aaa is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.

     aa — An issue which is rated aa is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future.

     a — An issue which is rated a is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the aaa and aa classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.

     baa — An issue which is rated baa is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over

any great length of time.

     ba — An issue which is rated ba is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.

     b — An issue which is rated b generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small.

     caa — An issue which is rated caa is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments.

     ca — An issue which is rated ca is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments.

     c — This is the lowest rated class of preferred or preference stock. Issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

DESCRIPTION OF NOTE RATINGS

          Standard and Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P note rating reflects the liquidity factors and market access risks unique to notes. Notes maturing in 3 years or less will likely receive a note rating. Notes maturing beyond 3 years will most likely receive a long- term debt rating. The following criteria will be used in making that assessment.

— Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue is to be treated as a note).

— Source of Payment (the more the issue depends on the market for its refinancing, the more likely it is to be treated as a note).

     The note rating symbols and definitions are as follows:

SP-1	Strong capacity to pay principal and interest. Issues determined to possess very strong characteristics are given a plus (+) designation.
SP-2	Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3	Speculative capacity to pay principal and interest.

          Moody’s Investors Service, Inc. Moody’s Short-Term Loan Ratings - Moody’s ratings for state and municipal short-term obligations will be designated Moody’s Investment Grade (MIG). This distinction is in recognition of the differences between short-term credit risk and long-term risk. Factors affecting the liquidity of the borrower are uppermost in importance in short-term borrowing, while various factors of major importance in bond risk are of lesser importance over the short run. Rating symbols and their meanings follow:

     MIG 1 — This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

     MIG 2 — This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.

     MIG 3 — This designation denotes favorable quality. All security elements are accounted for but this is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.

     MIG 4 — This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not distinctly or predominantly speculative, there is specific risk.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

          Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt considered short-term in the relevant market. Ratings are graded into several categories, ranging from A-1 for the highest quality obligations to D for the lowest. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues assigned an A rating (the highest rating) are regarded as having the greatest capacity for timely payment. An A-1 designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. An A-2 rating indicates that capacity for timely payment is satisfactory; however, the relative degree of safety is not as high as for issues designated A-1. Issues rated A-3 have adequate capacity for timely payment; however, they are more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Issues rated B are regarded as having only speculative capacity for timely payment. A C rating is assigned to short-term debt obligations with a doubtful capacity for payment. Debt rated D is in payment default, which occurs when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period.

          Moody’s Corporation commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody’s employs the designations of Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers. Issuers rated Prime 1 have a superior capacity for repayment of short-term promissory obligations and repayment capacity will normally be evidenced by (1) lending market positions in well established industries; (2) high rates of return on Funds employed; (3) conservative capitalization structures with moderate reliance on debt and ample asset protection; (4) broad margins in earnings coverage of fixed financial charges and high internal cash generation; and (5) well established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime 2 also have a strong capacity for repayment of short-term promissory obligations as will normally be evidenced by many of the characteristics described above for Prime 1 issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation; capitalization characteristics, while still appropriate, may be more affected by external conditions; and ample alternate liquidity is maintained. Issuers rated Prime 3 have an acceptable capacity for repayment of short-term promissory obligations, as will normally be evidenced by many of the characteristics above for Prime 1 issuers, but to a lesser degree. The effect of industry characteristics and market composition may be more pronounced; variability in earnings and profitability may result in changes in the level of debt protection measurements and requirement for relatively high financial leverage; and adequate alternate liquidity is maintained.

          Fitch Ratings-National Short-term Credit Ratings

     F1-Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under Fitch Ratings’ national rating scale, this rating is assigned to the best credit risk relative to all others in the same country and is normally assigned to all financial commitments issued or guaranteed by the government. Where the credit risk is particularly strong, a + is added to the assigned rating.

     F2-Indicates a satisfactory capacity for timely payment of financial commitments relative other issuers in the same country. However, the margin of safety is not as great as in the case of the higher ratings.

     F3-Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, such capacity is more susceptible to near-term adverse changes than for financial commitments in higher rated categories.

     B-Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Such capacity is highly susceptible to near-term adverse changes in financial and economic conditions.

     C-Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issues in the same country. Capacity or meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.

     D-Indicates actual or imminent payment default.

     Notes to Short-term national rating:

     + or — may be appended to a national rating to denote relative status within a major rating category. Such suffixes are not added to Short-term national ratings other than F1.

     Ratings Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or maintained. Rating Watch is typically resolved over a relatively short period.

EX-99.(17)(K) 16 c78747exv99wx17yxky.txt EX-(17)(K)ADV FIXEDINC&BLENDED FUNDS PROSP-1/31/03 Exhibit (17)(k) ADVANTUS FIXED INCOME AND BLENDED FUNDS [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] PROSPECTUS DATED JANUARY 31, 2003 AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE, NOR HAS IT APPROVED THE FUND'S SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE. ADVANTUS BOND FUND, INC. AN AGGREGATE BOND FUND ADVANTUS INTERNATIONAL BALANCED FUND, INC. AN INTERNATIONAL STOCK AND BOND FUND ADVANTUS MONEY MARKET FUND, INC. A MONEY MARKET SECURITIES FUND ADVANTUS MORTGAGE SECURITIES FUND, INC. A MORTGAGE - RELATED SECURITIES FUND ADVANTUS SPECTRUM FUND, INC. AN ASSET ALLOCATION FUND CUT DOWN PAPERWORK, NOT TREES ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005. ADVANTUS FIXED INCOME AND BLENDED FUNDS This prospectus provides you with information about the five Advantus fixed income and blended funds (Fund or Funds). The Funds are all members of the Advantus family of funds (Advantus Funds), a mutual fund complex comprised of eleven different funds. The Advantus Funds other than Advantus Money Market Fund, Inc. are referred to as "Advantus Multiple Class Funds." TABLE OF CONTENTS

Page No. THE FUNDS IN SUMMARY .............................. 3 Bond Fund ................................. 3 International Balanced Fund ............... 8 Money Market Fund ......................... 12 Mortgage Securities Fund .................. 15 Spectrum Fund ............................. 19 INVESTING IN THE FUNDS ............................ 23 Managing the Funds ........................ 23 Advisory Fees ............................. 25 Investment Objective, Policies and Practices ................................. 25 Bond Fund ............................... 25 International Balanced Fund ............. 28 Money Market Fund ....................... 30 Mortgage Securities Fund ................ 31 Spectrum Fund ........................... 34 Defining Risks ............................ 37 BUYING AND SELLING SHARES ......................... 41 Choosing a Share Class .................... 41 International Balanced Fund Redemption Fee ....................................... 41 Sales and Distribution Charges ............ 42 Reducing Sales Charges .................... 45 Buying Shares ............................. 47 Selling Shares ............................ 49 Exchanging Shares ......................... 51 Telephone Transactions .................... 51 Internet Transactions ..................... 52 Account Requirements ...................... 52 DISTRIBUTIONS AND TAXES ........................... 53 Dividends and Capital Gains Distributions ............................. 53 Taxes ..................................... 53 FINANCIAL HIGHLIGHTS .............................. 55 Bond Fund ................................. 55 International Balanced Fund ............... 58 Money Market Fund ......................... 61 Mortgage Securities Fund .................. 62 Spectrum Fund ............................. 65 OTHER INFORMATION ................................. 68 Service Providers ......................... 68 Advantus Family of Funds .................. 69 Additional Information About the Funds .... Back Cover How to Obtain Additional Information ...... Back Cover

[GRAPHIC] THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- A mutual fund is an investment company that invests the money of many people in a variety of securities to seek a specific objective over time. An open-end mutual fund buys back an investor's shares at the fund's current net asset value. - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. Advantus Bond Fund, Inc. (Bond Fund), Advantus International Balanced Fund, Inc. (International Balanced Fund), Advantus Money Market Fund, Inc. (Money Market Fund), Advantus Mortgage Securities Fund, Inc. (Mortgage Securities Fund) and Advantus Spectrum Fund, Inc. (Spectrum Fund) are all open-end, diversified investment companies, commonly called mutual funds. Each of the Funds, except Money Market Fund, lets you choose among three classes of shares that offer different sales charges and bear different expenses. Money Market Fund offers one class of shares. These alternatives allow you to choose the share class that you believe is most beneficial given the amount of your purchase, the length of time you expect to hold onto the shares and whether you plan to make additional investments. This section gives you a brief summary of each Fund's investment policies, practices and main risks, as well as performance and fee information. More detailed information about the Funds follows this summary. Keep in mind that, in addition to the main risks summarized for each Fund below, an investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency and that it is possible to lose money by investing in any Fund. Although Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is also possible to lose money by investing in the Money Market Fund. You should also note that since a Fund may make frequent changes in its portfolio securities, such changes may result in higher Fund costs and may adversely affect your return. BOND FUND INVESTMENT OBJECTIVE AND POLICIES. Bond Fund seeks a high level of current income consistent with prudent investment risk. The Fund invests in a variety of investment-grade debt securities. These debt securities include, among other things, corporate and mortgage-backed securities, debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, asset-backed securities and other debt obligations of U.S. banks or savings and loan associations. In selecting securities, the Fund's investment adviser considers factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. MAIN RISKS. An investment in Bond Fund may be subject to various risks including the following types of main risk: - CALL RISK - the risk that securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates THE FUNDS IN SUMMARY 3 - CREDIT RISK - the risk that an issuer of a debt security or fixed income obligation will not make payments on the security or obligation when due - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities - INCOME RISK - the risk that the Fund's income may decrease due to falling interest rates - INTEREST RATE RISK - the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Funds - Investment Objective, Policies and Practices") - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates 4 THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Bond Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '93 11.34% '94 -5.75% '95 20.63% '96 2.48% '97 10.05% '98 5.31% '99 -2.57% '00 10.64% '01 8.00% '02 9.78% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q2'95) 7.20% Worst Quarter: (Q1'94) -4.78%

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2002) From From Inception Inception 1 Year 5 Years 10 Years (Class B) (Class C) Class A Before Taxes(1) (inception 8/14/87) % 4.84 5.15 6.26 -- -- Class A After Taxes on Distributions 2.86 2.76 3.64 -- -- Class A After Taxes on Distributions and Redemptions 2.89 2.89 3.66 -- -- Class B Before Taxes (inception 8/19/94) 3.95 5.14 -- 6.52 -- Class C Before Taxes (inception 3/1/95) 8.97 5.33 -- -- 6.53 Lehman Brothers Aggregate Bond Index 10.27 7.54 7.51 8.21(a) 8.30(b)

(a) Measurement period started 8/19/94. (b) Measurement period started 3/1/95. (1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 4.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. THE FUNDS IN SUMMARY 5 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Bond Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 4.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.60 0.60 0.60 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 1.07 1.07 1.07 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.92 2.67 2.67

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .30% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.15% for Class A shares and 1.90% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such waiver or absorption at any time at its sole discretion. 6 THE FUNDS IN SUMMARY EXAMPLE. This example is intended to help you compare the costs of investing in Bond Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 636 1,026 1,440 2,592 Class B 770 1,179 1,565 2,737 Class C 270 829 1,415 2,822

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 636 1,026 1,440 2,592 Class B 270 829 1,415 2,737 Class C 270 829 1,415 2,822

THE FUNDS IN SUMMARY 7 - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. INTERNATIONAL BALANCED FUND INVESTMENT OBJECTIVE AND POLICIES. International Balanced Fund seeks a high level of total return. The Fund invests in equity and debt securities issued by large and small international companies and governmental agencies. Normally, the Fund invests approximately 50% to 70% of its assets in international equity securities. In addition, the Fund invests approximately 30% to 50% of its assets in international investment-grade debt securities. In selecting equity securities the Fund's investment sub-adviser relies primarily on its analysis of the current market price of a company's securities relative to the company's long-term earnings potential. Debt securities are selected, after an analysis of trends in interest rates and economic conditions, based on the sub-adviser's judgment as to which securities are more likely to perform well under those conditions. MAIN RISKS. An investment in International Balanced Fund may be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that an issuer of a debt security or fixed income obligation will not make payments on the security when due - CURRENCY RISK - the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or foreign government securities may be subject to greater volatility than domestic securities due to additional factors related to investing in foreign securities - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - INCOME RISK - the risk that the Fund's income may decrease due to falling interest rates - INTEREST RATE RISK - the risk that the value of a debt security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Funds - Investment Objective, Policies and Practices") - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets 8 THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show International Balanced Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '95 12.63% '96 17.41% '97 5.12% '98 3.55% '99 15.66% '00 1.27% '01 -8.74% '02 -3.73% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'98) 9.83% Worst Quarter: (Q3'02) -12.45%

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2002) From From From Inception Inception Inception 1 Year 5 Years (Class A) (Class B) (Class C) Class A Before Taxes(1) (inception 9/16/94) % -9.02 .14 3.54 -- -- Class A After Taxes on Distributions -9.09 -1.25 1.76 -- -- Class A After Taxes on Distributions and Redemptions -5.50 -.23 2.23 -- -- Class B Before Taxes (inception 1/31/97) -9.27 .20 -- .74 -- Class C Before Taxes (inception 3/1/95) -4.49 .45 -- -- 4.31 MSCI EAFE Index -15.65 -2.61 -1.37(a) -2.82(b) -.52(c) J.P. Morgan Non-U.S. Government Bond Index 22.09 4.97 5.67(a) 4.28(b) 5.18(c) Blended Index(2) -1.57 .76 1.71(a) .26(b) 1.94(c)

(a) Measurement period started 9/16/94. (b) Measurement period started 1/31/97. (c) Measurement period started 3/1/95. (1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. (2) The Blended Index is comprised of 60% MSCI EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index. THE FUNDS IN SUMMARY 9 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in International Balanced Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Redemption Fees (b) % 2.00 2.00 2.00 Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (c) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.70 0.70 0.70 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.77 0.77 0.77 TOTAL ANNUAL FUND OPERATING EXPENSES (d) % 1.72 2.47 2.47

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Redemptions of shares purchased after January 31, 2003, including exchange redemptions, within 60 days of purchase will be subject to a short-term redemption fee equal to 2.00% of redemption proceeds, which will be retained by the Fund. (c) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (d) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .72% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.67% for Class A shares and 2.42% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. 10 THE FUNDS IN SUMMARY EXAMPLE. This example is intended to help you compare the costs of investing in International Balanced Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 715 1,062 1,432 2,469 Class B 750 1,120 1,466 2,535 Class C 250 770 1,316 2,621

You would pay the following expenses if you did not redeem your shares.

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 715 1,062 1,432 2,469 Class B 250 770 1,316 2,535 Class C 250 770 1,316 2,621

THE FUNDS IN SUMMARY 11 - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. MONEY MARKET FUND INVESTMENT OBJECTIVE AND POLICIES. Money Market Fund seeks a high level of current income to the extent consistent with the preservation of capital and maintenance of liquidity. The Fund invests in a variety of U.S. dollar denominated money market securities. MAIN RISKS. An investment in Money Market Fund may be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that an issuer of debt securities or other fixed income obligations will not make payments on the securities when due - INCOME RISK - the risk that the Fund's income may decrease due to falling interest rates - INFLATION RISK - the risk that inflation will erode the purchasing power of the value of securities held by the Fund or the Fund's dividends - INTEREST RATE RISK - the risk that the value of a fixed income obligation will decline due to changes in market interest rates 12 THE FUNDS IN SUMMARY FUND PERFORMANCE. The following bar chart and table show Money Market Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows the Fund's average annual return over a one, five and ten year period. The chart and table assume reinvestment of dividends. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '93 2.45% '94 3.44% '95 5.17% '96 4.63% '97 4.76% '98 4.70% '99 4.32% '00 5.60% '01 3.54% '02 1.03% Best Quarter: (Q3'00) 1.45% Worst Quarter: (Q4'02) .21% You may obtain up-to-date information about the Fund's seven-day current yield and seven-day effective yield by calling Advantus Shareholder Services at (800) 665-6005.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2002) 1 Year 5 Years 10 Years Money Market Fund % 1.03 3.82 3.95

THE FUNDS IN SUMMARY 13 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Money Market Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % none Exchange Fees -On First Twelve Exchanges Each Year none -On Each Additional Exchange $ 7.50 Low Balance Fee (a) $ 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.50 Rule 12b-1 Fees % 0.25 Other Expenses % 0.81 TOTAL ANNUAL FUND OPERATING EXPENSES (b) % 1.56

(a) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (b) Securian Financial Services, Inc. (Securian Financial), the Fund's underwriter, has voluntarily agreed to waive all of the Rule 12b-1 fees. Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .35% of average net assets of the Fund. After such waiver and absorption, the ratio of total fund operating expenses to average net assets will be .85%. Securian Financial and Advantus Capital reserve the right to discontinue such waiver or absorption, respectively, at any time at their sole discretion. EXAMPLE. This example is intended to help you compare the costs of investing in Money Market Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Money Market Fund $ 159 493 850 1,856

14 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. MORTGAGE SECURITIES FUND INVESTMENT OBJECTIVE AND POLICIES. Mortgage Securities Fund seeks a high level of current income consistent with prudent investment risk. The Fund invests primarily in mortgage-related securities, including investment-grade securities representing interests in pools of mortgage loans. In addition, the Fund may invest in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting securities the Fund's investment adviser considers factor such as prepayment risk, liquidity, credit quality and the type of loan and collateral underlying the security, as well as trends in economic conditions and interest rates. MAIN RISKS. An investment in Mortgage Securities Fund may be subject to various risks including the following types of main risk: - CALL RISK - the risk that callable securities with high interest rates will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates - CONCENTRATION RISK - the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund concentrates its investments in the mortgage and mortgage-finance industry. - CREDIT RISK - the risk that an issuer of a mortgage-backed security or fixed income obligation will not make payments on the security when due - EXTENSION RISK - the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities - INCOME RISK - the risk that the Fund's income may decrease due to falling interest rates - INTEREST RATE RISK - the risk that the value of a mortgage-backed security or fixed income obligation will decline due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Funds - Investment Objectives, Policies and Practices") - LIQUIDITY RISK - the risk that mortgage-related securities purchased by the Fund, including restricted securities determined by the Fund's investment adviser to be liquid at the time of purchase, may prove to be illiquid or otherwise subject to reduced liquidity due to changes in market conditions or quality ratings, or to errors in judgment by the investment adviser. - PREPAYMENT RISK - the risk that falling interest rates could cause prepayments of securities to occur more quickly than expected, causing the Fund to reinvest the proceeds in other securities with generally lower interest rates THE FUNDS IN SUMMARY 15 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Mortgage Securities Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '93 8.44% '94 -3.59% '95 17.28% '96 4.49% '97 9.42% '98 6.94% '99 1.52% '00 12.12% '01 8.85% '02 9.15% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q2'95) 5.72% Worst Quarter: (Q1'94) -3.78%

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2002) From From Inception Inception 1 Year 5 Years 10 Years (Class B) (Class C) Class A Before Taxes(1) (inception 8/3/85) % 4.24 6.67 6.83 -- -- Class A After Taxes on Distributions 1.72 3.91 4.06 -- -- Class A After Taxes on Distributions and Redemptions 2.53 3.92 4.04 -- -- Class B Before Taxes (inception 8/19/94) 3.34 6.63 -- 7.39 -- Class C Before Taxes (inception 3/1/95) 8.44 6.86 -- -- 7.41 Lehman Brothers Mortgage-Backed Securities Index 8.75 7.34 7.28 8.12(a) 8.13(b)

(a) Measurement period started 8/19/94. (b) Measurement period started 3/1/95. (1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 4.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. 16 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Mortgage Securities Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 4.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.475 0.475 0.475 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.485 0.485 0.485 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.21 1.96 1.96

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .25% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be .975% for Class A shares and 1.725% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 17 EXAMPLE. This example is intended to help you compare the costs of investing in Mortgage Securities Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 568 817 1,085 1,850 Class B 699 965 1,207 2,000 Class C 199 615 1,057 2,091

You would pay the following expenses if you did not redeem your shares.

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 568 817 1,085 1,850 Class B 199 615 1,057 2,000 Class C 199 615 1,057 2,091

18 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. SPECTRUM FUND INVESTMENT OBJECTIVE AND POLICIES. Spectrum Fund seeks the most favorable total return - from capital appreciation, interest and dividends - consistent with preservation of capital. The composition of the Fund's investment portfolio will vary with prevailing economic conditions. As a result, the Fund may invest in various types and classes of securities including equity securities, investment-grade debt securities, money market securities and mortgage-related securities. The Fund's portfolio is allocated among these asset classes based on a risk/return analysis by the Fund's investment adviser as to current economic and market conditions, trends in investment yields and interest rates, changes in fiscal or monetary policies and other relevant factors. MAIN RISKS. An investment in Spectrum Fund may be subject to various risks including the following types of main risk: - CREDIT RISK - the risk that an issuer of debt securities or other fixed income obligations will not make payments on the securities when due - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - INCOME RISK - the risk that the Fund's income may decrease due to falling interest rates - INTEREST RATE RISK - the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates (note: one measure of interest rate risk is effective duration, explained under "Investing in the Funds - Investment Objective, Policies and Practices") - MARKET RISK - the risk that equity and debt securities are subject to adverse trends in equity and debt markets THE FUNDS IN SUMMARY 19 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Spectrum Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '93 5.51% '94 -2.14% '95 24.12% '96 11.58% '97 18.18% '98 22.60% '99 14.64% '00 -10.33% '01 -15.27% '02 -9.30% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'98) 14.70% Worst Quarter: (Q1'01) -17.38%

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2002) From From Inception Inception 1 Year 5 Years 10 Years (Class B) (Class C) Class A Before Taxes(1) (inception 11/16/87) % -14.29 -1.75 4.46 -- -- Class A After Taxes on Distributions -14.95 -3.50 2.27 -- -- Class A After Taxes on Distributions and Redemptions -8.69 -1.70 2.91 -- -- Class B Before Taxes (inception 8/19/94) -14.55 -1.66 -- 4.95 -- Class C Before Taxes (inception 3/1/95) -10.05 -1.37 -- -- 4.66 S&P 500 Index -22.11 -.59 -- 9.73(a) 9.74(b) Lehman Brothers Aggregate Bond Index 10.27 7.54 7.51 8.45(a) 8.23(b) Blended Index(2) -9.80 3.10 8.93 9.55(a) 9.57(b)

(a) Measurement period started 8/19/94. (b) Measurement period started 3/1/95. (1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge for Class A shares was 5.0% prior to February 1, 1999. (2) The blended index is comprised of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index. 20 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Spectrum Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.50 0.50 0.50 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.77 0.77 0.77 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.52 2.27 2.27

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .57% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.32% for Class A shares and 2.07% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 21 EXAMPLE. This example is intended to help you compare the costs of investing in Spectrum Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 696 1,004 1,333 2,263 Class B 730 1,059 1,365 2,329 Class C 230 709 1,215 2,417

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 696 1,004 1,333 2,263 Class B 230 709 1,215 2,329 Class C 230 709 1,215 2,417

22 THE FUNDS IN SUMMARY [GRAPHIC] INVESTING IN THE FUNDS - -------------------- FOR YOUR INFORMATION - -------------------- One of the advantages of investing in mutual funds is continuous professional management of your investment. Skilled, experienced professionals manage the Funds' assets. MANAGING THE FUNDS The investment adviser of each of the Funds is Advantus Capital Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since its inception in 1994, Advantus Capital has provided investment advisory services for the Funds and other Advantus Funds, and has managed investment portfolios for various private accounts, including its affiliate, Minnesota Life Insurance Company (Minnesota Life). Advantus Capital manages each Fund's investments and furnishes all necessary office facilities, equipment and personnel for servicing the Fund's investments. Both Advantus Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc., which is a second-tier subsidiary of a mutual insurance holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota Life's investment portfolio. In addition, Minnesota Life, through its Advantus Shareholder Services division, serves as shareholder and administrative services agent to the Fund. The investment sub-adviser of International Balanced Fund is Templeton Investment Counsel, LLC (Templeton Counsel), 500 East Broward Boulevard, Fort Lauderdale, Florida 33394. Templeton Counsel provides investment advice, and generally conducts the investment management program for the equity investments of the Fund. Templeton Counsel has entered into an agreement with its affiliate, Franklin Advisers, Inc. (FAV), One Franklin Parkway, San Mateo, California 94403, pursuant to which FAV provides investment advice, and generally conducts the investment management program for the fixed income investments of the Fund. INVESTING IN THE FUNDS 23 The following persons serve as the primary portfolio managers for the Funds:

PORTFOLIO MANAGER PRIMARY PORTFOLIO BUSINESS EXPERIENCE FUND AND TITLE MANAGER SINCE DURING PAST FIVE YEARS BOND Wayne R. Schmidt May 1991 Vice President and Portfolio Manager Portfolio Manager of Advantus Capital INTERNATIONAL Edgerton Tucker Scott III June 2000 Vice President and BALANCED Co-Portfolio Manager Research Analyst, (equity portfolio) Templeton Investment Counsel, LLC Alexander C. Calvo December 2001 Senior Vice President Co-Portfolio Manager and Director of the (fixed income portfolio) International Bond Department, Franklin Advisers, Inc.; Portfolio Manager and Director of Research of the International Bond Department, Franklin Templeton Investments MONEY MARKET Steven S. Nelson October, 1998 Vice President of Portfolio Manager Advantus Capital since February 1999, Portfolio Manager of Advantus Capital since September 1998 MORTGAGE Kent R. Weber January 1990 Vice President of SECURITIES Portfolio Manager Advantus Capital SPECTRUM Matthew D. Finn November 2001 Vice President and Head Lead Portfolio Manager of Equities, Advantus Capital, since July 2001; Senior Vice President and Chief Investment Officer - Growth and Income Group, Evergreen Investment Management, Inc., from March 1998 to June 2001 Allen D. Steinkopf January 2002 Portfolio Manager of Co-Portfolio Manager Advantus Capital since (equities) May 2000; Assistant Portfolio Manager, Advantus Capital, from June 1998 to April 2000 Wayne R. Schmidt February 1999 Vice President of Co-Portfolio Manager Advantus Capital (fixed income)

24 INVESTING IN THE FUNDS ADVISORY FEES The Funds pay Advantus Capital advisory fees calculated on an annual basis for each Fund. Advantus Capital uses a portion of the applicable fee to pay a Fund's sub-adviser, if any. The advisory fee paid to Advantus Capital for each Fund during the most recent fiscal year, as a percentage of average daily net assets, was as follows:

AGGREGATE FEE PAID DURING FISCAL FUND YEAR ENDED SEPTEMBER 30, 2002 Bond % 0.60 International Balanced 0.70 Money Market 0.50 Mortgage Securities 0.475 Spectrum 0.50

INVESTMENT OBJECTIVE, POLICIES AND PRACTICES BOND FUND Bond Fund seeks a high level of current income consistent with prudent investment risk. It is the Fund's policy to invest, under normal circumstances, at least 80% of the value of its net assets in bonds (for this purpose, "bonds" includes any debt security). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund's outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. The Fund invests primarily in a variety of investment-grade debt securities which include: - investment-grade corporate debt obligations and mortgage-backed securities - debt securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities (including U.S. Treasury bills, notes and bonds) - investment-grade mortgage-backed securities issued by governmental agencies and financial institutions - investment grade asset-backed securities - U.S. dollar denominated investment-grade debt securities issued by foreign governments and companies and publicly traded in the United States - debt obligations of U.S. banks, savings and loan associations and savings banks The Fund will invest a portion of its assets in investment-grade debt obligations issued by domestic companies in a variety of industries. The Fund may invest in long-term debt securities (i.e., maturities of more than 10 years), intermediate debt securities (i.e., maturities from 3 to 10 years) and short-term debt securities (i.e., maturities of less than 3 years). In selecting corporate debt securities and their maturities, Advantus Capital seeks to maximize current income by engaging in a risk/return analysis that focuses on various factors such as industry outlook, current and anticipated market and economic conditions, general levels of debt prices and issuer operations. INVESTING IN THE FUNDS 25 - -------------------- FOR YOUR INFORMATION - -------------------- The market prices of bonds are generally less volatile than stocks, although the market prices of bonds may be adversely affected during periods of rising interest rates. The values of fixed income securities generally rise and fall inversely with changes in prevailing interest rates. Duration is the most meaningful indicator of a fixed income security's sensitivity to interest rate changes. The Fund may also invest a portion of its assets in government and non-governmental mortgage-related securities, including CMOs, and in stripped mortgage-backed securities and asset-backed securities. CMOs are debt obligations typically issued by either a government agency or a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. CMOs allocate the priority of the distribution of principal and interest from the underlying mortgage loans among various series. Each series differs from the other in terms of the priority right to receive cash payments from the underlying mortgage loans. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the interest holder to receive the interest portion of cash payments, while the principal component only allows the interest holder to receive the principal portion of cash payments. Asset-backed securities represent interest in pools of consumer loans (such as credit card, trade or automobile loans). Investors in asset-backed securities are entitled to receive payments of principal and interest received by the pool entity from the underlying consumer loans net of any costs and expenses incurred by the entity. As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Fund's duration of its portfolio of debt, mortgage-related and asset-backed securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called, or prepaid, prior to maturity given current market interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of debt, mortgage-related and asset-backed securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Fund holds a portfolio of securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Fund expects that under normal circumstances the effective duration of its portfolio will range from four to seven years. In addition, the Fund may invest lesser portions of its assets in interest rate and other bond futures contracts, convertible and non-convertible investment-grade and non-investment grade debt securities issued by domestic governments and companies, restricted and illiquid securities, options (the Fund may purchase, sell and write put and call options), stripped asset-backed securities, securities purchased on a when-issued or forward commitment basis, mortgage dollar roll transactions, direct mortgage investments, securities of other mutual funds, warrants, repurchase agreement transactions, and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. Although the Fund does not pursue an investment strategy of active and frequent trading of portfolio securities, the Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Portfolio turnover rates may therefore vary greatly from year to year. To the extent the Fund experiences high rates of portfolio turnover, it will incur correspondingly greater brokerage commission expenses, which may reduce investment returns. Higher rates of portfolio turnover may also result in larger capital gains distributions, which are taxable to Fund shareholders. 26 INVESTING IN THE FUNDS In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Bond Fund is subject to the following risks: - - Call Risk - Income Risk - - Credit Risk - Inflation Risk - - Diversification Risk - Interest Rate Risk - - Emerging Markets Risk - Market Risk - - Extension Risk - Prepayment Risk - - Foreign Securities Risk - Securities Lending Risk - - Fund Risk - Short-Term Trading Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 27 - -------------------- FOR YOUR INFORMATION - -------------------- The market prices of bonds are generally less volatile than stocks, although the market price of bonds may be adversely affected during periods of rising interest rates. The value of fixed income securities generally rise and fall inversely with changes in prevailing interest rates. Duration is the most meaningful indicator of a fixed income security's sensitivity to interest rate changes. INTERNATIONAL BALANCED FUND International Balanced Fund seeks a high level of total return. The Fund may invest in equity and debt securities issued by large and small international companies and governmental agencies. Normally, the Fund invests approximately 50% to 70% of its assets in international equity securities. In addition, the Fund invests approximately 30% to 50% of its assets in international investment-grade debt securities. The Fund invests primarily in securities of companies or governments in developed foreign markets. However, the Fund may also invest up to 20% of its total assets in equity securities of companies located in developing or emerging markets. In addition, the Fund may invest up to 10% of its total assets in debt securities of companies or governments located in developing or emerging markets. (For purposes of the investment percentages described in the preceding sentences, collateral received in connection with securities lending shall not be considered Fund assets.) Under normal circumstances, the Fund will maintain investments in at least three foreign countries. The Fund invests in equity securities. Equity securities generally entitle the holder to participate in a company's general operating results. These include common stock, preferred stock, warrants or rights to purchase such securities. In selecting these equity securities, Templeton Counsel does a company-by-company analysis, rather than focusing on a specific industry or economic sector. Templeton Counsel concentrates primarily on the market price of a company's securities relative to its view regarding the company's long-term earnings potential. A company's historical value measures, including price/earnings ratios, profit margins and liquidation value, will also be considered. In addition, the Fund invests in investment-grade debt securities. Debt securities represent an obligation of the issuer to repay a loan of money to it, and generally, provide for the payment of interest. These include bonds, notes and debentures; commercial paper; time deposits; bankers' acceptances; and structured investments which are more fully described in the Statement of Additional Information. In selecting debt securities FAV, pursuant to its agreement with Templeton Counsel, evaluates current, as well as expected future trends in, interest rates and general economic conditions. FAV then attempts to identify those securities and issuers which, in its judgment, are likely to perform well in such circumstances. As a rule of thumb, a portfolio of debt securities experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Fund's duration of its portfolio of debt securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called, or prepaid, prior to maturity given current market interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of debt securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Fund holds a portfolio of securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Fund expects that under normal circumstances the effective duration of its debt securities portfolio will range from three to six years. The Fund may also invest a lesser portion of its assets in closed-end investment companies, restricted and illiquid securities, U.S. government and domestic investment-grade debt securities, American Depositary Receipts, European Depositary Receipts, securities and index 28 INVESTING IN THE FUNDS futures contracts, forward foreign currency exchange contracts, exchange-traded foreign currency futures contracts, securities of other mutual funds, options (the Fund may purchase, sell and write put and call options), repurchase agreement transactions, securities purchased on a when-issued or forward commitment basis and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You will find more information about these securities in the Statement of Additional Information. RISKS. An investment in International Balanced Fund is subject to the following risks: - - Call Risk - Income Risk - - Company Risk - Inflation Risk - - Credit Risk - Interest Rate Risk - - Currency Risk - Large Company Risk - - Diversification Risk - Market Risk - - Emerging Markets Risk - Mid Size Company Risk - - Euro Conversion Risk - Sector Risk - - Foreign Securities Risk - Securities Lending - - Fund Risk Risk - Small Company Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 29 MONEY MARKET FUND Money Market Fund seeks a high level of current income to the extent consistent with the preservation of capital and maintenance of liquidity. The Fund invests in a variety of U.S. dollar denominated money market securities, including: - securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities (including bills, notes, bonds and certificates of indebtedness) - obligations of domestic banks, savings and loan associations, savings banks with total assets of at least $2 billion (including certificates of deposit, bank notes, commercial paper, time deposits and bankers' acceptances) - U.S. dollar denominated obligations of U.S. branches or agencies of foreign banks with total assets of at least $2 billion - U.S. dollar denominated obligations of Canadian chartered banks and London branches of U.S. banks with total assets of at least $2 billion - U.S. dollar denominated securities issued by foreign governments and companies and publicly traded in the United States - obligations of supranational entities such as the International Bank for Reconstruction and Development - domestic corporate, domestic limited partnership and affiliated foreign corporate obligations (including commercial paper, notes and bonds) In addition, the Fund may invest lesser portions of its assets in securities of other mutual funds, restricted and illiquid securities, and other securities permitted as investments for money market funds by Rule 2a-7 under the Investment Company Act of 1940. You can find descriptions of these securities in the Statement of Additional Information. Generally, the Fund may purchase only securities rated within the two highest short-term rating categories of one or more national rating agencies. The Fund only invests in securities that mature in 397 calendar days or less from the date of purchase. The Fund maintains an average weighted maturity of 90 days or less. RISKS. An investment in Money Market Fund is subject to the following risks: - - Credit Risk - Inflation Risk - - Foreign Securities Risk - Interest Rate Risk - - Fund Risk - Market Risk - - Income Risk - Stable Price Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. 30 INVESTING IN THE FUNDS MORTGAGE SECURITIES FUND Mortgage Securities Fund seeks a high level of current income consistent with prudent investment risk. Under normal circumstances, the Fund invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in mortgage-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund's outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. Under this 80% investment policy the Fund invests a major portion of its assets in investment-grade securities representing interests in pools of mortgage loans, and in a variety of other mortgage-related securities including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities. In selecting mortgage-related securities Advantus Capital considers a variety of factors, including prepayment risk, credit quality, liquidity, the collateral securing the underlying loan (for example, residential versus commercial real estate) and the type of underlying mortgage loan (for example, a 30 year fully-amortized loan versus a 15 year fully-amortized loan). Advantus Capital also takes into consideration current and expected trends in economic conditions, interest rates and the mortgage market and selects securities which, in its judgment, are likely to perform well in those circumstances. The market for mortgage-related securities is generally liquid, but individual mortgage-related securities purchased by the Fund may be subject to the risk of reduced liability due to changes in quality ratings or changes in general market conditions which adversely affect particular mortgage-related securities or the broader mortgage securities market as a whole. In addition, the Fund may, at the time of purchase, invest up to 15% of its net assets in illiquid securities, and may also invest without limit in securities whose disposition is restricted under the federal securities laws but which have been determined by Advantus Capital to be liquid under liquidity guidelines adopted by the Fund's Board of Directors. Investments in illiquid and restricted securities present greater risks inasmuch as such securities may only be resold subject to statutory or regulatory restrictions, or if the Fund bears the costs of registering such securities. The Fund may, therefore, be unable to dispose of such securities as quickly as, or at prices as favorable as those for, comparable but liquid or unrestricted securities. As of September 30, 2002, the Fund had 3.8% of its net assets invested in illiquid securities, and 12.9% of its net assets invested in restricted securities deemed liquid pursuant to the liquidity guidelines. Advantus Capital continuously monitors the liquidity of portfolio securities and may determine that, because of a reduction in liquidity subsequent to purchase, securities which originally were determined to be liquid have become illiquid. This could result in more than 15% of the Fund's net assets being invested in illiquid securities. Interests in pools of mortgage loans provide the security holder the right to receive out of the underlying mortgage loans periodic interest payments at a fixed rate and a full principal payment at a designated maturity or call date. Scheduled principal, interest and other payments on the underlying mortgage loans received by the sponsoring or guarantor entity are then distributed or "passed through" to security holders net of any service fees retained by the sponsor or guarantor. Additional payments passed through to security holders could arise from the prepayment of principal resulting from the sale of residential property, the refinancing of underlying mortgages, or the foreclosure of residential property. In "pass through" mortgage loan pools, payments to security holders will depend on whether INVESTING IN THE FUNDS 31 - -------------------- FOR YOUR INFORMATION - -------------------- The market prices of bonds are generally less volatile than stocks, although the market prices of bonds may be adversely affected during periods of rising interest rates. The values of fixed income securities generally rise and fall inversely with changes in prevailing interest rates. Duration is the most meaningful indicator of a fixed income security's sensitivity to interest rate changes. mortgagors make payments to the pooling entity on the underlying mortgage loans. To avoid this non-payment risk, the Fund may also invest in "modified pass through" mortgage loan pools which provide that the security holder will receive interest and principal payments regardless of whether mortgagors make payments on the underlying mortgage loans. The Fund may invest in government or government-related mortgage loan pools or private mortgage loan pools. In government or government-related mortgage loan pools, the U.S. government or certain agencies guarantee to mortgage pool security holders the payment of principal and interest. The principal governmental guarantors of mortgage-related securities are the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). FNMA and FHLMC generally guarantee payment of principal and interest on mortgage loan pool securities issued by certain pre-approved institutions (i.e., savings and loan institutions, commercial banks and mortgage bankers). The Fund may also invest in private mortgage loan pools sponsored by commercial banks, insurance companies, mortgage bankers and other private financial institutions. Mortgage pools created by these non-governmental entities offer a higher rate of interest than government or government related securities. Unlike government agency sponsored mortgage loan pools, payment of interest and payment to investors is not guaranteed. The Fund may also invest a major portion of its assets in CMOs and stripped mortgage-backed securities. CMOs are debt obligations issued by both government agencies and private special-purpose entities that are collateralized by residential or commercial mortgage loans. Unlike traditional mortgage loan pools, CMOs allocate the priority of the distribution of principal and level of interest from the underlying mortgage loans among various series. Each series differs from another in terms of the priority right to receive cash payments from the underlying mortgage loans. Each series may be further divided into classes in which the principal and interest payments payable to classes in the same series may be allocated. For instance, a certain class in a series may have right of priority over another class to receive principal and interest payments. Moreover, a certain class in a series may be entitled to receive only interest payments while another class in the same series may be only entitled to receive principal payments. As a result, the timing and the type of payments received by a CMO security holder may differ from the payments received by a security holder in a traditional mortgage loan pool. Stripped mortgage-backed securities also represent ownership interests in a pool of mortgages. However, the stripped mortgage-backed securities are separated into interest and principal components. The interest component only allows the security holder to receive the interest portion of cash payments, while the principal component only allows the security holder to receive the principal portion of cash payments. As a rule of thumb, a portfolio of fixed income securities (including mortgage related securities) experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Fund's duration of its portfolio. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called, or prepaid, prior to maturity given current market interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of fixed income securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Fund holds a portfolio of securities with an effective duration of five years and interest rates rise 32 INVESTING IN THE FUNDS 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Fund expects that under normal circumstances the effective duration of its portfolio will range from one to seven years. In addition, the Fund may invest lesser portions of its assets in non-investment grade mortgage-related securities, securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, certificates of deposits, bankers' acceptances, investment-grade commercial paper, convertible and non-convertible investment-grade and non-investment grade corporate debt securities, securities of other mutual funds, restricted and illiquid securities, direct mortgage investments, interest rate and other bond futures contracts, asset-backed securities, stripped asset-backed securities, when-issued or forward commitment transactions and mortgage dollar rolls. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Mortgage Securities Fund is subject to the following risks: - - Call Risk - Fund Risk - - Concentration Risk - Income Risk - - Credit Risk - Inflation Risk - - Diversification Risk - Interest Rate Risk - - Emerging Markets Risk - Market Risk - - Extension Risk - Prepayment Risk - - Foreign Securities Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 33 SPECTRUM FUND Spectrum Fund seeks the most favorable total return - from capital appreciation, interest and dividends - consistent with preservation of capital. The Fund's portfolio may, at any time, consist of equity securities, investment-grade debt securities, mortgage-related securities, money market securities or any combination of these securities. The Fund's portfolio will be allocated among these asset classes based on Advantus Capital's risk/return analysis as to current economic or market conditions, trends in investment yields and investment rates, changes in fiscal or monetary policies and other relevant factors. If Advantus Capital believes total return from debt securities will exceed total return from equity securities, the Fund will overweight its investment in debt securities relative to the target portfolio weight of 40% fixed income securities. On the other hand, if Advantus Capital believes total return from equity securities will exceed total return from long or short-term debt securities, the Fund will overweight its investment in equity securities relative to the target portfolio weight of 60% equity securities. As a result, Advantus Capital has more discretion to invest in a variety of securities than most mutual funds. Under most circumstances, the Fund anticipates investing approximately 50% to 70% of its total assets in equity securities, approximately 30% to 50% of its total assets in long-term and short-term debt securities and mortgage-related securities, and approximately 0% to 10% of its total assets in money market securities. (For purposes of the investment percentages described in the preceding sentence, collateral received in connection with securities lending shall not be considered Fund assets.) However, Advantus Capital may allocate assets beyond these ranges in order to attempt to increase return or reduce risk. THE ADVANTUS SPECTRUM FUND [CHART] Typical ranges for equity, fixed income and money market investments. The Fund invests primarily in common stocks but may also invest in preferred stocks and securities convertible into equity securities. In selecting equity securities, Advantus Capital looks first to an investment's potential for capital appreciation and then to its income potential. The Fund generally invests in equity securities of companies which either have strong long-term growth potential, or are believed by Advantus Capital to be temporarily undervalued or to show promise of improved results due to new management, products, markets or other factors. 34 INVESTING IN THE FUNDS - -------------------- FOR YOUR INFORMATION - -------------------- The market prices of bonds are generally less volatile than stocks, although the market prices of bonds may be adversely affected during periods of rising interest rates. The values of fixed income securities generally rise and fall inversely with changes in prevailing interest rates. Duration is the most meaningful indicator of a fixed income security's sensitivity to interest rate changes. The Fund also may invest in long, intermediate and short-term investment-grade debt securities. These debt securities include U.S. Government and agency debt securities and investment-grade debt obligations of U.S. banks, savings and loan associations, savings banks with total assets of at least $2 billion, corporate debt obligations, notes and other investment-grade debt securities of any maturity and investment-grade commercial paper issued by U.S. corporations or affiliated foreign corporations. The Fund may invest in government and non-governmental mortgage-related securities, including collateralized mortgage obligations (CMOs) and stripped mortgage-backed securities, and may purchase securities on a when-issued or forward commitment basis. CMOs are debt obligations typically issued by either a government agency or a private special-purpose entity that are collateralized by residential or commercial mortgage loans or pools of residential mortgage loans. Stripped mortgage-backed securities represent ownership interests in a pool of mortgages. Securities purchased on a when-issued or delayed delivery basis require the Fund to purchase securities on a later date with the price fixed at the time of the purchase commitment. In addition, the Fund may invest in money market securities that mature within one year from the date of purchase. As a rule of thumb, a portfolio of debt and mortgage-related securities generally experiences a decrease in principal value with an increase in interest rates. The extent of the decrease in principal value may be affected by the Fund's duration of its portfolio of debt and mortgage-related securities. Duration measures the relative price sensitivity of a security to changes in interest rates. "Effective" duration takes into consideration the likelihood that a security will be called, or prepaid, prior to maturity given current market interest rates. Typically, a security with a longer duration is more price sensitive than a security with a shorter duration. In general, a portfolio of debt and mortgage-related securities experiences a percentage decrease in principal value equal to its effective duration for each 1% increase in interest rates. For example, if the Fund holds a portfolio of securities with an effective duration of five years and interest rates rise 1%, the principal value of such securities could be expected to decrease by approximately 5%. The Fund expects that under normal circumstances the effective duration of its debt and mortgage-related securities portfolio will range from one to seven years. In addition, the Fund may invest lesser portions of its assets in convertible and non-convertible investment-grade and non-investment grade corporate debt obligations and mortgage-related securities, real estate investment trusts, securities of other mutual funds, restricted and illiquid securities, foreign securities, warrants, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), interest rate and other bond futures contracts, asset-backed securities, stripped asset-backed securities, when-issued or forward commitment transactions and mortgage dollar rolls, direct mortgage investments, index depositary receipts and repurchase and reverse repurchase agreement transactions. To generate additional income, the Fund may lend securities representing one-third of the value of its total assets to broker-dealers, banks and other institutions. Although the Fund does not pursue an investment strategy of active and frequent trading of portfolio securities, the Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Portfolio turnover rates may therefore vary greatly from year to year. To the extent the Fund experiences high rates of portfolio turnover, it will INVESTING IN THE FUNDS 35 incur correspondingly greater brokerage commission expenses, which may reduce investment returns. Higher rates of portfolio turnover may also result in larger capital gains distributions, which are taxable to Fund shareholders. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes, and without limit, in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Spectrum Fund is subject to the following risks: - - Call Risk - Interest Rate Risk - - Company Risk - Large Company Risk - - Credit Risk - Market Risk - - Diversification Risk - Mid Size Company Risk - - Emerging Markets Risk - Prepayment Risk - - Extension Risk - Sector Risk - - Foreign Securities - Securities Lending Risk Risk - Short-Term Trading Risk - - Fund Risk - Small Company Risk - - Income Risk - - Inflation Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. 36 INVESTING IN THE FUNDS - -------------------- FOR YOUR INFORMATION - -------------------- In order to make informed decisions, investors must be aware of both the risks and rewards associated with investing. Not only should you understand the risks associated with your investments, but you must be comfortable with them as well. Risks are an inherent part of investing, and your investment in the Fund is subject to different types and varying degrees of risk. DEFINING RISKS Investment in each Fund involves risks. A Fund's yield and price are not guaranteed, and the value of an investment in a Fund will go up or down. The value of an investment in a particular Fund may be affected by the risks of investing in that Fund as identified for each Fund in "Investment Objective, Policies and Practices" above. The following glossary describes those identified risks associated with investing in the Funds. - CALL RISK - is the risk that securities with high interest rates (or other attributes that increase debt cost) will be prepaid by the issuer prior to maturity, particularly during periods of falling interest rates. In general, an issuer will call its debt securities if they can be refinanced by issuing new securities with a lower interest rate. The Fund is subject to the possibility that during periods of falling interest rates, an issuer will call its securities. As a result, the Fund would have to reinvest the proceeds in other securities with generally lower interest rates, resulting in a decline of the Fund's income. - COMPANY RISK - is the risk that individual securities may perform differently than the overall market. This may be a result of specific factors such as changes in corporate profitability due to the success or failure of specific products or management strategies, or it may be due to changes in investor perceptions regarding a company. - CONCENTRATION RISK - is the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund is subject to concentration risk if the Fund invests more than 25% of its total assets in a particular industry. - CREDIT RISK - is the risk that an issuer of a REIT or debt security (including mortgage-backed securities) will not make payments on the security when due, or that the other party to a contract will default on its obligation. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the Fund. Also, a change in the quality rating of a REIT security or a debt security can affect the security's liquidity and make it more difficult to sell. The Fund may attempt to minimize credit risk by investing in debt securities and other fixed income obligations considered at least investment grade at the time of purchase. However, all of these securities and obligations, especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities and obligations are more likely to have difficulty making principal and interest payments than issuers of higher rated securities and obligations. If the Fund purchases unrated securities and obligations, it will depend on its investment adviser's or sub-adviser's analysis of credit risk more heavily than usual. - CURRENCY RISK - is the risk that changes in foreign currency exchange rates will increase or decrease the value of foreign securities or the amount of income or gain received on such securities. A strong U.S. dollar relative to these other currencies will adversely affect the value of the Fund. Attempts by the Fund to minimize the effects of currency fluctuations through the use of foreign currency hedging transactions may not be successful or the Fund's hedging transactions may cause the Fund to be unable to take advantage of a favorable change in the value of foreign currencies. - DIVERSIFICATION RISK - is the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified INVESTING IN THE FUNDS 37 investment portfolio. The Fund is subject to diversification risk if the Fund may invest more than 5% of its total assets in the securities of a single issuer with respect to 25% of its total investment portfolio (a Fund is considered diversified, as defined in the Investment Company Act of 1940, if it does not invest more than 5% of its total assets in the securities of a single issuer with respect to 75% of its total investment portfolio). - EMERGING MARKETS RISK - is the risk that the value of securities issued by companies located in emerging market countries may be subject to greater volatility than foreign securities issued by companies in developed markets. Risks of investing in foreign securities issued by companies in emerging market countries include, among other things, greater social, political and economic instability, lack of liquidity and greater price volatility due to small market size and low trading volume, certain national policies that restrict investment opportunities and the lack of legal structures governing private and foreign investment and private property. - EURO CONVERSION RISK - is the risk that the value of foreign securities of companies located in European Monetary Union (EMU) countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Fund. The transition and the elimination of currency risks amount EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Fund holds non-U.S. dollar (Euro or other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. - EXTENSION RISK - is the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of mortgage-backed securities and real estate debt securities. This would, in effect, convert a short or medium-duration security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline. Duration measures the expected price sensitivity of a fixed income security or portfolio for a given change in interest rates. For example, if interest rates rise by one percent, the value of a security or portfolio having a duration of two years generally will fall by approximately two percent. - FOREIGN SECURITIES RISK - is the risk that the value of foreign companies or foreign government securities held by the Fund may be subject to greater volatility than domestic securities. Risks of foreign securities include, among other things: POLITICAL AND ECONOMIC RISKS. Investing in foreign securities is subject to the risk of political, social or economic instability in the country of the issuer of the security, the difficulty of predicting international trade patterns, the possibility of exchange controls, expropriation, limits on currency removal or nationalization of assets. FOREIGN TAX RISK. The Fund's income from foreign issuers may be subject to non-U.S. withholding taxes. In some countries, the Fund may be subject to taxes on trading profits and, on certain securities transactions, transfer or stamp duties. To the extent foreign income taxes are paid by the Fund, U.S. shareholders may be entitled to a credit or deduction for U.S. tax purposes. 38 INVESTING IN THE FUNDS FOREIGN INVESTMENT RESTRICTION RISK. Some countries, particularly emerging market countries, restrict to varying degrees foreign investment in their securities markets. In some circumstances, these restrictions may limit or preclude investment in certain countries or may increase the cost of investing in securities of particular companies. FOREIGN SECURITIES MARKET RISK. Securities of many foreign companies may be less liquid and their prices more volatile than securities of domestic companies. Securities of companies traded outside the U.S. may be subject to further risks due to the inexperience of local brokers and financial institutions, the possibility of permanent or temporary termination of trading, and greater spreads between bid and asked prices for securities. Moreover, foreign stock exchanges and brokers are subject to less governmental regulation, and commissions may be higher than in the U.S. In addition, there may be delays in the settlement of foreign stock exchange transactions. INFORMATION AND REMEDIES RISK. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory requirements that apply to domestic companies. As a result, less information may be available to investors concerning foreign issuers. In addition, the Fund may have greater difficulty voting proxies, exercising shareholder rights, pursuing legal remedies and obtaining judgments with respect to foreign investments in foreign courts than with domestic companies in domestic courts. - FUND RISK - is the risk that Fund performance may not meet or exceed that of the market as a whole. The performance of the Fund will depend on the Fund's investment adviser's or sub-adviser's judgment of economic and market policies, trends in investment yields and monetary policy. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives or the market generally. - INCOME RISK - is the risk that the Fund may experience a decline in its income due to falling interest rates. - INFLATION RISK - is the risk that even if the principal value of an investment in the Fund remains constant or increases, or the income from the investment remains constant or increases, their real value may be less in the future because of inflation. Thus, as inflation occurs, the purchasing power of an investor's Fund shares may decline, even if their value in dollars increases. - INTEREST RATE RISK - is the risk that the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) will decline due to changes in market interest rates. Generally, when interest rates rise, the value of such a security or obligation decreases. Conversely, when interest rates decline, the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) generally increases. Long-term debt securities, mortgage-backed securities and fixed income obligations are generally more sensitive to interest rate changes. - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - MARKET RISK - is the risk that equity securities are subject to adverse trends in equity markets. Securities are subject to price movements due to changes in general economic conditions, the level of prevailing interest rates or investor perceptions of the market. In INVESTING IN THE FUNDS 39 addition, prices are affected by the outlook for overall corporate profitability. Market prices of equity securities are generally more volatile than debt securities. This may cause a security to be worth less than the price originally paid for it, or less than it was worth an earlier time. Market risk may affect a single issuer or the market as a whole. As a result, a portfolio of such equity securities may underperform the market as a whole. - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization companies may be more vulnerable to adverse developments than those of large companies due to such companies' limited product lines, limited markets and financial resources and dependence upon a relatively small management group. - PREPAYMENT RISK - is the risk that falling interest rates could cause prepayments of mortgage loans to occur more quickly than expected. This occurs because, as interest rates fall, more property owners refinance the mortgages underlying mortgage-backed securities (including mortgage REITs). The Fund must reinvest the prepayments at a time when interest rates of new mortgage investments are falling, reducing the income of the Fund. In addition, when interest rates fall, prices of mortgage-backed securities may not rise as much as for other types of comparable securities because investors may anticipate an increase in mortgage prepayments. - SECTOR RISK - is the risk that the securities of companies within specific industries or sectors of the economy can periodically perform differently than the overall market. This may be due to changes in such things as the regulatory or competitive environment or to changes in investor perceptions regarding a company. - SECURITIES LENDING RISK - is the risk that the Fund may experience a delay in the recovery of loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the Fund enters into loan arrangements only with institutions that the Fund's investment adviser or sub-adviser has determined are creditworthy. - SHORT-TERM TRADING RISK - is the risk that a Fund may trade securities frequently and hold securities in its portfolio for one year or less. Frequent purchases and sales of securities will increase the Fund's transaction costs. Factors that can lead to short-term trading include market volatility, a significant positive or negative development concerning a security, an attempt to maintain a Fund's market capitalization target, and the need to sell a security to meet redemption activity. - SMALL COMPANY RISK - is the risk that equity securities of small capitalization companies (including small capitalization REIT's) are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. In addition, the frequency and volume of trading of such securities may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling securities of small capitalization companies at the desired time. - STABLE PRICE RISK - is the risk that the Money Market Fund will not be able to maintain a stable share price of $1.00. There may be situations where the Fund's share price could fall below $1.00, which would reduce the value of an investor's account. 40 INVESTING IN THE FUNDS [GRAPHIC] BUYING AND SELLING SHARES - --------------- REFERENCE POINT - --------------- All Advantus Funds offer Class A, Class B and Class C shares, except for Money Market Fund (a single class of shares) and Advantus Real Estate Securities Fund, Inc. (Class A and Class B shares only). CHOOSING A SHARE CLASS You may purchase Class A, Class B or Class C shares of each of the Funds, except Money Market Fund. Money Market Fund offers only a single class of shares. Your decision to purchase a particular class will depend on a number of factors such as the amount you wish to invest, the amount of time you wish to hold on to your investment and whether you intend to make additional investments. CLASS A SHARES. If you invest in Class A shares, you will generally pay an initial sales charge. However, you will not be assessed an initial sales charge for purchases of Class A shares of $1 million or more, but a deferred sales charge will be imposed if you sell such shares within one year after the date of purchase. There are several ways to reduce or waive these sales charges that are described in "Reducing Sales Charges" below. Class A shares generally have lower annual operating expenses than Class B and Class C shares. CLASS B SHARES. If you invest in Class B shares, you will not pay an initial sales charge. However, if you wish to sell your shares within six years from the date of your purchase, you will pay a deferred sales charge. If you maintain your Class B shares for a certain period of time, your Class B shares will automatically convert to Class A shares in the manner described in "Sales and Distribution Charges" below. Class B shares generally have higher annual operating expenses than Class A shares. CLASS C SHARES. If you invest in Class C shares, you will not pay an initial sales charge. Unlike Class B shares, you will not pay a deferred sales charge if you wish to sell your shares. Class C shares generally have higher annual operating expenses than Class A shares. Class C shares will automatically convert to Class A shares in the manner described in "Sales and Distribution Charges" below, but you must hold on to such shares for a longer period of time than Class B shares prior to conversion. If you qualify for a reduction or waiver of the sales charge you should purchase Class A shares. If you expect to hold shares for a short period of time you may prefer to purchase Class C shares since these shares may be purchased and sold without any initial or deferred sales charge. If you expect to hold shares longer you may prefer to purchase Class B shares since these shares convert to Class A shares sooner than Class C shares. INTERNATIONAL BALANCED FUND REDEMPTION FEE The International Balanced Fund will impose a short-term redemption fee on shares of all classes purchased and held for less than 60 days. The fee is 2% of the redemption value and is deducted from the redemption proceeds. The fee is retained by the Fund for the benefit of its long-term shareholders. It is intended to discourage short-term trading of the Fund by BUYING AND SELLING SHARES 41 market timers or other investors who do not share the long-term strategy of the Fund, and to reduce the expenses of long-term shareholders for the trading and other costs associated with short-term investments in the Fund. A redemption fee will not be charged on shares acquired by reinvestment of dividends or capital gains distributions. If you own shares purchased on different days, shares with the longest holding period will be redeemed first for purposes of determining whether the redemption fee applies. SALES AND DISTRIBUTION CHARGES As an investor, you pay certain fees and expenses in connection with each Fund. Sales charges, whether initial or contingent deferred, are paid from your account, except in the case of Money Market Fund. Annual fund operating expenses (including distribution and shareholder servicing fees) are paid out of Fund assets, which affects the Fund's share price. MONEY MARKET FUND SHARES. Shares of Money Market Fund are sold without an initial sales charge or contingent deferred sales charge. Fund shares are subject to a shareholder servicing fee (Rule 12b-1 fee) that is payable at an annual rate of 0.25% of average daily net assets attributable to the Fund's shares. The Fund has adopted a shareholder servicing plan that allows the Fund to pay fees for services provided to shareholders. Because these fees are paid out of the Fund's assets continuously, over time the fees will increase the cost of your investment. CLASS A SHARES. If you purchase Class A shares of the Advantus Multiple Class Funds, you will generally pay an initial sales charge. The amount of the initial sales charge will vary, depending on the Fund you select. Class A sales charges are calculated as follows: INITIAL SALES CHARGES APPLICABLE TO BOND FUND AND MORTGAGE SECURITIES FUND

SALES CHARGE AS A PERCENTAGE OF: Value of Your Total Investment Net Offering Price Amount Invested Less than $100,000 % 4.5 4.71 At least $100,000 but less than $250,000 3.5 3.63 At least $250,000 but less than $500,000 2.5 2.56 At least $500,000 but less than $1,000,000 2.0 2.04 At least $1,000,000 and over(1) 0 0

42 BUYING AND SELLING SHARES INITIAL SALES CHARGES APPLICABLE TO INTERNATIONAL BALANCED FUND AND SPECTRUM FUND

SALES CHARGE AS A PERCENTAGE OF: Value of Your Total Investment Net Offering Price Amount Invested Less than $50,000 % 5.5 5.82 At least $50,000 but less than $100,000 4.5 4.71 At least $100,000 but less than $250,000 3.5 3.63 At least $250,000 but less than $500,000 2.5 2.56 At least $500,000 but less than $1,000,000 2.0 2.04 At least $1,000,000 and over(1) 0 0

(1) You will not be assessed an initial sales charge for purchases of Class A shares of at least $1 million, but a contingent deferred sales charge of 1.00% will be imposed if you sell such shares within one year after the date of purchase. The sales charge applicable to your initial investment in the Fund depends on the offering price of your investment. The sales charge applicable to subsequent investments, however, depends on the offering price of that investment plus the current net asset value of your previous investments in the Fund. For example, if you make an initial investment in Bond Fund with an offering price of $90,000 you will pay a sales charge equal to 4.5% of your $90,000 investment, but if you already own shares of Bond Fund with a current net asset value of $90,000 and you invest in additional shares of Bond Fund with an offering price of $10,000 you will pay a sales charge equal to 3.5% of the additional $10,000 since your total investment in the Fund would then be $100,000. Class A shares are also subject to a shareholder servicing fee (Rule 12b-1 fee). The Fund has adopted a shareholder servicing plan that allows the Fund to pay fees for services provided to shareholders. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. As a percentage of average daily net assets attributable to Class A shares of the Fund, the maximum Rule 12b-1 fee is 0.25%. CLASS B SHARES. If you wish to sell your Class B shares within six years from the date of your purchase, you will pay a contingent deferred sales charge (CDSC). The amount of the CDSC on Class B shares depends on the number of years since your purchase was made, the amount of shares originally purchased and the dollar amount being sold. The CDSC is based on the net asset value (NAV) of the shares being sold at the time of your purchase or your sale of such shares, whichever is lower. No CDSC is charged on shares acquired BUYING AND SELLING SHARES 43 through reinvestment of dividends or capital gains distributions, or on shares held longer than the applicable CDSC period. Class B CDSC is calculated as follows:

CDSC APPLICABLE IN YEAR FOLLOWING DATE OF PURCHASE AMOUNT OF SHARES PURCHASED 1 2 3 4 5 6 Less than $50,000 % 5.0 4.5 3.5 2.5 1.5 1.5 At least $50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 At least $100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 At least $250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 At least $500,000 but less than $1,000,000 1.5 1.5 0 0 0 0

Purchase orders for Class B shares of $1 million or more will be treated as orders for Class A shares or declined. To determine if a CDSC is payable for any redemption of Class B shares, CDSC calculation will be determined in a manner that results in the lowest CDSC charged. Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual rate of 1.00% of average daily net assets attributable to Class B shares of the Fund. The Fund uses the proceeds from the CDSC to pay underwriting fees and expenses. The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to distribution and shareholder services to the Fund. As a result, the combination of the CDSC and Rule 12b-1 fees allows the Fund to sell Class B shares without any initial sales charge. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Class B shares will automatically convert to Class A shares on a specified date following your date of purchase. Thereafter, the Class A shares you receive upon conversion will not be subject to the higher annual operating expenses assessed on Class B shares. The conversion will be based on the relative NAVs of the two classes. For a description of NAV, see "Buying Shares" below. The date of conversion is based on the amount of shares purchased and is determined as described in the following table:

CONVERSION DATE FOLLOWING EXPIRATION AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE* Less than $50,000 84 months At least $50,000 but less than $100,000 76 months At least $100,000 but less than $250,000 60 months At least $250,000 but less than $500,000 44 months At least $500,000 but less than $1,000,000 28 months

* Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day. 44 BUYING AND SELLING SHARES CLASS C SHARES. Class C shares are sold without an initial sales charge or CDSC. Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate of 1.00% of average daily net assets attributable to Class C shares of the Fund. The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to distribution and shareholder services to the Fund. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Purchase orders for Class C shares of $1 million or more will be treated as orders for Class A shares or declined. Class C shares will automatically convert to Class A shares on a specified date following your date of purchase. Thereafter, the Class A shares you receive upon conversion will not be subject to the higher annual operating expenses assessed on Class C shares. The conversion will be based on the relative NAVs of the two classes. Generally, Class C shares must be held longer than Class B shares before such shares automatically convert to Class A shares. Like Class B shares, the date of conversion is based on the amount of shares purchased and is determined as described in the following table:

CONVERSION DATE FOLLOWING EXPIRATION AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE* Less than $50,000 96 months At least $50,000 but less than $100,000 88 months At least $100,000 but less than $250,000 72 months At least $250,000 but less than $500,000 56 months At least $500,000 but less than $1,000,000 40 months

* Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day. Since the longer holding period for Class C shares enables the Fund to charge the higher Rule 12b-1 fee for a longer period, the Fund is able to offer Class C shares without an initial sales charge or CDSC. REDUCING SALES CHARGES PURCHASES OF SHARES. There are several ways you may reduce sales charges on your purchase of a Fund's shares. - AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified amount in a Fund each month, which may result in a lower average cost per share through the principle of "dollar cost averaging." The automatic investment plan will not always result in a lower cost per share, nor will it alone reduce your sales charge. - COMBINATION PRIVILEGE. Lets you add the value of all shares you already own (Class A, Class B or Class C) in a Fund for purposes of calculating the sales charge. BUYING AND SELLING SHARES 45 - FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any class of a Fund made by your spouse, children and/or family trust for purposes of calculating the sales charge. If you wish to use this privilege, you must indicate on your account application that you are entitled to the reduced sales charge. - GROUP PURCHASES. Lets you purchase shares of a Fund with others as a group at a reduced sales charge applicable to the group as a whole. A purchase group must meet criteria established by Securian Financial Services, Inc. (Securian Financial), the Funds' underwriter. - LETTER OF INTENT. Lets you purchase Class A shares of a Fund over a 13 month period and receive the same sales charge as if all shares had been purchased at once. For more information on any of these plans, please contact Advantus Shareholder Services by telephone at: (800) 665-6005. WAIVER OF SALES CHARGE ON CLASS A SHARE PURCHASES. Class A shares may be offered without any sales charge to the following individuals and institutions: - officers, directors, employees, sales representatives and retirees of the Fund, Advantus Capital, Templeton Counsel and FAV (with respect to International Balanced Fund only), Securian Financial, Minnesota Life and affiliated companies of Minnesota Life, and their respective spouses, siblings, direct ancestors or direct descendants - independent legal counsel to the Funds' independent directors - Minnesota Life and its affiliated companies - trusts, pension or benefit plans sponsored by or on behalf of Advantus Capital, Securian Financial, Minnesota Life and affiliated companies of Minnesota Life - advisory clients of Advantus Capital or other affiliated companies of Minnesota Life - employees of sales representatives of Advantus Capital, Minnesota Life or affiliated companies of Minnesota Life - certain accounts as to which a bank or broker-dealer charges an account management fee, provided that the bank or broker-dealer has an agreement with Securian Financial - certain accounts sold by registered investment advisers - investors who, within sixty (60) days after redeeming shares of a class of shares generally subject to either an initial or deferred sales charge issued by a non-Advantus fund, purchase Class A shares with those redemption proceeds from Securian Financial or from a broker-dealer that has entered into an agreement with Securian Financial specifically providing for such net asset value purchase - employer-sponsored retirement plans described in Sections 401 or 403, or governmental retirement plans described in Section 457, of the Internal Revenue Code with total plan assets of not less than $500,000 WAIVER OF SALES CHARGES ON CLASS B SHARES. The CDSC for Class B shares will generally be waived in the following cases: - upon the automatic conversion of Class B shares to Class A shares; 46 BUYING AND SELLING SHARES - upon the Fund's decision to liquidate accounts with less than the minimum account size; - upon a shareholder's death or disability; and - in connection with Class B shares redeemed pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares equal in amount to 12% of the value of a shareholder's account in a Fund at the time the Systematic Withdrawal Plan is established For more information on these waivers, please see the Statement of Additional Information or contact Advantus Shareholder Services or Securian Financial. BUYING SHARES You may purchase shares of the Funds on any day the New York Stock Exchange (NYSE) is open for business. The price for Fund shares is equal to the particular Fund's NAV plus any applicable sales charge. In the case of Money Market Fund, the NAV will normally be $1.00 per share. However, there is no assurance that Money Market Fund will maintain the $1.00 NAV. NAV is generally calculated as of the close of normal trading on the NYSE (typically 3:00 p.m. Central time). However, NAV is not calculated for a Fund on: (a) days in which changes in the Fund's portfolio do not materially change the Fund's NAV, (b) days on which no Fund shares are purchased or sold, and (c) customary national business holidays on which the NYSE is closed for trading. A Fund's NAV for each class is equal to the Fund's total investments attributable to such class less liabilities attributable to such class divided by the number of shares of such class. To determine NAV, a Fund other than Money Market Fund generally values the Fund's investments based on market quotations. If market quotations are not available for certain Fund investments, the investments are valued based on the fair value of the investments as determined in good faith by the Fund's board of directors. Debt securities may be valued based on calculations furnished to the Fund by a pricing service or by brokers who make a market in such securities. Securities in the Money Market Fund's portfolio are valued on an amortized cost basis. This involves valuing an instrument at its cost and thereafter assuming a constant amortization of any discount or premium until the instrument's maturity, rather than looking at actual changes in the market value of the instrument. You may purchase shares through Securian Financial or another authorized broker-dealer or financial services firm (which may independently establish and charge you transaction or other fees for its services). Your purchase order will be priced at the next NAV (plus the applicable initial sales charge for Class A shares) determined after your purchase order is received by the Funds' transfer agent. An order received by the Funds' transfer agent from a financial services firm after NAV is determined that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such determination and transmitted to and received by the transfer agent prior to its close of business that day. Other orders received after the close of normal trading on the NYSE will be priced at the NAV calculated on the next day the NYSE is open for trading. A Fund may reject any purchase order when the Fund determines it would not be in the best interests of the Fund or its shareholders. BUYING AND SELLING SHARES 47 You may purchase shares of the Funds in any of the following ways: BY CHECK. - New investors may purchase shares of the Funds by completing an account application and a check payable to "Advantus". - All checks must be in U.S. dollars. Cash, money orders, travelers checks, credit card and third-party checks are not accepted. If a check does not clear your bank, the Fund will cancel the purchase. If you purchase shares by check or bank draft and then redeem those shares, redemption proceeds are not available until your check or draft clears, which may be up to 15 days after the date of purchase. - Send the completed application and a check payable to "Advantus" to your registered representative's authorized broker-dealer or other financial services firm. If you do not have a registered representative, send the completed account application and check to: Advantus Funds Group P.O. Box 9767 Providence, Rhode Island 02940-9767 - If you wish to purchase additional shares, please send a check payable to "Advantus" to the above address (referencing your Advantus Fund selection). When purchasing additional shares, certain third-party checks are acceptable. Please contact Advantus Shareholder Services at: (800) 665-6005 for more information. BY WIRE. - New investors may also purchase shares of the Funds by Federal Reserve or bank wire through a domestic bank. - You should first complete an account application and send it to your registered representative's authorized broker-dealer or other financial services firm. If you do not have a registered representative, send the completed account application to the address referenced above. - Prior to wiring any funds, you must contact Advantus Shareholder Services at: (800) 665-6005 for wire instructions. Wire purchases normally take two or more hours to complete. To be accepted the same day, wire purchases must be received by the close of normal trading on the NYSE. BY INTERNET. - Existing Advantus shareholders may also purchase shares via the internet once they have established on-line authorization. Please contact Advantus Shareholder Services at: (800) 665-6005 for more information. 48 BUYING AND SELLING SHARES - --------------- REFERENCE POINT - --------------- Please see "Telephone Transactions" or "Internet Transactions" for instructions on how to sell shares by telephone or Internet. See "Selling Shares - Signature Guarantee" below to determine whether your sale will require a signature guarantee. SELLING SHARES GENERAL. You may sell your shares at any time. You may make such requests by contacting the Fund directly by mail or by telephone or by Internet. Requests by mail should be sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. You may also sell your shares by sending a facsimile request to Advantus Funds Group at: (508) 871-9960 if no signature guarantee is required. Shares will be sold at the NAV next calculated after your sale order is received by the Funds' transfer agent less any applicable CDSC (for Class A shares subject to a CDSC and for Class B shares) or redemption fee (for shares of International Balanced Fund subject to a redemption fee). A sale order received by the Funds' transfer agent from a financial services firm after NAV is calculated that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such calculation and transmitted to and received by the transfer agent prior to its close of business that day. Class A shares not otherwise subject to a CDSC and Class C shares may generally be sold without any charge (Class A, Class B and Class C shares of International Balanced Fund may be subject to a 2% redemption fee if redeemed within 60 days of purchase). The Fund will forward the sales proceeds to you as soon as possible, but generally no later than seven days after the Fund has received an order. If you designate a bank account with the Fund and wish to sell shares with a value of at least $500, then the proceeds can be wired directly to your bank account. If you elect to have proceeds sent by wire transfer, the current $15.00 wire charge will be deducted from your Fund account. The amount you receive may be more or less than the original purchase price for your shares. DELAY ON PURCHASES BY CHECK. Sales proceeds from shares purchased by check or bank draft, other than checks from government agencies, will not be available until your check or draft clears, which may take up to fifteen days after your purchase. SYSTEMATIC WITHDRAWAL PLAN. If you have an account in a Fund with a value of at least $5,000, you may establish a Systematic Withdrawal Plan which allows you to sell a portion of your shares of such Fund for a fixed or variable amount over a period of time. Withdrawal payments for Class A shares purchased in amounts of $1 million or more and for Class B shares may also be subject to a CDSC. As a result, you should carefully consider whether a Systematic Withdrawal Plan is appropriate. More information about the Systematic Withdrawal Plan is provided in the Statement of Additional Information. MEDALLION SIGNATURE GUARANTEE. In order to protect the Funds and shareholders against fraudulent requests, a medallion signature guarantee may be required in certain cases. No signature guarantee is required if the sale proceeds are less than $50,000 and are to be paid to the registered holder of the account at the address of record for that account. A medallion signature guarantee is required if: - sale proceeds are $50,000 or more - sale proceeds will be paid to someone other than the registered shareholder - sale proceeds will be mailed to an address other than the registered shareholder's address of record BUYING AND SELLING SHARES 49 - instructions were received by the Fund within 30 days before the sale order to change the registered shareholder's address or bank wire instructions - shares are to be transferred to another Fund account holder - the request is not made by a pre-authorized trustee for a plan, trust or other tax-exempt organization The Funds reserve the right to require signature guarantees on all sales. If your sale order requires a signature guarantee, the signature guarantee must be an original (not a copy) and must be a medallion signature guarantee provided by a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are: - Securities Transfer Agents Medallion Program (STAMP) - Stock Exchanges Medallion Program (SEMP) - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP) Signature guarantees from financial institutions which are not participants in a recognized medallion program will not be accepted. MONEY MARKET FUND CHECKWRITING. You may elect to write checks against your Money Market Fund shares for amounts ranging from $250 to $100,000. Checks may not be written against your Fund shares that you purchased within the last 15 days unless you purchased such shares by wire transfer or a check from a government agency. There is no charge for your initial supply of checks, but a $7 fee will be charged for each subsequent order of additional checks. Please note that checkwriting is not an appropriate manner to close your account. More information about checkwriting is provided in the Statement of Additional Information. AUTOMATIC PREMIUM PAYMENTS FROM MONEY MARKET FUND. You may authorize Minnesota Life to withdraw shares from your Money Market Fund account in amounts equal to premiums due on your Minnesota Life insurance policies. Payments may only be made when premiums are due on these insurance policies. For more information please contact Advantus Shareholder Services at: (800) 665-6005. REINSTATEMENT PRIVILEGE. If you sell shares of a Fund other than Money Market Fund, you have a one-time privilege within 90 days after the sale to use some or all of the sale proceeds to purchase shares of any of the Advantus Multiple Class Funds at no sales charge. Following your sale of Class A or Class B shares, you will be entitled to purchase only Class A shares under this reinstatement privilege. Any CDSC incurred in connection with the prior sale of Class A or B shares within a 90 day period will not be refunded to a shareholder's account. Following your sale of Class C shares, you will be entitled to purchase only Class C shares under this reinstatement privilege. 50 BUYING AND SELLING SHARES - --------------- REFERENCE POINT - --------------- Please see "Telephone Transactions" or "Internet Transactions" for instructions on how to exchange shares by telephone or Internet. - --------------- REFERENCE POINT - --------------- Please see "Selling Shares" and "Exchanging Shares" for sale and exchange details. EXCHANGING SHARES You may exchange some or all of your shares of a Fund for shares of the same class of any other Advantus Multiple Class Fund or for shares of Money Market Fund provided the other Advantus Fund is available in your state. If you are considering an exchange into another Advantus Fund you should obtain the prospectus for that fund and read it carefully. Exchanges may only be made between Advantus Fund accounts with identical registrations. You may make exchanges by contacting the Fund by mail or by telephone or by Internet. Purchases by exchange are subject to the minimum investment requirements for the Advantus Funds. You may exchange your shares up to twelve times a year without restriction or charge. A $7.50 service fee will then be imposed on subsequent exchanges. The Fund reserves the right to change the terms of and impose additional limitations and charges on exchanges after giving 60 days' prior notice to shareholders. Frequent exchanges may interfere with Fund management or operations and drive up Fund costs. The Fund is not designed for market timers, or for large or frequent transfers. To protect shareholders, the Fund may restrict or refuse purchases or exchanges by market timers. You will be considered to be a market timer if you have: (i) requested an exchange out of any Advantus Fund within two weeks of an earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more than three times in a calendar quarter, or (iii) exchanged shares equal to at least $1 million, or more than 1% of the net assets of any class of shares of any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern in the exercise of exchange or transfer rights. Accounts under common control or ownership are combined for the purpose of determining these limitations. Exchanges will be made based on the NAVs of the shares. No additional purchase or sales charges will generally be imposed on exchanges for shares. However, exchanges of shares from Money Market Fund are subject to applicable sales charges of the Advantus Fund being purchased, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gain distributions. If Class B shares are acquired by exchange of Class B shares of another Advantus Fund and later sold, any CDSC on such sale will be calculated as if no previous exchange occurred. However, shares of the Money Market Fund acquired by exchange from Class B shares will still be subject to the CDSC. The CDSC will be calculated without including the period that shares of the Money Market Fund are held. In addition, shares of International Balanced Fund exchanged within 60 days of purchase may be subject to a 2% redemption fee. You may also elect to systematically exchange Fund shares for shares of other Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange amount of at least $50. More information about exchanging shares is provided in the Statement of Additional Information. TELEPHONE TRANSACTIONS You may sell or exchange Fund shares by telephone. You will automatically have the right to initiate such telephone transactions unless you elect not to do so on your account application. You may initiate telephone transactions by calling Advantus Shareholder Services at: (800) 665-6005. Automated service is available 24 hours a day or you may speak to a service representative Monday through Friday, from 7:30 a.m. to 5:15 p.m. (Central time). The maximum amount of shares you may sell by telephone is $50,000. BUYING AND SELLING SHARES 51 During periods of economic or market changes, you may experience difficulty in selling or exchanging shares due to a heavy volume of telephone calls. In such a case, you should consider submitting a written request as an alternative to a telephone sale or exchange. The Fund reserves the right to change, terminate or impose a fee on, telephone sale and exchange privileges after giving 60 days' prior notice to shareholders. Unless you decline telephone privileges on your account application, you may be responsible for any fraudulent telephone order as long as the Fund takes reasonable measures to verify the order. INTERNET TRANSACTIONS PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. The Advantus Funds maintain a web site located at www.advantusfunds.com. Existing Advantus Funds shareholders may purchase, exchange and redeem shares, and access account information such as account balance and the Fund's NAVs. In order to engage in transactions on our web site, you must first authorize us to transmit account information on-line and accept our policies and procedures. Please contact Advantus Shareholder Services at: (800) 665-6005. You may need to have bank account information or other information to complete the authorization process. You may be responsible for any fraudulent Internet transactions as long as the Fund takes reasonable measures to verify the order. ELECTRONIC DELIVERY OF DOCUMENTS. If you would like to have annual and semi-annual shareholder reports and updated prospectuses delivered to you electronically, rather than on paper, please visit our web site at www.advantusfunds.com. ACCOUNT REQUIREMENTS MINIMUM INVESTMENT AMOUNTS. A minimum initial investment of $1,000 is required to open your account in a Fund, except that $500 is the minimum initial investment required to open a qualified account or an account in which you have agreed to make investments of not less than $50 under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50. MINIMUM ACCOUNT BALANCE. If for any reason the shares in your account have a value of less than $500 the Fund has the right to close your account. The Fund usually makes this determination in December of each year. You will be given at least 60 days' written notice to add funds to your account and reestablish the minimum balance. LOW BALANCE FEE. The Fund will deduct a $10 annual fee from your account in December of each year if your account balance at that time is below $2,000. The low balance fee is waived for qualified accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). 52 BUYING AND SELLING SHARES [GRAPHIC] DISTRIBUTIONS AND TAXES - -------------------- FOR YOUR INFORMATION - -------------------- The redemption or exchange of Fund shares may generate a taxable event for you. Depending on the purchase price and the sale price of the shares you redeem or exchange, you may incur a gain or loss. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Each Fund pays its shareholders dividends from its net investment income, and distributes any net capital gains that it has realized. Dividends, if any, in Bond Fund, Money Market Fund and Mortgage Securities Fund are declared daily, except that dividends for Saturdays, Sundays and holidays are declared on the next business day, and paid monthly. Dividends, if any, in International Balanced Fund and Spectrum Fund are paid quarterly. Net capital gains distributions are generally paid once a year. Distributions on Class A shares will generally be higher than Class B and Class C share distributions due to higher Rule 12b-1 fees applicable to Class B and Class C shares. Your distributions will be reinvested in additional shares of the Fund unless you instruct the Fund otherwise. Distributions of these additional shares are made at the NAV of the payment date. There are no fees or sales charges on reinvestments. If you wish to receive cash distributions, you may authorize the Fund to do so in your account application or by writing to Advantus Shareholder Services. If your cash distribution checks cannot be delivered by the postal or other delivery service to your address of record, all distributions will automatically be reinvested in additional shares of the Fund. No interest will be paid on amounts represented by uncashed distribution checks. You may elect to have dividends invested in shares of the Money Market Fund or in shares of the same class of another Advantus Multiple Class Fund described in "Advantus Family of Funds" below. Dividends are valued at the NAV of such other Advantus Fund on the dividend payment date. To qualify for this privilege, you must maintain a minimum account balance of $500 in the Fund and the other applicable Advantus Fund. You must request this privilege by writing to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. TAXES You will be taxed on both dividends and capital gains distributions paid by a Fund (unless you hold your shares through an IRA or other tax-deferred retirement account). Dividends and distributions are subject to tax regardless of whether they are automatically invested or are received in cash. Dividends paid from the Fund's investment income will be taxed as ordinary income. Capital gains distributions will be taxed as long-term capital gains, regardless of the length of time for which you have held your shares. Long-term capital gains are currently taxable to individuals at a maximum federal tax rate of 20%. If you purchase shares of the Fund before dividends or capital gains distributions, such dividends and distributions will reduce the NAV per share by the amount of such dividends and distributions. Furthermore, you will be subject to taxation on such dividends and distributions. If you sell your shares, you will generally realize a capital gain or loss. Any gain will be treated as short-term if you have held the shares for one year or less, and long-term if you DISTRIBUTIONS AND TAXES 53 have held the shares more than one year. Short-term capital gains are taxed as ordinary income, while long-term capital gains are subject to a maximum federal tax rate of 20%. If you exchange your shares in a Fund for shares of another Advantus Fund, the exchange will be treated as a sale for federal tax purposes, and you will be taxed on any capital gain you realize on the sale. A Fund makes changes in its portfolio that Advantus Capital or the Fund's investment sub-adviser, if any, deems advisable. The Fund's investment policies may cause the Fund's annual portfolio turnover rate (i.e., the ratio of sales and purchases of investments to the value of the Fund's entire portfolio) to be higher than that of most mutual funds. High portfolio turnover rates may cause the Fund to realize substantial capital gains which, when distributed to shareholders, will be taxable to them. You will receive an annual statement from the Fund providing detailed information concerning the federal tax status of distributions you have received during the year. The above is only a general discussion of the federal income tax consequences of an investment in a Fund. For more information, see the Statement of Additional Information. You should consult your own tax adviser for the specific federal, state or local tax consequences to you of an investment in a Fund. 54 DISTRIBUTIONS AND TAXES [GRAPHIC] FINANCIAL HIGHLIGHTS The following table describes each Fund's performance for the fiscal periods indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been audited by KPMG LLP, the Funds' independent auditor, whose report, along with the Funds' financial statements, are included in the annual report, which is available upon request. Per share data for a share of capital stock and selected information for each period are as follows for each Fund: BOND FUND

Financial Highlights CLASS A Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 10.30 9.60 9.71 10.69 10.43 ------------------------------------------- Income from Investment Operations: Net Investment Income .52 .58 .58 .54 .59 Net Gains (Losses) on Securities (both realized and unrealized) .27 .70 (.11) (.79) .30 ------------------------------------------- Total from Investment Operations .79 1.28 .47 (.25) .89 ------------------------------------------- Less Distributions: Dividends from Net Investment Income (.52) (.58) (.58) (.54) (.60) Distributions from Net Realized Gains -- -- -- (.19) (.03) ------------------------------------------- Total Distributions (.52) (.58) (.58) (.73) (.63) ------------------------------------------- Net Asset Value, End of Period $ 10.57 10.30 9.60 9.71 10.69 =========================================== Total Return (a) % 7.90 13.68 5.04 (2.36) 8.75 Net Assets, End of Period (in thousands) $ 17,313 15,737 15,002 17,846 19,419 Ratios to Average Net Assets: Expenses % 1.15 1.15 1.15 1.15 1.10 Net Investment Income % 5.07 5.77 6.08 5.41 5.55 Expenses Without Waivers % 1.92 1.99 1.84 1.55 1.58 Net Investment Income Without Waivers % 4.30 4.93 5.39 5.01 5.07 Portfolio Turnover Rate (excluding short-term securities) % 148.3 251.9 191.4 211.9 237.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 55 BOND FUND

Financial Highlights CLASS B Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 10.33 9.62 9.74 10.71 10.43 ------------------------------------------- Income from Investment Operations: Net Investment Income .44 .50 .51 .47 .51 Net Gains (Losses) on Securities (both realized and unrealized) .26 .72 (.12) (.78) .31 ------------------------------------------- Total from Investment Operations .70 1.22 .39 (.31) .82 ------------------------------------------- Less Distributions: Dividends from Net Investment Income (.44) (.51) (.51) (.47) (.51) Distributions from Net Realized Gains -- -- -- (.19) (.03) ------------------------------------------- Total Distributions (.44) (.51) (.51) (.66) (.54) ------------------------------------------- Net Asset Value, End of Period $ 10.59 10.33 9.62 9.74 10.71 =========================================== Total Return (a) % 6.99 12.93 4.16 (2.98) 8.09 Net Assets, End of Period (in thousands) $ 6,308 6,582 6,755 8,171 8,894 Ratios to Average Net Assets: Expenses % 1.90 1.90 1.90 1.90 1.90 Net Investment Income % 4.32 5.03 5.33 4.64 4.78 Expenses Without Waivers % 2.67 2.74 2.59 2.28 2.28 Net Investment Income Without Waivers % 3.55 4.19 4.64 4.26 4.40 Portfolio Turnover Rate (excluding short-term securities) % 148.3 251.9 191.4 211.9 237.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 56 FINANCIAL HIGHLIGHTS BOND FUND

Financial Highlights CLASS C Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 10.29 9.59 9.70 10.68 10.42 ------------------------------------------- Income from Investment Operations: Net Investment Income .44 .50 .51 .47 .51 Net Gains (Losses) on Securities (both realized and unrealized) .27 .70 (.11) (.79) .29 ------------------------------------------- Total from Investment Operations .71 1.20 .40 (.32) .80 ------------------------------------------- Less Distributions: Dividends from Net Investment Income (.44) (.50) (.51) (.47) (.51) Distributions from Net Realized Gains -- -- -- (.19) (.03) ------------------------------------------- Total Distributions (.44) (.50) (.51) (.66) (.54) ------------------------------------------- Net Asset Value, End of Period $ 10.56 10.29 9.59 9.70 10.68 =========================================== Total Return (a) % 7.11 12.84 4.26 (3.10) 7.89 Net Assets, End of Period (in thousands) $ 1,106 1,029 1,112 1,594 2,089 Ratios to Average Net Assets: Expenses % 1.90 1.90 1.91 1.90 1.90 Net Investment Income % 4.32 5.03 5.32 4.64 4.81 Expenses Without Waivers % 2.67 2.74 2.59 2.28 2.28 Net Investment Income Without Waivers % 3.55 4.19 4.68 4.26 4.43 Portfolio Turnover Rate (excluding short-term securities) % 148.3 251.9 191.4 211.9 237.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 57 INTERNATIONAL BALANCED FUND

Financial Highlights CLASS A Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 9.28 11.59 11.80 10.56 13.29 ----------------------------------------- Income from Investment Operations: Net Investment Income .18 .18 .23 .21 .28 Net Gains (Losses) on Securities (both realized and unrealized) (.59) (1.28) .50 1.52 (1.95) ----------------------------------------- Total from Investment Operations (.41) (1.10) .73 1.73 (1.67) ----------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.11) (.36) (.11) (.14) Distributions from Net Realized Gains (.13) (1.10) (.58) (.38) (.92) Tax Return of Capital (.02) -- -- -- -- ----------------------------------------- Total Distributions (.15) (1.21) (.94) (.49) (1.06) ----------------------------------------- Net Asset Value, End of Period $ 8.72 9.28 11.59 11.80 10.56 ========================================= Total Return (a) % (4.62) (10.57) 6.26 16.65 (13.02) Net Assets, End of Period (in thousands) $ 36,488 40,021 47,693 49,502 46,025 Ratios to Average Net Assets: Expenses % 1.62 1.62 1.52 1.63 1.62 Net Investment Income % 1.84 1.60 1.92 1.77 2.38 Expenses Without Waivers % 1.72 1.73 1.65 1.70 1.91 Net Investment Income Without Waivers % 1.74 1.49 1.79 1.70 2.09 Portfolio Turnover Rate (excluding short-term securities) % 47.8 35.6 44.2 73.8 57.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 58 FINANCIAL HIGHLIGHTS INTERNATIONAL BALANCED FUND

Financial Highlights CLASS B Year ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 9.17 11.49 11.66 10.47 13.23 --------------------------------------- Income from Investment Operations: Net Investment Income .10 .11 .11 .12 .19 Net Gains (Losses) on Securities (both realized and unrealized) (.59) (1.28) .51 1.51 (1.93) --------------------------------------- Total from Investment Operations (.49) (1.17) .62 1.63 (1.74) --------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.05) (.21) (.06) (.10) Distributions from Net Realized Gains (.13) (1.10) (.58) (.38) (.92) --------------------------------------- Total Distributions (.13) (1.15) (.79) (.44) (1.02) --------------------------------------- Net Asset Value, End of Period $ 8.55 9.17 11.49 11.66 10.47 ======================================= Total Return (a) % (5.52) (11.29) 5.32 15.84 (13.63) Net Assets, End of Period (in thousands) $ 2,798 3,530 4,647 5,293 4,869 Ratios to Average Net Assets: Expenses % 2.42 2.42 2.32 2.43 2.29 Net Investment Income % 1.04 .79 1.12 .94 1.77 Expenses Without Waivers % 2.47 2.48 2.42 2.43 2.44 Net Investment Income Without Waivers % .99 .74 1.02 .94 1.62 Portfolio Turnover Rate (excluding short-term securities) % 47.8 35.6 44.2 73.8 57.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 59 INTERNATIONAL BALANCED FUND

Financial Highlights CLASS C Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 9.18 11.50 11.66 10.48 13.24 ----------------------------------------- Income from Investment Operations: Net Investment Income .08 .11 .11 .10 .18 Net Gains (Losses) on Securities (both realized and unrealized) (.57) (1.28) .51 1.52 (1.92) ----------------------------------------- Total from Investment Operations (.49) (1.17) .62 1.62 (1.74) ----------------------------------------- Less Distributions: Dividends from Net Investment Income -- (.05) (.20) (.06) (.10) Distributions from Net Realized Gains (.13) (1.10) (.58) (.38) (.92) ----------------------------------------- Total Distributions (.13) (1.15) (.78) (.44) (1.02) ----------------------------------------- Net Asset Value, End of Period $ 8.56 9.18 11.50 11.66 10.48 ========================================= Total Return (a) % (5.52) (11.27) 5.36 15.71 (13.67) Net Assets, End of Period (in thousands) $ 892 1,060 1,728 2,510 3,074 Ratios to Average Net Assets: Expenses % 2.42 2.42 2.33 2.44 2.49 Net Investment Income % 1.04 .78 1.09 .94 1.52 Expenses Without Waivers % 2.47 2.48 2.43 2.44 2.64 Net Investment Income Without Waivers % .99 .73 .99 .94 1.37 Portfolio Turnover Rate (excluding short-term securities) % 47.8 35.6 44.2 73.8 57.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 60 FINANCIAL HIGHLIGHTS MONEY MARKET FUND

Financial Highlights Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 1.00 1.00 1.00 1.00 1.00 ----------------------------------------------------- Income from Investment Operations: Net Investment Income .01 .04 .05 .04 .05 ----------------------------------------------------- Total from Investment Operations .01 .04 .05 .04 .05 ----------------------------------------------------- Less Distributions: Dividends from Net Investment Income (.01) (.04) (.05) (.04) (.05) ----------------------------------------------------- Total Distributions (.01) (.04) (.05) (.04) (.05) ----------------------------------------------------- Net Asset Value, End of Period $ 1.00 1.00 1.00 1.00 1.00 ===================================================== Total Return (a) % 1.27 4.56 5.33 4.24 4.78 Net Assets, End of Period (in thousands) $ 41,928 42,483 42,188 41,203 60,901 Ratios to Average Net Assets: Expenses % .85 .85 .85 .85 .85 Net Investment Income % 1.26 4.45 5.21 4.17 4.68 Expenses Without Waivers % 1.56 1.66 1.78 1.56 1.41 Net Investment Income Without Waivers % .55 3.64 4.28 3.46 4.12

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 61 MORTGAGE SECURITIES FUND

Financial Highlights CLASS A Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 10.99 10.37 10.30 10.75 10.54 ------------------------------------------------ Income from Investment Operations: Net Investment Income .70 .73 .69 .69 .64 Net Gains (Losses) on Securities (both realized and unrealized) .11 .65 .09 (.45) .25 ------------------------------------------------ Total from Investment Operations .81 1.38 .78 .24 .89 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.72) (.72) (.70) (.68) (.65) Tax Return of Capital (.01) (.04) (.01) (.01) (.03) ------------------------------------------------ Total Distributions (.73) (.76) (.71) (.69) (.68) ------------------------------------------------ Net Asset Value, End of Period $ 11.07 10.99 10.37 10.30 10.75 ================================================ Total Return (a) % 7.88 13.90 7.70 2.26 8.73 Net Assets, End of Period (in thousands) $ 67,395 42,458 31,814 33,617 32,268 Ratios to Average Net Assets: Expenses % .95 .95 .95 .95 .95 Net Investment Income % 6.24 6.75 6.81 6.29 6.02 Expenses Without Waivers % 1.21 1.31 1.32 1.21 1.29 Net Investment Income Without Waivers % 5.98 6.39 6.44 6.03 5.68 Portfolio Turnover Rate (excluding short-term securities) % 98.5 55.2 64.7 127.1 152.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 62 FINANCIAL HIGHLIGHTS MORTGAGE SECURITIES FUND

Financial Highlights CLASS B Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 11.01 10.39 10.33 10.77 10.56 ------------------------------------------------ Income from Investment Operations: Net Investment Income .61 .65 .61 .61 .57 Net Gains (Losses) on Securities (both realized and unrealized) .12 .65 .08 (.44) .24 ------------------------------------------------ Total from Investment Operations .73 1.30 .69 .17 .81 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.64) (.64) (.62) (.60) (.57) Tax Return of Capital (.01) (.04) (.01) (.01) (.03) ------------------------------------------------ Total Distributions (.65) (.68) (.63) (.61) (.60) ------------------------------------------------ Net Asset Value, End of Period $ 11.09 11.01 10.39 10.33 10.77 ================================================ Total Return (a) % 6.99 13.05 6.90 1.51 7.92 Net Assets, End of Period (in thousands) $ 29,879 21,227 14,436 14,057 10,079 Ratios to Average Net Assets: Expenses % 1.70 1.70 1.70 1.70 1.70 Net Investment Income % 5.49 6.00 6.06 5.57 5.33 Expenses Without Waivers % 1.96 2.06 2.07 1.94 1.99 Net Investment Income Without Waivers % 5.23 5.64 5.69 5.33 5.04 Portfolio Turnover Rate (excluding short-term securities) % 98.5 55.2 64.7 127.1 152.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 63 MORTGAGE SECURITIES FUND

Financial Highlights CLASS C Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 10.99 10.37 10.31 10.76 10.55 ------------------------------------------------ Income from Investment Operations: Net Investment Income .62 .66 .61 .61 .57 Net Gains (Losses) on Securities (both realized and unrealized) .12 .64 .08 (.45) .24 ------------------------------------------------ Total from Investment Operations .74 1.30 .69 .16 .81 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.64) (.64) (.62) (.60) (.57) Tax Return of Capital (.01) (.04) (.01) (.01) (.03) ------------------------------------------------ Total Distributions (.65) (.68) (.63) (.61) (.60) ------------------------------------------------ Net Asset Value, End of Period $ 11.08 10.99 10.37 10.31 10.76 ================================================ Total Return (a) % 6.99 13.05 6.89 1.50 7.92 Net Assets, End of Period (in thousands) $ 10,411 5,216 3,259 5,126 4,343 Ratios to Average Net Assets: Expenses % 1.70 1.70 1.70 1.70 1.70 Net Investment Income % 5.49 6.00 6.06 5.58 5.40 Expenses Without Waivers % 1.96 2.06 2.07 1.94 1.99 Net Investment Income Without Waivers % 5.23 5.64 5.69 5.34 5.11 Portfolio Turnover Rate (excluding short-term securities) % 98.5 55.2 64.7 127.1 152.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 64 FINANCIAL HIGHLIGHTS SPECTRUM FUND

Financial Highlights CLASS A Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 11.45 19.73 17.88 16.50 16.40 ----------------------------------------- Income from Investment Operations: Net Investment Income .23 .22 .31 .31 .33 Net Gains (Losses) on Securities (both realized and unrealized) (.89) (6.08) 2.55 2.30 1.40 ----------------------------------------- Total from Investment Operations (.66) (5.86) 2.86 2.61 1.73 ----------------------------------------- Less Distributions: Dividends from Net Investment Income (.25) (.20) (.30) (.31) (.33) Distributions from Net Realized Gains -- (2.22) (.71) (.92) (1.30) ----------------------------------------- Total Distributions (.25) (2.42) (1.01) (1.23) (1.63) ----------------------------------------- Net Asset Value, End of Period $ 10.54 11.45 19.73 17.88 16.50 ========================================= Total Return (a) % (5.91) (32.35) 16.22 16.08 11.31 Net Assets, End of Period (in thousands) $ 36,974 45,066 77,964 73,613 68,157 Ratios to Average Net Assets: Expenses % 1.22 1.12 1.11 1.10 1.19 Net Investment Income % 1.84 1.57 1.58 1.77 1.98 Expenses Without Waivers % 1.52 1.40 1.20 1.10 1.19 Net Investment Income Without Waivers % 1.54 1.29 1.49 1.77 1.98 Portfolio Turnover Rate (excluding short-term securities) % 129.0 158.4 132.0 100.8 139.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 65 SPECTRUM FUND

Financial Highlights CLASS B Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 11.38 19.61 17.79 16.43 16.34 ------------------------------------------- Income from Investment Operations: Net Investment Income .12 .11 .17 .19 .22 Net Gains (Losses) on Securities (both realized and unrealized) (.87) (6.03) 2.53 2.28 1.39 ------------------------------------------- Total from Investment Operations (.75) (5.92) 2.70 2.47 1.61 ------------------------------------------- Less Distributions: Dividends from Net Investment Income (.16) (.09) (.17) (.19) (.22) Distributions from Net Realized Gains -- (2.22) (.71) (.92) (1.30) ------------------------------------------- Total Distributions (.16) (2.31) (.88) (1.11) (1.52) ------------------------------------------- Net Asset Value, End of Period $ 10.47 11.38 19.61 17.79 16.43 =========================================== Total Return (a) % (6.56) (32.82) 15.51 15.31 10.55 Net Assets, End of Period (in thousands) $ 11,216 15,207 26,838 24,420 17,751 Ratios to Average Net Assets: Expenses % 1.97 1.87 1.86 1.82 1.84 Net Investment Income % 1.09 .82 .83 1.06 1.32 Expenses Without Waivers % 2.27 2.15 1.95 1.82 1.84 Net Investment Income Without Waivers % .79 .54 .72 1.06 1.32 Portfolio Turnover Rate (excluding short-term securities) % 129.0 158.4 132.0 100.8 139.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 66 FINANCIAL HIGHLIGHTS SPECTRUM FUND

Financial Highlights CLASS C Year Ended September 30, '02 '01 '00 '99 '98 Net Asset Value, Beginning of Period $ 11.29 19.49 17.69 16.34 16.27 ------------------------------------------------- Income from Investment Operations: Net Investment Income .12 .11 .17 .19 .24 Net Gains (Losses) on Securities (both realized and unrealized) (.86) (6.00) 2.51 2.27 1.36 ------------------------------------------------- Total from Investment Operations (.74) (5.89) 2.68 2.46 1.60 ------------------------------------------------- Less Distributions: Dividends from Net Investment Income (.16) (.09) (.17) (.19) (.23) Distributions from Net Realized Gains -- (2.22) (.71) (.92) (1.30) ------------------------------------------------- Total Distributions (.16) (2.31) (.88) (1.11) (1.53) ------------------------------------------------- Net Asset Value, End of Period $ 10.39 11.29 19.49 17.69 16.34 ================================================= Total Return (a) % (6.54) (32.87) 15.38 15.29 10.57 Net Assets, End of Period (in thousands) $ 2,381 3,210 5,928 5,659 4,062 Ratios to Average Net Assets: Expenses % 1.97 1.87 1.86 1.82 1.83 Net Investment Income % 1.09 .82 .83 1.07 1.31 Expenses Without Waivers % 2.27 2.15 1.95 1.82 1.83 Net Investment Income Without Waivers % .79 .54 .72 1.07 1.31 Portfolio Turnover Rate (excluding short-term securities) % 129.0 158.4 132.0 100.8 139.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 67 OTHER INFORMATION SERVICE PROVIDERS INVESTMENT ADVISER Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101 (651) 665-3826 INVESTMENT SUB-ADVISERS INTERNATIONAL BALANCED FUND Templeton Investment Counsel, LLC 500 East Broward Boulevard Fort Lauderdale, Florida 33394 (954) 527-7500 Franklin Advisers, Inc. One Franklin Parkway San Mateo, California 94403 (650) 312-2000 UNDERWRITER Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 (651) 665-4833 (888) 237-1838 SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT Advantus Shareholder Services (a division of Minnesota Life Insurance Company) (800) 665-6005 TRANSFER AGENT PFPC Inc. Advantus Funds Group P.O. Box 9767 Providence, Rhode Island 02940-9767 CUSTODIANS Bankers Trust Company 280 Park Avenue New York, New York 10017 BOND FUND MORTGAGE SECURITIES FUND Wells Fargo Bank Minnesota Sixth Street and Marquette Avenue Minneapolis, Minnesota 55479 INTERNATIONAL BALANCED FUND MONEY MARKET FUND SPECTRUM FUND INDEPENDENT AUDITORS KPMG LLP GENERAL COUNSEL Dorsey & Whitney LLP INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS Faegre & Benson LLP 68 OTHER INFORMATION ADVANTUS FAMILY OF FUNDS Each of the Funds is a member of the Advantus family of funds. The following is a brief description of the investment objectives, policies and practices of all the Advantus Funds. BOND - ---------------------------------------------------- High level of current income by investing primarily in high quality debt securities. CORNERSTONE - ---------------------------------------------------- Long-term growth through investing primarily in stocks of large capitalization companies deemed to be undervalued relative to their future earnings and growth potential. ENTERPRISE - ---------------------------------------------------- Long-term growth through investing primarily in common stocks issued by small capitalization companies. HORIZON - ---------------------------------------------------- Long-term growth through investing primarily in common stocks issued by large capitalization companies. INDEX 500 - ---------------------------------------------------- Investment results that correspond generally to the S&P 500 Index by investing a significant portion of its portfolio in common stocks included in the S&P 500 Index.* INTERNATIONAL BALANCED - ---------------------------------------------------- Total return through investing primarily in stocks and bonds of large and small companies located outside the U.S. MONEY MARKET - ---------------------------------------------------- High level of current income by investing primarily in money market securities. MORTGAGE SECURITIES - ---------------------------------------------------- High level of current income by investing primarily in mortgage-related securities. REAL ESTATE SECURITIES - ---------------------------------------------------- Total return through investing in real estate and real-estate related securities. SPECTRUM - ---------------------------------------------------- Total return from a combination of income and capital appreciation through investing in a portfolio of stocks, debt securities and money market instruments. VENTURE - ---------------------------------------------------- Long-term growth through investing primarily in stocks of small capitalization companies deemed to be undervalued relative to their future earnings and growth potential. An investment in any Advantus Fund will be subject to a variety of risks. As a result, an Advantus Fund may not always achieve its investment objective. You may obtain a prospectus for another Advantus Fund by calling the toll-free telephone number or writing to the address shown on the back cover of this prospectus under the caption "How to Obtain Additional Information". Read the prospectus carefully before you invest. *"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-", "STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC. THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN THE FUND. OTHER INFORMATION 69 SECURIAN FINANCIAL SERVICES, INC. PRESORTED STANDARD 400 ROBERT STREET NORTH U.S. POSTAGE PAID ST. PAUL, MN 55101-2098 ST. PAUL, MN PERMIT NO. 3547 CHANGE SERVICE REQUESTED ADDITIONAL INFORMATION ABOUT THE FUNDS The Funds' annual and semi-annual reports list portfolio holdings, and discuss recent market conditions, economic trends and investment strategies that affected the Funds during the latest fiscal year. A Statement of Additional Information (SAI) provides further information about the Funds. The current SAI is on file with the Securities and Exchange Commission and is incorporated by reference (is legally part of this Prospectus). HOW TO OBTAIN ADDITIONAL INFORMATION The SAI and the Funds' annual and semi-annual reports are available without charge upon request. You may obtain additional information or make any inquiries: By Telephone - Call (800) 665-6005 By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767 Web Site Address - www.advantusfunds.com Information about the Funds (including the SAI and annual and semi-annual reports) can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (telephone 1-202-942-8090). This information and other reports about the Funds are also available on the SEC's World Wide Web site at http://www.sec.gov. Copies of this information may be obtained by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee for copies. Investment Company Act No. 811-5026 (Bond Fund) Investment Company Act No. 811-8590 (International Balanced Fund) Investment Company Act No. 811-4141 (Money Market Fund) Investment Company Act No. 811-4140 (Mortgage Securities Fund) Investment Company Act No. 811-4143 (Spectrum Fund) [LOGO] ADVANTUS-TM- CAPITAL MANAGEMENT - -C-2003 Advantus Capital Management, Inc. All rights reserved. F. 58124 1-2003 EX-99.(17)(L) 17 c78747exv99wx17yxly.txt EX-(17)(L)ADV FIXEDINC&BLENDED FUNDS SAI-1/31/03 Exhibit (17)(l) STATEMENT OF ADDITIONAL INFORMATION ADVANTUS BOND FUND, INC. ADVANTUS INTERNATIONAL BALANCED FUND, INC. ADVANTUS MONEY MARKET FUND, INC. ADVANTUS MORTGAGE SECURITIES FUND, INC. ADVANTUS SPECTRUM FUND, INC. January 31, 2003 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUS DATED JANUARY 31, 2003 AND SHOULD BE READ IN CONJUNCTION THEREWITH. THE FUNDS' AUDITED ANNUAL REPORT DATED SEPTEMBER 30, 2002, WHICH EITHER ACCOMPANIES THIS STATEMENT OF ADDITIONAL INFORMATION OR HAS PREVIOUSLY BEEN PROVIDED TO THE INVESTOR TO WHOM THIS STATEMENT OF ADDITIONAL INFORMATION IS BEING SENT, IS INCORPORATED HEREIN BY REFERENCE. A COPY OF THE PROSPECTUS AND ANNUAL REPORT MAY BE OBTAINED BY TELEPHONE FROM ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005 OR BY WRITING TO THE FUNDS AT ADVANTUS FUNDS GROUP, P.O. BOX 9767, PROVIDENCE, RHODE ISLAND 02940-9767 -1- TABLE OF CONTENTS GENERAL INFORMATION AND HISTORY INVESTMENT OBJECTIVES AND POLICIES Fund Names and Investment Policies Equity Securities of Small Capitalization Companies Debt and Money Market Securities - Advantus Multiple Class Funds Low Rated Securities Convertible Securities Money Market Securities - Money Market Fund U.S. Government Obligations Obligations of Non-Domestic Banks Variable Amount Master Demand Notes Mortgage-Related Securities U.S. Government Mortgage-Related Securities Non-Governmental Mortgage-Related Securities Collateralized Mortgage Obligations Stripped Mortgage-Backed Securities Asset-Backed and Stripped Asset-Backed Securities Direct Investments in Mortgages - Whole Loans Foreign Securities Investments in Russia Currency Exchange Transactions Foreign Currency Hedging Transactions Closed-End Investment Companies Real Estate Investment Trust Securities Loans of Portfolio Securities Restricted and Illiquid Securities When-Issued Securities and Forward Commitments Mortgage Dollar Rolls Repurchase Agreements Reverse Repurchase Agreements Futures Contracts and Options on Futures Contracts Options Warrants Warrants with Cash Extractions Index Depositary Receipts Short Sales Against the Box Defensive Purposes INVESTMENT RESTRICTIONS Fundamental Restrictions Non-Fundamental Restrictions PORTFOLIO TURNOVER DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR LIABILITY INVESTMENT ADVISORY AND OTHER SERVICES General Control and Management of Advantus Capital and Securian Financial Investment Advisory Agreement with Advantus Capital International Fund Sub-Adviser - Templeton Counsel and FAV International Fund Investment Sub-Advisory Agreement - Templeton Counsel and FAV Annual Approval of Advisory and Sub-Advisory Agreements Code of Ethics Distribution Agreement Payment of Certain Distribution Expenses of the Funds Transfer Agent and Administrative Services MONEY MARKET FUND AMORTIZED COST METHOD OF PORTFOLIO VALUATION -2- PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE Horizon Fund, Spectrum Fund, Cornerstone Fund and Enterprise Fund Mortgage Securities Fund and Bond Fund Money Market Fund International Fund Generally CALCULATION OF PERFORMANCE DATA Money Market Fund Advantus Multiple Class Funds CAPITAL STOCK AND OWNERSHIP OF SHARES HOW TO BUY SHARES Alternative Purchase Arrangements International Fund Redemption Fee Purchase by Check Purchase by Wire Purchase by Internet Timing of Purchase Orders Minimum Investments Public Offering Price SALES CHARGES Class A Shares Class B Shares Class C Shares Other Payments to Broker-Dealers NET ASSET VALUE AND PUBLIC OFFERING PRICE REDUCED SALES CHARGES Right of Accumulation-Cumulative Purchase Discount Letter of Intent Combining Purchases Group Purchases Waiver of Sales Charges For Certain Sales of Class A Shares EXCHANGE AND TRANSFER OF FUND SHARES Systematic Exchange Plan SHAREHOLDER SERVICES Open Accounts Automatic Investment Plan Group Systematic Investment Plan Retirement Plans Offering Tax Benefits Systematic Withdrawal Plans REDEMPTIONS Medallion Signature Guarantee Contingent Deferred Sales Charge Telephone Redemption Internet Redemption Delay in Payment of Redemption Proceeds Fund's Right to Redeem Small Accounts Checkwriting Automatic Premium Payments Reinstatement Privilege TELEPHONE TRANSACTIONS INTERNET TRANSACTIONS DISTRIBUTIONS AND TAX STATUS Dividends and Capital Gains Distributions Taxation - General FINANCIAL STATEMENTS Appendix A - Mortgage-Related Securities Underlying Mortgages Liquidity and Marketability Average Life Yield Calculations Appendix B - Bond and Commercial Paper Ratings Bond Ratings Commercial Paper Ratings Appendix C - Futures Contracts Example of Futures Contract Sale Example of Futures Contract Purchase Tax Treatment -3- GENERAL INFORMATION AND HISTORY Advantus Spectrum Fund, Inc. ("Spectrum Fund"), Advantus Mortgage Securities Fund, Inc. ("Mortgage Securities Fund"), Advantus Money Market Fund, Inc. ("Money Market Fund"), Advantus Bond Fund, Inc. ("Bond Fund"), and Advantus International Balanced Fund, Inc. ("International Fund"), collectively referred to as the "Funds," are open-end diversified management investment companies, commonly called mutual funds. The Funds, together with six other mutual funds which share the same investment adviser, are members of a family of mutual funds known as the "Advantus Funds." Each of the Advantus Funds, excluding Money Market Fund, offers more than one class of shares (the "Advantus Multiple Class Funds"). The Advantus Multiple Class Funds currently offer three classes of shares (Class A, Class B and Class C), except for Advantus Real Estate Securities Fund, Inc., which currently offers two classes of shares (Class A and Class B). Each class is sold pursuant to different sales arrangements and bears different expenses. The Funds are incorporated as Minnesota corporations. Spectrum Fund, Mortgage Securities Fund and Money Market Fund were incorporated in October 1984. Bond Fund was incorporated in January 1987, and International Fund was incorporated in January 1994. INVESTMENT OBJECTIVES AND POLICIES The investment objectives and principal investment policies of each of the Funds are set forth in the text of the Funds' Prospectus under "Investing in the Funds-Investment Policies and Practices." This section contains detailed descriptions of the investment policies of the Funds as summarized in each Fund's Prospectus. FUND NAMES AND INVESTMENT POLICIES Mortgage Securities Fund and Bond Fund have names that suggest a focus on a particular type of investment. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the "1940 Act"), each of those Funds has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, "assets" means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Fund's policy to invest at least 80% of its assets in such a manner is not a "fundamental" one, which means that it may be changed without the vote of a majority of the Fund's outstanding shares as defined in the 1940 Act. However, the names of Mortgage Securities Fund and Bond Fund may be changed only if shareholders of each Fund vote to approve a new name by amending such Fund's articles of incorporation. Such a change requires the vote of a majority of the shares of the Fund represented, in person or by proxy, at a meeting of shareholders called for the purpose of voting on such a proposal. Rule 35d-1 also requires that shareholders be given written notice at least 60 days prior to any change by a Fund of its 80% investment policy. EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES International Fund and Spectrum Fund may invest in equity securities issued by small capitalization companies. Small capitalization companies may be in a relatively early stage of development or may produce goods and services which have favorable prospects for growth due to increasing demand or developing markets. Frequently, such companies have a small management group and single product or product-line expertise that may result in an enhanced entrepreneurial spirit and greater focus which allow such firms to be successful. The Fund's investment adviser, or sub-adviser, believes that such companies may develop into significant business enterprises and that an investment in such companies offers a greater opportunity for capital appreciation than an investment in larger more established entities. However, small capitalization companies frequently retain a large part of their earnings for research, development and investment in capital assets, so that the prospects for immediate dividend income are limited. While securities issued by smaller capitalization companies have historically produced better market results than the securities of larger issuers, there is no assurance that they will continue to do so or that the Fund will invest specifically in those companies which produce those results. Because of the risks involved, the Fund is not intended to constitute a complete investment program. DEBT AND MONEY MARKET SECURITIES - ADVANTUS MULTIPLE CLASS FUNDS Each of Mortgage Securities Fund, Bond Fund, and International Fund may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. The debt instruments in which these Funds may invest include the following: -4- Corporate obligations which at the time of purchase are rated within the four highest grades assigned by Standard & Poor's Corporation ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other national rating service, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. To the extent that the Fund invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. As an operating policy, International Fund will not invest more than 5% of its assets in debt securities rated BBB by S&P or Baa by Moody's. In addition, Spectrum Fund, Bond Fund and Mortgage Securities Fund may also invest up to 10% of their respective net assets in securities rated BB or Ba by S&P or Moody's, respectively, and Cornerstone Fund may also invest up to 10% of its net assets in securities (including convertible securities) rated at least B- by S&P or by B3 by Moody's. See "Low Rated Securities," below. For a description of the ratings used by Moody's and S&P, see Appendix B ("Bond and Commercial Paper Ratings") below. Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Debt obligations of banks. Bond Fund may also purchase U.S. dollar denominated debt securities of foreign governments and companies which are publicly traded in the United States and rated within the four highest grades assigned by S&P or Moody's. In addition to the instruments described above, which will generally be long-term, but may be purchased by the Fund within one year of the date of a security's maturity, the Fund may also purchase other high quality securities including: Obligations (including certificates of deposit and bankers acceptances) of U.S. banks, savings and loan associations, savings banks which have total assets (as of the date of their most recent annual financial statements at the time of investment) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks and U.S. branches or agencies of foreign banks which meet the above-stated asset size; and obligations of any U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations purchased does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. Obligations of the International Bank for Reconstruction and Development. Commercial paper (including variable amount master demand notes) issued by U.S. corporations or affiliated foreign corporations and rated (or guaranteed by a company whose commercial paper is rated) at the date of investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either Moody's or S&P, issued by a corporation having an outstanding debt issue rated Aa or better by Moody's or AA or better by S&P and, if issued by an affiliated foreign corporation, such commercial paper (not to exceed in the aggregate 10% of such Fund's (other than Mortgage Securities Fund's) net assets) is U.S. dollar denominated and not subject at the time of purchase to foreign tax withholding. The Fund may also invest in securities which are unrated if the Fund's investment adviser or sub-adviser, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of "split-rated" securities, which result when nationally-recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy to classify such securities at the higher rating level where, in the judgment of the Fund's investment adviser or sub-adviser, such classification reasonably reflects the security's quality and risk. -5- The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in each Fund's net asset value. These Funds may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is the Funds' general policy to dispose of such down-graded securities except when, in the judgment of the Funds' investment adviser or sub-adviser, it is to the Funds' advantage to continue to hold such securities. In no event, however, will any Fund hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Fund. This 5% is in addition to securities which the Fund may otherwise purchase under its usual investment policies. LOW RATED SECURITIES Spectrum Fund, Mortgage Securities Fund and Bond Fund may invest up to 10% of their respective net assets in corporate bonds and mortgage-related securities, including convertible securities, which, at the time of acquisition, are rated BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. Each of these Funds may also hold an additional 5% of its net assets in securities rated below "investment grade" (i.e. below BBB) where such securities were either investment grade or eligible low rated securities at the time of purchase but subsequently down-graded to a rating not otherwise eligible for purchase by the Fund (see "Debt and Money Market Securities - Advantus Multiple Class Funds" above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called "junk bonds." These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Funds' ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Funds' shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Funds to achieve their respective investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Funds were investing in higher rated securities. -6- Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Funds may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession. CONVERTIBLE SECURITIES Bond Fund, Spectrum Fund and Mortgage Securities Fund, may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. The total return and yield of lower quality (high yield/high risk) convertible bonds can be expected to fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not as much as common stocks. Bond Fund, Spectrum Fund and Mortgage Securities Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BB or Ba by S&P or Moody's, respectively, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Fund's investment adviser. See "Low Rated Securities," above. MONEY MARKET SECURITIES - MONEY MARKET FUND Subject to the limitations under Rule 2a-7 of the Investment Company Act of 1940 (as described in "Investment Restrictions - Money Market Fund" below), Money Market Fund will invest in a managed portfolio of money market instruments as follows: Obligations issued or guaranteed as to principal or interest by the U.S. Government, or any agency or authority controlled or supervised by and acting as an instrumentality of the U.S. Government pursuant to authority granted by Congress. Obligations (including certificates of deposit and bankers acceptances) of U.S. banks, savings and loan associations and savings banks which at the date of the investment have total assets (as of the date of their most recent annual financial statements) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches or agencies of foreign banks if such banks meet the above-stated asset size; and obligations of any such U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation. Obligations of the International Bank for Reconstruction and Development. U.S. dollar denominated obligations of Foreign governments and companies that are publicly traded in the United States. Commercial paper (including variable amount master demand notes) issued by U.S. limited partnerships, corporations or affiliated foreign corporations. Other corporate debt obligations that at the time of issuance were long-term securities, but that have remaining maturities of 397 calendar days or less. Repurchase agreements with respect to any of the foregoing obligations. By limiting the maturity of its investments as described above, the Fund seeks to lessen the changes in the value of its assets caused by market factors. The Fund intends to maintain a constant net asset value of $1.00 per share, but there can be no assurance it will be able to do so. -7- U.S. GOVERNMENT OBLIGATIONS These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association ("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association ("FNMA"). OBLIGATIONS OF NON-DOMESTIC BANKS The Funds may invest in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks, which may involve somewhat greater opportunity for income than the other money market instruments in which such Funds invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and financial recordkeeping standards as, domestic banks. Each Fund will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. VARIABLE AMOUNT MASTER DEMAND NOTES Money Market Fund may invest in variable amount master demand notes. These instruments are short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. They allow the investment of fluctuating amounts by the Fund at varying market rates of interest pursuant to direct arrangements between Money Market Fund, as lender, and the borrower. Variable amount master demand notes permit a series of short-term borrowings under a single note. The lender has the right to increase the amount under the note at any time up to the full amount provided by the note agreement. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. Because variable amount master demand notes are direct lending arrangements between the lender and borrower, it is not generally contemplated that such instruments will be traded and there is no secondary market for the notes. Typically, agreements relating to such notes provide that the lender shall not sell or otherwise transfer the note without the borrower's consent. Thus, variable amount master demand notes are illiquid assets. Such notes provide that the interest rate on the amount outstanding varies on a daily basis depending upon a stated short-term interest rate barometer. The Fund's investment adviser will monitor the creditworthiness of the borrower throughout the term of the variable amount master demand note. -8- MORTGAGE-RELATED SECURITIES Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in mortgage-related securities (including securities which represent interests in pools of mortgage loans) issued by government (some of which may be U.S. Government agency issued or guaranteed securities as described herein) and non-government entities such as banks, mortgage lenders or other financial institutions. These securities may include both collateralized mortgage obligations and stripped mortgage-backed securities. Mortgage loans are originated and formed into pools by various organizations, including the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and various private organizations including commercial banks and other mortgage lenders. Payments on mortgage-related securities generally consist of both principal and interest, with occasional repayments of principal due to refinancings, foreclosures or certain other events. Some mortgage-related securities, such as collateralized mortgage obligations, make payments of both principal and interest at a variety of intervals. Certain mortgage-related securities, such as GNMA securities, entitle the holder to receive such payments, regardless of whether or not the mortgagor makes loan payments; certain mortgage-related securities, such as FNMA securities, guarantee the timely payment of interest and principal; certain mortgage-related securities, such as FHLMC securities, guarantee the timely payment of interest and ultimate collection of principal; and certain mortgage-related securities contain no such guarantees but may offer higher rates of return. No mortgage-related securities guarantee the Fund's yield or the price of its shares. Each Fund expects its investments in mortgage-related securities to be primarily in high-grade mortgage-related securities either (a) issued by GNMA, FNMA or FHLMC or other United States Government owned or sponsored corporations or (b) rated A or better by S&P or Moody's, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. The Fund may invest in mortgage-related securities rated BBB or Baa by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be, when deemed by the Fund's investment adviser or sub-adviser to be consistent with the Fund's respective objective. To the extent that the Fund invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. Each Fund may also invest up to 10% of its assets in mortgage-related securities rated BB or Ba by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. See "Low Rated Securities," above. Mortgage Securities Fund may not invest more than 35% of its total assets in securities rated BBB or Baa or lower by S&P or Moody's, respectively. For further information about the characteristics and risks of mortgage-related securities, and for a description of the ratings used by Moody's and S&P, see Appendix A and B ("Mortgage-Related Securities" and "Bond and Commercial Paper Ratings") below. U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES A governmental (i.e., backed by the full faith and credit of the U.S. Government) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Government-related (i.e., not backed by the full faith and credit of the U.S. Government) guarantors include FNMA and FHLMC. FNMA is a government-sponsored corporation owned entirely by private stockholders. It is subject to general regulation by the Secretary of Housing and Urban Development. FNMA purchases residential mortgages from a list of approved seller/servicers which include state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. -9- FHLMC is a corporate instrumentality of the U.S. Government and was created by Congress in 1970 for the purpose of increasing the availability of mortgage credit for residential housing. Its stock is publicly traded. FHLMC issues Participation Certificates ("PCs") which represent interests in mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and principal on most PCs. There are some PCs, however, on which FHLMC guarantees the timely payment of interest but only the ultimate payment of principal. PCs are not backed by the full faith and credit of the U.S. Government. NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES Mortgage Securities Fund, Bond Fund and Spectrum Fund may invest in non-governmental mortgage-related securities. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential and commercial mortgage loans. Such issuers may in addition be the originators and servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payments in the former pools. However, timely payment of interest and principal of these pools is supported by various forms of insurance, guarantees and credit enhancements, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Fund's investment quality standards. There can be no assurance that the private insurers can meet their obligations under the policies. The Fund may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers the Fund's investment adviser determines that the securities meet the Fund's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. The Fund will not purchase mortgage-related securities or any other assets which in its investment adviser's opinion are illiquid if, as a result, more than 15% of the value of the Fund's net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in collateralized mortgage obligations ("CMOs"), in which several different series of bonds or certificates secured by pools of mortgage-backed securities or mortgage loans, are issued. The series differ from each other in terms of the priority rights which each has to receive cash flows with the CMO from the underlying collateral. Each CMO series may also be issued in multiple classes. Each class of a CMO series, often referred to as a "tranche," is usually issued at a specific coupon rate and has a stated maturity. The underlying security for the CMO may consist of mortgage-backed securities issued or guaranteed by U.S. Government agencies or whole loans. CMOs backed by U.S. Government agency securities retain the credit quality of such agency securities and therefore present minimal credit risk. CMOs backed by whole loans typically carry various forms of credit enhancements to protect against credit losses and provide investment grade ratings. Unlike traditional mortgage pass-through securities, which simply pass through interest and principal on a pro rata basis as received, CMOs allocate the principal and interest from the underlying mortgages among the several classes or tranches of the CMO in many ways. All residential, and some commercial, mortgage-related securities are subject to prepayment risk. A CMO does not eliminate that risk, but, by establishing an order of priority among the various tranches for the receipt and timing of principal payments, it can reallocate that risk among the tranches. Therefore, the stream of payments received by a CMO bondholder may differ dramatically from that received by an investor holding a traditional pass-through security backed by the same collateral. -10- In the traditional form of CMO, interest is paid currently on all tranches but principal payments are applied sequentially to retire each tranche in order of stated maturity. Traditional sequential payment CMOs have evolved into numerous more flexible forms of CMO structures which can vary frequency of payments, maturities, prepayment risk and performance characteristics. The differences between these new types of CMOs relate primarily to the manner in which each varies the amount and timing of principal and interest received by each tranche from the underlying collateral. Under all but the sequential payment structures, specific tranches of CMOs have priority rights over other tranches with respect to the amount and timing of cash flow from the underlying mortgages. The primary risk associated with any mortgage security is the uncertainty of the timing of cash flows; specifically, uncertainty about the possibility of either the receipt of unanticipated principal in falling interest rate environments (prepayment or call risk) or the failure to receive anticipated principal in rising interest rate environments (extension risk). In a CMO, that uncertainty may be allocated to a greater or lesser degree to specific tranches depending on the relative cash flow priorities of those tranches. By establishing priority rights to receive and reallocate payments of prepaid principal, the higher priority tranches are able to offer better call protection and extension protection relative to the lower priority classes in the same CMO. For example, when insufficient principal is received to make scheduled principal payments on all tranches, the higher priority tranches receive their scheduled premium payments first and thus bear less extension risk than lower priority tranches. Conversely, when principal is received in excess of scheduled principal payments on all tranches (call risk), the lower priority tranches are required to receive such excess principal until they are retired and thus bear greater prepayment risk than the higher priority tranches. Therefore, depending on the type of CMO purchased, an investment may be subject to a greater or lesser risk of prepayment, and experience a greater or lesser volatility in average life, yield, duration and price, than other types of mortgage-related securities. A CMO tranche may also have a coupon rate which resets periodically at a specified increment over an index. These floating rate CMOs are typically issued with lifetime caps on the level to which the floating coupon rate is allowed to rise. The Fund may invest in such securities, usually subject to a cap, provided such securities satisfy the same requirements regarding cash flow priority applicable to the Fund's purchase of CMOs generally. CMOs are typically traded over the counter rather than on centralized exchanges. Because CMOs of the type purchased by the Fund tend to have relatively more predictable yields and are relatively less volatile, they are also generally more liquid than CMOs with greater prepayment risk and more volatile performance profiles. Spectrum Fund, Bond Fund and Mortgage Securities Fund may also purchase CMOs known as "accrual" or "Z" bonds. An accrual or Z bond holder is not entitled to receive cash payments until one or more other classes of the CMO have been paid in full from payments on the mortgage loans underlying the CMO. During the period in which cash payments are not being made on the Z tranche, interest accrues on the Z tranche at a stated rate, and this accrued interest is added to the amount of principal which is due to the holder of the Z tranche. After the other classes have been paid in full, cash payments are made on the Z tranche until its principal (including previously accrued interest which was added to principal, as described above) and accrued interest at the stated rate have been paid in full. Generally, the date upon which cash payments begin to be made on a Z tranche depends on the rate at which the mortgage loans underlying the CMO are prepaid, with a faster prepayment rate resulting in an earlier commencement of cash payments on the Z tranche. Like a zero coupon bond, during its accrual period the Z tranche of a CMO has the advantage of eliminating the risk of reinvesting interest payments at lower rates during a period of declining market interest rates. At the same time, however, and also like a zero coupon bond, the market value of a Z tranche can be expected to fluctuate more widely with changes in market interest rates than would the market value of a tranche which pays interest currently. Changes in market interest rates also can be expected to influence prepayment rates on the mortgage loans underlying the CMO of which a Z tranche is a part. As noted above, such changes in prepayment rates will affect the date at which cash payments begin to be made on a Z tranche, and therefore also will influence its market value. As an operating policy, Spectrum Fund, Mortgage Securities Fund and Bond Fund will not purchase a Z bond if the respective Fund's aggregate investment in Z bonds which are then still in their accrual periods would exceed 20% of the Fund's total assets (Z bonds which have begun to receive cash payments are not included for purposes of this 20% limitation). -11- Spectrum Fund, Bond Fund and Mortgage Securities Fund may also invest in inverse or reverse floating CMOs. Inverse or reverse floating CMOs constitute a tranche of a CMO with a coupon rate that moves in the reverse direction to an applicable index. Accordingly, the coupon rate will increase as interest rates decrease. The Fund would be adversely affected, however, by the purchase of such CMOs in the event of an increase in interest rates since the coupon rate will decrease as interest rates increase, and, like other mortgage-related securities, the value will decrease as interest rates increase. Inverse or reverse floating rate CMOs are typically more volatile than fixed or floating rate tranches of CMOs, and usually carry a lower cash flow priority. As an operating policy, Spectrum Fund, Bond Fund and Mortgage Securities Fund will treat inverse floating rate CMOs as illiquid and, therefore, will limit its investments in such securities, together with all other illiquid securities, to 15% of such Fund's net assets. STRIPPED MORTGAGE-BACKED SECURITIES Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in stripped mortgage-backed securities. Stripped mortgage-backed securities represent undivided ownership interests in a pool of mortgages, the cash flow of which has been separated into its interest and principal components. "IOs" (interest only securities) receive the interest portion of the cash flow while "POs" (principal only securities) receive the principal portion. Stripped mortgage-backed securities may be issued by U.S. Government agencies or by private issuers. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates, unlike other mortgage-backed securities (which tend to move in the opposite direction compared to interest rates). Under the Internal Revenue Code of 1986, as amended, POs may generate taxable income from the current accrual of original issue discount, without a corresponding distribution of cash to the Fund. The cash flows and yields on standard IO and PO classes are extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets. For example, a rapid or slow rate of principal payments may have a material adverse effect on the performance and prices of IOs or POs, respectively. If the underlying mortgage assets experience greater than anticipated prepayments of principal, an investor may fail to recoup fully its initial investment in an IO class of a stripped mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived from a full faith and credit obligation (i.e., a GNMA). Conversely, if the underlying mortgage assets experience slower than anticipated prepayments of principal, the price on a PO class will be affected more severely than would be the case with a traditional mortgage-backed security, but unlike IOs, an investor will eventually recoup fully its initial investment provided no default of the guarantor occurs. As an operating policy, the Fund will limit its investments in IOs and POs to 15% of the Fund's net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Fund's net assets) except to the extent such securities are deemed liquid by the Fund's adviser in accordance with standards established by the Fund's Board of Directors. See "Restricted and Illiquid Securities" below. ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES Bond Fund, Spectrum Fund and Mortgage Securities Fund may invest in asset-backed securities rated within the four highest grades assigned by Moody's or S&P, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser. Asset-backed securities usually represent interests in pools of consumer loans (typically trade, credit card or automobile receivables). The credit quality of most asset-backed securities depends primarily on the credit quality of the assets underlying such securities, how well the entity issuing the security is insulated from the credit risk of the originator or any other affiliated entities, the quality of the servicing of the receivables, and the amount and quality of any credit support provided to the securities. The rate of principal payment on asset-backed securities may depend on the rate of principal payments received on the underlying assets which in turn may be affected by a variety of economic and other factors. As a result, the yield on any asset-backed security may be difficult to predict with precision and actual yield to maturity may be more or less than the anticipated yield to maturity. Some asset-backed transactions are structured with a "revolving period" during which the principal balance of the asset-backed security is maintained at a fixed level, followed by a period of rapid repayment. This structure is intended to insulate holders of the asset-backed security from prepayment risk to a significant extent. Asset-backed securities may be classified as pass-through certificates or collateralized obligations. -12- Pass-through certificates are asset-backed securities which represent an undivided fractional ownership interest in an underlying pool of assets. Pass-through certificates usually provide for payments of principal and interest received to be passed through to their holders, usually after deduction for certain costs and expenses incurred in administering the pool. Because pass-through certificates represent an ownership interest in the underlying assets, the holders thereof bear directly the risk of any defaults by the obligors on the underlying assets not covered by any credit support. Asset-backed securities issued in the form of debt instruments, also known as collateralized obligations, are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. The assets collateralizing such asset-backed securities are pledged to a trustee or custodian for the benefit of the holders thereof. Such issuers generally hold no assets other than those underlying the asset-backed securities and any credit support provided. As a result, although payments on such asset-backed securities are obligations of the issuers, in the event of defaults on the underlying assets not covered by any credit support, the issuing entities are unlikely to have sufficient assets to satisfy their obligations on the related asset-backed securities. To lessen the effect of failures by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two classes: liquidity protection and protection against ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the underlying pool are made in a timely fashion. Protection against ultimate default ensures ultimate payment of the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction or through a combination of such approaches. Asset-backed securities may be stripped to create interest-only and principal-only securities in the same manner as mortgage-backed securities. See "Stripped Mortgage-Backed Securities," above. The value of asset-backed IOs also tends to move in the same direction as changes in interest rates, unlike other asset-backed (or mortgage-backed) securities, which tend to move in the opposite direction compared to interest rates. As with stripped mortgage-backed securities, the cash flows and yields on asset-backed IOs and POs are also extremely sensitive to the rate of principal payments on the related underlying assets. See "Stripped Mortgage-Backed Securities," above. As an operating policy, the Fund will limit its investment in IOs and POs to 15% of the Fund's net assets, and will treat them as illiquid securities (which, in the aggregate, may not exceed 15% of each Fund's net assets) except to the extent such securities are deemed liquid by the Fund's adviser in accordance with standards established by the Fund's Board of Directors. See "Restricted and Illiquid Securities" below. DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS Mortgage Securities Fund, Bond Fund and Spectrum Fund may invest up to 10% of the value of its net assets directly in mortgages securing residential or commercial real estate (i.e., the Fund becomes the mortgagee). Such investments are not "mortgage-related securities" as described above. They are normally available from lending institutions which group together a number of mortgages for resale (usually from 10 to 50 mortgages) and which act as servicing agent for the purchaser with respect to, among other things, the receipt of principal and interest payments. (Such investments are also referred to as "whole loans".) The vendor of such mortgages receives a fee from the Fund for acting as servicing agent. The vendor does not provide any insurance or guarantees covering the repayment of principal or interest on the mortgages. Unlike pass-through securities, whole loans constitute direct investment in mortgages inasmuch as the Fund, rather than a financial intermediary, becomes the mortgagee with respect to such loans purchased by the Fund. At present, such investments are considered to be illiquid by the Fund's investment adviser. The Fund will invest in such mortgages only if its investment adviser has determined through an examination of the mortgage loans and their originators (which may include an examination of such factors as percentage of family income dedicated to loan service and the relationship between loan value and market value) that the purchase of the mortgages should not represent a significant risk of loss to the Fund. -13- FOREIGN SECURITIES Spectrum Fund may invest up to 10% of the market value of its total assets in securities of foreign issuers which are not traded in the U.S. (Securities of foreign issuers which are U.S. dollar denominated and issued and publicly traded in the U.S., usually in the form of sponsored American Depositary Receipts (ADRs), are not considered foreign securities for this purpose and are not subject to this 10% limitation. Spectrum Fund may not, however, invest more than 10% of its total assets in ADRs.) Bond Fund and Mortgage Securities Fund may each invest up to 10% of its total assets in foreign securities. Such securities are typically publicly traded but may in some cases be issued as private placements (each Fund will treat private placement securities as illiquid securities which, when aggregated with all other illiquid securities, may not exceed 15% of the Fund's net assets). In addition, International Fund may invest in foreign securities without limitation. Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. The Fund may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories. The countries of the European Monetary Union (EMU) began the process of converting their individual country currencies to the Euro on January 1, 1999. There is also a risk that the value of foreign securities of companies located in EMU countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Fund. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Fund holds non-U.S. dollar (Euro or other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. Furthermore, International Fund may invest in securities issued by governments, governmental agencies and companies located in developing market countries. The Fund considers countries having developing markets to be all countries that are generally considered to be developing or emerging countries by the International Bank for Reconstruction and Development (more commonly referred to as the World Bank) and the International Finance Corporation, as well as countries that are classified by the United Nations or otherwise regarded by their authorities as developing. Currently, the countries not included in this category are Ireland, Spain, New Zealand, Australia, the United Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany, Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland. In addition, developing market securities means (i) securities of companies the principal securities trading market for which is a developing market country, as defined above, (ii) securities, traded in any market, of companies that derive 50% or more of their total revenue from either goods or services produced in such developing market countries or sales made in such developing market countries or (iii) securities of companies organized under the laws of, and with a principal office in, a developing market country. International Fund will at all times, except during temporary defensive periods, maintain investments in at least three countries having developing markets. -14- An American Depositary Receipt ("ADR") is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. An ADR is sponsored if the original issuing company has selected a single U.S. bank to serve as its U.S. depositary and transfer agent. This relationship requires a deposit agreement which defines the rights and duties of both the issuer and depositary. Companies that sponsor ADRs must also provide their ADR investors with English translations of company information made public in their own domiciled country. Sponsored ADR investors also generally have the same voting rights as ordinary shareholders, barring any unusual circumstances. ADRs which meet these requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are created at the initiative of a broker or bank reacting to demand for a specific foreign stock. The broker or bank purchases the underlying shares and deposits them in a depositary. Unsponsored shares issued after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they do not generally include voting rights. In addition, International Fund may invest in European Depositary Receipts, which are receipts evidencing an arrangement with a European bank similar to that for ADRs and which are designed for use in the European securities markets. European Depository Receipts are not necessarily denominated in the currency of the underlying security. INVESTMENTS IN RUSSIA International Fund may invest in securities of Russian companies, which involves risks and special considerations not typically associated with investing in United States securities markets. Since the breakup of the Soviet Union at the end of 1991, Russia has experienced dramatic political and social change. The political system in Russia is emerging from a long history of extensive state involvement in economic affairs. The country is undergoing a rapid transition from a centrally-controlled command system to a market-oriented, democratic model. The Fund may be affected unfavorably by political or diplomatic developments, social instability, changes in government policies, taxation and interest rates, currency repatriation restrictions and other political and economic developments in the law or regulations in Russia and, in particular, the risks of expropriation, nationalization and confiscation of assets and changes in legislation relating to foreign ownership. The planned economy of the former Soviet Union was run with qualitatively different objectives and assumptions from those prevalent in a market system and Russian businesses do not have any recent history of operating within a market-oriented economy. In general, relative to companies operating in Western economies, companies in Russian are characterized by a lack of: (i) management with experience of operating in a market economy; (ii) modern technology; and, (iii) a sufficient capital base with which to develop and expand their operations. It is unclear what will be the future effect on Russian companies, if any, of Russia's continued attempts to move toward a more market-oriented economy. Russia's economy has experienced severe economic recession, if not depression, since 1990 during which time the economy has been characterized by high rates of inflation, high rates of unemployment, declining gross domestic product, deficit government spending, and a devaluing currency. The economic reform program has involved major disruptions and dislocations in various sectors of the economy, and those problems have been exacerbated by growing liquidity problems. Further, Russia presently receives significant financial assistance from a number of countries through various programs. To the extent these programs are reduced or eliminated in the future, Russian economic development may be adversely impacted. -15- The Russian securities markets are substantially smaller, less liquid and significantly more volatile than the securities markets in the United States. In addition, there is little historical data on these securities markets because they are of recent origin. A substantial proportion of securities transactions in Russia are privately negotiated outside of stock exchanges and over-the-counter markets. A limited number of issuers represent a disproportionately large percentage of market capitalization and trading volume. Although evolving rapidly, even the largest of Russia's stock exchanges are not well developed compared to Western stock exchanges. The actual volume of exchange-based trading in Russia is low and active on-market trading generally occurs only in the shares of a few private companies. Most secondary market trading of equity securities occurs through over-the-counter trading facilitated by a growing number of licensed brokers. Shares are traded on the over-the-counter market primarily by the management of enterprises, investment funds, short-term speculators and foreign investors. The securities of Russian companies are mostly traded over-the-counter and, despite the large number of stock exchanges, there is still no organized public market for such securities. This may increase the difficulty of valuing the Fund's investments. No established secondary markets may exist for many of the securities in which the Fund may invest. Reduced secondary market liquidity may have an adverse effect on market price and the Fund's ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations are generally available on many emerging country securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. Because of the recent formation of the securities markets as well as the underdeveloped state of the banking and telecommunications systems, settlement, clearing and registration transactions are subject to significant risks not normally associated with investments in the United States and other more developed markets. Ownership of shares (except where shares are held through depositories that meet the requirements of the 1940 Act) is defined according to entries in the company's share register and normally evidenced by extracts from the register or in certain limited cases by formal share certificates. However, there is not a central registration system and these services are carried out by the companies themselves or by registrars located throughout Russia. These registrars are not necessarily subject to effective state supervision and its possible for the Fund to lose its registration through fraud, negligence and even mere oversight. The laws and regulations in Russia affecting Western investment business continue to evolve in an unpredictable manner. Russian laws and regulations, particularly those involving taxation, foreign investment and trade, title to property or securities, and transfer of title, applicable to the Fund's activities are relatively new and can change quickly and unpredictably in a manner far more volatile than in the United States or other developed market economies. Although basic commercial laws are in place, they are often unclear or contradictory and subject to varying interpretation, and may at any time be amended, modified, repealed or replaced in a manner adverse to the interest of the Fund. There is still lacking a cohesive body of law and precedents normally encountered in business environments. Foreign investment in Russian companies is, in certain cases, legally restricted. Sometimes these restrictions are contained in constitutional documents of an enterprise which are not publicly available. Russian foreign investment legislation currently guarantees the right of foreign investors to transfer abroad income received on investments such as profits, dividends and interest payments. This right is subject to settlement of all applicable taxes and duties. However, more recent legislation governing currency regulation and control guarantees the right to export interest, dividends and other income on investments, but does not expressly permit the repatriation of capital from the realization of investments. Current practice is to recognize the right to repatriation of capital. Authorities currently do not attempt to restrict repatriation beyond the extent of the earlier law. No guarantee can be made, however, that amounts representing realization of capital of income will be capable of being remitted. If, for any reason, the Fund were unable to distribute an amount equal to substantially all of its investment company taxable income (as defined for U.S. tax purposes) within applicable time periods, the Fund would not qualify for the favorable U.S. federal income tax treatment afforded to regulated investment companies, or, even if it did so qualify, it might become liable for income and excise taxes on undistributed income. -16- Russian courts lack experience in commercial dispute resolution and many of the procedural remedies for enforcement and protection of legal rights typically found in Western jurisdictions are not available in Russia. There remains uncertainty as to the extent to which local parties and entities, including Russian state authorities, will recognize the contractual and other rights of the parties with which they deal. Accordingly, there will be difficulty and uncertainty in the Fund's ability to protect and enforce its rights against Russian state and private entities. There is also no assurance that the Russian courts will recognize or acknowledge that the Fund has acquired title to any property or securities in which the Fund invests, or that the Fund is the owner of any property or security held in the name of a nominee which has acquired such property or security on behalf of the Fund, because there is at present in Russia no reliable system or legal framework regarding the registration of titles. There can be no assurance that this difficulty in protecting and enforcing rights in Russia will not have a material adverse effect on the Fund and its operations. Difficulties are likely to be encountered enforcing judgments of foreign courts within Russia or of Russian courts in foreign jurisdictions due to the limited number of countries which have signed treaties for mutual recognition of court judgments with Russia. CURRENCY EXCHANGE TRANSACTIONS SPOT EXCHANGE TRANSACTIONS. International Fund usually effects currency exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing in the foreign exchange market. However, some price spread on currency exchange will be incurred when the Fund converts assets from one currency to another. Further, the Fund may be affected either unfavorably or favorably by fluctuations in the relative rates of exchange between the currencies of different nations. For example, in order to realize the value of a foreign investment, the Fund must convert that value, as denominated in its foreign currency, into U.S. dollars using the applicable currency exchange rate. The exchange rate represents the current price of a U.S. dollar relative to that foreign currency; that is, the amount of such foreign currency required to buy one U.S. dollar. If the Fund holds a foreign security which has appreciated in value as measured in the foreign currency, the level of appreciation actually realized by the Fund may be reduced or even eliminated if the foreign currency has decreased in value relative to the U.S. dollar subsequent to the date of purchase. In such a circumstance, the cost of a U.S. dollar purchased with that foreign currency has gone up and the same amount of foreign currency purchases fewer dollars than at an earlier date. FORWARD EXCHANGE CONTRACTS. International Fund also has the authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which such Portfolios may invest for speculative purposes. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. These forward foreign currency exchange contracts may involve the sale of U.S. dollars and the purchase of a foreign currency, or may be foreign cross-currency contracts involving the sale of one foreign currency and the purchase of another foreign currency (such foreign cross-currency contracts may be considered a hedging rather than a speculative strategy if the Fund's commitment to purchase the new (more favorable) currency is limited to the market value of the Fund's securities denominated in the old (less favorable) currency - see "Foreign Currency Hedging Transactions," below). Because these transactions are not entered into for hedging purposes, the Fund's custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase currency on a forward basis. The prediction of currency movements is extremely difficult and the successful execution of a speculative strategy is highly uncertain. FOREIGN CURRENCY HEDGING TRANSACTIONS FORWARD EXCHANGE CONTRACTS. International Fund has authority to deal in forward foreign currency exchange contracts between currencies of the different countries in which the Fund will invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and prices set at the time of the contract. Forward exchange contracts are individually negotiated and privately traded by currency traders and their customers. The Fund's dealings in forward foreign exchange contracts entered into for the purpose of hedging will be limited to hedging involving specific transactions, portfolio positions or foreign cross-currency hedging. Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Fund arising from the purchase and sale of portfolio securities, the sale and redemption of shares of the Fund, or the payment of dividends and distributions by the Fund. (An example of a transaction hedge is when the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the price of the security in a particular currency). Position hedging is the sale of forward foreign exchange contracts into U.S. dollars with respect to portfolio security positions denominated or quoted in such foreign currency. (An example of a position hedge is if the Fund's sub-adviser believes that a foreign currency - for example the Japanese yen - may suffer a decline against another currency - for example the U.S. dollar - it may enter into a forward sale contract to sell an amount of the foreign currency expected to decline - the Japanese yen - that approximates the value of some or all of the Fund's investment securities denominated in the Japanese yen). Foreign cross-currency hedging occurs when the Fund's investment sub-adviser believes a particular foreign currency may enjoy a substantial movement against another foreign currency and the sub-adviser decides to enter into a forward contract to sell the less favorable foreign currency in which certain Fund securities are denominated and to buy the more favorable foreign currency in an amount not to exceed the total market value of the Fund's securities denominated in the less favorable currency. The prediction of short-term currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. -17- It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Fund is obligated to deliver. If the Fund retains the portfolio security and engages in an offsetting transaction, the Fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Fund entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. CURRENCY FUTURES CONTRACTS. International Fund may also enter into exchange-traded contracts for the purchase or sale for future delivery of foreign currencies ("foreign currency futures"). This investment technique will be used only to hedge against anticipated future changes in exchange rates which otherwise might adversely affect the value of the Fund's portfolio securities or adversely affect the prices of securities that the Fund intends to purchase at a later date. The successful use of foreign currency futures will usually depend on the ability of the Fund's investment sub-adviser to forecast currency exchange rate movements correctly. Should exchange rates move in an unexpected manner, the Fund may not achieve the anticipated benefits of foreign currency futures or may realize losses. CLOSED-END INVESTMENT COMPANIES Some countries, such as South Korea, Chile and India, have authorized the formation of closed-end investment companies to facilitate indirect foreign investment in their capital markets. In accordance with the Investment Company Act of 1940, International Fund may invest up to 10% of its total assets in securities of closed-end investment companies. This restriction on investments in securities of closed-end investment companies may limit opportunities for the International Fund to invest indirectly in certain developing markets. Shares of certain closed-end investment companies may at times be acquired only at market prices representing premiums to their net asset values. If the International Fund acquires shares of closed-end investment companies, shareholders would bear both their proportionate share of expenses of the International Fund (including management and advisory fees) and, indirectly, the expenses of such closed-end investment companies. REAL ESTATE INVESTMENT TRUST SECURITIES Spectrum Fund may invest in securities issued by real estate investment trusts. A real estate investment trust ("REIT") is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), and must distribute to shareholders annually 95% or more of its taxable income. Moreover, at the end of each quarter of its taxable year, at least 75% of the value of its total assets must be represented by real estate assets, cash and cash items and U.S. government securities. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Fund investments in REITs will consist of equity REITs. -18- LOANS OF PORTFOLIO SECURITIES For the purpose of realizing additional income, Spectrum Fund, Mortgage Securities Fund, Money Market Fund, Bond Fund and International Fund may make secured loans of portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Fund assets, however, for purposes of compliance with any requirement described in a Fund's prospectus that the Fund invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). Securities loans are made to broker-dealers or financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent. The collateral received will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Fund does not expect to pay commissions or other front-end fees (including finders fees) in connection with loans of securities (but in some cases may do so), a portion of the additional income realized will be shared with the Fund's custodian for arranging and administering such loans. The Fund has a right to call each loan and obtain the securities on five business days' notice. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by the Fund's investment adviser or sub-adviser to be of good standing and to have sufficient financial responsibility, and will not be made unless, in the judgment of the Fund's investment adviser or sub-adviser, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Fund makes loans of portfolio securities is monitored by the Fund's investment adviser or sub-adviser throughout the term of each loan. Deutsche Bank AG acts as the securities lending agent on behalf of the International Fund. It has obtained an SEC exemptive order through its affiliate, Bankers Trust Company, which allows securities lending cash collateral to be invested in a single money market fund (affiliated with Deutsche Bank and Bankers Trust Company) in amounts which are not subject to the limits of sections 12(d)(1)(A) and 12(d)(1)(B) of the Investment Company Act of 1940. The effect of this is that up to one-third of the total assets of the International Fund can be invested in such a money market fund in connection with the securities lending program. RESTRICTED AND ILLIQUID SECURITIES Each Fund may invest up to 15% (10% in the case of Money Market Fund) of its net assets in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, the Fund may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. The Fund may be required to bear the expenses of registration of such restricted securities. The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Fund's investment adviser and sub-adviser believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and for certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. Each of the Funds may invest without limitation in these forms of restricted securities if such securities are deemed by the Fund's investment adviser or sub-adviser to be liquid in accordance with standards established by the Fund's Board of Directors. Under these guidelines, the Fund's investment adviser or sub-adviser must consider (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of the Fund's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. -19- If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Fund is in a position where more than 15% (10% in the case of Money Market Fund) of its net assets are invested in restricted and other illiquid securities, the Fund will take appropriate steps to protect liquidity. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Mortgage Securities Fund, Spectrum Fund, Bond Fund and International Fund may each purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by the Fund and settlement, no payment is made for the securities purchased by the Fund and, thus, no interest accrues to the Fund from the transaction. The use of when-issued transactions and forward commitments enables the Fund to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Fund anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of the Fund's investment adviser or sub-adviser to correctly anticipate increases and decreases in interest rates and prices of securities. If the Fund's investment adviser or sub-adviser anticipates a rise in interest rates and a decline in prices and, accordingly, the Fund sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Fund will have lost the opportunity to profit from the price increase. If the investment adviser or sub-adviser anticipates a decline in interest rates and a rise in prices, and, accordingly, the Fund sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Fund will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this hedging strategy, whether the Fund's investment adviser or sub-adviser is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in the Fund's net asset value. When-issued securities and forward commitments may be sold prior to the settlement date, but, except for mortgage dollar roll transactions (as discussed below), the Fund enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. The Fund may hold a when-issued security or forward commitment until the settlement date, even if the Fund will incur a loss upon settlement. To facilitate transactions in when-issued securities and forward commitments, the Fund's custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Fund, the portfolio securities themselves. If the Fund, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or loss. (At the time the Fund makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.) -20- The Fund may also enter into such transactions to generate incremental income. In some instances, the third-party seller of when-issued or forward commitment securities may determine prior to the settlement date that it will be unable or unwilling to meet its existing transaction commitments without borrowing securities. If advantageous from a yield perspective, the Fund may, in that event, agree to resell its purchase commitment to the third-party seller at the current market price on the date of sale and concurrently enter into another purchase commitment for such securities at a later date. As an inducement for the Fund to "roll over" its purchase commitment, the Fund may receive a negotiated fee. These transactions, referred to as "mortgage dollar rolls," are entered into without the intention of actually acquiring securities. For a description of mortgage dollar rolls and the Funds that may invest in such transactions, see "Mortgage Dollar Rolls" below. The purchase of securities on a when-issued or forward commitment basis exposes the Fund to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. The Fund's purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Fund's assets that are subject to market risk to an amount that is greater than the Fund's net asset value, which could result in increased volatility of the price of the Fund's shares. No more than 30% of the value of such Fund's (other than International Fund's) total assets will be committed to when-issued or forward commitment transactions, and of such 30%, no more than two-thirds (i.e., 20% of its total assets) may be invested in mortgage dollar rolls. No more than 20% of the value of International Fund's total assets will be committed to when-issued or forward commitment transactions. MORTGAGE DOLLAR ROLLS In connection with its ability to purchase securities on a when-issued or forward commitment basis, Spectrum Fund, Bond Fund and Mortgage Securities Fund may enter into mortgage "dollar rolls" in which the Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. In a mortgage dollar roll, the Fund gives up the right to receive principal and interest paid on the securities sold. However, the Fund would benefit to the extent of any difference between the price received for the securities sold and the lower forward price for the future purchase plus any fee income received. Unless such benefits exceed the income, capital appreciation and gain or loss due to mortgage prepayments that would have been realized on the securities sold as part of the mortgage dollar roll, the use of this technique will diminish the investment performance of the Fund compared with what such performance would have been without the use of mortgage dollar rolls. The Fund will hold and maintain in a segregated account until the settlement date cash or liquid securities in an amount equal to the forward purchase price. The benefits derived from the use of mortgage dollar rolls may depend upon the ability of the Fund's investment adviser to predict correctly mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. In addition, the use of mortgage dollar rolls by the Fund while remaining substantially fully invested increases the amount of the Fund's assets that are subject to market risk to an amount that is greater than the Fund's net asset value, which could result in increased volatility of the price of the Fund's shares. For financial reporting and tax purposes, mortgage dollar rolls are considered as two separate transactions: one involving the sale of a security and a separate transaction involving a purchase. The Funds do not currently intend to enter into mortgage dollar rolls that are accounted for as a "financing" rather than as a separate sale and purchase transactions. -21- REPURCHASE AGREEMENTS Spectrum Fund, Money Market Fund, Bond Fund and International Fund may enter into repurchase agreements. Repurchase agreements are agreements by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a member bank of the Federal Reserve System or, if permitted by law or regulation and if the Board of Directors of the Fund has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom the Fund enters into repurchase agreements is monitored by the Fund's investment adviser or sub-adviser throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash. The Fund's custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the Fund promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. REVERSE REPURCHASE AGREEMENTS Spectrum Fund and Money Market Fund may also enter into reverse repurchase agreements. Reverse repurchase agreements are the counterparts of repurchase agreements, by which the Fund sells a security and agrees to repurchase the security from the buyer at an agreed upon price and future date. Because certain of the incidents of ownership of the security are retained by the Fund, reverse repurchase agreements may be considered a form of borrowing by the Fund from the buyer, collateralized by the security. The Fund uses the proceeds of a reverse repurchase agreement to purchase other money market securities either maturing, or under an agreement to resell, at a date simultaneous with or prior to the expiration of the reverse repurchase agreement. The Fund utilizes reverse repurchase agreements when the interest income to be earned from investment of the proceeds of the reverse repurchase transaction exceeds the interest expense of the transaction. -22- The use of reverse repurchase agreements by the Fund allows it to leverage its portfolio. While leveraging offers the potential for increased yield, it magnifies the risks associated with the Fund's investments and reduces the stability of the Fund's net asset value per share. To limit this risk, the Fund will not enter into a reverse repurchase agreement if all such transactions, together with any money borrowed, exceed 5% of the Fund's net assets. In addition, when entering into reverse repurchase agreements, the Fund will deposit and maintain in a segregated account with its custodian liquid assets, such as cash or cash equivalents and other appropriate short-term securities and high grade debt obligations, in an amount equal to the repurchase price (which shall include the interest expense of the transaction). Moreover, the Money Market Fund will not enter into reverse repurchase agreements if and to the extent such transactions would, as determined by the Fund's investment adviser, materially increase the risk of a significant deviation in the Fund's net asset value per share. See "Money Market Fund Amortized Cost Method of Portfolio Valuation" below. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS FUTURES CONTRACTS. Consistent with their investment objectives and strategies, the Funds may enter into interest rate futures contracts, stock index futures contracts and foreign currency futures contracts. (Unless otherwise specified, interest rate futures contracts, stock index futures contracts and foreign currency futures contracts are collectively referred to as "futures contracts.") A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract's closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be "exercised" at any other time during their term. Interest rate futures contracts currently are traded on a variety of fixed income securities, including long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association modified pass-through mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate futures contracts include contracts on indexes of municipal securities. Foreign currency futures contracts currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits. Stock index futures contracts include contracts on the S&P 500 Index and other broad-based stock market indexes, as well as contracts based on narrower market indexes or indexes of securities of particular industry groups. A stock index assigns relative values to the common stocks included in the index and the index fluctuates with the value of the common stocks so included. The parties to a stock index futures contract agree to make a cash settlement on a specific future date in an amount determined by the value of the stock index on the last trading day of the contract. The amount is a specified dollar amount times the difference between the value of the index on the last trading day and the value on the day the contract was struck. -23- Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Fund's current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Fund's securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Fund's securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Fund. Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." Subsequent payments to and from the broker, referred to as "variation margin," are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as "marking to the market." U.S. futures contracts may be purchased or sold only on an exchange, known as a "contract market," designated by the Commodity Futures Trading Commission ("CFTC") for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. Futures contracts may also be traded on foreign exchanges. OPTIONS ON FUTURES CONTRACTS. The Funds also may purchase and sell put and call options on futures contracts and enter into closing transactions with respect to such options to terminate existing positions. The Funds may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. -24- A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. Options on futures contracts that are written or purchased by the Funds on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges. RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of futures contracts and options on futures contracts will expose the Funds to additional investment risks and transactions costs. Risks include: - - the risk that interest rates, securities prices or currency markets will not move in the direction that the Fund's investment adviser or sub-adviser anticipates; - - an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged; - - the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits; - - leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Fund's initial investment in that instrument; and - - the risk that the counterparty to an instrument will fail to perform its obligations. REGULATORY MATTERS. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Fund will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. The CFTC, a federal agency, regulates trading activity on the exchanges pursuant to the Commodity Exchange Act, as amended. The CFTC requires the registration of "commodity pool operators," defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company wishing to avoid commodity pool operator status use futures and options positions only (a) for "bona fide hedging purposes" (as defined in CFTC regulations) or (b) for other purposes so long as aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the investment company's portfolio. Any investment company wishing to claim the exclusion provided in Rule 4.5 must file a notice of eligibility with both the CFTC and the National Futures Association. Before engaging in transactions involving futures contracts, the Funds will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary. For examples of futures contracts and their tax treatment, see Appendix C to this Statement of Additional Information. OPTIONS Each Fund may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Fund will limit the total market value of -25- securities against which it may write call or put options to 20% of its total assets. In addition, no Fund will commit more than 5% of its total assets to premiums when purchasing put or call options. A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Fund writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Fund writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised. Funds may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Fund owns against a decline in price, the manager may purchase a put option on the underlying security; I.E., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Funds receive premiums from writing call or put options, which they retain whether or not the options are exercised. By writing a call option, a Fund might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Fund might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Fund purchases a put or call option, any loss to the Fund is limited to the premium paid for, and transaction costs paid in connection with, the option. OPTIONS ON SECURITIES. An option on a security provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by a Fund is "covered" if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian. A put option written by a Fund is "covered" if the Fund maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise -26- or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market. Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded. In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not. OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market. A Fund will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Fund's adviser or sub-adviser, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Funds will secure put options on stock indexes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The index underlying a stock option index may be a "broad-based" index, such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included. WARRANTS Spectrum Fund, Bond Fund and International Fund may invest in warrants. Warrants are instruments that allow investors to purchase underlying shares at a specified price (exercise price) at a given future date. The market price of a warrant is determined by market participants by the addition of two distinct components: (1) the price of the underlying shares less the warrant's exercise price, and (2) the warrant's premium that is attributed to volatility and leveraging power. Warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. It is not expected that Bond Fund will invest in common stocks or equity securities other than warrants, but it may retain for reasonable periods of time up to 5% of its total assets in common stocks acquired upon conversion of debt securities or preferred stocks or upon exercise of warrants. -27- WARRANTS WITH CASH EXTRACTIONS International Fund may also invest up to 5% of its assets in warrants used in conjunction with the cash extraction method. If an investor wishes to replicate an underlying share, the investor can use the warrant with cash extraction method by purchasing warrants and holding cash. The cash component would be determined by subtracting the market price of the warrant from the underlying share price. For example, ASSUME one share for company "Alpha" has a current share price of $40 and issued warrants can be converted one for one share at an exercise price of $31 exercisable two years from today. Also ASSUME that the market price of the warrant is $10 ($40 - $31 + $1) because investors are willing to pay a premium ($1) for previously stated reasons. If an investor wanted to replicate an underlying share by engaging in a warrant with cash extraction strategy, the amount of cash the investor would need to hold for every warrant would be $30 ($40 - $10 = $30). A warrant with cash extraction is, thus, simply a synthetically created quasi-convertible bond. If an underlying share issues no or a low dividend and has an associated warrant with a market price that is low relative to its share price, a warrant with cash extraction may provide attractive cash yields and minimize capital loss risk, provided the underlying share is also considered a worthy investment. For example, ASSUME Alpha's share is an attractive investment opportunity and its share pays no dividend. Given the information regarding Alpha provided above, also ASSUME that short-term cash currently yields 5% per year and that the investor plans to hold the investment at least two years, barring significant near-term capital appreciation. If the share price were to fall below $30, the warrant with cash extraction strategy would yield a lower loss than the underlying share because an investor cannot lose more than the purchase cost of the warrant (capital risk minimized). The cash component for this strategy would yield $3.08 after two years (compound interest). The total value of the underlying investment would be $43.08 versus $40.00 for the non-yielding underlying share (attractive yield). Finally, it is important to note that this strategy will not be pursued if it is not economically more attractive than underlying shares. INDEX DEPOSITARY RECEIPTS Spectrum Fund may invest up to 10% of its total assets in one or more types of depositary receipts ("DRs") as a means of tracking the performance of a designated stock index while maintaining liquidity. No more than 5% of a Fund's total assets may be invested in any one DR. The Fund may invest in S&P 500 Depositary Receipts ("SPDRs"), which track the S&P 500 Index; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track the Dow Jones Industrial Average, or in other DRs which track indexes, provided that such investments are consistent with the Fund's investment objective as determined by the Fund's investment adviser. Each of these securities represents shares of ownership of a long term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index. -28- DRs carry a price which equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by the Fund). Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of the Fund's assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments. SHORT SALES AGAINST THE BOX Each Fund may sell securities "short against the box." Whereas a short sale is the sale of a security the Fund does not own, a short sale is "against the box" if, at all times during which the short position is open, the Fund owns at least an equal amount of the securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Funds have no present intention to sell securities short in this fashion. DEFENSIVE PURPOSES The Funds may invest up to 20% of their respective net assets in cash or cash items. In addition, for temporary or defensive purposes, the Funds may invest in cash or cash items without limitation. The "cash items" in which the Funds may invest, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Fund; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); and other similar high-quality short-term United States dollar-denominated obligations. The other mutual funds in which the Funds may so invest include money market funds advised by the Fund's investment adviser. INVESTMENT RESTRICTIONS Each of the Funds is "diversified" as defined in the Investment Company Act of 1940. This means that at least 75% of the value of the Fund's total assets is represented by cash and cash items, government securities, securities of other investment companies, and securities of other issuers, which for purposes of this calculation, are limited in respect of any one issuer to an amount not greater in value than 5% of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer. -29- The Money Market Fund is also subject to the investment restrictions of Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), in addition to its other policies and restrictions discussed below. Pursuant to Rule 2a-7, the Fund is required to invest exclusively in securities that mature within 397 days from the date of purchase and to maintain an average weighted maturity of not more than 90 days. Rule 2a-7 also requires that all investments by the Fund be limited to United States dollar-denominated investments that (a) present "minimal credit risk" and (b) are at the time of acquisition "Eligible Securities." Eligible Securities include, among others, securities that are rated by two Nationally Recognized Statistical Rating Organizations ("NRSROs") in one of the two highest categories for short-term debt obligations, such as A-1 or A-2 by S&P, or Prime-1 or Prime-2 by Moody's. Rule 2a-7 also requires, among other things, that the Money Market Fund may not invest, other than in U.S. "Government securities" (as defined in the 1940 Act), (a) more than 5% of its total assets in Second Tier Securities (i.e., Eligible Securities that are not rated by two NRSROs in the highest category such as A-1 and Prime-1) and (b) more than the greater of 1% of its total assets or $1,000,000 in Second Tier Securities of any one issuer. The Fund's present practice is not to purchase any Second Tier Securities. In addition to the foregoing limitations, each Fund is subject to certain "fundamental" investment restrictions, described below, which may not be changed without the vote of a "majority" of the Fund's outstanding shares. As used in the applicable Prospectus and this Statement of Additional Information, "majority" means the lesser of (i) 67% of a Fund's outstanding shares present at a meeting of the holders if more than 50% of the outstanding shares are present in person or by proxy or (ii) more than 50% of a Fund's outstanding shares. Each Fund is also subject to certain other investment restrictions which are not fundamental and may be changed by vote of the Board of Directors without further shareholder approval. FUNDAMENTAL RESTRICTIONS 1. Policy Regarding Borrowing and the Issuance of Senior Securities. The Fund will not borrow money or issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. -30- 2. Policy Regarding Concentration in a Particular Industry. BOND FUND, INTERNATIONAL BALANCED FUND AND SPECTRUM FUND. The Fund will not concentrate its investments in a particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. MONEY MARKET FUND. The Fund will not concentrate its investments in a particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. In addition, this limitation does not apply to investments in domestic banks. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. MORTGAGE SECURITIES FUND. Under normal market conditions, the Fund will concentrate its investments in the mortgage and mortgage-finance industry. The Fund will not concentrate its investments in any other particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 3. Policy Regarding Investments in Real Estate. The Fund will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or interests therein or in securities of companies that deal in real estate or mortgages. 4. Policy Regarding Investments in Commodities. The Fund will not purchase physical commodities or contracts relating to physical commodities. 5. Policy Regarding Lending. The Fund may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 6. Policy Regarding Underwriting of Securities. The Fund will not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter, under the federal securities laws, in connection with the disposition of portfolio securities. NON-FUNDAMENTAL RESTRICTIONS 7. The Fund will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets. -31- 8. The Fund will use futures contracts and options on futures contracts only (a) for "bona fide hedging purposes" (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of liquidation value of the Fund's portfolio. 9. The Fund may mortgage, pledge or hypothecate its assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation. 10. The Fund may not make short sales of securities, other than short sales "against the box." 11. The Fund may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts. 12. The Fund will not invest more than 15% (10% in the case of Money Market Fund) of its net assets in illiquid securities. 13. The total market value of securities against which the Fund may write call or put options will not exceed 20% of the Fund's total assets. In addition, the Fund will not commit more than 5% of its total assets to premiums when purchasing put or call options. With respect to each of the Funds, any investment policy set forth under "Investing in the Funds - Investment Policies and Practices" in the Prospectus, under "Investment Objectives and Policies" above, or any restriction set forth above which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after an acquisition of securities or utilization of assets and results therefrom, or unless the Investment Company Act of 1940 provides otherwise. -32- PORTFOLIO TURNOVER Portfolio turnover is the ratio of the lesser of annual purchases or sales of portfolio securities to the average monthly value of portfolio securities, not including short-term securities. A 100% portfolio turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a particular year were equal to the average monthly value of the portfolio securities owned during such year. Spectrum Fund's objective and policies may cause the annual portfolio turnover rate to be higher than the average turnover rate of other investment companies. Accordingly, the Fund may have high brokerage and other costs. A portfolio turnover rate that exceeds 100% is considered high and will result in higher costs. For the fiscal years ended September 30, 2002, 2001, and 2000, the Fund's portfolio turnover rates were 129.0%, 158.4%, and, 132.0%, respectively. Mortgage Securities Fund's investment activities may result in the Fund's engaging in a considerable amount of trading of securities held for less than one year. Accordingly, it can be expected that the Fund will have a higher turnover rate, and thus a higher incidence of brokerage and other costs, than might be expected from investment companies which invest substantially all of their funds on a long-term basis. A portfolio turnover rate that exceeds 100% is considered high and will result in higher costs. For the fiscal years ended September 30, 2002, 2001, and 2000, the Fund's portfolio turnover rates were 98.5%, 55.2%, and 64.7%, respectively. Money Market Fund, consistent with its investment objective, attempts to maximize yield through portfolio trading. This may involve selling portfolio instruments and purchasing different instruments to take advantage of disparities of yields in different segments of the high grade money market or among particular instruments within the same segment of the market. As a result, the Fund may have significant portfolio turnover. There usually are no brokerage commissions paid by the Fund for such purchases since such securities are purchased on a net basis. Since securities with maturities of less than one year are excluded from required portfolio turnover rate calculations, the Fund's portfolio turnover rate for reporting purposes is zero. Bond Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Rate of portfolio turnover is not a limiting factor, however, and particular holdings may be sold at any time, if, in the opinion of the Fund's investment adviser, such a sale is advisable. A portfolio turnover rate that exceeds 100% is considered high and will result in higher costs. For the fiscal years ended September 30, 2002, 2001, and 2000, the Fund's portfolio turnover rates were 148.3%, 251.9%, and 191.4%, respectively. -33- International Fund also makes changes in its portfolio securities which are considered advisable in light of market conditions. The Fund does not emphasize short-term trading profits. For the fiscal years ended September 30, 2002, 2001, and 2000, International Fund's portfolio turnover rate was 47.8%, 35.6%, and 44.2%, respectively. DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other seven Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Funds are listed. None of the directors is a director of any public company ( a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUNDS NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS - --------------------------------------------------------------------------------------------------------- William N. Westhoff Director since Retired; prior to July 26, 2002, Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary Age: 56 Director and and Director, Advantus Capital Treasurer since Management, Inc.; Vice President, July 13, 1994 Minnesota Life Insurance Company; Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company - --------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - --------------------------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Age: 75 October 22, 1985 Treasurer of Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Age: 55 April 25, 2002 Research Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology Age: 66 October 22, 1985 at the University of Minnesota - --------------------------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS - --------------------------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Age: 50 July 25, 2002 Capital Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP February 2, 1985 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- --------------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Funds have both an Audit Committee and a Nominations Committee of the Board of Directors, the members of which are all directors who are not "interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott comprise the members of both committees. The Board of Directors also has a Dividend Declaration Committee, the sole member of which is Mr. Feuerherm. The function of the Audit Committee is to recommend the engagement of the Funds' independent auditor and oversee its activities. The Audit Committee also receives reports from the Internal Audit Department of Minnesota Life and from the Director of Compliance for Advantus Capital about compliance matters affecting the Funds. The Audit Committee met two (2) times during the last fiscal year. The Nominations Committee selects and recommends to the Board of Directors individuals for nomination as Independent Directors. The names of potential Independent Director candidates are drawn from a number of sources, including recommendations from management of Advantus Capital. Inasmuch as the Funds do not hold annual meetings of shareholders and meetings of shareholders occur only intermittently, the Nominations Committee does not at present consider nominees recommended by shareholders. The Nominations Committee met two (2) times during the last fiscal year. The function of the Dividend Declaration Committee is to oversee the distribution of the Funds' dividends and capital gains distributions. The Dividend Declaration Committee met four (4) times during the last fiscal year. The Directors owned shares in the Funds, and in all Advantus Funds for which they serve on the Board of Directors, in the following dollar ranges as of December 31, 2002:

AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL ADVANTUS FUNDS NAME OF DIRECTOR DOLLAR RANGE OF EQUITY SECURITIES IN OVERSEEN BY DIRECTOR ---------------- ------------------------------------ -------------------- MONEY BOND INTERNATIONAL MARKET MORTGAGE SPECTRUM ---- ------------- ----------------- ------------- -------- William N. Westhoff -- -- $10,001 - $50,000 Over $100,000 -- Over $100,000 Frederick P. Feuerherm -- -- -- -- -- $1 - $10,000 Ralph D. Ebbott -- -- -- -- -- None William C. Melton -- -- -- -- -- None Ellen S. Berscheid -- -- -- -- -- $1 - $10,000

-34- Legal fees and expenses are paid to the law firm of which Michael J. Radmer is a partner. No compensation is paid by any of the Funds to any of its officers or directors who is affiliated with Advantus Capital Management, Inc. ("Advantus Capital"). Each director of the Funds is also a director of the other seven investment companies of which Advantus Capital is the investment adviser (12 investment companies in total -- the "Fund Complex"). As of the date hereof, directors not affiliated with Advantus Capital receive compensation in connection with all such investment companies which, in the aggregate, is equal to $8,000 per year plus $2,000 per board meeting and committee meeting attended (and reimbursement of travel expenses to attend directors' meetings). The portion of such compensation borne by any Fund is a pro rata portion based on the ratio that such Fund's total net assets bears to the total net assets of the Fund Complex. During the fiscal year ended September 30, 2002, each Director not affiliated with Advantus Capital was compensated by the Funds in accordance with the following table:

Pension or Total Retirement Compensation Aggregate Benefits Estimated From Funds and Compensation Accrued as Annual Fund Complex from the Part of Fund Benefits Upon Paid to Name of Director Funds(1) Expenses Retirement Directors ---------------- -------- -------- ---------- --------- Ellen S. Berscheid $2,591 n/a n/a $ 20,000 Ralph D. Ebbott $2,591 n/a n/a $ 20,000 William C. Melton $1,037 n/a n/a $ 10,000

(1) During the fiscal year ended September 30, 2002, Ms. Berscheid and Mr. Ebbott received $636 from Spectrum Fund, $724 from Mortgage Securities Fund, $410 from Money Market Fund, $375 from Bond Fund, and $447 from International Fund. During the same period, Mr. Melton, who was elected a Director on April 25, 2002, received $150 from Bond Fund, $179 from International Fund, $164 from Money Market Fund, $290 from Mortgage Fund and $254 from Spectrum Fund. Prior to July 26, 2002, William N. Westhoff was president of and therefore affiliated with Advantus Capital, but since his retirement from Advantus Capital as of that date he has received compensation as a Director of the Funds as described above. DIRECTOR LIABILITY Under Minnesota law, the Board of Directors of each Fund owes certain fiduciary duties to the Fund and to its shareholders. Minnesota law provides that a director "shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances." Fiduciary duties of a director of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in good faith and act in a manner reasonably believed to be in the best interests of the corporation) and a duty of "care" (to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances). Minnesota law also authorizes corporations to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of the fiduciary duty of "care." Minnesota law does not, however, permit a corporation to eliminate or limit the liability of a director (i) for any breach of the directors' duty of "loyalty" to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation of each Fund limit the liability of directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors' willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). -35- Minnesota law does not eliminate the duty of "care" imposed upon a director. It only authorizes a corporation to eliminate monetary liability for violations of that duty. Minnesota law, further, does not permit elimination or limitation of liability of "officers" to the corporation for breach of their duties as officers (including the liability of directors who serve as officers for breach of their duties as officers). Minnesota law does not permit elimination or limitation of the availability of equitable relief, such as injunctive or rescissionary relief. Further, Minnesota law does not permit elimination or limitation of a director's liability under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to what extent the elimination of monetary liability would extend to violations of duties imposed on directors by the Investment Company Act of 1940 and the rules and regulations adopted under such Act. INVESTMENT ADVISORY AND OTHER SERVICES GENERAL Advantus Capital Management, Inc. ("Advantus Capital") has been the investment adviser and manager of each of the Funds since March 1, 1995. Prior to that date the Funds' investment adviser was MIMLIC Asset Management Company ("MIMLIC Management"), formerly the parent company of Advantus Capital. Securian Financial Services, Inc. ("Securian Financial") acts as the Funds' underwriter. Both Advantus Capital and Securian Financial act as such pursuant to written agreements that will be periodically considered for approval by the directors or shareholders of the Fund. The address of both Advantus Capital and Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101. Templeton Investment Counsel, LLC ("Templeton Counsel") serves as investment sub-adviser to International Fund under an investment sub-advisory agreement with Advantus Capital. Franklin Advisers, Inc. ("FAV"), an affiliate of Templeton Counsel, manages the fixed income portion of the International Fund's portfolio. CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL Advantus Capital was incorporated in Minnesota in June 1994, and is an affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company". All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial are also wholly-owned subsidiaries of Securian Financial Group, Inc. Dianne M. Orbison, President of each of the Funds, is President, Treasurer and Director of Advantus Capital. Frederick P. Feuerherm, Vice President, Treasurer and a Director of each of the Funds, is a Vice President, Assistant Secretary and Director of Advantus Capital. William N. Westhoff, a Director of each of the Funds, was President, Treasurer and Director of Advantus Capital prior to July 26, 2002. INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL Advantus Capital acts as investment adviser and manager of the Funds under Investment Advisory Agreements (the "Advisory Agreements") dated May 1, 2000 for each Fund, each of which Advisory Agreements was approved by shareholders on April 17, 2000 in the case of the International Balanced Fund, and on April 28, 2000 in the case of Spectrum, Mortgage Securities, Money Market and Bond Funds. The Advisory Agreements were last approved by the Board of Directors of each Fund (including a majority of the directors who are not parties to the contract, or interested persons of any such party) on January 30, 2003. The Advisory Agreements will terminate automatically in the event of their assignment. In addition, each Advisory Agreement is terminable at any time, without penalty, by the Board of Directors of the respective Fund or by vote of a majority of the Fund's outstanding voting securities on not more than 60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days' written notice to the Fund. Unless sooner terminated, each Advisory Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the respective Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Advisory Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. Pursuant to the Advisory Agreements each Fund pays Advantus Capital an advisory fee equal on an annual basis to a percentage of that Fund's average daily net assets as set forth in the following table: -36-

ADVISORY FEE AS PERCENTAGE FUND OF AVERAGE NET ASSETS - ---- --------------------- SPECTRUM FUND: On the first $1 billion in assets .50% On the next $1 billion in assets .48% On all assets in excess of $2 billion .46% MORTGAGE SECURITIES FUND: On the first $1 billion in assets .475% On the next $1 billion in assets .46% On all assets in excess of $2 billion .45% MONEY MARKET FUND: On the first $500 million in assets .50% On the next $500 million in assets .45% On the next $1 billion in assets .425% On all assets in excess of $2 billion .40% BOND FUND: On the first $250 million in assets .60% On the next $250 million in assets .55% On the next $500 million in assets .50% On all assets in excess of $1 billion .45% INTERNATIONAL FUND: On the first $250 million in assets .70% On the next $250 million in assets .65% On the next $500 million in assets .60% On all assets in excess of $1 billion .55%

Prior to May 1, 2000, each Fund paid Advantus Capital an advisory fee, in accordance with its prior investment advisory agreement, equal on an annual basis to a percentage of that Fund's average daily net assets as set forth in the following table:

Advisory Fee Paid Prior to May 1, 2000 as Percentage Fund of Average Net Assets ---- -------------------------- Spectrum Fund .60% Mortgage Securities Fund .575% Money Market Fund .50% Bond Fund .70% International Fund: On the first $25 million in assets .95% On the next $25 million in assets .80% On the next $50 million in assets .75% On all assets in excess of $100 million .65%

The fees paid by the Funds during the fiscal years ended September 30, 2002, 2001, and 2000 (before Advantus Capital's absorption of certain expenses, described below) were as follows:

Fund 2002 2001 2000 ---- ---------- ---------- ---------- Spectrum Fund $309,933 $425,996 $624,481 Mortgage Securities Fund 397,173 269,974 260,837 Money Market Fund 204,824 214,125 204,795 Bond Fund 140,385 134,639 162,489 International Fund 318,502 359,101 456,877

For this fee, Advantus Capital acts as investment adviser and manager for the Funds or, in the case of International Fund, pays Templeton Counsel to serve as investment sub-adviser. Effective May 1, 2000, each Fund pays its own transfer agent and shareholder servicing expenses. Prior to that date, Advantus Capital paid the transfer agent and shareholder servicing expenses for each Fund other than Money Market Fund. -37- Under the Advisory Agreements, Advantus Capital furnishes the Funds office space and all necessary office facilities, equipment and personnel for servicing the investments of the Funds, and pays the salaries and fees of all officers and directors of the Funds who are affiliated with Advantus Capital. In addition, except to the extent that Securian Financial receives Rule 12b-1 distribution fees (see "Payment of Certain Distribution Expenses of the Funds" below), Securian Financial bears all promotional expenses in connection with the distribution of the Funds' shares, including paying for prospectuses and statements of additional information for new shareholders, and shareholder reports for new shareholders, and the costs of sales literature. The Funds pay all other expenses not so expressly assumed. Under the Advisory Agreements for each Fund other than Money Market Fund, Advantus Capital agreed to absorb all Fund costs and expenses which exceed a specified percentage of the average daily net assets of each class of share through the fiscal year of the Fund ending September 30, 2002, as set forth in the following table:

Expenses Absorbed in Excess of Specified Percentage of Average Net Assets ------------------------------------------ Fund Class A Class B Class C - ---- ------- ------- ------- Spectrum Fund 1.22% 1.97% 1.97% Mortgage Securities Fund .95% 1.70% 1.70% Bond Fund 1.15% 1.90% 1.90% International Fund 1.63% 2.43% 2.43%

During the fiscal years ended September 30, 2002, 2001, and 2000 Advantus Capital voluntarily absorbed certain expenses of the Funds (which do not include certain Rule 12b-1 fees waived by Securian Financial), or, in the case of each Fund other than Money Market Fund, absorbed certain expenses of the Fund during the period from May 1, 2000 through September 30, 2001 in accordance with the Advisory Agreement, as set forth below:

Fund 2002 2001 2000 ---- ---- ---- ---- Spectrum Fund $187,045 $241,979 $ 95,590 Mortgage Securities Fund 216,342 205,818 180,596 Money Market Fund 189,327 240,900 278,882 Bond Fund 181,150 188,638 168,365 International Fund 21,524 28,799 48,370

INTERNATIONAL FUND SUB-ADVISER - TEMPLETON COUNSEL AND FAV Templeton Investment Counsel, LLC, (hereinafter "Templeton Counsel"), a Delaware limited liability company with principal offices at 500 East Broward Boulevard, Fort Lauderdale, Florida 33394 has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management investment program of the International Fund, subject to the general control of the Board of Directors of the Fund. Templeton Counsel is an indirect, wholly-owned subsidiary of Templeton Worldwide, Inc., Fort Lauderdale, Florida, which in turn is a wholly-owned subsidiary of Franklin Resources, Inc. ("Franklin"). Franklin Advisers, Inc. (hereinafter "FAV"), a California corporation with principal offices at One Franklin Parkway, San Mateo, California 94403, has been retained under a sub-advisory agreement with Templeton Counsel pursuant to which FAV provides investment advice and generally conducts the investment management program for the fixed income investments of the International Fund. FAV is also an indirect, wholly-owned subsidiary of Franklin. Franklin is a large, diversified financial services organization. Through its operating subsidiaries, Franklin provides a variety of investment products and services to institutions and individuals throughout the United States and abroad. One of the country's largest mutual fund organizations, Franklin's business includes the provision of management, administrative and distribution services to the Franklin/Templeton Group of Funds, which is distributed through a nationwide network of banks, broker-dealers, financial planners and investment advisers. Franklin is headquartered in San Mateo, California, and its common stock is listed on the New York Stock Exchange under the ticker symbol BEN. -38- Certain clients of Templeton Counsel may have investment objectives and policies similar to that of the International Fund. Templeton Counsel may, from time to time make recommendations which result in the purchase or sale of a particular security by its other clients simultaneously with Fund. If transactions on behalf of more than one client during the same period increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price. It is the policy of Templeton Counsel to allocate advisory recommendations and the placing of orders in a manner which is deemed equitable by Templeton Counsel to the accounts involved, including the International Fund. When two or more of the clients of Templeton Counsel (including the International Fund) are purchasing the same security on a given day from the same broker-dealer, such transactions may be averaged as to price. INTERNATIONAL FUND INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON COUNSEL AND FAV Templeton Counsel acts as an investment sub-adviser to the International Fund under an Investment Sub-Advisory Agreement (the "Templeton Agreement") with Advantus Capital dated March 1, 1995, approved by shareholders of the Fund on February 14, 1995. Templeton Counsel has, in turn, entered into a Sub-Advisory Agreement with FAV, dated January 24, 2002 (the "FAV Agreement") pursuant to which FAV provides investment advisory services with respect to the fixed income portfolio of the Fund. The Templeton Agreement, as amended, and the FAV Agreement were last approved for continuance by the Board of Directors of the Fund, including a majority of the Directors who are not a party to the Templeton Agreement or the FAV Agreement or interested persons of any such party, on January 30, 2003. The Templeton Agreement and the FAV Agreement will each terminate automatically upon the termination of the Advisory Agreement and in the event of its assignment. In addition, the Templeton Agreement and the FAV Agreement are each terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by a vote of the majority of the International Fund's outstanding voting securities on 60 days' written notice to Templeton Counsel. The Templeton Agreement may be terminated by Templeton Counsel on 60 days' written notice to Advantus Capital, and the FAV Agreement may be terminated by either Templeton or FAV on 60 days' written notice to the other party and to Advantus Capital. Unless sooner terminated, the Templeton Agreement and the FAV Agreement shall each continue in effect from year to year if approved at least annually by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the International Fund, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not interested persons of any party to the Templeton Agreement, cast in person at a meeting called for the purpose of voting on such approval. From the advisory fee received from International Fund, Advantus Capital pays Templeton Counsel a sub-advisory fee equal to .70% on the first $25 million of International Fund's average daily net assets, .55% on the next $25 million, .50% on the next $50 million, and .40% on all average daily net assets in excess of $100 million. Solely for the purpose of establishing the appropriate breakpoints at which the Fund's subadvisory fee shall be calculated, the breakpoints are based on the aggregation of the monthly market value of any non-mutual fund account of Minnesota Life or any affiliate thereof advised or subadvised by Templeton Counsel or any advisory affiliate thereof as well as the average daily net assets of any U.S. registered mutual fund advised by Advantus and sub-advised by Templeton Counsel or any advisory affiliate thereof. For fee-stacking purposes, the asset classes so managed with the highest fee schedules shall be counted first as assets of this Fund in order to determine this Fund's appropriate starting breakpoint when the following conditions are satisfied: (i) Franklin Advisors, Inc. an affiliate of Templeton Counsel provides other sub-advisory services to Advantus Capital, beginning on or after February 15, 2000, covering small company domestic equities in an amount in excess of $100 million; and (ii) Minnesota Life, the affiliate of Advantus Capital, offers as investment options in its registered variable insurance contracts the Templeton Developing Markets Fund and any other two funds in the Franklin/Templeton Variable Insurance Products Fund. From the sub-advisory fee received from Advantus Capital for the International Fund, Templeton Counsel pays its affiliate, FAV, a fee equal to 30% of such sub-advisory fee for managing the fixed income portion of the International Fund's portfolio. ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS At a meeting held on January 30, 2003, the Board of Directors of the Funds, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940) of the Funds (the "Independent Directors"), approved the continuation of each Fund's investment advisory agreement with Advantus Capital for an additional one-year period. In connection with such approval, the directors considered, with the assistance of independent counsel, their legal responsibilities and reviewed the nature and quality of Advantus Capital's services provided to the Fund and Advantus Capital's experience and qualifications. In addition to quarterly evaluations of the Fund's investment performance relative to broad-based index and industry benchmarks and at least annual in person meetings with and presentations by each portfolio manager or managers for the Fund (including personnel from Advantus Capital and each sub-adviser), the Directors on January 30, 2003 reviewed and considered: - - analyses prepared and compiled by Advantus Capital (i) setting forth the Fund's advisory fee (as a percentage of assets) on a contractual and after-waiver basis (ii) comparing the Fund's contractual advisory fees with standard fee schedules for private (non-mutual fund) accounts managed by Advantus Capital and with the contractual fee schedules of other funds represented by Advantus Capital to be of comparable size and complexity (with a description of the bases upon which funds were selected for comparison), (iii) comparing the Fund's total returns with the Fund's benchmark index or indices and with such comparable funds (again, with a description of the bases upon which funds were selected for comparison); - - descriptions of brokerage allocation practices (including any soft dollar arrangements) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; - - assurances that Advantus Capital and its personnel are in compliance with the Fund's codes of ethics, policies and procedures and exemptive orders and with applicable laws and regulations; and - - a report on Advantus Capital's profitability related to providing advisory services to the Fund after taking into account (i) advisory fees and any other benefits realized by Advantus Capital or any of its affiliates as a result of Advantus Capital's role as adviser to the Fund, and (ii) the direct and indirect expenses incurred by Advantus Capital in providing such advisory services to the Fund. After discussion, the Board of Directors concluded that Advantus Capital has the capabilities, resources and personnel necessary to manage each Fund. The Board of Directors also concluded that, based on the services that Advantus Capital would provide to each Fund under the Fund's investment advisory agreement and the expenses incurred by Advantus Capital in the performance of such services, the compensation to be paid to Advantus Capital is fair and equitable with respect to the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it is in the best interests of each Fund to continue its investment advisory agreement with Advantus Capital for an additional one-year period. At the January 30, 2003 meeting, the Fund's Board of Directors, including a majority of the Independent Directors, also approved the continuation of the sub-advisory agreements between Advantus Capital and each of the following sub-advisers (with respect to the Fund set forth opposite the sub-adviser's name in the table below), each for an additional one-year period:

SUB-ADVISER FUND ----------- ---- Templeton Investment Counsel, LLC and International Fund Franklin Advisers, Inc.

In approving the continuation of the sub-advisory agreements, the Board of Directors considered the quality of the services being rendered by each sub-adviser, its investment management style, the experience and qualifications of each sub-adviser's personnel and the sub-adviser's fee structure. The Board of Directors also reviewed written reports provided by each sub-adviser, which contained, among other items: - - descriptions of brokerage allocation practices (including soft dollar arrangements, if any) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; and - - assurances that the sub-adviser and its personnel are in compliance with the sub-adviser's code of ethics and with the laws and regulations that apply to its relationship as sub-adviser to the applicable Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it was in the best interests of each of the foregoing Funds engaging a sub-adviser to continue its sub-advisory agreement for an additional one-year period. CODE OF ETHICS Advantus Capital, Securian Financial, Templeton Counsel, FAV and each of the Funds has adopted a Code of Ethics in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder. The private investment activities of personnel covered by the Code of Ethics are restricted in accordance with the Code's provisions, but, subject to such provisions, personnel may invest in securities, including securities that may be purchased or held by the Funds. DISTRIBUTION AGREEMENT Securian Financial acts as the underwriter of the Funds' shares. The Board of Directors of each Fund, on January 30, 2003, including a majority of the directors who are not parties to the contract, or interested persons of any such party, last approved the respective Fund's Distribution Agreement with Securian Financial (the "Distribution Agreements"), each dated October 22, 1998. During the fiscal years ended September 30, 2002, 2001, and 2000, the commissions received by Securian Financial under the Distribution Agreements, except in the case of Money Market Fund (which does not provide for Securian Financial to receive a commission), with respect to shares of all classes under the Distribution Agreements were as follows:

Fund 2002 2001 2000 ---- ---- ---- ---- Spectrum Fund $285,316 $401,339 $437,766 Mortgage Securities Fund 443,976 301,109 73,738 Bond Fund 113,731 112,593 101,969 International Fund 146,708 171,258 153,603

During the same periods Securian Financial retained from these commissions the following amounts: -39-

Fund 2002 2001 2000 ---- ---- ---- ---- Spectrum Fund $21,010 $ 3,862 $44,385 Mortgage Securities Fund 87,690 20,523 13,015 Bond Fund 11,613 4,914 1,342 International Fund 4,142 4,602 9,942

The remainder of these commissions was paid to registered representatives of Securian Financial or to broker-dealers who have selling agreements with Securian Financial. Each Distribution Agreement may be terminated by the respective Fund or Securian Financial at any time by the giving of 60 days' written notice, and terminates automatically in the event of its assignment. Unless sooner terminated, the Distribution Agreement for the respective Fund shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Distribution Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreements require Securian Financial to pay all advertising and promotional expenses in connection with the distribution of the Funds' shares including paying for Prospectuses and Statements of Additional Information (if any) for new shareholders, shareholder reports for new shareholders, and the costs of sales literature. In the Distribution Agreements, Securian Financial undertakes to indemnify the Funds against all costs of litigation and other legal proceedings, and against any liability incurred by or imposed upon the Funds in any way arising out of or in connection with the sale or distribution of the Funds' shares, except to the extent that such liability is the result of information which was obtainable by Securian Financial only from persons affiliated with the Funds but not with Securian Financial. PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS Money Market Fund has adopted a Plan of Distribution, and each of the other Funds has adopted separate Plans of Distribution applicable to Class A shares, Class B shares and Class C shares, respectively, relating to the payment of certain distribution and/or shareholder servicing expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940. Money Market Fund, pursuant to its Plan of Distribution, pays a fee to Securian Financial which, on an annual basis, is equal to .25% of the Fund's average daily net assets, and is to be used to pay certain expenses incurred in connection with servicing shareholder accounts. Each of the other Funds, pursuant to its Plans of Distribution, also pays fees to Securian Financial which equal, on an annual basis, a percentage of the Fund's average daily net assets attributable to Class A shares, Class B shares and Class C shares, respectively, as set forth in the following table:

Rule 12b-1 Fee as Percentage of Average Daily Net Assets Attributable to ------------------------------------------- Fund Class A Shares Class B Shares Class C Shares ---- -------------- -------------- -------------- Spectrum Fund .25% 1.00% 1.00% Mortgage Securities Fund .25% 1.00% 1.00% Bond Fund .25% 1.00% 1.00% International Fund .25% 1.00% 1.00%

-40- Such fees are used for distribution-related services for Class B and C shares and for servicing of shareholder accounts in connection with Class A, B and C shares. A portion of the Rule 12b-1 fees payable by the Advantus Multiple Class Funds with respect to Class B and Class C shares equal to 0.75% of the average daily net assets attributable to such Class B and Class C shares, constitute distribution fees designed to compensate Securian Financial for advertising, marketing and distributing the shares of the Advantus Multiple Class Funds. The distribution fees may be used by Securian Financial for the purpose of financing any activity which is primarily intended to result in the sale of shares of the particular Fund. For example, such distribution fee may be used by Securian Financial: (a) to compensate broker-dealers, including Securian Financial and its registered representatives, for their sale of a Fund's shares, including the implementation of the programs described below with respect to broker-dealers, banks, and other financial institutions; and (b) to pay other advertising and promotional expenses in connection with the distribution of a Fund's shares. These advertising and promotional expenses include, by way of example but not by way of limitation, costs of prospectuses for other than current shareholders; preparation and distribution of sales literature; advertising of any type; expenses of branch offices provided jointly by Securian Financial and any affiliate thereof; and compensation paid to and expenses incurred by officers, employees or representatives of Securian Financial or of other broker-dealers, banks, or financial institutions. All of the Rule 12b-1 fee payable with respect to Class A shares and a portion of the Rule 12b-1 fee payable with respect to Class B and Class C shares, of each of the Advantus Multiple Class Funds, equal to .25% of the average daily net assets attributable to such Class A, B and Class C shares, constitute a shareholder servicing fee designed to compensate Securian Financial for the provision of certain services to the holders of Class A, B and Class C shares. Amounts expended by the Funds under the respective Plan of Distribution are expected to be used for the implementation by Securian Financial of a dealer incentive program. Pursuant to the program, Securian Financial may provide compensation to investment dealers for the provision of distribution assistance in connection with the sale of the Funds' shares to such dealers' customers and for the provision of administrative support services to customers who directly or beneficially own shares of the Funds. The distribution assistance and administrative support services rendered by dealers may include, but are not limited to, the following: distributing sales literature; answering routine customer inquiries concerning the Funds; assisting customers in changing dividend options, account designation and addresses, and in enrolling into the pre-authorized check plan or systematic withdrawal plan; assisting in the establishment and maintenance of customer accounts and records and in the processing of purchase and redemption transactions; investing dividends and any capital gains distributions automatically in the Funds' shares and providing such other information and services as the Funds or the customer may reasonably request. Such fees for servicing customer accounts would be in addition to the portion of the sales charge received or to be received by dealers which sell shares of the Funds. Securian Financial may also provide compensation to certain institutions such as banks ("Service Organizations") which have purchased shares of the Funds for the accounts of their clients, or which have made the Funds' shares available for purchase by their clients, and/or which provide continuing service to such clients. Applicable laws may prohibit certain banks from engaging in the business of underwriting securities. In such circumstances, Securian Financial, if so requested, will engage such banks as Service Organizations only to perform administrative and shareholder servicing functions, but at the same fees and other terms applicable to dealers. If a bank were prohibited from acting as a Service Organization, its shareholder clients would be permitted to remain shareholders of the Funds and alternative means for continuing servicing of such shareholders would be sought. In such event changes in the operation of the Funds might occur and a shareholder serviced by such bank might no longer be able to avail itself of any automatic investment or other services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. -41- In addition, the applicable Plan of Distribution contains, among other things, provisions complying with the requirements of Rule 12b-1 discussed below. In particular, each Plan provides that (1) the Plan will not take effect until it has been approved by a vote of a majority of the outstanding voting securities of the Fund, and by a majority vote of both the full board of directors of the Fund and those directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements relating to it (the Independent Directors), (2) the Plan will continue in effect from one year to another so long as its continuance is specifically approved annually by a majority vote of both the full board of directors and the Independent Directors, (3) the Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the Fund, (4) the Plan may not be amended to increase materially the amount of the fees payable thereunder unless the amendment is approved by a vote of a majority of the outstanding voting securities of the Fund, and all material amendments must be approved by a majority vote of both the full board of directors and the Independent Directors, (5) while the Plan is in effect, the selection and nomination of any new Independent Directors is committed to the discretion of the Independent Directors then in office, and (6) the Fund's underwriter will prepare and furnish to the board of directors, and the board of directors will review, at least quarterly, written reports which set forth the amounts expended under the Plan and the purposes for which those expenditures were made. Rule 12b-1(b) provides that any payments made by an investment company in connection with the distribution of its shares may only be made pursuant to a written plan describing all material aspects of the proposed financing of distribution and also requires that all agreements with any person relating to implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2) requires that such plan, together with any related agreements, be approved by a vote of the board of directors and of the directors who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan, cast in person at a meeting called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the plan or agreement provide, in substance: (1) that it shall continue in effect for a period of more than one year from the date of its execution or adoption only so long as such continuance is specifically approved at least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person authorized to direct the disposition of monies paid or payable by the investment company pursuant to the plan or any related agreement shall provide to the investment company's board of directors, and the directors shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made; and (3) in the case of a plan, that it may be terminated at any time by vote of a majority of the members of the board of directors of the investment company who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan or by vote of a majority of the outstanding voting securities of the investment company. Rule 12b-1(b)(4) requires that such plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval and that all material amendments of the plan must be approved in the manner described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that the investment company may rely upon Rule 12b-1(b) only if selection and nomination of the investment company's disinterested directors are committed to the discretion of such disinterested directors. Rule 12b-1(e) provides that the investment company may implement or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to approve such implementation or continuation conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties under state law, and under Sections 36(a) and (b) of the Investment Company Act of 1940, that there is a reasonable likelihood that the plan will benefit the investment company and its shareholders. At the Board of Directors meeting held January 30, 2003, the directors of the Funds so concluded. During the fiscal year ended September 30, 2002, each of the Advantus Multiple Class Funds made payments under its Plans of Distribution applicable to Class A, Class B and Class C shares as set forth below (distribution fees waived by Securian Financial, if any, are shown in parentheses).

Class A Class B Class C ------- ------- ------- Spectrum Fund $111,517 (n/a) $143,002 $30,797 Mortgage Securities Fund 130,726 (n/a) 243,286 69,964 Bond Fund 40,081 (n/a) 63,340 10,310 International Fund 102,735 (20,547) 33,658 10,315

-42- Money Market Fund made no payments under its Plan of Distribution during the fiscal year ended September 30, 2002. Securian Financial waived distribution fees from Money Market Fund in the amount of $0 during such period. The Plans of Distribution could be construed as "compensation plans" because Securian Financial is paid a fixed fee and is given discretion concerning what expenses are payable under the Plans of Distribution. Under a compensation plan, the fee to the distributor is not directly tied to distribution expenses actually incurred by the distributor, thereby permitting the distributor to receive a profit if amounts received exceed expenses. Securian Financial may spend more or less for the distribution and promotion of the Funds' shares than it receives as distribution fees pursuant to the Plans of Distribution. However, to the extent fees received exceed expenses, including indirect expense such as overhead, Securian Financial could be said to have received a profit. TRANSFER AGENT AND ADMINISTRATIVE SERVICES Each Fund pays its own transfer agent costs. The Funds' transfer agent is PFPC Inc. ("PFPC"). In addition, separate from the investment advisory agreement, each of the Funds has entered into an agreement with Minnesota Life under which Minnesota Life provides (i) accounting, legal and other administrative services and (ii) shareholder servicing to the Funds. Minnesota Life currently provides accounting, legal and other administrative services to the Funds at a monthly cost of $6,200 for Spectrum Fund, Mortgage Securities Fund and Bond Fund, $5,100 for Money Market Fund and $5,300 for International Fund. During the fiscal year ended September 30, 2002, each of the Funds paid Minnesota Life the following amounts for such administrative services:

Fund Amount ---- ------ Spectrum Fund $74,400 Mortgage Securities Fund 74,400 Money Market Fund 61,200 Bond Fund 74,400 International Fund 63,600

Minnesota Life currently provides shareholder servicing to each Fund at a cost of $7 per shareholder account per year. International Fund has also entered into a separate agreement with SEI Investments Mutual Fund Services ("SEI") pursuant to which SEI provides daily accounting services for the Fund. Minnesota Life, pursuant to its administrative services agreement with International Fund, provides the Fund with financial reporting services and generally oversees SEI's performance of its services. Under the agreement with SEI, the cost to International Fund for SEI's services is an annual fee equal to the greater of $45,000 or .08% of the Fund's first $150 million of net assets and .05% of its net assets in excess of $150 million. International Fund also reimburses SEI for certain out-of-pocket expenses. During the last three fiscal years, the amounts paid by International Fund to SEI were as follows:

September 30 -------------------------------------------- 2002 2001 2000 ---- ---- ---- $54,839 $50,066 $52,063

MONEY MARKET FUND AMORTIZED COST METHOD OF PORTFOLIO VALUATION Money Market Fund values its portfolio securities at amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended. This method involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in interest rates on the market value of the instrument and regardless of any unrealized capital gains or losses. While this method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield on shares of the Fund computed by dividing the annualized daily income of the Fund by the net asset value computed as described above may tend to be higher than a like computation made by the Fund with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its securities. Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined, in good faith based upon a full consideration of all material factors, that it is in the best interests of the Fund and its shareholders to maintain a stable net asset value per share by virtue of the amortized cost method of valuation. The Fund will continue to use this method only so long as the Board of Directors believes that it fairly reflects the market-based net asset value per share. In accordance with Rule 2a-7, the Board of Directors has undertaken, as a particular responsibility within the overall duty of care owed to the Fund's shareholders, to establish procedures reasonably designed, taking into account current market conditions and the Fund's investment objectives, to stabilize the Fund's net asset value per share at a single value. These procedures include the periodic determination of any deviation of current net asset value per share calculated using available market quotations from the Fund's amortized cost price per share, the periodic review by the Board of the amount of any such deviation and the method used to calculate any such deviation, the maintenance of records of such determinations and the Board's review thereof, the prompt consideration by the Board if any such deviation exceeds 1/2 of 1%, and the taking of such remedial action by the Board as it deems appropriate where it believes the extent of any such deviation may result in material dilution or other unfair results to investors or existing shareholders. Such remedial action may include redemptions in kind, selling portfolio instruments prior to realizing capital gains or losses, shortening the average portfolio maturity, withholding dividends or utilizing a net asset value per share as determined by using available market quotations. The Fund will, in further compliance with Rule 2a-7, maintain a dollar-weighted average portfolio maturity not exceeding 90 days and will limit its portfolio investments to those United States dollar-denominated instruments which the Board determines present minimal credit risks and which are eligible securities. The Fund will limit its investments in the securities of any one issuer to no more than 5% of the Fund's total assets and it will limit investment in securities of less than the highest rated category to 5% of the Fund's total assets. Investment in the securities of any issuer of less than the highest rated category will be limited to the greater of 1% of the Fund's total assets or one million dollars. In addition, the Fund will reassess promptly any security which is in default or downgraded from its rating category to determine whether that security then presents minimal credit risks and whether continuing to hold the securities is in the best interests of the Fund. In addition, the Fund will record, maintain, and preserve a written copy of the above-described procedures and a written record of the Board's considerations and actions taken in connection with the discharge of its above-described responsibilities. -43- PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE SPECTRUM FUND In a number of security transactions, it is possible for Spectrum Fund to deal in the over-the-counter security markets (including the so-called "third market" which is the "over-the-counter" market for securities listed on the New York Stock Exchange) without the payment of brokerage commissions but at net prices including a spread or markup; the Fund trades in this manner whenever the net price appears advantageous. MORTGAGE SECURITIES FUND AND BOND FUND Portfolio transactions of Mortgage Securities Fund and Bond Fund occur primarily with issuers, underwriters or major dealers acting as principals. Such transactions are normally on a net basis which do not involve payment of brokerage commissions. The cost of securities purchased from an underwriter usually includes a commission paid by the issuer to the underwriters; transactions with dealers normally reflect the spread between bid and asked prices. Premiums are paid with respect to options purchased by these two Funds and brokerage commissions are payable with respect to transactions in exchange-traded interest rate futures contracts. MONEY MARKET FUND Most transactions in portfolio securities of Money Market Fund are purchases from issuers or dealers in money market instruments acting as principal. There usually are no brokerage commissions paid by the Fund for such purchases since securities are purchased on a net price basis. Trading does, however, involve transaction costs. Transactions with dealers serving as primary market makers reflect the spread between the bid and asked prices of securities. Purchases of underwritten issues may be made which reflect a fee paid to the underwriter. INTERNATIONAL FUND Templeton Counsel, as investment sub-adviser to the International Fund, is primarily responsible for selecting and (where applicable) negotiating commissions with the brokers who execute the transactions for the Fund. Templeton Counsel, in managing the International Fund, follows the same basic brokerage practices as those described below for Advantus Capital. In addition, in selecting brokers for portfolio transactions, Templeton Counsel takes into account its past experience as to brokers qualified to achieve "best execution," including the ability to effect transactions at all where a large block is involved, availability of the broker to stand ready to execute possibly difficult transactions in the future, the financial strength and stability of the broker, and whether the broker specializes in foreign securities held by the International Fund. Purchases and sales of portfolio securities within the United States other than on a securities exchange are executed with primary market makers acting as principal, except where, in the judgment of Templeton Counsel, better prices and execution may be obtained on a commission basis or from other sources. GENERALLY Advantus Capital or a Fund's investment sub-adviser, selects and (where applicable) negotiates commissions with the brokers who execute the transactions for the Funds (except for International Fund, as described above). During the fiscal years ended September 30, 2001, 2000, and 1999, brokerage commissions paid were:

Fund 2002 2001 2000 - ---------------------------------------------------------------------- Spectrum Fund $100,857 $172,785 $150,307 Mortgage Securities Fund 584,335 0 0 Money Market Fund 0 0 0 Bond Fund 88,540 0 0 International Fund 24,534 58,826 57,152

-44- The primary criteria for the selection of a broker is the ability of the broker, in the opinion of Advantus Capital, to secure prompt execution of the transactions on favorable terms, including the reasonableness of the commission and considering the state of the market at the time. In selecting a broker, Advantus Capital considers whether such broker provides brokerage and research services (as defined in the Securities Exchange Act of 1934), and generally the Funds pay higher than the lowest commission rates available. Advantus Capital may direct Fund transactions to brokers who furnish research services to Advantus Capital. Such research services include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, as well as analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts. By allocating brokerage business in order to obtain research services for Advantus Capital, the Funds enable Advantus Capital to supplement its own investment research activities and allows Advantus Capital to obtain the views and information of individuals and research staffs of many different securities research firms prior to making investment decisions for the Funds. To the extent such commissions are directed to these other brokers who furnish research services to Advantus Capital, Advantus Capital receives a benefit, not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Funds from these commissions. There is no formula for the allocation by Advantus Capital of the Funds' brokerage business to any broker-dealer for brokerage and research services. However, Advantus Capital will authorize a Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker would have charged only if Advantus Capital determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker viewed in terms of either that particular transaction or Advantus Capital's overall responsibilities with respect to the accounts as to which it exercises investment discretion. During the fiscal year ended September 30, 2002, Spectrum Fund and International Fund directed transactions to brokers because of research services they provided, and paid commissions in connection with such transactions, in the aggregate amounts set forth below:

Aggregate Transactions Commissions Paid on Fund Directed for Research Directed Transaction - -------------------------------------------------------------------------------- Spectrum Fund $ 8,222,723 $ 70,335 International Fund 10,121,525 24,895

During the same period, Mortgage Securities Fund, Money Market Fund and Bond Fund directed no transactions to brokers because of research services they provided. Advantus Capital believes that most research services obtained by it generally benefit one or more of the investment companies which it manages and also benefit accounts which it manages. Normally research services obtained through managed funds and managed accounts investing in common stocks would primarily benefit such funds and accounts; similarly, services obtained from transactions in fixed income securities would be of greater benefit to the managed funds and managed accounts investing in debt securities. -45- The same security may be suitable for one or more of the Funds and the other funds or private accounts managed by Advantus Capital or its affiliates. If and when two or more funds or accounts simultaneously purchase or sell the same security, the transactions will be allocated as to price and amount in accordance with arrangements equitable to each fund or account. The simultaneous purchase or sale of the same securities by one Fund and other Funds or accounts may have a detrimental effect on that Fund, as this may affect the price paid or received by the Fund or the size of the position obtainable by the Fund. Consistent with achieving best execution, a Fund may participate in so-called "directed brokerage" or "commission recapture" programs, under which brokers (or dealers) used by the Fund remit a portion of brokerage commissions (or credits on fixed income transactions) to the particular Fund from which they were generated. Subject to oversight by the Fund's Board of Directors, either Advantus Capital or the sub-adviser, if any, is responsible for the selection of brokers or dealers and for ensuring that a Fund receives best price and execution in connection with its portfolio brokerage transactions. Participation in such programs may increase returns to the Fund. Although the rules of the National Association of Securities Dealers, Inc. prohibit its members from seeking orders for the execution of investment company portfolio transactions on the basis of their sales of investment company shares, under such rules, sales of investment company shares may be considered by the investment company as a factor in selecting brokers to effect portfolio transactions. Accordingly, some portfolio transactions are, subject to such rules and to obtaining best prices and executions, executed through dealers who sell shares of Funds in the Advantus Funds complex or who agree to transmit a portion of the brokerage commissions on transactions executed by them to broker/dealers who sell Fund shares. The Funds will not execute portfolio transactions through any affiliate, unless such transactions, including the frequency thereof, the receipt of commissions payable in connection therewith and the selection of the affiliated broker-dealer effecting such transactions are not unfair or unreasonable to the shareholders of the Funds. In the event any transactions are executed on an agency basis, Advantus Capital will authorize the Funds to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker-dealer would have charged only if Advantus Capital determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the overall responsibilities of Advantus Capital with respect to the Funds as to which it exercises investment discretion. If the Funds execute any transactions on an agency basis, they will generally pay higher than the lowest commission rates available. In determining the commissions to be paid to an affiliated broker-dealer, it is the policy of the Funds that such commissions will, in the judgment of Advantus Capital, subject to review by the Fund's Board of Directors, be both (a) at least as favorable as those which would be charged by other qualified brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time, and (b) at least as favorable as commissions contemporaneously charged by such affiliated broker-dealers on comparable transactions for their most favored comparable unaffiliated customers. While the Funds do not deem it practicable and in their best interest to solicit competitive bids for commission rates on each transaction, consideration will regularly be given to posted commission rates as well as to other information concerning the level of commissions charged on comparable transactions by other qualified brokers. Information regarding the acquisition by the Funds during the fiscal year ended September 30, 2002, of securities of the Funds' regular brokers or dealers, or the parents of those broker or dealers that derive more than 15 percent of their gross revenue from securities-related activities, is presented below: -46-

Approximate Value of Securities Owned at the Fund Name of Issuer End of Fiscal Period - ------------------------------------------------------------------------------------------------------- International Balanced Fund AXA-UAP 235,532 NOMURA SECURITIES 310,169 ING GROUP 387,137 RODAMCO EUROPE 281,117 Mortgage Securities Fund NONE Spectrum Fund CITIGROUP, INC. 681,950 GOLDMAN SACHS GROUP, INC. 171,678 MERRILL LYNCH & COMPANY, INC. 233,945 MORGAN STANLEY 155,848

CALCULATION OF PERFORMANCE DATA MONEY MARKET FUND Money Market Fund may issue "current yield" and "effective yield" quotations. "Current yields" are computed by determining the net change in the value of a hypothetical account having a balance of one share at the beginning of a recent seven calendar day period, and multiplying that change by 365/7. "Effective yields" are computed by determining the net change in the value of a hypothetical account having a balance of one share at the beginning of a recent seven calendar day period, dividing that change by seven, adding one to the quotient, raising the sum to the 365th power, and subtracting one from the result. For purposes of the foregoing calculations, the value of the hypothetical account includes accrued interest income plus or minus amortized purchase discount or premium less accrued expenses, but does not include realized gains and losses or unrealized appreciation and depreciation. The Fund will also quote the average dollar-weighted portfolio maturity for the corresponding seven-day period. -47- Although there can be no assurance that the net asset value of Money Market Fund's shares will always be $1.00, Advantus Capital does not expect that the net asset value of its shares will fluctuate since the Fund uses the amortized cost method of valuation to maintain a stable $1.00 net asset value. See "Money Market Fund Amortized Cost Method of Portfolio Valuation." Principal is not, however, insured. Yield is a function of portfolio quality and composition, maturity, and operating expenses. Yield information is useful in reviewing the Fund's performance, but it may not provide a basis for comparison with bank deposits or other investments, which pay a fixed yield for a stated period of time, or other investment instruments, which may use a different method of calculating yield. For the seven calendar days ended September 30, 2002, Money Market Fund's annualized current yield was .982% and its annualized effective yield was .990%. The Fund's investment adviser was voluntarily absorbing certain expenses of the Fund during that period. If the Fund had been charged these expenses its current yield and effective yield for the same period would have been .172% and .173% respectively. ADVANTUS MULTIPLE CLASS FUNDS Advertisements and other sales literature for the Advantus Multiple Class Funds may refer to "yield," "average annual total return" and "cumulative total return." Performance quotations are computed separately for each class of shares of the Advantus Multiple Class Funds. YIELD. Yield is computed by dividing the net investment income per share (as defined under Securities and Exchange Commission rules and regulations) earned during the computation period by the maximum offering price per share on the last day of the period, according to the following formula: a-b YIELD = 2[( ----- )TO THE POWER OF 6 -1] cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. The yield on investments in each of these Funds for the 30 day period ended September 30, 2002 was as set forth in the table below. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during that period. If such Funds had been charged for these expenses the yield on investments for the same period would have been lower, as also shown in the table below in parentheses.

Yield ----- Fund Class A Class B Class C ---- ------- ------- ------- Spectrum Fund 1.96(1.07) 1.30(.36) 1.30(.36) Mortgage Securities Fund 5.18(4.99) 4.67(4.47) 4.69(4.49) Bond Fund 4.22(3.23) 3.68(2.64) 3.70(2.67) International Fund .13(.13) -.68(-.68) -.68(-.68)

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding the average annual compounded rates of return over the periods indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: -48- P(1+T)TO THE POWER OF n = ERV Where: P = a hypothetical initial payment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period. The average annual total return on investments in each of the Advantus Multiple Class Funds for the periods indicated ending September 30, 2002, were as set forth in the table below. Average annual total returns quoted assume that the Class A maximum initial sales charge of 4.5% for Bond and Mortgage Funds and 5.5% for Spectrum and International Funds was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the average annual total returns for the same periods would have been lower, as also shown in the table below in parentheses.

1 YEAR FUND CLASS A CLASS B CLASS C Spectrum Fund (2) -11.08(-11.39) -11.24(-11.54) -6.54(-6.84) Mortgage Securities Fund (1) 3.03(2.76) 1.99(1.74) 6.99(6.74) Bond Fund (3) 3.05(2.22) 1.99(1.26) 7.11(6.37) International Fund (4) -9.86(-9.96) -10.14(-10.19) -5.41(-5.46)

5 YEAR FUND CLASS A CLASS B CLASS C Spectrum Fund (2) -2.01(-2.34) -1.89(-2.10) -1.61(-1.82) Mortgage Securities Fund (1) 7.04(6.70) 6.98(6.67) 7.21(6.90) Bond Fund (3) 5.49(4.82) 5.46(4.86) 5.67(5.06) International Fund (4) -2.76(-2.87) -2.74(-2.74) -2.47(-2.53)

10 YEAR FUND CLASS A CLASS B CLASS C Spectrum Fund (2) 4.27(4.09) N/A N/A N/A N/A Mortgage Securities Fund (1) 6.81(6.54) N/A N/A N/A N/A Bond Fund (3) 6.13(5.39) N/A N/A N/A N/A International Fund (4) N/A N/A N/A N/A N/A N/A

SINCE INCEPTION FUND CLASS A CLASS B CLASS C Spectrum Fund (2) 6.96(6.43) 4.45(4.32) 4.12(3.97) Mortgage Securities Fund (1) 8.44(8.17) 7.57(7.32) 7.61(7.34) Bond Fund (3) 7.33(6.43) 6.60(6.01) 6.62(6.04) International Fund (4) 2.80(2.66) -.40(-.41) 3.56(3.51)

- -------------------- -49- (1)Class A Inception May 3, 1985. Class B Inception August 19, 1994. Class C Inception March 1, 1995. (2)Class A Inception November 16, 1987. Class B Inception August 19, 1994. Class C Inception March 1, 1995 (3)Class A Inception August 14, 1987. Class B Inception August 19, 1994. Class C Inception March 1, 1995. (4)Class A Inception September 16, 1994. Class B Inception January 31, 1997. Class C Inception March 1, 1995. CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: ERV-P CTR =( ----- )100 P Where: CTR = cumulative total return; ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period; and P = initial payment of $1,000. The cumulative total return on investments in each of the Advantus Multiple Class Funds for the period indicated ended September 30, 2002, was as set forth in the table below. Average annual total returns quoted assume that the Class A maximum initial sales charge of 4.5% for Bond and Mortgage Funds and 5.5% for Spectrum and International Funds was in effect at the inception date of Class A shares. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser was voluntarily absorbing certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the cumulative total return for the same periods would have been lower, as also shown in the table below in parentheses.

Cumulative Total Return --------------------------------------------------------- Fund Class A Class B Class C ------- ------- ------- Spectrum Fund (2) 171.87(152.45) 42.57(40.91) 35.85(34.38) Mortgage Securities Fund (1) 310.19(292.66) 80.57(77.55) 74.40(71.07) Bond Fund (3) 191.75(156.65) 68.00(60.57) 62.66(56.06) International Fund (4) 24.88(23.45) -2.24(-2.17) 30.39(30.09)

- -------------------- (1)Class A Inception May 3, 1985. Class B Inception August 19, 1994. Class C Inception March 1, 1995. (2)Class A Inception November 16, 1987. Class B Inception August 19, 1994. Class C Inception March 1, 1995. (3)Class A Inception August 14, 1987. Class B Inception August 19, 1994. Class C Inception March 1, 1995. (4)Class A Inception September 16, 1994. Class B Inception January 31, 1997. Class C Inception March 1, 1995. The calculations for both average annual total return and cumulative total return deduct the maximum sales charge from the initial hypothetical $1,000 investment, assume all dividends and capital gain distributions are reinvested at net asset value on the appropriate reinvestment dates as described in the Prospectus, and include all recurring fees, such as investment advisory and management fees, charged as expenses to all shareholder accounts. -50- Such average annual total return and cumulative total return figures may also be accompanied by average annual total return and cumulative total return figures, for the same or other periods, which do not reflect the deduction of any sales charges. CAPITAL STOCK AND OWNERSHIP OF SHARES Each Fund's shares of common stock, and each class thereof, have a par value $.01 per share, and have equal rights to share in dividends and assets. The shares possess no preemptive or conversion rights. Cumulative voting is not authorized. This means that the holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors if they choose to do so, and in such event the holders of the remaining shares will be unable to elect any directors. Each of the Funds has 10 billion authorized shares of common stock. Each of the Advantus Multiple Class Funds has designated 2 billion authorized shares as Class A shares, 2 billion authorized shares as Class B shares, and 2 billion authorized shares as Class C shares. The Funds have the number of shares outstanding as set forth below.

Shares Outstanding at September 30, 2002 ------------------------------------------------- Fund Class A Class B Class C ------- ------- ------- Spectrum Fund 3,509,032 1,071,480 229,104 Mortgage Securities Fund 6,086,238 2,693,353 939,860 Money Market Fund 41,927,822 n/a n/a Bond Fund 1,638,445 595,446 104,778 International Fund 4,185,948 327,158 104,167

As of September 30, 2002, no person held of record, to the knowledge of the respective Funds, or owned more than 5% of the outstanding shares of any of the Funds, except as set forth in the following table:

Number of Name and Address of Shareholder Shares Percentage - ------------------------------- --------- ---------- SPECTRUM FUND Minnesota Life and affiliates* 981 .02% MORTGAGE SECURITIES FUND Minnesota Life and affiliates* 583,972 6.01% MONEY MARKET FUND Minnesota Life and affiliates* 4,679,431 11.16% BOND FUND Minnesota Life and affiliates* 341,589 14.61% INTERNATIONAL FUND Minnesota Life and affiliates* 3,222,851 69.80%

* 400 Robert Street North, St. Paul, Minnesota 55101. -51- HOW TO BUY SHARES Each Fund's shares may be purchased at the public offering price from Securian Financial, and from certain other broker-dealers or financial services firms. Securian Financial reserves the right to reject any purchase order. Shares of the Funds may be purchased at a price equal to their respective net asset value, which, in the case of Money Market Fund, will normally be constant at $1.00 per share. There is no assurance that Money Market Fund can maintain the $1.00 per share value. Certificates representing shares purchased are not currently issued. However, shareholders will receive written confirmation of their purchases. Shareholders will have the same rights of ownership with respect to such shares as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH CERTIFICATED SHARES BY TELEPHONE. ALTERNATIVE PURCHASE ARRANGEMENTS The Funds, other than Money Market Fund, offer investors the choice among three classes of shares which offer different sales charges and bear different expenses. These alternatives permit an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. For a detailed discussion of these alternative purchase arrangements see "Sales Charges" below. The decision as to which class of shares provides a more suitable investment for an investor may depend on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for a waiver of initial sales charges should purchase Class A shares. Other investors should consider Class B or Class C shares because all of the purchase price is invested immediately. Investors who expect to hold shares for relatively shorter periods of time may prefer Class C shares because such shares may be redeemed at any time without payment of a contingent deferred sales charge. Investors who expect to hold shares longer, however, may choose Class B shares because such shares convert to Class A shares sooner than do Class C shares and thus pay the higher Rule 12b-1 fee for a shorter period. Purchase orders for $1,000,000 or more will be accepted for Class A shares only and are not subject to a sales charge at the time of purchase, but a deferred sales charge will be imposed if such shares are sold within one year after the date of purchase. Orders for Class B or Class C shares for $1,000,000 or more will be treated as orders for Class A shares or declined. INTERNATIONAL FUND REDEMPTION FEE The International Fund imposes a short-term redemption fee on shares of all classes purchased and held for less than 60 days. The fee, equal to 2% of the redemption value, is deducted from the redemption proceeds and retained by the Fund for the benefit of its long-term shareholders. It is intended to discourage short-term trading of the Fund by market timers or other investors who do not share the long-term strategy of the Fund, and to reduce the expenses of long-term shareholders for the trading and other costs associated with short-term investments in the Fund. A redemption fee will not be charged on shares acquired by reinvestment of dividends or capital gains distributions. Shares with the longest holding period will be redeemed first for purposes of determining whether the redemption fee applies. PURCHASE BY CHECK New investors may purchase shares of the Funds by completing an account application and sending it, together with a check payable to the Fund, directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Additional purchases may be made at anytime by mailing a check, payable to the Fund, to the same address. Checks for additional purchases should be identified with the appropriate account number.Purchase orders may also be submitted through Securian Financial or other broker-dealers or financial services firms authorized to sell shares of the Fund. PURCHASE BY WIRE Shares may also be purchased by Federal Reserve or bank wire. This method will result in a more rapid investment in shares of the Funds. Before wiring any funds, contact Minnesota Life, through its Advantus Shareholder Services division, at (800) 665-6005 for instructions. Promptly after making an initial purchase by wire, an investor should complete an account application and mail it to at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Subsequent purchases may be made in the same manner. Wire purchases normally take two or more hours to complete, and to be accepted the same day must be received by 3:00 p.m. (Central time). Banks may charge a fee for transmitting funds by wire. -52- PURCHASE BY INTERNET Existing Advantus Funds shareholders may also purchase shares via the Internet, once they have established on-line authorization. Please contact Advantus Shareholder Services at (800) 665-6005 for information on how to establish your account. TIMING OF PURCHASE ORDERS An order in proper form for the purchase of shares of a Fund received by the Fund prior to the close of normal trading on the New York Stock Exchange ("NYSE"), which is generally 3:00 p.m. (Central time), will be effected at the price next determined on the date received by PFPC. An order received by PFPC from a financial services firm after the price is determined that day will nonetheless be processed at that day's price if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Other orders received after the close of the NYSE will be effected at the price next determined on the next business day. MINIMUM INVESTMENTS A minimum initial investment of $1,000 is required, except that $500 is the minimum initial investment required to open a qualified account or an account in which investments of not less than $50 are being made under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50. PUBLIC OFFERING PRICE The public offering price of the Fund will be the net asset value per share of the Fund next determined after an order is received and becomes effective, plus the applicable sales charge, if any. The net asset value per share of each class is determined by dividing the value of the securities, cash and other assets (including dividends accrued but not collected) of the Fund attributable to such class less all liabilities (including accrued expenses but excluding capital and surplus) attributable to such class, by the total number of shares of such class outstanding. The net asset value of the shares of the Fund is determined as of the close of normal trading on the New York Stock Exchange (as of the date of this Statement of Additional Information the primary close of trading is 3:00 p.m. (Central Time), but this time may be changed) on each day, Monday through Friday, except (i) days on which changes in the value of the Fund's portfolio securities will not materially affect the current net asset value of Fund shares, (ii) days during which no Fund shares are tendered for redemption and no order to purchase or sell Fund shares is received by the Fund and (iii) customary national business holidays on which the New York Stock Exchange is closed for trading. Securities, except securities held by the Money Market Fund, including put and call options, which are traded over-the-counter and on a national exchange will be valued according to the broadest and most representative market. A security which is only listed or traded on an exchange, or for which an exchange is the most representative market, is valued at its last sale price (prior to the time as of which assets are valued) on the exchange where it is principally traded. Lacking any sales on the exchange where it is principally traded on the day of valuation, prior to the time as of which assets are valued, the security generally is valued at the last bid price on that exchange. Futures contracts will be valued in a like manner, except that open futures contracts sales will be valued using the closing settlement price or in the absence of such a price, the most recent quoted bid price. All other securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. When market quotations are not readily available, such securities are valued at fair value as determined in good faith by the Board of Directors. Advantus Capital and the Funds' sub-advisers, where applicable, monitor for "significant events" that may (a) occur after closing market prices are established but before the time a Fund calculates its net asset value and (b) cause market quotations for certain securities to be considered "not readily available" because of such significant events. In such circumstances, those securities are also valued at fair value as determined in good faith by the Board of Directors. Other assets also are valued at fair value as determined in good faith by the Board of Directors. However, debt securities may be valued on the basis of valuations furnished by a pricing service which utilizes current market data, trading activity and the relative characteristics of securities to determine valuations for normal institutional-size trading units of debt securities, without regard to sale or bid prices, when such valuations are believed to more accurately reflect the fair market value of such securities. Short-term investments in debt securities are valued daily at market. Money Market Fund values its portfolio investments at amortized cost in accordance with Rule 2a-7 under the 1940 Act. See "Money Market Fund Amortized Cost Method of Portfolio Valuation" above. SALES CHARGES CLASS A SHARES The public offering price of Class A shares of each Fund is the net asset value of the Fund's shares (other than Money Market Fund) plus the applicable front end sales charge ("FESC"), which will vary with the size of the purchase. Securian Financial receives all applicable sales charges. Shares of Money Market Fund will be purchased at its net asset value, which will normally be constant at $1.00. There is no sales charge applicable to the purchase of Money Market Fund shares. The Fund receives the net asset value. The current sales charges are: -53- SPECTRUM FUND AND INTERNATIONAL FUND

Amount Paid to Broker-Dealers Sales Charge as a as a Percentage of Percentage of: Offering Price: -------------- ----------------------------- Net Offering Amount Value of Total Investment Price Invested - ---------------------------------------------------------------------------------------------- Less Than $50,000 5.5% 5.82% 4.75% $50,000 But Less Than $100,000 4.5 4.71 3.75 $100,000 But Less Than $250,000 3.5 3.63 2.75 $250,000 But Less Than $500,000 2.5 2.56 2.00 $500,000 But Less Than $1,000,000 2.0 2.04 1.50 $1,000,000 And Over (1) 0 0 1.00

MORTGAGE SECURITIES FUND AND BOND FUND

Amount Paid to Broker-Dealers Sales Charge as a as a Percentage of Percentage of: Offering Price: -------------- ----------------------------- Net Offering Amount Value of Total Investment Price Invested - ---------------------------------------------------------------------------------------------- Less Than $100,000 4.5% 4.71% 3.75% $100,000 But Less Than $250,000 3.5 3.63 2.75 $250,000 But Less Than $500,000 2.5 2.56 2.00 $500,000 But Less Than $1,000,000 2.0 2.04 1.50 $1,000,000 And Over (1) 0 0 1.00

(1) A FESC will not be assessed for purchases of Class A shares of at least $1 million, but a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. The sales charge applicable to an initial investment in the Fund depends on the offering price of the investment. The sales charge applicable to subsequent investments, however, depends on the offering price of that investment plus the current net asset value of the investor's previous investments in the Fund. For example, if an investor makes an initial investment in Class A shares of Horizon Fund with an offering price of $40,000 the investor will pay a sales charge equal to 5.5% of the $40,000 investment, but if an investor already owns Class A shares of Horizon Fund with a current net asset value of $40,000 and invests in additional Class A shares of Horizon Fund with an offering price of $10,000 the investor will pay a sales charge equal to 4.5% of the additional $10,000 since the total investment in the Fund would then be $50,000. -54- CLASS B SHARES Class B shares of the Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. However, a contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares are redeemed within six years of purchase. For additional information, see "Redemptions" below. Class B shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class B shares are subject to higher Rule 12b-1 fees as described below. The amount of the CDSC will depend on the number of years since the purchase was made, the amount of shares originally purchased and the dollar amount being redeemed. The amount of the applicable CDSC and the holding period prior to conversion are determined in accordance with the following table:

Shares Convert to Class A in the Month After CDSC Applicable in Year Expiration of - ----------------------------------------------------------------------------------------------------------------- Shares Purchased in an Amount 1 2 3 4 5 6 - ----------------------------- - - - - - - Less Than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 Months $50,000 But Less Than $100,000 4.5 3.5 2.5 1.5 1.5 0 76 Months $100,000 But Less Than $250,000 3.5 2.5 1.5 1.5 0 0 60 Months $250,000 But Less Than $500,000 2.5 1.5 1.5 0 0 0 44 Months $500,000 But Less Than $1,000,000 1.5 1.5 0 0 0 0 28 Months

Proceeds from the CDSC are paid to Securian Financial and are used to defray expenses related to providing distribution-related services to the Fund in connection with the sale of Class B shares, such as the payment of compensation to selected broker-dealers, and for selling Class B shares. The combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares without deduction of a sales charge at the time of purchase. Although Class B shares are sold without an initial sales charge, Securian Financial pays a sales commission to broker-dealers, and to registered representatives of Securian Financial, who sell Class B shares. The amount of this commission may differ from the amount of the commission paid in connection with sales of Class A shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher expense ratio and to pay lower dividends than Class A shares. Securian Financial pays other broker-dealers for the sale of Class B shares in accordance with the following schedule:

Advantus Multiple Class Funds: ---------------------------- Amount Paid to Broker-Dealers as a Percentage Shares Purchased in An Amount of Offering Price - --------------------------------------------------------------------------------------- Less Than $50,000 4.17% $50,000 But Less Than $100,000 3.75 $100,000 But Less Than $250,000 2.92 $250,000 But Less Than $500,000 2.08 $500,000 But Less Than $1,000,000 1.25

-55- CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class B shares acquired by exchange from Class B shares of another Advantus Multiple Class Funds will convert into Class A shares based on the time of the initial purchase. Purchased Class B shares ("Purchased B Shares") will convert after the specified number of months following the purchase date. All Class B shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment B Shares") will be held in a separate sub-account. Each time any Purchased B Shares convert to Class A shares, a pro rata portion (based on the ratio that the total converting Purchased B Shares bears to the shareholder's total converting and non-converting Purchased B Shares immediately prior to the conversion) of the Reinvestment B Shares then in the sub-account will also convert to Class A shares. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period. CLASS C SHARES Class C shares of the Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. Unlike Class B shares, however, no CDSC is imposed when Class C shares are redeemed. Class C shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class C shares are subject to higher Rule 12b-1 fees (as described below), and are subject to such higher fees for a longer period than are Class B shares because of a longer holding period prior to conversion. The applicable holding period prior to conversion is determined in accordance with the following table:

Shares Convert to Class A in the Month Shares Purchased in an Amount After Expiration of - ------------------------------------------------------------------------------ Less Than $50,000 96 Months $50,000 But Less Than $100,000 88 Months $100,000 But Less Than $250,000 72 Months $250,000 But Less Than $500,000 56 Months $500,000 But Less Than $1,000,000 40 Months

The longer period during which the Rule 12b-1 fee is charged enables the Fund to sell the Class C shares without deduction of a sales charge at the time of purchase and without imposing a CDSC at redemption. Securian Financial does not pay a sales commission to broker-dealers, or to registered representatives of Securian Financial, who sell Class C shares. The higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio and to pay lower dividends than Class A shares. -56- CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class C shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of another Advantus Multiple Class Fund will convert into Class A shares based on the time of the initial purchase. Purchased Class C shares ("Purchased C Shares") will convert after the specified number of months following the purchase date. All Class C shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment C Shares") will be held in a separate sub-account. Each time any Purchased C Shares convert to Class A shares, a pro rata portion (based on the ratio that the total converting Purchased C Shares bears to the shareholder's total converting and non-converting Purchased C Shares immediately prior to the conversion) of the Reinvestment C Shares then in the sub-account will also convert to Class A shares. The conversion of Class C shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class C shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class C shares would continue to be subject to higher expenses than Class A shares for an indefinite period. OTHER PAYMENTS TO BROKER-DEALERS Broker-dealers selling Class A, Class B and Class C shares of the Advantus Multiple Class Funds will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on a an annual basis, to .25% of the net asset values attributable to Class A, Class B and Class C shares. Shareholder servicing fee attributable to Class A shares are paid quarterly in arrears beginning with the end of the first quarter after the sale of the shares to which such fees are attributable. Shareholder servicing fees attributable to Class B and Class C shares are paid quarterly in arrears beginning with the second year after the sale of the shares to which such fees are attributable (i.e., the first payment is at the end of the fifteenth month). Rule 12b-1 distribution fees will also be paid quarterly in arrears to broker-dealers selling Class C shares equal, on an annual basis, to .75% of the net asset values attributable to such Class C shares. NET ASSET VALUE AND PUBLIC OFFERING PRICE Shares of Money Market Fund may be purchased at a price equal to their net asset value, which will normally be constant at $1.00 per share. See "Money Market Fund Amortized Cost Method of Valuation." There is no assurance that Money Market Fund can maintain the $1.00 per share value. The portfolio securities in which the Advantus Multiple Class Funds invest fluctuate in value, and hence the net asset value per share of each Fund also fluctuates. On September 30, 2002, the net asset value and public offering price per share for Class A, Class B and Class C shares of each of the Funds (except Money Market Fund) were calculated as set forth below. -57- SPECTRUM FUND CLASS A SHARES Net Assets ($36,973,789) = Net Asset Value Per Share ($10.54) - ------------------------------ Shares outstanding (3,509,032) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $10.54 = Public Offering Price Per Share ($11.15) ------ .945(1) CLASS B SHARES Net Assets ($11,216,484) = Net Asset Value AND Public - ------------------------------ Shares outstanding (1,071,480) Offering Price Per Share ($10.47) CLASS C SHARES Net Assets ($2,380,519) = Net Asset Value AND Public - ---------------------------- Shares Outstanding (229,104) Offering Price Per Share ($10.39) MORTGAGE SECURITIES FUND CLASS A SHARES Net Assets ($67,395,315) = Net Asset Value Per Share ($11.07) - -------------------------------- Shares outstanding (6,086,238) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.07 = Public Offering Price Per Share ($11.59) ------ .955(1) -58- CLASS B SHARES Net Assets ($29,879,468) = Net Asset Value AND Public - ---------------------------- Shares outstanding (2,693,353) Offering Price Per Share ($11.09) CLASS C SHARES Net Assets ($10,411,225) = Net Asset Value AND Public - ----------------------------- Shares outstanding (939,860) Offering Price Per Share ($11.08) BOND FUND CLASS A SHARES Net Assets ($17,313,342) = Net Asset Value Per Share ($10.57) - -------------------------------- Shares outstanding (1,638,445) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $10.57 = Public Offering Price Per Share ($11.07) ------ .955(1) CLASS B SHARES Net Assets ($6,307,868) = Net Asset Value AND Public - ------------------------------- Shares outstanding (595,446) Offering Price Per Share ($10.59) CLASS C SHARES Net Assets ($1,106,114) = Net Asset Value AND Public - ----------------------------------- Shares outstanding (104,778) Offering Price Per Share ($10.56) -59- INTERNATIONAL FUND CLASS A SHARES Net Assets ($36,487,887) = Net Asset Value Per Share ($8.72) - -------------------------------- Shares outstanding (4,185,948) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $8.72 = Public Offering Price Per Share ($9.23) ------ .945(1) CLASS B SHARES Net Assets ($2,797,862) = Net Asset Value AND Public - ------------------------------- Offering Price Per Share ($8.55) Shares outstanding (327,158) CLASS C SHARES Net Assets ($891,646) = Net Asset Value AND Public - ------------------------------- Offering Price Per Share ($8.56) Shares outstanding (104,167) (1) Effective February 1, 1999, the maximum FESC for Spectrum Fund and International Fund was increased to 5.5% and the maximum FESC for Mortgage Securities Fund and Bond Fund was decreased to 4.5%. REDUCED SALES CHARGES Special purchase plans are enumerated in the text of the Funds' Prospectus under "Buying and Selling Shares Reducing Sales Charges" and are fully described below. -60- RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT The front end sales charge and contingent deferred sales charge applicable to each purchase of Class A shares and Class B shares, respectively, of the Advantus Multiple Class Funds is based on the next computed net asset value of all Class A, Class B and Class C shares of such Funds held by the shareholder (including dividends reinvested and capital gains distributions accepted in shares), plus the cost of all Class A, Class B and Class C shares of such Funds currently being purchased. It is the obligation of each shareholder desiring this discount in sales charge to notify Securian Financial, through his or her dealer or otherwise, that he or she is entitled to the discount. LETTER OF INTENT The applicable sales charge for purchases of Class A shares is based on total purchases over a 13-month period where there is an initial purchase equal to or exceeding $1,000, accompanied by filing with Securian Financial a signed "Letter of Intent" form to purchase, and by in fact purchasing not less than $100,000 of shares in the case of Mortgage Securities Fund or Bond Fund, or not less than $50,000 of shares in one of the other Advantus Funds (except Money Market Fund), within that time. The 13-month period is measured from the date the Letter of Intent is approved by Securian Financial, or at the purchaser's option, it may be made retroactive 90 days, in which case Securian Financial will make appropriate adjustments on purchases during the 90-day period. In computing the total amount purchased for purposes of determining the applicable sales charge, the net asset value of Class A, Class B and Class C shares currently held in all Advantus Multiple Class Funds, on the date of the first purchase under the Letter of Intent, may be used as a credit toward Fund shares to be purchased under the Letter of Intent. Class A, Class B and Class C shares of all the Advantus Multiple Class Funds may also be included in the purchases during the 13-month period. The Letter of Intent includes a provision for payment of additional applicable Class A sales charges at the end of the period in the event the investor fails to purchase the amount indicated. This is accomplished by holding 5.5%, or 4.5% in the case of Mortgage Securities Fund and Bond Fund, of the investor's initial Class A share purchase in escrow. If the investor's purchases equal those specified in the Letter of Intent, the escrow is released. If the purchases do not equal those specified in the Letter of Intent, he or she may remit to Securian Financial an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges that would have been paid on the aggregate purchases if the total of such purchases had been made at a single time. If the purchaser does not remit this sum to Securian Financial on a timely basis, Securian Financial will redeem the appropriate number of shares, and then release or deliver any remaining shares in the escrow account. The Letter of Intent is not a binding obligation on the part of the investor to purchase, or the respective Fund to sell, the full amount indicated. Nevertheless, the Letter of Intent should be read carefully before it is signed. COMBINING PURCHASES With respect to each of the Advantus Multiple Class Funds, purchases of Class A, Class B and Class C shares for any other account of the investor, or such person's spouse or minor children, or purchases on behalf of participants in a tax-qualified retirement plan may be treated as purchases by a single investor for purposes of determining the availability of a reduced sales charge. -61- GROUP PURCHASES An individual who is a member of a qualified group may also purchase shares of the Advantus Multiple Class Funds at the reduced sales charge applicable to the group taken as a whole. The sales charge is calculated by taking into account not only the dollar amount of the Class A, Class B and Class C shares of the Funds being purchased by the individual member, but also the aggregate dollar value of such Class A, Class B and Class C shares previously purchased and currently held by other members of the group. Members of a qualified group may not be eligible for a Letter of Intent. A "qualified group" is one which (i) has been in existence for more than six months, (ii) has a purpose other than acquiring Fund shares at a discount, and (iii) satisfies uniform criteria which enable Securian Financial to realize economies of scale in distributing such shares. A qualified group must have more than ten members, must be available to arrange for group meetings between representatives of Securian Financial, must agree to include sales and other materials related to the Funds in its publications and mailings to members at reduced or no cost to Securian Financial, and must seek, upon request, to arrange for payroll deduction or other bulk transmission of investments to the Funds. WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES Directors and officers of Advantus Capital, Templeton Counsel and FAV (with respect to International Fund only), Securian Financial, the Funds, Minnesota Life, or any of Minnesota Life's other affiliated companies, and their full-time and part-time employees, sales representatives and retirees, any trust, pension, profit-sharing, or other benefit plan for such persons, the spouses, siblings, direct ancestors or direct descendants of such persons, independent legal counsel to the Fund's independent directors, Minnesota Life and its affiliates themselves, advisory clients of Advantus Capital, employees of sales representatives employed in offices maintained by such sales representatives, certain accounts as to which a bank or broker-dealer charges an account management fee, provided the bank or broker-dealer has an agreement with Securian Financial, certain accounts sold by registered investment advisers who charge clients a fee for their services, investors who, within 60 days after redeeming shares of a class of shares generally subject to either an initial or deferred sales charge issued by a non-Advantus fund, use those redemption proceeds to purchase Class A shares from Securian Financial or a broker-dealer that has entered into an agreement with Securian Financial specifically providing for net asset value purchases, and employer-sponsored retirement plans described in Sections 401 or 403, or governmental retirement plans described in Section 457, of the Internal Revenue Code with total plan assets of not less than $500,000, may purchase Class A shares of the Advantus Multiple Class Funds at net asset value. These persons must give written assurance that they have bought for investment purposes, and that the securities will not be resold except through redemption or repurchase by, or on behalf of, the respective Fund. These persons are not required to pay a sales charge because of the reduced sales effort involved in their purchases. EXCHANGE AND TRANSFER OF FUND SHARES A shareholder can exchange some or all of his or her Class A, Class B and Class C shares in the Advantus Multiple Class Funds, including shares acquired by reinvestment of dividends, for shares of the same class of any of the other Advantus Multiple Class Funds (provided such Fund is available in the shareholder's State), and can thereafter re-exchange such exchanged shares back for shares of the same class of the Fund. Purchases by exchange are subject to the minimum investment requirements of the Funds. The exchange will be made on the basis of the relative net asset values without the imposition of any additional sales load. Shares of International Fund may be subject to a 2% redemption fee, however, if exchanged within 60 days of purchase. When Class B shares acquired through the exchange are redeemed, the shareholder will be treated as if no exchange took place for the purpose of determining the contingent deferred sales charge ("CDSC") period and applying the CDSC. Class A, Class B and Class C shares may also be exchanged for shares of the Money Market Fund at net asset values. No CDSC will be imposed at the time of any such exchange of Class B shares; however, the Money Market Fund shares acquired in any such exchange will remain subject to the CDSC otherwise applicable to such Class B shares as of the date of exchange, and the period during which such shares of Money Market Fund are held will not be included in the calculation of the CDSC due at redemption of such Money Market Fund shares or any reacquired Class B shares, except as follows. Securian Financial is currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the event Securian Financial begins to receive any portion of such fee, either (i) the time period during which shares of Money Market Fund acquired in exchange for Class B shares are held will be included in the calculation of the CDSC due at redemption, or (ii) such time period will not be included but the amount of the CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money Market Fund with respect to those shares. -62- Exchanges of shares from Money Market Fund are subject to applicable sales charges of the Advantus Fund being purchased, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gains distributions. Shares of Money Market Fund previously acquired in an exchange for Class A, Class B or Class C shares from any of the Funds may be re-exchanged at relative net asset values for Class A, Class B and Class C shares, respectively, of another Advantus Fund. Class C shares re-acquired in this manner will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at the time of the initial exchange. The exchange privilege is available only in states where such exchanges may legally be made (at the present time the Fund believes this privilege is available in all states). An exchange may be made by written request or by a telephone call, (unless the shareholder has elected on the account application not to have telephone transaction privileges) or by Internet. Up to twelve exchanges each calendar year may be made without charge. A $7.50 service charge will be imposed on each subsequent exchange and/or telephone transfer. No service charge is imposed in connection with systematic exchange plans. However, the Fund reserves the right to restrict the frequency of, or otherwise modify, condition, terminate, or impose additional charges upon, the exchange and/or telephone transfer privileges and/or Internet transactions, upon 60 days' prior notice to shareholders. An exchange is considered to be a sale of shares for federal income tax purposes on which an investor may realize a long- or short-term capital gain or loss. See "Distributions and Tax Status" for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. SYSTEMATIC EXCHANGE PLAN Shareholders of the Fund may elect to have shares of the Fund systematically exchanged for shares of any of the other Advantus Funds on a monthly basis. The minimum amount which may be exchanged on such a systematic basis is $50. The terms and conditions otherwise applicable to exchanges generally, as described above, also apply to such systematic exchange plans. SHAREHOLDER SERVICES OPEN ACCOUNTS A shareholder's investment is automatically credited to an open account maintained for the shareholder by PFPC, the Fund's transfer agent. Stock certificates are not currently issued. Following each transaction in the account, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each year PFPC sends to each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This should be retained as a permanent record. A fee may be charged for providing duplicate information. The open account system provides for full and fractional shares expressed to four decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are paid by each Fund. No direct charges are made to shareholders, except that the Funds will deduct a $10 annual fee from a shareholder's account in December of each year if the account balance at that time if below $2,000. This low balance fee is waived for qualified retirement accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). Money Market Fund will also waive the low balance fee for Money Market Fund investors who have had any purchase activity (excluding reinvestments of dividend and capital gains distributions) in their account during the preceding twelve months. Although the Funds have no present intention of making additional direct charges to shareholders, they reserve the right to do so. Shareholders will receive prior notice before any such charges are made. AUTOMATIC INVESTMENT PLAN Each Fund provides a convenient, voluntary method of purchasing shares in the Fund through its "Automatic Investment Plan" (the "Plan"). The principal purposes of the Plan are to encourage thrift by enabling you to make regular purchases in amounts less than normally required, and, in the case of the Advantus Multiple Class Funds, to employ the principle of dollar cost averaging, described below. -63- By acquiring Fund shares on a regular basis pursuant to the Automatic Investment Plan, or investing regularly on any other systematic plan, the investor takes advantage of the principle of dollar cost averaging. Under dollar cost averaging, if a constant amount is invested at regular intervals at varying price levels, the average cost of all the shares will be lower than the average of the price levels. This is because the same fixed number of dollars buys more shares when price levels are low and fewer shares when price levels are high. There is no guarantee, however, that the automatic investment plan will always result in a lower cost per share compared to other investment programs. It is essential that the investor consider his or her financial ability to continue this investment program during times of market decline as well as market rise. The principle of dollar cost averaging will not protect against loss in a declining market, as a loss will result if the plan is discontinued when the market value is less than cost. A Plan may be opened with an initial investment of $500 and by indicating an intention to invest $50 ($25 for plans established prior to December 2, 2002) or more monthly for at least one year. Investors will receive a confirmation showing the number of shares purchased, purchase price, and subsequent new balance of shares accumulated. An investor has no obligation to invest regularly or to continue the Plan, which may be terminated by the investor at any time without penalty. Under the Plan, any distributions of income and realized capital gains will be reinvested in additional shares at net asset value unless a shareholder instructs the Fund in writing to pay them in cash. The Fund reserves the right to increase or decrease the amount required to open and continue a Plan, and to terminate any Plan after one year if the value of the amount invested is less than $250. GROUP SYSTEMATIC INVESTMENT PLAN This Plan provides employers and employees with a convenient means for purchasing shares of each Fund under various types of employee benefit and thrift plans, including payroll withholding and bonus incentive plans. The Plan may be started with an initial cash investment of $50 per participant for a group consisting of five or more participants. The shares purchased by each participant under the Plan will be held in a separate account in which all dividends and capital gains will be reinvested in additional shares of the Fund at net asset value. To keep his or her account open, subsequent payments totaling $25 per month must be made into each participant's account. If the group is reduced to less than five participants, the minimums set forth under "Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund or the shareholder at any time upon reasonable notice. RETIREMENT PLANS OFFERING TAX BENEFITS The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of any of the Funds. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRA's), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, e.g. 403(b) plans. The initial investment in each Fund by such a plan must be at least $250 for each participant in a plan, and subsequent investments must be at least $25 per month for each participant. Income dividends and capital gain distributions must be reinvested. Plan documents and further information can be obtained from Securian Financial. An investor should consult a competent tax or other adviser as to the suitability of Fund shares as a vehicle for funding a plan, in whole or in part, under the Employee Retirement Income Security Act of 1974 and as to the eligibility requirements for a specific plan and its state as well as federal tax aspects. SYSTEMATIC WITHDRAWAL PLANS An investor owning shares in any one of the Funds having a value of $5,000 or more at the current public offering price may establish a Systematic Withdrawal Plan providing for periodic payments of a fixed or variable amount. Withdrawal payments for Class A shares of the Advantus Multiple Class Funds purchased in amounts of $1 million or more, and for Class B shares of Advantus Multiple Class Funds, may also be subject to a CDSC. As a result, a shareholder should consider whether a Systematic Withdrawal Plan is appropriate. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. -64- The Plan is particularly convenient and useful for trustees in making periodic distributions to retired employees. Through this Plan a trustee can arrange for the retirement benefit to be paid directly to the employee by the respective Fund and to continue the tax-free accumulation of income and capital gains prior to their distribution to the employee. An investor may terminate the Plan at any time. A form for use in establishing such a plan is available from Securian Financial. A shareholder under a Systematic Withdrawal Plan may elect to receive payments monthly, quarterly, semiannually, or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. All shares under the Plan must be left on deposit. Income dividends and capital gain distributions will be reinvested without a sales charge at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the initial investment, particularly in the event of a decline in net asset value. Under this Plan, any distributions of income and realized capital gains must be reinvested in additional shares, and are reinvested at net asset value. If a shareholder wishes to purchase additional shares of the respective Fund under this Plan, except in the case of Money Market Fund, other than by reinvestment of distributions, it should be understood that, in the case of Class A shares, he or she would be paying a sales commission on such purchases, while liquidations effected under the Plan would be at net asset value, and, in the case of Class B shares, he or she would be purchasing such shares at net asset value while liquidations effected under the Plan would involve the payment of a contingent deferred sales charge. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. Additions to a shareholder account in which an election has been made to receive systematic withdrawals will be accepted only if each such addition is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. A shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic Investment Plan" in effect simultaneously as it is not, as explained above, advantageous to do so. REDEMPTIONS Registered holders of shares of the Funds may redeem their shares at the per share net asset value ("NAV") next determined following receipt by PFPC (at its mailing address listed on the cover page) of a written redemption request signed by all shareholders exactly as the account is registered (and a properly endorsed stock certificate if one has been issued). A sale order received by PFPC from a financial services firm after NAV is determined that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Class C shares may be redeemed without charge. A contingent deferred sales charge may be applicable upon redemption of certain Class A shares and Class B shares. Class A, Class B and Class C shares of International Fund, however, may be subject to a 2% redemption fee if redeemed within 60 days of purchase. Both share certificates and stock powers, if any, tendered in redemption must be endorsed and executed exactly as the Fund shares are registered. Any certificates should be sent to the Fund by certified mail. Payment will be made as soon as possible, but generally not later than seven days after receipt of a properly executed written redemption request (and any certificates). Sales proceeds from shares purchased by check or bank draft, other than checks from government agencies, will not be available until the check or draft clears the purchaser's bank, which may take up to fifteen days after purchase. The amount received by the shareholder may be more or less than the shares' original cost. If stock certificates have not been issued, and if no signature guarantee is required, shareholders may also submit their signed written redemption request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is (508) 871-9960. -65- Each Fund will pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. When redemption requests exceed such amount, however, the Fund reserves the right to make part or all of the payment in the form of securities or other assets of the Fund. An example of when this might be done is in case of emergency, such as in those situations enumerated in the following paragraph, or at any time a cash distribution would impair the liquidity of the Fund to the detriment of the existing shareholders. Any securities being so distributed would be valued in the same manner as the portfolio of the Fund is valued. If the recipient sold such securities, he or she probably would incur brokerage charges. Each Fund has filed with the Securities and Exchange Commission a notification of election pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make such redemptions in kind. Redemption of shares, or payment, may be suspended at times (a) when the New York Stock Exchange is closed for other than customary weekend or holiday closings, (b) when trading on said Exchange is restricted, (c) when an emergency exists, as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits; provided that applicable rules and regulations of the Securities and Exchange Commission shall govern as to whether the conditions prescribed in (b) or (c) exist. MEDALLION SIGNATURE GUARANTEE In order to protect both shareholders and the Funds against fraudulent orders, a medallion shareholder signature guarantee is required in certain cases. No signature guarantee is required if the redemption proceeds are less than $50,000 and are to be paid to the registered holder and sent to the address of record for that account, or if the written redemption request is from pre-authorized trustees of plans, trusts and other tax-exempt organizations and the redemption proceeds are less than $50,000. A medallion signature guarantee is required, however, if (i) the redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to be paid to someone other than the registered holder, (iii) the redemption proceeds are to be mailed to an address other than the registered shareholder's address, (iv) within the 30-day period prior to receipt of the redemption request, instructions have been received to change the shareholder's address of record, or, in the case of redemptions to be paid by wire, instructions have been received within such period to change the shareholder's bank wire instructions, (v) the shares are requested to be transferred to the account of another owner, or (vi) in the case of plans, trusts, or other tax-exempt organizations, the redemption request is not from a pre-authorized trustee. The Fund reserves the right to require signature guarantees on all redemptions. A signature guarantee must be a "medallion" signature guarantee provided by a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are: - - Securities Transfer Agents Medallion Program (STAMP) - - Stock Exchanges Medallion Program (SEMP) - - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP) Signature guarantees from financial institutions which are not participants in a recognized medallion program will not be accepted. -66- CONTINGENT DEFERRED SALES CHARGE The CDSC applicable upon redemption of Class A shares purchased in amounts of $1 million or more and Class B shares will be calculated on an amount equal to the lesser of the net asset value of the shares at the time of purchase or their net asset value at the time of redemption. No charge will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions or on shares held for longer than the applicable CDSC period. See "Sales Charges - Class B Shares" above. In determining whether a CDSC is payable with respect to any redemption of Class B shares, the calculation will be determined in the manner that results in the lowest rate being charged. The CDSC does not apply to: (1) redemption of Class B shares in connection with the automatic conversion to Class A shares; (2) redemption of shares when a Fund exercises its right to liquidate accounts which are less than the minimum account size; (3) redemptions in the event of the death or disability of the shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code; and (4) in connection with Class B shares redeemed pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares equal in amount to 12% of the value of a shareholder's account in a Fund at the time the Systematic Withdrawal Plan is established. The CDSC will also not apply to certain exchanges. See "Exchange and Transfer of Fund Shares," above. TELEPHONE REDEMPTION The Funds' shareholders have this privilege automatically, unless they have elected on the account application not to have such privilege, and may redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see "Telephone Transactions"). A telephone redemption request will not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30-day period prior to receipt of the redemption request. The maximum amount which may be redeemed by telephone is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. INTERNET REDEMPTION The Funds' shareholders may elect to perform certain transactions via the Internet. In order to do so, the shareholder must first authorize the Fund to transmit information on-line and agree to the Funds' web site procedures. Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more information on how to enable an account. Internet transactions may not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30 day period prior to receipt of the redemption request. The maximum amount which may be redeemed by internet is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. DELAY IN PAYMENT OF REDEMPTION PROCEEDS Payment of redemption proceeds will ordinarily be made as soon as possible and within the periods of time described above. However, an exception to this is that if redemption is requested after a purchase by check or bank draft, other than checks from government agencies, the Fund will delay mailing the redemption check or wiring proceeds until it has reasonable assurance that the purchase check has cleared (good payment has been collected). This delay may be up to 15 days from the purchase date. FUND'S RIGHT TO REDEEM SMALL ACCOUNTS Each Fund has the right to redeem the shares in small accounts which, for any reason, have a total current value of less than $500. The Funds usually make this determination in December of each year. Before redeeming an account, the Fund will mail to the shareholder a written notice of its intention to redeem, which will give the investor an opportunity to make an additional investment. If no additional investment is received by the Fund within 60 days of the date the notice was mailed, the shareholder's account will be redeemed. MONEY MARKET FUND CHECKWRITING Money Market Fund shareholders may elect the checkwriting privilege which allows them to write checks in amounts from a minimum of $250 to a maximum of $100,000. No charge is made for the initial supply of checks, but each subsequent check order is subject to a charge of $7. Checks may not be written against shares in a Fund account which have been purchased within the last 15 days, except for shares purchased by wire transfer (which are immediately available) or a check from a government agency. Checkwriting is not an appropriate means to close a Fund account. A $15 service fee will be charged when a shareholder requests "stop payment" of a check. -67- AUTOMATIC PREMIUM PAYMENTS A shareholder may authorize Minnesota Life to redeem shares in his or her Money Market Fund account periodically in amounts equal to the premiums due on insurance policies issued to the shareholder by Minnesota Life and to apply those amounts in payment of the premiums due on those policies. Payment of insurance premiums in this manner may be made only where such insurance premiums are due on a monthly basis. In no event will Minnesota Life redeem shares to pay on insurance premium unless there are shares in a shareholder's Money Market Fund account sufficient to pay the full amount of the premium. REINSTATEMENT PRIVILEGE The Prospectus for the Funds describes redeeming shareholders' reinstatement privileges under the caption "Buying and Selling Shares." Written notice from persons wishing to exercise this reinstatement privilege must be received by Securian Financial within 90 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. All shares issued as a result of the reinstatement privilege applicable to redemptions of Class A and Class B shares will be issued only as Class A shares. Any CDSC incurred in connection with the prior redemption (within 90 days) of Class B shares will not be refunded or re-credited to the shareholder's account. Shareholders who redeem Class C shares and exercise their reinstatement privilege will be issued only Class C shares, which shares will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at redemption. See "Distributions and Tax Status" below for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. Should an investor utilize the reinstatement privilege following a redemption which resulted in a loss, all or a portion of that loss might not be currently deductible for Federal income tax purposes, for an investor which is not tax-exempt. Exercising the reinstatement privilege would not alter any capital gains taxes payable on a realized gain, for an investor which is not tax-exempt. See discussion under "Distributions and Tax Status" below regarding the taxation of capital gains. TELEPHONE TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's shares by telephone. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions by telephone is made available automatically unless the shareholder elects on the account application not to have such privilege. Shareholders, or persons authorized by shareholders, may initiate telephone transactions by telephoning Advantus Shareholder Services, toll free, at 1-800-665-6005. Automated service is available 24 hours a day, and service representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m. (Central Time). Telephone transaction requests received after 3:00 p.m. (Central Time) will be treated as received the next business day. The maximum amount which may be redeemed by telephone is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing a telephone exchange or redemption due to a heavy volume of telephone calls. In such a circumstance, shareholders should consider submitting a written request as an alternative to a telephone exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the telephone exchange and redemption privileges upon 60 days' prior notice to shareholders. -68- A Fund will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated by telephone are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing telephone transactions include tape recording of telephone instructions, asking shareholders for their account number and a personal identifying number, and providing written confirmation of such transactions. INTERNET TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's share via the Internet. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions via Internet requires that a shareholder contact Advantus at (800) 665-6005 to enable their account. Shareholders, or persons authorized by shareholders, may initiate Internet transactions by going to the Advantus Funds web site, www.advantusfunds.com. Automated service is generally available 24 hours a day. Internet transaction requests received after 3:00 p.m. (Central time) will be treated as received the next business day. The maximum amount which may be redeemed via Internet is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing an on-line exchange or redemption due to a heavy volume. In such a circumstance, shareholders should consider submitting a written request as an alternative to an on-line exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the Internet on-line exchange and redemption privileges upon 60 days' prior notice to shareholders. A Fund will not be liable for following instructions communicated by Internet which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated via the Internet are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing Internet transactions include requiring shareholders to contact Advantus in order to establish their on-line account, asking shareholders for their account number and a personal identifying number, providing a confirmation number on-screen, at the completion of an on-line transaction, and providing written confirmation of such transactions. DISTRIBUTIONS AND TAX STATUS DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS The policy of the International Fund and Spectrum Fund has been to pay dividends from net investment income, if any, quarterly. The policy of Mortgage Securities Fund, Bond Fund and Money Market Fund has been to declare dividends from net investment income on each business day of the Fund, except that dividends for Saturdays, Sundays and holidays are declared on the next business day, and to pay such dividends monthly. Bond Fund and Mortgage Securities Fund each expects to pay dividends at a targeted level from its net investment income and other distributable income without any impact on the net asset values per share. Any net realized capital gains are generally distributed once a year, during December. For all Funds other than Money Market Fund, distributions, if any, paid with respect to Class A, Class B and Class C shares will be calculated in the same manner, at the same time, on the same day and will be in the same amount, except that the higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne exclusively by such shares. The per share distributions on Class B and Class C shares will be lower than the per share distributions on Class A shares as a result of the higher Rule 12b-1 fees applicable to Class B and Class C shares. Any dividend payments or net capital gains distributions made by a Fund are in the form of additional shares of the same class of the Fund rather than in cash, unless a shareholder specifically requests the Fund in writing that the payment be made in cash. The distribution of these shares is made at net asset value on the payment date of the dividend, without any sales or other charges to the shareholder. The taxable status of income dividends and/or net capital gains distributions is not affected by whether they are reinvested or paid in cash. Authorization to pay dividends in cash may be made on the application form, or at any time by letter. For federal income tax purposes, Spectrum Fund, Bond Fund and International Balanced Fund have capital loss carryovers as of September 30, 2002 in the amounts of $11,482,396, $1,043,533 and $2,064,851, respectively. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gain until the available capital loss carryover has been offset or expires. Upon written request to a Fund, a shareholder may also elect to have dividends from the Fund invested without sales charge in shares of Money Market Fund or shares of the same class of another of the Advantus Funds at the net asset value of such other Fund on the payable date for the dividends being distributed. To use this privilege of investing dividends from a Fund in shares of another of the Funds, shareholders must maintain a minimum account value of $500 in both the Fund paying the dividends and the other Fund in which dividends are reinvested. TAXATION - GENERAL The following is a general summary of certain federal tax considerations affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Funds or their shareholders, and the discussion here is not intended as a substitute for careful tax planning. During the year ended September 30, 2002 each Fund fulfilled, and intends to continue to fulfill, the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company. If so qualified, each Fund will not be liable for federal income taxes to the extent it distributes its taxable income to its shareholders. -69- Distributions of investment company taxable income from a Fund generally will be taxable to shareholders as ordinary income, regardless of whether such distributions are paid in cash or are invested in additional shares of the Fund's stock. A distribution of net capital gain (a "capital gain distribution"), whether paid in cash or reinvested in shares, generally is taxable to shareholders as long-term capital gain, regardless of the length of time a shareholder has held his or her shares or whether such gain was realized by the Fund before the shareholder acquired such shares and was reflected in the price paid for the shares. Long-term capital gains of individuals are taxed at a maximum rate of 20%, and the highest marginal regular tax rates on ordinary income for individuals is 39.6%. Some or all of the dividend distributions from Spectrum Fund are expected to qualify for the 70% dividend received deduction for corporations. If more than 50% of International Fund's total assets at the close of its fiscal year consist of securities of foreign corporations, it will be eligible to, and may, file an election with the Internal Revenue Service pursuant to which shareholders will be required to include their pro rata portions of foreign taxes paid by the Fund as income received by them. Shareholders may then either deduct such pro rata portions in computing their taxable income or use them as foreign tax credits against their United States income taxes. If the Fund makes such an election, it will report annually to each shareholder the amount of foreign taxes to be included in income and then either deducted or credited. Alternatively, if the amount of foreign taxes paid by International Fund is not large enough to warrant its making the election described above, the Fund may claim the amount of foreign taxes paid as a deduction against its own gross income. In that case, shareholders would not be required to include any amount of foreign taxes paid by the Fund in their income and would not be permitted either to deduct any portion of foreign taxes from their own income or to claim any amount of foreign tax credit for taxes paid by the Fund. Prior to purchasing shares of the Fund, prospective shareholders (except for tax-qualified retirement plans) should consider the impact of dividends or capital gains distributions which are expected to be announced, or have been announced but not paid. Any such dividends or capital gains distributions paid shortly after a purchase of shares by an investor prior to the record date will have the effect of reducing the per share net asset value by the amount of the dividends or distributions. All or a portion of such dividends or distributions, although in effect a return of capital, is subject to taxation. The Code provides that a shareholder who pays a sales charge in acquiring shares of a mutual fund, redeems those shares within 90 days after acquiring them, and subsequently acquires new shares in any mutual fund for a reduced sales charge or no sales charge (pursuant to a reinvestment right acquired with the first shares), may not take into account the sales charge imposed on the first acquisition, to the extent of the reduction in the sales charge on the second acquisition, for purposes of computing gain or loss on disposition of the first acquired shares. The amount of sales charge disregarded under this rule will, however, be treated as incurred in connection with the acquisition of the second acquired shares. Shareholders of the Funds receive an annual statement detailing federal tax information. Distributions by the Funds, including the amount of any redemption, are reported to shareholders in such annual statement and to the Internal Revenue Service to the extent required by the Code. The Funds are required by federal law to withhold 31% of reportable payments (including dividends, capital gain distributions, and redemptions) paid to certain accounts whose owners have not complied with IRS regulations. In order to avoid this backup withholding requirement, each shareholder will be asked to certify on the shareholder's account application that the social security or taxpayer identification number provided is correct and that the shareholder is not subject to backup withholding for previous underreporting to the IRS. Some of the investment practices that may be employed by the Funds will be subject to special provisions that, among other things, may defer the use of certain losses of such Funds, affect the holding period of the securities held by the Funds and, particularly in the case of transactions in or with respect to foreign currencies, affect the character of the gains or losses realized. These provisions may also require the Funds to mark-to-market some of the positions in their respective portfolios (i.e., treat them as closed out) or to accrue original discount, both of which may cause such Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for qualification as a regulated investment company and for avoiding income and excise taxes. Accordingly, in order to make the required distributions, a Fund may be required to borrow or liquidate securities. Each Fund will monitor its transactions and may make certain elections in order to mitigate the effect of these rules and prevent disqualification of the Funds as regulated investment companies. -70- Each Fund is subject to a non-deductible excise tax equal to 4 percent of the excess, if any, of the amount required to be distributed pursuant to the Code for each calendar year over the amount actually distributed. In order to avoid the imposition of this excise tax, the Fund generally must declare dividends by the end of a calendar year representing 98 percent of the Fund's ordinary income for the calendar year and 98 percent of its capital gain net income (both long-term and short-term capital gains) for the twelve-month period ending October 31 of the calendar year. The foregoing relates only to federal taxation. Prospective shareholders should consult their tax advisers as to the possible application of state and local income tax laws to ownership of Fund shares. FINANCIAL STATEMENTS Each Fund's financial statements for the year ended September 30, 2002, including the financial highlights for each of the respective periods presented, appearing in the Funds' Annual Report to Shareholders, and the report thereon of such Fund's independent auditors, KPMG LLP, also appearing therein, are incorporated by reference in this Statement of Additional Information. -71- APPENDIX A MORTGAGE-RELATED SECURITIES Mortgage-related securities represent an ownership interest in a pool of residential mortgage loans. These securities are designed to provide monthly payments of interest and principal to the investor. The mortgagor's monthly payments to his lending institution are "passed-through" to investors such as the Fund. Most insurers or services provide guarantees of payments, regardless of whether or not the mortgagor actually makes the payment. The guarantees made by issuers or servicers are backed by various forms of credit, insurance and collateral. UNDERLYING MORTGAGES Pools consist of whole mortgage loans or participations in loans. The majority of these loans are made to purchasers of 1-4 family homes. Some of these loans are made to purchasers of mobile homes. The terms and characteristics of the mortgage instruments are generally uniform within a pool buy may vary among pools. For example, in addition to fixed-rate fixed-term mortgages, the fund may purchase pools of variable rate mortgages, growing equity mortgages, graduated payment mortgages and other types. All servicers apply standards for qualification to local lending institutions which originate mortgages for the pools. Servicers also establish credit standards and underwriting criteria for individual mortgages included in the pools. In addition, many mortgages included in pools are insured through private mortgage insurance companies. LIQUIDITY AND MARKETABILITY Since the inception of the mortgage-related pass-through security in 1970, the market for these securities has expanded considerably. The size of the primary issuance market and active participation in the secondary market by securities dealers and many types of investors makes government and government-related pass-through pools highly liquid. The recently introduced private conventional pools of mortgages (pooled by commercial banks, savings and loans institutions and others, with no relationship with government and government-related entities) have also achieved broad market acceptance and consequently an active secondary market has emerged. However, the market for conventional pools is smaller and less liquid than the market for the government and government-related mortgage pools. The Fund may purchase some mortgage-related securities through private placements, in which case only a limited secondary market exists, and the security is considered illiquid. AVERAGE LIFE The average life of pass-through pools varies with the maturities of the underlying mortgage instruments. In addition, a pool's term may be shortened by unscheduled or early payments of principal and interest on the underlying mortgages. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. As prepayment rates of individual pools vary widely, it is not possible to accurately predict the average life of a particular pool. For pools of fixed-rate 30-year mortgages, common industry practice is to assume that prepayments will result in a 12-year average life. Pools of mortgages with other maturities or different characteristics will have varying assumptions for average life. The assumed average life of pools of mortgages having terms of less than 30 years is less than 12 years, but typically not less than 5 years. A-1 YIELD CALCULATIONS Yields on pass-through securities are typically quoted by investment dealers and vendors based on the maturity of the underlying instruments and the associated average life assumption. In periods of falling interest rates the rate of prepayment tends to increase, thereby shortening the actual average life of a pool of mortgage-related securities. Conversely, in periods of rising rates and the rate of prepayment tends to decrease, thereby lengthening the actual average life of the pool. Historically, actual average life has been consistent with the 12-year assumption referred to above. Actual prepayment experience may cause the yield to differ from the assumed average life yield. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of the Fund. The compounding effect from reinvestments of monthly payments received by the Fund will increase the yield to shareholders compared to bonds that pay interest semi-annually. A-2 APPENDIX B BOND AND COMMERCIAL PAPER RATINGS BOND RATINGS Moody's Investors Service, Inc. describes its six highest ratings for corporate bonds and mortgage-related securities as follows: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3, in each of these generic rating classifications. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's Corporation describes its six highest ratings for corporate bonds and mortgage-related securities as follows: B-1 AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB. Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B. Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. Standard & Poor's Corporation applies indicators "+", no character, and "-" to the above rating categories. The indicators show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. Among the factors considered by Moody's Investors Service, Inc. in assigning the ratings are the following: (1) evaluation of the management of the issuer, (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; an (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. The rating A-1 is the highest rating assigned by Standard & Poor's Corporation to commercial paper which is considered by Standard & Poor's Corporation to have the following characteristics: Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. B-2 APPENDIX C FUTURES CONTRACTS EXAMPLE OF FUTURES CONTRACT SALE The Fund would engage in a futures contract sale to maintain the income advantage from continued holding of a long-term security while endeavoring to avoid part or all of the loss in market value that would otherwise accompany a decline in long-term securities prices. Assume that the market value of a certain security in the Fund's portfolio tends to move in concert with the futures market prices of long-term United States Treasury bonds ("Treasury bonds"). The Fund wishes to fix the current market value of this portfolio security until some point in the future. Assume the portfolio security has a market value of $100, and the Fund believes that, because of an anticipated rise in interest rates, the value will decline to $95. The Fund might enter into futures contract sales of Treasury bonds for a price of $98. If the market value of the portfolio security does indeed decline from $100 to $95, the futures market price for the Treasury bonds might also decline from $98 to $93. In that case, the $5 loss in the market value of the portfolio security would be offset by the $5 gain realized by closing out the futures contract sale. Of course, the futures market price of Treasury bonds might decline to more than $93 or to less than $93 because of the imperfect correlation between cash and futures prices mentioned above. The Fund could be wrong in its forecast of interest rates and the futures market price could rise above $98. In this case, the market value of the portfolio securities, including the portfolio security being protected, would increase. The benefit of this increase would be reduced by the loss realized on closing out the futures contract sale. If interest rate levels did not change prior to settlement date, the Fund, in the above example, would incur a loss of $2 if it delivered the portfolio security on the settlement date (which loss might be reduced by an offsetting transaction prior to the settlement date). In each transaction, nominal transaction expenses would also be incurred. EXAMPLE OF FUTURES CONTRACT PURCHASE The Fund would engage in a futures contract purchase when it is not fully invested in long-term securities but wishes to defer for a time the purchase of long-term securities in light of the availability of advantageous interim investments, e.g., short-term securities whose yields are greater than those available on long-term securities. The Fund's basic motivation would be to maintain for a time the income advantage from investing in the short-term securities; the Fund would be endeavoring at the same time to eliminate the effect of all or part of the increases in market price of the long-term securities that the Fund may purchase. For example, assume that the market price of a long-term security that the Fund may purchase, currently yielding 10%, tends to move in concert with futures market prices of Treasury bonds. The Fund wishes to fix the current market price (and thus 10% yield) of the long-term security until the time (four months away in this example) when it may purchase the security. Assuming the long-term security has a market price of $100, and the Fund believes that, because of an anticipated fall in interest rates, the price will have risen to $105 (and the yield will have dropped to about 9-1/2%) in four months, the Fund might enter into futures contracts purchases of Treasury bonds for a price of $98. At the same time, the Fund would assign a pool of investments in short-term securities that are either maturing in four months or earmarked for sale in four months, for purchase of the long-term security at an assumed market price of $100. Assume these short-term securities are yielding 15%. If the market price of the long-term bond does indeed rise from $100 to $105, the futures market price for Treasury bonds might also rise from $98 to $103. In that case, the $5 increase in the price that the Fund pays for the long-term security would be offset by the $5 gain realized by closing out the futures contract purchase. C-1 The Fund could be wrong in its forecast of interest rates; long-term interest rates might rise to above 10%, and the futures market price could fall below $98. If short-term rates at the same time fall to 10% or below, it is possible that the Fund would continue with its purchase program for long-term securities. The market prices of available long-term securities would have decreased. The benefit of this price decrease, and thus yield increase, will be reduced by the loss realized on closing out the futures contract purchase. If, however, short-term rates remained above available long-term rates, it is possible that the Fund would discontinue its purchase program for long-term securities. The yields on short-term securities in the portfolio, including those originally in the pool assigned to the particular long-term security, would remain higher than yields on long-term bonds. The benefit of this continued incremental income will be reduced by the loss realized on closing out the futures contract purchase. In each transaction, nominal transaction expenses would also be incurred. TAX TREATMENT The amount of any gain or loss realized by the Fund on closing out a futures contract may result in a capital gain or loss for federal income tax purposes. Generally, futures contracts held by the Fund at the close of the Fund's taxable year will be treated for federal income tax purposes as sold for their fair market value on the last business day of such year. Forty percent of any gain or loss resulting from such constructive sale will be treated as short-term capital gain or loss and 60 percent of such gain or loss will be treated as long-term capital gain or loss. The amount of any capital gain or loss actually realized by the Fund in a subsequent sale or other disposition of these futures contracts will be adjusted to reflect any capital gain or loss taken into account by the Fund in a prior year as a result of the constructive sale of the contract. Notwithstanding the rules described above, with respect to futures contracts which are part of futures contract sales, and in certain other situations, the Fund may make an election which may have the effect of exempting all or a part of those identified future contracts from being treated for federal income tax purposes as sold on the last business day of the Fund's taxable year; all or part of any gain or loss otherwise realized by the Fund on any closing transaction may be deferred until all of the Fund's positions with respect to the futures contract sales are closed; and, all or part of any gain or loss may be treated as short-term capital gain or loss. Under the Federal income tax provisions applicable to regulated investment companies, at least 90% of the Fund's annual gross income must be derived from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of securities ("qualifying income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include gains from forward contracts in determining qualifying income. In addition, in order that the Fund continue to qualify as a regulated investment company for Federal income tax purposes, less than 30% of its gross income for any year must be derived from gains realized on the sale or other disposition of securities held by the Fund for less than three months. For this purpose, the Fund will treat gains realized on the closing out of futures contracts as gains derived from the sale of securities. This treatment could, under certain circumstances, require the Fund to defer the closing out of futures contracts until after three months from the date the fund acquired the contracts, even if it would be more advantageous to close out the contracts prior to that time. However, under the Code, a special rule is provided with respect to certain hedging transactions which has the effect of allowing the Fund to engage in such short-term transactions in limited circumstances. Any gains realized by the Fund as a result of the constructive sales of futures contacts held by the Fund at the end of its taxable year, as described in the preceding paragraph, will in all instances be treated as derived from the sale of securities held for three months or more, regardless of the actual period for which the Fund has held the futures contracts at the end of the year. C-2 EX-99.(17)(M) 18 c78747exv99wx17yxmy.txt EX-(17)(M)ADVANTUS EQUITY FUNDS PROSP.-11/29/02 Exhibit (17)(m) ADVANTUS EQUITY FUNDS [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] PROSPECTUS DATED NOVEMBER 29, 2002 AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE, NOR HAS IT APPROVED THE FUND'S SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE. ADVANTUS CORNERSTONE FUND, INC. A LARGE COMPANY VALUE FUND ADVANTUS ENTERPRISE FUND, INC. A SMALL COMPANY GROWTH FUND ADVANTUS HORIZON FUND, INC. A LARGE COMPANY GROWTH FUND ADVANTUS INDEX 500 FUND, INC. A LARGE COMPANY INDEX FUND ADVANTUS REAL ESTATE SECURITIES FUND, INC. A REAL ESTATE - RELATED SECURITIES FUND ADVANTUS VENTURE FUND, INC. A SMALL COMPANY VALUE FUND CUT DOWN PAPERWORK, NOT TREES. ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005. ADVANTUS EQUITY FUNDS This prospectus provides you with information about the six Advantus equity funds (Fund or Funds). The Funds are all members of the Advantus family of funds (Advantus Funds), a mutual fund complex comprised of eleven different funds. The Advantus Funds other than Advantus Money Market Fund, Inc. are referred to as "Advantus Multiple Class Funds." TABLE OF CONTENTS

Page No. THE FUNDS IN SUMMARY .............................. 3 Cornerstone Fund .......................... 3 Enterprise Fund ........................... 7 Horizon Fund .............................. 12 Index 500 Fund ............................ 17 Real Estate Securities Fund ............... 21 Venture Fund .............................. 25 INVESTING IN THE FUNDS ............................ 30 Managing the Funds ........................ 30 Advisory Fees ............................. 32 Investment Objective, Policies and Practices ................................. 32 Cornerstone Fund ........................ 32 Enterprise Fund ......................... 34 Horizon Fund ............................ 36 Index 500 Fund .......................... 37 Real Estate Securities Fund ............. 38 Venture Fund ............................ 40 Defining Risks ............................ 42 BUYING AND SELLING SHARES ......................... 46 Choosing a Share Class .................... 46 Sales and Distribution Charges ............ 46 Reducing Sales Charges .................... 49 Buying Shares ............................. 51 Selling Shares ............................ 52 Exchanging Shares ......................... 54 Telephone Transactions .................... 54 Internet Transactions ..................... 55 Account Requirements ...................... 55 DISTRIBUTIONS AND TAXES ........................... 56 Dividends and Capital Gains Distributions ............................. 56 Taxes ..................................... 56 FINANCIAL HIGHLIGHTS .............................. 58 Cornerstone Fund .......................... 58 Enterprise Fund ........................... 61 Horizon Fund .............................. 64 Index 500 Fund ............................ 67 Real Estate Securities Fund ............... 70 Venture Fund .............................. 72 OTHER INFORMATION ................................. 75 Service Providers ......................... 75 Advantus Family of Funds .................. 77 Additional Information About the Funds .... Back Cover How to Obtain Additional Information ...... Back Cover

[GRAPHIC] THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- A mutual fund is an investment company that invests the money of many people in a variety of securities to seek a specific objective over time. An open-end mutual fund buys back an investor's shares at the fund's current net asset value. - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. Advantus Cornerstone Fund, Inc. (Cornerstone Fund), Advantus Enterprise Fund, Inc. (Enterprise Fund), Advantus Horizon Fund, Inc. (Horizon Fund), Advantus Index 500 Fund, Inc. (Index 500 Fund), Advantus Real Estate Securities Fund, Inc. (Real Estate Securities Fund) and Advantus Venture Fund, Inc. (Venture Fund) are all open-end, diversified investment companies, commonly called mutual funds. Each of the Funds, except Real Estate Securities Fund, lets you choose among three classes of shares that offer different sales charges and bear different expenses. Real Estate Securities Fund offers two classes of shares. These alternatives allow you to choose the share class that you believe is most beneficial given the amount of your purchase, the length of time you expect to hold onto the shares and whether you plan to make additional investments. This section gives you a brief summary of each Fund's investment policies, practices and main risks, as well as performance and fee information. More detailed information about the Funds follows this summary. Keep in mind that, in addition to the main risks summarized for each Fund below, an investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency and that it is possible to lose money by investing in any Fund. You should also note that since a Fund may make frequent changes in its portfolio securities, such changes may result in higher Fund costs and may adversely affect your return. CORNERSTONE FUND INVESTMENT OBJECTIVE AND POLICIES. Cornerstone Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities of large capitalization companies (i.e., companies with a market capitalization of at least $1.5 billion) at the time of purchase. In selecting equity securities, the Fund invests in securities that the Fund's investment adviser believes are undervalued relative to other securities, earn low returns with a potential for higher returns, are undervalued relative to their potential for improved operating performance and financial strength or are issued by companies that have recently undergone a change in management or control and are undervalued relative to their potential for improved operating performance. MAIN RISKS. An investment in the Cornerstone Fund may be subject to various risks including the following types of main risk: - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets - VALUE STOCK RISK - the risk that the value of a security believed by the Fund's investment adviser to be undervalued may never reach what the investment adviser believes is its full value, or that such security's value may decrease THE FUNDS IN SUMMARY 3 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Cornerstone Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '95 32.93% '96 30.13% '97 21.08% '98 .70% '99 .02% '00 -2.21% '01 -10.81% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'98) 14.82% Worst Quarter: (Q3'98) -14.10% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was -21.88%.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year 5 Years 10 Years Inception Class A Before Taxes(1) (inception 9/16/94) % -15.72 .10 -- 7.31 Class A After Taxes on Distributions -15.94 -.99 -- 5.46 Class A After Taxes on Distributions and Redemptions -9.58 -.34 -- 5.16 Class B Before Taxes (inception 9/16/94) -15.95 .18 -- 7.28 Class C Before Taxes (inception 3/1/95) -11.48 .42 -- 7.56 Russell 1000 Value Index -5.59 11.13 14.15 --

(1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge for Class A shares was 5.0% prior to February 1, 1999. 4 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Cornerstone Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.70 0.70 0.70 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.46 0.46 0.46 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.41 2.16 2.16

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .29% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.24% for Class A shares and 1.99% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 5 EXAMPLE. This example is intended to help you compare the costs of investing in Cornerstone Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 686 972 1,279 2,147 Class B 719 1,026 1,309 2,213 Class C 219 676 1,159 2,303

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 686 972 1,279 2,147 Class B 219 676 1,159 2,213 Class C 219 676 1,159 2,303

6 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. ENTERPRISE FUND INVESTMENT OBJECTIVE AND POLICIES. Enterprise Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities of small capitalization companies (i.e., companies with a market capitalization within the range of capitalizations of companies in the Russell 2000 Growth Index) at the time of purchase. In selecting equity securities, the Fund's investment sub-adviser employs a growth investment style and looks for either developing or older companies in a growth stage or companies providing products or services with a high unit-volume growth rate. MAIN RISKS. An investment in Enterprise Fund may be subject to various risks including the following types of main risk: - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - GROWTH STOCK RISK - the risk that if the Fund's investment sub-adviser's assessment of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Fund's investment sub-adviser placed on it - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets - SMALL COMPANY RISK - the risk that equity securities of small capitalization companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth THE FUNDS IN SUMMARY 7 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. FUND PERFORMANCE. The following bar chart and table show Enterprise Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '95 33.43% '96 5.43% '97 7.11% '98 .97% '99 45.52% '00 -13.49% '01 -16.02% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'99) 46.12% Worst Quarter: (Q3'98) -27.99% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was -36.29%. 8 THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year 5 Years 10 Years Inception Class A Before Taxes(1) (inception 9/16/94) % -20.64 1.56 -- 6.04 Class A After Taxes on Distributions -20.64 -.80 -- 3.64 Class A After Taxes on Distributions and Redemptions -12.57 .64 -- 4.20 Class B Before Taxes (inception 9/16/94) -21.00 1.54 -- 5.92 Class C Before Taxes (inception 3/1/95) -16.76 1.85 -- 5.68 Russell 2000 Growth Index -9.23 2.87 7.19 --

(1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge for Class A shares was 5.0% prior to February 1, 1999. THE FUNDS IN SUMMARY 9 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Enterprise Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.70 0.70 0.70 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.74 0.74 0.74 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.69 2.44 2.44

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .53% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.48% for Class A shares and 2.23% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. 10 THE FUNDS IN SUMMARY EXAMPLE. This example is intended to help you compare the costs of investing in Enterprise Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 712 1,053 1,417 2,438 Class B 747 1,111 1,451 2,504 Class C 247 761 1,301 2,591

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 712 1,053 1,417 2,438 Class B 247 761 1,301 2,504 Class C 247 761 1,301 2,591

THE FUNDS IN SUMMARY 11 - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. HORIZON FUND INVESTMENT OBJECTIVE AND POLICIES. Horizon Fund seeks long-term growth of capital through investment in equity securities. The Fund primarily invests in various types of equity securities of large capitalization companies (i.e. companies with a market capitalization of at least $1.5 billion) at the time of purchase. The Fund invests primarily in common stocks but may also invest in preferred stocks and securities convertible into equity securities. In selecting equity securities, the Fund invests in securities that the Fund's investment adviser believes show sustainable earnings growth potential above the average market growth rate. MAIN RISKS. An investment in Horizon Fund may be subject to various risks including the following types of main risk: - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - GROWTH STOCK RISK - the risk that if the Fund's investment adviser's assessment of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Fund's investment adviser placed on it - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets 12 THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. FUND PERFORMANCE. The following bar chart and table show Horizon Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '92 4.87% '93 4.29% '94 -0.69% '95 29.16% '96 16.79% '97 27.33% '98 34.28% '99 24.57% '00 -22.12% '01 -26.05% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'98) 21.30% Worst Quarter: (Q1'01) -25.90% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was -29.96%. THE FUNDS IN SUMMARY 13 - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year 5 Years 10 Years Inception Class A Before Taxes(1) (inception 5/3/85) % -30.12 3.00 6.77 9.01 Class A After Taxes on Distributions -30.12 .77 4.56 7.07 Class A After Taxes on Distributions and Redemptions -18.34 2.39 5.19 7.14 Class B Before Taxes (inception 8/19/94) -30.33 3.18 -- 8.11 Class C Before Taxes (inception 3/1/95) -26.63 3.40 -- 7.86 Russell 1000 Growth Index -20.42 8.27 10.79 --

(1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge for Class A shares was 5.0% prior to February 1, 1999. 14 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Horizon Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.70 0.70 0.70 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 1.22 1.22 1.22 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 2.17 2.92 2.92

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .40% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.35% for Class A shares and 2.10% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 15 EXAMPLE. This example is intended to help you compare the costs of investing in Horizon Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 758 1,192 1,650 2,916 Class B 795 1,254 1,688 2,983 Class C 295 904 1,538 3,066

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 758 1,192 1,650 2,916 Class B 295 904 1,538 2,983 Class C 295 904 1,538 3,066

16 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. INDEX 500 FUND INVESTMENT OBJECTIVE AND POLICIES. Index Fund seeks investment results that correspond, generally, before sales charges and other Fund expenses, to the aggregate price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). The Fund invests its assets in all of the common stocks included in the S&P 500. MAIN RISKS. An investment in Index 500 Fund may be subject to various risks including the following types of main risk: - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets - S&P PERFORMANCE RISK - the risk that the Fund's ability to replicate the performance of the S&P 500 may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's Rating Services calculates the S&P 500, the amount and timing of cash flows into and out of the Fund, commissions, sales charges (if any) and other expenses THE FUNDS IN SUMMARY 17 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Index 500 Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '98 27.18% '99 19.70% '00 -10.16% '01 -12.59% (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'98) 21.34% Worst Quarter: (Q3'01) -14.77% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was -28.47%.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year Inception Class A Before Taxes(1) (inception 1/31/97) % -17.40 7.12 Class A After Taxes on Distributions -17.61 6.71 Class A After Taxes on Distributions and Redemptions -10.60 5.63 Class B Before Taxes (inception 1/31/97) -17.67 7.21 Class C Before Taxes (inception 1/31/97) -13.31 7.35 S&P 500 -11.90 10.89

(1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. 18 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Index 500 Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) --------------------------------------------------------------------------------- Management Fees % 0.34 0.34 0.34 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.94 0.94 0.94 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.53 2.28 2.28

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .26% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be .85% for Class A shares and 1.60% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 19 EXAMPLE. This example is intended to help you compare the costs of investing in Index 500 Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 697 1,007 1,338 2,273 Class B 731 1,062 1,370 2,339 Class C 231 712 1,220 2,427

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 697 1,007 1,338 2,273 Class B 231 712 1,220 2,339 Class C 231 712 1,220 2,427

20 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. REAL ESTATE SECURITIES FUND INVESTMENT OBJECTIVE AND POLICIES. Real Estate Securities Fund seeks total return through a combination of capital appreciation and current income. The Fund invests its assets primarily in real estate and real estate-related securities. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Most of the Fund's real estate securities portfolio will consist of securities issued by Real Estate Investment Trusts (REITs) that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs. In selecting securities, factors such as an issuer's financial condition, financial performance, policies and strategies and competitive market condition are considered by the Fund's investment adviser. The Fund then invests in those issuers which its investment adviser determines have potential for long-term sustainable growth in earnings. MAIN RISKS. An investment in Real Estate Securities Fund may be subject to various risks including the following types of main risk: - CONCENTRATION RISK - the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund concentrates its investments in the real estate and real estate related industry. - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets - REAL ESTATE RISK - the risk that the value of the Fund's investments may decrease due to a variety of factors related to the construction, development, ownership, financing, repair or servicing or other events affecting the value of real estate, buildings or other real estate fixtures - REIT-RELATED RISK - the risk that the value of the Fund's securities issued by REITs (as discussed in "Investing in the Fund - Investment Objective, Policies and Practices" below) will be adversely affected by changes in the value of the underlying property THE FUNDS IN SUMMARY 21 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement. FUND PERFORMANCE. The following bar chart and table show Real Estate Securities Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '00 25.22 '01 10.01 (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q2'01) 10.85% Worst Quarter: (Q3'01) -4.30% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was 4.41%.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year Inception Class A Before Taxes (inception 2/25/99) % 3.96 9.26 Class A After Taxes on Distributions 1.20 6.46 Class A After Taxes on Distributions and Redemptions 2.99 6.12 Wilshire Associates Real Estate Securities Index 10.33 13.40

22 THE FUNDS IN SUMMARY FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Real Estate Securities Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 Exchange Fees -On First Twelve Exchanges Each Year none none -On Each Additional Exchange $ 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.75 0.75 Rule 12b-1 Fees % 0.25 1.00 Other Expenses % 0.69 0.69 TOTAL ANNUAL FUND OPERATING EXPENSES (c) % 1.69 2.44

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .65% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.65% for Class A shares and 2.40% for Class B shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. THE FUNDS IN SUMMARY 23 EXAMPLE. This example is intended to help you compare the costs of investing in Real Estate Securities Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 712 1,053 1,417 2,438 Class B 747 1,111 1,451 2,504

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 712 1,053 1,417 2,438 Class B 247 761 1,301 2,504

24 THE FUNDS IN SUMMARY - --------------- REFERENCE POINT - --------------- Please see "Investing in the Fund - Defining Risks" for a more detailed description of these main risks and additional risks in connection with investing in the Fund. VENTURE FUND INVESTMENT OBJECTIVE AND POLICIES. Venture Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Fund generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000-Registered Trademark-Value Index. These equity securities will consist primarily of value common stocks, but may also include preferred stock and other securities convertible into equity securities. In selecting equity securities, the Fund's investment sub-adviser searches for those companies that appear to be undervalued or trading below their true worth, and examines such features as a firm's financial condition, business prospects, competitive position and business strategy. The Fund looks for companies that appear likely to come back into favor with investors, for reasons that may range from good prospective earnings or strong management teams to new products or services. MAIN RISKS. An investment in Venture Fund may be subject to various risks including the following types of main risk: - FUND RISK - the risk that Fund performance may not meet or exceed that of the market as a whole - MARKET RISK - the risk that equity securities are subject to adverse trends in equity markets - SMALL COMPANY RISK - the risk that equity securities of small capitalization companies are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth - VALUE STOCK RISK - the risk that the value of a security believed by the Fund's investment sub-adviser to be undervalued may never reach what the investment sub-adviser believes is its full value, or that such security's value may decrease THE FUNDS IN SUMMARY 25 - -------------------- FOR YOUR INFORMATION - -------------------- The Fund seeks to achieve its investment objective over longer rather than shorter periods of time. An investment in the Fund may therefore be more appropriate for an investor with a longer-term focus. FUND PERFORMANCE. The following bar chart and table show Venture Fund's annual returns and long-term performance. The chart shows how the Fund's performance has varied from year to year, and provides some indication of the risks in investing in the Fund. The table shows how the Fund's average annual return over a one, five and ten year period compare to the return of a broad based index. The chart and table assume reinvestment of dividends and distributions, and the table reflects applicable initial and contingent deferred sales charges. Like other mutual funds, the past performance of the Fund does not necessarily indicate how the Fund will perform in the future. CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC '98 -7.30 '99 -3.93 '00 26.51 '01 15.98 (1) Absent reductions for sales loads, account fees and other charges. If such sales loads, account fees and other charges were included, returns would be less than shown above. Best Quarter: (Q4'01) 21.39% Worst Quarter: (Q3'98) -20.20% (2) Total return for 2002 through the calendar quarter ended September 30, 2002 was -24.36%. 26 THE FUNDS IN SUMMARY - -------------------- FOR YOUR INFORMATION - -------------------- After-tax returns are shown for Class A shares only. After-tax returns for other Classes will vary. After-tax returns are calculated using the historical highest individual federal marginal income tax rates, but do not reflect the impact of state or local taxes. Return after taxes on distributions and redemption may be higher than other returns for the same period due to a tax benefit of realizing a capital loss upon the sale of fund shares. Actual after-tax returns may differ depending on your individual circumstances. The after-tax returns shown are not relevant if you hold your shares in a retirement account or in another tax-deferred arrangement.

AVERAGE ANNUAL TOTAL RETURN (FOR THE PERIODS ENDING DECEMBER 31, 2001) From 1 Year Inception Class A Before Taxes(1) (inception 1/31/97) % 9.60 10.17 Class A After Taxes on Distributions 7.47 8.62 Class A After Taxes on Distributions and Redemptions 6.27 7.59 Class B Before Taxes (inception 1/31/97) 10.03 10.22 Class C Before Taxes (inception 1/31/97) 14.96 10.49 Russell 2000 Value Index 14.02 11.41

(1) Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. THE FUNDS IN SUMMARY 27 FEES AND EXPENSES. Investors pay fees and expenses in connection with investing in Venture Fund. This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

CLASS A CLASS B CLASS C SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge on Purchases (as a percentage of offering price) % 5.50 none none Maximum Deferred Sales Charge (as a percentage of sales proceeds) % 1.00(a) 5.00 none Exchange Fees -On First Twelve Exchanges Each Year none none none -On Each Additional Exchange $ 7.50 7.50 7.50 Low Balance Fee (b) $ 10.00 10.00 10.00 ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees % 0.70 0.70 0.70 Rule 12b-1 Fees % 0.25 1.00 1.00 Other Expenses % 0.42 0.42 0.42 TOTAL ANNUAL FUND OPERATING EXPENSES % 1.37 2.12 2.12

(a) Applies only to purchases of at least $1 million, in which case a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. (b) Applies to certain accounts with balances below $2,000. See "Account Requirements - Low Balance Fee." 28 THE FUNDS IN SUMMARY EXAMPLE. This example is intended to help you compare the costs of investing in Venture Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 682 960 1,259 2,106 Class B 715 1,014 1,289 2,171 Class C 215 664 1,139 2,261

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS 5 YEARS 10 YEARS Class A $ 682 960 1,259 2,106 Class B 215 664 1,139 2,171 Class C 215 664 1,139 2,261

THE FUNDS IN SUMMARY 29 [GRAPHIC] INVESTING IN THE FUNDS - -------------------- FOR YOUR INFORMATION - -------------------- One of the advantages of investing in mutual funds is continuous professional management of your investment. Skilled, experienced professionals manage the Funds' assets. MANAGING THE FUNDS The investment adviser of each of the Funds is Advantus Capital Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul, Minnesota 55101. Since its inception in 1994, Advantus Capital has provided investment advisory services for the Funds and other Advantus Funds, and has managed investment portfolios for various private accounts, including its affiliate, Minnesota Life Insurance Company (Minnesota Life). Advantus Capital manages each Fund's investments and furnishes all necessary office facilities, equipment and personnel for servicing the Fund's investments. Both Advantus Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc., which is a second-tier subsidiary of a mutual insurance holding company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital also manage Minnesota Life's investment portfolio. In addition, Minnesota Life, through its Advantus Shareholder Services division, serves as shareholder and administrative services agent to the Fund. The investment sub-adviser of the Enterprise Fund is Credit Suisse Asset Management, LLC (CSAM), 466 Lexington Avenue, New York, New York 10017. CSAM provides investment advice and generally conducts the investment management program for the Enterprise Fund. The investment sub-adviser of the Venture Fund is State Street Research & Management Company (State Street Research), One Financial Center, Boston, Massachusetts 02111. State Street Research provides investment advice and generally conducts the investment management program for the Venture Fund. 30 INVESTING IN THE FUNDS The following persons serve as the primary portfolio managers for the Funds (other than the Index 500 Fund):

PORTFOLIO MANAGER PRIMARY PORTFOLIO BUSINESS EXPERIENCE FUND AND TITLE MANAGER SINCE DURING PAST FIVE YEARS CORNERSTONE Matthew D. Finn January 2, 2002 Vice President and Head of Lead Portfolio Manager Equities, Advantus Capital, since July 2001; Senior Vice President and Chief Investment Officer - Growth and Income Group, Evergreen Investment Management, Inc., from March 1998 to June 2001; Vice President and Investment Officer, Advantus Capital from April 1994 to March 1998 Matthew Norris January 1, 2000 Portfolio Manager of Co-Portfolio Manager Advantus Capital since December 1997; Institutional Portfolio Manager, Norwest Investment Management, Minneapolis, Minnesota, from September 1997 to December 1997 ENTERPRISE Elizabeth B. Dater August 10, 2001 Managing Director and Co-Portfolio Manager Portfolio Manager, CSAM, since 1999; prior to that time, Managing Director of Small Cap and Post- Venture Capital Group, Warburg Pincus, and from 1994 to 1998, Director of Research, Warburg Pincus Sammy Oh May 1, 2000 Portfolio Manager, CSAM Co-Portfolio Manager HORIZON Thomas A. Gunderson September 1, 1996 Vice President and Portfolio Manager Investment Officer of Advantus Capital REAL ESTATE Joseph R. Betlej February 25, 1999 Vice President and SECURITIES Portfolio Manager Investment Officer of Advantus Capital VENTURE John Burbank May 25, 2001 Senior Vice President, Portfolio Manager State Street Research

INVESTING IN THE FUNDS 31 - -------------------- FOR YOUR INFORMATION - -------------------- Market capitalization is the total market value of a company. (Share price multiplied by the number of shares outstanding.) Market capitalization is used to measure the relative size of corporations. ADVISORY FEES The Funds pay Advantus Capital advisory fees calculated on an annual basis for each Fund. Advantus Capital uses a portion of the applicable fee to pay a Fund's sub-adviser, if any. The advisory fee paid to Advantus Capital for each Fund during the most recent fiscal year, as a percentage of average daily net assets, was as follows:

AGGREGATE FEE PAID DURING FISCAL FUND YEAR ENDED JULY 31, 2002 Cornerstone % 0.70 Enterprise 0.70 Horizon 0.70 Index 500 0.34 Real Estate Securities 0.75 Venture 0.70

INVESTMENT OBJECTIVE, POLICIES AND PRACTICES CORNERSTONE FUND Cornerstone Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities such as common stock, preferred stock and securities convertible into equity securities of large capitalization companies (i.e., companies with a market capitalization of at least $1.5 billion) at the time of purchase. Under normal circumstances, at least 65% of the Fund's total assets (exclusive of collateral received in connection with securities lending) will be invested in common stocks of large capitalization domestic companies and foreign issuers that are publicly traded in the United States. From time to time, the Fund will also invest a lesser portion of its assets in securities of smaller capitalization companies (i.e., companies with a market capitalization of less than $1.5 billion). As of July 31, 2002, the average weighted market capitalization of the Fund's investment portfolio was $60.1 billion. In selecting equity securities, Advantus Capital primarily looks to equity securities it believes are undervalued. Undervalued securities are securities that Advantus Capital believes: (a) are undervalued relative to other securities in the market or currently earn low returns with a potential for higher returns, (b) are undervalued relative to the potential for improved operating performance and financial strength, and (c) are issued by companies that have recently undergone a change in management or control and that are undervalued relative to their potential for improved operating performance. In assessing relative value, Advantus Capital will consider factors such as a company's ratio of market price to earnings, ratio of market price to book value, ratio of market price to assets, ratio of market price to cash flow, estimated earnings growth rate, cash flow, yield, liquidation value, product pricing, quality of management and competitive market position. As a secondary focus, Advantus Capital may also consider an investment's potential to provide current income. In seeking to achieve its investment objective, the Fund may also invest in equity securities of companies that Advantus Capital believes show potential for sustainable earnings growth above the average market growth rate. 32 INVESTING IN THE FUNDS In addition, the Fund may invest lesser portions of its assets in restricted and illiquid securities, convertible and non-convertible investment-grade and non-investment grade debt securities, real estate investment trusts, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), foreign securities, warrants, index depositary receipts, repurchase agreement transactions, when-issued or forward commitment transactions, securities of other mutual funds and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Cornerstone Fund is subject to the following risks: - - Company Risk - Mid Size Company Risk - - Diversification Risk - Sector Risk - - Fund Risk - Securities Lending Risk - - Inflation Risk - Short-Term Trading Risk - - Large Company Risk - Value Stock Risk - - Market Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 33 ENTERPRISE FUND Enterprise Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities of small capitalization growth companies at the time of purchase. The Fund primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. Under normal circumstances, at least 65% of the Fund's total assets (exclusive of collateral received in connection with securities lending) will be invested in equity securities of small U.S. companies. The Fund considers a "small" company to be one whose market capitalization is within the range of capitalizations of companies in the Russell 2000 Growth Index. As of July 31, 2002, market capitalizations of Russell 2000 Growth Index companies ranged from $10.5 million to $1.9 billion. Some companies may outgrow the definition of a small company after the Fund has purchased their securities. These companies continue to be considered small for purposes of the Fund's minimum 65% allocation to small-company equities. In addition, the Fund may invest in companies of any size once the 65% policy is met. As a result, the Fund's average market capitalization may sometimes exceed that of the largest company in the Russell 2000 Growth Index. As of July 31, 2002, the average weighted market capitalization of the Fund's investment portfolio was $1.1 billion. In selecting equity securities of growth companies for the Fund, CSAM looks for: - companies still in the developmental stage - older companies that appear to be entering a new stage of growth - companies providing products or services with a high unit-volume growth rate The Fund may also invest in emerging-growth companies - small or medium-size companies that have passed their start-up phase, show positive earnings, and offer the potential for accelerated earnings growth. Emerging-growth companies generally stand to benefit from new products or services, technological developments, changes in management or other factors. In addition, the Fund may invest lesser portions of its assets in restricted and illiquid securities, investment-grade corporate debt securities, foreign securities, warrants, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), index depositary receipts, repurchase agreement transactions, when-issued or forward commitment transactions, securities of other mutual funds and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. 34 INVESTING IN THE FUNDS In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Enterprise Fund is subject to the following risks: - - Company Risk - Mid Size Company Risk - - Diversification Risk - Sector Risk - - Fund Risk - Securities Lending Risk - - Growth Stock Risk - Short-Term Trading Risk - - Inflation Risk - Small Company Risk - - Market Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 35 - -------------------- FOR YOUR INFORMATION - -------------------- Market capitalization is the total market value of a company. (Share price multiplied by the number of shares outstanding.) Market capitalization is used to measure the relative size of corporations. HORIZON FUND Horizon Fund seeks long-term growth of capital through investment in equity securities. The Fund primarily invests in various types of equity securities of large capitalization companies (i.e., companies with a market capitalization of at least $1.5 billion) at the time of purchase. The Fund primarily invests in common stocks but may also invest in preferred stocks and securities convertible into equity securities. From time to time, the Fund may also invest a lesser portion of its assets in securities of smaller capitalization companies (i.e., companies with a market capitalization of less than $1.5 billion). As of July 31, 2002, the average weighted market capitalization of the Fund's investment portfolio was $88.5 billion. In selecting equity securities, Advantus Capital primarily looks to an investment's potential for sustainable earnings growth above the average market growth rate. In selecting securities with earnings growth potential, Advantus Capital considers factors such as a company's competitive market position, quality of management, growth strategy, financial performance and financial condition. In seeking to achieve its investment objective, the Fund may also invest in equity securities of companies that Advantus Capital believes are temporarily undervalued or show promise of improved results due to new management, products, markets or other factors. In addition, the Fund may invest lesser portions of its assets in convertible and non-convertible investment-grade corporate debt securities, real estate investment trusts, restricted and illiquid securities, foreign securities, warrants, securities of other mutual funds, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), index depositary receipts, repurchase agreement transactions, when-issued or forward commitment transactions and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Horizon Fund is subject to the following risks: - - Company Risk - Market Risk - - Diversification - Mid Size Company Risk Risk - Sector Risk - - Fund Risk - Securities Lending Risk - - Growth Stock Risk - Short-Term Trading Risk - - Inflation Risk - Small Company Risk - - Large Company Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. 36 INVESTING IN THE FUNDS INDEX 500 FUND Index 500 Fund seeks investment results that correspond generally, before sales charges and other Fund expenses, to the aggregate price and yield performance of the common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the S&P 500). Under normal conditions, the Fund invests its assets in all of the common stocks included in the S&P 500. The Fund attempts to achieve a correlation of 100% without considering sales charges and other Fund expenses. However, the Fund is not required to hold a minimum or maximum number of common stocks included in the S&P 500, and due to changing economic or markets, may invest in less than all of the common stocks included in the S&P 500. Advantus Capital utilizes a computer program to confirm the Fund's S&P 500 replication and to round off security weightings. Under normal conditions, the Fund invests at least 80% of its net assets (exclusive of collateral received in connection with securities lending) in the common stocks included in the S&P 500 (investments covered by this 80% policy may also include S&P 500 stock index futures contracts or S&P 500 depositary receipts, each of which have economic characteristics similar to an investment in the S&P 500). The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund's outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. In addition, the Fund may invest lesser portions of its assets in investment-grade short-term fixed income securities, other stock index futures contracts, options (the Fund may purchase, sell and write put and call options), securities of other mutual funds, restricted and illiquid securities, when-issued or forward commitment transactions, repurchase agreement transactions and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. You can find descriptions of these securities in the Statement of Additional Information. Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill Companies, Inc., designates the stocks included in the S&P 500. From time to time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the S&P 500 does not imply an opinion by S&P as to its investment merit. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in the Fund. Please see the Statement of Additional Information which sets forth certain additional disclaimers and limitations on behalf of S&P. RISKS. An investment in Index 500 Fund is subject to the following risks: - - Company Risk - Large Company Risk - - Diversification Risk - Market Risk - - Index Performance Risk - Sector Risk - - Inflation Risk - Securities Lending Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 37 REAL ESTATE SECURITIES FUND Real Estate Securities Fund seeks total return through a combination of capital appreciation and current income. Under normal circumstances, at least 80% of the Fund's net assets (exclusive of collateral received in connection with securities lending) will be invested in real estate and real estate-related securities. The 80% investment policy is not fundamental, which means it may be changed without the vote of a majority of the Fund's outstanding shares, but shareholders will be notified in writing at least 60 days prior to any change of this policy. The Fund will primarily invest in real estate and real estate-related equity securities (including securities convertible into equity securities). The Fund does not invest directly in real estate. "Real estate securities" include securities issued by companies that receive at least 50% of their gross revenue from the construction, ownership, management, financing or sale of residential, commercial or industrial real estate. Real estate securities issuers typically include real estate investment trusts (REITs), real estate brokers and developers, real estate holding companies and publicly traded limited partnerships. "Real estate-related securities" include securities issued by companies primarily engaged in businesses that sell or offer products or services that are closely related to the real estate industry. Real estate-related securities issuers typically include construction and related building companies, manufacturers and distributors of building supplies, financial institutions that issue or service mortgages and resort companies. Most of the Fund's real estate securities portfolio will consist of securities issued by REITs that are listed on a securities exchange or traded over-the-counter. A REIT is a corporation or trust that invests in fee or leasehold ownership of real estate, mortgages or shares issued by other REITs. REITs may be characterized as equity REITs (i.e., REITs that primarily invest in fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that primarily invest in mortgages on real estate) or hybrid REITs which invest in both fee and leasehold ownership of land and mortgages. The Fund mostly invests in equity REITs but also invests lesser portions of its assets in mortgage REITs and hybrid REITs. A REIT that meets the applicable requirements of the Internal Revenue Code of 1986 may deduct dividends paid to shareholders, effectively eliminating any corporate level federal tax. As a result, REITs distribute a larger portion of their earnings to investors than other corporate entities subject to the federal corporate tax. The Fund may invest in securities of issuers of any size, including issuers with small, medium or large market capitalizations. Advantus Capital assesses an investment's potential for sustainable earnings growth over time. In selecting securities, Advantus Capital considers factors such as an issuer's financial condition, financial performance, quality of management, policies and strategies, real estate properties and competitive market position. 38 INVESTING IN THE FUNDS In addition, the Fund may invest lesser portions of its assets in securities issued by companies outside of the real estate industry. The Fund may also invest in non-real estate-related equity securities, convertible debt securities, investment-grade fixed income securities, securities of other mutual funds, repurchase agreement transactions, restricted and illiquid securities, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), American Depositary Receipts, securities purchased on a when issued or forward commitment basis, and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find a description of these securities in the Statement of Additional Information. RISKS. An investment in Real Estate Securities Fund is subject to the following risks: - - Company Risk - Limited Portfolio Risk - - Concentration Risk - Market Risk - - Credit Risk - Mid Size Company Risk - - Diversification - Prepayment Risk Risk - Real Estate Risk - - Extension Risk - REIT-Related Risk - - Fund Risk - Sector Risk - - Income Risk - Securities Lending Risk - - Inflation Risk - Short-Term Trading Risk - - Interest Rate Risk - Small Company Risk - - Large Company Risk A detailed description of these risks is set forth in "Defining Risks" below. INVESTING IN THE FUNDS 39 - -------------------- FOR YOUR INFORMATION - -------------------- Market capitalization is the total market value of a company. (Share price multiplied by the number of shares outstanding.) Market capitalization is used to measure the relative size of corporations. VENTURE FUND Venture Fund seeks long-term accumulation of capital. The Fund primarily invests in various types of equity securities such as common stock, preferred stock and securities convertible into equity securities of small capitalization companies. Although a universal definition of small capitalization companies does not exist, the Fund generally defines small capitalization companies as those whose market capitalizations are similar to the market capitalizations of companies in the Russell 2000-Registered Trademark-Value Index. Under normal circumstances, at least 65% of the Fund's total assets (exclusive of collateral received in connection with securities lending) will be invested, at the time of purchase, in common stocks of small capitalization domestic companies and foreign issuers that are publicly traded in the United States. Some companies may outgrow the definition of a small capitalization company after the Fund has purchased their securities. These companies continue to be considered small for purposes of the Fund's minimum 65% allocation to small capitalization companies. From time to time, the Fund will also invest a lesser portion of its assets in securities of mid and large capitalization companies (i.e., companies with market capitalizations larger than that defined above). As of July 31, 2002, the average weighted market capitalization of the Fund's investment portfolio was $1.2 billion. In selecting value stocks and other equity securities, State Street Research primarily looks to equity securities it believes are undervalued or trading below their true worth, but that appear likely to come back into favor with investors. Undervalued securities are securities that State Street Research believes: (a) are undervalued relative to other securities in the market or currently earn low returns with a potential for higher returns, (b) are undervalued relative to the potential for improved operating performance and financial strength, or (c) are issued by companies that have recently undergone a change in management or control, or developed new products or services that may improve their business prospects or competitive position. In assessing relative value, State Street Research will consider factors such as a company's ratio of market price to earnings, ratio of market price to book value, ratio of market price to assets, ratio of market price to cash flow, estimated earnings growth rate, cash flow, yield, liquidation value, product pricing, quality of management and competitive market position. In seeking to achieve its investment objectives, the Fund may also invest in equity securities of companies that State Street Research believes show potential for sustainable earnings growth above the average market growth rate. The Fund's purchases of equity securities may include shares of common stock that are part of a company's initial public offering. In addition, the Fund may invest lesser portions of its assets in restricted and illiquid securities, convertible and non-convertible investment-grade and non-investment grade debt securities, securities of other mutual funds, foreign securities, warrants, repurchase agreement transactions, stock index futures contracts, options (the Fund may purchase, sell and write put and call options), when-issued or forward commitment transactions, index depositary receipts, and money market securities. To generate additional income, the Fund may lend securities representing up to one-third of the value of its total assets to broker-dealers, banks and other institutions. 40 INVESTING IN THE FUNDS In an attempt to respond to adverse market, economic, political or other conditions, the Fund may invest for temporary defensive purposes in various short-term cash and cash equivalent items. When investing for temporary defensive purposes, the Fund may not always achieve its investment objective. You can find descriptions of these securities in the Statement of Additional Information. RISKS. An investment in Venture Fund is subject to the following risks: - - Company Risk - Mid Size Company Risk - - Diversification Risk - Sector Risk - - Fund Risk - Securities Lending Risk - - Inflation Risk - Short-Term Trading Risk - - Initial Public Offering Risk - Small Company Risk - - Market Risk - Value Stock Risk A detailed description of these risks is set forth in "Defining Risks" below. Additional risk information is provided in the Statement of Additional Information. INVESTING IN THE FUNDS 41 - -------------------- FOR YOUR INFORMATION - -------------------- In order to make informed decisions, investors must be aware of both the risks and rewards associated with investing. Not only should you understand the risks associated with your investments, but you must be comfortable with them as well. Risks are an inherent part of investing, and your investment in the Fund is subject to different types and varying degrees of risk. DEFINING RISKS Investment in each Fund involves risks. A Fund's yield and price are not guaranteed, and the value of an investment in a Fund will go up or down. The value of an investment in a particular Fund may be affected by the risks of investing in that Fund as identified for each Fund in "Investment Objective, Policies and Practices" above. The following glossary describes those identified risks associated with investing in the Funds. - COMPANY RISK - is the risk that individual securities may perform differently than the overall market. This may be a result of specific factors such as changes in corporate profitability due to the success or failure of specific products or management strategies, or it may be due to changes in investor perceptions regarding a company. - CONCENTRATION RISK - is the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than an investment portfolio that does not concentrate its investments in a single industry. The Fund is subject to concentration risk if the Fund invests more than 25% of its total assets in a particular industry. - CREDIT RISK - is the risk that an issuer of a REIT or debt security will not make payments on the security when due, or that the other party to a contract will default on its obligation. There is also the risk that an issuer could suffer adverse changes in financial condition that could lower the credit quality of a security. This could lead to greater volatility in the price of the security and in shares of the Fund. Also, a change in the quality rating of a REIT security or a debt security can affect the security's liquidity and make it more difficult to sell. The Fund may attempt to minimize credit risk by investing in debt securities and other fixed income obligations considered at least investment grade at the time of purchase. However, all of these securities and obligations, especially those in the lower investment grade rating categories, have credit risk. In adverse economic or other circumstances, issuers of these lower rated securities and obligations are more likely to have difficulty making principal and interest payments than issuers of higher rated securities and obligations. If the Fund purchases unrated securities and obligations, it will depend on its investment adviser's or sub-adviser's analysis of credit risk more heavily than usual. - DIVERSIFICATION RISK - is the risk that the Fund's performance may be more susceptible to a single economic, regulatory or technological occurrence than a more diversified investment portfolio. The Fund is subject to diversification risk if the Fund may invest more than 5% of its total assets in the securities of a single issuer with respect to 25% of its total investment portfolio (a Fund is considered diversified, as defined in the Investment Company Act of 1940, if it does not invest more than 5% of its total assets in the securities of a single issuer with respect to 75% of its total investment portfolio). - EXTENSION RISK - is the risk that rising interest rates could cause property owners to prepay their mortgages more slowly than expected, resulting in slower prepayments of real estate debt securities. This would, in effect, convert a short or medium-duration REIT security into a longer-duration security, increasing its sensitivity to interest rate changes and causing its price to decline. Duration measures the expected price sensitivity of a fixed income security or portfolio for a given change in interest rates. For example, if interest rates rise by one percent, the value of a security or portfolio having a duration of two years generally will fall by approximately two percent. - FUND RISK - is the risk that Fund performance may not meet or exceed that of the market as a whole. The performance of the Fund will depend on the Fund's investment adviser's or sub-adviser's judgment of economic and market policies, trends in 42 INVESTING IN THE FUNDS investment yields and monetary policy. Due to its active management, the Fund could underperform other mutual funds with similar investment objectives or the market generally. - GROWTH STOCK RISK - is the risk that if the assessment by the Fund's investment adviser or sub-adviser of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Fund's investment adviser or sub-adviser has placed on it. - INCOME RISK - is the risk that the Fund may experience a decline in its income due to falling interest rates. - INDEX PERFORMANCE RISK - is the risk that the Fund's ability to replicate the performance of a particular securities index may be affected by, among other things, changes in securities markets, the manner in which the index's sponsor calculates the applicable securities index, the amount and timing of cash flows into and out of the Fund, commissions, sales charges (if any) and other expenses. - INFLATION RISK - is the risk that even if the principal value of an investment in the Fund remains constant or increases, or the income from the investment remains constant or increases, their real value may be less in the future because of inflation. Thus, as inflation occurs, the purchasing power of an investor's Fund shares may decline, even if their value in dollars increases. - INITIAL PUBLIC OFFERING RISK - is the risk that the Fund will not be able to sustain the positive effect on performance that may result from investments in initial public offerings (IPOs). Investments in IPOs can have a significant positive impact on the Fund's performance. The positive effect of investments of IPOs may not be sustainable because of a number of factors. The Fund may not be able to buy shares in some IPOs, or may be able to buy only a small number of shares. Also, the Fund may not be able to buy the shares at the commencement of the offering, and the general availability and performance of IPOs are dependent on market psychology and economic conditions. The relative performance impact of IPOs is also likely to decline as the Fund grows. - INTEREST RATE RISK - is the risk that the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) will decline due to changes in market interest rates. Generally, when interest rates rise, the value of such a security or obligation decreases. Conversely, when interest rates decline, the value of a debt security, mortgage-backed security or fixed income obligation (including mortgage REITs) generally increases. Long-term debt securities, mortgage-backed securities and fixed income obligations are generally more sensitive to interest rate changes. - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization company securities may underperform the market as a whole. - LIMITED PORTFOLIO RISK - is the risk that an investment in the Fund may present greater volatility, due to the limited number of issuers of real estate and real estate-related securities, than an investment in portfolio of securities selected form a greater number of issuers. The Fund is subject to limited portfolio risk because the Fund may invest in a smaller number of individual issuers than other portfolios. - MARKET RISK - is the risk that equity securities are subject to adverse trends in equity markets. Securities are subject to price movements due to changes in general economic INVESTING IN THE FUNDS 43 conditions, the level of prevailing interest rates or investor perceptions of the market. In addition, prices are affected by the outlook for overall corporate profitability. Market prices of equity securities are generally more volatile than debt securities. This may cause a security to be worth less than the price originally paid for it, or less than it was worth an earlier time. Market risk may affect a single issuer or the market as a whole. As a result, a portfolio of such equity securities may underperform the market as a whole. - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization companies may be more vulnerable to adverse developments than those of large companies due to such companies' limited product lines, limited markets and financial resources and dependence upon a relatively small management group. - PREPAYMENT RISK - is the risk that falling interest rates could cause prepayments of mortgage loans to occur more quickly than expected. This occurs because, as interest rates fall, more property owners refinance the mortgages underlying mortgage REIT securities. The REIT must reinvest the prepayments at a time when interest rates of new mortgage investments are falling, potentially reducing the portion of the REIT's income distributable to the Fund. In addition, when interest rates fall, prices of mortgage loans held by a REIT may not rise as much as for other types of comparable securities because investors may anticipate an increase in mortgage prepayments. - REAL ESTATE RISK - is the risk that the value of the Fund's investments may decrease due to fluctuations in rental income, overbuilding and increased competition, casualty and condemnation losses, environmental costs and liabilities, extended vacancies of property, lack of available mortgage funds, government regulation and limitations, increases in property taxes, cash flow dependency, declines in real estate value, physical depreciation of buildings, inability to obtain project financing, increased operating costs and changes in general or local economic conditions. - REIT-RELATED RISK - is the risk that the value of the Fund's REIT securities will be adversely affected by changes in the value of the underlying property. In addition, the value of equity or mortgage REIT's could be adversely affected if the REIT fails to qualify for tax-free pass through income under the Internal Revenue Code of 1986 (as amended), or maintain its exemption from registration under the Investment Company Act of 1940. - SECTOR RISK - is the risk that the securities of companies within specific industries or sectors of the economy can periodically perform differently than the overall market. This may be due to changes in such things as the regulatory or competitive environment or to changes in investor perceptions regarding a company. - SECURITIES LENDING RISK - is the risk that the Fund may experience a delay in the recovery of loaned securities, or even the loss of rights in the collateral deposited by the borrower if the borrower should fail financially. To reduce these risks, the Fund enters into loan arrangements only with institutions that the Fund's investment adviser or sub-adviser has determined are creditworthy. - SHORT-TERM TRADING RISK - is the risk that a Fund may trade securities frequently and hold securities in its portfolio for one year or less. Frequent purchases and sales of securities will increase the Fund's transaction costs. Factors that can lead to short-term trading include market volatility, a significant positive or negative development concerning a security, an attempt to maintain a Fund's market capitalization target, and the need to sell a security to meet redemption activity. 44 INVESTING IN THE FUNDS - SMALL COMPANY RISK - is the risk that equity securities of small capitalization companies (including small capitalization REIT's) are subject to greater price volatility due to, among other things, such companies' small size, limited product lines, limited access to financing sources and limited management depth. In addition, the frequency and volume of trading of such securities may be less than is typical of larger companies, making them subject to wider price fluctuations. In some cases, there could be difficulties in selling securities of small capitalization companies at the desired time. - VALUE STOCK RISK - is the risk that the value of security believed by the Fund's investment adviser or sub-adviser to be undervalued may never reach what such investment adviser or sub-adviser believes is its full value, or that such security's value may decrease. INVESTING IN THE FUNDS 45 [GRAPHIC] BUYING AND SELLING SHARES - --------------- REFERENCE POINT - --------------- All Advantus Funds offer Class A, Class B and Class C shares, except for Real Estate Securities Fund (Class A and Class B shares only) and Advantus Money Market Fund, Inc. (a single class of shares). CHOOSING A SHARE CLASS You may purchase Class A, Class B or Class C shares of each of the Funds, except Real Estate Securities Fund. You may purchase only Class A or Class B shares of Real Estate Securities Fund. Your decision to purchase a particular class will depend on a number of factors such as the amount you wish to invest, the amount of time you wish to hold on to your investment and whether you intend to make additional investments. CLASS A SHARES. If you invest in Class A shares, you will generally pay an initial sales charge. However, you will not be assessed an initial sales charge for purchases of Class A shares of $1 million or more, but a deferred sales charge will be imposed if you sell such shares within one year after the date of purchase. There are several ways to reduce or waive these sales charges that are described in "Reducing Sales Charges" below. Class A shares generally have lower annual operating expenses than Class B and Class C shares. CLASS B SHARES. If you invest in Class B shares, you will not pay an initial sales charge. However, if you wish to sell your shares within six years from the date of your purchase, you will pay a deferred sales charge. If you maintain your Class B shares for a certain period of time, your Class B shares will automatically convert to Class A shares in the manner described in "Sales and Distribution Charges" below. Class B shares generally have higher annual operating expenses than Class A shares. CLASS C SHARES. If you invest in Class C shares, you will not pay an initial sales charge. Unlike Class B shares, you will not pay a deferred sales charge if you wish to sell your shares. Class C shares generally have higher annual operating expenses than Class A shares. Class C shares will automatically convert to Class A shares in the manner described in "Sales and Distribution Charges" below, but you must hold on to such shares for a longer period of time than Class B shares prior to conversion. If you qualify for a reduction or waiver of the sales charge you should purchase Class A shares. If you expect to hold shares for a short period of time you may prefer to purchase Class C shares since these shares may be purchased and sold without any initial or deferred sales charge. If you expect to hold shares longer you may prefer to purchase Class B shares since these shares convert to Class A shares sooner than Class C shares. SALES AND DISTRIBUTION CHARGES As an investor, you pay certain fees and expenses in connection with each Fund. Sales charges, whether initial or contingent deferred, are paid from your account. Annual fund operating expenses (including distribution and shareholder servicing fees) are paid out of Fund assets, which affects the Fund's share price. 46 BUYING AND SELLING SHARES CLASS A SHARES. If you purchase Class A shares of the Funds, you will generally pay an initial sales charge. Class A sales charges are calculated as follows:

SALES CHARGE AS A PERCENTAGE OF: Value of Your Total Investment Net Offering Price Amount Invested Less than $50,000 % 5.5 5.82 At least $50,000 but less than $100,000 4.5 4.71 At least $100,000 but less than $250,000 3.5 3.63 At least $250,000 but less than $500,000 2.5 2.56 At least $500,000 but less than $1,000,000 2.0 2.04 At least $1,000,000 and over(1) 0 0

(1) You will not be assessed an initial sales charge for purchases of Class A shares of at least $1 million, but a contingent deferred sales charge of 1.00% will be imposed if you sell such shares within one year after the date of purchase. The sales charge applicable to your initial investment in the Fund depends on the offering price of your investment. The sales charge applicable to subsequent investments, however, depends on the offering price of that investment plus the current net asset value of your previous investments in the Fund. For example, if you make an initial investment with an offering price of $40,000 you will pay a sales charge equal to 5.5% of your $40,000 investment, but if you already own shares with a current net asset value of $40,000 and you invest in additional shares with an offering price of $10,000 you will pay a sales charge equal to 4.5% of the additional $10,000 since your total investment in the Fund would then be $50,000. Class A shares are also subject to a shareholder servicing fee (Rule 12b-1 fee). The Fund has adopted a shareholder servicing plan that allows the Fund to pay fees for services provided to shareholders. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. As a percentage of average daily net assets attributable to Class A shares of the Fund, the maximum Rule 12b-1 fee is 0.25%. CLASS B SHARES. If you wish to sell your Class B shares within six years from the date of your purchase, you will pay a contingent deferred sales charge (CDSC). The amount of the CDSC on Class B shares depends on the number of years since your purchase was made, the amount of shares originally purchased and the dollar amount being sold. The CDSC is based on the net asset value (NAV) of the shares being sold at the time of your purchase or your sale of such shares, whichever is lower. No CDSC is charged on shares acquired through reinvestment of dividends or capital gains distributions, or on shares held longer than the applicable CDSC period. Class B CDSC is calculated as follows: BUYING AND SELLING SHARES 47

CDSC APPLICABLE IN YEAR FOLLOWING DATE OF PURCHASE AMOUNT OF SHARES PURCHASED 1 2 3 4 5 6 Less than $50,000 % 5.0 4.5 3.5 2.5 1.5 1.5 At least $50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 At least $100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 At least $250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 At least $500,000 but less than $1,000,000 1.5 1.5 0 0 0 0

Purchase orders for Class B shares of $1 million or more will be treated as orders for Class A shares or declined. To determine if a CDSC is payable for any redemption of Class B shares, CDSC calculation will be determined in a manner that results in the lowest CDSC charged. Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual rate of 1.00% of average daily net assets attributable to Class B shares of the Fund. The Fund uses the proceeds from the CDSC to pay underwriting fees and expenses. The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to distribution and shareholder services to the Fund. As a result, the combination of the CDSC and Rule 12b-1 fees allows the Fund to sell Class B shares without any initial sales charge. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Class B shares will automatically convert to Class A shares on a specified date following your date of purchase. Thereafter, the Class A shares you receive upon conversion will not be subject to the higher annual operating expenses assessed on Class B shares. The conversion will be based on the relative NAVs of the two classes. For a description of NAV, see "Buying Shares" below. The date of conversion is based on the amount of shares purchased and is determined as described in the following table:

CONVERSION DATE FOLLOWING EXPIRATION AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE* Less than $50,000 84 months At least $50,000 but less than $100,000 76 months At least $100,000 but less than $250,000 60 months At least $250,000 but less than $500,000 44 months At least $500,000 but less than $1,000,000 28 months

* Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day. 48 BUYING AND SELLING SHARES CLASS C SHARES. Class C shares are sold without an initial sales charge or CDSC. Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate of 1.00% of average daily net assets attributable to Class C shares of the Fund. The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to distribution and shareholder services to the Fund. Because these fees are paid out of the Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Purchase orders for Class C shares of $1 million or more will be treated as orders for Class A shares or declined. Class C shares will automatically convert to Class A shares on a specified date following your date of purchase. Thereafter, the Class A shares you receive upon conversion will not be subject to the higher annual operating expenses assessed on Class C shares. The conversion will be based on the relative NAVs of the two classes. Generally, Class C shares must be held longer than Class B shares before such shares automatically convert to Class A shares. Like Class B shares, the date of conversion is based on the amount of shares purchased and is determined as described in the following table:

CONVERSION DATE FOLLOWING EXPIRATION AMOUNT OF SHARES PURCHASED OF PERIOD AFTER DATE OF PURCHASE* Less than $50,000 96 months At least $50,000 but less than $100,000 88 months At least $100,000 but less than $250,000 72 months At least $250,000 but less than $500,000 56 months At least $500,000 but less than $1,000,000 40 months

* Conversion will occur on the fifteenth day of the month immediately following the termination of the applicable period. If the fifteenth day falls on a Saturday, Sunday or a national holiday, then conversion will occur on the most recent business day. Since the longer holding period for Class C shares enables the Fund to charge the higher Rule 12b-1 fee for a longer period, the Fund is able to offer Class C shares without an initial sales charge or CDSC. REDUCING SALES CHARGES PURCHASES OF SHARES. There are several ways you may reduce sales charges on your purchase of a Fund's shares. - LETTER OF INTENT. Lets you purchase Class A shares of a Fund over a 13 month period and receive the same sales charge as if all shares had been purchased at once. - COMBINATION PRIVILEGE. Lets you add the value of all shares you already own (Class A, Class B or Class C) in a Fund for purposes of calculating the sales charge. - FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any class of a Fund made by your spouse, children and/or family trust for purposes of calculating the sales charge. If you wish to use this privilege, you must indicate on your account application that you are entitled to the reduced sales charge. BUYING AND SELLING SHARES 49 - GROUP PURCHASES. Lets you purchase shares of a Fund with others as a group at a reduced sales charge applicable to the group as a whole. A purchase group must meet criteria established by Securian Financial Services, Inc. (Securian Financial), the Funds' underwriter. - AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified amount in a Fund each month, which may result in a lower average cost per share through the principle of "dollar cost averaging." The automatic investment plan will not always result in a lower cost per share, nor will it alone reduce your sales charge. For more information on any of these plans, please contact Advantus Shareholder Services by telephone at: (800) 665-6005. WAIVER OF SALES CHARGE ON CLASS A SHARE PURCHASES. Class A shares may be offered without any sales charge to the following individuals and institutions: - officers, directors, employees, sales representatives and retirees of the Fund, Advantus Capital, CSAM (with respect to Enterprise Fund only), State Street (with respect to Venture Fund only), Securian Financial, Minnesota Life and affiliated companies of Minnesota Life, and their respective spouses, siblings, direct ancestors or direct descendants - independent legal counsel to the Funds' independent directors - Minnesota Life and its affiliated companies - trusts, pension or benefit plans sponsored by or on behalf of Advantus Capital, Securian Financial, Minnesota Life and affiliated companies of Minnesota Life - advisory clients of Advantus Capital or other affiliated companies of Minnesota Life - employees of sales representatives of Advantus Capital, Minnesota Life or affiliated companies of Minnesota Life - certain accounts as to which a bank or broker-dealer charges an account management fee, provided that the bank or broker-dealer has an agreement with Securian Financial - certain accounts sold by registered investment advisers - investors who, within sixty (60) days after redeeming shares of a class of shares generally subject to either an initial or deferred sales charge issued by a non-Advantus fund, purchase Class A shares with those redemption proceeds from Securian Financial or from a broker-dealer that has entered into an agreement with Securian Financial specifically providing for such net asset value purchase - employer-sponsored retirement plans described in Sections 401 or 403, or governmental retirement plans described in Section 457, of the Internal Revenue Code with total plan assets of not less than $500,000 WAIVER OF SALES CHARGES ON CLASS B SHARES. The CDSC for Class B shares will generally be waived in the following cases: - upon the automatic conversion of Class B shares to Class A shares; - upon the Fund's decision to liquidate accounts with less than the minimum account size; - upon a shareholder's death or disability; and - in connection with Class B shares redeemed pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares equal in amount to 12% of the value of a shareholder's account in a Fund at the time the Systematic Withdrawal Plan is established. 50 BUYING AND SELLING SHARES For more information on these waivers, please see the Statement of Additional Information or contact Advantus Shareholder Services or Securian Financial. BUYING SHARES You may purchase shares of the Funds on any day the New York Stock Exchange (NYSE) is open for business. The price for Fund shares is equal to the particular Fund's NAV plus any applicable sales charge. NAV is generally calculated as of the close of normal trading on the NYSE (typically 3:00 p.m. Central time). However, NAV is not calculated for a Fund on: (a) days in which changes in the Fund's portfolio do not materially change the Fund's NAV, (b) days on which no Fund shares are purchased or sold, and (c) customary national business holidays on which the NYSE is closed for trading. A Fund's NAV for each class is equal to the Fund's total investments attributable to such class less liabilities attributable to such class divided by the number of shares of such class. To determine NAV, a Fund generally values the Fund's investments based on market quotations. If market quotations are not available for certain Fund investments, the investments are valued based on the fair value of the investments as determined in good faith by the Fund's board of directors. Debt securities may be valued based on calculations furnished to the Fund by a pricing service or by brokers who make a market in such securities. You may purchase shares through Securian Financial or another authorized broker-dealer or financial services firm (which may independently establish and charge you transaction or other fees for its services). Your purchase order will be priced at the next NAV (plus the applicable initial sales charge for Class A shares) determined after your purchase order is received by the Funds' transfer agent. An order received by the Funds' transfer agent from a financial services firm after NAV is determined that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such determination and transmitted to and received by the transfer agent prior to its close of business that day. Other orders received after the close of normal trading on the NYSE will be priced at the NAV calculated on the next day the NYSE is open for trading. A Fund may reject any purchase order when the Fund determines it would not be in the best interests of the Fund or its shareholders. You may purchase shares of the Funds in any of the following ways: BY CHECK. - New investors may purchase shares of the Funds by completing an account application and a check payable to "Advantus". - All checks must be in U.S. dollars. Cash, money orders, travelers checks, credit card and third-party checks are not accepted. If a check does not clear your bank, the Fund will cancel the purchase. If you purchase shares by check or bank draft and then redeem those shares, the redemption proceeds are not available until your check or draft clears, which may be up to 15 days after the date of purchase. - Send the completed application and a check payable to "Advantus" to your registered representative's authorized broker-dealer or other financial services firm. If you do not have a registered representative, send the completed account application and check to: Advantus Funds Group P.O. Box 9767 Providence, Rhode Island 02940-9767 BUYING AND SELLING SHARES 51 - --------------- REFERENCE POINT - --------------- Please see "Telephone Transactions" or "Internet Transactions" for instructions on how to sell shares by telephone or Internet. See "Selling Shares - Signature Guarantee" below to determine whether your sale will require a signature guarantee. - If you wish to purchase additional shares, please send a check payable to "Advantus" to the above address (referencing your Advantus Fund selection). When purchasing additional shares, certain third-party checks are acceptable. Please contact Advantus Shareholder Services at: (800) 665-6005 for more information. BY WIRE. - New investors may also purchase shares of the Funds by Federal Reserve or bank wire through a domestic bank. - You should first complete an account application and send it to your registered representative's authorized broker-dealer or other financial services firm. If you do not have a registered representative, send the completed account application to the address referenced above. - Prior to wiring any funds, you must contact Advantus Shareholder Services at: (800) 665-6005 for wire instructions. Wire purchases normally take two or more hours to complete. To be accepted the same day, wire purchases must be received by the close of normal trading on the NYSE. BY INTERNET. - Existing Advantus shareholders may also purchase shares via the internet once they have established on-line authorization. Please contact Advantus Shareholder Services at: (800) 665-6005 for more information. SELLING SHARES GENERAL. You may sell your shares at any time. You may make such requests by contacting the Fund directly by mail or by telephone or by Internet. Requests by mail should be sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. You may also sell your shares by sending a facsimile request to Advantus Funds Group at: (508) 871-9960 if no signature guarantee is required. Shares will be sold at the NAV next calculated after your sale order is received by the Funds' transfer agent less any applicable CDSC (for Class A shares subject to a CDSC and for Class B shares). A sale order received by the Funds' transfer agent from a financial services firm after NAV is calculated that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such calculation and transmitted to and received by the transfer agent prior to its close of business that day. Class A shares not otherwise subject to a CDSC and Class C shares may be sold without any charge. The Fund will forward the sales proceeds to you as soon as possible, but generally no later than seven days after the Fund has received an order. If you designate a bank account with the Fund and wish to sell shares with a value of at least $500, then the proceeds can be wired directly to your bank account. If you elect to have proceeds sent by wire transfer, the current $15.00 wire charge will be deducted from your Fund account. The amount you receive may be more or less than the original purchase price for your shares. DELAY ON PURCHASES BY CHECK. Sales proceeds from shares purchased by check or bank draft, other than checks from government agencies, will not be available until your check or draft clears, which may take up to fifteen days after your purchase. 52 BUYING AND SELLING SHARES SYSTEMATIC WITHDRAWAL PLAN. If you have an account in a Fund with a value of at least $5,000, you may establish a Systematic Withdrawal Plan which allows you to sell a portion of your shares of such Fund for a fixed or variable amount over a period of time. Withdrawal payments for Class A shares purchased in amounts of $1 million or more and for Class B shares may also be subject to a CDSC. As a result, you should carefully consider whether a Systematic Withdrawal Plan is appropriate. More information about the Systematic Withdrawal Plan is provided in the Statement of Additional Information. MEDALLION SIGNATURE GUARANTEE. In order to protect the Funds and shareholders against fraudulent requests, a medallion signature guarantee may be required in certain cases. No signature guarantee is required if the sale proceeds are less than $50,000 and are to be paid to the registered holder of the account at the address of record for that account. A medallion signature guarantee is required if: - sale proceeds are $50,000 or more - sale proceeds will be paid to someone other than the registered shareholder - sale proceeds will be mailed to an address other than the registered shareholder's address of record - instructions were received by the Fund within 30 days before the sale order to change the registered shareholder's address or bank wire instructions - shares are to be transferred to another Fund account holder - the request is not made by a pre-authorized trustee for a plan, trust or other tax-exempt organization The Funds reserve the right to require signature guarantees on all sales. If your sale order requires a signature guarantee, the signature guarantee must be an original (not a copy) and must be a medallion signature guarantee provided by a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are: - Securities Transfer Agents Medallion Program (STAMP) - Stock Exchanges Medallion Program (SEMP) - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP) Signature guarantees from financial institutions which are not participants in a recognized medallion program will not be accepted. REINSTATEMENT PRIVILEGE. If you sell shares of a Fund, you have a one-time privilege within 90 days after the sale to use some or all of the sale proceeds to purchase shares of any of the Advantus Multiple Class Funds at no sales charge. Following your sale of Class A or Class B shares, you will be entitled to purchase only Class A shares under this reinstatement privilege. Any CDSC incurred in connection with the prior sale of Class A or B shares within a 90 day period will not be refunded to a shareholder's account. Following your sale of Class C shares, you will be entitled to purchase only Class C shares under this reinstatement privilege. BUYING AND SELLING SHARES 53 - --------------- REFERENCE POINT - --------------- Please see "Telephone Transactions" or "Internet Transactions" for instructions on how to exchange shares by telephone or Internet. - --------------- REFERENCE POINT - --------------- Please see "Selling Shares" and "Exchanging Shares" for sale and exchange details. EXCHANGING SHARES You may exchange some or all of your shares of a Fund for shares of the same class of any other Advantus Multiple Class Fund or for shares of Advantus Money Market Fund, Inc. (Money Market Fund) provided the other Advantus Fund is available in your state. If you are considering an exchange into another Advantus Fund you should obtain the prospectus for that fund and read it carefully. Exchanges may only be made between Advantus Fund accounts with identical registrations. You may make exchanges by contacting the Fund by mail or by telephone or by Internet. Purchases by exchange are subject to the minimum investment requirements for the Advantus Funds. You may exchange your shares up to twelve times a year without restriction or charge. A $7.50 service fee will then be imposed on subsequent exchanges. The Fund reserves the right to change the terms of and impose additional limitations and charges on exchanges after giving 60 days' prior notice to shareholders. Frequent exchanges may interfere with Fund management or operations and drive up Fund costs. The Fund is not designed for market timers, or for large or frequent transfers. To protect shareholders, the Fund may restrict or refuse purchases or exchanges by market timers. You will be considered to be a market timer if you have: (i) requested an exchange out of any Advantus Fund within two weeks of an earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more than three times in a calendar quarter, or (iii) exchanged shares equal to at least $1 million, or more than 1% of the net assets of any class of shares of any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern in the exercise of exchange or transfer rights. Accounts under common control or ownership are combined for the purpose of determining these limitations. Exchanges will be made based on the NAVs of the shares. No additional purchase or sales charges will generally be imposed on exchanges for shares. However, exchanges of shares from Money Market Fund are subject to applicable sales charges of the Advantus Fund being purchased, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gain distributions. If Class B shares are acquired by exchange of Class B shares of another Advantus Fund and later sold, any CDSC on such sale will be calculated as if no previous exchange occurred. However, shares of the Money Market Fund acquired by exchange from Class B shares will still be subject to the CDSC. The CDSC will be calculated without including the period that shares of the Money Market Fund are held. You may also elect to systematically exchange Fund shares for shares of other Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange amount of at least $50. More information about exchanging shares is provided in the Statement of Additional Information. TELEPHONE TRANSACTIONS You may sell or exchange Fund shares by telephone. You will automatically have the right to initiate such telephone transactions unless you elect not to do so on your account application. You may initiate telephone transactions by calling Advantus Shareholder Services at: (800) 665-6005. Automated service is available 24 hours a day or you may speak to a service representative Monday through Friday, from 7:30 a.m. to 5:15 p.m. (Central time). The maximum amount of shares you may sell by telephone is $50,000. 54 BUYING AND SELLING SHARES During periods of economic or market changes, you may experience difficulty in selling or exchanging shares due to a heavy volume of telephone calls. In such a case, you should consider submitting a written request as an alternative to a telephone sale or exchange. The Fund reserves the right to change, terminate or impose a fee on, telephone sale and exchange privileges after giving 60 days' prior notice to shareholders. Unless you decline telephone privileges on your account application, you may be responsible for any fraudulent telephone order as long as the Fund takes reasonable measures to verify the order. INTERNET TRANSACTIONS PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. The Advantus Funds maintain a web site located at www.advantusfunds.com. Existing Advantus Funds shareholders may purchase, exchange and redeem shares, and access account information such as account balance and the Fund's NAVs. In order to engage in transactions on our web site, you must first authorize us to transmit account information on-line and accept our policies and procedures. Please contact Advantus Shareholder Services at: (800) 665-6005. You may need to have bank account information or other information to complete the authorization process. You may be responsible for any fraudulent Internet transactions as long as the Fund takes reasonable measures to verify the order. ELECTRONIC DELIVERY OF DOCUMENTS. If you would like to have annual and semi-annual shareholder reports and updated prospectuses delivered to you electronically, rather than on paper, please visit our web site at www.advantusfunds.com. ACCOUNT REQUIREMENTS MINIMUM INVESTMENT AMOUNTS. A minimum initial investment of $1,000 is required to open your account in a Fund, except that $500 is the minimum initial investment required to open a qualified account or an account in which you have agreed to make investments of not less than $50 under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50. MINIMUM ACCOUNT BALANCE. If for any reason the shares in your account have a value of less than $150 in 2002, or $500 in subsequent years, the Fund has the right to close your account. The Fund usually makes this determination in December of each year. You will be given at least 60 days' written notice to add funds to your account and reestablish the minimum balance. LOW BALANCE FEE. The Fund will deduct a $10 annual fee from your account in December of each year if your account balance at that time is below $2,000. The low balance fee is waived for qualified accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). BUYING AND SELLING SHARES 55 [GRAPHIC] DISTRIBUTIONS AND TAXES - -------------------- FOR YOUR INFORMATION - -------------------- The redemption or exchange of Fund shares may generate a taxable event for you. Depending on the purchase price and the sale price of the shares you redeem or exchange, you may incur a gain or loss. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Each Fund pays its shareholders dividends from its net investment income, and distributes any net capital gains that it has realized. Dividends, if any, are paid quarterly and net capital gains distributions are generally paid once a year. Distributions on Class A shares will generally be higher than Class B and Class C share distributions due to higher Rule 12b-1 fees applicable to Class B and Class C shares. Your distributions will be reinvested in additional shares of the Fund unless you instruct the Fund otherwise. Distributions of these additional shares are made at the NAV of the payment date. There are no fees or sales charges on reinvestments. If you wish to receive cash distributions, you may authorize the Fund to do so in your account application or by writing to Advantus Shareholder Services. If your cash distribution checks cannot be delivered by the postal or other delivery service to your address of record, all distributions will automatically be reinvested in additional shares of the Fund. No interest will be paid on amounts represented by uncashed distribution checks. You may elect to have dividends invested in shares of the Money Market Fund or in shares of the same class of another Advantus Multiple Class Fund described in "Advantus Family of Funds" below. Dividends are valued at the NAV of such other Advantus Fund on the dividend payment date. To qualify for this privilege, you must maintain a minimum account balance of $500 in the Fund and the other applicable Advantus Fund. You must request this privilege by writing to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. TAXES You will be taxed on both dividends and capital gains distributions paid by a Fund (unless you hold your shares through an IRA or other tax-deferred retirement account). Dividends and distributions are subject to tax regardless of whether they are automatically invested or are received in cash. Dividends paid from the Fund's investment income will be taxed as ordinary income. Capital gains distributions will be taxed as long-term capital gains, regardless of the length of time for which you have held your shares. Long-term capital gains are currently taxable to individuals at a maximum federal tax rate of 20%. If you purchase shares of the Fund before dividends or capital gains distributions, such dividends and distributions will reduce the NAV per share by the amount of such dividends and distributions. Furthermore, you will be subject to taxation on such dividends and distributions. 56 DISTRIBUTIONS AND TAXES If you sell your shares, you will generally realize a capital gain or loss. Any gain will be treated as short-term if you have held the shares for one year or less, and long-term if you have held the shares more than one year. Short-term capital gains are taxed as ordinary income, while long-term capital gains are subject to a maximum federal tax rate of 20%. If you exchange your shares in a Fund for shares of another Advantus Fund, the exchange will be treated as a sale for federal tax purposes, and you will be taxed on any capital gain you realize on the sale. A Fund makes changes in its portfolio that Advantus Capital or the Fund's investment sub-adviser, if any, deems advisable. The Fund's portfolio turnover may cause the Fund to realize capital gains which, when distributed to shareholders, will be taxable to them. You will receive an annual statement from the Fund providing detailed information concerning the federal tax status of distributions you have received during the year. The above is only a general discussion of the federal income tax consequences of an investment in a Fund. For more information, see the Statement of Additional Information. You should consult your own tax adviser for the specific federal, state or local tax consequences to you of an investment in a Fund. DISTRIBUTIONS AND TAXES 57 [GRAPHIC] FINANCIAL HIGHLIGHTS The following table describes each Fund's performance for the fiscal periods indicated. "Total return" shows how much your investment in the Fund would have increased (or decreased) during each period, assuming you had reinvested all dividends and distributions. These figures have been audited by KPMG LLP, the Funds' independent auditor, whose report, along with the Funds' financial statements, are included in the annual report, which is available upon request. Per share data for a share of capital stock and selected information for each period are as follows for each Fund: CORNERSTONE FUND

FINANCIAL HIGHLIGHTS CLASS A Period From October 1, 2001 to Year Ended September 30, July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 12.59 15.08 15.14 13.88 18.68 15.06 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) .08 .09 .06 .15 .16 .14 Net Gains (Losses) (both realized and unrealized) (.78) (2.50) .13 1.26 (3.04) 5.19 ---------------------------------------------------------------------- Total from Investment Operations (.70) (2.41) .19 1.41 (2.88) 5.33 ---------------------------------------------------------------------- Less Distributions: Dividends from Net Investment Income (.08) (.08) (.05) (.15) (.16) (.14) Distributions from Net Realized Gains -- -- (.13) -- (1.76) (1.57) Excess Distributions of Net Realized Gain -- -- (.06) -- -- -- Tax Return of Capital -- -- (.01) -- -- -- ---------------------------------------------------------------------- Total Distributions (.08) (.08) (.25) (.15) (1.92) (1.71) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 11.81 12.59 15.08 15.14 13.88 18.68 ====================================================================== Total Return (a) % (5.72) (15.97) 1.26 10.13 (16.45) 38.35 Net Assets, End of Period (in thousands) $ 57,947 65,766 81,389 92,657 93,833 107,322 Ratios to Average Net Assets: Expenses % 1.24(b) 1.24 1.24 1.21 1.16 1.08 Net Investment Income % .70(b) .61 .43 .94 .98 .85 Expenses Without Waivers % 1.41(b) 1.39 1.34 1.23 1.25 1.28 Net Investment Income Without Waivers % .53(b) .46 .33 .92 .89 .65 Portfolio Turnover Rate (excluding short-term securities) % 95.3 147.9 180.1 78.7 114.4 87.7

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 58 FINANCIAL HIGHLIGHTS CORNERSTONE FUND

FINANCIAL HIGHLIGHTS CLASS B Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 12.38 14.86 14.97 13.73 18.52 14.92 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) -- (.02) (.02) .03 .03 -- Net Gains (Losses) (both realized and unrealized) (.77) (2.46) .10 1.24 (3.02) 5.18 ---------------------------------------------------------------------- Total from Investment Operations (.77) (2.48) .08 1.27 (2.99) 5.18 ---------------------------------------------------------------------- Less Distributions: Dividends from Net Investment Income (.01) -- -- (.03) (.04) (.01) Distributions from Net Realized Gains -- -- (.13) -- (1.76) (1.57) Excess Distributions of Net Realized Gain -- -- (.06) -- -- -- ---------------------------------------------------------------------- Total Distributions (.01) -- (.19) (.03) (1.80) (1.58) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 11.60 12.38 14.86 14.97 13.73 18.52 ====================================================================== Total Return (a) % (6.40) (16.61) .54 9.26 (17.21) 37.68 Net Assets, End of Period (in thousands) $ 6,190 8,382 12,615 18,611 21,176 21,405 Ratios to Average Net Assets: Expenses % 1.99(b) 1.99 1.99 1.96 1.95 1.98 Net Investment Income (Loss) % (.05)(b) (.14) (.29) .20 .18 (.05) Expenses Without Waivers % 2.16(b) 2.14 2.09 1.96 1.95 1.98 Net Investment Income (Loss) Without Waivers % (.22)(b) (.29) (.39) .20 .18 (.05) Portfolio Turnover Rate (excluding short-term securities) % 95.3 147.90 180.1 78.7 114.4 87.7

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to annual basis. FINANCIAL HIGHLIGHTS 59 CORNERSTONE FUND

FINANCIAL HIGHLIGHTS CLASS C Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 12.35 14.82 14.93 13.68 18.48 14.94 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) -- (.02) (.02) .03 .03 -- Net Gains (Losses) (both realized and unrealized) (.78) (2.45) .10 1.25 (3.04) 5.12 ---------------------------------------------------------------------- Total from Investment Operations (.78) (2.47) .08 1.28 (3.01) 5.12 ---------------------------------------------------------------------- Less Distributions: Dividends from Net Investment Income (.01) -- -- (.03) (.03) (.01) Distributions from Net Realized Gains -- -- (.13) -- (1.76) (1.57) Excess Distributions of Net Realized Gain -- -- (.06) -- -- -- Tax Return of Capital -- -- -- -- -- -- ---------------------------------------------------------------------- Total Distributions (.01) -- (.19) (.03) (1.79) (1.58) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 11.56 12.35 14.82 14.93 13.68 18.48 ====================================================================== Total Return (a) % (6.42) (16.58) .54 9.35 (17.28) 37.10 Net Assets, End of Period (in thousands) $ 680 873 1,281 2,015 3,094 3,399 Ratios to Average Net Assets: Expenses % 1.99(b) 1.99 1.99 1.96 1.95 1.98 Net Investment Income (Loss) % (.05)(b) (.14) (.29) .21 .18 (.05) Expenses Without Waivers % 2.16(b) 2.14 2.09 1.96 1.95 1.98 Net Investment Income (Loss) Without Waivers % (.22)(b) (.29) (.39) .21 .18 (.05) Portfolio Turnover Rate (excluding short-term securities) % 95.3 147.9 180.1 78.7 114.4 87.7

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 60 FINANCIAL HIGHLIGHTS ENTERPRISE FUND

FINANCIAL HIGHLIGHTS CLASS A Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 7.20 20.77 14.56 11.32 15.90 15.94 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.08) (.03) (.19) (.14) (.13) (.04) Net Gains (Losses) (both realized and unrealized) (.68) (7.07) 6.40 3.38 (4.45) 1.74 ---------------------------------------------------------------------- Total from Investment Operations (.76) (7.10) 6.21 3.24 (4.58) 1.70 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Total Distributions -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 6.44 7.20 20.77 14.56 11.32 15.90 ====================================================================== Total Return (a) % (10.56) (44.09) 42.65 28.62 (28.81) 12.88 Net Assets, End of Period (in thousands) $ 27,357 30,744 56,087 40,009 31,844 44,102 Ratios to Average Net Assets: Expenses % 1.38(b) 1.38 1.25 1.33 1.27 1.28 Net Investment Income (Loss) % (1.14)(b) (1.00) (.92) (.97) (.91) (.32) Expenses Without Waivers % 1.69(b) 1.60 1.43 1.45 1.44 1.48 Net Investment Income (Loss) Without Waivers % (1.45)(b) (1.22) (1.10) (1.09) (1.08) (.52) Portfolio Turnover Rate (excluding short-term securities) % 62.2 105.40 181.5 99.3 71.1 65.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. FINANCIAL HIGHLIGHTS 61 ENTERPRISE FUND

FINANCIAL HIGHLIGHTS CLASS B Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 6.51 19.63 13.88 10.88 15.42 15.64 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.16) (.07) (.35) (.26) (.24) (.18) Net Gains (Losses) (both realized and unrealized) (.57) (6.58) 6.10 3.26 (4.30) 1.70 ---------------------------------------------------------------------- Total from Investment Operations (.73) (6.65) 5.75 3.00 (4.54) 1.52 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Total Distributions -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 5.78 6.51 19.63 13.88 10.88 15.42 ====================================================================== Total Return (a) % (11.22) (44.59) 41.43 27.57 (29.44) 11.89 Net Assets, End of Period (in thousands) $ 3,345 4,440 9,086 6,491 5,903 7,683 Ratios to Average Net Assets: Expenses % 2.23(b) 2.23 2.10 2.18 2.14 2.18 Net Investment Income (Loss) % (1.99)(b) (1.85) (1.77) (1.82) (1.77) (1.60) Expenses Without Waivers % 2.44(b) 2.35 2.10 2.18 2.14 2.18 Net Investment Income (Loss) Without Waivers % (2.20)(b) (1.97) (1.77) (1.82) (1.77) (1.60) Portfolio Turnover Rate (excluding short-term securities) % 62.2 105.4 181.5 99.3 71.1 65.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 62 FINANCIAL HIGHLIGHTS ENTERPRISE FUND

FINANCIAL HIGHLIGHTS CLASS C Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Period $ 6.50 19.62 13.87 10.87 15.41 15.63 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.15) (.05) (.36) (.27) (.26) (.23) Net Gains (Losses) (both realized and unrealized) (.57) (6.60) 6.11 3.27 (4.28) 1.75 ---------------------------------------------------------------------- Total from Investment Operations (.72) (6.65) 5.75 3.00 (4.54) 1.52 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Total Distributions -- (6.47) -- -- -- (1.74) ---------------------------------------------------------------------- Net Asset Value, End of Period $ 5.78 6.50 19.62 13.87 10.87 15.41 ====================================================================== Total Return (a) % (11.21) (44.54) 41.46 27.48 (29.40) 11.89 Net Assets, End of Period (in thousands) $ 421 541 1,079 812 780 1,133 Ratios to Average Net Assets: Expenses % 2.23(b) 2.23 2.10 2.18 2.14 2.18 Net Investment Income (Loss) % (1.99)(b) (1.85) (1.77) (1.82) (1.78) (1.75) Expenses Without Waivers % 2.44(b) 2.35 2.10 2.18 2.14 2.18 Net Investment Income (Loss) Without Waivers % (2.20)(b) (1.97) (1.77) (1.82) (1.78) (1.75) Portfolio Turnover Rate (excluding short-term securities) % 62.2 105.4 181.5 99.3 71.1 65.8

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. FINANCIAL HIGHLIGHTS 63 HORIZON FUND

FINANCIAL HIGHLIGHTS CLASS A Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Year $ 12.63 31.08 26.88 23.59 23.06 23.07 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.07) (.16) (.28) (.16) (.09) (.08) Net Gains (Losses) (both realized and unrealized) (1.33) (13.38) 5.41 5.77 3.48 4.89 ---------------------------------------------------------------------- Total from Investment Operations (1.40) (13.54) 5.13 5.61 3.39 4.81 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Total Distributions -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Net Asset Value, End of Year $ 11.23 12.63 31.08 26.88 23.59 23.06 ====================================================================== Total Return (a) % (11.08) (49.46) 19.26 24.74 16.38 24.96 Net Assets, End of Year (in thousands) $ 21,830 27,603 63,568 56,581 47,183 40,192 Ratios to Average Net Assets: Expenses % 1.35(b) 1.35 1.33 1.30 1.36 1.43 Net Investment Income (Loss) % (.58)(b) (.85) (.89) (.61) (.39) (.39) Expenses Without Waivers % 2.17(b) 1.81 1.42 1.30 1.37 1.48 Net Investment Income (Loss) Without Waivers % (1.40)(b) (1.32) (.97) (.61) (.40) (.44) Portfolio Turnover Rate (excluding short-term securities) % 67.6 129.6 109.3 60.1 72.6 71.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 64 FINANCIAL HIGHLIGHTS HORIZON FUND

FINANCIAL HIGHLIGHTS CLASS B Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Year $ 11.62 29.26 25.54 22.65 22.41 22.65 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.16) (.30) (.49) (.32) (.22) (.19) Net Gains (Losses) (both realized and unrealized) (1.19) (12.43) 5.14 5.53 3.32 4.77 ---------------------------------------------------------------------- Total from Investment Operations (1.35) (12.73) 4.65 5.21 3.10 4.58 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Total Distributions -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Net Asset Value, End of Year $ 10.27 11.62 29.26 25.54 22.65 22.41 ====================================================================== Total Return (a) % (11.71) (49.85) 18.40 23.93 15.48 24.25 Net Assets, End of Year (in thousands) $ 7,507 10,679 26,878 23,561 17,100 11,684 Ratios to average net assets: Expenses % 2.10(b) 2.10 2.08 2.04 2.07 2.18 Net Investment Income (Loss) % (1.33)(b) (1.60) (1.63) (1.34) (1.11) (1.13) Expenses Without Waivers % 2.92(b) 2.56 2.17 2.04 2.07 2.18 Net Investment Income (Loss) Without Waivers % (2.15)(b) (2.07) (1.72) (1.34) (1.11) (1.13) Portfolio Turnover Rate (excluding short-term securities) % 67.6 129.60 109.3 60.1 72.6 71.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. FINANCIAL HIGHLIGHTS 65 HORIZON FUND

FINANCIAL HIGHLIGHTS CLASS C Period From Year Ended September 30, October 1, 2001 to July 31, 2002 '01 '00 '99 '98 '97 Net Asset Value, Beginning of Year $ 11.71 29.44 25.69 22.79 22.38 22.67 ---------------------------------------------------------------------- Income from Investment Operations: Net Investment Loss (.16) (.30) (.51) (.36) (.24) (.20) Net Gains (Losses) (both realized and unrealized) (1.21) (12.52) 5.19 5.58 3.51 4.73 ---------------------------------------------------------------------- Total from Investment Operations (1.37) (12.82) 4.68 5.22 3.27 4.53 ---------------------------------------------------------------------- Less Distributions: Distributions from Net Realized Gains -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Total Distributions -- (4.91) (.93) (2.32) (2.86) (4.82) ---------------------------------------------------------------------- Net Asset Value, End of Year $ 10.34 11.71 29.44 25.69 22.79 22.38 ====================================================================== Total Return (a) % (11.71) (49.84) 18.37 23.82 15.74 24.03 Net Assets, End of Year (in thousands) $ 658 988 2,396 2,540 2,299 1,754 Ratios to Average Net Assets: Expenses % 2.10(b) 2.10 2.08 2.04 2.07 2.18 Net Investment Income (Loss) % (1.33)(b) (1.60) (1.63) (1.34) (1.10) (1.14) Expenses Without Waivers % 2.92(b) 2.56 2.17 2.04 2.07 2.18 Net Investment Income (Loss) Without Waivers % (2.15)(b) (2.07) (1.72) (1.34) (1.10) (1.14) Portfolio Turnover Rate (excluding short-term securities) % 67.6 129.6 109.3 60.1 72.6 71.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 66 FINANCIAL HIGHLIGHTS INDEX 500 FUND

FINANCIAL HIGHLIGHTS CLASS A Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 15.92 18.93 17.74 15.06 12.89 ------------------------------------------------ Income from Investment Operations: Net Investment Income (Loss) .11 .12 .10 .11 .10 Net Gains (Losses) (both realized and unrealized) (3.94) (2.98) 1.27 2.74 2.21 ------------------------------------------------ Total from Investment Operations (3.83) (2.86) 1.37 2.85 2.31 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.09) (.10) (.03) (.10) (.12) Distributions from Net Realized Gains -- (.05) (.15) (.07) (.02) ------------------------------------------------ Total Distributions (.09) (.15) (.18) (.17) (.14) ------------------------------------------------ Net Asset Value, End of Year $ 12.00 15.92 18.93 17.74 15.06 ================================================ Total Return (a) % (24.14) (15.12) 7.67 19.13 18.19 Net Assets, End of Year (in thousands) $ 18,196 24,870 24,723 25,498 15,711 Ratios to Average Net Assets: Expenses % .75 .75 .75 .75 .74 Net Investment Income (Loss) % .77 .72 .52 .64 .83 Expenses Without Waivers % 1.53 1.43 1.38 1.43 1.81 Net Investment Income (Loss) Without Waivers % (.01) .04 (.11) (.04) (.24) Portfolio Turnover Rate (excluding short-term securities) % 13.6 17.2 42.6 25.3 59.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 67 INDEX 500 FUND

FINANCIAL HIGHLIGHTS CLASS B Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 15.66 18.68 17.64 15.01 12.87 ------------------------------------------------ Income from Investment Operations: Net Investment Income (Loss) (.01) (.02) (.06) (.03) .02 Net Gains (Losses) (both realized and unrealized) (3.86) (2.93) 1.25 2.73 2.17 ------------------------------------------------ Total from Investment Operations (3.87) (2.95) 1.19 2.70 2.19 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.01) (.02) -- -- (.03) Distributions from Net Realized Gains -- (.05) (.15) (.07) (.02) ------------------------------------------------ Total Distributions (.01) (.07) (.15) (.07) (.05) ------------------------------------------------ Net Asset Value, End of Year $ 11.78 15.66 18.68 17.64 15.01 ================================================ Total Return (a) % (24.80) (15.77) 6.71 18.10 17.17 Net Assets, End of Year (in thousands) $ 14,559 21,931 28,077 24,202 11,832 Ratios to Average Net Assets: Expenses % 1.60 1.60 1.60 1.60 1.60 Net Investment Income (Loss) % (.08) (.11) (.33) (.21) (.06) Expenses Without Waivers % 2.28 2.18 2.13 2.16 2.51 Net Investment Income (Loss) Without Waivers % (.76) (.69) (.86) (.77) (.97) Portfolio Turnover Rate (excluding short-term securities) % 13.6 17.2 42.6 25.3 59.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 68 FINANCIAL HIGHLIGHTS INDEX 500 FUND

FINANCIAL HIGHLIGHTS CLASS C Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 15.63 18.64 17.60 14.97 12.85 ------------------------------------------------ Income from Investment Operations: Net Investment Income (Loss) (.01) (.03) (.06) (.03) .01 Net Gains (Losses) (both realized and unrealized) (3.86) (2.91) 1.25 2.73 2.16 ------------------------------------------------ Total from Investment Operations (3.87) (2.94) 1.19 2.70 2.17 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income (.01) (.02) -- -- (.03) Distributions from Net Realized Gains -- (.05) (.15) (.07) (.02) ------------------------------------------------ Total Distributions (.01) (.07) (.15) (.07) (.05) ------------------------------------------------ Net Asset Value, End of Year $ 11.75 15.63 18.64 17.60 14.97 ================================================ Total Return (a) % (24.80) (15.80) 6.73 18.03 17.09 Net Assets, End of Year (in thousands) $ 1,605 2,291 3,168 2,910 1,508 Ratios to Average Net Assets: Expenses % 1.60 1.60 1.60 1.60 1.60 Net Investment Income (Loss) % (.08) (.11) (.33) (.21) (.06) Expenses Without Expense Waivers % 2.28 2.18 2.13 2.16 2.51 Net Investment Income (Loss) Without Waivers % (.76) (.69) (.86) (.77) (.97) Portfolio Turnover Rate (excluding short-term securities) % 13.6 17.2 42.6 25.3 59.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 69 REAL ESTATE SECURITIES FUND

FINANCIAL HIGHLIGHTS CLASS A PERIOD FROM YEAR ENDED JULY 31 FEBRUARY 25, 1999(C) TO '02 '01 '00 JULY 31, 1999 Net Asset Value, Beginning of Year $ 11.67 11.23 10.25 10.02 --------------------------------------------- Income from Investment Operations: Net Investment Income .32 .51 .43 .18 Net Gains (both realized and unrealized) 1.01 .47 1.00 .31 --------------------------------------------- Total from Investment Operations 1.33 .98 1.43 .49 --------------------------------------------- Less Distributions: Distributions from Net Investment Income (.28) (.54) (.41) (.18) Distributions from Net Realized Gains (.79) -- (.04) -- Excess Distributions of Net Investment Income -- -- -- (.08) --------------------------------------------- Total Distributions (1.07) (.54) (.45) (.26) --------------------------------------------- Net Asset Value, End of Year $ 11.93 11.67 11.23 10.25 ============================================= Total Return (a) % 12.31 9.10 14.89 4.78 Net Assets, End of Year (in thousands) $ 32,269 17,336 11,704 6,113 Ratios to Average Net Assets: Expenses % 1.50 1.50 1.50 1.50(b) Net Investment Income % 2.83 4.29 4.26 4.09(b) Expenses Without Waivers % 1.69 1.99 2.72 3.49(b) Net Investment Income Without Waivers % 2.64 3.81 3.04 2.10(b) Portfolio Turnover Rate (excluding short-term securities) % 101.2 173.1 116.8 51.5

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. (c) Date shares became effectively registered. 70 FINANCIAL HIGHLIGHTS REAL ESTATE SECURITIES FUND

FINANCIAL HIGHLIGHTS CLASS B PERIOD FROM NOVEMBER 28, 2001(C) TO JULY 31, 2002 Net Asset Value, Beginning of Year $ 11.56 ------------ Income from Investment Operations: Net Investment Income .11 Net Gains (both realized and unrealized) 1.23 ------------ Total from Investment Operations 1.34 ------------ Less Distributions: Distributions from Net Investment Income (.22) Distributions from Net Realized Gains (.79) Excess Distributions of Net Investment Income -- ------------ Total Distributions (1.01) ------------ Net Asset Value, End of Year $ 11.89 ============ Total Return (a) % 7.75 Net Assets, End of Year (in thousands) $ 1,131 Ratios to Average Net Assets: Expenses % 2.40(b) Net Investment Income % 1.29(b) Expenses Without Waivers % 2.44(b) Net Investment Income Without Waivers % 1.25(b) Portfolio Turnover Rate (excluding short-term securities) % 101.2

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. (c) Inception date of the Class B shares. FINANCIAL HIGHLIGHTS 71 VENTURE FUND

FINANCIAL HIGHLIGHTS CLASS A Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 15.05 11.47 11.20 12.03 11.73 ---------------------------------------------------- Income from Investment Operations: Net Investment Income (Loss) (.08) (.06) .05 .10 .06 Net Gains (Losses) (both realized and unrealized) (1.84) 4.04 .32 (.59) .98 ---------------------------------------------------- Total from Investment Operations (1.92) 3.98 .37 (.49) 1.04 ---------------------------------------------------- Less Distributions: Dividends from Net Investment Income -- -- (.06) (.09) (.08) Dividends in Excess of Net Investment Income -- -- (.04) -- -- Distributions from Net Realized Gains (.88) (.40) -- (.23) (.66) Tax Return of Capital -- -- -- (.02) -- ---------------------------------------------------- Total Distributions (.88) (.40) (.10) (.34) (.74) ---------------------------------------------------- Net Asset Value, End of Year $ 12.25 15.05 11.47 11.20 12.03 ==================================================== Total Return (a) % (13.27) 35.18 3.74 (3.89) 8.92 Net Assets, End of Year (in thousands) $ 53,071 54,735 31,371 31,683 34,630 Ratios to Average Net Assets: Expenses % 1.27 1.40 1.40 1.40 1.38 Net Investment Income (Loss) % (.57) (.56) .63 .81 .55 Expenses Without Waivers % 1.37 1.51 1.71 1.64 1.55 Net Investment Income (Loss) Without Waivers % (.67) (.67) .32 .57 .38 Portfolio Turnover Rate (excluding short-term securities) % 37.3 37.8 169.0 103.9 45.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 72 FINANCIAL HIGHLIGHTS VENTURE FUND

FINANCIAL HIGHLIGHTS CLASS B Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 14.77 11.36 11.11 11.94 11.71 ------------------------------------------------ Income from Investment Operations: Net Investment Income (Loss) (.17) (.16) (.04) -- (.02) Net Gains (Losses) (both realized and unrealized) (1.82) 3.97 .32 (.58) .92 ------------------------------------------------ Total from Investment Operations (1.99) 3.81 .28 (.58) .90 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income -- -- (.02) (.02) (.01) Distributions from Net Realized Gains (.88) (.40) -- (.23) (.66) Dividends in Excess of Net Investment Income -- -- (.01) -- -- ------------------------------------------------ Total Distributions (.88) (.40) (.03) (.25) (.67) ------------------------------------------------ Net Asset Value, End of Year $ 11.90 14.77 11.36 11.11 11.94 ================================================ Total Return (a) % (14.02) 34.01 2.89 (4.77) 7.65 Net Assets, End of Year (in thousands) $ 4,531 4,114 2,500 3,115 3,529 Ratios to Average Net Assets: Expenses % 2.12 2.25 2.24 2.25 2.25 Net Investment Income (Loss) % (1.42) (1.41) (.24) (.04) (.26) Expenses Without Waivers % 2.12 2.26 2.45 2.36 2.25 Net Investment Income (Loss) Without Waivers % (1.42) (1.42) (.45) (.15) (.26) Portfolio Turnover Rate (excluding short-term securities) % 37.3 37.8 169.0 103.9 45.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. FINANCIAL HIGHLIGHTS 73 VENTURE FUND

FINANCIAL HIGHLIGHTS CLASS C Year Ended July 31 '02 '01 '00 '99 '98 Net Asset Value, Beginning of Year $ 14.83 11.41 11.15 11.98 11.71 ------------------------------------------------ Income from Investment Operations: Net Investment Income (Loss) (.14) (.15) (.03) (.01) (.03) Net Gains (Losses) (both realized and unrealized) (1.85) 3.98 .32 (.57) .97 ------------------------------------------------ Total from Investment Operations (1.99) 3.83 .29 (.58) .94 ------------------------------------------------ Less Distributions: Dividends from Net Investment Income -- -- (.02) (.02) (.01) Distributions from Net Realized Gains (.88) (.40) -- (.23) (.66) Distributions in Excess of Net Investment Income -- -- (.01) -- -- ------------------------------------------------ Total Distributions (.88) (.40) (.03) (.25) (.67) ------------------------------------------------ Net Asset Value, End of Year $ 11.96 14.83 11.41 11.15 11.98 ================================================ Total Return (a) % (13.96) 33.94 2.95 (4.81) 7.90 Net Assets, End of Year (in thousands) $ 1,477 479 273 467 702 Ratios to Average Net Assets: Expenses % 2.12 2.25 2.24 2.25 2.25 Net Investment Income (Loss) % (1.42) (1.41) (.24) (.04) (.26) Expenses Without Waivers % 2.12 2.26 2.45 2.36 2.25 Net Investment Income (Loss) Without Waivers % (1.42) (1.42) (.45) (.15) (.26) Portfolio Turnover Rate (excluding short-term securities) % 37.3 37.8 169.0 103.9 45.0

(a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 74 FINANCIAL HIGHLIGHTS OTHER INFORMATION SERVICE PROVIDERS INVESTMENT ADVISER Advantus Capital Management, Inc. 400 Robert Street North St. Paul, Minnesota 55101 (651) 665-3826 INVESTMENT SUB-ADVISERS ENTERPRISE FUND Credit Suisse Asset Management, LLC 466 Lexington Avenue New York, New York 10017 (212) 832-2626 VENTURE FUND State Street Research & Management Company One Financial Center Boston, Massachusetts 02111 (617) 357-1200 UNDERWRITER Securian Financial Services, Inc. 400 Robert Street North St. Paul, Minnesota 55101-2098 (651) 665-4833 (888) 237-1838 SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT Advantus Shareholder Services (a division of Minnesota Life Insurance Company) (800) 665-6005 TRANSFER AGENT PFPC Inc. Advantus Funds Group P.O. Box 9767 Providence, Rhode Island 02940-9767 CUSTODIAN Wells Fargo Bank Minnesota Sixth Street and Marquette Avenue Minneapolis, Minnesota 55479 INDEPENDENT AUDITORS KPMG LLP GENERAL COUNSEL Dorsey & Whitney LLP INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS Faegre & Benson LLP OTHER INFORMATION 75 This page is purposely left blank. 76 ADVANTUS FAMILY OF FUNDS Each of the Funds is a member of the Advantus family of funds. The following is a brief description of the investment objectives, policies and practices of all the Advantus Funds. BOND - ---------------------------------------------------- High level of current income by investing primarily in high quality debt securities. CORNERSTONE - ---------------------------------------------------- Long-term growth through investing primarily in stocks of large capitalization companies deemed to be undervalued relative to their future earnings and growth potential. ENTERPRISE - ---------------------------------------------------- Long-term growth through investing primarily in common stocks issued by small capitalization companies. HORIZON - ---------------------------------------------------- Long-term growth through investing primarily in common stocks issued by large capitalization companies. INDEX 500 - ---------------------------------------------------- Investment results that correspond generally to the S&P 500 Index by investing a significant portion of its portfolio in common stocks included in the S&P 500 Index.* INTERNATIONAL BALANCED - ---------------------------------------------------- Total return through investing primarily in stocks and bonds of large and small companies located outside the U.S. MONEY MARKET - ---------------------------------------------------- High level of current income by investing primarily in money market securities. MORTGAGE SECURITIES - ---------------------------------------------------- High level of current income by investing primarily in mortgage-related securities. REAL ESTATE SECURITIES - ---------------------------------------------------- Total return through investing in real estate and real-estate related securities. SPECTRUM - ---------------------------------------------------- Total return from a combination of income and capital appreciation through investing in a portfolio of stocks, debt securities and money market instruments. VENTURE - ---------------------------------------------------- Long-term growth through investing primarily in stocks of small capitalization companies deemed to be undervalued relative to their future earnings and growth potential. An investment in any Advantus Fund will be subject to a variety of risks. As a result, an Advantus Fund may not always achieve its investment objective. You may obtain a prospectus for another Advantus Fund by calling the toll-free telephone number or writing to the address shown on the back cover of this prospectus under the caption "How to Obtain Additional Information". Read the prospectus carefully before you invest. *"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-", "STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC. THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF INVESTING IN THE FUND. OTHER INFORMATION 77 SECURIAN FINANCIAL SERVICES, INC. PRESORTED STANDARD 400 ROBERT STREET NORTH U.S. POSTAGE PAID ST. PAUL, MN 55101-2098 ST. PAUL, MN PERMIT NO. 3547 FORWARDING SERVICE REQUESTED ADDITIONAL INFORMATION ABOUT THE FUNDS The Funds' annual and semi-annual reports list portfolio holdings, and discuss recent market conditions, economic trends and investment strategies that affected the Funds during the latest fiscal year. A Statement of Additional Information (SAI) provides further information about the Funds. The current SAI is on file with the Securities and Exchange Commission and is incorporated by reference (is legally part of this Prospectus). HOW TO OBTAIN ADDITIONAL INFORMATION The SAI and the Funds' annual and semi-annual reports are available without charge upon request. You may obtain additional information or make any inquiries: By Telephone - Call (800) 665-6005 By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767 Web Site Address - www.advantusfunds.com Information about the Funds (including the SAI and annual and semi-annual reports) can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. (telephone 1-202-942-8090). This information and other reports about the Funds are also available on the SEC's World Wide Web site at http://www.sec.gov. Copies of this information may be obtained by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee for copies. Investment Company Act No. 811-8586 (Cornerstone Fund) Investment Company Act No. 811-8588 (Enterprise Fund) Investment Company Act No. 811-4142 (Horizon Fund) Investment Company Act No. 811-7815 (Index 500 Fund) Investment Company Act No. 811-9139 (Real Estate Securities Fund) Investment Company Act No. 811-7817 (Venture Fund) [LOGO] ADVANTUS-TM- CAPITAL MANAGEMENT - -C-2002 Advantus Capital Management, Inc. All rights reserved. F. 58125 11-2002 EX-99.(17)(N) 19 c78747exv99wx17yxny.txt EX-(17)(N)ADVANTUS EQUITY FUNDS PROSP SUPP-2/3/03 Exhibit (17)(n) Supplement dated February 3, 2003 to the Prospectus Dated November 29, 2002 Advantus Cornerstone Fund, Inc. Advantus Enterprise Fund, Inc. Advantus Horizon Fund, Inc. Advantus Index 500 Fund, Inc. Advantus Real Estate Securities Fund, Inc. Advantus Venture Fund, Inc. I. In connection with Advantus Cornerstone Fund, Inc., footnote (c) to the table of fees and expenses on page 5 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .39% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.34% for Class A shares and 2.09% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. II. In connection with Advantus Enterprise Fund, Inc., footnote (c) to the table of fees and expenses on page 10 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .58% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.53% for Class A shares and 2.28% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. III. In connection with Advantus Horizon Fund, Inc., footnote (c) to the table of fees and expenses on page 15 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .45% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.40% for Class A shares and 2.15% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. Investors should retain this supplement for future reference. F. 58814 2-2003 EX-99.(17)(O) 20 c78747exv99wx17yxoy.txt EX-(17)(O)ADVFIXEDINC&BLENDEDFUNDSPROSSUPP-4/24/03 Exhibit (17)(o) ADVANTUS EQUITY FUNDS AND ADVANTUS FIXED INCOME AND BLENDED FUNDS PROSPECTUS SUPPLEMENT DATED APRIL 24, 2003 TO THE ADVANTUS EQUITY FUNDS PROSPECTUS DATED NOVEMBER 29, 2002, AS SUPPLEMENTED FEBRUARY 3, 2003, AND THE ADVANTUS FIXED INCOME AND BLENDED FUNDS PROSPECTUS DATED JANUARY 31, 2003 Advantus Capital Management, Inc. (Advantus Capital) is the investment adviser to Advantus Cornerstone Fund, Inc. (Cornerstone Fund), Advantus Enterprise Fund, Inc. (Enterprise Fund), Advantus Horizon Fund, Inc. (Horizon Fund), Advantus Index 500 Fund, Inc. (Index 500 Fund), Advantus Real Estate Securities Fund, Inc. (Real Estate Securities Fund), Advantus Venture Fund, Inc. (Venture Fund), Advantus Bond Fund, Inc. (Bond Fund), Advantus International Balanced Fund, Inc. (International Balanced Fund), Advantus Money Market Fund, Inc. (Money Market Fund), Advantus Mortgage Securities Fund, Inc. (Mortgage Securities Fund) and Advantus Spectrum Fund, Inc. (Spectrum Fund) (together, the Funds). Advantus Capital and certain companies affiliated with Advantus Capital have entered into a Strategic Alliance Agreement and a related Purchase Agreement with Waddell & Reed Financial, Inc. (W&R), a leading U.S. mutual fund firm, its affiliates, Waddell & Reed Ivy Investment Co. (WRIICO) and Waddell & Reed Investment Management Co. (WRIMCO), and certain other companies affiliated with W&R. Under these agreements, Advantus Capital has agreed to sell to WRIICO its assets related to the Funds. Advantus Capital has recommended to the Board of Directors of each Fund that the Funds be merged into similar existing mutual funds in W&R Funds, Inc. or Ivy Fund (W&R/Ivy Funds), investment companies currently managed by WRIMCO and WRIICO, respectively, or, where there is not a similar existing fund, into a newly formed shell fund in W&R/Ivy Funds, as indicated in the following table. WRIICO is expected to take over management of W&R Funds, Inc. on June 30, 2003. ADVANTUS FUND CORRESPONDING W&R/IVY FUND Cornerstone Fund shell fund Enterprise Fund Small Cap Growth Fund Horizon Fund Large Cap Growth Fund Index 500 Fund Core Equity Fund Real Estate Securities Fund shell fund Venture Fund shell fund Bond Fund shell fund International Balanced Fund shell fund Money Market Fund Money Market Fund Mortgage Securities Fund shell fund Spectrum Fund shell fund Investors should retain this supplement for future reference. F. 59138 4-2003 It is anticipated that, after the mergers, Advantus Capital will act as the sub-adviser for the newly formed shell W&R/Ivy Funds into which Real Estate Securities Fund, Bond Fund and Mortgage Securities Fund will merge. It is also anticipated that the current sub-advisers for Venture Fund and International Balanced Fund will continue to act as sub-advisers for the shell W&R/Ivy Funds into which Venture Fund and International Balanced Fund are merged. Each Fund's merger will be subject to the approval of the Board of Directors and the shareholders of that Fund. It is currently anticipated that shareholders of the Funds will be presented with merger proposals in September of 2003. INTERIM ADVISORY AGREEMENT FOR CORNERSTONE FUND, HORIZON FUND AND SPECTRUM FUND Because Advantus Capital will no longer have the resources to actively manage non-real estate equity funds after May 1, 2003, the Board of Directors of Cornerstone Fund, Horizon Fund and Spectrum Fund determined that it would be in shareholders' best interests to appoint a new investment adviser to manage these Funds on an interim basis prior to the mergers. The other non-real estate equity Funds are currently managed by sub-advisers. The Funds' Boards of Directors have approved interim investment advisory agreements (the "Interim Agreements") under which WRIICO will serve as the investment adviser to Cornerstone Fund, Horizon Fund and Spectrum Fund, effective May 1, 2003. The terms of the Interim Agreements are substantially identical to those of the current advisory agreements with Advantus Capital (the "Current Agreements") except for the dates of execution and termination and other non- material changes, and except that advisory fees payable to WRIICO will be deposited in escrow until shareholders of the Funds approve final advisory agreements with WRIICO. If shareholders of a Fund do not approve a final advisory agreement, WRIICO will receive the lower of the amount in escrow or its costs for performing services under that Fund's Interim Agreement. Fees payable to WRIICO under the Interim Agreements are identical to fees payable to Advantus Capital under the Current Agreements. All fee waivers currently in place for the Funds will remain in effect. WRIICO, an indirect, wholly owned subsidiary of W&R, was acquired by W&R on December 16, 2002. WRIICO currently manages the fifteen mutual fund portfolios that are offered by the Ivy Fund, an open-end management investment company. WRIMCO, an affiliate of WRIICO, is the investment adviser to the W&R Funds, Inc. and to each of the registered investment companies in the Waddell & Reed Advisors Funds (collectively, the W&R Family of Funds) as well as W&R Target Funds, Inc. (W&R Target Funds) and Waddell & Reed InvestEd Portfolios, Inc. The Ivy Funds are currently in the process of being integrated into the W&R Family of Funds. Effective June 30, 2003, WRIICO will become the investment adviser to W&R Funds, Inc. WRIICO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201- 9217. The following persons will serve as the primary fund managers for the Funds subject to the Interim Agreements: CORNERSTONE FUND. Harry M. Flavin and Cynthia P. Prince-Fox will be primarily responsible for the management of Cornerstone Fund. The Cornerstone Fund will be managed using the same investment strategies as are currently in place for the Value Portfolio of the W&R Target Funds. Mr. Flavin has been primarily responsible for the management of the Value Portfolio since its inception on May 1, 2001 and Ms. Prince-Fox has been primarily responsible for the management of that Portfolio since January 2002. Mr. Flavin is Senior Vice President of WRIICO and WRIMCO and President, Chief Investment Officer and Director of Austin, Calvert & Flavin, Inc., an affiliate of WRIICO and WRIMCO. Ms. Prince-Fox is Senior Vice President of WRIICO and WRIMCO. From January 1993 to March 1998, Ms. Prince- Fox was Vice President of, and a portfolio manger for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Ms. Prince-Fox is Co-Chief Investment Officer, Vice President and Portfolio Manager for Austin, Calvert & Flavin, Inc. Ms. Prince-Fox has served as a portfolio manager for investment companies managed by WRIMCO since January 1993. From February 1983 to January 1993, Ms. Prince-Fox served as an investment analyst for WRIMCO and its predecessor. HORIZON FUND. Daniel P. Becker will be primarily responsible for the management of the Horizon Fund. Horizon Fund will be managed using the same investment strategies as are currently in place for the Large Cap Growth Fund of W&R Funds. Mr. Becker has been primarily responsible for the management of the Large Cap Growth Fund since its inception on June 30, 2000. He is Senior Vice President of WRIICO and WRIMCO. From January 1995 to March 1998, Mr. Becker was Vice President of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr. Becker has been an employee of WRIMCO and its predecessor since October 1989, initially serving as an investment analyst, and has served as a portfolio manager for WRIMCO since January 1997. SPECTRUM FUND. Cynthia P. Prince-Fox will be primarily responsible for the management of Spectrum Fund. Spectrum Fund will be managed using the same investment strategies as are currently in place for the Balanced Portfolio of the W&R Target Funds. Ms. Prince-Fox has been primarily responsible for the management of the Balanced Portfolio since July 1994. Additional information regarding Ms. Prince-Fox appears above. CHANGES IN THE INVESTMENT STRATEGIES OF THE FUNDS In managing Cornerstone Fund, Horizon Fund and Spectrum Fund, WRIICO intends to employ investment strategies substantially identical to those used for the Value Portfolio of the W&R Target Funds, the Large Cap Growth Fund of W&R Funds, Inc. and the Balanced Portfolio of W&R Target Funds, respectively. These investment strategies differ somewhat from those currently in place for the Funds. Historically, Cornerstone Fund, Horizon Fund and Spectrum Fund have been substantially fully invested, holding only enough cash to meet redemption requests and operating requirements. There have been periods when certain of the corresponding funds managed by WRIMCO have held significantly greater percentages of cash. In addition, composition of the funds managed by WRIMCO generally has differed from applicable benchmarks more than that of corresponding Funds managed by Advantus Capital. This approach can result in periods of greater over-performance or under-performance compared to such benchmarks. Information regarding the investment strategies that will be employed by WRIICO is set forth below. In addition to the investments discussed below, each of Cornerstone Fund, Horizon Fund and Spectrum Fund may also invest in other types of securities and use certain instruments in seeking to achieve its goal. For example, a Fund may invest in options, futures contracts, asset-backed securities or other derivative instruments if it is permitted to invest in the type of asset by which the return on, or value of, the derivative is measured. Please see the applicable Statement of Additional Information for more information about each Fund's permitted investments. CORNERSTONE FUND THE FOLLOWING REPLACES THE INFORMATION FOR CORNERSTONE FUND THAT APPEARS ON PAGES 3 AND 42-45 OF THE ADVANTUS EQUITY FUNDS PROSPECTUS: Cornerstone Fund seeks long-term accumulation of capital. Cornerstone Fund seeks to achieve its goal by investing, for the long term, in the common stocks of large-cap U.S. and foreign companies. The Fund seeks to invest in stocks that are, in the opinion of WRIICO, undervalued relative to the true value of the company, and/or are out of favor in the financial markets but have a favorable outlook for capital appreciation. Although Cornerstone Fund typically invests in large-cap companies, it may invest in securities of any size company. WRIICO utilizes both fundamental research and quantitative analysis to identify securities for the Cornerstone Fund. The Cornerstone Fund will typically invest in core value stocks: stocks of companies in industries that have relatively lower price-to-earnings ratios than growth stocks. The Cornerstone Fund may also invest in growth stocks that are, in WRIICO's opinion, temporarily undervalued. WRIICO utilizes both a top-down (assess the market environment) and a bottom- up (research individual issuers) analysis in its selection process. WRIICO considers numerous factors in its analysis of issuers and stocks, including the following: -- intrinsic value of the company not reflected in stock price -- historical earnings growth -- future expected earnings growth -- company's position in its respective industry -- industry conditions -- competitive strategy -- management capabilities -- free cash flow potential Cornerstone Fund will typically sell a stock when it reaches an acceptable price, its fundamental factors have changed or it has performed below WRIICO's expectations. When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities (including commercial paper or short-term U.S. government securities) or preferred stocks, or both. By taking a temporary defensive position, the Fund may not achieve its investment objective. An investment in Cornerstone may result in the loss of money, and may also be subject to various risks, including the following main types of risk: -- LARGE COMPANY RISK ? the risk that a portfolio of large capitalization company securities may underperform the market as a whole. -- VALUE STOCK RISK ? the risk that the value of a security believed by the Fund's investment adviser to be undervalued may never reach what the adviser believes is its full value, or that the security's value may decrease. -- MARKET RISK ? the risk that equity securities are subject to adverse trends in equity markets. -- FUND RISK ? the risk that Fund performance may not meet or exceed that of the market as a whole. -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill in evaluating and selecting securities for the Fund. -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Funds ? Defining Risks" in the Advantus Equity Funds Prospectus for a more detailed description of some of these main risks. Although Cornerstone Fund typically invests in large-cap companies, it may invest in companies of any size. Market risk for small and medium sized companies may be greater than that for large companies. Stocks of smaller companies, as well as stocks of companies with high-growth expectations reflected in their stock price, may experience volatile trading and price fluctuations. For a more detailed description of these risks, see "Mid Size Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the Funds ? Defining Risks" in the Advantus Equity Funds Prospectus. HORIZON FUND THE FOLLOWING REPLACES THE INFORMATION FOR HORIZON FUND THAT APPEARS ON PAGES 12 AND 42-45 OF THE ADVANTUS EQUITY FUDNS PROSPECTUS: Horizon Fund seeks long-term growth of capital through investment in equity securities. Horizon Fund seeks to achieve its goal by investing primarily in a diversified portfolio of common stocks issued by growth-oriented, large to medium sized U.S. and foreign companies that WRIICO believes have appreciation possibilities. Growth stocks are those whose earnings WRIICO believes are likely to grow faster than the economy. Although WRIICO anticipates the majority of the Horizon Fund's investments to be in large to medium sized companies, the Fund may invest in companies of any size. The Fund invests primarily in common stocks but may also own, to a lesser extent, preferred stocks, convertible securities and debt securities, typically of investment grade and of any maturity. The Fund may invest up to 25% of its total assets in foreign securities. WRIICO attempts to select securities with appreciation possibilities by looking at many factors. These include: -- the company's market position, product line, technological position and prospects for increased earnings -- the management capability of the company being considered -- the short-term and long-term outlook for the industry being analyzed -- changes in economic and political conditions WRIICO may also analyze the demands of investors for the security relative to its price. Securities may be chosen when WRIICO anticipates a development that might have an effect on the value of a security. In general, WRIICO may sell a security if it determines that the security no longer presents sufficient appreciation potential; this may be caused by, or be an effect of, changes in the industry of the issuer, loss by the company of its competitive position, and/or poor use of resources. WRIICO may also sell a security to take advantage of more attractive investment opportunities or to raise cash. At times, as a temporary defensive measure, the Fund may invest up to all of its assets in either debt securities (which may include money market instruments held as cash reserves) or preferred stocks or both. The Fund may also use options and futures contracts for defensive purposes. By taking a temporary defensive position, the Fund may not achieve its investment objective. An investment in Horizon Fund may be subject to various risks including the following main types of risk: -- Growth Stock Risk ? the risk that if the Fund's investment adviser's assessment of a company's prospective earnings growth or judgment of how other investors assess the company's earnings growth is wrong, then the value of the company's securities may decrease or not approach the value that the Fund's investment adviser placed on it. -- Mid Size Company Risk ? the risk that medium sized companies may be more vulnerable to adverse developments than large companies. These companies are more likely to have limited financial resources and inexperienced management. Stocks of these companies may experience volatile trading and price fluctuations. -- MARKET RISK ? the risk that equity securities are subject to adverse trends in equity markets. -- SECTOR RISK ? the risk that the Fund's performance may be adversely affected by the mix of securities in the Fund's portfolio, particularly the relative weightings in, and exposure to, different sectors of the economy. -- FUND RISK ? the risk that Fund performance may not meet or exceed that of the market as a whole. -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill in evaluating and selecting securities for the Fund. -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Funds ? Defining Risks" in the Advantus Equity Funds Prospectus for a more detailed description of some of these main risks. SPECTRUM FUND THE FOLLOWING REPLACES THE INFORMATION FOR SPECTRUM FUND THAT APPEARS ON PAGES 19 AND 37-40 OF THE ADVANTUS FIXED INCOME AND BLENDED FUNDS PROSPECTUS: Spectrum Fund seeks the most favorable total return ? from capital appreciation, interest and dividends ? consistent with preservation of capital. Spectrum Fund invests primarily in a mix of stocks, debt securities and short-term instruments, depending on market conditions. In general, the Fund invests a portion of its total assets in either debt securities or preferred stocks, or both, in order to provide income and relative stability of capital. The Fund owns common stocks in order to provide possible appreciation of capital and some dividend income. The Fund ordinarily invests at least 25% of its total assets in fixed income securities. In its equity investments, the Fund invests primarily in medium to large, well-established companies, that typically issue dividend producing securities. The majority of the Fund's debt holdings are either U.S. Government securities or investment grade corporate bonds, that include bonds rated BBB and higher by Standard & Poor's Ratings Service or Baa and higher by Moody's Investors Services, Inc. or, if unrated, deemed by WRIICO to be of comparable quality. The Fund has no limitations on the range of maturities of debt securities in which it may invest. The Fund may invest in foreign securities. WRIICO may look at a number of factors in selecting securities for the Fund. For equity investments, WRIICO may emphasize a blend of value and growth potential. For value securities, WRIICO looks for undervalued companies whose asset value or earnings power is not reflected in the price of their stock. In selecting growth securities, WRIICO seeks to identify securities whose earnings are likely to grow faster than the economy. In selecting debt securities for the Fund, WRIICO seeks high-quality securities with minimal credit risk. Generally, in determining whether to sell an equity security, WRIICO uses the same analysis that it uses in order to determine if the equity security is still undervalued or has ceased to offer the desired growth potential. In determining whether to sell a debt security, WRIICO will consider whether the debt security continues to maintain its minimal credit risk. WRIICO may also sell a security if the security ceases to produce income or otherwise to take advantage of attractive investment opportunities and/or to raise cash. When WRIICO believes that a temporary defensive position is desirable, the Fund may invest up to all of its assets in debt securities that may be considered equivalent to owning cash because of their safety and liquidity. By taking a temporary defensive position, the Fund may not achieve its investment objective. An investment in Spectrum Fund may result in the loss of money, and may also be subject to various risks including the following main types of risk: -- CREDIT RISK ? the risk that an issuer of a debt security or other fixed income obligation will not make payments on the security when due. -- INCOME RISK ? the risk that the Fund may experience a decline in its income due to falling interest rates. -- INTEREST RATE RISK ? the risk that the value of a debt security or other fixed income obligation will increase or decrease due to changes in market interest rates. This risk is generally greater for bonds with longer maturities. -- MARKET RISK ? the risk that equity and debt securities are subject to adverse trends in equity and debt markets. -- PORTFOLIO RISK ? the risk that Fund performance may not meet or exceed that of the market as a whole. -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill in allocating the Fund's assets among different types of investments. -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities may be subject to greater volatility than domestic securities due to factors such as currency fluctuations and political or economic conditions affecting the foreign country. Please see "Investing in the Funds ? Defining Risks" in the Advantus Fixed Income and Blended Funds Prospectus for a more detailed description of some of these main risks. 1 6 EX-99.(17)(P) 21 c78747exv99wx17yxpy.txt EX-(17)(P)ADVFIXEDINC&BLENDEDFUNDSPROSSUPP-6/18/03 Exhibit (17)(p) Advantus Equity Funds and Advantus Fixed Income and Blended Funds Prospectus Supplement dated June 18, 2003 to the Advantus Equity Funds Prospectus dated November 29, 2002, as supplemented February 3, 2003 and April 24, 2003, and to the Advantus Fixed Income and Blended Funds Prospectus dated January 31, 2003, as supplemented April 24, 2003 Effective July 1, 2003, sales of Class B and Class C shares in each of Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate Securities Fund, Inc., Advantus Venture Fund, Inc., Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Mortgage Securities Fund, Inc. and Advantus Spectrum Fund, Inc. (each a ?Fund,? and together the ?Funds?), will be limited to existing Class B and Class C shareholders, respectively, in each Fund. Individuals and other persons who do not already own Class B or Class C shares in a Fund on July 1, 2003, will not be able to purchase Class B or Class C shares in that Fund on or after July 1, 2003. In addition, effective July 25, 2003, all sales of Class B and Class C shares in the Funds, including sales to existing Class B and Class C shareholders, will be suspended, except for sales occurring in connection with: (1) the reinvestment of dividends and capital gains distributions, if any, and (2) exchanges of Class B and Class C shares of a Fund for Class B and Class C shares, respectively, of another Fund. All other orders for the purchase of Class B and Class C shares in the Funds received on or after July 25, 2003, including orders received in connection with automatic investment plans and exchanges from Advantus Money Market Fund, Inc., will be declined. Investors should retain this supplement for future reference. F. 59366 6-2003 EX-99.(17)(Q) 22 c78747exv99wx17yxqy.txt EX-(17)(Q)ADVFIXEDINC&BLENDEDFUNDSPROSPSUPP-8/8/03 Exhibit (17)(q) Advantus Equity Funds and Advantus Fixed Income and Blended Funds Prospectus Supplement Dated August 8, 2003 to the Advantus Equity Funds Prospectus dated November 29, 2002, as supplemented February 3, 2003, April 24, 2003 and June 18, 2003, and to the Advantus Fixed Income and Blended Funds Prospectus dated January 31, 2003, as supplemented April 24, 2003 and June 18, 2003 The paragraph captioned "Low Balance Fee", which appears under the Prospectus heading "Buying and Selling Shares ? Account Requirements", is amended to read as follows: Low Balance Fee. The Fund will deduct a $10 annual fee from your account in October of each year if your account balance at that time is below $2,000. The low balance fee is waived for qualified accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). Investors should retain this supplement for future reference. F. 59557 8-2003 EX-99.(17)(R) 23 c78747exv99wx17yxry.txt EX-(17)(R)ADVFIXEDINC&BLENDEDFUNDSPROSSUPP-8/20/03 EXHIBIT (17)(r) Page 1 of 3 Advantus Fixed Income and Blended Funds And Advantus Equity Funds Prospectus Supplement dated August 20, 2003 to the Advantus Fixed Income and Blended Funds Prospectus dated January 31, 2003 as supplemented April 24, 2003, June 18, 2003 and August 8, 2003 and to the Advantus Equity Funds Prospectus dated November 29, 2002, as supplemented February 3, 2003, April 24, 2003, June 18, 2003 and August 8, 2003 I. The portfolio manager information for the Bond, Money Market and Mortgage Securities Funds which appears in the table on page 24 of the Advantus Fixed Income and Blended Funds Prospectus is amended to read as follows: Fund Portfolio Manager and Title Primary Portfolio Manager Since Business Experience During Past Five Years Bond Christopher R. Sebald Portfolio Manager August 14, 2003 Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income, Advantus Capital, since August, 2003; Senior Vice President and Portfolio manager, AEGON USA Investment Management, 2000 through July 2003; Director of Portfolio Management, GMAC-RFC, January 1998 through July 2000 Money Page 2 of 3 Market Tom Houghton Portfolio Manager August 18, 2003 Vice President and Portfolio Manager, Total Return Fixed Income, Advantus Capital, since August 2003; Senior Investment Officer, Advantus Capital, April 2002 to August 2003; Senior Securities Analyst, Public Corporate Bonds, Advantus Capital, July 2001 through March 2002; Senior Investment Officer, Public Corporate Bonds, Advantus Capital, July 1999 to June 2001; Head of Fixed Income Trading, Advantus Capital, January 1998 to June 1999. Mortgage Securities Christopher R. Sebald Portfolio Manager August 14, 2003 Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income, Advantus Capital, since August, 2003; Senior Vice President and Portfolio manager, AEGON USA Investment Management, 2000 through July 2003; Director of Portfolio Management, GMAC-RFC, January 1998 through July 2000 II. The portfolio manager information for the Cornerstone Fund which appears on page 31 of the Advantus Equity Funds Prospectus is amended to read as follows: Fund Portfolio Manager and Title Primary Portfolio Manager Since Business Experience During Past Five Years Cornerstone Matthew T. Norris Page 3 of 3 Portfolio Manager July 21, 2003 Portfolio Manager with Waddell & Reed Ivy Investment Company since July 2003; Portfolio Manager from January 2000 to June 2003, and Analyst from December 1997 to January 2000, with Advantus Capital. Investors should retain this supplement for future reference. F. 59559 8-2003 EX-99.(17)(S) 24 c78747exv99wx17yxsy.txt EX-(17)(S)ADVANTUS EQUITY FUNDS SAI - 11/29/03 Exhibit (17)(s) STATEMENT OF ADDITIONAL INFORMATION ADVANTUS CORNERSTONE FUND, INC. ADVANTUS ENTERPRISE FUND, INC. ADVANTUS HORIZON FUND, INC. ADVANTUS INDEX 500 FUND, INC. ADVANTUS REAL ESTATE SECURITIES FUND, INC. ADVANTUS VENTURE FUND, INC. November 29, 2002 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the separate Prospectus dated November 29, 2002 and should be read in conjunction therewith. The Funds' audited Annual Report dated July 31, 2002, which either accompanies this Statement of Additional Information or has previously been provided to the investor to whom this Statement of Additional Information is being sent, is incorporated herein by reference. A copy of the Prospectus and Annual Report may be obtained by telephone from Advantus Shareholder Services at (800) 665-6005 or by writing to the Funds at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. 1 TABLE OF CONTENTS GENERAL INFORMATION AND HISTORY INVESTMENT OBJECTIVES AND POLICIES Fund Names and Investment Policies Equity Securities of Small Capitalization Companies S&P 500 Index Real Estate Investment Trust Securities Debt and Money Market Securities Low Rated Securities Convertible Securities Foreign Securities Futures Contracts and Options on Futures Contracts Options U.S. Government Obligations Obligations of Non-Domestic Banks Short Sales Against the Box Loans of Portfolio Securities Restricted and Illiquid Securities Repurchase Agreements Warrants Index Depositary Receipts When-Issued Securities and Forward Commitments Defensive Purposes INVESTMENT RESTRICTIONS Fundamental Restrictions Non-Fundamental Restrictions PORTFOLIO TURNOVER DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR LIABILITY INVESTMENT ADVISORY AND OTHER SERVICES General Control and Management of Advantus Capital and Securian Financial Investment Advisory Agreement with Advantus Capital Enterprise Fund Sub-Advisor -- CSAM Enterprise Fund Investment Sub-Advisory Agreement -- CSAM Venture Fund Sub-Adviser -- State Street Venture Fund Investment Sub-Advisory Agreement -- State Street Annual Approval of Advisory and Sub-Advisory Agreements Code of Ethics Distribution Agreement Payment of Certain Distribution Expenses of the Funds Transfer Agent and Administrative Services PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE Advantus Capital's Brokerage Practices Sub-Advisers' Brokerage Practices CALCULATION OF PERFORMANCE DATA CAPITAL STOCK AND OWNERSHIP OF SHARES HOW TO BUY SHARES Alternative Purchase Arrangements Purchase by Check Purchase by Wire Purchase by Internet Timing of Purchase Orders Minimum Investments Public Offering Price SALES CHARGES Class A Shares Class B Shares Class C Shares Other Payments to Broker-Dealers NET ASSET VALUE AND PUBLIC OFFERING PRICE REDUCED SALES CHARGES Right of Accumulation-Cumulative Purchase Discount Letter of Intent Combining Purchases Group Purchases Waiver of Sales Charges For Certain Sales of Class A Shares EXCHANGE AND TRANSFER OF FUND SHARES Systematic Exchange Plan SHAREHOLDER SERVICES Open Accounts Automatic Investment Plan Group Systematic Investment Plan Retirement Plans Offering Tax Benefits Systematic Withdrawal Plans REDEMPTIONS Medallion Signature Guarantee Contingent Deferred Sales Charge Telephone Redemption Internet Redemptions Delay in Payment of Redemption Proceeds Fund's Right to Redeem Small Accounts Reinstatement Privilege TELEPHONE TRANSACTIONS INTERNET TRANSACTIONS THE STANDARD & POOR'S LICENSE DISTRIBUTIONS AND TAX STATUS Dividends and Capital Gains Distributions Taxation - General Taxation on Portfolio Holdings FINANCIAL STATEMENTS Appendix A - Bond and Commercial Paper Ratings Bond Ratings Commercial Paper Ratings Appendix B - Futures Contracts Example of Futures Contract Sale Example of Futures Contract Purchase Tax Treatment 2 GENERAL INFORMATION AND HISTORY Advantus Cornerstone Fund, Inc. ("Cornerstone Fund"), Advantus Enterprise Fund, Inc. ("Enterprise Fund"), Advantus Horizon Fund, Inc. ("Horizon Fund"), Advantus Index 500 Fund, Inc. ("Index Fund"), Advantus Real Estate Securities Fund, Inc. ("Real Estate Securities Fund") and Advantus Venture Fund, Inc. ("Venture Fund"), collectively referred to as the "Funds," are open-end diversified investment companies, commonly called mutual funds. The Funds, together with five other mutual funds which share the same investment adviser, are members of a family of mutual funds known as the "Advantus Funds." Each of the Advantus Funds, excluding Advantus Money Market Fund, Inc., offers more than one class of shares (the "Advantus Multiple Class Funds"). The Advantus Multiple Class Funds currently offer three classes of shares (Class A, Class B and Class C), except for Real Estate Securities Fund which currently offers two classes of shares (Class A and Class B). Each class is sold pursuant to different sales arrangements and bears different expenses. Horizon Fund was incorporated as a Minnesota corporation in October 1984. Cornerstone and Enterprise Funds were incorporated as Minnesota corporations in January 1994. The Venture and Index Funds were incorporated as Minnesota corporations in July 1996. The Real Estate Securities Fund was incorporated as a Minnesota corporation in September 1998. INVESTMENT OBJECTIVES AND POLICIES The investment objectives and principal investment policies of each of the Funds are set forth in detail in the text of the Funds' Prospectus under "Investing in the Funds --Investment Policies and Practices." FUND NAMES AND INVESTMENT POLICIES Real Estate Securities Fund and Index Fund have names that suggest a focus on a particular type of investment or index. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the "1940 Act"), each of those Funds has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, "assets" means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Fund's policy to invest at least 80% of its assets in such a manner is not a "fundamental" one, which means that it may be changed without the vote of a majority of the Fund's outstanding shares as defined in the 1940 Act. However, the names of Real Estate Securities Fund and Index Fund may be changed only if shareholders of each Fund vote to approve a new name by amending such Fund's articles of incorporation. Such a change requires the vote of a majority of the shares of the Fund represented, in person or by proxy, at a meeting of shareholders called for the purpose of voting on such a proposal. Rule 35d-1 also requires that shareholders be given written notice at least 60 days prior to any change by a Fund of its 80% investment policy. EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES Enterprise Fund and Venture Fund will invest primarily in equity securities issued by small capitalization companies. To the extent specified in the Prospectus, other Funds may also invest in such securities. Small capitalization companies may be in a relatively early stage of development or may produce goods and services which have favorable prospects for growth due to increasing demand or developing markets. Frequently, such companies have a small management group and single product or product-line expertise that may result in an enhanced entrepreneurial spirit and greater focus which allow such firms to be successful. The Fund's investment sub-adviser believes that such companies may develop into significant business enterprises and that an investment in such companies offers a greater opportunity for capital appreciation than an investment in larger more established entities. However, small capitalization companies frequently retain a large part of their earnings for research, development and investment in capital assets, so that the prospects for immediate dividend income are limited. While securities issued by smaller capitalization companies have historically produced better market results than the securities of larger issuers, there is no assurance that they will continue to do so or that the Fund will invest specifically in those companies which produce those results. Because of the risks involved, the Fund is not intended to constitute a complete investment program. S&P 500 INDEX Index Fund invests in common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The S&P 500 is an unmanaged index of common stocks which emphasizes large capitalization companies and is comprised of 500 industrial, financial, utility and transportation companies. The S&P 500 is a well-known stock market index that includes common stocks of companies representing approximately 70% of the market value of all common stocks publicly traded in the United States. The weightings of stock in the S&P 500 are based on each stock's relative capitalization or total market value; that is, its market price per share times the number of shares outstanding. Because of this weighting, approximately 50% of the S&P 500 is typically composed of stocks of the 50 to 60 largest companies in the S&P 500. The composition of the S&P 500 may be changed from time to time. Stocks included in the S&P 500 are chosen by Standard & Poor's on a statistical basis which reflects such factors as the market capitalization and trading activity of each stock and the extent to which each stock is representative of stocks in a particular industry. Typically, companies included in the S&P 500 are the largest and most dominant companies in their respective industries. The inclusion of a stock in the S&P 500 in no way implies that Standard & Poor's believes the stock to be an attractive investment, nor does it afford any assurance against declines in the price or yield performance of that stock. The Fund's investment adviser believes that the performance of the S&P 500 is representative of the performance of publicly traded common stocks in general. 3 The Fund will at all times invest at least 80% of its total assets in common stocks included in the S&P 500. There is no minimum or maximum number of stocks included in the S&P 500 which the Fund must hold. Under normal circumstances Advantus Capital generally will seek to match the Fund to the composition of the S&P 500 to the maximum extent, but may not always invest the Fund's portfolio to mirror the S&P 500 exactly. Because of the difficulty and expense of executing relatively small stock transactions, the Fund may not always be invested in the less heavily weighted stocks included in the S&P 500, and may at times have its portfolio weighted differently from the S&P 500, particularly when the Fund has assets of less than $25 million. Regardless of the number, or relative weightings, of stocks included in the S&P 500 held by the Fund, however, the Fund's intention is to seek investment results, before sales charges and other Fund expenses, which match as closely as possible the investment performance of the S&P 500. Over the long term, the Fund's investment adviser will seek a correlation between the performance of the Fund, before sales charges and other Fund expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's assets are less than $25 million). A correlation of 100% would indicate perfect correlation, which would be achieved when the net asset value of the Fund, including the value of its dividend and capital gains distributions, increased or decreased in exact proportion to changes in the S&P 500. An investment in shares of the Fund therefore involves risks similar to those of investing in a portfolio consisting of the common stocks of some or all of the companies included in the S&P 500. REAL ESTATE INVESTMENT TRUST SECURITIES The Cornerstone, Horizon and Real Estate Securities Funds may invest in securities issued by real estate investment trusts. A real estate investment trust ("REIT") is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), and must distribute to shareholders annually 95% or more of its taxable income. Moreover, at the end of each quarter of its taxable year, at least 75% of the value of its total assets must be represented by real estate assets, cash and cash items, and U.S. government securities. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Fund investments in REITs will consist of equity REITs. DEBT AND MONEY MARKET SECURITIES Cornerstone, Enterprise, Horizon, Real Estate Securities and Venture Funds may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. Index Fund may invest in short-term fixed income securities. Such instruments in which the Funds may invest include the following: * Corporate obligations which at the time of purchase are rated within the four highest grades assigned by Standard & Poor's Corporation ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other national rating service, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. To the extent that the Fund invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. Venture Fund may also invest up to 10% of its net assets in securities (including convertible securities) rated at least B- by S&P or B3 by Moody's. See "Low Rated Securities," below. For a description of the ratings used by Moody's and S&P, see Appendix A below. * Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. * Debt obligations of banks. 4 In addition to the instruments described above, which will generally be long-term, but may be purchased by the Fund within one year of the date of a security's maturity, the Fund may also purchase other high quality securities including: * Obligations (including certificates of deposit and bankers' acceptances) of U.S. banks, savings and loan associations, savings banks which have total assets (as of the date of their most recent annual financial statements at the time of investment) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks and U.S. branches or agencies of foreign banks which meet the above-stated asset size; and obligations of any U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations purchased does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. * Obligations of the International Bank for Reconstruction and Development. * Commercial paper (including variable amount master demand notes) issued by U.S. corporations or affiliated foreign corporations and rated (or guaranteed by a company whose commercial paper is rated) at the date of investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either Moody's or S&P, issued by a corporation having an outstanding debt issue rated Aa or better by Moody's or AA or better by S&P and, if issued by an affiliated foreign corporation, such commercial paper (not to exceed in the aggregate 10% of the Fund's net assets) is U.S. dollar denominated and not subject at the time of purchase to foreign tax withholding. The Fund may also invest in securities which are unrated if the Fund's investment adviser or sub-adviser, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of "split-rated" securities, which result when nationally-recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy to classify such securities at the higher rating level where, in the judgment of the Fund's investment adviser, such classification reasonably reflects the security's quality and risk. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in the Fund's net asset value. The Fund may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is the Fund's general policy to dispose of such down-graded securities except when, in the judgment of the Fund's investment adviser, it is to the Fund's advantage to continue to hold such securities. In no event, however, will the Fund hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Fund. This 5% is in addition to securities which the Fund may otherwise purchase under its usual investment policies. LOW RATED SECURITIES Cornerstone Fund and Venture Fund may also invest up to 10% of their respective net assets in debt securities (including convertible debt securities), which, at the time of acquisition, are rated at least B- or B3 by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser. Cornerstone Fund, Real Estate Securities Fund and Venture Fund may each also hold an additional 5% of its net assets in low rated securities rated below "investment grade" (i.e. below BBB) where such securities were either investment grade or eligible securities at the time of purchase but subsequently down-graded to a rating not otherwise 5 eligible for purchase by the Fund (see "Debt and Money Market Securities" above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called "junk bonds." These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Fund's ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Funds' shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher rated securities. Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Fund may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession. CONVERTIBLE SECURITIES Each of the Funds other than Index Fund may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. The total return and yield of lower quality (high yield/high risk) convertible bonds can be expected to fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not as much as common stocks. Cornerstone Fund and Venture Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Fund's investment sub-adviser. See "Low Rated Securities," above. Enterprise Fund, Horizon Fund and Real Estate Securities Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BBB by S&P or Baa by Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Fund's investment adviser. FOREIGN SECURITIES Each of the Funds other than Index Fund may invest up to 10% of its total assets in securities of foreign issuers which are not publicly traded in the U.S. (Securities of foreign issuers which are publicly traded in the U.S., usually in the form of sponsored American Depositary Receipts (ADRs), are not subject to this 10% limitation. Such Funds may not, however, invest more than 10% of their total assets in ADRs). Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Fund may encounter difficulties or 6 be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. The Fund may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories. The countries of the European Monetary Union (EMU) began the process of converting their individual country currencies to the Euro on January 1, 1999. There is also a risk that the value of foreign securities of companies located in EMU countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Fund. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Fund holds non-U.S. dollar (Euro or other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. An American Depositary Receipt ("ADR") is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non - U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. An ADR is sponsored if the original issuing company has selected a single U.S. bank to serve as its U.S. depositary and transfer agent. This relationship requires a deposit agreement which defines the rights and duties of both the issuer and depositary. Companies that sponsor ADRs must also provide their ADR investors with English translations of company information made public in their own domiciled country. Sponsored ADR investors also generally have the same voting rights as ordinary shareholders, barring any unusual circumstances. ADRs which meet these requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are created at the initiative of a broker or bank reacting to demand for a specific foreign stock. The broker or bank purchases the underlying shares and deposits them in a depositary. Unsponsored shares issued after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they do not generally include voting rights. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS FUTURES CONTRACTS. Consistent with their investment objectives and strategies, the Funds may enter into interest rate futures contracts, stock index futures contracts and foreign currency futures contracts. (Unless otherwise specified, interest rate futures contracts, stock index futures contracts and foreign currency futures contracts are collectively referred to as "futures contracts.") A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract's closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be "exercised" at any other time during their term. Interest rate futures contracts currently are traded on a variety of fixed income securities, including long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association modified pass-through mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate futures contracts include contracts on indexes of municipal securities. Foreign currency futures contracts currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits. 7 Stock index futures contracts include contracts on the S&P 500 Index and other broad-based stock market indexes, as well as contracts based on narrower market indexes or indexes of securities of particular industry groups. A stock index assigns relative values to the common stocks included in the index and the index fluctuates with the value of the common stocks so included. The parties to a stock index futures contract agree to make a cash settlement on a specific future date in an amount determined by the value of the stock index on the last trading day of the contract. The amount is a specified dollar amount times the difference between the value of the index on the last trading day and the value on the day the contract was struck. Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Fund's current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Fund's securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Fund's securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Fund. Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." Subsequent payments to and from the broker, referred to as "variation margin," are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as "marking to the market." U.S. futures contracts may be purchased or sold only on an exchange, known as a "contract market," designated by the Commodity Futures Trading Commission ("CFTC") for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. Futures contracts may also be traded on foreign exchanges. OPTIONS ON FUTURES CONTRACTS. The Funds also may purchase and sell put and call options on futures contracts and enter into closing transactions with respect to such options to terminate existing positions. The Funds may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. Options on futures contracts that are written or purchased by the Funds on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges. RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of futures contracts and options on futures contracts will expose the Funds to additional investment risks and transactions costs. Risks include: 8 - - the risk that interest rates, securities prices or currency markets will not omve in the direction that the Fund's investment adviser or sub-adviser anticipates; - - an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged; - - the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits; - - leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Fund's initial investment in that instrument; and - - the risk that the counterparty to an instrument will fail to perform its obligations. REGULATORY MATTERS. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Fund will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. The CFTC, a federal agency, regulates trading activity on the exchanges pursuant to the Commodity Exchange Act, as amended. The CFTC requires the registration of "commodity pool operators," defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company wishing to avoid commodity pool operator status use futures and options positions only (a) for "bona fide hedging purposes" (as defined in CFTC regulations) or (b) for other purposes so long as aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the investment company's portfolio. Any investment company wishing to claim the exclusion provided in Rule 4.5 must file a notice of eligibility with both the CFTC and the National Futures Association. Before engaging in transactions involving futures contracts, the Funds will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary. For examples of futures contracts and their tax treatment, see Appendix B to this Statement of Additional Information. OPTIONS Each Fund may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Fund will limit the total market value of securities against which it may write call or put options to 20% of its total assets. In addition, no Fund will commit more than 5% of its total assets to premiums when purchasing put or call options. A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Fund writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Fund writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised. Funds may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Fund owns against a decline in price, the manager may purchase a put option on the underlying security; i.e., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Funds receive premiums from writing call or put options, which they retain whether or not the options are exercised. By writing a call option, a Fund might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Fund might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Fund purchases a put or call option, any loss to the Fund is limited to the premium paid for, and transaction costs paid in connection with, the option. OPTIONS ON SECURITIES. An option on a security provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by a Fund is "covered" if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian. A put option written by a Fund is "covered" if the Fund maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. 9 Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market. Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded. In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not. OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market. A Fund will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Fund's adviser or sub-adviser, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Funds will secure put options on stock indexes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The index underlying a stock option index may be a "broad-based" index, such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included. U.S. GOVERNMENT OBLIGATIONS These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association ("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association ("FNMA"). OBLIGATIONS OF NON-DOMESTIC BANKS The Funds may invest in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks, which may involve somewhat greater opportunity for income than the other money market instruments in which such Funds invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and financial recordkeeping standards as, domestic banks. Each Fund will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. SHORT SALES AGAINST THE BOX Each Fund may sell securities "short against the box." Whereas a short sale is the sale of a security the Fund does not own, a short sale is "against the box" if, at all times during which the short position is open, the Fund owns at least an equal amount of the securities or securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Funds have no present intention to sell securities short in this fashion. LOANS OF PORTFOLIO SECURITIES Each Fund, for the purpose of realizing additional 10 income, may make secured loans of portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Fund assets, however, for purposes of compliance with any requirement described in a Fund's prospectus that the Fund invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). Securities loans are made to broker-dealers or financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent. The collateral received will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Fund does not expect to pay commissions or other front-end fees (including finders fees) in connection with loans of securities (but may in some cases do so), a portion of the additional income realized will be shared with the Fund's custodian for arranging and administering such loans. The Fund has a right to call each loan and obtain the securities on five business days' notice. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by the Fund's investment adviser to be of good standing and to have sufficient financial responsibility, and will not be made unless, in the judgment of the Fund's investment adviser, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Fund makes loans of portfolio securities is monitored by the Fund's investment adviser or sub-adviser throughout the term of each loan. RESTRICTED AND ILLIQUID SECURITIES Each Fund may invest up to 15% of its net assests, in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, the Fund may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. The Fund may be required to bear the expenses of registration of such restricted securities. The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Fund's investment adviser and sub-adviser believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and for certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. The Funds may invest without limitation in these forms of restricted securities if such securities are deemed by the Fund's investment adviser or sub-adviser to be liquid in accordance with standards established by the Fund's Board of Directors. Under these guidelines, the Fund's investment adviser or sub-adviser must consider (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of the Fund's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. 11 If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Fund is in a position where more than 15% of its net assets are invested in restricted and other illiquid securities, the Fund will take appropriate steps to protect liquidity. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements. Repurchase agreements are agreements by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a member bank of the Federal Reserve System or, if permitted by law or regulation and if the Board of Directors of the Fund has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom the Fund enters into repurchase agreements is monitored by the Fund's investment adviser throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash. The Fund's custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the Fund promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. WARRANTS Each of the Funds other than Index Fund may invest in warrants. Warrants are instruments that allow investors to purchase underlying shares at a specified price (exercise price) at a given future date. Warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. INDEX DEPOSITARY RECEIPTS Each Fund other than Real Estate Securities Fund may invest up to 10% of their respective total assets in one or more types of depositary receipts ("DRs") as a means of tracking the performance of a designated stock index while maintaining liquidity. No more than 5% of a Fund's total assets may be invested in any one DR. Index Fund may invest in S&P 500 Depositary Receipts ("SPDRs"), which track the S&P 500 Index. The other Funds may invest in SPDRs; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track the Dow Jones Industrial Average; or in other DRs which track indexes, provided that such investments are consistent with the Fund's investment objective as determined by the Fund's investment adviser. Each of these securities represents shares of ownership of a long term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index. DRs carry a price which equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In 12 addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by the Fund). Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of the Fund's assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Real Estate Securities Fund may purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by the Fund and settlement, no payment is made for the securities purchased by the Fund and, thus, no interest accrues to the Fund from the transaction. The use of when-issued transactions and forward commitments enables the Fund to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Fund anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of the Fund's investment adviser to correctly anticipate increases and decreases in interest rates and prices of securities. If the Fund's investment adviser anticipates a rise in interest rates and a decline in prices and, accordingly, the Fund sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Fund will have lost the opportunity to profit from the price increase. If the investment adviser anticipates a decline in interest rates and a rise in prices, and, accordingly, the Fund sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Fund will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this hedging strategy, whether the Fund's investment adviser is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in the Fund's net asset value. When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. The Fund may hold a when-issued security or forward commitment until the settlement date, even if the Fund will incur a loss upon settlement. To facilitate transactions in when-issued securities and forward commitments, the Fund's custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Fund, the portfolio securities themselves. If the Fund, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or loss. (At the time the Fund makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.) The purchase of securities on a when-issued or forward commitment basis exposes the Fund to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. The Fund's purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Fund's assets that are subject to market risk to an amount that is greater than the Fund's net asset value, which could result in increased volatility of the price of the Fund's shares. No more than 30% of the value of the Fund's total assets will be committed to when-issued or forward commitment transactions. DEFENSIVE PURPOSES The Funds other than Real Estate Securities Fund may invest up to 20% of their respective net assets in cash or cash items. Real Estate Securities Fund may invest approximately 5% of its net assets in cash or cash items. In addition, for temporary or defensive purposes, the Funds may invest in cash or cash items without limitation. The "cash items" in which the Funds may invest, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Fund; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); and other similar high-quality short-term United States dollar-denominated obligations. The other mutual funds in which the Funds may so invest include money market funds advised by the Fund's investment adviser. INVESTMENT RESTRICTIONS Each of the Funds is "diversified" as defined in the Investment Company Act of 1940. This means that at least 75% of the value of the Fund's total assets is represented by cash and cash items, government securities, securities of other investment companies, and securities of other issuers, which for purposes of this calculation, are limited in respect of any one issuer to an amount not greater in value than 5% of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer. In addition to the foregoing limitations, each Fund is subject to certain "fundamental" investment restrictions, described below, which may not be changed without the vote of a "majority" of the Fund's outstanding shares. As used in the applicable Prospectus and this Statement of Additional Information, "majority" means the lesser of (i) 67% of a Fund's outstanding shares present at a meeting of the holders if more than 50% of the outstanding shares are present in person or by proxy or (ii) more than 50% of a Fund's outstanding shares. Each Fund is also subject to certain other investment restrictions which are not fundamental and may be changed by vote of the Board of Directors without further shareholder approval. 13 FUNDAMENTAL RESTRICTIONS 1. Policy Regarding Borrowing and the Issuance of Senior Securities. The Fund will not borrow money or issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 2. Policy Regarding Concentration in a Particular Industry. CORNERSTONE FUND, ENTERPRISE FUND, HORIZON FUND AND VENTURE FUND. The Fund will not concentrate its investments in a particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. INDEX 500 FUND. The Fund will not concentrate its investments in a particular industry, except that the Fund may concentrate its investments in a particular industry if the S&P 500 Index is so concentrated. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. REAL ESTATE SECURITIES FUND. Under normal market conditions, the Fund will concentrate its investments in the real estate or real estate related industry. The Fund will not concentrate its investments in any other particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 3. Policy Regarding Investments in Real Estate. The Fund will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or interests therein or in securities of companies that deal in real estate or mortgages. 4. Policy Regarding Investments in Commodities. The Fund will not purchase physical commodities or contracts relating to physical commodities. 5. Policy Regarding Lending. The Fund may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 6. Policy Regarding Underwriting of Securities. The Fund will not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter, under the federal securities laws, in connection with the disposition of portfolio securities. 14 NON-FUNDAMENTAL RESTRICTIONS 7. The Fund will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets. 8. The Fund will use futures contracts and options on futures contracts only (a) for "bona fide hedging purposes" (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of liquidation value of the Fund's portfolio. 9. The Fund may mortgage, pledge or hypothecate its assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation. 10. The Fund may not make short sales of securities, other than short sales "against the box." 11. The Fund may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts. 12. The Fund will not invest more than 15% of its net assets in illiquid securities. 13. The total market value of securities against which the Fund may write call or put options will not exceed 20% of the Fund's total assets. In addition, the Fund will not commit more than 5% of its total assets to premiums when purchasing put or call options. 15 With respect to each of the Funds, any investment policy set forth under "Investing in the Funds - Investment Policies and Practices" in the Prospectus, or any restriction set forth above which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after an acquisition of securities or utilization of assets and results therefrom, or unless the Investment Company Act of 1940 provides otherwise. PORTFOLIO TURNOVER Portfolio turnover is the ratio of the lesser of annual purchases or sales of portfolio securities to the average monthly value of portfolio securities, not including short-term securities. A 100% portfolio turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a particular year were equal to the average monthly value of the portfolio securities owned during such year. Cornerstone Fund and Enterprise Fund each make changes in their portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Funds. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Neither Fund emphasizes short-term trading profits. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, Cornerstone Fund's portfolio turnover rate was 95.3%, 147.9% and 180.1%, respectively. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, Enterprise Fund's portfolio turnover rate was 62.2%, 105.4% and 181.5%, respectively. Horizon Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, the Fund's portfolio turnover rates were 67.6%, 129.6% and 109.3%, respectively. Index Fund generally seeks to invest for the long term, but reserves the right to sell securities irrespective of how long they have been held. However, because of the "passive" investment management approach of the Fund, the Fund's portfolio turnover rate is expected to be generally lower than the rate for most other investment companies. Ordinarily, securities will be sold by Index Fund only to reflect certain administrative changes in the S&P 500 (including mergers or changes in its composition) or to accommodate cash flows into and out of the Fund while maintaining the similarity of the Fund to the S&P 500. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 13.6%, 17.2%, and 42.6%, respectively. Real Estate Securities Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. The Fund does not emphasize short-term trading profits. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 101.2%, 173.10%, and 116.8%, respectively. Venture Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Venture Fund does not emphasize short-term trading profits. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 37.3%, 37.8%, and 169.0%, respectively. The turnover for the fiscal year ended in 2000 is attributable primarily to the fact that, effective May 1, 2000, responsibility for management of the Fund's assets was transferred from the Fund's adviser to its new sub-adviser, which then repositioned the Fund's portfolio. DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other six Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Funds are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUNDS NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS - --------------------------------------------------------------------------------------------------------- William N. Westhoff Director since Retired; prior to July 26, 2002, Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary Age: 56 Director and and Director, Advantus Capital Treasurer since Management, Inc.; Vice President, July 13, 1994 Minnesota Life Insurance Company; Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company

16

POSITION WITH FUNDS NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - --------------------------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Age: 75 October 22, 1985 Treasurer of Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Age: 55 April 25, 2002 Research Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology Age: 66 October 22, 1985 at the University of Minnesota - --------------------------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS - --------------------------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Age: 50 July 25, 2002 Capital Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP February 2, 1985 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- --------------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Funds have both an Audit Committee and a Nominations Committee of the Board of Directors, the members of which are all directors who are not "interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott comprise the members of both committees. The Board of Directors also has a Dividend Declaration Committee, the sole member of which is Mr. Feuerherm. The function of the Audit Committee is to recommend the engagement of the Funds' independent auditor and oversee its activities. The Audit Committee also receives reports from the Internal Audit Department of Minnesota Life and from the Director of Compliance for Advantus Capital about compliance matters affecting the Funds. The Audit Committee met two (2) times during the last fiscal year. The Nominations Committee selects and recommends to the Board of Directors individuals for nomination as Independent Directors. The names of potential Independent Director candidates are drawn from a number of sources, including recommendations from management of Advantus Capital. Inasmuch as the Funds do not hold annual meetings of shareholders and meetings of shareholders occur only intermittently, the Nominations Committee does not at present consider nominees recommended by shareholders. The Nominations Committee met two (2) times during the last fiscal year. The function of the Dividend Declaration Committee is to oversee the distribution of the Funds' dividends and capital gains distributions. The Dividend Declaration Committee met four (4) times during the last fiscal year. The Directors owned shares in the Funds, and in all Advantus Funds for which they serve on the Board of Directors, in the following dollar ranges as of December 31, 2001:

AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL ADVANTUS FUNDS OVERSEEN NAME OF DIRECTOR DOLLAR RANGE OF EQUITY SECURITIES IN BY DIRECTOR ---------------- ------------------------------------ ----------------- REAL ESTATE CORNERSTONE ENTERPRISE HORIZON INDEX 500 SECURITIES VENTURE William N. Westhoff $50,001-$100,000 $50,001-$100,000 $50,001-$100,000 ---- over $100,000 over $100,000 Over $100,000 Frederick P. Feuerherm ---- ---- ---- ---- ---- ---- $1-$10,000 Ralph D. Ebbott ---- ---- ---- ---- ---- ---- None William C. Melton ---- ---- ---- ---- ---- ---- None Ellen S. Berscheid ---- ---- ---- ---- ---- ---- $1-$10,000

Legal fees and expenses are paid to the law firm of which Michael J. Radmer is a partner. No compensation is paid by the Funds to any of their officers or directors who is affiliated with Advantus Capital Management, Inc. ("Advantus Capital"). Each director of the Funds is also a director of the other six investment companies of which Advantus Capital is the investment adviser (12 investment companies in total -- the "Fund Complex"). As of the date hereof, directors not affiliated with Advantus Capital receive compensation in connection with all such investment companies which, in the aggregate, is equal to $8,000 per year and $2,000 per meeting attended (and reimbursement of travel expenses to attend directors' meetings). The portion of such compensation borne by any Fund is a pro rata portion based on the ratio that such Fund's total net assets bears to the total net assets of the Fund Complex. During the fiscal year ended July 31, 2002, each Director not affiliated with Advantus Capital was compensated by the Funds in accordance with the following table:

Pension or Total Retirement Compensation Aggregate Benefits Estimated from Funds and Compensation Accrued as Annual Fund Complex from the Part of Fund Benefits Upon Paid to Name of Director Funds(1) Expenses Retirement Directors ------------------ ---------- ------------ ------------- -------------- Ellen S. Berscheid $2,833 n/a n/a $20,000 Ralph D. Ebbott $2,833 n/a n/a $20,000 William C. Melton $1,133 n/a n/a $10,000

17 (1) During the fiscal year ended July 31, 2002, Ms. Berscheid and Mr. Ebbott received $740 from Cornerstone Fund, $252 from Enterprise Fund, $397 from Horizon Fund, $504 from Index 500 Fund, $230 from Real Estate Securities Fund, and $709 from Venture Fund. During the same period, Mr. Melton, who was elected a Director on April 25, 2002, received $296 from Cornerstone Fund, $101 from Enterprise Fund, $159 from Horizon Fund, $202 from Index 500 Fund, $92 from Real Estate Securities Fund, and $284 from Venture Fund. Prior to July 26, 2002, William N. Westhoff was president of and therefore affiliated with Advantus Capital, but since his retirement from Advantus Capital as of that date he has received compensation as a Director of the Funds as described above. DIRECTOR LIABILITY Under Minnesota law, the Board of Directors of each Fund owes certain fiduciary duties to the Fund and to its shareholders. Minnesota law provides that a director "shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances." Fiduciary duties of a director of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in good faith and act in a manner reasonably believed to be in the best interests of the corporation) and a duty of "care" (to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances). Minnesota law also authorizes corporations to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of the fiduciary duty of "care." Minnesota law does not, however, permit a corporation to eliminate or limit the liability of a director (i) for any breach of the directors' duty of "loyalty" to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation of each Fund limit the liability of directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors' willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). Minnesota law does not eliminate the duty of "care" imposed upon a director. It only authorizes a corporation to eliminate monetary liability for violations of that duty. Minnesota law, further, does not permit elimination or limitation of liability of "officers" to the corporation for breach of their duties as officers (including the liability of directors who serve as officers for breach of their duties as officers). Minnesota law does not permit elimination or limitation of the availability of equitable relief, such as injunctive or rescissionary relief. Further, Minnesota law does not permit elimination or limitation of a director's liability under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to what extent the elimination of monetary liability would extend to violations of duties imposed on directors by the Investment Company Act of 1940 and the rules and regulations adopted under such Act. INVESTMENT ADVISORY AND OTHER SERVICES GENERAL Advantus Capital Management, Inc. ("Advantus Capital") has been the investment adviser and manager of each of the Funds since its inception. Securian Financial Services, Inc. ("Securian Financial") acts as the Funds' underwriter. Both Advantus Capital and Securian Financial act as such pursuant to written agreements that will be periodically considered for approval by the directors or shareholders of the Fund. The address of both Advantus Capital and Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101. Credit Suisse Asset Management, LLC ("CSAM") serves as investment sub-adviser to Enterprise Fund pursuant to an investment sub-advisory agreement with Advantus Capital. State Street Research & Management Company ("State Street") serves as investment sub-adviser to Venture Fund pursuant to an investment sub-advisory agreement with Advantus Capital. CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL 18 Advantus Capital was incorporated in Minnesota in June 1994, and is an affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company". All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial are also wholly-owned subsidiaries of Securian Financial Group, Inc. Dianne M. Orbison, President of each of the Funds, is President, Treasurer and Director of Advantus Capital. Frederick P. Feuerherm, Vice President, Treasurer and a Director of each of the Funds, is a Vice President, Assistant Secretary and Director of Advantus Capital. William N. Westhoff, a Director of each of the Funds was President, Treasurer and Director of Advantus Capital prior to July 26, 2002. INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL Advantus Capital acts as investment adviser and manager of the Funds under Investment Advisory Agreements (the "Advisory Agreements") dated May 1, 2000 for each Fund, each of which was approved by shareholders on April 17, 2000 in the case of Cornerstone Fund, Enterprise Fund, Venture Fund and Real Estate Securities Fund, and on April 28, 2000 in the case of Horizon Fund and Index Fund. The Advisory Agreements were last approved by the Board of Directors of each Fund (including a majority of the directors who are not parties to the contract, or interested persons of any such party) on January 24, 2002. The Advisory Agreements will terminate automatically in the event of their assignment. In addition, each Advisory Agreement is terminable at any time, without penalty, by the Board of Directors of the respective Fund or by vote of a majority of the Fund's outstanding voting securities on not more than 60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days' written notice to the Fund. Unless sooner terminated, each Advisory Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the respective Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Advisory Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. Pursuant to the Advisory Agreements each Fund pays Advantus Capital an advisory fee equal on an annual basis to a percentage of that Fund's average daily net assets as set forth in the following table:

ADVISORY FEE AS PERCENTAGE FUND OF AVERAGE NET ASSETS CORNERSTONE FUND: On the first $500 million in assets .70% On the next $500 million in assets .65% On the next $1 billion in assets .60% On all assets in excess of $2 billion .55% ENTERPRISE FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .66% HORIZON FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .60% INDEX FUND: On the first $500 million in assets .34% On the next $500 million in assets .30% On the next $1 billion in assets .25% On all assets in excess of $2 billion .20% REAL ESTATE SECURITIES FUND: On the first $1 billion in assets .75% On the next $1 billion in assets .725% On all assets in excess of $2 billion .70% VENTURE FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .66%

Prior to May 1, 2000, each Fund paid Advantus Capital an advisory fee, in accordance with its prior investment advisory agreement, equal on an annual basis to a percentage of that Fund's average daily net assets as set forth in the following table:

Advisory Fee Paid Prior to May 1, Fund 2000 as Percentage of Average Net Assets ---- ---------------------------------------- Cornerstone Fund .80% Enterprise Fund .80% Horizon Fund .80% Index Fund .34% Real Estate Securities Fund .75% Venture Fund .80%

The fees for investment advisory services paid by Cornerstone, Enterprise and Horizon Funds during the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, and by Index, Real Estate Securities and Venture Funds during the fiscal years ended July 31, 2002, 2001, and 2000, (before Advantus Capital's absorption of certain expenses, described below) were as follows:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone $443,621 $623,266 $797,700 Enterprise 245,166 349,882 499,093 Horizon 231,587 427,000 725,918 Index Fund 148,568 181,012 193,328 Real Estate Securities Fund 163,110 103,301 61,059 Venture Fund 444,881 325,568 250,117

For this fee, Advantus Capital acts as investment adviser and manager for the Funds, or, in the case of Enterprise Fund and Venture Fund, pays CSAM and State Street, respectively, to serve as investment sub-adviser. Effective May 1, 2000, each Fund pays its own transfer agent and shareholder servicing expenses. Prior to that date, Advantus Capital paid the transfer agent and shareholder servicing expenses for Venture Fund. 19 Under the Advisory Agreements, Advantus Capital furnishes the Funds office space and all necessary office facilities, equipment and personnel for servicing the investments of the Funds, and pays the salaries and fees of all officers and directors of the Funds who are affiliated with Advantus Capital. In addition, except to the extent that Securian Financial receives Rule 12b-1 distribution fees (see "Payment of Certain Distribution Expenses of the Funds" below), Securian Financial bears all promotional expenses in connection with the distribution of the Funds' shares, including paying for prospectuses and statements of additional information for new shareholders, and shareholder reports for new shareholders, and the costs of sales literature. The Funds pay all other expenses not so expressly assumed. Under the Advisory Agreements for each Fund other than Index Fund and Real Estate Securities Fund, Advantus Capital agreed to absorb all Fund costs and expenses which exceed a specified percentage of the average daily net assets of each class of share through the fiscal year of the Fund ending September 30, 2001 for Cornerstone, Enterprise and Horizon Funds and July 31, 2001 for Venture Fund, as set forth in the following table:

EXPENSES ABSORBED IN EXCESS OF SPECIFIED PERCENTAGE OF AVERAGE NET ASSETS --------------------------------------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund 1.24% 1.99% 1.99% Enterprise Fund 1.38% 2.23% 2.23% Horizon Fund 1.35% 2.10% 2.10% Venture Fund 1.40% 2.25% 2.25%

During the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real Estate Securities and Venture Funds, Advantus Capital voluntarily absorbed certain expenses of the Funds (which do not include certain Rule 12b-1 fees waived by Securian Financial), or, in the case of Cornerstone Fund, Enterprise Fund, Horizon Fund and Venture Fund, absorbed certain expenses of the Fund in accordance with the Advisory Agreement, as set forth below:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $105,055 $131,531 $106,763 Enterprise Fund 72,685 60,437 59,225 Horizon Fund 271,049 284,604 90,632 Index Fund 297,973 306,584 302,175 Real Estate Securities Fund 10,569 46,235 87,768 Venture Fund -- 7,163 67,821

ENTERPRISE FUND SUB-ADVISER - CSAM Credit Suisse Asset Management, LLC (CSAM) has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management of the Enterprise Fund, subject to the general control of the Board of Directors of the Fund. CSAM is a registered investment adviser under the Investment Advisers Act of 1940. CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the largest financial services companies in the world, and comprises the U.S. arm of Credit Suisse Group's Credit Suisse Asset Management division. CSAM, together with its predecessor firms, has been engaged in the investment advisory business for over 60 years. As of June 30, 2002, the Credit Suisse Asset Management division had global assets under management of approximately $306.9 billion, of which $66.8 billion was managed by CSAM. The principal business address of CSAM is 466 Lexington Avenue, New York, New York 10017. ENTERPRISE FUND INVESTMENT SUB-ADVISORY AGREEMENT - CSAM CSAM acts as investment sub-adviser of the Enterprise Fund under an Investment Sub-Advisory Agreement (the CSAM Agreement) with Advantus Capital dated May 1, 2000, and approved by shareholders of the Fund on April 17, 2000. Amendments to the CSAM Agreement, adjusting the level of sub-advisory fees payable by Advantus Capital to CSAM under such Agreement, were approved by the Board of Directors of the Fund on October 25, 2001 and July 25, 2002. The CSAM Agreement as amended was last approved for continuance by the Board of Directors of the Fund, including a majority of the Directors who are not a party to the CSAM Agreement or interested persons of any such party, on January 24, 2002 and July 25, 2002. Prior to May 1, 2000, the Enterprise Fund was managed directly by Advantus Capital. The CSAM Agreement will terminate automatically upon the termination of the Fund's Advisory Agreement and in the event of its assignment. In addition, the CSAM Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the Fund's outstanding voting securities on 60 days' written notice to CSAM, and by CSAM on 60 days' written notice to Advantus Capital. Unless sooner terminated, the CSAM Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the CSAM Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by CSAM for the Enterprise Fund, Advantus Capital pays to CSAM a fee computed at an annual rate which shall be a percentage of the average daily value of the net assets of the Fund. The fee is accrued daily and shall be based on the net asset value of all of the issued and outstanding shares of the Fund as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. Effective June 30, 2002, the amount of such annual fee, as applied to the total assets of the Fund, is determined in accordance with the following table:

AVERAGE ASSETS UNDER MANAGEMENT FEE ----------------------------------- --- Total assets from $0 up to $150 million 0.65% Total assets from $150 million up to $200 million 0.64% Total assets from $200 million up to $250 million 0.63% Total assets from $250 million up to $300 million 0.62% Total assets from $300 million up to $350 million 0.61% Total assets from $350 million up to $400 million 0.60% Total assets from $400 million up to $450 million 0.59% Total assets from $450 million up to $500 million 0.58% Total assets from $500 million up to $550 million 0.57% Total assets from $550 million up to $600 million 0.56% Total assets from $600 million up to $650 million 0.55% Total assets from $650 million up to $700 million 0.54% Total assets from $700 million up to $750 million 0.53% Total assets from $750 million up to $800 million 0.52% Total assets from $800 million up to $850 million 0.51% Total assets from $850 million up to $900 million 0.50% Total assets from $900 million up to $950 million 0.49% Total assets from $950 million up to $1 billion 0.48% Total assets from $1 billion up to $1.050 billion 0.47% Total assets from $1.050 billion up to $1.1 billion 0.46% Total assets from $1.1 billion and up 0.45%

The term "Average Assets Under Management" for purposes of the above schedule includes all assets advised or sub-advised by CSAM for Advantus Capital or its affiliates, in addition to those assets of the Fund. The Average Assets Under Management consists of the mathematical average of the quarterly aggregate assets as measured on March 31st, June 30th, September 30th and December 31st of each calendar year (or portion thereof) for each of the preceding 8 quarters, with the fee rate determined on each such date being applicable to the following period and applied to all assets back to the first dollar in the Fund. VENTURE FUND SUB-ADVISER -- STATE STREET State Street Research & Management Company ("State Street") has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management of the investment program of the Venture Fund, subject to the general control of the Board of Directors of the Fund. State Street is a registered investment adviser under the Investment Advisers Act of 1940. State Street, a Delaware corporation, with offices at One Financial Center, Boston, Massachusetts 02111-2690, acts at the investment sub-adviser to the Portfolio. State Street was founded by Paul Cabot, Richard Saltonstall and Richard Paine to serve as investment adviser to one of the nation's first mutual funds, presently known as State Street Research Investment Trust, which they had formed in 1924. Their investment management philosophy emphasized comprehensive fundamental research and analysis, including meetings with the management of companies under consideration for investment. State Street's portfolio management group has extensive investment industry experience managing equity and debt securities. State Street is an indirect wholly-owned subsidiary of Metropolitan Life Insurance Company. VENTURE FUND INVESTMENT SUB-ADVISORY AGREEMENT -- STATE STREET State Street acts as investment sub-adviser to the Venture Fund under an Investment Sub-Advisory Agreement (the "State Street Agreement") with Advantus Capital dated May 1, 2000 and approved by shareholders of the Fund on April 17, 2000. An amendment to the State Street Agreement, adjusting the level of sub-advisory fees payable by Advantus Capital to State Street under such Agreement, was approved by the Board of Directors of the Fund on October 25, 2001. The State Street Agreement, as amended, was last approved for continuance by the Board of Directors of the Fund, including a majority of the Directors who are not a party to the State Street Agreement or interested persons of any such party, on January 24, 2002. Prior to May 1, 2000 the Venture Fund was managed directly by Advantus Capital. The State Street Agreement will terminate automatically upon the termination of the Advisory Agreement and in the event of its assignment. In addition, the State Street Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the Venture Fund's outstanding voting securities on 60 days' written notice to State Street, and by State Street on 60 days' written notice to Advantus Capital. Unless sooner terminated, the State Street Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons or any party to the State Street Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by State Street to the Venture Fund, Advantus Capital pays to State Street a fee computed at an annual rate which is a percentage of the average daily net assets of the Fund. The fee is accrued daily and shall be based on the net asset value of all of the issued and outstanding shares of the Fund as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. The amount of such annual fee as applied to the average daily net assets of the Fund, is equal to .65% of the first $100 million of average daily net assets and .60% of average daily net assets in excess of $100 million. For purposes of calculating the breakpoint, the term "assets" includes all "small company value" assets sub-advised by State Street for Advantus Capital, in addition to the assets of the Fund. The aggregation of those assets for purposes of the breakpoint is calculated quarterly based upon the aggregate assets on March 31st, June 30th, September 30th and December 31st of each calendar year (or portion thereof) that the State Street agreement is effective. ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS At a meeting held on January 24, 2002, the Board of Directors of the Funds, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940) of the Funds (the "Independent Directors"), approved the continuation of each Fund's investment advisory agreement with Advantus Capital for an additional one-year period. In connection with such approval, the directors considered, with the assistance of independent counsel, their legal responsibilities and reviewed the nature and quality of Advantus Capital's services provided to the Fund and Advantus Capital's experience and qualifications. In addition to quarterly evaluations of the Fund's investment performance relative to broad-based index and industry benchmarks and at least annual in person meetings with and presentations by each portfolio manager or managers for the Fund (including personnel from Advantus Capital and each sub-adviser), the Directors on January 24, 2002 reviewed and considered: - - analyses prepared and compiled by Advantus Capital (i) setting forth the Fund's advisory fee (as a percentage of assets) on a contractual and after-waiver basis (ii) comparing the Fund's contractual advisory fees with standard fee schedules for private (non-mutual fund) accounts managed by Advantus Capital and with the contractual fee schedules of other funds represented by Advantus Capital to be of comparable size and complexity (with a description of the bases upon which funds were selected for comparison), (iii) comparing the Fund's total returns with the Fund's benchmark index or indices and with such comparable funds (again, with a description of the bases upon which funds were selected for comparison); - - descriptions of brokerage allocation practices (including any soft dollar arrangements) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; - - assurances that Advantus Capital and its personnel are in compliance with the Fund's codes of ethics, policies and procedures and exemptive orders and with applicable laws and regulations; and - - a report on Advantus Capital's profitability related to providing advisory services to the Fund after taking into account (i) advisory fees and any other benefits realized by Advantus Capital or any of its affiliates as a result of Advantus Capital's role as adviser to the Fund, and (ii) the direct and indirect expenses incurred by Advantus Capital in providing such advisory services to the Fund. After discussion, the Board of Directors concluded that Advantus Capital has the capabilities, resources and personnel necessary to manage each Fund. The Board of Directors also concluded that, based on the services that Advantus Capital would provide to each Fund under the Fund's investment advisory agreement and the expenses incurred by Advantus Capital in the performance of such services, the compensation to be paid to Advantus Capital is fair and equitable with respect to the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it is in the best interests of each Fund to continue its investment advisory agreement with Advantus Capital for an additional one-year period. At the January 24, 2002 meeting, the Fund's Board of Directors, including a majority of the Independent Directors, also approved the continuation of the sub-advisory agreements between Advantus Capital and each of the following sub-advisers (with respect to the Fund set forth opposite the sub-adviser's name in the table below), each for an additional one-year period:

SUB-ADVISER FUND ----------- ---- Credit Suisse Asset Management, LLC Enterprise Fund State Street Research & Management Company Venture Fund

In approving the continuation of the sub-advisory agreements, the Board of Directors considered the quality of the services being rendered by each sub-adviser, its investment management style, the experience and qualifications of each sub-adviser's personnel and the sub-adviser's fee structure. The Board of Directors also reviewed written reports provided by each sub-adviser, which contained, among other items: - - descriptions of brokerage allocation practices (including soft dollar arrangements, if any) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; and - - assurances that the sub-adviser and its personnel are in compliance with the sub-adviser's code of ethics and with the laws and regulations that apply to its relationship as sub-adviser to the applicable Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it was in the best interests of each of the foregoing Funds engaging a sub-adviser to continue its sub-advisory agreement for an additional one-year period. CODE OF ETHICS Advantus Capital, Securian Financial, CSAM, State Street and each of the Funds has adopted a Code of Ethics in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder. The private investment activities of personnel covered by the Code of Ethics are restricted in accordance with the Code's provisions, but, subject to such provisions, personnel may invest in securities, including securities that may be purchased or held by the Funds. Distribution Agreement Securian Financial acts as the underwriter of the Funds' shares. The Board of Directors of the Funds, on January 24, 2002, including a majority of the directors who are not parties to the contract, or interested persons of any such party, last approved the respective Fund's Distribution Agreement with Securian Financial (the "Distribution Agreements"), dated October 22, 1998 for Cornerstone Fund, Enterprise Fund, Horizon Fund, Index Fund and Venture Fund, and October 25, 2001 for Real Estate Securities Fund. During the fiscal period ended July 31, 2002, and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index Fund, Real Estate Securities Fund and Venture Fund, the commissions received by Securian Financial under the Distribution Agreements with respect to shares of all classes were as follows:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $50,234 $312,734 $345,082 Enterprise Fund 19,407 180,816 158,512 Horizon Fund 54,053 294,198 385,277 Index Fund 97,938 78,345 114,832 Real Estate Securities Fund 60,489 3,991 14,377 Venture Fund 70,657 30,384 58,191

During the same period Securian Financial retained from these commissions the following amounts: 20

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone $ 6,127 $ 5,298 $ 9,265 Enterprise 5,616 5,937 6,623 Horizon 7,505 15,958 33,780 Index Fund 7,931 12,524 13,503 Real Estate Securities Fund 17,921 -783 72 Venture Fund 20,106 6,975 1,254

The remainder of these commissions was paid to registered representatives of Securian Financial or to broker-dealers who have selling agreements with Securian Financial. Each Distribution Agreement may be terminated by the respective Fund or Securian Financial at any time by the giving of 60 days' written notice, and terminates automatically in the event of its assignment. Unless sooner terminated, the Distribution Agreement for the respective Fund shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Distribution Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreements require Securian Financial to pay all advertising and promotional expenses in connection with the distribution of the Funds' shares including paying for Prospectuses and Statements of Additional Information (if any) for new shareholders, shareholder reports for new shareholders, and the costs of sales literature. In the Distribution Agreements, Securian Financial undertakes to indemnify the Funds against all costs of litigation and other legal proceedings, and against any liability incurred by or imposed upon the Funds in any way arising out of or in connection with the sale or distribution of the Funds' shares, except to the extent that such liability is the result of information which was obtainable by Securian Financial only from persons affiliated with the Funds but not with Securian Financial. PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS Each of the Funds except Real Estate Securities Fund has adopted separate Plans of Distribution applicable to Class A shares, Class B shares and Class C shares, respectively, relating to the payment of certain distribution and/or shareholder servicing expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940. Real Estate Securities Fund has two classes of shares (Class A and Class B) and each class has also adopted a Plan of Distribution pursuant to Rule 12b-1. Each of the Funds, pursuant to its Plan of Distribution, pays fees to Securian Financial which equal, on an annual basis, a percentage of the Fund's average daily net assets attributable to Class A shares, Class B shares and Class C shares, respectively, as set forth in the following table:

Rule 12b-1 Fee as Percentage of Average Daily Net Assets Attributable to -------------------------------------------- Fund Class A Shares Class B Shares Class C Shares ---- -------------- -------------- -------------- Cornerstone Fund 0.25% 1.00% 1.00% Enterprise Fund 0.25% 1.00% 1.00% Horizon Fund 0.25% 1.00% 1.00% Index Fund 0.25% 1.00% 1.00% Real Estate Securities Fund 0.25% 1.00% n/a Venture Fund 0.25% 1.00% 1.00%

21 Such fees are used for distribution-related services for Class B and C shares of the Funds and for servicing of shareholder accounts in connection with Class A, B and C shares in each of the Funds. A portion of the Rule 12b-1 fees payable with respect to Class B and Class C shares of the Funds equal to .75% of the average daily net assets attributable to such Class B and Class C shares, constitute distribution fees designed to compensate Securian Financial for advertising, marketing and distributing the shares of the Funds. The distribution fees paid by each of the Funds may be used by Securian Financial for the purpose of financing any activity which is primarily intended to result in the sale of shares of the particular Fund. For example, such distribution fee may be used by Securian Financial: (a) to compensate broker-dealers, including Securian Financial and its registered representatives, for their sale of a Fund's shares, including the implementation of the programs described below with respect to broker-dealers, banks, and other financial institutions; and (b) to pay other advertising and promotional expenses in connection with the distribution of a Fund's shares. These advertising and promotional expenses include, by way of example but not by way of limitation, costs of prospectuses for other than current shareholders; preparation and distribution of sales literature; advertising of any type; expenses of branch offices (including overhead expenses) provided jointly by Securian Financial and any affiliate thereof; and compensation paid to and expenses incurred by officers, employees or representatives of Securian Financial or of other broker-dealers, banks, or financial institutions. All of the 12b-1 fees payable with respect to each Fund's Class A shares and a portion of the Rule 12b-1 fee payable with respect to Class B and Class C shares of each Fund, equal to .25% of the average daily net assets attributable to such Class A, B and Class C shares, constitutes a shareholder servicing fee designed to compensate Securian Financial for the provision of certain services to the holders of Class A, B and Class C shares. Amounts expended by the Funds under the Plans are expected to be used for the implementation by Securian Financial of a dealer incentive program. Pursuant to the program, Securian Financial may provide compensation to investment dealers for the provision of distribution assistance in connection with the sale of the Funds' shares to such dealers' customers and for the provision of administrative support services to customers who directly or beneficially own shares of the Funds. The distribution assistance and administrative support services rendered by dealers may include, but are not limited to, the following: distributing sales literature; answering routine customer inquiries concerning the Funds; assisting customers in changing dividend options, account designation and addresses, and in enrolling into the pre-authorized check plan or systematic withdrawal plan; assisting in the establishment and maintenance of customer accounts and records and in the processing of purchase and redemption transactions; investing dividends and any capital gains distributions automatically in the Funds' shares and providing such other information and services as the Funds or the customer may reasonably request. Such fees for servicing customer accounts would be in addition to the portion of the sales charge received or to be received by dealers which sell shares of the Funds. Securian Financial may also provide compensation to certain institutions such as banks ("Service Organizations") which have purchased shares of the Funds for the accounts of their clients, or which have made the Funds' shares available for purchase by their clients, and/or which provide continuing service to such clients. Applicable laws may prohibit certain banks from engaging in the business of underwriting securities. In such circumstances, Securian Financial, if so requested, will engage such banks as Service Organizations only to perform administrative and shareholder servicing functions, but at the same fees and other terms applicable to dealers. If a bank were prohibited from acting as a Service Organization, its shareholder clients would be permitted to remain shareholders of the Funds and alternative means for continuing servicing of such shareholders would be sought. In such event changes in the operation of 22 the Funds might occur and a shareholder serviced by such bank might no longer be able to avail itself of any automatic investment or other services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. In addition, the Plan contains, among other things, provisions complying with the requirements of Rule 12b-1 discussed below. In particular, each Plan provides that (1) the Plan will not take effect until it has been approved by a vote of a majority of the outstanding voting securities of the Fund, and by a majority vote of both the full board of directors of the Fund and those directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements relating to it (the Independent Directors), (2) the Plan will continue in effect from one year to another so long as its continuance is specifically approved annually by a majority vote of both the full board of directors and the Independent Directors, (3) the Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the Fund, (4) the Plan may not be amended to increase materially the amount of the fees payable thereunder unless the amendment is approved by a vote of a majority of the outstanding voting securities of the Fund, and all material amendments must be approved by a majority vote of both the full board of directors and the Independent Directors, (5) while the Plan is in effect, the selection and nomination of any new Independent Directors is committed to the discretion of the Independent Directors then in office, and (6) the Fund's underwriter will prepare and furnish to the board of directors, and the board of directors will review, at least quarterly, written reports which set forth the amounts expended under the Plan and the purposes for which those expenditures were made. Rule 12b-1(b) provides that any payments made by an investment company in connection with the distribution of its shares may only be made pursuant to a written plan describing all material aspects of the proposed financing of distribution and also requires that all agreements with any person relating to implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2) requires that such plan, together with any related agreements, be approved by a vote of the board of directors and of the directors who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan, cast in person at a meeting called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the plan or agreement provide, in substance: (1) that it shall continue in effect for a period of more than one year from the date of its execution or adoption only so long as such continuance is specifically approved at least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person authorized to direct the disposition of monies paid or payable by the investment company pursuant to the plan or any related agreement shall provide to the investment company's board of directors, and the directors shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made; and (3) in the case of a plan, that it may be terminated at any time by vote of a majority of the members of the board of directors of the investment company who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan or by vote of a majority of the outstanding voting securities of the investment company. Rule 12b-1(b)(4) requires that such plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval and that all material amendments of the plan must be approved in the manner described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that the investment company may rely upon Rule 12b-1(b) only if selection and nomination of the investment company's disinterested directors are committed to the discretion of such disinterested directors. Rule 12b-1(e) provides that the investment company may implement or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to approve such implementation or continuation conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties under state law, and under Sections 36(a) and (b) of the Investment Company Act of 1940, that there is a reasonable likelihood that the plan will benefit the investment company and its shareholders. At the Board of Directors meeting held January 24, 2002, the directors of the Funds so concluded. During the fiscal period ended July 31, 2002, each Fund made payments under its Plans of Distribution applicable to Class A, Class B and Class C Shares as set forth below (distribution fees waived by Securian Financial, if any, are shown in parentheses).

Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund $140,042 $ N/A $66,388 $ 7,188 Enterprise Fund 75,907 (30,363) 41,469 5,141 Horizon Fund 58,966 N/A 87,139 7,835 Index 500 Fund 56,862 (22,745) 189,402 20,114 Real Estate Securities Fund 53,635 (32,181) 2,939 N/A Venture Fund 143,955 (57,582) 46,950 12,773

The Plans of Distribution could be construed as "compensation plans" because Securian Financial is paid a fixed fee and is given discretion concerning what expenses are payable under the Plans. Under a compensation plan, the fee to the distributor is not directly tied to distribution expenses actually incurred by the distributor, thereby permitting the distributor to receive a profit if amounts received exceed expenses. Securian Financial may spend more or 23 less for the distribution and promotion of the Funds' shares than it receives as distribution fees pursuant to the Plans. However, to the extent fees received exceed expenses, including indirect expense such as overhead, Securian Financial could be said to have received a profit. TRANSFER AGENT AND ADMINISTRATIVE SERVICES Each of the Funds pays its own transfer agent expenses. The Funds' transfer agent is PFPC Inc. ("PFPC"). In addition, separate from the investment advisory agreement, each of the Funds has entered into an agreement with Minnesota Life under which Minnesota Life provides (i) accounting, legal and other administrative services and (ii) shareholder servicing to the Funds. Minnesota Life currently provides accounting, legal and other administrative services to the Funds at a monthly cost of $6,200 per Fund other than Real Estate Securities Fund, and $5,100 for Real Estate Securities Fund. During the fiscal period ended July 31, 2002, each Fund paid the following amounts for such administrative services:

Fund Amount ---- ------ Cornerstone Fund $62,000 Enterprise Fund 62,000 Horizon Fund 62,000 Index Fund 74,400 Real Estate Securities Fund 61,200 Venture Fund 74,400

Minnesota Life currently provides shareholder servicing to each Fund at a cost of $7 per shareholder account per year. PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE In a number of security transactions, it is possible for the Funds to deal in the over-the-counter security markets (including the so-called "third market" which is the "over-the-counter" market for securities listed on the New York Stock Exchange) without the payment of brokerage commissions but at net prices including a spread or markup; the Funds trade in this manner whenever the net price appears advantageous. Advantus Capital, or a Fund's sub-adviser, selects and (where applicable) negotiates commissions with the brokers who execute the transactions for the Funds. During the fiscal period ended July 31, 2002, and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real Estate Securities and Venture Funds, brokerage commissions paid were:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $228,660 $335,867 $405,041 Enterprise Fund 82,298 61,217 112,916 Horizon Fund 80,789 128,104 123,143 Index Fund 9,557 7,794 26,239 Real Estate Securities Fund 114,123 114,505 57,451 Venture Fund 193,659 224,490 124,323

ADVANTUS CAPITAL'S BROKERAGE PRACTICES The primary criteria for the selection of a broker is the ability of the broker, in the opinion of Advantus Capital, to secure prompt execution of the transactions on favorable terms, including the reasonableness of the commission and considering the state of the market at the time. In selecting a broker, Advantus Capital considers whether such broker provides brokerage and research services (as defined in the Securities Exchange Act of 1934), and generally the Funds pay higher than the lowest commission rates available. Advantus Capital may direct Fund transactions to brokers who furnish research services to Advantus Capital. Such research services include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, as well as analysis and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts. By allocating brokerage business in order to obtain research services for Advantus Capital, the Funds enable Advantus Capital to supplement its own investment research activities and allows Advantus Capital to obtain the views and information of individuals and research staffs of many different securities research firms prior to making investment decisions for the Funds. To the extent such commissions are directed to these other brokers who furnish research services to Advantus Capital, Advantus Capital receives a benefit, not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Funds from these commissions. There is no formula for the allocation by Advantus Capital of the Funds' brokerage business to any broker-dealer for brokerage and research services. However, Advantus Capital will authorize a Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker would have charged only if Advantus Capital determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker viewed in terms of either that particular transaction or Advantus Capital's overall responsibilities with respect to the accounts as to which it exercises investment discretion. During the fiscal period ended July 31, 2002, the Funds directed transactions to brokers because of research services they provided, and paid commissions in connection with such transactions, in the aggregate amounts set forth below: 24

Aggregate Transactions Commissions Paid on Fund Directed for Research Directed Transaction ---- --------------------- -------------------- Cornerstone Fund $2,127,165 $113,864 Enterprise Fund -- -- Horizon Fund 787,904 42,572 Index Fund 183 1,124 Real Estate Securities Fund 879,500 25,058 Venture Fund 35,075,991 95,085

Advantus Capital believes that most research services obtained by it generally benefit one or more of the investment companies which it manages and also benefit accounts which it manages. Normally research services obtained through managed funds and managed accounts investing in common stocks would primarily benefit such funds and accounts; similarly, services obtained from transactions in fixed income securities would be of greater benefit to the managed funds and managed accounts investing in debt securities. The same security may be suitable for one or more of the Funds and the other funds or private accounts managed by Advantus Capital or its affiliates. If and when two or more funds or accounts simultaneously purchase or sell the same security, the transactions will be allocated as to price and amount in accordance with arrangements equitable to each fund or account. The simultaneous purchase or sale of the same securities by one Fund and other Funds or accounts may have a detrimental effect on that Fund, as this may affect the price paid or received by the Fund or the size of the position obtainable by the Fund. Consistent with achieving best execution, a Fund may participate in so-called "directed brokerage" or "commission recapture" programs, under which brokers (or dealers) used by the Fund remit a portion of brokerage commissions (or credits on fixed income transactions) to the particular Fund from which they were generated. Subject to oversight by the Fund's Board of Directors, either Advantus Capital or the sub-adviser, if any, is responsible for the selection of brokers or dealers and for ensuring that a Fund receives best price and execution in connection with its portfolio brokerage transactions. Participation in such programs may increase returns to the Fund. Although the rules of the National Association of Securities Dealers, Inc. prohibit its members from seeking orders for the execution of investment company portfolio transactions on the basis of their sales of investment company shares, under such rules, sales of investment company shares may be considered by the investment company as a factor in selecting brokers to effect portfolio transactions. Accordingly, some portfolio transactions are, subject to such rules and to obtaining best prices and executions, executed through dealers who sell shares of Funds in the Advantus Funds complex or who agree to transmit a portion of the brokerage commissions on transactions executed by them to broker/dealers who sell Fund shares. The Funds will not execute portfolio transactions through any affiliate, unless such transactions, including the frequency thereof, the receipt of commissions payable in connection therewith and the selection of the affiliated broker-dealer effecting such transactions are not unfair or unreasonable to the shareholders of the Funds. In the event any transactions are executed on an agency basis, Advantus Capital will authorize the Funds to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker-dealer would have charged only if Advantus Capital determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the overall responsibilities of Advantus Capital with respect to the Funds as to which it exercises investment discretion. If the Funds execute any transactions on an agency basis, they will generally pay higher than the lowest commission rates available. In determining the commissions to be paid to an affiliated broker-dealer, it is the policy of the Funds that such commissions will, in the judgment of Advantus Capital, subject to review by the Fund's Board of Directors, be both (a) at least as favorable as those which would be charged by other qualified brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time, and (b) at least as favorable as commissions contemporaneously charged by such affiliated broker-dealers on comparable transactions for their most favored comparable unaffiliated customers. While the Funds do not deem it practicable and in their best interest to solicit competitive bids for commission rates on each transaction, consideration will regularly be given to posted commission rates as well as to other information concerning the level of commissions charged on comparable transactions by other qualified brokers. Information regarding the acquisition by the Funds during the fiscal period ended July 31, 2002, of securities of the Funds' regular brokers or dealers, or the parents of those brokers or dealers that derive more than 15 percent of their gross revenue from securities-related activities, is presented below: 25

Approximate Value of Securities Owned at End of Fund Name of Issuer Fiscal Period ---- -------------- ------------- Cornerstone Fund CitiGroup, Inc. $ 2,385,130 Goldman Sachs Group, Inc. 658,350 Morgan Stanley 598,794 Enterprise Fund Affiliated Managers Group 288,042 Horizon Fund CitiGroup, Inc 358,878 Goldman Sachs Group, Inc. 190,190 Index Fund Bear Stearns & Company 24,329 Block Financial Corporation 34,955 Real Estate Securities Fund ----- ----- Venture Fund ----- -----

SUB-ADVISERS' BROKERAGE PRACTICES CSAM, investment sub-adviser to the Enterprise Fund, and State Street, investment sub-adviser to the Venture Fund, each intends to follow the same brokerage practices as those described above for Advantus Capital. CALCULATION OF PERFORMANCE DATA Advertisements and other sales literature for the Funds may refer to "yield," "average annual total return" and "cumulative total return." Performance quotations are computed separately for each class of shares of the Funds. YIELD. Yield is computed by dividing the net investment income per share (as defined under Securities and Exchange Commission rules and regulations) earned during the computation period by the maximum offering price per share on the last day of the period, according to the following formula: a-b 6 YIELD = 2[( ----- +1) -1] cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. The yield on investments in each of the Funds for the 30-day period ended July 31, 2002 was as set forth in the table below. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during that period. If such Funds had been charged for these expenses the yield on investments for the same period would have been lower, as also shown in the table below in parentheses.

Yield ------- Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund 1.06% (.78%) .39% (.09%) .39% (.09%) Enterprise Fund -.93% (-1.34%) -1.84% (-2.28%) -1.84% (-2.27%) Horizon Fund -.21% (-2.06%) -.96% (-2.91%) -.96% (-2.91%) Index Fund 1.26% (.80%) .50% (.01%) .50% (.01%) Real Estate Securities Fund .86% (.82%) .03% (-.001%) N/A N/A Venture Fund .24% (.24%) -.63% (-.63%) -.63% (-.63%)

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding the average annual compounded rates of return over the periods indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ERV Where: P = a hypothetical initial payment of $1,000; T = average annual total return; n = number of years; and 26 ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period. The average annual total return on investments in each of the Funds for the periods indicated ending July 31, 2002, were as set forth in the table below. Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the average annual total returns for the same periods would have been lower, as also shown in the table below in parentheses.

1 YEAR ------ FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund -22.22% (-22.39%) -22.47% (-22.64%) -18.36% (-18.53%) Enterprise Fund -33.82% (-34.13%) -34.08% (-34.29%) -30.53% (-30.74%) Horizon Fund -31.53% (-32.35%) -31.74% (-32.56%) -28.15% (-28.97%) Index Fund -28.31% (-29.09%) -28.56% (-29.24%) -24.80% (-25.48%) Real Estate Securities Fund 6.13% (5.94%) N/A N/A N/A N/A Venture Fund -18.04% (-18.14%) -18.32% (-18.32%) -13.96% (-13.96%)

SINCE INCEPTION --------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund(1) 5.05% (4.68%) 4.97% (4.77%) 5.08% (4.88%) Enterprise Fund(1) 0.39% (0.35%) 0.22% (0.21%) -0.33% (-0.34%) Horizon Fund(2) 7.05% (6.88%) 3.93% (3.87%) 3.41% (3.35%) Index Fund(3) 2.06% (1.43%) 1.99% (1.64%) 2.16% (1.84%) Real Estate Securities Fund(4) 10.16% (9.53%) 6.56% (6.50%) N/A N/A Venture Fund(3) 6.22% (6.13%) 6.13% (6.10%) 6.40% (6.38%) - ---------------

(1) Class A and Class B Inception was September 16, 1994. Class C Inception was March 1, 1995. (2) Class A Inception was May 3, 1985. Class B Inception was August 19, 1994. Class C Inception was March 1, 1995. (3) Class A, Class B and Class C inception was January 31, 1997. (4) Class A inception date was February 25, 1999. Class B inception date was November 30, 2001. CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: ERV-P CTR = ( ----- )100 P Where : CTR = cumulative total return; ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period; and P = initial payment of $1,000. The cumulative total return on investments in each of the Funds for the period indicated ended July 31, 2002, was as set forth in the table below. The cumulative total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the inception of Class A shares. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser and distributor were voluntarily absorbing certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the cumulative total return for the same periods would have been lower, as also shown in the table below in parentheses.

CUMULATIVE TOTAL RETURN ----------------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund(1) 47.39% (43.36%) 46.45% (44.35%) 44.36% (42.39%) Enterprise Fund(1) 3.12% (2.80%) 1.77% ( 1.65%) -2.40% (-2.51%) Horizon Fund(2) 223.58% (214.88%) 35.83% (35.27%) 28.20% (27.67%) Index Fund(3) 11.89% (8.23%) 11.45% (9.56%) 12.47% (10.78%) Real Estate Securities Fund(4) 39.35% (36.62%) 4.32% (4.28%) N/A N/A Venture Fund(3) 39.29% (38.73%) 38.65% (38.43%) 40.63% (40.45%)

27 - --------------- (1) Class A and Class B Inception was September 16, 1994. Class C Inception was March 1, 1995. (2) Class A Inception was May 3, 1985. Class B Inception was August 19, 1994. Class C Inception was March 1, 1995. (3) Class A, Class B and Class C inception date was January 31, 1997. (4) Class A inception date was February 25, 1999. Class B inception date was November 30, 2001. The calculations for both average annual total return and cumulative total return deduct the maximum sales charge from the initial hypothetical $1,000 investment, assume all dividends and capital gain distributions are reinvested at net asset value on the appropriate reinvestment dates as described in the Prospectus, and include all recurring fees, such as investment advisory and management fees, charged as expenses to all shareholder accounts. Such average annual total return and cumulative total return figures may also be accompanied by average annual total return and cumulative total return figures, for the same or other periods, which do not reflect the deduction of any sales charges. CAPITAL STOCK AND OWNERSHIP OF SHARES Each Fund's shares of common stock, and each class thereof, have a par value $.01 per share, and have equal rights to share in dividends and assets. The shares possess no preemptive or conversion rights. Cumulative voting is not authorized. This means that the holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors if they choose to do so, and in such event the holders of the remaining shares will be unable to elect any directors. Each of the Funds has 10 billion authorized shares of common stock and has designated 2 billion authorized shares as Class A shares and 2 billion authorized shares as Class B shares. Each of the Funds other than Real Estate Securities Fund has also designated 2 billion authorized shares as Class C shares. The Funds have the number of shares outstanding as of July 31, 2002, as set forth below.

Shares Outstanding at July 31, 2002 ----------------------------------- Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund 4,907,681 533,841 58,812 Enterprise Fund 4,244,859 578,574 72,959 Horizon Fund 1,944,245 731,303 63,563 Index Fund 1,516,679 1,236,348 136,573 Real Estate Securities Fund 2,704,869 95,132 N/A Venture Fund 4,333,250 380,789 123,524

As of July 31, 2002, no person held of record, to the knowledge of the respective Funds, or owned more than 5% of the outstanding shares of any of the Funds, except as set forth in the following table:

Number of Name and Address of Shareholder Shares Percentage ------------------------------- ------ ---------- Cornerstone Fund 4,055,814 73.7% Minnesota Life and affiliates* Enterprise Fund 3,564,971 72.8% Minnesota Life and affiliates* Horizon Fund 13,098 0.5% Minnesota Life and affiliates* Index Fund Minnesota Life and affiliates* 719,158 24.9% Real Estate Securities Fund 2,454,169 87.7% Minnesota Life and affiliates* Venture Fund 3,898,399 80.6% Minnesota Life and affiliates*

* 400 Robert Street North, St. Paul, Minnesota 55101. HOW TO BUY SHARES Each Fund's shares may be purchased at the public offering price from Securian Financial, and from certain other broker-dealers or financial services firms. Securian Financial reserves the right to reject any purchase order. Shares of the Funds may be purchased at a price equal to their respective net asset value. 28 Certificates representing shares purchased are not currently issued. However, shareholders will receive written confirmation of their purchases. Shareholders will have the same rights of ownership with respect to such shares as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH CERTIFICATED SHARES BY TELEPHONE. ALTERNATIVE PURCHASE ARRANGEMENTS Real Estate Securities Fund offers investors the choice between two classes of shares (Class A and Class B). The other Funds offer investors the choice among three classes of shares which offer different sales charges and bear different expenses. These alternatives permit an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. For a detailed discussion of these alternative purchase arrangements see "Sales Charges" below. The decision as to which class of shares provides a more suitable investment for an investor may depend on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for a waiver of initial sales charges should purchase Class A shares. Other investors should consider Class B or Class C shares because all of the purchase price is invested immediately. Investors who expect to hold shares for relatively shorter periods of time may prefer Class C shares because such shares may be redeemed at any time without payment of a contingent deferred sales charge. Investors who expect to hold shares longer, however, may choose Class B shares because such shares convert to Class A shares sooner than do Class C shares and thus pay the higher Rule 12b-1 fee for a shorter period. Purchase orders for $1,000,000 or more will be accepted for Class A shares only and are not subject to a sales charge at the time of purchase, but a deferred sales charge will be imposed if such shares are sold within one year after the date of purchase. Orders for Class B or Class C shares for $1,000,000 or more will be treated as orders for Class A shares or declined. PURCHASE BY CHECK New investors may purchase shares of the Funds by completing an account application and sending it, together with a check payable to the Fund, directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Additional purchases may be made at any time by mailing a check, payable to the Fund, to the same address. Checks for additional purchases should be identified with the appropriate account number. Purchase orders may also be submitted through Securian Financial or other broker-dealers or financial services firms authorized to sell shares of the Fund. PURCHASE BY WIRE Shares may also be purchased by Federal Reserve or bank wire. This method will result in a more rapid investment in shares of the Funds. Before wiring any funds, contact Minnesota Life, through its Advantus Shareholder Services division, at 1-800-665-6005 for instructions. Promptly after making an initial purchase by wire, an investor should complete an account application and mail it to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Subsequent purchases may be made in the same manner. Wire purchases normally take two or more hours to complete, and to be accepted the same day must be received by 3:00 p.m. (Central time). Banks may charge a fee for transmitting funds by wire. PURCHASE BY INTERNET Existing Advantus Funds shareholders may also purchase shares via the Internet, once they have established on-line authorization. Please contact Advantus Shareholder Services at (800) 665-6005 for information on how to establish your account. TIMING OF PURCHASE ORDERS An order in proper form for the purchase of shares of a Fund received by the Fund prior to the close of normal trading on the New York Stock Exchange ("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the price next determined on the date received by PFPC. An order received by PFPC from a financial services firm after the price is determined that day will nonetheless be processed at that day's price if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Other orders received after the close of the NYSE will be effected at the price next determined on the next business day. 29 MINIMUM INVESTMENTS A minimum initial investment of $1,000 is required, except that $500 is the minimum initial investment required to open a qualified account or an account in which investments of not less than $50 are being made under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50. PUBLIC OFFERING PRICE The public offering price of the Fund will be the net asset value per share of the Fund next determined after an order is received and becomes effective, plus the applicable sales charge, if any. The net asset value per share of each class is determined by dividing the value of the securities, cash and other assets (including dividends accrued but not collected) of the Fund attributable to such class less all liabilities (including accrued expenses but excluding capital and surplus) attributable to such class, by the total number of shares of such class outstanding. The net asset value of the shares of the Fund is determined as of the close of normal trading on the New York Stock Exchange (as of the date of this Statement of Additional Information the primary close of trading is 3:00 p.m. (Central time), but this time may be changed) on each day, Monday through Friday, except (i) days on which changes in the value of the Fund's portfolio securities will not materially affect the current net asset value of Fund shares, (ii) days during which no Fund shares are tendered for redemption and no order to purchase or sell Fund shares is received by the Fund and (iii) customary national business holidays on which the New York Stock Exchange is closed for trading. Securities, including put and call options, which are traded over-the-counter and on a national exchange will be valued according to the broadest and most representative market. A security which is only listed or traded on an exchange, or for which an exchange is the most representative market, is valued at its last sale price (prior to the time as of which assets are valued) on the exchange where it is principally traded. Lacking any sales on the exchange where it is principally traded on the day of valuation, prior to the time as of which assets are valued, the security generally is valued at the last bid price on that exchange. Futures contracts will be valued in a like manner, except that open futures contracts sales will be valued using the closing settlement price or in the absence of such a price, the most recent quoted bid price. All other securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. When market quotations are not readily available, such securities are valued at fair value as determined in good faith by the Board of Directors. Advantus Capital and the Funds' sub-advisers, where applicable, monitor for "significant events" that may (a) occur after closing market prices are established but before the time a Fund calculates its net asset value and (b) cause market quotations for certain securities to be considered "not readily available" because of such significant events. In such circumstances, those securities are also valued at fair value as determined in good faith by the Board of Directors. Other assets also are valued at fair value as determined in good faith by the Board of Directors. However, debt securities may be valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional-size trading units of debt securities, without regard to sale or bid prices, when such valuations are believed to more accurately reflect the fair market value of such securities. Short-term investments in debt securities are valued daily at market. SALES CHARGES CLASS A SHARES The public offering price of Class A shares of each Fund is the net asset value of the Fund's shares plus the applicable front end sales charge ("FESC"), which will vary with the size of the purchase. Securian Financial receives all applicable sales charges. The Fund receives the net asset value. The current sales charges are: 30

Sales Charge as a Percentage of: Net Amount Paid to Broker- Offering Amount Dealers as a Percentage of Value of Total Investment Price Invested Offering Price: ------------------------- ----- -------- --------------- Less than $50,000 5.5% 5.82% 4.75% $50,000 but less than $100,000 4.5 4.71 3.75 $100,000 but less than $250,000 3.5 3.63 2.75 $250,000 but less than $500,000 2.5 2.56 2.00 $500,000 but less than $1,000,000 2.0 2.04 1.50 $1,000,000 and over (1) 0 0 1.00

(1) A FESC will not be assessed for purchases of Class A shares of at least $1 million, but a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. The sales charge applicable to an initial investment in the Fund depends on the offering price of the investment. The sales charge applicable to subsequent investments, however, depends on the offering price of that investment plus the current net asset value of the investor's previous investments in the Fund. For example, if an investor makes an initial investment in Class A shares of Venture Fund with an offering price of $40,000 the investor will pay a sales charge equal to 5.5% of the $40,000 investment, but if an investor already owns Class A shares of Venture Fund with a current net asset value of $40,000 and invests in additional Class A shares of Horizon Fund with an offering price of $10,000 the investor will pay a sales charge equal to 4.5% of the additional $10,000 since the total investment in the Fund would then be $50,000. CLASS B SHARES Class B shares of each Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. However, a contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares are redeemed within six years of purchase. For additional information, see "Redemptions" below. Class B shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class B shares are subject to higher Rule 12b-1 fees as described below. The amount of the CDSC will depend on the number of years since the purchase was made, the amount of shares originally purchased and the dollar amount being redeemed. The amount of the applicable CDSC and the holding period prior to conversion are determined in accordance with the following table:

Shares Convert to Class A in CDSC Applicable in Year the Month ----------------------- After Shares Purchased in an Amount 1 2 3 4 5 6 Expiration of ----------------------------- - - - - - - ------------- Less than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 months $50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 76 months $100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 60 months $250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 44 months $500,000 but less than $1,000,000 1.5 1.5 0 0 0 0 28 months

Proceeds from the CDSC are paid to Securian Financial and are used to defray expenses related to providing distribution-related services to the Fund in connection with the sale of Class B shares, such as the payment of compensation to selected broker-dealers, and for selling Class B shares. The combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares 31 without deduction of a sales charge at the time of purchase. Although Class B shares are sold without an initial sales charge, Securian Financial pays a sales commission to broker-dealers, and to registered representatives of Securian Financial, who sell Class B shares. The amount of this commission may differ from the amount of the commission paid in connection with sales of Class A shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher expense ratio and to pay lower dividends than Class A shares. Securian Financial pays other broker-dealers for the sale of Class B shares in accordance with the following schedule:

Amount Paid to Broker-Dealers as a Shares Purchased in an Amount Percentage of Offering Price: ----------------------------- ----------------------------- Less than $50,000 4.17% $50,000 but less than $100,000 3.75 $100,000 but less than $250,000 2.92 $250,000 but less than $500,000 2.08 $500,000 but less than $1,000,000 1.25

CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class B shares acquired by exchange from Class B shares of another Advantus Multiple Class Funds will convert into Class A shares based on the time of the initial purchase. Purchased Class B shares ("Purchased B Shares") will convert after the specified number of months following the purchase date. All Class B shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment B Shares") will be held in a separate sub-account. Each time any Purchased B Shares convert to Class A shares, a PRO RATA portion (based on the ratio that the total converting Purchased B Shares bears to the shareholder's total converting and non-converting Purchased B Shares immediately prior to the conversion) of the Reinvestment B Shares then in the sub-account will also convert to Class A shares. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period. CLASS C SHARES Class C shares of Venture Fund and Index Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. Unlike Class B shares, however, no CDSC is imposed when Class C shares are redeemed. Class C shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class C shares are subject to higher Rule 12b-1 fees (as described below), and are subject to such higher fees for a longer period than are Class B shares because of a longer holding period prior to conversion. The applicable holding period prior to conversion is determined in accordance with the following table: 32

Shares Convert to Class A in the Month After Shares Purchased in an Amount Expiration of ----------------------------- ------------- Less than $50,000 96 months $50,000 but less than $100,000 88 months $100,000 but less than $250,000 72 months $250,000 but less than $500,000 56 months $500,000 but less than $1,000,000 40 months

The longer period during which the Rule 12b-1 fee is charged enables the Fund to sell the Class C shares without deduction of a sales charge at the time of purchase and without imposing a CDSC at redemption. Securian Financial does not pay a sales commission to broker-dealers, or to registered representatives of Securian Financial, who sell Class C shares. The higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio and to pay lower dividends than Class A shares. CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class C shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of another Advantus Multiple Class Fund will convert into Class A shares based on the time of the initial purchase. Purchased Class C shares ("Purchased C Shares") will convert after the specified number of months following the purchase date. All Class C shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment C Shares") will be held in a separate sub-account. Each time any Purchased C Shares convert to Class A shares, a pro rata portion (based on the ratio that the total converting Purchased C Shares bears to the shareholder's total converting and non-converting Purchased C Shares immediately prior to the conversion) of the Reinvestment C Shares then in the sub-account will also convert to Class A shares. The conversion of Class C shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class C shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class C shares would continue to be subject to higher expenses than Class A shares for an indefinite period. OTHER PAYMENTS TO BROKER-DEALERS Broker-dealers selling Class A, Class B and Class C shares of the Funds will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual basis, to .25% of the net asset values attributable to Class A, Class B and Class C shares. Shareholder servicing fees attributable to Class A shares are paid quarterly in arrears beginning with the end of the first quarter after the sale of the shares to which such fees are attributable. Shareholder servicing fees attributable to Class B and Class C shares are paid quarterly in arrears beginning with the second year after the sale of the shares to which such fees are attributable (i.e., the first payment is at the end of the fifteenth month). Rule 12b-1 distribution fees will also be paid quarterly in arrears to broker-dealers selling Class C shares equal, on an annual basis, to .75% of the net asset values attributable to such Class C shares. NET ASSET VALUE AND PUBLIC OFFERING PRICE The method for determining the public offering price and net asset value per share is summarized in the Prospectus in the text following the heading "Buying and Selling Shares." 33 The portfolio securities in which the Funds invest fluctuate in value, and hence the net asset value per share of each Fund also fluctuates. On July 31, 2002 the net asset value and public offering price per share for Class A, Class B and Class C shares of each of the Funds were calculated as set forth below. CORNERSTONE FUND CLASS A SHARES Net Assets ($57,947,279) = Net Asset Value Per Share ($11.81) - -------------------------------- Shares outstanding (4,907,681) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.81 = Public Offering Price Per Share ($12.50) ------ .945(1) CLASS B SHARES Net Assets ($6,190,135) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.60) Shares outstanding (533,841) CLASS C SHARES Net Assets ($680,160) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.57) Shares outstanding (58,812) ENTERPRISE FUND CLASS A SHARES Net Assets ($27,357,239) = Net Asset Value Per Share ($6.44) - -------------------------------- Shares outstanding (4,244,859) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $6.44 = Public Offering Price Per Share ($6.81) ----- .945(1) CLASS B SHARES Net Assets ($3,345,090) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($5.78) Shares outstanding (578,574) CLASS C SHARES Net Assets ($421,470) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($5.78) Shares outstanding (72,959) HORIZON FUND CLASS A SHARES Net Assets ($21,830,076) = Net Asset Value Per Share ($11.23) - -------------------------------- Shares outstanding (1,944,245) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.23 = Public Offering Price Per Share ($11.88) ------ .945(1) CLASS B SHARES Net Assets ($7,507,340) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($10.27) Shares outstanding (731,303) CLASS C SHARES Net Assets ($657,556) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($10.34) Shares outstanding (63,563) INDEX FUND CLASS A SHARES Net Assets ($18,196,010) = Net Asset Value Per Share ($12.00) - -------------------------------- Shares outstanding (1,516,679) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $12.00 = Public Offering Price Per Share ($12.70) ------ .945 (1) CLASS B SHARES Net Assets ($14,558,915) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.78) Shares outstanding (1,236,348) CLASS C SHARES Net Assets ($1,604,621) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.75) Shares outstanding (136,573) REAL ESTATE SECURITIES FUND CLASS A SHARES Net Assets ($32,268,948) = Net Asset Value Per Share ($11.93) - -------------------------------- Shares outstanding (2,704,869) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.93 = Public Offering Price Per Share ($12.62) ------ .945 CLASS B SHARES NET ASSETS ($1,131,179) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.89) Shares outstanding (95,132) VENTURE FUND CLASS A SHARES Net Assets ($53,071,152) = Net Asset Value Per Share ($12.25) - -------------------------------- Shares outstanding (4,333,250) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $12.25 = Public Offering Price Per Share ($12.96) ------ .945 (1) CLASS B SHARES Net Assets ($4,531,306) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.90) Shares outstanding (380,789) CLASS C SHARES Net Assets ($1,476,813) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.96) Shares outstanding (123,524) - ------------ (1) Effective February 1, 1999, the maximum FESC was increased to 5.5%. REDUCED SALES CHARGES Special purchase plans are enumerated in the text of the Funds' Prospectus under "Buying and Selling Shares - Reducing Sales Charges" and are fully described below. 34 RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT The front end sales charge and contingent deferred sales charge applicable to each purchase of Class A shares and Class B shares, respectively, of the Funds is based on the next computed net asset value of all Class A, Class B and Class C shares of such Funds held by the shareholder (including dividends reinvested and capital gains distributions accepted in shares), plus the cost of all Class A, Class B and Class C shares of such Funds currently being purchased. It is the obligation of each shareholder desiring this discount in sales charge to notify Securian Financial, through his or her dealer or otherwise, that he or she is entitled to the discount. LETTER OF INTENT The applicable sales charge for purchases of Class A shares is based on total purchases over a 13-month period where there is an initial purchase equal to or exceeding $1,000, accompanied by filing with Securian Financial a signed "Letter of Intent" form to purchase, and by in fact purchasing not less than $50,000 of shares in one of the Funds within that time. The 13-month period is measured from the date the Letter of Intent is approved by Securian Financial, or at the purchaser's option, it may be made retroactive 90 days, in which case Securian Financial will make appropriate adjustments on purchases during the 90-day period. In computing the total amount purchased for purposes of determining the applicable sales charge, the net asset value of Class A, Class B and Class C shares currently held in all Advantus Multiple Class Funds, on the date of the first purchase under the Letter of Intent, may be used as a credit toward Fund shares to be purchased under the Letter of Intent. Class A, Class B and Class C shares of all the Advantus Multiple Class Funds may also be included in the purchases during the 13-month period. The Letter of Intent includes a provision for payment of additional applicable Class A sales charges at the end of the period in the event the investor fails to purchase the amount indicated. This is accomplished by holding 5.5% of the investor's initial purchase in escrow. If the investor's purchases equal those specified in the Letter of Intent, the escrow is released. If the purchases do not equal those specified in the Letter of Intent, he or she may remit to Securian Financial an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges that would have been paid on the aggregate purchases if the total of such purchases had been made at a single time. If the purchaser does not remit this sum to Securian Financial on a timely basis, Securian Financial will redeem the appropriate number of shares, and then release or deliver any remaining shares in the escrow account. The Letter of Intent is not a binding obligation on the part of the investor to purchase, or the respective Fund to sell, the full amount indicated. Nevertheless, the Letter of Intent should be read carefully before it is signed. COMBINING PURCHASES With respect to each of the Advantus Multiple Class Funds, purchases of Class A, Class B and Class C shares for any other account of the investor, or such person's spouse or minor children, or purchases on behalf of participants in a tax-qualified retirement plan may be treated as purchases by a single investor for purposes of determining the availability of a reduced sales charge. GROUP PURCHASES An individual who is a member of a qualified group may also purchase shares of the Advantus Multiple Class Funds at the reduced sales charge applicable to the group taken as a whole. The sales charge is calculated by taking into account not only the dollar amount of the Class A, Class B and Class C shares of the Funds being purchased by the individual member, but also the aggregate dollar value of such Class A, Class B and Class C shares previously purchased and currently held by other members of the group. Members of a qualified group may not be eligible for a Letter of Intent. A "qualified group" is one which (i) has been in existence for more than six months, (ii) has a purpose other than acquiring Fund shares at a discount, 35 and (iii) satisfies uniform criteria which enable Securian Financial to realize economies of scale in distributing such shares. A qualified group must have more than ten members, must be available to arrange for group meetings between representatives of Securian Financial, must agree to include sales and other materials related to the Funds in its publications and mailings to members at reduced or no cost to Securian Financial, and must seek, upon request, to arrange for payroll deduction or other bulk transmission of investments to the Funds. WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES Directors and officers of Advantus Capital, CSAM (with respect to Enterprise Fund only), State Street (with respect to Venture Fund only), Securian Financial, the Funds, Minnesota Life, or any of Minnesota Life's other affiliated companies, and their full-time and part-time employees, sales representatives and retirees, any trust, pension, profit-sharing, or other benefit plan for such persons, the spouses, siblings, direct ancestors or direct descendants of such persons, independent legal counsel to the Funds' independent directors, Minnesota Life and its affiliates themselves, advisory clients of Advantus Capital, employees of sales representatives employed in offices maintained by such sales representatives, certain accounts as to which a bank or broker-dealer charges an account management fee, provided the bank or broker-dealer has an agreement with Securian Financial, certain accounts sold by registered investment advisers who charge clients a fee for their services, investors who, within 60 days after redeeming shares of a class of shares generally subject to either an initial or deferred sales charge issued by a non-Advantus fund, use those redemption proceeds to purchase Class A shares from Securian Financial or a broker-dealer that has entered into an agreement with Securian Financial specifically providing for net asset value purchases, and employer-sponsored retirement plans described in Sections 401 or 403, or governmental retirement plans described in Section 457, of the Internal Revenue Code with total plan assets of not less than $500,000, may purchase Class A shares of the Advantus Multiple Class Funds at net asset value. These persons must give written assurance that they have bought for investment purposes, and that the securities will not be resold except through redemption or repurchase by, or on behalf of, the respective Fund. These persons are not required to pay a sales charge because of the reduced sales effort involved in their purchases. EXCHANGE AND TRANSFER OF FUND SHARES A shareholder can exchange some or all of his or her Class A, Class B and Class C shares in the Advantus Multiple Class Funds, including shares acquired by reinvestment of dividends, for shares of the same class of any of the other Advantus Multiple Class Funds (provided such Fund is available in the shareholder's State), and can thereafter re-exchange such exchanged shares back for shares of the same class of the Fund. Purchases by exchange are subject to the minimum investment requirements of the Funds. The exchange will be made on the basis of the relative net asset values without the imposition of any additional sales load. When Class B shares acquired through the exchange are redeemed, the shareholder will be treated as if no exchange took place for the purpose of determining the contingent deferred sales charge ("CDSC") period and applying the CDSC. Class A, Class B and Class C shares may also be exchanged for shares of the Money Market Fund at net asset values. No CDSC will be imposed at the time of any such exchange of Class B shares; however, the Money Market Fund shares acquired in any such exchange will remain subject to the CDSC otherwise applicable to such Class B shares as of the date of exchange, and the period during which such shares of Money Market Fund are held will not be included in the calculation of the CDSC due at redemption of such Money Market Fund shares or any reacquired Class B shares, except as follows. Securian Financial is currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the event Securian Financial begins to receive any portion of such fee, either (i) the time period during which shares of Money Market Fund acquired in exchange for Class B shares are held will be included in the calculation of the CDSC due at redemption, or (ii) such time period will not be included but the amount of the CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money Market Fund with respect to those shares. Exchanges of shares from Money Market Fund are subject to applicable sales charges of the Advantus Fund being purchased, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gains distributions. Shares of Money Market Fund previously acquired in an exchange for Class A, Class B or Class C shares from any of the Funds may be re-exchanged at relative net asset values for Class A, Class B and Class C shares, respectively, of another Advantus Fund. Class C shares re-acquired in this manner will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at the time of the initial exchange. The exchange privilege is available only in states where such exchanges may legally be made (at the present time the Fund believes this privilege is available in all states). An exchange may be made by written request or by a telephone call, (unless the shareholder has elected on the account application 36 not to have telephone transaction privileges) or by Internet. Up to twelve exchanges each calendar year may be made without charge. A $7.50 service charge will be imposed on each subsequent exchange and/or telephone transfer. No service charge is imposed in connection with systematic exchange plans. However, the Fund reserves the right to restrict the frequency of, or otherwise modify, condition, terminate, or impose additional charges upon, the exchange and/or telephone transfer privileges and/or Internet transactions, upon 60 days' prior notice to shareholders. An exchange is considered to be a sale of shares for federal income tax purposes on which an investor may realize a long- or short-term capital gain or loss. See "Distributions and Tax Status" for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. SYSTEMATIC EXCHANGE PLAN Shareholders of the Fund may elect to have shares of the Fund systematically exchanged for shares of any of the other Advantus Funds on a monthly basis. The minimum amount which may be exchanged on such a systematic basis is $50. The terms and conditions otherwise applicable to exchanges generally, as described above, also apply to such systematic exchange plans. SHAREHOLDER SERVICES OPEN ACCOUNTS A shareholder's investment is automatically credited to an open account maintained for the shareholder by PFPC, the Funds' transfer agent. Stock certificates are not currently issued. Following each transaction in the account, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each year PFPC sends to each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This should be retained as a permanent record. A fee may be charged for providing duplicate information. The open account system provides for full and fractional shares expressed to four decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are paid by each Fund. No direct charges are made to shareholders, the costs of maintaining the open account system are paid by each Fund. No direct charges are made to shareholders, except that the Funds will deduct a $10 annual fee from a shareholder's account in December of each year if the account balance at that time is below $2000. This low balance fee is waived for qualified retirement accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). Although the Funds have no present intention of making additional direct charges to shareholders, they reserve the right to do so. Shareholders will receive prior notice before any such charges are made. AUTOMATIC INVESTMENT PLAN Each Fund provides a convenient, voluntary method of purchasing shares in the Fund through its "Automatic Investment Plan" (the "Plan"). The principal purposes of the Plan are to encourage thrift by enabling you to make regular purchases in amounts less than normally required, and, in the case of each of the Advantus Funds other than Money Market Fund, to employ the principle of dollar cost averaging, described below. By acquiring Fund shares on a regular basis pursuant to the Automatic Investment Plan, or investing regularly on any other systematic plan, the investor takes advantage of the principle of dollar cost averaging. Under dollar cost averaging, if a constant amount is invested at regular intervals at varying price levels, the average cost of all the shares will be lower than the average of the price levels. This is because the same fixed number of dollars buys more shares when price levels are low and fewer shares when price levels are high. There is no guarantee, however, that the automatic investment plan will always result in a lower cost per share compared to other investment programs. It is essential that the investor consider his or her financial ability to continue this investment program during times of market decline as well as market rise. The principle of dollar cost averaging will not protect against loss in a declining market, as a loss will result if the plan is discontinued when the market value is less than cost. 37 A Plan may be opened with an initial investment of $500 and by indicating an intention to invest $50 ($25 for plans established prior to December 2, 2002) or more monthly for at least one year. Investors will receive a confirmation showing the number of shares purchased, purchase price, and subsequent new balance of shares accumulated. An investor has no obligation to invest regularly or to continue the Plan, which may be terminated by the investor at any time without penalty. Under the Plan, any distributions of income and realized capital gains will be reinvested in additional shares at net asset value unless a shareholder instructs the Fund in writing to pay them in cash. The Fund reserves the right to increase or decrease the amount required to open and continue a Plan, and to terminate any Plan after one year if the value of the amount invested is less than $250. GROUP SYSTEMATIC INVESTMENT PLAN This Plan provides employers and employees with a convenient means for purchasing shares of each Fund under various types of employee benefit and thrift plans, including payroll withholding and bonus incentive plans. The Plan may be started with an initial cash investment of $50 per participant for a group consisting of five or more participants. The shares purchased by each participant under the Plan will be held in a separate account in which all dividends and capital gains will be reinvested in additional shares of the Fund at net asset value. To keep his or her account open, subsequent payments totaling $25 per month must be made into each participant's account. If the group is reduced to less than five participants, the minimums set forth under "Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund or the shareholder at any time upon reasonable notice. RETIREMENT PLANS OFFERING TAX BENEFITS The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of any of the Funds. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRA's), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, e.g. 403(b) plans. The initial investment in each Fund by such a plan must be at least $250 for each participant in a plan, and subsequent investments must be at least $25 per month for each participant. Income dividends and capital gain distributions must be reinvested. Plan documents and further information can be obtained from Securian Financial. An investor should consult a competent tax or other adviser as to the suitability of Fund shares as a vehicle for funding a plan, in whole or in part, under the Employee Retirement Income Security Act of 1974 and as to the eligibility requirements for a specific plan and its state as well as federal tax aspects. SYSTEMATIC WITHDRAWAL PLANS An investor owning shares in any one of the Funds having a value of $5,000 or more at the current public offering price may establish a Systematic Withdrawal Plan providing for periodic payments of a fixed or variable amount. Withdrawal payments for Class A shares of the Advantus Multiple Class Funds purchased in amounts of $1 million or more, and for Class B shares of Advantus Multiple Class Funds, may also be subject to a CDSC. As a result, a shareholder should consider whether a Systematic Withdrawal Plan is appropriate. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. The Plan is particularly convenient and useful for trustees in making periodic distributions to retired employees. Through this Plan a trustee can arrange for the retirement benefit to be paid directly to the employee by the respective Fund and to continue the tax-free accumulation of income and capital gains prior to their distribution to the employee. An investor may terminate the Plan at any time. A form for use in establishing such a plan is available from Securian Financial. 38 A shareholder under a Systematic Withdrawal Plan may elect to receive payments monthly, quarterly, semiannually, or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. All shares under the Plan must be left on deposit. Income dividends and capital gain distributions will be reinvested without a sales charge at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the initial investment, particularly in the event of a decline in net asset value. Under this Plan, any distributions of income and realized capital gains must be reinvested in additional shares, and are reinvested at net asset value. If a shareholder wishes to purchase additional shares of the respective Fund under this Plan, other than by reinvestment of distributions, it should be understood that, in the case of Class A shares, he or she would be paying a sales commission on such purchases, while liquidations effected under the Plan would be at net asset value, and, in the case of Class B shares, he or she would be purchasing such shares at net asset value while liquidations effected under the Plan would involve the payment of a contingent deferred sales charge. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. Additions to a shareholder account in which an election has been made to receive systematic withdrawals will be accepted only if each such addition is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. A shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic Investment Plan" in effect simultaneously as it is not, as explained above, advantageous to do so. REDEMPTIONS Registered holders of shares of the Funds may redeem their shares at the per share net asset value ("NAV") next determined following receipt by PFPC (at its mailing address listed on the cover page) of a written redemption request signed by all shareholders exactly as the account is registered (and a properly endorsed stock certificate if one has been issued). A sale order received by PFPC from a financial services firm after NAV is determined that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Class C shares may be redeemed without charge. A contingent deferred sales charge may be applicable upon redemption of certain Class A shares and Class B shares. Both share certificates and stock powers, if any, tendered in redemption must be endorsed and executed exactly as the Fund shares are registered. Any certificates should be sent to the Fund by certified mail. Payment will be made as soon as possible, but generally not later than seven days after receipt of a properly executed written redemption request (and any certificates). Sales proceeds from shares purchased by check or bank draft, other than checks from government agencies, will not be available until the check or draft clears the purchaser's bank, which may take up to fifteen days after purchase. The amount received by the shareholder may be more or less than the shares' original cost. If stock certificates have not been issued, and if no signature guarantee is required, shareholders may also submit their signed written redemption request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is (508) 871-9960. Each Fund will pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. When redemption requests exceed such amount, however, the Fund reserves the right to make part or all of the payment in the form of securities or other assets of the Fund. An example of when this might be done is in case of emergency, such as in those situations enumerated in the following paragraph, or at any time a cash distribution would impair the liquidity of the Fund to the detriment of the existing shareholders. Any securities being so distributed would be valued in the same manner as the portfolio of the Fund 39 is valued. If the recipient sold such securities, he or she probably would incur brokerage charges. Each Fund has filed with the Securities and Exchange Commission a notification of election pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make such redemptions in kind. Redemption of shares, or payment, may be suspended at times (a) when the New York Stock Exchange is closed for other than customary weekend or holiday closings, (b) when trading on said Exchange is restricted, (c) when an emergency exists, as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the SEC, by order, so permits; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions prescribed in (b) or (c) exist. MEDALLION SIGNATURE GUARANTEE In order to protect both shareholders and the Funds against fraudulent orders, a medallion shareholder signature guarantee is required in certain cases. No signature guarantee is required if the redemption proceeds are less than $50,000 and are to be paid to the registered holder and sent to the address of record for that account, or if the written redemption request is from pre-authorized trustees of plans, trusts and other tax-exempt organizations and the redemption proceeds are less than $50,000. A medallion signature guarantee is required, however, if (i) the redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to be paid to someone other than the registered holder, (iii) the redemption proceeds are to be mailed to an address other than the registered shareholder's address, (iv) within the 30-day period prior to receipt of the redemption request, instructions have been received to change the shareholder's address of record, or, in the case of redemptions to be paid by wire, instructions have been received within such period to change the shareholder's bank wire instructions, (v) the shares are requested to be transferred to the account of another owner, or (vi) in the case of plans, trusts, or other tax-exempt organizations, the redemption request is not from a pre-authorized trustee. The Fund reserves the right to require signature guarantees on all redemptions. A signature guarantee must be a "medallion" signature guarantee provided by a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are: - - Securities Transfer Agents Medallion Program (STAMP) - - Stock Exchanges Medallion Program (SEMP) - - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP) Signature guarantees from financial institutions which are not participants in a recognized medallion program will not be accepted. CONTINGENT DEFERRED SALES CHARGE The CDSC applicable upon redemption of Class A shares purchased in amounts of $1 million or more and Class B shares will be calculated on an amount equal to the lesser of the net asset value of the shares at the time of purchase or their net asset value at the time of redemption. No charge will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions or on shares held for longer than the applicable CDSC period. See "Sales Charges - Class B Shares" above. In determining whether a CDSC is payable with respect to any redemption of Class B shares, the calculation will be determined in the manner that results in the lowest rate being charged. 40 The CDSC does not apply to: (1) redemption of Class B shares in connection with the automatic conversion to Class A shares; (2) redemption of shares when a Fund exercises its right to liquidate accounts which are less than the minimum account size; (3) redemptions in the event of the death or disability of the shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code; and (4) in connection with Class B shares redeemed pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares equal in amount to 12% of the value of a shareholder's account in a Fund at the time the Systematic Withdrawal Plan is established. The CDSC will also not apply to certain exchanges. See "Exchange and Transfer of Fund Shares," above. TELEPHONE REDEMPTION The Funds' shareholders have this privilege automatically, unless they have elected on the account application not to have such privilege, and may redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see "Telephone Transactions"). A telephone redemption request will not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30-day period prior to receipt of the redemption request. The maximum amount which may be redeemed by telephone is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. INTERNET REDEMPTION The Funds' shareholders may elect to perform certain transactions via the Internet. In order to do so, the shareholder must first authorize the Fund to transmit information on-line and agree to the Funds' web site procedures. Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more information on how to enable an account. Internet transactions may not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30 day period prior to receipt of the redemption request. The maximum amount which may be redeemed by internet is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. DELAY IN PAYMENT OF REDEMPTION PROCEEDS Payment of redemption proceeds will ordinarily be made as soon as possible and within the periods of time described above. However, an exception to this is that if redemption is requested after a purchase by check or bank draft, other than checks from government agencies, the Fund will delay mailing the redemption check or wiring proceeds until it has reasonable assurance that the purchase check has cleared (good payment has been collected). This delay may be up to 15 days from the purchase date. FUND'S RIGHT TO REDEEM SMALL ACCOUNTS Each Fund has the right to redeem the shares in small accounts which, for any reason, have a total current value of less than $150 in 2002, or $500 in subsequent years. The Funds usually make this determination in December of each year. Before redeeming an account, the Fund will mail to the shareholder a written notice of its intention to redeem, which will give the investor an opportunity to make an additional investment. If no additional investment is received by the Fund within 60 days of the date the notice was mailed, the shareholder's account will be redeemed. REINSTATEMENT PRIVILEGE The Prospectus for the Funds describes redeeming shareholders' reinstatement privileges in "Buying and Selling Shares" in the Funds' Prospectus. Written notice from persons wishing to exercise this reinstatement privilege must be received by Securian Financial within 90 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. All shares issued as a result of the reinstatement privilege applicable to redemptions of Class A and Class B shares will be issued only as Class A shares. Any CDSC incurred in connection with the prior redemption (within 90 days) of Class B shares will not be refunded or re-credited to the shareholder's account. Shareholders who redeem Class C shares and exercise their reinstatement privilege will be issued only Class C shares, which shares will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at redemption. See "Distributions and Tax Status" below for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. Should an investor utilize the reinstatement privilege following a redemption which resulted in a 41 loss, all or a portion of that loss might not be currently deductible for Federal income tax purposes, for an investor which is not tax-exempt. Exercising the reinstatement privilege would not alter any capital gains taxes payable on a realized gain, for an investor which is not tax-exempt. See discussion under "Distributions and Tax Status" below regarding the taxation of capital gains. TELEPHONE TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's shares by telephone. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions by telephone is made available automatically unless the shareholder elects on the account application not to have such privilege. Shareholders, or persons authorized by shareholders, may initiate telephone transactions by telephoning Advantus Shareholder Services, toll free, at at (800) 665-6005. Automated service is available 24 hours a day, and service representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m. (Central Time). Telephone transaction requests received after 3:00 p.m. (Central Time) will be treated as received the next business day. The maximum amount which may be redeemed by telephone is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing a telephone exchange or redemption due to a heavy volume of telephone calls. In such a circumstance, shareholders should consider submitting a written request as an alternative to a telephone exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the telephone exchange and redemption privileges upon 60 days' prior notice to shareholders. A Fund will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated by telephone are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing telephone transactions include tape recording of telephone instructions, asking shareholders for their account number and a personal identifying number, and providing written confirmation of such transactions. INTERNET TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's share via the Internet. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions via Internet requires that a shareholder contact Advantus at (800) 665-6005 to enable their account. Shareholders, or persons authorized by shareholders, may initiate Internet transactions by going to the Advantus Funds web site, www.advantusfunds.com. Automated service is generally available 24 hours a day. Internet transaction requests received after 3:00 p.m. (Central time) will be treated as received the next business day. The maximum amount which may be redeemed via Internet is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing an on-line exchange or redemption due to a heavy volume. In such a circumstance, shareholders should consider submitting a written request as an alternative to an on-line exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the Internet on-line exchange and redemption privileges upon 60 days' prior notice to shareholders. A Fund will not be liable for following instructions communicated by Internet which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated via the Internet are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing Internet transactions include requiring shareholders to contact Advantus in order to establish their on-line account, asking shareholders for their account number and a personal identifying number, providing a confirmation number on-screen, at the completion of an on-line transaction, and providing written confirmation of such transactions. THE STANDARD & POOR'S LICENSE Standard & Poor's ("S&P") is a division of The McGraw-Hill Companies, Inc. S&P has trademark rights to the marks "Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's 500" and "500" and has licensed the use of such marks by the Index Fund. Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the owners of the Index Fund or any member of the public regarding the advisability of investing in securities generally or in the Index Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Index Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Index Fund or the owners of the Fund into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the net asset value or public offering price of the Index Fund nor is S&P a distributor of the Fund. S&P has no obligation or liability in connection with the administration, marketing or trading of the Index Fund. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE 42 OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. DISTRIBUTIONS AND TAX STATUS DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS The policy of the Funds has been to pay dividends from net investment income quarterly. Any net realized capital gains are generally distributed once a year, during December. Distributions paid by the Funds, if any, with respect to Class A, Class B and Class C shares will be calculated in the same manner, at the same time, on the same day and will be in the same amount, except that the higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne exclusively by such shares. The per share distributions on Class B and Class C shares will be lower than the per share distributions on Class A shares as a result of the higher Rule 12b-1 fees applicable to Class B and Class C shares. Any dividend payments or net capital gains distributions made by the Funds are in the form of additional shares of the same class of the Fund rather than in cash, unless a shareholder specifically requests the Fund in writing that the payment be made in cash. The distribution of these shares is made at net asset value on the payment date of the dividend, without any sales or other charges to the shareholder. The taxable status of income dividends and/or net capital gains distributions is not affected by whether they are reinvested or paid in cash. Authorization to pay dividends in cash may be made on the application form, or at any time by letter. Upon written request to a Fund, a shareholder may also elect to have dividends from the Fund invested without sales charge in shares of Advantus Money Market Fund or shares of the same class of another of the Advantus Funds at the net asset value of such other Fund on the payable date for the dividends being distributed. To use this privilege of investing dividends from a Fund in shares of another of the Funds, shareholders must maintain a minimum account value of $500 in both the Fund paying the dividends and the other Fund in which dividends are reinvested. TAXATION - GENERAL The following is a general summary of certain federal tax considerations affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Funds or their shareholders, and the discussion here is not intended as a substitute for careful tax planning. During the year ended July 31, 2002 each Fund fulfilled, and intends to continue to fulfill, the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company. If so qualified, each Fund will not be liable for federal income taxes to the extent it distributes its taxable income to its shareholders. Distributions of investment company taxable income from a Fund generally will be taxable to shareholders as ordinary income, regardless of whether such distributions are paid in cash or are invested in additional shares of the Fund's stock. A distribution of net capital gain (a "capital gain distribution"), whether paid in cash or reinvested in shares, generally is taxable to shareholders as long-term capital gain, regardless of the length of time a shareholder has held his or her shares or whether such gain was realized by the Fund before the shareholder acquired such shares and was reflected in the price paid for the shares. Long-term capital gains of individuals are taxed at a maximum rate of 20%, and the highest marginal regular tax rates on ordinary income for individuals is 39.6%. Some or all of the dividend distributions from each Fund are expected to qualify for the 70% dividend received deduction for corporations, except that dividend distributions from the Real Estate Securities Fund attributable to dividends that the Fund receives from REITs will not qualify for such dividend received deduction for corporations. Prior to purchasing shares of a Fund, prospective shareholders (except for tax qualified retirement plans) should consider the impact of dividends or 43 capital gains distributions which are expected to be announced, or have been announced but not paid. Any such dividends or capital gains distributions paid shortly after a purchase of shares by an investor prior to the record date will have the effect of reducing the per share net asset value by the amount of the dividends or distributions. All or a portion of such dividends or distributions, although in effect a return of capital, is subject to taxation. The Code provides that a shareholder who pays a sales charge in acquiring shares of a mutual fund, redeems those shares within 90 days after acquiring them, and subsequently acquires new shares in any mutual fund for a reduced sales charge or no sales charge (pursuant to a reinvestment right acquired with the first shares), may not take into account the sales charge imposed on the first acquisition, to the extent of the reduction in the sales charge on the second acquisition, for purposes of computing gain or loss on disposition of the first acquired shares. The amount of sales charge disregarded under this rule will, however, be treated as incurred in connection with the acquisition of the second acquired shares. Shareholders of the Funds receive an annual statement detailing federal tax information. Distributions by the Funds, including the amount of any redemption, are reported to shareholders in such annual statement and to the Internal Revenue Service to the extent required by the Code. The Funds are required by federal law to withhold 31% of reportable payments (including dividends, capital gain distributions, and redemptions) paid to certain accounts whose owners have not complied with IRS regulations. In order to avoid this backup withholding requirement, each shareholder will be asked to certify on the shareholder's account application that the social security or taxpayer identification number provided is correct and that the shareholder is not subject to backup withholding for previous underreporting to the IRS. Some of the investment practices that may be employed by the Funds will be subject to special provisions that, among other things, may defer the use of certain losses of such Funds, affect the holding period of the securities held by the Funds and affect the character of the gains or losses realized. These provisions may also require the Funds to mark-to-market some of the positions in their respective portfolios (i.e., treat them as closed out) or to accrue original discount, both of which may cause such Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for qualification as a regulated investment company and for avoiding income and excise taxes. Accordingly, in order to make the required distributions, a Fund may be required to borrow or liquidate securities. Each Fund will monitor its transactions and may make certain elections in order to mitigate the effect of these rules and prevent disqualification of the Funds as regulated investment companies. The Real Estate Securities Fund may invest in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by them with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions) and (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on some income. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year thatis allocable to the disqualified organization, multiplied by the highest Federal income tax rate imposed on corporations. 44 Each Fund is subject to a non-deductible excise tax equal to 4 percent of the excess, if any, of the amount required to be distributed pursuant to the Code for each calendar year over the amount actually distributed. In order to avoid the imposition of this excise tax, the Fund generally must declare dividends by the end of a calendar year representing 98 percent of the Fund's ordinary income for the calendar year and 98 percent of its capital gain net income (both long-term and short-term capital gains) for the twelve-month period ending October 31 of the calendar year. The foregoing relates only to federal taxation. Prospective shareholders should consult their tax advisers as to the possible application of state and local income tax laws to ownership of Fund shares. FINANCIAL STATEMENTS Each Fund's financial statements for the fiscal year ended July 31, 2002, including the financial highlights for each of the respective periods presented, appearing in the Funds' Annual Report to Shareholders, and the report thereon of such Fund's independent auditors, KPMG LLP, also appearing therein, are incorporated by reference in this Statement of Additional Information. 45 APPENDIX A BOND AND COMMERCIAL PAPER RATINGS BOND RATINGS Moody's Investors Service, Inc. describes its six highest ratings for corporate bonds and mortgage-related securities as follows: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3, in each of these generic rating classifications. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's Corporation describes its six highest ratings for corporate bonds and mortgage-related securities as follows: AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. A-1 BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB. Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B. Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. Standard & Poor's Corporation applies indicators "+", no character, and "-" to the above rating categories. The indicators show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. Among the factors considered by Moody's Investors Service, Inc. in assigning the ratings are the following: (1) evaluation of the management of the issuer, (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; an (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. The rating A-1 is the highest rating assigned by Standard & Poor's Corporation to commercial paper which is considered by Standard & Poor's Corporation to have the following characteristics: Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. A-2 APPENDIX B - FUTURES CONTRACTS EXAMPLE OF FUTURES CONTRACT SALE The Fund would engage in a futures contract sale to maintain the income advantage from continued holding of a long-term security while endeavoring to avoid part or all of the loss in market value that would otherwise accompany a decline in long-term securities prices. Assume that the market value of a certain security in the Fund's portfolio tends to move in concert with the futures market prices of long-term United States Treasury bonds ("Treasury bonds"). The Fund wishes to fix the current market value of this portfolio security until some point in the future. Assume the portfolio security has a market value of $100, and the Fund believes that, because of an anticipated rise in interest rates, the value will decline to $95. The Fund might enter into futures contract sales of Treasury bonds for a price of $98. If the market value of the portfolio security does indeed decline from $100 to $95, the futures market price for the Treasury bonds might also decline from $98 to $93. In that case, the $5 loss in the market value of the portfolio security would be offset by the $5 gain realized by closing out the futures contract sale. Of course, the futures market price of Treasury bonds might decline to more than $93 or to less than $93 because of the imperfect correlation between cash and futures prices mentioned above. The Fund could be wrong in its forecast of interest rates and the futures market price could rise above $98. In this case, the market value of the portfolio securities, including the portfolio security being protected, would increase. The benefit of this increase would be reduced by the loss realized on closing out the futures contract sale. If interest rate levels did not change prior to settlement date, the Fund, in the above example, would incur a loss of $2 if it delivered the portfolio security on the settlement date (which loss might be reduced by an offsetting transaction prior to the settlement date). In each transaction, nominal transaction expenses would also be incurred. EXAMPLE OF FUTURES CONTRACT PURCHASE The Fund would engage in a futures contract purchase when it is not fully invested in long-term securities but wishes to defer for a time the purchase of long-term securities in light of the availability of advantageous interim investments, e.g., short-term securities whose yields are greater than those available on long-term securities. The Fund's basic motivation would be to maintain for a time the income advantage from investing in the short-term securities; the Fund would be endeavoring at the same time to eliminate the effect of all or part of the increases in market price of the long-term securities that the Fund may purchase. For example, assume that the market price of a long-term security that the Fund may purchase, currently yielding 10%, tends to move in concert with futures market prices of Treasury bonds. The Fund wishes to fix the current market price (and thus 10% yield) of the long-term security until the time (four months away in this example) when it may purchase the security. Assuming the long-term security has a market price of $100, and the Fund believes that, because of an anticipated fall in interest rates, the price will have risen to $105 (and the yield will have dropped to about 9-1/2%) in four months, the Fund might enter into futures contracts purchases of Treasury bonds for a price of $98. At the same time, the Fund would assign a pool of investments in short-term securities that are either maturing in four months or earmarked for sale in four months, for purchase of the long-term security at an assumed market price of $100. Assume these short-term securities are yielding 15%. If the market price of the long-term bond does indeed rise from $100 to $105, the futures market price for Treasury bonds might also rise from $98 to $103. In that case, the $5 increase in the price that the Fund pays for the long-term security would be offset by the $5 gain realized by closing out the futures contract purchase. The Fund could be wrong in its forecast of interest rates; long-term interest rates might rise to above 10%, and the futures market price could fall below $98. If short-term rates at the same time fall to 10% or below, it is possible that the Fund would continue with its purchase program for long-term securities. The market prices of available long-term securities would have decreased. The benefit of this price decrease, and thus yield increase, will be reduced by the loss realized on closing out the futures contract purchase. If, however, short-term rates remained above available long-term rates, it is possible that the Fund would discontinue its purchase program for long-term securities. The yields on short-term securities in the portfolio, including those originally in the pool assigned to the particular long-term security, would remain higher than yields on long-term bonds. The benefit of this continued incremental income will be reduced by the loss realized on closing out the futures contract purchase. In each transaction, nominal transaction expenses would also be incurred. TAX TREATMENT The amount of any gain or loss realized by the Fund on closing out a futures contract may result in a capital gain or loss for federal income tax purposes. Generally, futures contracts held by the Fund at the close of the Fund's taxable year will be treated for federal income tax purposes as sold for their fair market value on the last business day of such year. Forty percent of any gain or loss resulting from such constructive sale will be treated as short-term capital gain or loss and 60 percent of such gain or loss will be treated as long-term capital gain or loss. The amount of any capital gain or loss actually realized by the Fund in a subsequent sale or other disposition of these futures contracts will be adjusted to reflect any capital gain or loss taken into account by the Fund in a prior year as a result of the constructive sale of the contract. Notwithstanding the rules described above, with respect to futures contracts which are part of futures contract sales, and in certain other situations, the Fund may make an election which may have the effect of exempting all or a part of those identified future contracts from being treated for federal income tax purposes as sold on the last business day of the Fund's taxable year; all or part of any gain or loss otherwise realized by the Fund on any closing transaction may be deferred until all of the Fund's positions with respect to the futures contract sales are closed; and, all or part of any gain or loss may be treated as short-term capital gain or loss. Under the Federal income tax provisions applicable to regulated investment companies, at least 90% of the Fund's annual gross income must be derived from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of securities ("qualifying income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include gains from forward contracts in determining qualifying income. In addition, in order that the Fund continue to qualify as a regulated investment company for Federal income tax purposes, less than 30% of its gross income for any year must be derived from gains realized on the sale or other disposition of securities held by the Fund for less than three months. For this purpose, the Fund will treat gains realized on the closing out of futures contracts as gains derived from the sale of securities. This treatment could, under certain circumstances, require the Fund to defer the closing out of futures contracts until after three months from the date the fund acquired the contracts, even if it would be more advantageous to close out the contracts prior to that time. However, under the Code, a special rule is provided with respect to certain hedging transactions which has the effect of allowing the Fund to engage in such short-term transactions in limited circumstances. Any gains realized by the Fund as a result of the constructive sales of futures contacts held by the Fund at the end of its taxable year, as described in the preceding paragraph, will in all instances be treated as derived from the sale of securities held for three months or more, regardless of the actual period for which the Fund has held the futures contracts at the end of the year. EX-99.(17)(T) 25 c78747exv99wx17yxty.txt EX-(17)(T)ADVANTUS EQUITY FUNDS SAI SUPP.- 5/1/03 Exhibit (17)(t) STATEMENT OF ADDITIONAL INFORMATION ADVANTUS CORNERSTONE FUND, INC. ADVANTUS ENTERPRISE FUND, INC. ADVANTUS HORIZON FUND, INC. ADVANTUS INDEX 500 FUND, INC. ADVANTUS REAL ESTATE SECURITIES FUND, INC. ADVANTUS VENTURE FUND, INC. November 29, 2002, as supplemented May 1, 2003 This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the separate Prospectus dated November 29, 2002 and supplemented April 24, 2003 and should be read in conjunction therewith. The Funds' audited Annual Report dated July 31, 2002, which either accompanies this Statement of Additional Information or has previously been provided to the investor to whom this Statement of Additional Information is being sent, is incorporated herein by reference. A copy of the Prospectus and Annual Report may be obtained by telephone from Advantus Shareholder Services at (800) 665-6005 or by writing to the Funds at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. 1 TABLE OF CONTENTS GENERAL INFORMATION AND HISTORY INVESTMENT OBJECTIVES AND POLICIES Fund Names and Investment Policies Equity Securities of Small Capitalization Companies S&P 500 Index Real Estate Investment Trust Securities Debt and Money Market Securities Low Rated Securities Convertible Securities Foreign Securities Futures Contracts and Options on Futures Contracts Options U.S. Government Obligations Obligations of Non-Domestic Banks Short Sales Against the Box Loans of Portfolio Securities Restricted and Illiquid Securities Repurchase Agreements Warrants Index Depositary Receipts When-Issued Securities and Forward Commitments Defensive Purposes INVESTMENT RESTRICTIONS Fundamental Restrictions Non-Fundamental Restrictions PORTFOLIO TURNOVER DIRECTORS AND EXECUTIVE OFFICERS DIRECTOR LIABILITY INVESTMENT ADVISORY AND OTHER SERVICES General Control and Management of Advantus Capital and Securian Financial Control and Management of WRIICO Investment Advisory Agreement with Advantus Capital Investment Advisory Agreement with WRIICO The Funds' Investment Advisory Fees Enterprise Fund Sub-Advisor -- CSAM Enterprise Fund Investment Sub-Advisory Agreement -- CSAM Venture Fund Sub-Adviser -- State Street Venture Fund Investment Sub-Advisory Agreement -- State Street Annual Approval of Advisory and Sub-Advisory Agreements Approval of the Interim Agreement Code of Ethics Distribution Agreement Payment of Certain Distribution Expenses of the Funds Transfer Agent and Administrative Services PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE The Investment Advisers' Brokerage Practices Sub-Advisers' Brokerage Practices CALCULATION OF PERFORMANCE DATA CAPITAL STOCK AND OWNERSHIP OF SHARES HOW TO BUY SHARES Alternative Purchase Arrangements Purchase by Check Purchase by Wire Purchase by Internet Timing of Purchase Orders Minimum Investments Public Offering Price SALES CHARGES Class A Shares Class B Shares Class C Shares Other Payments to Broker-Dealers NET ASSET VALUE AND PUBLIC OFFERING PRICE REDUCED SALES CHARGES Right of Accumulation-Cumulative Purchase Discount Letter of Intent Combining Purchases Group Purchases Waiver of Sales Charges For Certain Sales of Class A Shares EXCHANGE AND TRANSFER OF FUND SHARES Systematic Exchange Plan SHAREHOLDER SERVICES Open Accounts Automatic Investment Plan Group Systematic Investment Plan Retirement Plans Offering Tax Benefits Systematic Withdrawal Plans REDEMPTIONS Medallion Signature Guarantee Contingent Deferred Sales Charge Telephone Redemption Internet Redemptions Delay in Payment of Redemption Proceeds Fund's Right to Redeem Small Accounts Reinstatement Privilege TELEPHONE TRANSACTIONS INTERNET TRANSACTIONS THE STANDARD & POOR'S LICENSE DISTRIBUTIONS AND TAX STATUS Dividends and Capital Gains Distributions Taxation - General Taxation on Portfolio Holdings FINANCIAL STATEMENTS Appendix A - Bond and Commercial Paper Ratings Bond Ratings Commercial Paper Ratings Appendix B - Futures Contracts Example of Futures Contract Sale Example of Futures Contract Purchase Tax Treatment 2 GENERAL INFORMATION AND HISTORY Advantus Cornerstone Fund, Inc. ("Cornerstone Fund"), Advantus Enterprise Fund, Inc. ("Enterprise Fund"), Advantus Horizon Fund, Inc. ("Horizon Fund"), Advantus Index 500 Fund, Inc. ("Index Fund"), Advantus Real Estate Securities Fund, Inc. ("Real Estate Securities Fund") and Advantus Venture Fund, Inc. ("Venture Fund"), collectively referred to as the "Funds," are open-end diversified investment companies, commonly called mutual funds. The Funds, together with Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., Advantus Spectrum Fund, Inc. and Advantus Series Fund, Inc. are members of a family of mutual funds known as the "Advantus Funds." Each of the Advantus Funds, excluding Advantus Money Market Fund, Inc. and Advantus Series Fund, Inc., offers more than one class of shares (the "Advantus Multiple Class Funds"). The Advantus Multiple Class Funds currently offer three classes of shares (Class A, Class B and Class C), except for Real Estate Securities Fund which currently offers two classes of shares (Class A and Class B). Each class is sold pursuant to different sales arrangements and bears different expenses. Horizon Fund was incorporated as a Minnesota corporation in October 1984. Cornerstone and Enterprise Funds were incorporated as Minnesota corporations in January 1994. The Venture and Index Funds were incorporated as Minnesota corporations in July 1996. The Real Estate Securities Fund was incorporated as a Minnesota corporation in September 1998. INVESTMENT OBJECTIVES AND POLICIES The investment objectives and principal investment policies of each of the Funds are set forth in detail in the text of the Funds' Prospectus under "Investing in the Funds --Investment Policies and Practices." FUND NAMES AND INVESTMENT POLICIES Real Estate Securities Fund and Index Fund have names that suggest a focus on a particular type of investment or index. In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the "1940 Act"), each of those Funds has adopted a policy that it will, under normal circumstances, invest at least 80% of its assets in investments of the type suggested by its name. For this policy, "assets" means net assets plus the amount of any borrowings for investment purposes. In addition, in appropriate circumstances, synthetic investments may be included in the 80% basket if they have economic characteristics similar to the other investments included in the basket. A Fund's policy to invest at least 80% of its assets in such a manner is not a "fundamental" one, which means that it may be changed without the vote of a majority of the Fund's outstanding shares as defined in the 1940 Act. However, the names of Real Estate Securities Fund and Index Fund may be changed only if shareholders of each Fund vote to approve a new name by amending such Fund's articles of incorporation. Such a change requires the vote of a majority of the shares of the Fund represented, in person or by proxy, at a meeting of shareholders called for the purpose of voting on such a proposal. Rule 35d-1 also requires that shareholders be given written notice at least 60 days prior to any change by a Fund of its 80% investment policy. EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES Enterprise Fund and Venture Fund will invest primarily in equity securities issued by small capitalization companies. To the extent specified in the Prospectus, other Funds may also invest in such securities. Small capitalization companies may be in a relatively early stage of development or may produce goods and services which have favorable prospects for growth due to increasing demand or developing markets. Frequently, such companies have a small management group and single product or product-line expertise that may result in an enhanced entrepreneurial spirit and greater focus which allow such firms to be successful. The Fund's investment sub-adviser believes that such companies may develop into significant business enterprises and that an investment in such companies offers a greater opportunity for capital appreciation than an investment in larger more established entities. However, small capitalization companies frequently retain a large part of their earnings for research, development and investment in capital assets, so that the prospects for immediate dividend income are limited. While securities issued by smaller capitalization companies have historically produced better market results than the securities of larger issuers, there is no assurance that they will continue to do so or that the Fund will invest specifically in those companies which produce those results. Because of the risks involved, the Fund is not intended to constitute a complete investment program. S&P 500 INDEX Index Fund invests in common stocks included in the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). The S&P 500 is an unmanaged index of common stocks which emphasizes large capitalization companies and is comprised of 500 industrial, financial, utility and transportation companies. The S&P 500 is a well-known stock market index that includes common stocks of companies representing approximately 70% of the market value of all common stocks publicly traded in the United States. The weightings of stock in the S&P 500 are based on each stock's relative capitalization or total market value; that is, its market price per share times the number of shares outstanding. Because of this weighting, approximately 50% of the S&P 500 is typically composed of stocks of the 50 to 60 largest companies in the S&P 500. The composition of the S&P 500 may be changed from time to time. Stocks included in the S&P 500 are chosen by Standard & Poor's on a statistical basis which reflects such factors as the market capitalization and trading activity of each stock and the extent to which each stock is representative of stocks in a particular industry. Typically, companies included in the S&P 500 are the largest and most dominant companies in their respective industries. The inclusion of a stock in the S&P 500 in no way implies that Standard & Poor's believes the stock to be an attractive investment, nor does it afford any assurance against declines in the price or yield performance of that stock. The Fund's investment adviser believes that the performance of the S&P 500 is representative of the performance of publicly traded common stocks in general. 3 The Fund will at all times invest at least 80% of its total assets in common stocks included in the S&P 500. There is no minimum or maximum number of stocks included in the S&P 500 which the Fund must hold. Under normal circumstances Advantus Capital generally will seek to match the Fund to the composition of the S&P 500 to the maximum extent, but may not always invest the Fund's portfolio to mirror the S&P 500 exactly. Because of the difficulty and expense of executing relatively small stock transactions, the Fund may not always be invested in the less heavily weighted stocks included in the S&P 500, and may at times have its portfolio weighted differently from the S&P 500, particularly when the Fund has assets of less than $25 million. Regardless of the number, or relative weightings, of stocks included in the S&P 500 held by the Fund, however, the Fund's intention is to seek investment results, before sales charges and other Fund expenses, which match as closely as possible the investment performance of the S&P 500. Over the long term, the Fund's investment adviser will seek a correlation between the performance of the Fund, before sales charges and other Fund expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's assets are less than $25 million). A correlation of 100% would indicate perfect correlation, which would be achieved when the net asset value of the Fund, including the value of its dividend and capital gains distributions, increased or decreased in exact proportion to changes in the S&P 500. An investment in shares of the Fund therefore involves risks similar to those of investing in a portfolio consisting of the common stocks of some or all of the companies included in the S&P 500. REAL ESTATE INVESTMENT TRUST SECURITIES The Cornerstone, Horizon and Real Estate Securities Funds may invest in securities issued by real estate investment trusts. A real estate investment trust ("REIT") is a corporation or a business trust that would otherwise be taxed as a corporation, which meets certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying REIT to deduct dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. In order to qualify as a REIT, a company must derive at least 75% of its gross income from real estate sources (rents, mortgage interest, and gains from sale of real estate assets), and must distribute to shareholders annually 95% or more of its taxable income. Moreover, at the end of each quarter of its taxable year, at least 75% of the value of its total assets must be represented by real estate assets, cash and cash items, and U.S. government securities. REITs are sometimes informally characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income. A mortgage REIT invests primarily in mortgages on real estate, and derives primarily from interest payments received on credit it has granted. A hybrid REIT combines the characteristics of equity REITs and mortgage REITs. It is anticipated, although not required, that under normal circumstances, a majority of the Fund investments in REITs will consist of equity REITs. DEBT AND MONEY MARKET SECURITIES Cornerstone, Enterprise, Horizon, Real Estate Securities and Venture Funds may invest in long, intermediate and short-term debt securities from various industry classifications and money market instruments. Index Fund may invest in short-term fixed income securities. Such instruments in which the Funds may invest include the following: * Corporate obligations which at the time of purchase are rated within the four highest grades assigned by Standard & Poor's Corporation ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other national rating service, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser or sub-adviser, as the case may be. To the extent that the Fund invests in securities rated BBB or Baa by S&P or Moody's, respectively, it will be investing in securities which have speculative elements. Venture Fund may also invest up to 10% of its net assets in securities (including convertible securities) rated at least B- by S&P or B3 by Moody's. See "Low Rated Securities," below. For a description of the ratings used by Moody's and S&P, see Appendix A below. * Obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. * Debt obligations of banks. 4 In addition to the instruments described above, which will generally be long-term, but may be purchased by the Fund within one year of the date of a security's maturity, the Fund may also purchase other high quality securities including: * Obligations (including certificates of deposit and bankers' acceptances) of U.S. banks, savings and loan associations, savings banks which have total assets (as of the date of their most recent annual financial statements at the time of investment) of not less than $2,000,000,000; U.S. dollar denominated obligations of Canadian chartered banks, London branches of U.S. banks and U.S. branches or agencies of foreign banks which meet the above-stated asset size; and obligations of any U.S. banks, savings and loan associations and savings banks, regardless of the amount of their total assets, provided that the amount of the obligations purchased does not exceed $100,000 for any one U.S. bank, savings and loan association or savings bank and the payment of the principal is insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. * Obligations of the International Bank for Reconstruction and Development. * Commercial paper (including variable amount master demand notes) issued by U.S. corporations or affiliated foreign corporations and rated (or guaranteed by a company whose commercial paper is rated) at the date of investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either Moody's or S&P, issued by a corporation having an outstanding debt issue rated Aa or better by Moody's or AA or better by S&P and, if issued by an affiliated foreign corporation, such commercial paper (not to exceed in the aggregate 10% of the Fund's net assets) is U.S. dollar denominated and not subject at the time of purchase to foreign tax withholding. The Fund may also invest in securities which are unrated if the Fund's investment adviser or sub-adviser, as the case may be, determines that such securities are of equivalent investment quality to the rated securities described above. In the case of "split-rated" securities, which result when nationally-recognized rating agencies rate the security at different rating levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy to classify such securities at the higher rating level where, in the judgment of the Fund's investment adviser, such classification reasonably reflects the security's quality and risk. The market value of debt securities generally varies in response to changes in interest rates and the financial condition of each issuer. During periods of declining interest rates, the value of debt securities generally increases. Conversely, during periods of rising interest rates, the value of such securities generally declines. These changes in market value will be reflected in the Fund's net asset value. The Fund may, however, acquire debt securities which, after acquisition, are down-graded by the rating agencies to a rating which is lower than the applicable minimum rating described above. In such an event it is the Fund's general policy to dispose of such down-graded securities except when, in the judgment of the Fund's investment adviser, it is to the Fund's advantage to continue to hold such securities. In no event, however, will the Fund hold in excess of 5% of its net assets in securities which have been down-graded subsequent to purchase where such down-graded securities are not otherwise eligible for purchase by the Fund. This 5% is in addition to securities which the Fund may otherwise purchase under its usual investment policies. LOW RATED SECURITIES Cornerstone Fund and Venture Fund may also invest up to 10% of their respective net assets in debt securities (including convertible debt securities), which, at the time of acquisition, are rated at least B- or B3 by S&P or Moody's, respectively, or rated at a comparable level by another independent publicly-recognized rating agency, or, if not rated, are of equivalent investment quality as determined by the Fund's investment adviser. Cornerstone Fund, Real Estate Securities Fund and Venture Fund may each also hold an additional 5% of its net assets in low rated securities rated below "investment grade" (i.e. below BBB) where such securities were either investment grade or eligible securities at the time of purchase but subsequently down-graded to a rating not otherwise 5 eligible for purchase by the Fund (see "Debt and Money Market Securities" above). Debt securities rated below the four highest categories (i.e., below BBB) are not considered investment grade obligations and are commonly called "junk bonds." These securities are predominately speculative and present more credit risk than investment grade obligations. Bonds rated below BBB are also regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Low rated and unrated debt securities generally involve greater volatility of price and risk of principal and income, including the possibility of default by, or bankruptcy of, the issuers of the securities. In addition, the markets in which low rated and unrated debt securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets for particular securities may diminish the Fund's ability to sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in the financial markets and could adversely affect and cause fluctuations in the daily net asset value of the Funds' shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low rated debt securities, especially in a thinly traded market. Analysis of the creditworthiness of issuers of low rated debt securities may be more complex than for issuers of higher rated securities, and the ability of the Fund to achieve its investment objective may, to the extent of investment in low rated debt securities, be more dependent upon such creditworthiness analysis than would be the case if the Fund were investing in higher rated securities. Low rated debt securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. The prices of low rated debt securities have been found to be less sensitive to interest rate changes than higher rated investments, but more sensitive to adverse economic downturns or individual corporate developments. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in low rated debt securities prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If the issuer of low rated debt securities defaults, the Fund may incur additional expenses to seek recovery. The low rated bond market is relatively new, and many of the outstanding low rated bonds have not endured a major business recession. CONVERTIBLE SECURITIES Each of the Funds other than Index Fund may invest in debt or preferred equity securities convertible into or exchangeable for equity securities. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than non-convertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree. The total return and yield of lower quality (high yield/high risk) convertible bonds can be expected to fluctuate more than the total return and yield of higher quality, shorter-term bonds, but not as much as common stocks. Cornerstone Fund and Venture Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least B- by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Fund's investment sub-adviser. See "Low Rated Securities," above. Enterprise Fund, Horizon Fund and Real Estate Securities Fund will each limit its purchase of convertible debt securities to those that, at the time of purchase, are rated at least BBB by S&P or Baa by Moody's, or if not rated by S&P or Moody's, are of equivalent investment quality as determined by the Fund's investment adviser. FOREIGN SECURITIES Real Estate Securities Fund and Venture Fund may invest up to 10% of their total assets in securities of foreign issuers which are not publicly traded in the U.S. (Securities of foreign issuers which are publicly traded in the U.S., usually in the form of sponsored American Depositary Receipts (ADRs), are not subject to this 10% limitation. Index Fund, Real Estate Securities Fund and Venture Fund may not, however, invest more than 10% of their total assets in ADRs). Cornerstone Fund and Horizon Fund may invest up to 25% of their total assets in securities of foreign issuers which are not publicly traded in the U.S., and are under no restrictions with respect to ADRs. Investing in securities of foreign issuers may result in greater risk than that incurred in investing in securities of domestic issuers. There is the possibility of expropriation, nationalization or confiscatory taxation, taxation of income earned in foreign nations or other taxes imposed with respect to investments in foreign nations; foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default in foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available in reports about companies in the U.S. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. Further, the Fund may encounter difficulties or 6 be unable to pursue legal remedies and obtain judgments in foreign courts. Commission rates in foreign countries, which are sometimes fixed rather than subject to negotiation as in the U.S., are likely to be higher. Further, the settlement period of securities transactions in foreign markets may be longer than in domestic markets. In many foreign countries there is less government supervision and regulation of business and industry practices, stock exchanges, brokers and listed companies than in the U.S. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid, and subject to greater price volatility than those in the U.S. Also, some countries may withhold portions of interest, dividends and gains at the source. The Fund may also be unfavorably affected by fluctuations in the relative rates of exchange between the currencies of different nations (i.e., when the currency being exchanged has decreased in value relative to the currency being purchased). There are further risk considerations, including possible losses through the holding of securities in domestic and foreign custodial banks and depositories. The countries of the European Monetary Union (EMU) began the process of converting their individual country currencies to the Euro on January 1, 1999. There is also a risk that the value of foreign securities of companies located in EMU countries may decrease due to market volatility resulting from the conversion of certain EMU country currencies to the Euro. It is not possible to predict the impact of the Euro on the business or financial condition of European issues or on the Fund. The transition and the elimination of currency risk among EMU countries may change the economic environment and behavior of investors, particularly in European markets. To the extent the Fund holds non-U.S. dollar (Euro or other) denominated securities, it will still be exposed to currency risk due to fluctuations in those currencies versus the U.S. dollar. An American Depositary Receipt ("ADR") is a negotiable certificate, usually issued by a U.S. bank, representing ownership of a specific number of shares in a non - U.S. corporation. ADRs are quoted and traded in U.S. dollars in the U.S. securities market. An ADR is sponsored if the original issuing company has selected a single U.S. bank to serve as its U.S. depositary and transfer agent. This relationship requires a deposit agreement which defines the rights and duties of both the issuer and depositary. Companies that sponsor ADRs must also provide their ADR investors with English translations of company information made public in their own domiciled country. Sponsored ADR investors also generally have the same voting rights as ordinary shareholders, barring any unusual circumstances. ADRs which meet these requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are created at the initiative of a broker or bank reacting to demand for a specific foreign stock. The broker or bank purchases the underlying shares and deposits them in a depositary. Unsponsored shares issued after 1983 are not eligible for U.S. stock exchange listings. Furthermore, they do not generally include voting rights. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS FUTURES CONTRACTS. Consistent with their investment objectives and strategies, the Funds may enter into interest rate futures contracts, stock index futures contracts and foreign currency futures contracts. (Unless otherwise specified, interest rate futures contracts, stock index futures contracts and foreign currency futures contracts are collectively referred to as "futures contracts.") A futures contract is a bilateral agreement providing for the purchase and sale of a specified type and amount of a financial instrument or foreign currency, or for the making and acceptance of a cash settlement, at a stated time in the future for a fixed price. By its terms, a futures contract provides for a specified settlement date on which, in the case of the majority of interest rate and foreign currency futures contracts, the fixed income securities or currency underlying the contract are delivered by the seller and paid for by the purchaser, or on which, in the case of stock index futures contracts and certain interest rate and foreign currency futures contracts, the difference between the price at which the contract was entered into and the contract's closing value is settled between the purchaser and the seller in cash. Futures contracts differ from options in that they are bilateral agreements, with both the purchaser and the seller equally obligated to complete the transaction. Futures contracts call for settlement only on the expiration date, and cannot be "exercised" at any other time during their term. Interest rate futures contracts currently are traded on a variety of fixed income securities, including long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage Association modified pass-through mortgage-backed securities, and U.S. Treasury Bills. In addition, interest rate futures contracts include contracts on indexes of municipal securities. Foreign currency futures contracts currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits. 7 Stock index futures contracts include contracts on the S&P 500 Index and other broad-based stock market indexes, as well as contracts based on narrower market indexes or indexes of securities of particular industry groups. A stock index assigns relative values to the common stocks included in the index and the index fluctuates with the value of the common stocks so included. The parties to a stock index futures contract agree to make a cash settlement on a specific future date in an amount determined by the value of the stock index on the last trading day of the contract. The amount is a specified dollar amount times the difference between the value of the index on the last trading day and the value on the day the contract was struck. Purchases or sales of stock index futures contracts are used to attempt to protect current or intended stock investments from broad fluctuations in stock prices. Interest rate and foreign currency futures contracts are purchased or sold to attempt to hedge against the effects of interest or exchange rate changes on a Fund's current or intended investments in fixed income or foreign securities. In the event that an anticipated decrease in the value of a Fund's securities occurs as a result of a general stock market decline, a general increase in interest rates, or a decline in the dollar value of foreign currencies in which portfolio securities are denominated, the adverse effects of such changes may be offset, in whole or in part, by gains on the sale of futures contracts. Conversely, the increased cost of a Fund's securities to be acquired, caused by a general rise in the stock market, a general decline in interest rates, or a rise in the dollar value of foreign currencies, may be offset, in whole or in part, by gains on futures contracts purchased by such Fund. Although many futures contracts by their terms call for actual delivery or acceptance of the financial instrument, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a short position is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument and the same delivery month. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the trader realizes a loss. Similarly, the closing out of a long position is effected by the purchaser entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain and, if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss. The purchase or sale of a futures contract differs from the purchase or sale of a security in that no purchase price is paid or received. Instead, an amount of cash or cash equivalents, which varies but may be as low as 5% or less of the value of the contract, must be deposited with the broker as "initial margin." Subsequent payments to and from the broker, referred to as "variation margin," are made on a daily basis as the value of the index or instrument underlying the futures contract fluctuates, making positions in the futures contracts more or less valuable, a process known as "marking to the market." U.S. futures contracts may be purchased or sold only on an exchange, known as a "contract market," designated by the Commodity Futures Trading Commission ("CFTC") for the trading of such contract, and only through a registered futures commission merchant which is a member of such contract market. A commission must be paid on each completed purchase and sale transaction. The contract market clearing house guarantees the performance of each party to a futures contract by in effect taking the opposite side of such contract. At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the contract market on which the position was entered into, subject to the availability of a secondary market, which will operate to terminate the initial position. At that time, a final determination of variation margin is made and any loss experienced by the trader is required to be paid to the contract market clearing house while any profit due to the trader must be delivered to it. Futures contracts may also be traded on foreign exchanges. OPTIONS ON FUTURES CONTRACTS. The Funds also may purchase and sell put and call options on futures contracts and enter into closing transactions with respect to such options to terminate existing positions. The Funds may use such options on futures contracts in connection with their hedging strategies in lieu of purchasing and writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. An option on a futures contract provides the holder with the right to enter into a "long" position in the underlying futures contract, in the case of a call option, or a "short" position in the underlying futures contract, in the case of a put option, at a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option, in the case of a call option, or a corresponding long position, in the case of a put option. In the event that an option is exercised, the parties will be subject to all the risks associated with the trading of futures contracts, such as payment of variation margin deposits. In addition, the writer of an option on a futures contract, unlike the holder, is subject to initial and variation margin requirements on the option position. A position in an option on a futures contract may be terminated by the purchaser or the seller prior to expiration by affecting a closing purchase or sale transaction, subject to the availability of a liquid secondary market, which is the purchase or sale of an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. Options on futures contracts that are written or purchased by the Funds on United States exchanges are traded on the same contract market as the underlying futures contract and, like futures contracts, are subject to regulation by the CFTC and the performance guarantee of the exchange clearing house. In addition, options on futures contracts may be traded on foreign exchanges. RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of futures contracts and options on futures contracts will expose the Funds to additional investment risks and transactions costs. Risks include: 8 - - the risk that interest rates, securities prices or currency markets will not move in the direction that the Fund's investment adviser or sub-adviser anticipates; - - an imperfect correlation between the price of the instrument and movements in the prices of any securities or currencies being hedged; - - the possible absence of a liquid secondary market for any particular instrument and possible exchange imposed price fluctuation limits; - - leverage risk, which is the risk that adverse price movements in an instrument can result in a loss substantially greater than a Fund's initial investment in that instrument; and - - the risk that the counterparty to an instrument will fail to perform its obligations. REGULATORY MATTERS. To the extent required to comply with applicable Securities and Exchange Commission releases and staff positions, when entering into futures contracts each Fund will maintain, in a segregated account, cash or liquid securities equal to the value of such contracts. The CFTC, a federal agency, regulates trading activity on the exchanges pursuant to the Commodity Exchange Act, as amended. The CFTC requires the registration of "commodity pool operators," defined as any person engaged in a business which is of the nature of a company, syndicate or a similar form of enterprise, and who, in connection therewith, solicits, accepts or receives from others, funds, securities or property for the purpose of trading in any commodity for future delivery on or subject to the rules of any contract market. The CFTC has adopted Rule 4.5, which provides an exclusion from the definition of commodity pool operator for any registered investment company which meets the requirements of the Rule. Rule 4.5 requires, among other things, that an investment company wishing to avoid commodity pool operator status use futures and options positions only (a) for "bona fide hedging purposes" (as defined in CFTC regulations) or (b) for other purposes so long as aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of the liquidation value of the investment company's portfolio. Any investment company wishing to claim the exclusion provided in Rule 4.5 must file a notice of eligibility with both the CFTC and the National Futures Association. Before engaging in transactions involving futures contracts, the Funds will file such notices and meet the requirements of Rule 4.5, or such other requirements as the CFTC or its staff may from time to time issue, in order to render registration as a commodity pool operator unnecessary. For examples of futures contracts and their tax treatment, see Appendix B to this Statement of Additional Information. OPTIONS Each Fund may write (i.e., sell) covered call and secured put options and purchase and sell put and call options written by others. Each Fund will limit the total market value of securities against which it may write call or put options to 20% of its total assets. In addition, no Fund will commit more than 5% of its total assets to premiums when purchasing put or call options. A put option gives the purchaser the right to sell a security or other instrument to the writer of the option at a stated price during the term of the option. A call option gives the purchaser the right to purchase a security or other instrument from the writer of the option at a stated price during the term of the option. Thus, if a Fund writes a call option on a security, it becomes obligated during the term of the option to deliver the security underlying the option upon payment of the exercise price. If a Fund writes a put option, it becomes obligated during the term of the option to purchase the security underlying the option at the exercise price if the option is exercised. Funds may use put and call options for a variety of purposes. For example, if a portfolio manager wishes to hedge a security a Fund owns against a decline in price, the manager may purchase a put option on the underlying security; i.e., purchase the right to sell the security to a third party at a stated price. If the underlying security then declines in price, the manager can exercise the put option, thus limiting the amount of loss resulting from the decline in price. Similarly, if the manager intends to purchase a security at some date in the future, the manager may purchase a call option on the security today in order to hedge against an increase in its price before the intended purchase date. Put and call options also can be used for speculative purposes. For example, if a portfolio manager believes that the price of stocks generally is going to rise, the manager may purchase a call option on a stock index, the components of which are unrelated to the stocks held or intended to be purchased. Finally, a portfolio manager may write options on securities owned in order to realize additional income. Funds receive premiums from writing call or put options, which they retain whether or not the options are exercised. By writing a call option, a Fund might lose the potential for gain on the underlying security while the option is open, and by writing a put option a Fund might become obligated to purchase the underlying security for more than its current market price upon exercise. If a Fund purchases a put or call option, any loss to the Fund is limited to the premium paid for, and transaction costs paid in connection with, the option. OPTIONS ON SECURITIES. An option on a security provides the purchaser, or "holder," with the right, but not the obligation, to purchase, in the case of a "call" option, or sell, in the case of a "put" option, the security or securities underlying the option, for a fixed exercise price up to a stated expiration date or, in the case of certain options, on such date. The holder pays a nonrefundable purchase price for the option, known as the "premium." The maximum amount of risk the purchaser of the option assumes is equal to the premium plus related transaction costs, although this entire amount may be lost. The risk of the seller, or "writer," however, is potentially unlimited, unless the option is "covered." A call option written by a Fund is "covered" if the Fund owns the underlying security covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds a call on the same security and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian. A put option written by a Fund is "covered" if the Fund maintains cash and liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same security and in the same principal amount as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. If the writer's obligation is not so covered, it is subject to the risk of the full change in value of the underlying security from the time the option is written until exercise. 9 Upon exercise of the option, the holder is required to pay the purchase price of the underlying security, in the case of a call option, or to deliver the security in return for the purchase price in the case of a put option. Conversely, the writer is required to deliver the security, in the case of a call option, or to purchase the security, in the case of a put option. Options on securities which have been purchased or written may be closed out prior to exercise or expiration by entering into an offsetting transaction on the exchange on which the initial position was established, subject to the availability of a liquid secondary market. Options on securities and options on indexes of securities, discussed below, are traded on national securities exchanges, such as the Chicago Board Options Exchange and the New York Stock Exchange, which are regulated by the SEC. The Options Clearing Corporation guarantees the performance of each party to an exchange-traded option, by in effect taking the opposite side of each such option. A holder or writer may engage in transactions in exchange-traded options on securities and options on indexes of securities only through a registered broker-dealer which is a member of the exchange on which the option is traded. In addition, options on securities and options on indexes of securities may be traded on exchanges located outside the United States and over-the-counter through financial institutions dealing in such options as well as the underlying instruments. While exchange-traded options have a continuous liquid market, over-the-counter options may not. OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option on a stock index provides the holder with the right to make or receive a cash settlement upon exercise of the option, rather than the right to purchase or sell a security. The amount of this settlement is equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a call) or is below (in the case of a put) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The purchaser of the option receives this cash settlement amount if the closing level of the stock index on the day of exercise is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option. The writer of the option is obligated, in return for the premium received, to make delivery of this amount if the option is exercised. As in the case of options on securities, the writer or holder may liquidate positions in stock index options prior to exercise or expiration by entering into closing transactions on the exchange on which such positions were established, subject to the availability of a liquid secondary market. A Fund will cover all options on stock indexes by owning securities whose price changes, in the opinion of the Fund's adviser or sub-adviser, are expected to be similar to those of the index, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. Nevertheless, where a Fund covers a call option on a stock index through ownership of securities, such securities may not match the composition of the index. In that event, the Fund will not be fully covered and could be subject to risk of loss in the event of adverse changes in the value of the index. The Funds will secure put options on stock indexes by segregating assets equal to the option's exercise price, or in such other manner as may be in accordance with the rules of the exchange on which the option is traded and applicable laws and regulations. The index underlying a stock option index may be a "broad-based" index, such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index, the changes in value of which ordinarily will reflect movements in the stock market in general. In contrast, certain options may be based upon narrower market indexes, such as the Standard & Poor's 100 Index, or on indexes of securities of particular industry groups, such as those of oil and gas or technology companies. A stock index assigns relative values to the stocks included in the index and the index fluctuates with changes in the market values of the stocks so included. U.S. GOVERNMENT OBLIGATIONS These obligations are bills, certificates of indebtedness, notes and bonds issued or guaranteed as to principal or interest by the U.S. Government or by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under the authority granted by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct obligations of the U.S. Government and differ in their interest rates, maturities and times of issuance. Securities issued or guaranteed by agencies or authorities controlled or supervised by and acting as instrumentalities of the U.S. Government established under authority granted by Congress include but are not limited to, the Government National Mortgage Association ("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage Association. Some obligations of U.S. Government agencies, authorities and other instrumentalities are supported by the full faith and credit of the U.S. Treasury, such as securities of the Government National Mortgage Association and the Student Loan Marketing Association; others by the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Financing Bank and the U.S. Postal Service; and others only by the credit of the issuing agency, authority or other instrumentality, such as securities of the Federal Home Loan Bank and the Federal National Mortgage Association ("FNMA"). OBLIGATIONS OF NON-DOMESTIC BANKS The Funds may invest in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks, which may involve somewhat greater opportunity for income than the other money market instruments in which such Funds invest, but may also involve investment risks in addition to any risks associated with direct obligations of domestic banks. These additional risks include future political and economic developments, the possible imposition of withholding taxes on interest income payable on such obligations, the possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls or the adoption of other governmental restrictions, as well as market and other factors which may affect the market for or the liquidity of such obligations. Generally, Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks are subject to fewer U.S. regulatory restrictions than those applicable to domestic banks, and London branches of U.S. banks may be subject to less stringent reserve requirements than domestic branches. Canadian chartered banks, U.S. branches and agencies of foreign banks, and London branches of U.S. banks may provide less public information than, and may not be subject to the same accounting, auditing and financial recordkeeping standards as, domestic banks. Each Fund will not invest more than 25% of its total assets in obligations of Canadian chartered banks, London branches of U.S. banks, and U.S. branches and agencies of foreign banks. SHORT SALES AGAINST THE BOX Each Fund may sell securities "short against the box." Whereas a short sale is the sale of a security the Fund does not own, a short sale is "against the box" if, at all times during which the short position is open, the Fund owns at least an equal amount of the securities or securities sold short or other securities convertible into or exchangeable without further consideration for securities of the same issue as the securities sold short. Short sales against the box are typically used by sophisticated investors to defer recognition of capital gains or losses. The Funds have no present intention to sell securities short in this fashion. LOANS OF PORTFOLIO SECURITIES Each Fund, for the purpose of realizing additional 10 income, may make secured loans of portfolio securities amounting to not more than one-third of their respective total assets (which, for purposes of this limitation, will include the value of collateral received in return for securities loaned). Collateral received in connection with securities lending shall not be considered Fund assets, however, for purposes of compliance with any requirement described in a Fund's prospectus that the Fund invest a specified minimum percentage of its assets in certain types of securities (e.g., securities of small companies). Securities loans are made to broker-dealers or financial institutions pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent. The collateral received will consist of cash, letters of credit or securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. Although the Fund does not expect to pay commissions or other front-end fees (including finders fees) in connection with loans of securities (but may in some cases do so), a portion of the additional income realized will be shared with the Fund's custodian for arranging and administering such loans. The Fund has a right to call each loan and obtain the securities on five business days' notice. The Fund will not have the right to vote securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by the Fund's investment adviser to be of good standing and to have sufficient financial responsibility, and will not be made unless, in the judgment of the Fund's investment adviser, the consideration to be earned from such loans would justify the risk. The creditworthiness of entities to which the Fund makes loans of portfolio securities is monitored by the Fund's investment adviser or sub-adviser throughout the term of each loan. RESTRICTED AND ILLIQUID SECURITIES Each Fund may invest up to 15% of its net assets, in securities restricted as to disposition under the federal securities laws or otherwise, or other illiquid assets. An investment is generally deemed to be "illiquid" if it cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the investment company is valuing the investment. "Restricted securities" are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933 (the "1933 Act"). Such securities generally have been considered illiquid by the staff of the Securities and Exchange Commission (the "SEC"), since such securities may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. Because of such restrictions, the Fund may not be able to dispose of a block of restricted securities for a substantial period of time or at prices as favorable as those prevailing in the open market should like securities of an unrestricted class of the same issuer be freely traded. The Fund may be required to bear the expenses of registration of such restricted securities. The SEC has acknowledged, however, that a market exists for certain restricted securities (for example, securities qualifying for resale to certain "qualified institutional buyers" pursuant to Rule 144A under the 1933 Act). Additionally, the Fund's investment adviser and sub-adviser believe that a similar market exists for commercial paper issued pursuant to the private placement exemption of Section 4(2) of the 1933 Act and for certain interest-only and principal-only classes of mortgage-backed and asset-backed securities. The Funds may invest without limitation in these forms of restricted securities if such securities are deemed by the Fund's investment adviser or sub-adviser to be liquid in accordance with standards established by the Fund's Board of Directors. Under these guidelines, the Fund's investment adviser or sub-adviser must consider (a) the frequency of trades and quotes for the security, (b) the number of dealers willing to purchase or sell the security and the number of other potential purchasers, (c) dealer undertakings to make a market in the security, and (d) the nature of the security and the nature of the marketplace trades (for example, the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). At the present time, it is not possible to predict with accuracy how the markets for certain restricted securities will develop. Investing in such restricted securities could have the effect of increasing the level of the Fund's illiquidity to the extent that qualified purchasers of the securities become, for a time, uninterested in purchasing these securities. 11 If through the appreciation of restricted securities or the depreciation of unrestricted securities, the Fund is in a position where more than 15% of its net assets are invested in restricted and other illiquid securities, the Fund will take appropriate steps to protect liquidity. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements. Repurchase agreements are agreements by which the Fund purchases a security and obtains a simultaneous commitment from the seller (a member bank of the Federal Reserve System or, if permitted by law or regulation and if the Board of Directors of the Fund has evaluated its creditworthiness through adoption of standards of review or otherwise, a securities dealer) to repurchase the security at an agreed upon price and date. The creditworthiness of entities with whom the Fund enters into repurchase agreements is monitored by the Fund's investment adviser throughout the term of the repurchase agreement. The resale price is in excess of the purchase price and reflects an agreed upon market rate unrelated to the coupon rate on the purchased security. Such transactions afford the Fund the opportunity to earn a return on temporarily available cash. The Fund's custodian, or a duly appointed subcustodian, holds the securities underlying any repurchase agreement in a segregated account or such securities may be part of the Federal Reserve Book Entry System. The market value of the collateral underlying the repurchase agreement is determined on each business day. If at any time the market value of the collateral falls below the repurchase price of the repurchase agreement (including any accrued interest), the Fund promptly receives additional collateral, so that the total collateral is in an amount at least equal to the repurchase price plus accrued interest. While the underlying security may be a bill, certificate of indebtedness, note or bond issued by an agency, authority or instrumentality of the United States Government, the obligation of the seller is not guaranteed by the United States Government. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. WARRANTS Each of the Funds other than Index Fund may invest in warrants. Warrants are instruments that allow investors to purchase underlying shares at a specified price (exercise price) at a given future date. Warrants are pure speculation in that they have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. INDEX DEPOSITARY RECEIPTS Each Fund other than Real Estate Securities Fund may invest up to 10% of their respective total assets in one or more types of depositary receipts ("DRs") as a means of tracking the performance of a designated stock index while maintaining liquidity. No more than 5% of a Fund's total assets may be invested in any one DR. Index Fund may invest in S&P 500 Depositary Receipts ("SPDRs"), which track the S&P 500 Index. The other Funds may invest in SPDRs; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track the Dow Jones Industrial Average; or in other DRs which track indexes, provided that such investments are consistent with the Fund's investment objective as determined by the Fund's investment adviser. Each of these securities represents shares of ownership of a long term unit investment trust (a type of investment company) that holds all of the stock included in the relevant underlying index. DRs carry a price which equals a specified fraction of the value of the designated index and are exchange traded. As with other equity transactions, brokers charge a commission in connection with the purchase of DRs. In 12 addition, an asset management fee is charged in connection with the underlying unit investment trust (which is in addition to the asset management fee paid by the Fund). Trading costs for DRs are somewhat higher than those for stock index futures contracts, but, because DRs trade like other exchange-listed equities, they represent a quick and convenient method of maximizing the use of the Fund's assets to track the return of a particular stock index. DRs share in the same market risks as other equity investments. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Real Estate Securities Fund may purchase securities offered on a "when-issued" basis and may purchase or sell securities on a "forward commitment" basis. When such transactions are negotiated, the price, which is generally expressed in yield terms, is fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. Normally, the settlement date occurs within two months after the transaction, but delayed settlements beyond two months may be negotiated. During the period between a commitment to purchase by the Fund and settlement, no payment is made for the securities purchased by the Fund and, thus, no interest accrues to the Fund from the transaction. The use of when-issued transactions and forward commitments enables the Fund to hedge against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might sell a security in its portfolio and purchase the same or a similar security on a when-issued or forward commitment basis, thereby fixing the purchase price to be paid on the settlement date at an amount below that to which the Fund anticipates the market price of such security to rise and, in the meantime, obtaining the benefit of investing the proceeds of the sale of its portfolio security at currently higher cash yields. Of course, the success of this strategy depends upon the ability of the Fund's investment adviser to correctly anticipate increases and decreases in interest rates and prices of securities. If the Fund's investment adviser anticipates a rise in interest rates and a decline in prices and, accordingly, the Fund sells securities on a forward commitment basis in order to hedge against falling prices, but in fact interest rates decline and prices rise, the Fund will have lost the opportunity to profit from the price increase. If the investment adviser anticipates a decline in interest rates and a rise in prices, and, accordingly, the Fund sells a security in its portfolio and purchases the same or a similar security on a when-issued or forward commitment basis in order to enjoy currently high cash yields, but in fact interest rates increase and prices fall, the Fund will have lost the opportunity to profit from investment of the proceeds of the sale of the security at the increased interest rates. The likely effect of this hedging strategy, whether the Fund's investment adviser is correct or incorrect in its prediction of interest rate and price movements, is to reduce the chances of large capital gains or losses and thereby reduce the likelihood of wide variations in the Fund's net asset value. When-issued securities and forward commitments may be sold prior to the settlement date, but the Fund enters into when-issued and forward commitments only with the intention of actually receiving or delivering the securities, as the case may be. The Fund may hold a when-issued security or forward commitment until the settlement date, even if the Fund will incur a loss upon settlement. To facilitate transactions in when-issued securities and forward commitments, the Fund's custodian bank maintains, in a separate account of the Fund, liquid assets, such as cash, short-term securities and other liquid securities (marked to the market daily), having a value equal to, or greater than, any commitments to purchase securities on a when-issued or forward commitment basis and, with respect to forward commitments to sell portfolio securities of the Fund, the portfolio securities themselves. If the Fund, however, chooses to dispose of the right to acquire a when-issued security prior to its acquisition or dispose of its right to deliver or receive against a forward commitment, it can incur a gain or loss. (At the time the Fund makes the commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased or, if a sale, the proceeds to be received, in determining its net asset value.) The purchase of securities on a when-issued or forward commitment basis exposes the Fund to risk because the securities may decrease in value prior to their delivery. Purchasing securities on a when-issued or forward commitment basis involves the additional risk that the return available in the market when the delivery takes place will be higher than that obtained in the transaction itself. The Fund's purchase of securities on a when-issued or forward commitment basis while remaining substantially fully invested increases the amount of the Fund's assets that are subject to market risk to an amount that is greater than the Fund's net asset value, which could result in increased volatility of the price of the Fund's shares. No more than 30% of the value of the Fund's total assets will be committed to when-issued or forward commitment transactions. DEFENSIVE PURPOSES The Funds other than Real Estate Securities Fund may invest up to 20% of their respective net assets in cash or cash items. Real Estate Securities Fund may invest approximately 5% of its net assets in cash or cash items. In addition, for temporary or defensive purposes, the Funds may invest in cash or cash items without limitation and in other securities as noted in the Prospectus Supplement dated April 24, 2003. The "cash items" in which the Funds may invest, include short-term obligations such as rated commercial paper and variable amount master demand notes; United States dollar-denominated time and savings deposits (including certificates of deposit); bankers' acceptances; obligations of the United States Government or its agencies or instrumentalities; repurchase agreements collateralized by eligible investments of a Fund; securities of other mutual funds which invest primarily in debt obligations with remaining maturities of 13 months or less (which investments also are subject to the advisory fee); and other similar high-quality short-term United States dollar-denominated obligations. The other mutual funds in which the Funds may so invest include money market funds advised by the Fund's investment adviser. INVESTMENT RESTRICTIONS Each of the Funds is "diversified" as defined in the Investment Company Act of 1940. This means that at least 75% of the value of the Fund's total assets is represented by cash and cash items, government securities, securities of other investment companies, and securities of other issuers, which for purposes of this calculation, are limited in respect of any one issuer to an amount not greater in value than 5% of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer. In addition to the foregoing limitations, each Fund is subject to certain "fundamental" investment restrictions, described below, which may not be changed without the vote of a "majority" of the Fund's outstanding shares. As used in the applicable Prospectus and this Statement of Additional Information, "majority" means the lesser of (i) 67% of a Fund's outstanding shares present at a meeting of the holders if more than 50% of the outstanding shares are present in person or by proxy or (ii) more than 50% of a Fund's outstanding shares. Each Fund is also subject to certain other investment restrictions which are not fundamental and may be changed by vote of the Board of Directors without further shareholder approval. 13 FUNDAMENTAL RESTRICTIONS 1. Policy Regarding Borrowing and the Issuance of Senior Securities. The Fund will not borrow money or issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 2. Policy Regarding Concentration in a Particular Industry. CORNERSTONE FUND, ENTERPRISE FUND, HORIZON FUND AND VENTURE FUND. The Fund will not concentrate its investments in a particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. INDEX 500 FUND. The Fund will not concentrate its investments in a particular industry, except that the Fund may concentrate its investments in a particular industry if the S&P 500 Index is so concentrated. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. REAL ESTATE SECURITIES FUND. Under normal market conditions, the Fund will concentrate its investments in the real estate or real estate related industry. The Fund will not concentrate its investments in any other particular industry. For purposes of this limitation, the United States Government, and state or municipal governments and their political subdivisions, are not considered members of any industry. Whether the Fund is concentrating in an industry shall be determined in accordance with the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 3. Policy Regarding Investments in Real Estate. The Fund will not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments, but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or interests therein or in securities of companies that deal in real estate or mortgages. 4. Policy Regarding Investments in Commodities. The Fund will not purchase physical commodities or contracts relating to physical commodities. 5. Policy Regarding Lending. The Fund may not make loans except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified from time to time by any regulatory authority having jurisdiction. 6. Policy Regarding Underwriting of Securities. The Fund will not act as an underwriter of securities, except to the extent that the Fund may be deemed to be an underwriter, under the federal securities laws, in connection with the disposition of portfolio securities. 14 NON-FUNDAMENTAL RESTRICTIONS 7. The Fund will not acquire any new securities while borrowings, including borrowings through reverse repurchase agreements, exceed 5% of total assets. 8. The Fund will use futures contracts and options on futures contracts only (a) for "bona fide hedging purposes" (as defined in regulations of the Commodity Futures Trading Commission) or (b) for other purposes so long as the aggregate initial margins and premiums required in connection with non-hedging positions do not exceed 5% of liquidation value of the Fund's portfolio. 9. The Fund may mortgage, pledge or hypothecate its assets only to secure permitted borrowings. Collateral arrangements with respect to futures contracts, options thereon and certain options transactions are not considered pledges for purposes of this limitation. 10. The Fund may not make short sales of securities, other than short sales "against the box." 11. The Fund may not purchase securities on margin, but it may obtain such short-term credits as may be necessary for the clearance of securities transactions and it may make margin deposits in connection with futures contracts. 12. The Fund will not invest more than 15% of its net assets in illiquid securities. 13. The total market value of securities against which the Fund may write call or put options will not exceed 20% of the Fund's total assets. In addition, the Fund will not commit more than 5% of its total assets to premiums when purchasing put or call options. 15 With respect to each of the Funds, any investment policy set forth under "Investing in the Funds - Investment Policies and Practices" in the Prospectus, or any restriction set forth above which involves a maximum percentage of securities or assets shall not be considered to be violated unless an excess over the percentage occurs immediately after an acquisition of securities or utilization of assets and results therefrom, or unless the Investment Company Act of 1940 provides otherwise. PORTFOLIO TURNOVER Portfolio turnover is the ratio of the lesser of annual purchases or sales of portfolio securities to the average monthly value of portfolio securities, not including short-term securities. A 100% portfolio turnover rate would occur, for example, if the lesser of the value of purchases or sales of portfolio securities for a particular year were equal to the average monthly value of the portfolio securities owned during such year. Cornerstone Fund and Enterprise Fund each make changes in their portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Funds. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Neither Fund emphasizes short-term trading profits. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, Cornerstone Fund's portfolio turnover rate was 95.3%, 147.9% and 180.1%, respectively. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, Enterprise Fund's portfolio turnover rate was 62.2%, 105.4% and 181.5%, respectively. Horizon Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. For the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, the Fund's portfolio turnover rates were 67.6%, 129.6% and 109.3%, respectively. Index Fund generally seeks to invest for the long term, but reserves the right to sell securities irrespective of how long they have been held. However, because of the "passive" investment management approach of the Fund, the Fund's portfolio turnover rate is expected to be generally lower than the rate for most other investment companies. Ordinarily, securities will be sold by Index Fund only to reflect certain administrative changes in the S&P 500 (including mergers or changes in its composition) or to accommodate cash flows into and out of the Fund while maintaining the similarity of the Fund to the S&P 500. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 13.6%, 17.2%, and 42.6%, respectively. Real Estate Securities Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. The Fund does not emphasize short-term trading profits. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 101.2%, 173.10%, and 116.8%, respectively. Venture Fund makes changes in its portfolio securities which are considered advisable in light of market conditions. Frequent changes may result in higher brokerage and other costs for the Fund. Portfolio turnover rates may vary greatly from year to year and within a particular year and may also be affected by cash requirements for redemptions of Fund shares. Venture Fund does not emphasize short-term trading profits. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 37.3%, 37.8%, and 169.0%, respectively. The turnover for the fiscal year ended in 2000 is attributable primarily to the fact that, effective May 1, 2000, responsibility for management of the Fund's assets was transferred from the Fund's adviser to its new sub-adviser, which then repositioned the Fund's portfolio. DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. One of the directors is considered an "interested person" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of his engagement as an officer of Advantus Capital Management, Inc. ("Advantus Capital") which acts as investment adviser for all of the Funds, except Cornerstone Fund and Horizon Fund, and companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life, Waddell & Reed Ivy Investment Co. ("WRIICO") or their affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other six Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital, WRIICO or WRIICO's affiliate, Waddell & Reed Investment Management Company serve as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Funds are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUNDS NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS - --------------------------------------------------------------------------------------------------------- William N. Westhoff Director since Retired; prior to July 26, 2002, Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997

16

POSITION WITH FUNDS NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - --------------------------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Age: 75 October 22, 1985 Treasurer of Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Age: 55 April 25, 2002 Research Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology Age: 66 October 22, 1985 at the University of Minnesota - --------------------------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS - --------------------------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Age: 50 July 25, 2002 Capital Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP February 2, 1985 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- --------------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Funds have both an Audit Committee and a Nominations Committee of the Board of Directors, the members of which are all directors who are not "interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott comprise the members of both committees. The Board of Directors also has a Dividend Declaration Committee, the sole member of which is Frederick P. Feuerherm. Mr. Feuerherm, an officer of Advantus Capital, Securian Financial Services, Inc. and Minnesota Life, served as a Director of the Funds until April 23, 2003. Upon his resignation, the Board of Directors determined that he should continue to serve as the sole member of the Dividend Declaration Committee. The function of the Audit Committee is to recommend the engagement of the Funds' independent auditor and oversee its activities. The Audit Committee also receives reports from the Internal Audit Department of Minnesota Life and from the Directors of Compliance for Advantus Capital and WRIICO about compliance matters affecting the Funds. The Audit Committee met two (2) times during the last fiscal year. The Nominations Committee selects and recommends to the Board of Directors individuals for nomination as Independent Directors. The names of potential Independent Director candidates have been drawn from a number of sources, including recommendations from management of Advantus Capital. Inasmuch as the Funds do not hold annual meetings of shareholders and meetings of shareholders occur only intermittently, the Nominations Committee does not at present consider nominees recommended by shareholders. The Nominations Committee met two (2) times during the last fiscal year. The function of the Dividend Declaration Committee is to oversee the distribution of the Funds' dividends and capital gains distributions. The Dividend Declaration Committee met four (4) times during the last fiscal year. The Directors owned shares in the Funds, and in all Advantus Funds for which they serve on the Board of Directors, in the following dollar ranges as of December 31, 2001:

AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL ADVANTUS FUNDS OVERSEEN NAME OF DIRECTOR DOLLAR RANGE OF EQUITY SECURITIES IN BY DIRECTOR ---------------- ------------------------------------ ----------------- REAL ESTATE CORNERSTONE ENTERPRISE HORIZON INDEX 500 SECURITIES VENTURE William N. Westhoff $50,001-$100,000 $50,001-$100,000 $50,001-$100,000 ---- over $100,000 over $100,000 Over $100,000 Frederick P. Feuerherm ---- ---- ---- ---- ---- ---- $1-$10,000 Ralph D. Ebbott ---- ---- ---- ---- ---- ---- None William C. Melton ---- ---- ---- ---- ---- ---- None Ellen S. Berscheid ---- ---- ---- ---- ---- ---- $1-$10,000

Legal fees and expenses are paid to the law firm of which Michael J. Radmer is a partner. No compensation is paid by the Funds to any of their officers or directors who is affiliated with Advantus Capital Management, Inc. ("Advantus Capital"). Each director of the Funds is also a director of the other Advantus Funds (12 investment companies in total -- the "Fund Complex"). As of the date hereof, directors not affiliated with Advantus Capital or WRIICO receive compensation in connection with all such investment companies which, in the aggregate, is equal to $8,000 per year and $2,000 per meeting attended (and reimbursement of travel expenses to attend directors' meetings). The portion of such compensation borne by any Fund is a pro rata portion based on the ratio that such Fund's total net assets bears to the total net assets of the Fund Complex. During the fiscal year ended July 31, 2002, each Director not affiliated with Advantus Capital was compensated by the Funds in accordance with the following table:

Pension or Total Retirement Compensation Aggregate Benefits Estimated from Funds and Compensation Accrued as Annual Fund Complex from the Part of Fund Benefits Upon Paid to Name of Director Funds(1) Expenses Retirement Directors ------------------ ---------- ------------ ------------- -------------- Ellen S. Berscheid $2,833 n/a n/a $20,000 Ralph D. Ebbott $2,833 n/a n/a $20,000 William C. Melton $1,133 n/a n/a $10,000

17 (1) During the fiscal year ended July 31, 2002, Ms. Berscheid and Mr. Ebbott received $740 from Cornerstone Fund, $252 from Enterprise Fund, $397 from Horizon Fund, $504 from Index 500 Fund, $230 from Real Estate Securities Fund, and $709 from Venture Fund. During the same period, Mr. Melton, who was elected a Director on April 25, 2002, received $296 from Cornerstone Fund, $101 from Enterprise Fund, $159 from Horizon Fund, $202 from Index 500 Fund, $92 from Real Estate Securities Fund, and $284 from Venture Fund. Prior to July 26, 2002, William N. Westhoff was president of and therefore affiliated with Advantus Capital, but since his retirement from Advantus Capital as of that date he has received compensation as a Director of the Funds as described above. DIRECTOR LIABILITY Under Minnesota law, the Board of Directors of each Fund owes certain fiduciary duties to the Fund and to its shareholders. Minnesota law provides that a director "shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interest of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances." Fiduciary duties of a director of a Minnesota corporation include, therefore, both a duty of "loyalty" (to act in good faith and act in a manner reasonably believed to be in the best interests of the corporation) and a duty of "care" (to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances). Minnesota law also authorizes corporations to eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for breach of the fiduciary duty of "care." Minnesota law does not, however, permit a corporation to eliminate or limit the liability of a director (i) for any breach of the directors' duty of "loyalty" to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for authorizing a dividend, stock repurchase or redemption or other distribution in violation of Minnesota law or for violation of certain provisions of Minnesota securities laws, or (iv) for any transaction from which the director derived an improper personal benefit. The Articles of Incorporation of each Fund limit the liability of directors to the fullest extent permitted by Minnesota statutes, except to the extent that such liability cannot be limited as provided in the Investment Company Act of 1940 (which prohibits any provisions which purport to limit the liability of directors arising from such directors' willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their role as directors). Minnesota law does not eliminate the duty of "care" imposed upon a director. It only authorizes a corporation to eliminate monetary liability for violations of that duty. Minnesota law, further, does not permit elimination or limitation of liability of "officers" to the corporation for breach of their duties as officers (including the liability of directors who serve as officers for breach of their duties as officers). Minnesota law does not permit elimination or limitation of the availability of equitable relief, such as injunctive or rescissionary relief. Further, Minnesota law does not permit elimination or limitation of a director's liability under the Securities Act of 1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to what extent the elimination of monetary liability would extend to violations of duties imposed on directors by the Investment Company Act of 1940 and the rules and regulations adopted under such Act. INVESTMENT ADVISORY AND OTHER SERVICES GENERAL Advantus Capital Management, Inc. ("Advantus Capital") is the investment adviser and manager of Enterprise Fund, Index 500 Fund, Real Estate Securities Fund and Venture Fund. Advantus Capital also acted as the investment adviser and manager of Cornerstone Fund and Horizon Fund prior to May 1, 2003. As of May 1, 2003, Waddell & Reed Ivy Investment Co. ("WRIICO") became the investment adviser and manager of Cornerstone Fund and Horizon Fund. As discussed in the Prospectus Supplement dated April 24, 2003, Advantus Capital has agreed to sell to WRIICO its assets related to the Funds and has recommended that the Funds be merged into corresponding funds in W&R Funds, Inc. or Ivy Fund. This merger is expected to be presented to the shareholders of the Funds in September 2003. Because Advantus Capital no longer has the resources to actively manage non-real estate equity funds, the Board of Directors approved an interim investment advisory agreement, effective May 1, 2003, under which WRIICO will serve as the investment adviser to the Cornerstone Fund and Horizon Fund until the mergers. WRIICO currently manages the fifteen mutual fund portfolios that are offered by the Ivy Fund, an open-ended management investment company. The Ivy Fund portfolios are currently in the process of being integrated into the W&R Family of Funds. Securian Financial Services, Inc. ("Securian Financial") acts as the Funds' underwriter. Advantus Capital and WRIICO act as investment advisers pursuant to written agreements that will be periodically considered for approval by the directors or shareholders of the Fund. Securian Financial also acts pursuant to a written agreement that will be periodically considered for approval by the directors or shareholders of the Fund. The address of both Advantus Capital and Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101. WRIICO is located at 6300 Lamar Avenue, P.O. Box 2917, Shawnee Mission, Kansas 66201-9217. Credit Suisse Asset Management, LLC ("CSAM") serves as investment sub-adviser to Enterprise Fund pursuant to an investment sub-advisory agreement with Advantus Capital. State Street Research & Management Company ("State Street") serves as investment sub-adviser to Venture Fund pursuant to an investment sub-advisory agreement with Advantus Capital. CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL 18 Advantus Capital was incorporated in Minnesota in June 1994, and is an affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by forming a mutual insurance holding company named "Minnesota Mutual Companies, Inc." The Minnesota Mutual Life Insurance Company continued its corporate existence following conversion to a Minnesota stock life insurance company named "Minnesota Life Insurance Company". All of the shares of the voting stock of Minnesota Life are owned by a second tier intermediate stock holding company named "Securian Financial Group, Inc.", which in turn is a wholly-owned subsidiary of a first tier intermediate stock holding company named "Securian Holding Company", which in turn is a wholly-owned subsidiary of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and Securian Financial are also wholly-owned subsidiaries of Securian Financial Group, Inc. Dianne M. Orbison, President of each of the Funds, is President, Treasurer and Director of Advantus Capital. Frederick P. Feuerherm, Vice President and Treasurer of each of the Funds, is a Vice President, Assistant Secretary and Director of Advantus Capital. William N. Westhoff, a Director of each of the Funds was President, Treasurer and Director of Advantus Capital prior to July 26, 2002. CONTROL AND MANAGEMENT OF WRIICO WRIICO is an indirect, wholly owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. WRIICO was acquired by W&R on December 16, 2002. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. INVESTMENT ADVISORY AGREEMENTS WITH ADVANTUS CAPITAL Advantus Capital acts as investment adviser and manager of each of the Funds except Cornerstone Fund and Horizon Fund under Investment Advisory Agreements (the "Advisory Agreements") dated May 1, 2000 for each Fund, which were approved by shareholders on April 17, 2000 in the case of Enterprise Fund, Venture Fund and Real Estate Securities Fund, and on April 28, 2000 in the case of Index Fund. The Advisory Agreements were last approved by the Board of Directors of each Fund (including a majority of the directors who are not parties to the contract, or interested persons of any such party) on January 24, 2002. The Advisory Agreements will terminate automatically in the event of their assignment. In addition, each Advisory Agreement is terminable at any time, without penalty, by the Board of Directors of the respective Fund or by vote of a majority of the Fund's outstanding voting securities on not more than 60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days' written notice to the Fund. Unless sooner terminated, each Advisory Agreement shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the respective Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Advisory Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. INVESTMENT ADVISORY AGREEMENT WITH WRIICO As discussed in the Prospectus Supplement dated April 24, 2003, Advantus Capital has agreed to sell to WRIICO its assets related to the Funds and has recommended to the Board of Directors of each Fund that the Funds be merged into corresponding funds in W&R Funds, Inc. or Ivy Fund. Because Advantus Capital no longer has the resources to actively manage non-real estate equity funds, the Board of Directors of Cornerstone Fund and Horizon Fund determined that it would be in shareholders' best interests to appoint a new investment adviser to manage Cornerstone Fund and Horizon Fund on an interim basis prior to the mergers. The Board of Directors approved an interim investment advisory agreement (the "Interim Agreement") under which WRIICO will serve as the investment adviser to the Cornerstone Fund and Horizon Fund, effective May 1, 2003. The terms of the Interim Agreement are substantially identical to those of the investment advisory agreements previously in effect between the Cornerstone Fund and Horizon Fund and Advantus Capital and each of the other Advisory Agreements with Advantus Capital discussed above, except for the dates of execution and termination and other non material changes, and except that advisory fees payable to WRIICO will be deposited in escrow until shareholders of the Cornerstone Fund and Horizon Fund approve a new investment advisory agreement with WRIICO. Normally, a mutual fund's investment advisory agreement must be approved by the fund's shareholders in advance of the effective date of such agreement. However, pursuant to Rule 15a-4 under the 1940 Act, an investment adviser may serve as adviser to a mutual fund under an interim contract with a term of no more than 150 days, so long as prior to the expiration of such term, shareholders approve a new agreement with the investment adviser. Under Rule 15a-4, the interim contract must be identical in all material respects to the agreement that was previously approved by shareholders (except for the effective date and termination date). In addition, under Rule 15a-4, during the term of the interim agreement, advisory fees otherwise payable under the interim agreement are required to be deposited into an interest-bearing escrow account. If shareholders approve a new advisory agreement, such fees (plus interest) may be paid to the adviser. If, on the other hand, shareholders do not approve a new advisory agreement, the adviser will be reimbursed only for the lesser of its costs of providing services during the term of the interim agreement (plus interest) or amounts held in escrow. Accordingly and in accordance with Rule 15a-4, the fees otherwise payable to WRIICO under the Interim Agreement are being held in escrow pending shareholder approval of a new advisory agreement. Fees payable to WRIICO under the Interim Agreement are identical to fees previously payable to Advantus Capital by the Cornerstone Fund and Horizon Fund. INVESTMENT ADVISORY FEES Pursuant to the Advisory Agreements and the Interim Agreement each Fund pays its investment adviser an advisory fee equal on an annual basis to a percentage of the Fund's average daily net assets as set forth in the following table:

ADVISORY FEE AS PERCENTAGE FUND OF AVERAGE NET ASSETS CORNERSTONE FUND: On the first $500 million in assets .70% On the next $500 million in assets .65% On the next $1 billion in assets .60% On all assets in excess of $2 billion .55% ENTERPRISE FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .66% HORIZON FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .60% INDEX FUND: On the first $500 million in assets .34% On the next $500 million in assets .30% On the next $1 billion in assets .25% On all assets in excess of $2 billion .20% REAL ESTATE SECURITIES FUND: On the first $1 billion in assets .75% On the next $1 billion in assets .725% On all assets in excess of $2 billion .70% VENTURE FUND: On the first $1 billion in assets .70% On the next $1 billion in assets .68% On all assets in excess of $2 billion .66%

Prior to May 1, 2000, each Fund paid Advantus Capital an advisory fee, in accordance with its prior investment advisory agreement, equal on an annual basis to a percentage of that Fund's average daily net assets as set forth in the following table:

Advisory Fee Paid Prior to May 1, Fund 2000 as Percentage of Average Net Assets ---- ---------------------------------------- Cornerstone Fund .80% Enterprise Fund .80% Horizon Fund .80% Index Fund .34% Real Estate Securities Fund .75% Venture Fund .80%

The fees for investment advisory services paid by Cornerstone, Enterprise and Horizon Funds during the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, and by Index, Real Estate Securities and Venture Funds during the fiscal years ended July 31, 2002, 2001, and 2000, (before Advantus Capital's absorption of certain expenses, described below) were as follows:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone $443,621 $623,266 $797,700 Enterprise 245,166 349,882 499,093 Horizon 231,587 427,000 725,918 Index Fund 148,568 181,012 193,328 Real Estate Securities Fund 163,110 103,301 61,059 Venture Fund 444,881 325,568 250,117

For these fees, Advantus Capital and WRIICO act as investment advisers and managers for the respective Funds, or, in the case of Enterprise Fund and Venture Fund, pay CSAM and State Street, respectively, to serve as investment sub-adviser. Effective May 1, 2000, each Fund pays its own transfer agent and shareholder servicing expenses. Prior to that date, Advantus Capital paid the transfer agent and shareholder servicing expenses for Venture Fund. 19 Under each Advisory Agreement and the Interim Agreement, the respective investment adviser furnishes the Fund office space and all necessary office facilities, equipment and personnel for servicing the investments of the Fund, and pays the salaries and fees of all officers and directors of the Fund who are affiliated with that investment adviser. In addition, except to the extent that Securian Financial receives Rule 12b-1 distribution fees (see "Payment of Certain Distribution Expenses of the Funds" below), Securian Financial bears all promotional expenses in connection with the distribution of the Funds' shares, including paying for prospectuses and statements of additional information for new shareholders, and shareholder reports for new shareholders, and the costs of sales literature. The Funds pay all other expenses not so expressly assumed. Under the Advisory Agreements for each Fund other than Index Fund and Real Estate Securities Fund, including the investment advisory agreements between Advantus Capital and Cornerstone Fund and Horizon Fund that were in place prior to May 1, 2003, Advantus Capital agreed to absorb all Fund costs and expenses which exceed a specified percentage of the average daily net assets of each class of shares through the fiscal year of the Fund ending September 30, 2001 for Cornerstone, Enterprise and Horizon Funds and July 31, 2001 for Venture Fund, as set forth in the following table:

EXPENSES ABSORBED IN EXCESS OF SPECIFIED PERCENTAGE OF AVERAGE NET ASSETS --------------------------------------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund 1.24% 1.99% 1.99% Enterprise Fund 1.38% 2.23% 2.23% Horizon Fund 1.35% 2.10% 2.10% Venture Fund 1.40% 2.25% 2.25%

During the fiscal period ended July 31, 2002 and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real Estate Securities and Venture Funds, Advantus Capital voluntarily absorbed certain expenses of the Funds (which do not include certain Rule 12b-1 fees waived by Securian Financial), or, in the case of Cornerstone Fund, Enterprise Fund, Horizon Fund and Venture Fund, absorbed certain expenses of the Fund in accordance with the advisory agreement then, as set forth below:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $105,055 $131,531 $106,763 Enterprise Fund 72,685 60,437 59,225 Horizon Fund 271,049 284,604 90,632 Index Fund 297,973 306,584 302,175 Real Estate Securities Fund 10,569 46,235 87,768 Venture Fund -- 7,163 67,821

ENTERPRISE FUND SUB-ADVISER - CSAM Credit Suisse Asset Management, LLC (CSAM) has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management of the Enterprise Fund, subject to the general control of the Board of Directors of the Fund. CSAM is a registered investment adviser under the Investment Advisers Act of 1940. CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the largest financial services companies in the world, and comprises the U.S. arm of Credit Suisse Group's Credit Suisse Asset Management division. CSAM, together with its predecessor firms, has been engaged in the investment advisory business for over 60 years. As of June 30, 2002, the Credit Suisse Asset Management division had global assets under management of approximately $306.9 billion, of which $66.8 billion was managed by CSAM. The principal business address of CSAM is 466 Lexington Avenue, New York, New York 10017. ENTERPRISE FUND INVESTMENT SUB-ADVISORY AGREEMENT - CSAM CSAM acts as investment sub-adviser of the Enterprise Fund under an Investment Sub-Advisory Agreement (the CSAM Agreement) with Advantus Capital dated May 1, 2000, and approved by shareholders of the Fund on April 17, 2000. Amendments to the CSAM Agreement, adjusting the level of sub-advisory fees payable by Advantus Capital to CSAM under such Agreement, were approved by the Board of Directors of the Fund on October 25, 2001 and July 25, 2002. The CSAM Agreement as amended was last approved for continuance by the Board of Directors of the Fund, including a majority of the Directors who are not a party to the CSAM Agreement or interested persons of any such party, on January 24, 2002 and July 25, 2002. Prior to May 1, 2000, the Enterprise Fund was managed directly by Advantus Capital. The CSAM Agreement will terminate automatically upon the termination of the Fund's Advisory Agreement and in the event of its assignment. In addition, the CSAM Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the Fund's outstanding voting securities on 60 days' written notice to CSAM, and by CSAM on 60 days' written notice to Advantus Capital. Unless sooner terminated, the CSAM Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons of any party to the CSAM Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by CSAM for the Enterprise Fund, Advantus Capital pays to CSAM a fee computed at an annual rate which shall be a percentage of the average daily value of the net assets of the Fund. The fee is accrued daily and shall be based on the net asset value of all of the issued and outstanding shares of the Fund as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. Effective June 30, 2002, the amount of such annual fee, as applied to the total assets of the Fund, is determined in accordance with the following table:

AVERAGE ASSETS UNDER MANAGEMENT FEE ----------------------------------- --- Total assets from $0 up to $150 million 0.65% Total assets from $150 million up to $200 million 0.64% Total assets from $200 million up to $250 million 0.63% Total assets from $250 million up to $300 million 0.62% Total assets from $300 million up to $350 million 0.61% Total assets from $350 million up to $400 million 0.60% Total assets from $400 million up to $450 million 0.59% Total assets from $450 million up to $500 million 0.58% Total assets from $500 million up to $550 million 0.57% Total assets from $550 million up to $600 million 0.56% Total assets from $600 million up to $650 million 0.55% Total assets from $650 million up to $700 million 0.54% Total assets from $700 million up to $750 million 0.53% Total assets from $750 million up to $800 million 0.52% Total assets from $800 million up to $850 million 0.51% Total assets from $850 million up to $900 million 0.50% Total assets from $900 million up to $950 million 0.49% Total assets from $950 million up to $1 billion 0.48% Total assets from $1 billion up to $1.050 billion 0.47% Total assets from $1.050 billion up to $1.1 billion 0.46% Total assets from $1.1 billion and up 0.45%

The term "Average Assets Under Management" for purposes of the above schedule includes all assets advised or sub-advised by CSAM for Advantus Capital or its affiliates, in addition to those assets of the Fund. The Average Assets Under Management consists of the mathematical average of the quarterly aggregate assets as measured on March 31st, June 30th, September 30th and December 31st of each calendar year (or portion thereof) for each of the preceding 8 quarters, with the fee rate determined on each such date being applicable to the following period and applied to all assets back to the first dollar in the Fund. VENTURE FUND SUB-ADVISER -- STATE STREET State Street Research & Management Company ("State Street") has been retained under an investment sub-advisory agreement to provide investment advice and, in general, to conduct the management of the investment program of the Venture Fund, subject to the general control of the Board of Directors of the Fund. State Street is a registered investment adviser under the Investment Advisers Act of 1940. State Street, a Delaware corporation, with offices at One Financial Center, Boston, Massachusetts 02111-2690, acts at the investment sub-adviser to the Portfolio. State Street was founded by Paul Cabot, Richard Saltonstall and Richard Paine to serve as investment adviser to one of the nation's first mutual funds, presently known as State Street Research Investment Trust, which they had formed in 1924. Their investment management philosophy emphasized comprehensive fundamental research and analysis, including meetings with the management of companies under consideration for investment. State Street's portfolio management group has extensive investment industry experience managing equity and debt securities. State Street is an indirect wholly-owned subsidiary of Metropolitan Life Insurance Company. VENTURE FUND INVESTMENT SUB-ADVISORY AGREEMENT -- STATE STREET State Street acts as investment sub-adviser to the Venture Fund under an Investment Sub-Advisory Agreement (the "State Street Agreement") with Advantus Capital dated May 1, 2000 and approved by shareholders of the Fund on April 17, 2000. An amendment to the State Street Agreement, adjusting the level of sub-advisory fees payable by Advantus Capital to State Street under such Agreement, was approved by the Board of Directors of the Fund on October 25, 2001. The State Street Agreement, as amended, was last approved for continuance by the Board of Directors of the Fund, including a majority of the Directors who are not a party to the State Street Agreement or interested persons of any such party, on January 24, 2002. Prior to May 1, 2000 the Venture Fund was managed directly by Advantus Capital. The State Street Agreement will terminate automatically upon the termination of the Advisory Agreement and in the event of its assignment. In addition, the State Street Agreement is terminable at any time, without penalty, by the Board of Directors of the Fund, by Advantus Capital or by vote of a majority of the Venture Fund's outstanding voting securities on 60 days' written notice to State Street, and by State Street on 60 days' written notice to Advantus Capital. Unless sooner terminated, the State Street Agreement shall continue in effect from year to year if approved at least annually either by the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event such continuance is also approved by the vote of a majority of the Directors who are not interested persons or any party to the State Street Agreement, cast in person at a meeting called for the purpose of voting on such approval. In payment for the investment sub-advisory services to be rendered by State Street to the Venture Fund, Advantus Capital pays to State Street a fee computed at an annual rate which is a percentage of the average daily net assets of the Fund. The fee is accrued daily and shall be based on the net asset value of all of the issued and outstanding shares of the Fund as determined as of the close of each business day pursuant to the Articles of Incorporation, Bylaws and currently effective Prospectus and Statement of Additional Information of the Fund. The fee is payable in arrears on the last day of each calendar month. The amount of such annual fee as applied to the average daily net assets of the Fund, is equal to .65% of the first $100 million of average daily net assets and .60% of average daily net assets in excess of $100 million. For purposes of calculating the breakpoint, the term "assets" includes all "small company value" assets sub-advised by State Street for Advantus Capital, in addition to the assets of the Fund. The aggregation of those assets for purposes of the breakpoint is calculated quarterly based upon the aggregate assets on March 31st, June 30th, September 30th and December 31st of each calendar year (or portion thereof) that the State Street agreement is effective. ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS At a meeting held on January 24, 2002, the Board of Directors of the Funds, including a majority of the Directors who are not "interested persons" (as defined under the Investment Company Act of 1940) of the Funds (the "Independent Directors"), approved the continuation of each Fund's investment advisory agreement with Advantus Capital for an additional one-year period. In connection with such approval, the directors considered, with the assistance of independent counsel, their legal responsibilities and reviewed the nature and quality of Advantus Capital's services provided to the Fund and Advantus Capital's experience and qualifications. In addition to quarterly evaluations of the Fund's investment performance relative to broad-based index and industry benchmarks and at least annual in person meetings with and presentations by each portfolio manager or managers for the Fund (including personnel from Advantus Capital and each sub-adviser), the Directors on January 24, 2002 reviewed and considered: - - analyses prepared and compiled by Advantus Capital (i) setting forth the Fund's advisory fee (as a percentage of assets) on a contractual and after-waiver basis (ii) comparing the Fund's contractual advisory fees with standard fee schedules for private (non-mutual fund) accounts managed by Advantus Capital and with the contractual fee schedules of other funds represented by Advantus Capital to be of comparable size and complexity (with a description of the bases upon which funds were selected for comparison), (iii) comparing the Fund's total returns with the Fund's benchmark index or indices and with such comparable funds (again, with a description of the bases upon which funds were selected for comparison); - - descriptions of brokerage allocation practices (including any soft dollar arrangements) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; - - assurances that Advantus Capital and its personnel are in compliance with the Fund's codes of ethics, policies and procedures and exemptive orders and with applicable laws and regulations; and - - a report on Advantus Capital's profitability related to providing advisory services to the Fund after taking into account (i) advisory fees and any other benefits realized by Advantus Capital or any of its affiliates as a result of Advantus Capital's role as adviser to the Fund, and (ii) the direct and indirect expenses incurred by Advantus Capital in providing such advisory services to the Fund. After discussion, the Board of Directors concluded that Advantus Capital has the capabilities, resources and personnel necessary to manage each Fund. The Board of Directors also concluded that, based on the services that Advantus Capital would provide to each Fund under the Fund's investment advisory agreement and the expenses incurred by Advantus Capital in the performance of such services, the compensation to be paid to Advantus Capital is fair and equitable with respect to the Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it is in the best interests of each Fund to continue its investment advisory agreement with Advantus Capital for an additional one-year period. At the January 24, 2002 meeting, the Fund's Board of Directors, including a majority of the Independent Directors, also approved the continuation of the sub-advisory agreements between Advantus Capital and each of the following sub-advisers (with respect to the Fund set forth opposite the sub-adviser's name in the table below), each for an additional one-year period:

SUB-ADVISER FUND ----------- ---- Credit Suisse Asset Management, LLC Enterprise Fund State Street Research & Management Company Venture Fund

In approving the continuation of the sub-advisory agreements, the Board of Directors considered the quality of the services being rendered by each sub-adviser, its investment management style, the experience and qualifications of each sub-adviser's personnel and the sub-adviser's fee structure. The Board of Directors also reviewed written reports provided by each sub-adviser, which contained, among other items: - - descriptions of brokerage allocation practices (including soft dollar arrangements, if any) and assurances that such practices and arrangements are accurately described in the Fund's registration statement; and - - assurances that the sub-adviser and its personnel are in compliance with the sub-adviser's code of ethics and with the laws and regulations that apply to its relationship as sub-adviser to the applicable Fund. Based upon such information as it considered necessary to the exercise of its reasonable business judgment, the Board of Directors concluded unanimously that it was in the best interests of each of the foregoing Funds engaging a sub-adviser to continue its sub-advisory agreement for an additional one-year period. APPROVAL OF THE INTERIM AGREEMENT At a meeting held on April 23, 2003, the Board of Directors of Cornerstone Fund and Horizon Fund, including a majority of the Independent Directors, approved the Interim Agreement. Prior to such meeting, Advantus Capital had informed the Board that, as a result of entering into the Strategic Alliance Agreement and related Purchase Agreement discussed in the Prospectus Supplement dated April 24, 2003, it would no longer have the resources to actively manage non-real estate equity funds after May 1, 2003. Advantus Capital therefore recommended to the Board that it appoint WRIICO to act as the investment adviser for Cornerstone Fund and Horizon Fund for the period from May 1, 2003 until the time of the proposed mergers of Cornerstone Fund and Horizon Fund into corresponding W&R/Ivy Funds (as discussed in the Prospectus Supplement dated April 24, 2003). Advantus Capital and WRIICO provided to the Board of Directors such information as the Directors, upon the advice of counsel, determined to be relevant, including, among other things: o general information concerning WRIICO and its affiliates and their operations, o information concerning the ethical profile and compliance history of WRIICO and its affiliates, o information regarding WRIICO's investment management process, o style and performance, including performance information regarding similar funds currently managed by WRIICO , and o profitability information. At meetings held on March 6, March 21, April 8, April 17 and April 23, 2003, the Directors reviewed, analyzed and asked questions concerning such information. During certain of these meetings, and during a due diligence trip to WRIICO's headquarters on March 25, 2003, Directors also met, either telephonically or in person, with senior officers of WRIICO and its affiliates and with the proposed fund managers for Cornerstone Fund and Horizon Fund. The Board also considered that the terms of the Interim Agreement do not differ materially from those of the investment advisory agreements between Cornerstone Fund and Horizon Fund and Advantus Capital and that investment advisory fees paid by Cornerstone Fund and Horizon Funds will remain unchanged. Based on its review, the Board of Directors concluded, among other things, that the scope and quality of services to be provided under the Interim Agreement will be at least equivalent to the scope and quality of the services provided under the Investment Advisory Agreements between Cornerstone Fund and Horizon Fund, and the Board approved the Interim Agreement. CODE OF ETHICS Advantus Capital, WRIICO, Securian Financial, CSAM, State Street and each of the Funds has adopted a Code of Ethics in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder. The private investment activities of personnel covered by the Code of Ethics are restricted in accordance with the Code's provisions, but, subject to such provisions, personnel may invest in securities, including securities that may be purchased or held by the Funds. Distribution Agreement Securian Financial acts as the underwriter of the Funds' shares. The Board of Directors of the Funds, on January 24, 2002, including a majority of the directors who are not parties to the contract, or interested persons of any such party, last approved the respective Fund's Distribution Agreement with Securian Financial (the "Distribution Agreements"), dated October 22, 1998 for Cornerstone Fund, Enterprise Fund, Horizon Fund, Index Fund and Venture Fund, and October 25, 2001 for Real Estate Securities Fund. During the fiscal period ended July 31, 2002, and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index Fund, Real Estate Securities Fund and Venture Fund, the commissions received by Securian Financial under the Distribution Agreements with respect to shares of all classes were as follows:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $50,234 $312,734 $345,082 Enterprise Fund 19,407 180,816 158,512 Horizon Fund 54,053 294,198 385,277 Index Fund 97,938 78,345 114,832 Real Estate Securities Fund 60,489 3,991 14,377 Venture Fund 70,657 30,384 58,191

During the same period Securian Financial retained from these commissions the following amounts: 20

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone $ 6,127 $ 5,298 $ 9,265 Enterprise 5,616 5,937 6,623 Horizon 7,505 15,958 33,780 Index Fund 7,931 12,524 13,503 Real Estate Securities Fund 17,921 -783 72 Venture Fund 20,106 6,975 1,254

The remainder of these commissions was paid to registered representatives of Securian Financial or to broker-dealers who have selling agreements with Securian Financial. Each Distribution Agreement may be terminated by the respective Fund or Securian Financial at any time by the giving of 60 days' written notice, and terminates automatically in the event of its assignment. Unless sooner terminated, the Distribution Agreement for the respective Fund shall continue in effect for more than two years after its execution only so long as such continuance is specifically approved at least annually by either the Board of Directors of the Fund or by a vote of a majority of the outstanding voting securities, provided that in either event such continuance is also approved by the vote of a majority of the directors who are not parties to the Distribution Agreement, or interested persons of such parties, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreements require Securian Financial to pay all advertising and promotional expenses in connection with the distribution of the Funds' shares including paying for Prospectuses and Statements of Additional Information (if any) for new shareholders, shareholder reports for new shareholders, and the costs of sales literature. In the Distribution Agreements, Securian Financial undertakes to indemnify the Funds against all costs of litigation and other legal proceedings, and against any liability incurred by or imposed upon the Funds in any way arising out of or in connection with the sale or distribution of the Funds' shares, except to the extent that such liability is the result of information which was obtainable by Securian Financial only from persons affiliated with the Funds but not with Securian Financial. PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS Each of the Funds except Real Estate Securities Fund has adopted separate Plans of Distribution applicable to Class A shares, Class B shares and Class C shares, respectively, relating to the payment of certain distribution and/or shareholder servicing expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940. Real Estate Securities Fund has two classes of shares (Class A and Class B) and each class has also adopted a Plan of Distribution pursuant to Rule 12b-1. Each of the Funds, pursuant to its Plan of Distribution, pays fees to Securian Financial which equal, on an annual basis, a percentage of the Fund's average daily net assets attributable to Class A shares, Class B shares and Class C shares, respectively, as set forth in the following table:

Rule 12b-1 Fee as Percentage of Average Daily Net Assets Attributable to -------------------------------------------- Fund Class A Shares Class B Shares Class C Shares ---- -------------- -------------- -------------- Cornerstone Fund 0.25% 1.00% 1.00% Enterprise Fund 0.25% 1.00% 1.00% Horizon Fund 0.25% 1.00% 1.00% Index Fund 0.25% 1.00% 1.00% Real Estate Securities Fund 0.25% 1.00% n/a Venture Fund 0.25% 1.00% 1.00%

21 Such fees are used for distribution-related services for Class B and C shares of the Funds and for servicing of shareholder accounts in connection with Class A, B and C shares in each of the Funds. A portion of the Rule 12b-1 fees payable with respect to Class B and Class C shares of the Funds equal to .75% of the average daily net assets attributable to such Class B and Class C shares, constitute distribution fees designed to compensate Securian Financial for advertising, marketing and distributing the shares of the Funds. The distribution fees paid by each of the Funds may be used by Securian Financial for the purpose of financing any activity which is primarily intended to result in the sale of shares of the particular Fund. For example, such distribution fee may be used by Securian Financial: (a) to compensate broker-dealers, including Securian Financial and its registered representatives, for their sale of a Fund's shares, including the implementation of the programs described below with respect to broker-dealers, banks, and other financial institutions; and (b) to pay other advertising and promotional expenses in connection with the distribution of a Fund's shares. These advertising and promotional expenses include, by way of example but not by way of limitation, costs of prospectuses for other than current shareholders; preparation and distribution of sales literature; advertising of any type; expenses of branch offices (including overhead expenses) provided jointly by Securian Financial and any affiliate thereof; and compensation paid to and expenses incurred by officers, employees or representatives of Securian Financial or of other broker-dealers, banks, or financial institutions. All of the 12b-1 fees payable with respect to each Fund's Class A shares and a portion of the Rule 12b-1 fee payable with respect to Class B and Class C shares of each Fund, equal to .25% of the average daily net assets attributable to such Class A, B and Class C shares, constitutes a shareholder servicing fee designed to compensate Securian Financial for the provision of certain services to the holders of Class A, B and Class C shares. Amounts expended by the Funds under the Plans are expected to be used for the implementation by Securian Financial of a dealer incentive program. Pursuant to the program, Securian Financial may provide compensation to investment dealers for the provision of distribution assistance in connection with the sale of the Funds' shares to such dealers' customers and for the provision of administrative support services to customers who directly or beneficially own shares of the Funds. The distribution assistance and administrative support services rendered by dealers may include, but are not limited to, the following: distributing sales literature; answering routine customer inquiries concerning the Funds; assisting customers in changing dividend options, account designation and addresses, and in enrolling into the pre-authorized check plan or systematic withdrawal plan; assisting in the establishment and maintenance of customer accounts and records and in the processing of purchase and redemption transactions; investing dividends and any capital gains distributions automatically in the Funds' shares and providing such other information and services as the Funds or the customer may reasonably request. Such fees for servicing customer accounts would be in addition to the portion of the sales charge received or to be received by dealers which sell shares of the Funds. Securian Financial may also provide compensation to certain institutions such as banks ("Service Organizations") which have purchased shares of the Funds for the accounts of their clients, or which have made the Funds' shares available for purchase by their clients, and/or which provide continuing service to such clients. Applicable laws may prohibit certain banks from engaging in the business of underwriting securities. In such circumstances, Securian Financial, if so requested, will engage such banks as Service Organizations only to perform administrative and shareholder servicing functions, but at the same fees and other terms applicable to dealers. If a bank were prohibited from acting as a Service Organization, its shareholder clients would be permitted to remain shareholders of the Funds and alternative means for continuing servicing of such shareholders would be sought. In such event changes in the operation of 22 the Funds might occur and a shareholder serviced by such bank might no longer be able to avail itself of any automatic investment or other services then being provided by the bank. It is not expected that shareholders would suffer any adverse financial consequences as a result of any of these occurrences. In addition, the Plan contains, among other things, provisions complying with the requirements of Rule 12b-1 discussed below. In particular, each Plan provides that (1) the Plan will not take effect until it has been approved by a vote of a majority of the outstanding voting securities of the Fund, and by a majority vote of both the full board of directors of the Fund and those directors who are not interested persons of the Fund and who have no direct or indirect financial interest in the operation of the Plan or in any agreements relating to it (the Independent Directors), (2) the Plan will continue in effect from one year to another so long as its continuance is specifically approved annually by a majority vote of both the full board of directors and the Independent Directors, (3) the Plan may be terminated at any time, without penalty, by vote of a majority of the Independent Directors or by a vote of a majority of the outstanding voting securities of the Fund, (4) the Plan may not be amended to increase materially the amount of the fees payable thereunder unless the amendment is approved by a vote of a majority of the outstanding voting securities of the Fund, and all material amendments must be approved by a majority vote of both the full board of directors and the Independent Directors, (5) while the Plan is in effect, the selection and nomination of any new Independent Directors is committed to the discretion of the Independent Directors then in office, and (6) the Fund's underwriter will prepare and furnish to the board of directors, and the board of directors will review, at least quarterly, written reports which set forth the amounts expended under the Plan and the purposes for which those expenditures were made. Rule 12b-1(b) provides that any payments made by an investment company in connection with the distribution of its shares may only be made pursuant to a written plan describing all material aspects of the proposed financing of distribution and also requires that all agreements with any person relating to implementation of the plan must be in writing. In addition, Rule 12b-1(b)(2) requires that such plan, together with any related agreements, be approved by a vote of the board of directors and of the directors who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan, cast in person at a meeting called for the purpose of voting on such plan or agreements. Rule 12b-1(b)(3) requires that the plan or agreement provide, in substance: (1) that it shall continue in effect for a period of more than one year from the date of its execution or adoption only so long as such continuance is specifically approved at least annually in the manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person authorized to direct the disposition of monies paid or payable by the investment company pursuant to the plan or any related agreement shall provide to the investment company's board of directors, and the directors shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made; and (3) in the case of a plan, that it may be terminated at any time by vote of a majority of the members of the board of directors of the investment company who are not interested persons of the investment company and have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan or by vote of a majority of the outstanding voting securities of the investment company. Rule 12b-1(b)(4) requires that such plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval and that all material amendments of the plan must be approved in the manner described in paragraph (b)(2) of Rule 12b-1. Rule 12b-1(c) provides that the investment company may rely upon Rule 12b-1(b) only if selection and nomination of the investment company's disinterested directors are committed to the discretion of such disinterested directors. Rule 12b-1(e) provides that the investment company may implement or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote to approve such implementation or continuation conclude, in the exercise of reasonable business judgment and in light of their fiduciary duties under state law, and under Sections 36(a) and (b) of the Investment Company Act of 1940, that there is a reasonable likelihood that the plan will benefit the investment company and its shareholders. At the Board of Directors meeting held January 24, 2002, the directors of the Funds so concluded. During the fiscal period ended July 31, 2002, each Fund made payments under its Plans of Distribution applicable to Class A, Class B and Class C Shares as set forth below (distribution fees waived by Securian Financial, if any, are shown in parentheses).

Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund $140,042 $ N/A $66,388 $ 7,188 Enterprise Fund 75,907 (30,363) 41,469 5,141 Horizon Fund 58,966 N/A 87,139 7,835 Index 500 Fund 56,862 (22,745) 189,402 20,114 Real Estate Securities Fund 53,635 (32,181) 2,939 N/A Venture Fund 143,955 (57,582) 46,950 12,773

The Plans of Distribution could be construed as "compensation plans" because Securian Financial is paid a fixed fee and is given discretion concerning what expenses are payable under the Plans. Under a compensation plan, the fee to the distributor is not directly tied to distribution expenses actually incurred by the distributor, thereby permitting the distributor to receive a profit if amounts received exceed expenses. Securian Financial may spend more or 23 less for the distribution and promotion of the Funds' shares than it receives as distribution fees pursuant to the Plans. However, to the extent fees received exceed expenses, including indirect expense such as overhead, Securian Financial could be said to have received a profit. TRANSFER AGENT AND ADMINISTRATIVE SERVICES Each of the Funds pays its own transfer agent expenses. The Funds' transfer agent is PFPC Inc. ("PFPC"). In addition, separate from the Investment Advisory Agreements, each of the Funds has entered into an agreement with Minnesota Life under which Minnesota Life provides (i) accounting, legal and other administrative services and (ii) shareholder servicing to the Funds. Minnesota Life currently provides accounting, legal and other administrative services to the Funds at a monthly cost of $6,200 per Fund other than Real Estate Securities Fund, and $5,100 for Real Estate Securities Fund. During the fiscal period ended July 31, 2002, each Fund paid the following amounts for such administrative services:

Fund Amount ---- ------ Cornerstone Fund $62,000 Enterprise Fund 62,000 Horizon Fund 62,000 Index Fund 74,400 Real Estate Securities Fund 61,200 Venture Fund 74,400

Minnesota Life currently provides shareholder servicing to each Fund at a cost of $7 per shareholder account per year. PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE In a number of security transactions, it is possible for the Funds to deal in the over-the-counter security markets (including the so-called "third market" which is the "over-the-counter" market for securities listed on the New York Stock Exchange) without the payment of brokerage commissions but at net prices including a spread or markup; the Funds trade in this manner whenever the net price appears advantageous. Each Fund's investment adviser selects and (where applicable) negotiates commissions with the brokers who execute the transactions for the Fund (except for Enterprise Fund and Value Fund, as described below). During the fiscal period ended July 31, 2002, and the fiscal years ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real Estate Securities and Venture Funds, brokerage commissions paid were:

Fund 2002 2001 2000 ---- ---- ---- ---- Cornerstone Fund $228,660 $335,867 $405,041 Enterprise Fund 82,298 61,217 112,916 Horizon Fund 80,789 128,104 123,143 Index Fund 9,557 7,794 26,239 Real Estate Securities Fund 114,123 114,505 57,451 Venture Fund 193,659 224,490 124,323

THE INVESTMENT ADVISERS' BROKERAGE PRACTICES The primary criteria for the selection of a broker is the ability of the broker, in the opinion of the investment adviser, to secure prompt execution of the transactions on favorable terms, including the reasonableness of the commission and considering the state of the market at the time. In selecting a broker, each investment adviser considers whether such broker provides brokerage and research services (as defined in the Securities Exchange Act of 1934), and generally the Funds pay higher than the lowest commission rates available. Each investment adviser may direct Fund transactions to brokers who furnish research services to that investment adviser. Such research services include advice, both directly and in writing, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, as well as analysis and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts. By allocating brokerage business in order to obtain research services for its investment adviser, a Fund enables its investment adviser to supplement its own investment research activities and allows the investment adviser to obtain the views and information of individuals and research staffs of many different securities research firms prior to making investment decisions for the Fund. To the extent such commissions are directed to these other brokers who furnish research services to an investment adviser, the investment adviser receives a benefit, not capable of evaluation in dollar amounts, without providing any direct monetary benefit to the Funds from these commissions. There is no formula for the allocation by the investment advisers of the Funds' brokerage business to any broker-dealer for brokerage and research services. However, an investment adviser will authorize a Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker would have charged only if the investment adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker viewed in terms of either that particular transaction or the investment adviser's overall responsibilities with respect to the accounts as to which it exercises investment discretion. During the fiscal period ended July 31, 2002, the Funds directed transactions to brokers because of research services they provided, and paid commissions in connection with such transactions, in the aggregate amounts set forth below: 24

Aggregate Transactions Commissions Paid on Fund Directed for Research Directed Transaction ---- --------------------- -------------------- Cornerstone Fund $2,127,165 $113,864 Enterprise Fund -- -- Horizon Fund 787,904 42,572 Index Fund 183 1,124 Real Estate Securities Fund 879,500 25,058 Venture Fund 35,075,991 95,085

The investment advisers believe that most research services obtained by them generally benefit one or more of the investment companies which they manage and also benefit accounts which they manage. Normally research services obtained through managed funds and managed accounts investing in common stocks would primarily benefit such funds and accounts; similarly, services obtained from transactions in fixed income securities would be of greater benefit to the managed funds and managed accounts investing in debt securities. The same security may be suitable for one or more of the Funds and the other funds or private accounts managed by an investment adviser or its affiliates. If and when two or more funds or accounts simultaneously purchase or sell the same security, the transactions will be allocated as to price and amount in accordance with arrangements equitable to each fund or account. The simultaneous purchase or sale of the same securities by one Fund and other funds or accounts may have a detrimental effect on that Fund, as this may affect the price paid or received by the Fund or the size of the position obtainable by the Fund. Consistent with achieving best execution, a Fund may participate in so-called "directed brokerage" or "commission recapture" programs, under which brokers (or dealers) used by the Fund remit a portion of brokerage commissions (or credits on fixed income transactions) to the particular Fund from which they were generated. Subject to oversight by the Fund's Board of Directors, either the Fund's investment adviser or the sub-adviser, if any, is responsible for the selection of brokers or dealers and for ensuring that the Fund receives best price and execution in connection with its portfolio brokerage transactions. Participation in such programs may increase returns to the Fund. Although the rules of the National Association of Securities Dealers, Inc. prohibit its members from seeking orders for the execution of investment company portfolio transactions on the basis of their sales of investment company shares, under such rules, sales of investment company shares may be considered by the investment company as a factor in selecting brokers to effect portfolio transactions. Accordingly, some portfolio transactions are, subject to such rules and to obtaining best prices and executions, executed through dealers who sell shares of Funds in the Advantus Funds complex or who agree to transmit a portion of the brokerage commissions on transactions executed by them to broker/dealers who sell Fund shares. The Funds will not execute portfolio transactions through any affiliate, unless such transactions, including the frequency thereof, the receipt of commissions payable in connection therewith and the selection of the affiliated broker-dealer effecting such transactions are not unfair or unreasonable to the shareholders of the Funds. In the event any transactions for a Fund are executed on an agency basis, the Fund's investment adviser will authorize the Fund to pay an amount of commission for effecting a securities transaction in excess of the amount of commission another broker-dealer would have charged only if the Fund's investment adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the overall responsibilities of the Fund's investment adviser with respect to the Fund as to which it exercises investment discretion. If the Funds execute any transactions on an agency basis, they will generally pay higher than the lowest commission rates available. In determining the commissions to be paid to an affiliated broker-dealer, it is the policy of each Fund that such commissions will, in the judgment of the Fund's investment adviser, subject to review by the Fund's Board of Directors, be both (a) at least as favorable as those which would be charged by other qualified brokers in connection with comparable transactions involving similar securities being purchased or sold on an exchange during a comparable period of time, and (b) at least as favorable as commissions contemporaneously charged by such affiliated broker-dealers on comparable transactions for their most favored comparable unaffiliated customers. While the Funds do not deem it practicable and in their best interest to solicit competitive bids for commission rates on each transaction, consideration will regularly be given to posted commission rates as well as to other information concerning the level of commissions charged on comparable transactions by other qualified brokers. Information regarding the acquisition by the Funds during the fiscal period ended July 31, 2002, of securities of the Funds' regular brokers or dealers, or the parents of those brokers or dealers that derive more than 15 percent of their gross revenue from securities-related activities, is presented below: 25

Approximate Value of Securities Owned at End of Fund Name of Issuer Fiscal Period ---- -------------- ------------- Cornerstone Fund CitiGroup, Inc. $ 2,385,130 Goldman Sachs Group, Inc. 658,350 Morgan Stanley 598,794 Enterprise Fund Affiliated Managers Group 288,042 Horizon Fund CitiGroup, Inc 358,878 Goldman Sachs Group, Inc. 190,190 Index Fund Bear Stearns & Company 24,329 Block Financial Corporation 34,955 Real Estate Securities Fund ----- ----- Venture Fund ----- -----

SUB-ADVISERS' BROKERAGE PRACTICES CSAM, investment sub-adviser to the Enterprise Fund, and State Street, investment sub-adviser to the Venture Fund, each intends to follow the same brokerage practices as those described above for Advantus Capital. CALCULATION OF PERFORMANCE DATA Advertisements and other sales literature for the Funds may refer to "yield," "average annual total return" and "cumulative total return." Performance quotations are computed separately for each class of shares of the Funds. YIELD. Yield is computed by dividing the net investment income per share (as defined under Securities and Exchange Commission rules and regulations) earned during the computation period by the maximum offering price per share on the last day of the period, according to the following formula: a-b 6 YIELD = 2[( ----- +1) -1] cd Where: a = dividends and interest earned during the period; b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. The yield on investments in each of the Funds for the 30-day period ended July 31, 2002 was as set forth in the table below. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during that period. If such Funds had been charged for these expenses the yield on investments for the same period would have been lower, as also shown in the table below in parentheses.

Yield ------- Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund 1.06% (.78%) .39% (.09%) .39% (.09%) Enterprise Fund -.93% (-1.34%) -1.84% (-2.28%) -1.84% (-2.27%) Horizon Fund -.21% (-2.06%) -.96% (-2.91%) -.96% (-2.91%) Index Fund 1.26% (.80%) .50% (.01%) .50% (.01%) Real Estate Securities Fund .86% (.82%) .03% (-.001%) N/A N/A Venture Fund .24% (.24%) -.63% (-.63%) -.63% (-.63%)

AVERAGE ANNUAL TOTAL RETURN. Average annual total return is computed by finding the average annual compounded rates of return over the periods indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: n P(1+T) = ERV Where: P = a hypothetical initial payment of $1,000; T = average annual total return; n = number of years; and 26 ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period. The average annual total return on investments in each of the Funds for the periods indicated ending July 31, 2002, were as set forth in the table below. Average annual total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the beginning of each period shown. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser and distributor were voluntarily absorbing and waiving certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the average annual total returns for the same periods would have been lower, as also shown in the table below in parentheses.

1 YEAR ------ FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund -22.22% (-22.39%) -22.47% (-22.64%) -18.36% (-18.53%) Enterprise Fund -33.82% (-34.13%) -34.08% (-34.29%) -30.53% (-30.74%) Horizon Fund -31.53% (-32.35%) -31.74% (-32.56%) -28.15% (-28.97%) Index Fund -28.31% (-29.09%) -28.56% (-29.24%) -24.80% (-25.48%) Real Estate Securities Fund 6.13% (5.94%) N/A N/A N/A N/A Venture Fund -18.04% (-18.14%) -18.32% (-18.32%) -13.96% (-13.96%)

SINCE INCEPTION --------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund(1) 5.05% (4.68%) 4.97% (4.77%) 5.08% (4.88%) Enterprise Fund(1) 0.39% (0.35%) 0.22% (0.21%) -0.33% (-0.34%) Horizon Fund(2) 7.05% (6.88%) 3.93% (3.87%) 3.41% (3.35%) Index Fund(3) 2.06% (1.43%) 1.99% (1.64%) 2.16% (1.84%) Real Estate Securities Fund(4) 10.16% (9.53%) 6.56% (6.50%) N/A N/A Venture Fund(3) 6.22% (6.13%) 6.13% (6.10%) 6.40% (6.38%) - ---------------

(1) Class A and Class B Inception was September 16, 1994. Class C Inception was March 1, 1995. (2) Class A Inception was May 3, 1985. Class B Inception was August 19, 1994. Class C Inception was March 1, 1995. (3) Class A, Class B and Class C inception was January 31, 1997. (4) Class A inception date was February 25, 1999. Class B inception date was November 30, 2001. CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: ERV-P CTR = ( ----- )100 P Where : CTR = cumulative total return; ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period; and P = initial payment of $1,000. The cumulative total return on investments in each of the Funds for the period indicated ended July 31, 2002, was as set forth in the table below. The cumulative total returns quoted assume that the Class A maximum initial sales charge of 5.5% was in effect at the inception of Class A shares. The maximum initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment adviser and distributor were voluntarily absorbing certain expenses of certain of the Funds during these periods. If such Funds had been charged for these expenses the cumulative total return for the same periods would have been lower, as also shown in the table below in parentheses.

CUMULATIVE TOTAL RETURN ----------------------- FUND CLASS A CLASS B CLASS C - ---- ------- ------- ------- Cornerstone Fund(1) 47.39% (43.36%) 46.45% (44.35%) 44.36% (42.39%) Enterprise Fund(1) 3.12% (2.80%) 1.77% ( 1.65%) -2.40% (-2.51%) Horizon Fund(2) 223.58% (214.88%) 35.83% (35.27%) 28.20% (27.67%) Index Fund(3) 11.89% (8.23%) 11.45% (9.56%) 12.47% (10.78%) Real Estate Securities Fund(4) 39.35% (36.62%) 4.32% (4.28%) N/A N/A Venture Fund(3) 39.29% (38.73%) 38.65% (38.43%) 40.63% (40.45%)

27 - --------------- (1) Class A and Class B Inception was September 16, 1994. Class C Inception was March 1, 1995. (2) Class A Inception was May 3, 1985. Class B Inception was August 19, 1994. Class C Inception was March 1, 1995. (3) Class A, Class B and Class C inception date was January 31, 1997. (4) Class A inception date was February 25, 1999. Class B inception date was November 30, 2001. The calculations for both average annual total return and cumulative total return deduct the maximum sales charge from the initial hypothetical $1,000 investment, assume all dividends and capital gain distributions are reinvested at net asset value on the appropriate reinvestment dates as described in the Prospectus, and include all recurring fees, such as investment advisory and management fees, charged as expenses to all shareholder accounts. Such average annual total return and cumulative total return figures may also be accompanied by average annual total return and cumulative total return figures, for the same or other periods, which do not reflect the deduction of any sales charges. CAPITAL STOCK AND OWNERSHIP OF SHARES Each Fund's shares of common stock, and each class thereof, have a par value $.01 per share, and have equal rights to share in dividends and assets. The shares possess no preemptive or conversion rights. Cumulative voting is not authorized. This means that the holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors if they choose to do so, and in such event the holders of the remaining shares will be unable to elect any directors. Each of the Funds has 10 billion authorized shares of common stock and has designated 2 billion authorized shares as Class A shares and 2 billion authorized shares as Class B shares. Each of the Funds other than Real Estate Securities Fund has also designated 2 billion authorized shares as Class C shares. The Funds have the number of shares outstanding as of July 31, 2002, as set forth below.

Shares Outstanding at July 31, 2002 ----------------------------------- Fund Class A Class B Class C ---- ------- ------- ------- Cornerstone Fund 4,907,681 533,841 58,812 Enterprise Fund 4,244,859 578,574 72,959 Horizon Fund 1,944,245 731,303 63,563 Index Fund 1,516,679 1,236,348 136,573 Real Estate Securities Fund 2,704,869 95,132 N/A Venture Fund 4,333,250 380,789 123,524

As of July 31, 2002, no person held of record, to the knowledge of the respective Funds, or owned more than 5% of the outstanding shares of any of the Funds, except as set forth in the following table:

Number of Name and Address of Shareholder Shares Percentage ------------------------------- ------ ---------- Cornerstone Fund 4,055,814 73.7% Minnesota Life and affiliates* Enterprise Fund 3,564,971 72.8% Minnesota Life and affiliates* Horizon Fund 13,098 0.5% Minnesota Life and affiliates* Index Fund Minnesota Life and affiliates* 719,158 24.9% Real Estate Securities Fund 2,454,169 87.7% Minnesota Life and affiliates* Venture Fund 3,898,399 80.6% Minnesota Life and affiliates*

* 400 Robert Street North, St. Paul, Minnesota 55101. HOW TO BUY SHARES Each Fund's shares may be purchased at the public offering price from Securian Financial, and from certain other broker-dealers or financial services firms. Securian Financial reserves the right to reject any purchase order. Shares of the Funds may be purchased at a price equal to their respective net asset value. 28 Certificates representing shares purchased are not currently issued. However, shareholders will receive written confirmation of their purchases. Shareholders will have the same rights of ownership with respect to such shares as if certificates had been issued. SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH CERTIFICATED SHARES BY TELEPHONE. ALTERNATIVE PURCHASE ARRANGEMENTS Real Estate Securities Fund offers investors the choice between two classes of shares (Class A and Class B). The other Funds offer investors the choice among three classes of shares which offer different sales charges and bear different expenses. These alternatives permit an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other circumstances. For a detailed discussion of these alternative purchase arrangements see "Sales Charges" below. The decision as to which class of shares provides a more suitable investment for an investor may depend on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for a waiver of initial sales charges should purchase Class A shares. Other investors should consider Class B or Class C shares because all of the purchase price is invested immediately. Investors who expect to hold shares for relatively shorter periods of time may prefer Class C shares because such shares may be redeemed at any time without payment of a contingent deferred sales charge. Investors who expect to hold shares longer, however, may choose Class B shares because such shares convert to Class A shares sooner than do Class C shares and thus pay the higher Rule 12b-1 fee for a shorter period. Purchase orders for $1,000,000 or more will be accepted for Class A shares only and are not subject to a sales charge at the time of purchase, but a deferred sales charge will be imposed if such shares are sold within one year after the date of purchase. Orders for Class B or Class C shares for $1,000,000 or more will be treated as orders for Class A shares or declined. PURCHASE BY CHECK New investors may purchase shares of the Funds by completing an account application and sending it, together with a check payable to the Fund, directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Additional purchases may be made at any time by mailing a check, payable to the Fund, to the same address. Checks for additional purchases should be identified with the appropriate account number. Purchase orders may also be submitted through Securian Financial or other broker-dealers or financial services firms authorized to sell shares of the Fund. PURCHASE BY WIRE Shares may also be purchased by Federal Reserve or bank wire. This method will result in a more rapid investment in shares of the Funds. Before wiring any funds, contact Minnesota Life, through its Advantus Shareholder Services division, at 1-800-665-6005 for instructions. Promptly after making an initial purchase by wire, an investor should complete an account application and mail it to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767. Subsequent purchases may be made in the same manner. Wire purchases normally take two or more hours to complete, and to be accepted the same day must be received by 3:00 p.m. (Central time). Banks may charge a fee for transmitting funds by wire. PURCHASE BY INTERNET Existing Advantus Funds shareholders may also purchase shares via the Internet, once they have established on-line authorization. Please contact Advantus Shareholder Services at (800) 665-6005 for information on how to establish your account. TIMING OF PURCHASE ORDERS An order in proper form for the purchase of shares of a Fund received by the Fund prior to the close of normal trading on the New York Stock Exchange ("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the price next determined on the date received by PFPC. An order received by PFPC from a financial services firm after the price is determined that day will nonetheless be processed at that day's price if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Other orders received after the close of the NYSE will be effected at the price next determined on the next business day. 29 MINIMUM INVESTMENTS A minimum initial investment of $1,000 is required, except that $500 is the minimum initial investment required to open a qualified account or an account in which investments of not less than $50 are being made under an automatic investment plan ($25 for an automatic investment plan established prior to December 2, 2002). The minimum amount required for a subsequent investment in all types of accounts is $50. PUBLIC OFFERING PRICE The public offering price of the Fund will be the net asset value per share of the Fund next determined after an order is received and becomes effective, plus the applicable sales charge, if any. The net asset value per share of each class is determined by dividing the value of the securities, cash and other assets (including dividends accrued but not collected) of the Fund attributable to such class less all liabilities (including accrued expenses but excluding capital and surplus) attributable to such class, by the total number of shares of such class outstanding. The net asset value of the shares of the Fund is determined as of the close of normal trading on the New York Stock Exchange (as of the date of this Statement of Additional Information the primary close of trading is 3:00 p.m. (Central time), but this time may be changed) on each day, Monday through Friday, except (i) days on which changes in the value of the Fund's portfolio securities will not materially affect the current net asset value of Fund shares, (ii) days during which no Fund shares are tendered for redemption and no order to purchase or sell Fund shares is received by the Fund and (iii) customary national business holidays on which the New York Stock Exchange is closed for trading. Securities, including put and call options, which are traded over-the-counter and on a national exchange will be valued according to the broadest and most representative market. A security which is only listed or traded on an exchange, or for which an exchange is the most representative market, is valued at its last sale price (prior to the time as of which assets are valued) on the exchange where it is principally traded. Lacking any sales on the exchange where it is principally traded on the day of valuation, prior to the time as of which assets are valued, the security generally is valued at the last bid price on that exchange. Futures contracts will be valued in a like manner, except that open futures contracts sales will be valued using the closing settlement price or in the absence of such a price, the most recent quoted bid price. All other securities for which over-the-counter market quotations are readily available are valued on the basis of the last current bid price. When market quotations are not readily available, such securities are valued at fair value as determined in good faith by the Board of Directors. Advantus Capital and the Funds' sub-advisers, where applicable, monitor for "significant events" that may (a) occur after closing market prices are established but before the time a Fund calculates its net asset value and (b) cause market quotations for certain securities to be considered "not readily available" because of such significant events. In such circumstances, those securities are also valued at fair value as determined in good faith by the Board of Directors. Other assets also are valued at fair value as determined in good faith by the Board of Directors. However, debt securities may be valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional-size trading units of debt securities, without regard to sale or bid prices, when such valuations are believed to more accurately reflect the fair market value of such securities. Short-term investments in debt securities are valued daily at market. SALES CHARGES CLASS A SHARES The public offering price of Class A shares of each Fund is the net asset value of the Fund's shares plus the applicable front end sales charge ("FESC"), which will vary with the size of the purchase. Securian Financial receives all applicable sales charges. The Fund receives the net asset value. The current sales charges are: 30

Sales Charge as a Percentage of: Net Amount Paid to Broker- Offering Amount Dealers as a Percentage of Value of Total Investment Price Invested Offering Price: ------------------------- ----- -------- --------------- Less than $50,000 5.5% 5.82% 4.75% $50,000 but less than $100,000 4.5 4.71 3.75 $100,000 but less than $250,000 3.5 3.63 2.75 $250,000 but less than $500,000 2.5 2.56 2.00 $500,000 but less than $1,000,000 2.0 2.04 1.50 $1,000,000 and over (1) 0 0 1.00

(1) A FESC will not be assessed for purchases of Class A shares of at least $1 million, but a contingent deferred sales charge of 1.00% will be imposed if such shares are sold within one year after the date of purchase. The sales charge applicable to an initial investment in the Fund depends on the offering price of the investment. The sales charge applicable to subsequent investments, however, depends on the offering price of that investment plus the current net asset value of the investor's previous investments in the Fund. For example, if an investor makes an initial investment in Class A shares of Venture Fund with an offering price of $40,000 the investor will pay a sales charge equal to 5.5% of the $40,000 investment, but if an investor already owns Class A shares of Venture Fund with a current net asset value of $40,000 and invests in additional Class A shares of Horizon Fund with an offering price of $10,000 the investor will pay a sales charge equal to 4.5% of the additional $10,000 since the total investment in the Fund would then be $50,000. CLASS B SHARES Class B shares of each Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. However, a contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares are redeemed within six years of purchase. For additional information, see "Redemptions" below. Class B shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class B shares are subject to higher Rule 12b-1 fees as described below. The amount of the CDSC will depend on the number of years since the purchase was made, the amount of shares originally purchased and the dollar amount being redeemed. The amount of the applicable CDSC and the holding period prior to conversion are determined in accordance with the following table:

Shares Convert to Class A in CDSC Applicable in Year the Month ----------------------- After Shares Purchased in an Amount 1 2 3 4 5 6 Expiration of ----------------------------- - - - - - - ------------- Less than $50,000 5.0% 4.5% 3.5% 2.5% 1.5% 1.5% 84 months $50,000 but less than $100,000 4.5 3.5 2.5 1.5 1.5 0 76 months $100,000 but less than $250,000 3.5 2.5 1.5 1.5 0 0 60 months $250,000 but less than $500,000 2.5 1.5 1.5 0 0 0 44 months $500,000 but less than $1,000,000 1.5 1.5 0 0 0 0 28 months

Proceeds from the CDSC are paid to Securian Financial and are used to defray expenses related to providing distribution-related services to the Fund in connection with the sale of Class B shares, such as the payment of compensation to selected broker-dealers, and for selling Class B shares. The combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the Class B shares 31 without deduction of a sales charge at the time of purchase. Although Class B shares are sold without an initial sales charge, Securian Financial pays a sales commission to broker-dealers, and to registered representatives of Securian Financial, who sell Class B shares. The amount of this commission may differ from the amount of the commission paid in connection with sales of Class A shares. The higher Rule 12b-1 fee will cause Class B shares to have a higher expense ratio and to pay lower dividends than Class A shares. Securian Financial pays other broker-dealers for the sale of Class B shares in accordance with the following schedule:

Amount Paid to Broker-Dealers as a Shares Purchased in an Amount Percentage of Offering Price: ----------------------------- ----------------------------- Less than $50,000 4.17% $50,000 but less than $100,000 3.75 $100,000 but less than $250,000 2.92 $250,000 but less than $500,000 2.08 $500,000 but less than $1,000,000 1.25

CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class B shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class B shares acquired by exchange from Class B shares of another Advantus Multiple Class Funds will convert into Class A shares based on the time of the initial purchase. Purchased Class B shares ("Purchased B Shares") will convert after the specified number of months following the purchase date. All Class B shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment B Shares") will be held in a separate sub-account. Each time any Purchased B Shares convert to Class A shares, a PRO RATA portion (based on the ratio that the total converting Purchased B Shares bears to the shareholder's total converting and non-converting Purchased B Shares immediately prior to the conversion) of the Reinvestment B Shares then in the sub-account will also convert to Class A shares. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period. CLASS C SHARES Class C shares of Venture Fund and Index Fund are sold without an initial sales charge so that the Fund receives the full amount of the investor's purchase. Unlike Class B shares, however, no CDSC is imposed when Class C shares are redeemed. Class C shares will automatically convert to Class A shares of the Fund on the fifteenth day of the month (or, if different, the last business day prior to such date) following the expiration of a specified holding period. In addition, Class C shares are subject to higher Rule 12b-1 fees (as described below), and are subject to such higher fees for a longer period than are Class B shares because of a longer holding period prior to conversion. The applicable holding period prior to conversion is determined in accordance with the following table: 32

Shares Convert to Class A in the Month After Shares Purchased in an Amount Expiration of ----------------------------- ------------- Less than $50,000 96 months $50,000 but less than $100,000 88 months $100,000 but less than $250,000 72 months $250,000 but less than $500,000 56 months $500,000 but less than $1,000,000 40 months

The longer period during which the Rule 12b-1 fee is charged enables the Fund to sell the Class C shares without deduction of a sales charge at the time of purchase and without imposing a CDSC at redemption. Securian Financial does not pay a sales commission to broker-dealers, or to registered representatives of Securian Financial, who sell Class C shares. The higher Rule 12b-1 fee will cause Class C shares to have a higher expense ratio and to pay lower dividends than Class A shares. CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the last business day prior to such date) after the expiration of the applicable holding period described in the table above, Class C shares will automatically convert to Class A shares and will no longer be subject to a higher Rule 12b-1 fee. Such conversion will be on the basis of the relative net asset values of the two classes. Class A shares issued upon such conversion will not be subject to any FESC or CDSC. Class C shares acquired by exchange from Class C shares of another Advantus Multiple Class Fund will convert into Class A shares based on the time of the initial purchase. Purchased Class C shares ("Purchased C Shares") will convert after the specified number of months following the purchase date. All Class C shares in a shareholder's account that were acquired through the reinvestment of dividends and distributions ("Reinvestment C Shares") will be held in a separate sub-account. Each time any Purchased C Shares convert to Class A shares, a pro rata portion (based on the ratio that the total converting Purchased C Shares bears to the shareholder's total converting and non-converting Purchased C Shares immediately prior to the conversion) of the Reinvestment C Shares then in the sub-account will also convert to Class A shares. The conversion of Class C shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that payment of different dividends by each of the classes of shares does not result in the Fund's dividends or distributions constituting "preferential dividends" under the Internal Revenue Code of 1986, as amended, and that such conversions do not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class C shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class C shares would continue to be subject to higher expenses than Class A shares for an indefinite period. OTHER PAYMENTS TO BROKER-DEALERS Broker-dealers selling Class A, Class B and Class C shares of the Funds will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual basis, to .25% of the net asset values attributable to Class A, Class B and Class C shares. Shareholder servicing fees attributable to Class A shares are paid quarterly in arrears beginning with the end of the first quarter after the sale of the shares to which such fees are attributable. Shareholder servicing fees attributable to Class B and Class C shares are paid quarterly in arrears beginning with the second year after the sale of the shares to which such fees are attributable (i.e., the first payment is at the end of the fifteenth month). Rule 12b-1 distribution fees will also be paid quarterly in arrears to broker-dealers selling Class C shares equal, on an annual basis, to .75% of the net asset values attributable to such Class C shares. NET ASSET VALUE AND PUBLIC OFFERING PRICE The method for determining the public offering price and net asset value per share is summarized in the Prospectus in the text following the heading "Buying and Selling Shares." 33 The portfolio securities in which the Funds invest fluctuate in value, and hence the net asset value per share of each Fund also fluctuates. On July 31, 2002 the net asset value and public offering price per share for Class A, Class B and Class C shares of each of the Funds were calculated as set forth below. CORNERSTONE FUND CLASS A SHARES Net Assets ($57,947,279) = Net Asset Value Per Share ($11.81) - -------------------------------- Shares outstanding (4,907,681) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.81 = Public Offering Price Per Share ($12.50) ------ .945(1) CLASS B SHARES Net Assets ($6,190,135) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.60) Shares outstanding (533,841) CLASS C SHARES Net Assets ($680,160) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.57) Shares outstanding (58,812) ENTERPRISE FUND CLASS A SHARES Net Assets ($27,357,239) = Net Asset Value Per Share ($6.44) - -------------------------------- Shares outstanding (4,244,859) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $6.44 = Public Offering Price Per Share ($6.81) ----- .945(1) CLASS B SHARES Net Assets ($3,345,090) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($5.78) Shares outstanding (578,574) CLASS C SHARES Net Assets ($421,470) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($5.78) Shares outstanding (72,959) HORIZON FUND CLASS A SHARES Net Assets ($21,830,076) = Net Asset Value Per Share ($11.23) - -------------------------------- Shares outstanding (1,944,245) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.23 = Public Offering Price Per Share ($11.88) ------ .945(1) CLASS B SHARES Net Assets ($7,507,340) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($10.27) Shares outstanding (731,303) CLASS C SHARES Net Assets ($657,556) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($10.34) Shares outstanding (63,563) INDEX FUND CLASS A SHARES Net Assets ($18,196,010) = Net Asset Value Per Share ($12.00) - -------------------------------- Shares outstanding (1,516,679) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $12.00 = Public Offering Price Per Share ($12.70) ------ .945 (1) CLASS B SHARES Net Assets ($14,558,915) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.78) Shares outstanding (1,236,348) CLASS C SHARES Net Assets ($1,604,621) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.75) Shares outstanding (136,573) REAL ESTATE SECURITIES FUND CLASS A SHARES Net Assets ($32,268,948) = Net Asset Value Per Share ($11.93) - -------------------------------- Shares outstanding (2,704,869) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $11.93 = Public Offering Price Per Share ($12.62) ------ .945 CLASS B SHARES NET ASSETS ($1,131,179) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.89) Shares outstanding (95,132) VENTURE FUND CLASS A SHARES Net Assets ($53,071,152) = Net Asset Value Per Share ($12.25) - -------------------------------- Shares outstanding (4,333,250) To obtain the maximum public offering price per share, the Fund's maximum sales charge must be added to the net asset value obtained above: $12.25 = Public Offering Price Per Share ($12.96) ------ .945 (1) CLASS B SHARES Net Assets ($4,531,306) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.90) Shares outstanding (380,789) CLASS C SHARES Net Assets ($1,476,813) = Net Asset Value and Public - -------------------------------- Offering Price Per Share ($11.96) Shares outstanding (123,524) - ------------ (1) Effective February 1, 1999, the maximum FESC was increased to 5.5%. REDUCED SALES CHARGES Special purchase plans are enumerated in the text of the Funds' Prospectus under "Buying and Selling Shares - Reducing Sales Charges" and are fully described below. 34 RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT The front end sales charge and contingent deferred sales charge applicable to each purchase of Class A shares and Class B shares, respectively, of the Funds is based on the next computed net asset value of all Class A, Class B and Class C shares of such Funds held by the shareholder (including dividends reinvested and capital gains distributions accepted in shares), plus the cost of all Class A, Class B and Class C shares of such Funds currently being purchased. It is the obligation of each shareholder desiring this discount in sales charge to notify Securian Financial, through his or her dealer or otherwise, that he or she is entitled to the discount. LETTER OF INTENT The applicable sales charge for purchases of Class A shares is based on total purchases over a 13-month period where there is an initial purchase equal to or exceeding $1,000, accompanied by filing with Securian Financial a signed "Letter of Intent" form to purchase, and by in fact purchasing not less than $50,000 of shares in one of the Funds within that time. The 13-month period is measured from the date the Letter of Intent is approved by Securian Financial, or at the purchaser's option, it may be made retroactive 90 days, in which case Securian Financial will make appropriate adjustments on purchases during the 90-day period. In computing the total amount purchased for purposes of determining the applicable sales charge, the net asset value of Class A, Class B and Class C shares currently held in all Advantus Multiple Class Funds, on the date of the first purchase under the Letter of Intent, may be used as a credit toward Fund shares to be purchased under the Letter of Intent. Class A, Class B and Class C shares of all the Advantus Multiple Class Funds may also be included in the purchases during the 13-month period. The Letter of Intent includes a provision for payment of additional applicable Class A sales charges at the end of the period in the event the investor fails to purchase the amount indicated. This is accomplished by holding 5.5% of the investor's initial purchase in escrow. If the investor's purchases equal those specified in the Letter of Intent, the escrow is released. If the purchases do not equal those specified in the Letter of Intent, he or she may remit to Securian Financial an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges that would have been paid on the aggregate purchases if the total of such purchases had been made at a single time. If the purchaser does not remit this sum to Securian Financial on a timely basis, Securian Financial will redeem the appropriate number of shares, and then release or deliver any remaining shares in the escrow account. The Letter of Intent is not a binding obligation on the part of the investor to purchase, or the respective Fund to sell, the full amount indicated. Nevertheless, the Letter of Intent should be read carefully before it is signed. COMBINING PURCHASES With respect to each of the Advantus Multiple Class Funds, purchases of Class A, Class B and Class C shares for any other account of the investor, or such person's spouse or minor children, or purchases on behalf of participants in a tax-qualified retirement plan may be treated as purchases by a single investor for purposes of determining the availability of a reduced sales charge. GROUP PURCHASES An individual who is a member of a qualified group may also purchase shares of the Advantus Multiple Class Funds at the reduced sales charge applicable to the group taken as a whole. The sales charge is calculated by taking into account not only the dollar amount of the Class A, Class B and Class C shares of the Funds being purchased by the individual member, but also the aggregate dollar value of such Class A, Class B and Class C shares previously purchased and currently held by other members of the group. Members of a qualified group may not be eligible for a Letter of Intent. A "qualified group" is one which (i) has been in existence for more than six months, (ii) has a purpose other than acquiring Fund shares at a discount, 35 and (iii) satisfies uniform criteria which enable Securian Financial to realize economies of scale in distributing such shares. A qualified group must have more than ten members, must be available to arrange for group meetings between representatives of Securian Financial, must agree to include sales and other materials related to the Funds in its publications and mailings to members at reduced or no cost to Securian Financial, and must seek, upon request, to arrange for payroll deduction or other bulk transmission of investments to the Funds. WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES Directors and officers of Advantus Capital, CSAM (with respect to Enterprise Fund only), State Street (with respect to Venture Fund only), Securian Financial, the Funds, Minnesota Life, or any of Minnesota Life's other affiliated companies, and their full-time and part-time employees, sales representatives and retirees, any trust, pension, profit-sharing, or other benefit plan for such persons, the spouses, siblings, direct ancestors or direct descendants of such persons, independent legal counsel to the Funds' independent directors, Minnesota Life and its affiliates themselves, advisory clients of Advantus Capital, employees of sales representatives employed in offices maintained by such sales representatives, certain accounts as to which a bank or broker-dealer charges an account management fee, provided the bank or broker-dealer has an agreement with Securian Financial, certain accounts sold by registered investment advisers who charge clients a fee for their services, investors who, within 60 days after redeeming shares of a class of shares generally subject to either an initial or deferred sales charge issued by a non-Advantus fund, use those redemption proceeds to purchase Class A shares from Securian Financial or a broker-dealer that has entered into an agreement with Securian Financial specifically providing for net asset value purchases, and employer-sponsored retirement plans described in Sections 401 or 403, or governmental retirement plans described in Section 457, of the Internal Revenue Code with total plan assets of not less than $500,000, may purchase Class A shares of the Advantus Multiple Class Funds at net asset value. These persons must give written assurance that they have bought for investment purposes, and that the securities will not be resold except through redemption or repurchase by, or on behalf of, the respective Fund. These persons are not required to pay a sales charge because of the reduced sales effort involved in their purchases. EXCHANGE AND TRANSFER OF FUND SHARES A shareholder can exchange some or all of his or her Class A, Class B and Class C shares in the Advantus Multiple Class Funds, including shares acquired by reinvestment of dividends, for shares of the same class of any of the other Advantus Multiple Class Funds (provided such Fund is available in the shareholder's State), and can thereafter re-exchange such exchanged shares back for shares of the same class of the Fund. Purchases by exchange are subject to the minimum investment requirements of the Funds. The exchange will be made on the basis of the relative net asset values without the imposition of any additional sales load. When Class B shares acquired through the exchange are redeemed, the shareholder will be treated as if no exchange took place for the purpose of determining the contingent deferred sales charge ("CDSC") period and applying the CDSC. Class A, Class B and Class C shares may also be exchanged for shares of the Money Market Fund at net asset values. No CDSC will be imposed at the time of any such exchange of Class B shares; however, the Money Market Fund shares acquired in any such exchange will remain subject to the CDSC otherwise applicable to such Class B shares as of the date of exchange, and the period during which such shares of Money Market Fund are held will not be included in the calculation of the CDSC due at redemption of such Money Market Fund shares or any reacquired Class B shares, except as follows. Securian Financial is currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the event Securian Financial begins to receive any portion of such fee, either (i) the time period during which shares of Money Market Fund acquired in exchange for Class B shares are held will be included in the calculation of the CDSC due at redemption, or (ii) such time period will not be included but the amount of the CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money Market Fund with respect to those shares. Exchanges of shares from Money Market Fund are subject to applicable sales charges of the Advantus Fund being purchased, unless the Money Market Fund shares were previously acquired by an exchange from Class A or Class B shares of another Advantus Fund or by reinvestment or cross-reinvestment of dividends or capital gains distributions. Shares of Money Market Fund previously acquired in an exchange for Class A, Class B or Class C shares from any of the Funds may be re-exchanged at relative net asset values for Class A, Class B and Class C shares, respectively, of another Advantus Fund. Class C shares re-acquired in this manner will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at the time of the initial exchange. The exchange privilege is available only in states where such exchanges may legally be made (at the present time the Fund believes this privilege is available in all states). An exchange may be made by written request or by a telephone call, (unless the shareholder has elected on the account application 36 not to have telephone transaction privileges) or by Internet. Up to twelve exchanges each calendar year may be made without charge. A $7.50 service charge will be imposed on each subsequent exchange and/or telephone transfer. No service charge is imposed in connection with systematic exchange plans. However, the Fund reserves the right to restrict the frequency of, or otherwise modify, condition, terminate, or impose additional charges upon, the exchange and/or telephone transfer privileges and/or Internet transactions, upon 60 days' prior notice to shareholders. An exchange is considered to be a sale of shares for federal income tax purposes on which an investor may realize a long- or short-term capital gain or loss. See "Distributions and Tax Status" for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. SYSTEMATIC EXCHANGE PLAN Shareholders of the Fund may elect to have shares of the Fund systematically exchanged for shares of any of the other Advantus Funds on a monthly basis. The minimum amount which may be exchanged on such a systematic basis is $50. The terms and conditions otherwise applicable to exchanges generally, as described above, also apply to such systematic exchange plans. SHAREHOLDER SERVICES OPEN ACCOUNTS A shareholder's investment is automatically credited to an open account maintained for the shareholder by PFPC, the Funds' transfer agent. Stock certificates are not currently issued. Following each transaction in the account, a shareholder will receive a confirmation statement disclosing the current balance of shares owned and the details of recent transactions in the account. After the close of each year PFPC sends to each shareholder a statement providing federal tax information on dividends and distributions paid to the shareholder during the year. This should be retained as a permanent record. A fee may be charged for providing duplicate information. The open account system provides for full and fractional shares expressed to four decimal places and, by making the issuance and delivery of stock certificates unnecessary, eliminates problems of handling and safekeeping, and the cost and inconvenience of replacing lost, stolen, mutilated or destroyed certificates. The costs of maintaining the open account system are paid by each Fund. No direct charges are made to shareholders, the costs of maintaining the open account system are paid by each Fund. No direct charges are made to shareholders, except that the Funds will deduct a $10 annual fee from a shareholder's account in December of each year if the account balance at that time is below $2000. This low balance fee is waived for qualified retirement accounts and for investors who have aggregate Advantus Fund account assets of $25,000 or more (only shares held directly in the investor's name, rather than in a broker's name, are aggregated for this purpose). Although the Funds have no present intention of making additional direct charges to shareholders, they reserve the right to do so. Shareholders will receive prior notice before any such charges are made. AUTOMATIC INVESTMENT PLAN Each Fund provides a convenient, voluntary method of purchasing shares in the Fund through its "Automatic Investment Plan" (the "Plan"). The principal purposes of the Plan are to encourage thrift by enabling you to make regular purchases in amounts less than normally required, and, in the case of each of the Advantus Funds other than Money Market Fund, to employ the principle of dollar cost averaging, described below. By acquiring Fund shares on a regular basis pursuant to the Automatic Investment Plan, or investing regularly on any other systematic plan, the investor takes advantage of the principle of dollar cost averaging. Under dollar cost averaging, if a constant amount is invested at regular intervals at varying price levels, the average cost of all the shares will be lower than the average of the price levels. This is because the same fixed number of dollars buys more shares when price levels are low and fewer shares when price levels are high. There is no guarantee, however, that the automatic investment plan will always result in a lower cost per share compared to other investment programs. It is essential that the investor consider his or her financial ability to continue this investment program during times of market decline as well as market rise. The principle of dollar cost averaging will not protect against loss in a declining market, as a loss will result if the plan is discontinued when the market value is less than cost. 37 A Plan may be opened with an initial investment of $500 and by indicating an intention to invest $50 ($25 for plans established prior to December 2, 2002) or more monthly for at least one year. Investors will receive a confirmation showing the number of shares purchased, purchase price, and subsequent new balance of shares accumulated. An investor has no obligation to invest regularly or to continue the Plan, which may be terminated by the investor at any time without penalty. Under the Plan, any distributions of income and realized capital gains will be reinvested in additional shares at net asset value unless a shareholder instructs the Fund in writing to pay them in cash. The Fund reserves the right to increase or decrease the amount required to open and continue a Plan, and to terminate any Plan after one year if the value of the amount invested is less than $250. GROUP SYSTEMATIC INVESTMENT PLAN This Plan provides employers and employees with a convenient means for purchasing shares of each Fund under various types of employee benefit and thrift plans, including payroll withholding and bonus incentive plans. The Plan may be started with an initial cash investment of $50 per participant for a group consisting of five or more participants. The shares purchased by each participant under the Plan will be held in a separate account in which all dividends and capital gains will be reinvested in additional shares of the Fund at net asset value. To keep his or her account open, subsequent payments totaling $25 per month must be made into each participant's account. If the group is reduced to less than five participants, the minimums set forth under "Automatic Investment Plan" shall apply. The Plan may be terminated by the Fund or the shareholder at any time upon reasonable notice. RETIREMENT PLANS OFFERING TAX BENEFITS The federal tax laws provide for a variety of retirement plans offering tax benefits. These plans may be funded with shares of any of the Funds. The plans include H.R. 10 (Keogh) plans for self-employed individuals and partnerships, individual retirement accounts (IRA's), corporate pension trust and profit sharing plans, including 401(k) plans, and retirement plans for public school systems and certain tax exempt organizations, e.g. 403(b) plans. The initial investment in each Fund by such a plan must be at least $250 for each participant in a plan, and subsequent investments must be at least $25 per month for each participant. Income dividends and capital gain distributions must be reinvested. Plan documents and further information can be obtained from Securian Financial. An investor should consult a competent tax or other adviser as to the suitability of Fund shares as a vehicle for funding a plan, in whole or in part, under the Employee Retirement Income Security Act of 1974 and as to the eligibility requirements for a specific plan and its state as well as federal tax aspects. SYSTEMATIC WITHDRAWAL PLANS An investor owning shares in any one of the Funds having a value of $5,000 or more at the current public offering price may establish a Systematic Withdrawal Plan providing for periodic payments of a fixed or variable amount. Withdrawal payments for Class A shares of the Advantus Multiple Class Funds purchased in amounts of $1 million or more, and for Class B shares of Advantus Multiple Class Funds, may also be subject to a CDSC. As a result, a shareholder should consider whether a Systematic Withdrawal Plan is appropriate. It may be appropriate for the shareholder to consult a tax adviser before establishing such a plan. The Plan is particularly convenient and useful for trustees in making periodic distributions to retired employees. Through this Plan a trustee can arrange for the retirement benefit to be paid directly to the employee by the respective Fund and to continue the tax-free accumulation of income and capital gains prior to their distribution to the employee. An investor may terminate the Plan at any time. A form for use in establishing such a plan is available from Securian Financial. 38 A shareholder under a Systematic Withdrawal Plan may elect to receive payments monthly, quarterly, semiannually, or annually for a fixed amount of not less than $50 or a variable amount based on (1) the market value of a stated number of shares, (2) a specified percentage of the account's market value or (3) a specified number of years for liquidating the account (e.g., a 20-year program of 240 monthly payments would be liquidated at a monthly rate of 1/240, 1/239, 1/238, etc.). The initial payment under a variable payment option may be $50 or more. All shares under the Plan must be left on deposit. Income dividends and capital gain distributions will be reinvested without a sales charge at net asset value determined on the record date. Since withdrawal payments represent proceeds from the liquidation of shares, withdrawals may reduce and possibly exhaust the initial investment, particularly in the event of a decline in net asset value. Under this Plan, any distributions of income and realized capital gains must be reinvested in additional shares, and are reinvested at net asset value. If a shareholder wishes to purchase additional shares of the respective Fund under this Plan, other than by reinvestment of distributions, it should be understood that, in the case of Class A shares, he or she would be paying a sales commission on such purchases, while liquidations effected under the Plan would be at net asset value, and, in the case of Class B shares, he or she would be purchasing such shares at net asset value while liquidations effected under the Plan would involve the payment of a contingent deferred sales charge. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. Additions to a shareholder account in which an election has been made to receive systematic withdrawals will be accepted only if each such addition is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. A shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic Investment Plan" in effect simultaneously as it is not, as explained above, advantageous to do so. REDEMPTIONS Registered holders of shares of the Funds may redeem their shares at the per share net asset value ("NAV") next determined following receipt by PFPC (at its mailing address listed on the cover page) of a written redemption request signed by all shareholders exactly as the account is registered (and a properly endorsed stock certificate if one has been issued). A sale order received by PFPC from a financial services firm after NAV is determined that day will nonetheless be processed at that day's NAV if the order was received by the firm from its customer prior to such determination and transmitted to and received by PFPC prior to its close of business that day. Class C shares may be redeemed without charge. A contingent deferred sales charge may be applicable upon redemption of certain Class A shares and Class B shares. Both share certificates and stock powers, if any, tendered in redemption must be endorsed and executed exactly as the Fund shares are registered. Any certificates should be sent to the Fund by certified mail. Payment will be made as soon as possible, but generally not later than seven days after receipt of a properly executed written redemption request (and any certificates). Sales proceeds from shares purchased by check or bank draft, other than checks from government agencies, will not be available until the check or draft clears the purchaser's bank, which may take up to fifteen days after purchase. The amount received by the shareholder may be more or less than the shares' original cost. If stock certificates have not been issued, and if no signature guarantee is required, shareholders may also submit their signed written redemption request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is (508) 871-9960. Each Fund will pay in cash all redemption requests by any shareholder of record, limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of such period. When redemption requests exceed such amount, however, the Fund reserves the right to make part or all of the payment in the form of securities or other assets of the Fund. An example of when this might be done is in case of emergency, such as in those situations enumerated in the following paragraph, or at any time a cash distribution would impair the liquidity of the Fund to the detriment of the existing shareholders. Any securities being so distributed would be valued in the same manner as the portfolio of the Fund 39 is valued. If the recipient sold such securities, he or she probably would incur brokerage charges. Each Fund has filed with the Securities and Exchange Commission a notification of election pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make such redemptions in kind. Redemption of shares, or payment, may be suspended at times (a) when the New York Stock Exchange is closed for other than customary weekend or holiday closings, (b) when trading on said Exchange is restricted, (c) when an emergency exists, as a result of which disposal by the Fund of securities owned by it is not reasonably practicable, or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the SEC, by order, so permits; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions prescribed in (b) or (c) exist. MEDALLION SIGNATURE GUARANTEE In order to protect both shareholders and the Funds against fraudulent orders, a medallion shareholder signature guarantee is required in certain cases. No signature guarantee is required if the redemption proceeds are less than $50,000 and are to be paid to the registered holder and sent to the address of record for that account, or if the written redemption request is from pre-authorized trustees of plans, trusts and other tax-exempt organizations and the redemption proceeds are less than $50,000. A medallion signature guarantee is required, however, if (i) the redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to be paid to someone other than the registered holder, (iii) the redemption proceeds are to be mailed to an address other than the registered shareholder's address, (iv) within the 30-day period prior to receipt of the redemption request, instructions have been received to change the shareholder's address of record, or, in the case of redemptions to be paid by wire, instructions have been received within such period to change the shareholder's bank wire instructions, (v) the shares are requested to be transferred to the account of another owner, or (vi) in the case of plans, trusts, or other tax-exempt organizations, the redemption request is not from a pre-authorized trustee. The Fund reserves the right to require signature guarantees on all redemptions. A signature guarantee must be a "medallion" signature guarantee provided by a domestic bank or trust company, broker, dealer, clearing agency, savings association, or other financial institution which participates in a medallion program recognized by the Securities Transfer Association. The three recognized medallion programs are: - - Securities Transfer Agents Medallion Program (STAMP) - - Stock Exchanges Medallion Program (SEMP) - - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP) Signature guarantees from financial institutions which are not participants in a recognized medallion program will not be accepted. CONTINGENT DEFERRED SALES CHARGE The CDSC applicable upon redemption of Class A shares purchased in amounts of $1 million or more and Class B shares will be calculated on an amount equal to the lesser of the net asset value of the shares at the time of purchase or their net asset value at the time of redemption. No charge will be imposed on increases in net asset value above the initial purchase price. In addition, no charge will be assessed on shares derived from reinvestment of dividends or capital gains distributions or on shares held for longer than the applicable CDSC period. See "Sales Charges - Class B Shares" above. In determining whether a CDSC is payable with respect to any redemption of Class B shares, the calculation will be determined in the manner that results in the lowest rate being charged. 40 The CDSC does not apply to: (1) redemption of Class B shares in connection with the automatic conversion to Class A shares; (2) redemption of shares when a Fund exercises its right to liquidate accounts which are less than the minimum account size; (3) redemptions in the event of the death or disability of the shareholder within the meaning of Section 72(m)(7) of the Internal Revenue Code; and (4) in connection with Class B shares redeemed pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares equal in amount to 12% of the value of a shareholder's account in a Fund at the time the Systematic Withdrawal Plan is established. The CDSC will also not apply to certain exchanges. See "Exchange and Transfer of Fund Shares," above. TELEPHONE REDEMPTION The Funds' shareholders have this privilege automatically, unless they have elected on the account application not to have such privilege, and may redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see "Telephone Transactions"). A telephone redemption request will not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30-day period prior to receipt of the redemption request. The maximum amount which may be redeemed by telephone is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. INTERNET REDEMPTION The Funds' shareholders may elect to perform certain transactions via the Internet. In order to do so, the shareholder must first authorize the Fund to transmit information on-line and agree to the Funds' web site procedures. Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more information on how to enable an account. Internet transactions may not be honored, however, if the shareholder's address of record or bank wire instructions have been changed without a guarantee of the shareholder's signature (see "Medallion Signature Guarantee" above) within the 30 day period prior to receipt of the redemption request. The maximum amount which may be redeemed by internet is $50,000. The proceeds will be sent by check to the address of record for the account. If the amount is $500 or more, and if the shareholder has designated a bank account, the proceeds may be wired to the shareholder's designated bank account, and the prevailing wire charge (currently $15.00) will be added to the amount redeemed from the Fund. The Funds reserve the right to modify, terminate or impose charges upon the telephone redemption privilege. DELAY IN PAYMENT OF REDEMPTION PROCEEDS Payment of redemption proceeds will ordinarily be made as soon as possible and within the periods of time described above. However, an exception to this is that if redemption is requested after a purchase by check or bank draft, other than checks from government agencies, the Fund will delay mailing the redemption check or wiring proceeds until it has reasonable assurance that the purchase check has cleared (good payment has been collected). This delay may be up to 15 days from the purchase date. FUND'S RIGHT TO REDEEM SMALL ACCOUNTS Each Fund has the right to redeem the shares in small accounts which, for any reason, have a total current value of less than $150 in 2002, or $500 in subsequent years. The Funds usually make this determination in December of each year. Before redeeming an account, the Fund will mail to the shareholder a written notice of its intention to redeem, which will give the investor an opportunity to make an additional investment. If no additional investment is received by the Fund within 60 days of the date the notice was mailed, the shareholder's account will be redeemed. REINSTATEMENT PRIVILEGE The Prospectus for the Funds describes redeeming shareholders' reinstatement privileges in "Buying and Selling Shares" in the Funds' Prospectus. Written notice from persons wishing to exercise this reinstatement privilege must be received by Securian Financial within 90 days after the date of the redemption. The reinstatement or exchange will be made at net asset value next determined after receipt of the notice and will be limited to the amount of the redemption proceeds or to the nearest full share if fractional shares are not purchased. All shares issued as a result of the reinstatement privilege applicable to redemptions of Class A and Class B shares will be issued only as Class A shares. Any CDSC incurred in connection with the prior redemption (within 90 days) of Class B shares will not be refunded or re-credited to the shareholder's account. Shareholders who redeem Class C shares and exercise their reinstatement privilege will be issued only Class C shares, which shares will have a remaining holding period prior to conversion equal to the remaining holding period applicable to the prior Class C shares at redemption. See "Distributions and Tax Status" below for a discussion of the effect of redeeming shares within 90 days after acquiring them and subsequently acquiring new shares in any mutual fund at a reduced sales charge. Should an investor utilize the reinstatement privilege following a redemption which resulted in a 41 loss, all or a portion of that loss might not be currently deductible for Federal income tax purposes, for an investor which is not tax-exempt. Exercising the reinstatement privilege would not alter any capital gains taxes payable on a realized gain, for an investor which is not tax-exempt. See discussion under "Distributions and Tax Status" below regarding the taxation of capital gains. TELEPHONE TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's shares by telephone. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions by telephone is made available automatically unless the shareholder elects on the account application not to have such privilege. Shareholders, or persons authorized by shareholders, may initiate telephone transactions by telephoning Advantus Shareholder Services, toll free, at at (800) 665-6005. Automated service is available 24 hours a day, and service representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m. (Central Time). Telephone transaction requests received after 3:00 p.m. (Central Time) will be treated as received the next business day. The maximum amount which may be redeemed by telephone is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing a telephone exchange or redemption due to a heavy volume of telephone calls. In such a circumstance, shareholders should consider submitting a written request as an alternative to a telephone exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the telephone exchange and redemption privileges upon 60 days' prior notice to shareholders. A Fund will not be liable for following instructions communicated by telephone which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated by telephone are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing telephone transactions include tape recording of telephone instructions, asking shareholders for their account number and a personal identifying number, and providing written confirmation of such transactions. INTERNET TRANSACTIONS Shareholders of the Funds are permitted to exchange or redeem a Fund's share via the Internet. See "Exchange and Transfer of Fund Shares" and "Redemptions" for further details. The privilege to initiate such transactions via Internet requires that a shareholder contact Advantus at (800) 665-6005 to enable their account. Shareholders, or persons authorized by shareholders, may initiate Internet transactions by going to the Advantus Funds web site, www.advantusfunds.com. Automated service is generally available 24 hours a day. Internet transaction requests received after 3:00 p.m. (Central time) will be treated as received the next business day. The maximum amount which may be redeemed via Internet is $50,000. During periods of marked economic or market changes, shareholders may experience difficulty in implementing an on-line exchange or redemption due to a heavy volume. In such a circumstance, shareholders should consider submitting a written request as an alternative to an on-line exchange or redemption. The Funds reserve the right to modify, terminate or impose charges upon the Internet on-line exchange and redemption privileges upon 60 days' prior notice to shareholders. A Fund will not be liable for following instructions communicated by Internet which it reasonably believes to be genuine; provided, however, that the Fund will employ reasonable procedures to confirm that instructions communicated via the Internet are genuine, and that if they do not, they may be liable for any losses due to unauthorized or fraudulent instructions. The procedures for processing Internet transactions include requiring shareholders to contact Advantus in order to establish their on-line account, asking shareholders for their account number and a personal identifying number, providing a confirmation number on-screen, at the completion of an on-line transaction, and providing written confirmation of such transactions. THE STANDARD & POOR'S LICENSE Standard & Poor's ("S&P") is a division of The McGraw-Hill Companies, Inc. S&P has trademark rights to the marks "Standard & Poor's-Registered Trademark-," "S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's 500" and "500" and has licensed the use of such marks by the Index Fund. Index Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representation or warranty, express or implied, to the owners of the Index Fund or any member of the public regarding the advisability of investing in securities generally or in the Index Fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Index Fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the Fund. S&P has no obligation to take the needs of the Index Fund or the owners of the Fund into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the net asset value or public offering price of the Index Fund nor is S&P a distributor of the Fund. S&P has no obligation or liability in connection with the administration, marketing or trading of the Index Fund. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE 42 OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. DISTRIBUTIONS AND TAX STATUS DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS The policy of the Funds has been to pay dividends from net investment income quarterly. Any net realized capital gains are generally distributed once a year, during December. Distributions paid by the Funds, if any, with respect to Class A, Class B and Class C shares will be calculated in the same manner, at the same time, on the same day and will be in the same amount, except that the higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne exclusively by such shares. The per share distributions on Class B and Class C shares will be lower than the per share distributions on Class A shares as a result of the higher Rule 12b-1 fees applicable to Class B and Class C shares. Any dividend payments or net capital gains distributions made by the Funds are in the form of additional shares of the same class of the Fund rather than in cash, unless a shareholder specifically requests the Fund in writing that the payment be made in cash. The distribution of these shares is made at net asset value on the payment date of the dividend, without any sales or other charges to the shareholder. The taxable status of income dividends and/or net capital gains distributions is not affected by whether they are reinvested or paid in cash. Authorization to pay dividends in cash may be made on the application form, or at any time by letter. Upon written request to a Fund, a shareholder may also elect to have dividends from the Fund invested without sales charge in shares of Advantus Money Market Fund or shares of the same class of another of the Advantus Funds at the net asset value of such other Fund on the payable date for the dividends being distributed. To use this privilege of investing dividends from a Fund in shares of another of the Funds, shareholders must maintain a minimum account value of $500 in both the Fund paying the dividends and the other Fund in which dividends are reinvested. TAXATION - GENERAL The following is a general summary of certain federal tax considerations affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Funds or their shareholders, and the discussion here is not intended as a substitute for careful tax planning. During the year ended July 31, 2002 each Fund fulfilled, and intends to continue to fulfill, the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated investment company. If so qualified, each Fund will not be liable for federal income taxes to the extent it distributes its taxable income to its shareholders. Distributions of investment company taxable income from a Fund generally will be taxable to shareholders as ordinary income, regardless of whether such distributions are paid in cash or are invested in additional shares of the Fund's stock. A distribution of net capital gain (a "capital gain distribution"), whether paid in cash or reinvested in shares, generally is taxable to shareholders as long-term capital gain, regardless of the length of time a shareholder has held his or her shares or whether such gain was realized by the Fund before the shareholder acquired such shares and was reflected in the price paid for the shares. Long-term capital gains of individuals are taxed at a maximum rate of 20%, and the highest marginal regular tax rates on ordinary income for individuals is 39.6%. Some or all of the dividend distributions from each Fund are expected to qualify for the 70% dividend received deduction for corporations, except that dividend distributions from the Real Estate Securities Fund attributable to dividends that the Fund receives from REITs will not qualify for such dividend received deduction for corporations. Prior to purchasing shares of a Fund, prospective shareholders (except for tax qualified retirement plans) should consider the impact of dividends or 43 capital gains distributions which are expected to be announced, or have been announced but not paid. Any such dividends or capital gains distributions paid shortly after a purchase of shares by an investor prior to the record date will have the effect of reducing the per share net asset value by the amount of the dividends or distributions. All or a portion of such dividends or distributions, although in effect a return of capital, is subject to taxation. The Code provides that a shareholder who pays a sales charge in acquiring shares of a mutual fund, redeems those shares within 90 days after acquiring them, and subsequently acquires new shares in any mutual fund for a reduced sales charge or no sales charge (pursuant to a reinvestment right acquired with the first shares), may not take into account the sales charge imposed on the first acquisition, to the extent of the reduction in the sales charge on the second acquisition, for purposes of computing gain or loss on disposition of the first acquired shares. The amount of sales charge disregarded under this rule will, however, be treated as incurred in connection with the acquisition of the second acquired shares. Shareholders of the Funds receive an annual statement detailing federal tax information. Distributions by the Funds, including the amount of any redemption, are reported to shareholders in such annual statement and to the Internal Revenue Service to the extent required by the Code. The Funds are required by federal law to withhold 31% of reportable payments (including dividends, capital gain distributions, and redemptions) paid to certain accounts whose owners have not complied with IRS regulations. In order to avoid this backup withholding requirement, each shareholder will be asked to certify on the shareholder's account application that the social security or taxpayer identification number provided is correct and that the shareholder is not subject to backup withholding for previous underreporting to the IRS. Some of the investment practices that may be employed by the Funds will be subject to special provisions that, among other things, may defer the use of certain losses of such Funds, affect the holding period of the securities held by the Funds and affect the character of the gains or losses realized. These provisions may also require the Funds to mark-to-market some of the positions in their respective portfolios (i.e., treat them as closed out) or to accrue original discount, both of which may cause such Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the distribution requirements for qualification as a regulated investment company and for avoiding income and excise taxes. Accordingly, in order to make the required distributions, a Fund may be required to borrow or liquidate securities. Each Fund will monitor its transactions and may make certain elections in order to mitigate the effect of these rules and prevent disqualification of the Funds as regulated investment companies. The Real Estate Securities Fund may invest in REITs that hold residual interests in real estate mortgage investment conduits ("REMICs"). Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of the Fund's income from a REIT that is attributable to the REIT's residual interest in a REMIC (referred to in the Code as an "excess inclusion") will be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a regulated investment company, such as the Fund, will be allocated to shareholders of the regulated investment company in proportion to the dividends received by them with the same consequences as if the shareholders held the related REMIC residual interest directly. In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions) and (ii) will constitute unrelated business taxable income to entities (including a qualified pension plan, an individual retirement account, a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax on unrelated business income, thereby potentially requiring such an entity that is allocated excess inclusion income, and otherwise might not be required to file a tax return, to file a tax return and pay tax on some income. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a regulated investment company, then the regulated investment company will be subject to a tax equal to that portion of its excess inclusion income for the taxable year thatis allocable to the disqualified organization, multiplied by the highest Federal income tax rate imposed on corporations. 44 Each Fund is subject to a non-deductible excise tax equal to 4 percent of the excess, if any, of the amount required to be distributed pursuant to the Code for each calendar year over the amount actually distributed. In order to avoid the imposition of this excise tax, the Fund generally must declare dividends by the end of a calendar year representing 98 percent of the Fund's ordinary income for the calendar year and 98 percent of its capital gain net income (both long-term and short-term capital gains) for the twelve-month period ending October 31 of the calendar year. The foregoing relates only to federal taxation. Prospective shareholders should consult their tax advisers as to the possible application of state and local income tax laws to ownership of Fund shares. FINANCIAL STATEMENTS Each Fund's financial statements for the fiscal year ended July 31, 2002, including the financial highlights for each of the respective periods presented, appearing in the Funds' Annual Report to Shareholders, and the report thereon of such Fund's independent auditors, KPMG LLP, also appearing therein, are incorporated by reference in this Statement of Additional Information. 45 APPENDIX A BOND AND COMMERCIAL PAPER RATINGS BOND RATINGS Moody's Investors Service, Inc. describes its six highest ratings for corporate bonds and mortgage-related securities as follows: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Bonds which are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3, in each of these generic rating classifications. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's Corporation describes its six highest ratings for corporate bonds and mortgage-related securities as follows: AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A. Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. A-1 BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB. Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. B. Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The "B" rating category is also used for debt subordinated to senior debt that is assigned an actual or implied "BB" or "BB-" rating. Standard & Poor's Corporation applies indicators "+", no character, and "-" to the above rating categories. The indicators show relative standing within the major rating categories. COMMERCIAL PAPER RATINGS The rating Prime-1 is the highest commercial paper rating assigned by Moody's Investors Service, Inc. Among the factors considered by Moody's Investors Service, Inc. in assigning the ratings are the following: (1) evaluation of the management of the issuer, (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of ten years; (7) financial strength of a parent company and the relationships which exist with the issuer; an (8) recognition by the management of obligations which may be present or may arise as a result of public interest questions and preparations to meet such obligations. The rating A-1 is the highest rating assigned by Standard & Poor's Corporation to commercial paper which is considered by Standard & Poor's Corporation to have the following characteristics: Liquidity ratios of the issuer are adequate to meet cash redemptions. Long-term senior debt is rated "A" or better. The issuer has access to at least two additional channels of borrowing. Basic earnings and cash flow have an upward trend with allowance made for unusual circumstances. Typically, the issuer's industry is well established and the issuer has a strong position within the industry. The reliability and quality of management are unquestioned. A-2 APPENDIX B - FUTURES CONTRACTS EXAMPLE OF FUTURES CONTRACT SALE The Fund would engage in a futures contract sale to maintain the income advantage from continued holding of a long-term security while endeavoring to avoid part or all of the loss in market value that would otherwise accompany a decline in long-term securities prices. Assume that the market value of a certain security in the Fund's portfolio tends to move in concert with the futures market prices of long-term United States Treasury bonds ("Treasury bonds"). The Fund wishes to fix the current market value of this portfolio security until some point in the future. Assume the portfolio security has a market value of $100, and the Fund believes that, because of an anticipated rise in interest rates, the value will decline to $95. The Fund might enter into futures contract sales of Treasury bonds for a price of $98. If the market value of the portfolio security does indeed decline from $100 to $95, the futures market price for the Treasury bonds might also decline from $98 to $93. In that case, the $5 loss in the market value of the portfolio security would be offset by the $5 gain realized by closing out the futures contract sale. Of course, the futures market price of Treasury bonds might decline to more than $93 or to less than $93 because of the imperfect correlation between cash and futures prices mentioned above. The Fund could be wrong in its forecast of interest rates and the futures market price could rise above $98. In this case, the market value of the portfolio securities, including the portfolio security being protected, would increase. The benefit of this increase would be reduced by the loss realized on closing out the futures contract sale. If interest rate levels did not change prior to settlement date, the Fund, in the above example, would incur a loss of $2 if it delivered the portfolio security on the settlement date (which loss might be reduced by an offsetting transaction prior to the settlement date). In each transaction, nominal transaction expenses would also be incurred. EXAMPLE OF FUTURES CONTRACT PURCHASE The Fund would engage in a futures contract purchase when it is not fully invested in long-term securities but wishes to defer for a time the purchase of long-term securities in light of the availability of advantageous interim investments, e.g., short-term securities whose yields are greater than those available on long-term securities. The Fund's basic motivation would be to maintain for a time the income advantage from investing in the short-term securities; the Fund would be endeavoring at the same time to eliminate the effect of all or part of the increases in market price of the long-term securities that the Fund may purchase. For example, assume that the market price of a long-term security that the Fund may purchase, currently yielding 10%, tends to move in concert with futures market prices of Treasury bonds. The Fund wishes to fix the current market price (and thus 10% yield) of the long-term security until the time (four months away in this example) when it may purchase the security. Assuming the long-term security has a market price of $100, and the Fund believes that, because of an anticipated fall in interest rates, the price will have risen to $105 (and the yield will have dropped to about 9-1/2%) in four months, the Fund might enter into futures contracts purchases of Treasury bonds for a price of $98. At the same time, the Fund would assign a pool of investments in short-term securities that are either maturing in four months or earmarked for sale in four months, for purchase of the long-term security at an assumed market price of $100. Assume these short-term securities are yielding 15%. If the market price of the long-term bond does indeed rise from $100 to $105, the futures market price for Treasury bonds might also rise from $98 to $103. In that case, the $5 increase in the price that the Fund pays for the long-term security would be offset by the $5 gain realized by closing out the futures contract purchase. The Fund could be wrong in its forecast of interest rates; long-term interest rates might rise to above 10%, and the futures market price could fall below $98. If short-term rates at the same time fall to 10% or below, it is possible that the Fund would continue with its purchase program for long-term securities. The market prices of available long-term securities would have decreased. The benefit of this price decrease, and thus yield increase, will be reduced by the loss realized on closing out the futures contract purchase. If, however, short-term rates remained above available long-term rates, it is possible that the Fund would discontinue its purchase program for long-term securities. The yields on short-term securities in the portfolio, including those originally in the pool assigned to the particular long-term security, would remain higher than yields on long-term bonds. The benefit of this continued incremental income will be reduced by the loss realized on closing out the futures contract purchase. In each transaction, nominal transaction expenses would also be incurred. TAX TREATMENT The amount of any gain or loss realized by the Fund on closing out a futures contract may result in a capital gain or loss for federal income tax purposes. Generally, futures contracts held by the Fund at the close of the Fund's taxable year will be treated for federal income tax purposes as sold for their fair market value on the last business day of such year. Forty percent of any gain or loss resulting from such constructive sale will be treated as short-term capital gain or loss and 60 percent of such gain or loss will be treated as long-term capital gain or loss. The amount of any capital gain or loss actually realized by the Fund in a subsequent sale or other disposition of these futures contracts will be adjusted to reflect any capital gain or loss taken into account by the Fund in a prior year as a result of the constructive sale of the contract. Notwithstanding the rules described above, with respect to futures contracts which are part of futures contract sales, and in certain other situations, the Fund may make an election which may have the effect of exempting all or a part of those identified future contracts from being treated for federal income tax purposes as sold on the last business day of the Fund's taxable year; all or part of any gain or loss otherwise realized by the Fund on any closing transaction may be deferred until all of the Fund's positions with respect to the futures contract sales are closed; and, all or part of any gain or loss may be treated as short-term capital gain or loss. Under the Federal income tax provisions applicable to regulated investment companies, at least 90% of the Fund's annual gross income must be derived from dividends, interest, payments with respect to loans of securities, and gains from the sale or other disposition of securities ("qualifying income"). Under the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include gains from forward contracts in determining qualifying income. In addition, in order that the Fund continue to qualify as a regulated investment company for Federal income tax purposes, less than 30% of its gross income for any year must be derived from gains realized on the sale or other disposition of securities held by the Fund for less than three months. For this purpose, the Fund will treat gains realized on the closing out of futures contracts as gains derived from the sale of securities. This treatment could, under certain circumstances, require the Fund to defer the closing out of futures contracts until after three months from the date the fund acquired the contracts, even if it would be more advantageous to close out the contracts prior to that time. However, under the Code, a special rule is provided with respect to certain hedging transactions which has the effect of allowing the Fund to engage in such short-term transactions in limited circumstances. Any gains realized by the Fund as a result of the constructive sales of futures contacts held by the Fund at the end of its taxable year, as described in the preceding paragraph, will in all instances be treated as derived from the sale of securities held for three months or more, regardless of the actual period for which the Fund has held the futures contracts at the end of the year. EX-99.(17)(U) 26 c78747exv99wx17yxuy.txt EX-(17)(U) IVY FUNDS,INC. ANNUAL REPORT-MARCH 2003 Exhibit (17)(u) W&R Funds Asset Strategy Fund Core Equity Fund High Income Fund International Growth Fund Large Cap Growth Fund Limited-Term Bond Fund Mid Cap Growth Fund Money Market Fund Municipal Bond Fund Science and Technology Fund Small Cap Growth Fund Tax-Managed Equity Fund Annual Report -------------- March 31, 2003 CONTENTS 3 Asset Strategy Fund 22 Core Equity Fund 39 High Income Fund 61 International Growth Fund 79 Large Cap Growth Fund 95 Limited-Term Bond Fund 113 Mid Cap Growth Fund 131 Money Market Fund 144 Municipal Bond Fund 165 Science and Technology Fund 183 Small Cap Growth Fund 200 Tax-Managed Equity Fund 217 Notes to Financial Statements 243 Independent Auditors' Report 244 Income Tax Information 247 Directors & Officers 254 Annual Privacy Notice 256 Householding Notice This report is submitted for the general information of the shareholders of W&R Funds, Inc. It is not authorized for distribution to prospective investors unless accompanied with or preceded by the W&R Funds, Inc. current prospectus and current Fund performance information. MANAGERS' DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Michael L. Avery and Daniel J. Vrabac, portfolio managers of W&R Funds, Inc. - Asset Strategy Fund This report relates to the operation of W&R Funds, Inc. -- Asset Strategy Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund posted slightly negative returns for the fiscal year, as the Class C shares of the Fund declined 0.79 percent. The Fund outperformed its stock benchmark index, the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which decreased 24.76 percent during the fiscal year, and the Lipper Flexible Portfolio Funds Universe Average (generally representing the performance of the universe of funds with similar investment objectives), which decreased 13.68 percent for the fiscal year. However, the Fund lagged its bond benchmark indexes, as the Citigroup Broad Investment Grade Index (reflecting the performance of securities that generally represent the bond market) increased 11.56 percent for the fiscal year, and the Citigroup Short-Term Index for 1 Month Certificates of Deposit (reflecting the performance of securities that generally represent one-month certificates of deposit) increased 1.66 percent for the year. Multiple indexes are presented because the Fund invests in stocks and bonds and short-term instruments. Please note that while the Fund's bond benchmarks remain the same, their names have changed from the Salomon Brothers indexes to the Citigroup indexes. Why did the Fund outperform its stock benchmarks but lag its bond and short-term benchmarks? The Fund's relative outperformance compared to the S&P 500 and stock benchmark universe was attributable to our asset allocation decision. We maintained a low exposure to U.S. equities and high exposure to U.S. short-term fixed-income securities and precious metals (specifically, gold bullion and gold-related equities) throughout the year relative to these benchmark comparisons. Essentially, most of our bond investments were short-term U.S. Treasuries. This was more of a defensive posture, desiring to be very liquid and not take on a lot of price risk. Because interest rates declined so much during the year, longer duration bonds performed better than our shorter-duration bonds which helps to explain our underperformance versus the bond benchmark index. What other market conditions or events influenced the Fund's performance during the fiscal year? Although the Fund's relative performance was competitive, we were not pleased with the Fund's absolute performance, which was negative. This poor absolute performance was, in our view, primarily the result of market events in the last quarter. For the quarter, the Fund declined 1.19 percent. In the final weeks of the period, the equity market had a significant rally. Precious metals and fixed-income markets underperformed. Why? We believe that the financial markets were greatly distracted by daily events as they pertained to the war in Iraq. We feel that too little attention was focused on the U.S. economy and the increasingly dim prospect of an acceleration in growth over the next 12 months. Our view is that if investors were not captivated by daily war developments, the equity market would have had to trade on fundamentals, meaning, we believe, lower valuation levels. What strategies and techniques did you employ that specifically affected the Fund's performance? Our defensive posture of emphasis on short-term fixed-income securities and precious metals over equities had a positive effect on Fund performance for most of the year. However, in the last quarter, this strategy had a negative effect as equities rallied and precious metals and fixed-income underperformed. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? As mentioned earlier, during the last fiscal year we emphasized U.S. short-term fixed-income securities and precious metals such as gold bullion and gold- related equities. Going forward, we plan to continue this defensive strategy, which is based on our cautious view of the equity market. When the equity market refocuses on secular issues, we believe it will have to reconcile the systemic problem of excessive debt, particularly in the private sector, with temporary disruptions. We feel that the equity market has not fully appreciated that in any economy with high debt levels, a dependency on foreign capital and poor growth prospects, the debt must be either inflated or defaulted away. Looking ahead, we expect gold to continue to play an important role in the Fund's portfolio. In an economy with deteriorating debt quality, current account deficit, low growth prospects and declining demand for equities, we believe that the value of the paper currency of that economy is at risk of devaluation. For the U.S. economy, we believe that there are few viable currencies for the dollar to devalue against. Gold is unique in that it is relatively scarce, has no offsetting liabilities and is generally ignored by the investment community. Respectfully, Michael L. Avery Daniel J. Vrabac Managers W&R Asset Strategy Fund Comparison of Change in Value of $10,000 Investment W&R Citigroup Lipper Asset CitigroupShort-Term Flexible Strategy Broad Index for Portfolio Fund, Investment 1 month Funds Class C S&P 500 GradeCertificatesUniverse Shares Index Indexof Deposit Average ------------ --------------------------- --------- 04-30-95 10,000 10,000 10,000 10,000 10,000 03-31-96 10,300 12,832 10,936 10,541 11,887 03-31-97 10,212 15,366 11,473 11,122 13,179 03-31-98 12,758 22,748 12,848 11,760 17,009 03-31-99 12,987 26,963 13,682 12,406 18,200 03-31-00 18,129 31,862 13,930 13,097 20,969 03-31-01 17,365 24,898 15,681 13,949 18,983 03-31-02 17,020 24,950 16,519 14,387 19,256 03-31-03 16,886 18,773 18,428 14,626 16,622 ==== W&R Asset Strategy Fund, Class C Shares (1)(2) -- $16,886 ++++ S&P 500 Index (1) -- $18,773 -+-+-+ Citigroup Broad Investment Grade Index (1) -- $18,428 *--*-- Citigroup Short-Term Index for 1 Month Certificates of Deposit (1) -- $14,626 ---- Lipper Flexible Portfolio Funds Universe Average (1) -- $16,622 (1) Because the Fund commenced operations on a date other than at the end of a month, and partial month calculations of the performance of the indexes (including income) are not available, the investments were effected as of April 30, 1995. (2) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(3) Class A Class B Class C(4) Class Y --------------------------------------------- 1-year period ended 3-31-03 -5.76% -4.87% -0.79% 0.08% 5-year period ended 3-31-03 --- --- 5.77% 6.70% Since inception of Class through 3-31-03(5) -3.97% -3.52% 6.81% 7.93% (3)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (4)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (5)7-10-00 for Class A shares, 7-3-00 for Class B shares, 4-20-95 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND - ----------------------------------------------------------------- Asset Strategy Fund GOAL To seek high total return over the long term. Strategy Invests in stocks, bonds and short-term instruments. Within each of these classes, the Fund may invest in both domestic and foreign securities. Founded 1995 Scheduled Dividend Frequency Quarterly (March, June, September and December) Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Dividends paid $0.06 ===== Net asset value on 3-31-03 $11.17 3-31-02 11.32 ------ Change per share $(0.15) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------- With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -5.76% 0.00% -4.87% -0.92% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class(F) -3.97% -1.85% -3.52% -2.67% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-10-00 for Class A shares and 7-3-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return (A) Period Class C(B) Class Y(C) - ------ --------- --------- 1-year period ended 3-31-03 -0.79% 0.08% 5-year period ended 3-31-03 5.77% 6.70% 10-year period ended 3-31-03 --- --- Since inception of Class(D) 6.81% 7.93% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 4-20-95 for Class C shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Asset Strategy Fund had net assets totaling $64,439,478 invested in a diversified portfolio of: 52.55% United States Government Securities 26.19% Common Stocks 9.21% Corporate Debt Securities 8.21% Bullion 3.21% Other Government Securities 0.63% Cash and Cash Equivalents and Unrealized Loss on Open Forward Currency Contracts As a shareholder of Asset Strategy Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $52.55 United States Government Securities 26.19 Common Stocks 9.21 Corporate Debt Securities 8.21 Bullion 3.21 Other Government Securities 0.63 Cash and Cash Equivalents and Unrealized Loss on Open Forward Currency Contracts THE INVESTMENTS OF ASSET STRATEGY FUND March 31, 2003 Troy Ounces Value BULLION - 8.21% Gold ................................... 15,743 $ 5,291,868 ----------- (Cost: $5,084,196) Shares COMMON STOCKS Aircraft -0.76% Northrop Grumman Corporation ........... 5,700 489,060 ----------- Chemicals - Petroleum and Inorganic - 0.52% Potash Corporation of Saskatchewan Inc. 5,400 333,720 ----------- Coal - 0.36% CONSOL Energy Inc. ..................... 3,800 62,814 Massey Energy Company .................. 7,000 65,800 Peabody Energy Corporation ............. 3,780 105,424 ----------- 234,038 ----------- Communications Equipment - 0.42% Nokia Corporation, Series A, ADR ....... 19,300 270,393 ----------- Computers -- Peripherals - 0.55% Electronic Arts Inc.* .................. 6,100 357,765 ----------- Construction Materials - 0.21% Cemex, S.A. de C.V., ADR ............... 7,600 132,544 ----------- Farm Machinery - 0.24% Deere & Company ........................ 3,900 153,114 ----------- Food and Related - 0.76% American Italian Pasta Company, Class A* 3,600 155,700 ConAgra Foods, Inc. .................... 16,600 333,328 ----------- 489,028 ----------- Forest and Paper Products - 0.49% Weyerhaeuser Company ................... 6,600 315,678 ----------- Gold and Precious Metals - 10.18% Agnico-Eagle Mines Limited ............. 52,000 681,720 Barrick Gold Corporation ............... 165,791 2,579,708 Glamis Gold Ltd.* ...................... 25,500 263,670 Kinross Gold Corporation (A)* .......... 23,100 142,144 Meridian Gold Inc. (A)* ................ 47,210 447,966 Placer Dome Inc. ....................... 249,391 2,444,032 ----------- 6,559,240 ----------- Health Care -- General - 0.25% Wyeth .................................. 4,300 162,626 ----------- Hospital Supply and Management - 0.28% Health Management Associates, Inc., Class A ......................... 9,429 179,151 ----------- Household --General Products - 0.29% Clorox Company (The) ................... 4,000 184,680 ----------- Mining - 4.94% Newmont Mining Corporation ............. 87,345 2,284,072 Phelps Dodge Corporation* .............. 9,100 295,568 Rio Tinto plc (A) ...................... 32,450 604,064 ----------- 3,183,704 ----------- Multiple Industry - 0.19% Companhia Vale do Rio Doce, ADR ........ 4,600 123,970 ----------- Petroleum -- Canada - 0.45% Nabors Industries Ltd.* ................ 7,200 287,064 ----------- Petroleum -- Domestic - 3.04% Anadarko Petroleum Corporation ......... 16,141 734,416 Burlington Resources Inc. .............. 18,858 899,715 Patterson-UTI Energy, Inc.* ............ 10,100 326,483 ----------- 1,960,614 ----------- Petroleum -- International - 1.24% Exxon Mobil Corporation ................ 22,853 798,712 ----------- Petroleum -- Services - 1.02% Baker Hughes Incorporated .............. 22,054 660,076 ----------- TOTAL COMMON STOCKS - 26.19% $16,875,177 (Cost: $17,562,981) Principal Amount in Thousands CORPORATE DEBT SECURITIES Banks - 1.09% Banco Nacional de Comercio Exterior, S.N.C., 7.25%, 2-2-04 ......................... $580 604,650 Unibanco - Uniao de Bancos Brasileiros S.A., 7.25%, 8-26-03 ........................ 100 98,989 ----------- 703,639 ----------- Beverages - 0.97% Coca-Cola FEMSA, S.A. de C.V., 8.95%, 11-1-06 ........................ 450 516,938 Pepsi-Gemex, S.A. de C.V., 9.75%, 3-30-04 ........................ 100 107,625 ----------- 624,563 ----------- Broadcasting - 0.68% Grupo Televisa, S.A., 8.625%, 8-8-05 ........................ 400 440,000 ----------- Food and Related - 1.20% GRUMA, S.A. de C.V., 7.625%, 10-15-07 ...................... 250 252,500 Kellogg Company, 6.625%, 1-29-04 ....................... 500 518,923 ----------- 771,423 ----------- Forest and Paper Products - 0.80% Abitibi-Consolidated Inc., 8.3%, 8-1-05 .......................... 250 266,943 International Paper Company, 8.125%, 7-8-05 ........................ 225 251,809 ----------- 518,752 ----------- Furniture and Furnishings - 0.17% Leggett & Platt, Incorporated, 7.65%, 2-15-05 ........................ 100 108,505 ----------- Leisure Time Industry - 0.31% Royal Caribbean Cruises Ltd., 8.125%, 7-28-04 ....................... 200 200,000 ----------- Multiple Industry - 1.17% Ford Motor Credit Company, 6.125%, 4-28-03 ....................... 500 500,529 National Rural Utilities Cooperative Finance Corporation, 3.0%, 2-15-06 ......................... 250 253,087 ----------- 753,616 ----------- Petroleum -- International - 0.83% Petroleos Mexicanos, 6.5%, 2-1-05 .......................... 500 533,125 ----------- Petroleum -- Services - 0.26% Pemex Finance Ltd. and Petroleos Mexicanos, 8.02%, 5-15-07 ........................ 150 169,547 ----------- Railroad - 0.25% MRS Logistica S.A., 10.625%, 8-15-05 ...................... 202 161,893 ----------- Trucking and Shipping - 0.47% WMX Technologies, Inc., 6.375%, 12-1-03 ....................... 300 305,967 ----------- Utilities -- Electric - 0.43% Dominion Resources, Inc., 7.625%, 7-15-05 ....................... 250 277,554 ----------- Utilities -- Telephone - 0.58% Comtel Brasileira Ltda., 10.75%, 9-26-04 ....................... 150 147,046 Telefonos de Mexico, S.A. de C.V., 8.25%, 1-26-06 ........................ 200 224,250 ----------- 371,296 ----------- TOTAL CORPORATE DEBT SECURITIES - 9.21% $5,939,880 (Cost: $5,887,789) OTHER GOVERNMENT SECURITIES Brazil - 1.65% Federative Republic of Brazil (The), 11.0%, 1-11-12 ........................ 1,250 1,062,500 ------------ Germany - 1.10% Bundesschwatzanweisungen Treasury Note, 2.5%, 3-18-05 (B) ..................... EUR650 709,845 ----------- Mexico - 0.46% United Mexican States, 8.625%, 3-12-08 ....................... $ 250 293,750 ----------- TOTAL OTHER GOVERNMENT SECURITIES - 3.21% $2,066,095 (Cost: $1,962,258) UNITED STATES GOVERNMENT SECURITIES United States Treasury Notes: 2.75%, 10-31-03 ....................... 10,000 10,094,140 3.0%, 2-29-04 ......................... 5,000 5,083,400 3.375%, 4-30-04 ....................... 3,000 3,070,077 1.75%, 12-31-04 ....................... 10,000 10,057,420 7.5%, 2-15-05 ......................... 5,000 5,557,420 ----------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 52.55% $33,862,457 (Cost: $33,483,015) ----------- Face Amount in Thousands UNREALIZED GAIN (LOSS) ON OPEN FORWARD CURRENCY CONTRACTS - (0.21%) Euro Dollar, 11-7-03 (B) ............... EUR1,803 22,531 Euro Dollar, 11-7-03 (B) ............... 1,803 (157,555) Swiss Franc, 2-11-04 (B) ............... CHF870 (626) ----------- $ (135,650) ----------- TOTAL SHORT-TERM SECURITIES - 1.57% $ 1,010,439 (Cost: $994,238) TOTAL INVESTMENTS - 100.73% $64,910,266 (Cost: $64,974,477) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.73%) (470,788) NET ASSETS - 100.00% $64,439,478 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Listed on an exchange outside the United States. (B)Principal amounts are denominated in the indicated foreign currency, where applicable (EUR - Euro, CHF - Swiss Franc). See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES ASSET STRATEGY FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investments -- at value (Notes 1 and 3): Bullion (cost - $5,084).................................. $ 5,292 Securities (cost - $59,890).............................. 59,618 ------- 64,910 Cash ..................................................... 1 Receivables: Dividends and interest................................... 419 Investment securities sold............................... 133 Fund shares sold ........................................ 55 Prepaid insurance premium ................................. 1 ------- Total assets .......................................... 65,519 LIABILITIES ------- Payable for investment securities purchased .............. 881 Payable to Fund shareholders ............................. 166 Accrued shareholder servicing (Note 2) ................... 17 Accrued accounting services fee (Note 2) ................. 3 Accrued distribution and service fees (Note 2) ........... 2 Accrued management fee (Note 2) .......................... 1 Other .................................................... 10 ------- Total liabilities ..................................... 1,080 ------- Total net assets ..................................... $64,439 NET ASSETS ======= $0.01 par value capital stock: Capital stock ........................................... $ 58 Additional paid-in capital............................... 67,023 Accumulated undistributed income (loss): Accumulated undistributed net investment income ......... 25 Accumulated undistributed net realized loss on investment transactions ............................ (2,602) Net unrealized depreciation in value of investments ..... (65) ------- Net assets applicable to outstanding units of capital .............................................. $64,439 Net asset value per share (net assets divided ======= by shares outstanding): Class A .................................................. $11.18 Class B .................................................. $11.17 Class C .................................................. $11.17 Class Y .................................................. $11.18 Capital shares outstanding: Class A .................................................. 844 Class B .................................................. 301 Class C .................................................. 4,520 Class Y .................................................. 103 Capital shares authorized .................................. 200,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS ASSET STRATEGY FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ............................... $1,424 Dividends (net of foreign withholding taxes of $7) ...... 155 ------ Total income .......................................... 1,579 Expenses (Note 2): ------ Investment management fee ............................... 416 Distribution fee: Class A ............................................... 1 Class B ............................................... 22 Class C ............................................... 369 Class Y ............................................... 2 Shareholder servicing: Class A ............................................... 15 Class B ............................................... 12 Class C ............................................... 134 Class Y ............................................... 1 Service fee: Class A ............................................... 15 Class B ............................................... 7 Class C ............................................... 123 Registration fees ....................................... 38 Accounting services fee ................................. 35 Custodian fees .......................................... 23 Audit fees .............................................. 13 Legal fees .............................................. 4 Other ................................................... 22 ------ Total ................................................. 1,252 ------ Net investment income .............................. 327 ------ See Notes to Financial Statements. STATEMENT OF OPERATIONS (Continued) ASSET STRATEGY FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net gain on securities .......................... 1,150 Realized net gain on futures contracts ................... 167 Realized net loss on forward currency contracts .......... (173) Realized net loss on written options ..................... (360) Realized net gain on purchased options ................... 75 Realized net gain on foreign currency transactions ....... 7 ------ Realized net gain on investments ........................ 866 Unrealized depreciation in value of securities ------ during the period ....................................... (1,539) Unrealized depreciation in value of forward currency contracts during the period ............................. (134) Unrealized depreciation in value of investments ------ during the period ..................................... (1,673) ------ Net loss on investments ............................... (807) ------ Net decrease in net assets resulting from operations . $ (480) ====== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS ASSET STRATEGY FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income ................. $ 327 $ 933 Realized net gain (loss) on investments 866 (3,330) Unrealized appreciation (depreciation) (1,673) 1,177 ------- ------- Net decrease in net assets resulting from operations .................... (480) (1,220) ------- ------- Distributions to shareholders from (Note 1E):(A) Net investment income: Class A ............................. (88) (89) Class B ............................. (12) (44) Class C ............................. (264) (911) Class Y ............................. (11) (16) Realized gains on investment transactions: Class A ............................. --- (64) Class B ............................. --- (43) Class C ............................. --- (833) Class Y ............................. --- (10) ------- ------- (375) (2,010) ------- ------- Capital share transactions (Note 5) .............................. 11,160 (1,608) ------- ------- Total increase (decrease).............. 10,305 (4,838) NET ASSETS Beginning of period .................... 54,134 58,972 ------- ------- End of period .......................... $64,439 $54,134 ======= ======= Undistributed net investment income .............................. $ 25 $ 66 ======= ======= (A) See "Financial Highlights" on pages 18 - 21. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-10-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $11.33 $11.98 $15.22 ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.16 0.25 0.15 Net realized and unrealized loss on investments .. (0.16) (0.40) (0.60) ------ ------ ------ Total from investment operations ....... 0.00 (0.15) (0.45) ------ ------ ------ Less distributions: From net investment income .......... (0.15) (0.30) (0.13) From capital gains (0.00) (0.20) (2.66) ------ ------ ------ Total distributions (0.15) (0.50) (2.79) ------ ------ ------ Net asset value, end of period .... $11.18 $11.33 $11.98 ====== ====== ====== Total return(2) .... 0.00% -1.25% -3.77% Net assets, end of period (in millions) ........ $9 $4 $2 Ratio of expenses to average net assets ........... 1.40% 1.45% 1.26%(3) Ratio of net investment income to average net assets ....... 1.23% 2.28% 2.26%(3) Portfolio turnover rate ............. 109.38%143.38% 214.77%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $11.32 $11.97 $15.21 ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.05 0.17 0.07 Net realized and unrealized loss on investments .. (0.15) (0.41) (0.60) ------ ------ ------ Total from investment operations ....... (0.10) (0.24) (0.53) ------ ------ ------ Less distributions: From net investment income .......... (0.05) (0.21) (0.05) From capital gains (0.00) (0.20) (2.66) ------ ------ ------ Total distributions (0.05) (0.41) (2.71) ------ ------ ------ Net asset value, end of period .... $11.17 $11.32 $11.97 ====== ====== ====== Total return ....... -0.92% -2.03% -4.35% Net assets, end of period (in millions) ........ $3 $3 $2 Ratio of expenses to average net assets ........... 2.35% 2.25% 2.15%(2) Ratio of net investment income to average net assets ....... 0.31% 1.50% 1.37%(2) Portfolio turnover rate ............. 109.38%143.38% 214.77%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 -------------- -------------- ------- Net asset value, beginning of period $11.32 $11.97 $15.21 $11.20 $11.42 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.05 0.19 0.11 0.03 0.15 Net realized and unrealized gain (loss) on investments .. (0.14) (0.43) (0.62) 4.33 0.05 ------ ------ ------ ------ ------ Total from investment operations ....... (0.09) (0.24) (0.51) 4.36 0.20 ------ ------ ------ ------ ------ Less distributions: From net investment income .......... (0.06) (0.21) (0.07) (0.05) (0.16) From capital gains (0.00) (0.20) (2.66) (0.30) (0.26) ------ ------ ------ ------ ------ Total distributions (0.06) (0.41) (2.73) (0.35) (0.42) ------ ------ ------ ------ ------ Net asset value, end of period .... $11.17 $11.32 $11.97 $15.21 $11.20 ====== ====== ====== ====== ====== Total return ....... -0.79% -1.98% -4.22% 39.60% 1.79% Net assets, end of period (in millions) ........ $51 $47 $54 $52 $30 Ratio of expenses to average net assets ........... 2.20% 2.20% 2.15% 2.24% 2.32% Ratio of net investment income to average net assets ....... 0.46% 1.59% 0.86% 0.24% 1.38% Portfolio turnover rate ............. 109.38%143.38% 214.77%204.12% 168.17% (1) See Note 5. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS ASSET STRATEGY FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 -------------- -------------- ------- Net asset value, beginning of period ........... $11.33 $11.98 $15.26 $11.21 $11.43 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.11 0.28 0.24 0.15 0.26 Net realized and unrealized gain (loss) on investments .. (0.10) (0.42) (0.63) 4.33 0.05 ------ ------ ------ ------ ------ Total from investment operations ....... 0.01 (0.14) (0.39) 4.48 0.31 ------ ------ ------ ------ ------ Less distributions: From net investment income .......... (0.16) (0.31) (0.23) (0.13) (0.27) From capital gains (0.00) (0.20) (2.66) (0.30) (0.26) ------ ------ ------ ------ ------ Total distributions (0.16) (0.51) (2.89) (0.43) (0.53) ------ ------ ------ ------ ------ Net asset value, end of period .... $11.18 $11.33 $11.98 $15.26 $11.21 ====== ====== ====== ====== ====== Total return ....... 0.08% -1.14% -3.39% 40.85% 2.75% Net assets, end of period (in thousands) $1,150 $627 $550 $508 $307 Ratio of expenses to average net assets ........... 1.32% 1.33% 1.32% 1.33% 1.45% Ratio of net investment income to average net assets ....... 1.34% 2.44% 1.71% 1.14% 2.25% Portfolio turnover rate ............. 109.38%143.38% 214.77%204.12% 168.17% See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with James D. Wineland, portfolio manager of W&R Funds, Inc. - Core Equity Fund This report relates to the operation of W&R Funds, Inc. -- Core Equity Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund had a negative return for the fiscal year, slightly underperforming its benchmark indexes. In a challenging economic environment, most large capitalization stocks struggled, and the benchmark index experienced a large decline for the period. The Class C shares of the Fund declined 26.03 percent during the last fiscal year, compared with the Lipper Large-Cap Core Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 25.78 percent for the year, and the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which declined 24.76 percent for the year. Why did the Fund lag its benchmark index during the fiscal year? The Fund owned several stocks that did poorly and that detracted from performance. In addition, holdings in the electric utilities sector underperformed the market and hindered the Fund's performance, especially in the summer months of 2002. What other market conditions or events influenced the Fund's performance during the fiscal year? During the last 12 months, the financial markets have been dominated by geopolitical events surrounding the War on Terrorism and events in Iraq. High energy prices and weak global economies helped create a general atmosphere of very sluggish earnings growth. The technology and telecommunications sectors continued to be very lackluster as corporate capital spending remained weak. The key event for all financial markets in the last quarter of the period was the ongoing international debate surrounding, and the eventual start of, the war with Iraq. What strategies and techniques did you employ that specifically affected the Fund's performance? In the difficult market of the past year, preservation of capital was an important objective. Accordingly, we raised the cash position in the Fund, a move driven by our concerns regarding earnings and the global economy. We also placed emphasis on increasing the overall dividend yield of the portfolio. We have focused on stocks of companies that we believe to have excellent financial strength and companies that are, in our view, unlikely to produce negative accounting "surprises." What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? The portfolio continues to emphasize aerospace/defense, energy, health care and utility stocks. We remain substantially underweighted in consumer-related and technology issues. Looking ahead, we feel that the short-term outlook for the stock market is not favorable. While a sharp positive rebound is likely to follow any successful conclusion to the war in Iraq, we think global economic difficulties also are likely to limit the magnitude and duration of any "relief rally." We remain conservatively positioned, emphasizing what we feel are high- quality, financially strong companies with meaningful competitive advantages in their industries. Respectfully, James D. Wineland Manager W&R Core Equity Fund Comparison of Change in Value of $10,000 Investment W&R Core Lipper Equity Large-Cap Fund, Core Funds Class C S&P 500 Universe Shares Index Average --------- --------- ---------- 03-31-93 10,000 10,000 10,000 03-31-94 10,831 10,147 10,366 03-31-95 11,500 11,727 11,482 03-31-96 14,806 15,492 14,811 03-31-97 16,572 18,550 17,083 03-31-98 23,129 27,462 24,544 03-31-99 24,857 32,550 28,101 03-31-00 30,819 38,465 33,764 03-31-01 25,766 30,059 26,140 03-31-02 24,750 30,122 25,648 03-31-03 18,308 22,665 19,037 ===== W&R Core Equity Fund, Class C Shares (1) -- $18,308 +++++ S&P 500 Index -- $22,665 - ----- Lipper Large-Cap Core Funds Universe Average -- $19,037 (1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 -29.71% -29.15% -26.03% -25.35% 5-year period ended 3-31-03 --- --- -4.57% -3.75% 10-year period ended 3-31-03 --- --- 6.23% --- Since inception of Class through 3-31-03(4) -18.70% -19.02% --- 4.74% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)7-3-00 for Class A shares, 7-11-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF CORE EQUITY FUND - ----------------------------------------------------------------- Core Equity Fund GOALS To seek capital growth and income. Strategy Invests primarily in common stocks of large United States and foreign companies with dominant market positions in their industries and that have the potential for capital appreciation or that are expected to resist market decline. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Net asset value on 3-31-03 $6.48 3-31-02 8.76 ------ Change per share $(2.28) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF CORE EQUITY FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------- With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -29.71% -25.42% -29.15% -26.20% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -18.70% -16.93% -19.02% -18.30% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-3-00 for Class A shares and 7-11-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ --------- --------- 1-year period ended 3-31-03 -26.03% -25.35% 5-year period ended 3-31-03 -4.57% -3.75% 10-year period ended 3-31-03 6.23% --- Since inception of Class (D) --- 4.74% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF CORE EQUITY FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Core Equity Fund had net assets totaling $219,979,896 invested in a diversified portfolio of: 88.24% Common Stocks 11.76% Cash and Cash Equivalents As a shareholder of Core Equity Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $17.50 Energy Stocks 14.99 Technology Stocks 12.81 Financial Services Stocks 11.76 Cash and Cash Equivalents 11.35 Utilities Stocks 10.68 Health Care Stocks 6.55 Raw Materials Stocks 6.17 Consumer Goods and Services Stocks 4.00 Retail Stocks 2.35 Capital Goods Stocks 1.84 Transportation Stocks THE INVESTMENTS OF CORE EQUITY FUND March 31, 2003 Shares Value COMMON STOCKS Aircraft - 8.60% Lockheed Martin Corporation ............ 249,200 $11,849,460 Northrop Grumman Corporation ........... 25,800 2,213,640 Raytheon Company ....................... 171,100 4,854,107 ------------ 18,917,207 ------------ Aluminum - 2.79% Alcoa Incorporated ..................... 317,300 6,149,274 ------------ Banks - 5.73% U.S. Bancorp ........................... 378,600 7,185,828 Wells Fargo & Company .................. 120,300 5,412,297 ------------ 12,598,125 ------------ Beverages - 1.89% Anheuser-Busch Companies, Inc. ......... 89,000 4,148,290 ------------ Broadcasting - 3.69% Cox Communications, Inc., Class A* ..... 140,084 4,358,013 Viacom Inc., Class B* .................. 102,700 3,750,604 ------------ 8,108,617 ------------ Capital Equipment - 1.39% Caterpillar Inc. ....................... 62,300 3,065,160 ------------ Chemicals -- Petroleum and Inorganic - 1.53% du Pont (E.I.) de Nemours and Company .. 86,500 3,361,390 ------------ Chemicals -- Specialty - 2.23% Air Products and Chemicals, Inc. ....... 118,300 4,901,169 ------------ Computers -- Peripherals - 4.02% Microsoft Corporation .................. 187,300 4,534,533 SAP Aktiengesellschaft, ADR ............ 227,100 4,305,816 ------------ 8,840,349 ------------ Electronic Components - 2.37% Analog Devices, Inc.* .................. 96,500 2,653,750 Intel Corporation ...................... 157,500 2,564,100 ------------ 5,217,850 ------------ Farm Machinery - 0.96% Deere & Company ........................ 53,700 2,108,262 ------------ Health Care -- Drugs - 7.81% Amgen Inc.* ............................ 45,500 2,620,118 Forest Laboratories, Inc.* ............. 22,200 1,198,134 Pfizer Inc. ............................ 251,675 7,842,193 Pharmacia Corporation .................. 127,373 5,515,250 ------------ 17,175,695 ------------ Health Care -- General - 1.46% Johnson & Johnson ...................... 55,700 3,223,359 ------------ Hospital Supply and Management - 1.41% Medtronic, Inc. ........................ 68,600 3,095,232 ------------ Household -- General Products - 0.59% Clorox Company (The) ................... 28,200 1,301,994 ------------ Insurance -- Property and Casualty - 5.87% American International Group, Inc. ..... 83,650 4,136,493 Berkshire Hathaway Inc., Class B* ...... 1,900 4,060,300 Chubb Corporation (The) ................ 106,500 4,720,080 ------------ 12,916,873 ------------ Petroleum -- Canada - 1.27% Nabors Industries Ltd.* ................ 69,900 2,786,913 ------------ Petroleum -- Domestic - 6.41% Anadarko Petroleum Corporation ......... 155,100 7,057,050 Burlington Resources Inc. .............. 147,600 7,041,996 ------------ 14,099,046 ------------ Petroleum -- International - 4.77% Exxon Mobil Corporation ................ 168,268 5,880,967 Royal Dutch Petroleum Company, NY Shares 113,300 4,616,975 ------------ 10,497,942 ------------ Petroleum -- Services - 5.05% Baker Hughes Incorporated .............. 251,600 7,530,388 Schlumberger Limited ................... 94,300 3,584,343 ------------ 11,114,731 ------------ Retail -- General Merchandise - 2.74% Sears, Roebuck and Co. ................. 104,800 2,530,920 Target Corporation ..................... 119,600 3,499,496 ------------ 6,030,416 ------------ Retail -- Specialty Stores - 1.26% Best Buy Co., Inc.* .................... 103,000 2,777,910 ------------ Security and Commodity Brokers - 1.21% Fannie Mae ............................. 40,800 2,666,280 ------------ Trucking and Shipping - 1.84% United Parcel Service, Inc., Class B ... 70,900 4,041,300 ------------ Utilities -- Electric - 5.93% Dominion Resources, Inc. ............... 153,900 8,521,443 Southern Company ....................... 159,000 4,521,960 ------------ 13,043,403 ------------ Utilities -- Telephone - 5.42% BellSouth Corporation .................. 194,100 4,206,147 SBC Communications Inc. ................ 213,600 4,284,816 Vodafone Group Plc, ADR ................ 188,000 3,425,360 ------------ 11,916,323 ------------ TOTAL COMMON STOCKS - 88.24% $194,103,110 (Cost: $174,757,756) Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Beverages - 0.91% Coca-Cola Company (The), 1.18%, 4-15-03 ........................ $2,000 1,999,082 ------------ Chemicals - Petroleum and Inorganic - 0.38% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ............... 838 838,000 ------------ Food and Related - 6.03% General Mills, Inc., 1.4588%, Master Note .................. 1,274 1,274,000 Heinz (H.J.) Co., 1.3%, 4-17-03 ......................... 4,000 3,997,689 Sara Lee Corporation, 1.35%, 4-16-03 ........................ 8,000 7,995,500 ------------ 13,267,189 ------------ Forest and Paper Products - 1.15% Sonoco Products Co., 1.44%, 4-1-03 ......................... 2,543 2,543,000 ------------ Health Care - Drugs - 1.36% Merck & Co., Inc., 1.2%, 5-23-03 ......................... 3,000 2,994,800 ------------ Household -- General Products - 0.91% Colgate-Palmolive Company, 1.22%, 5-1-03 ......................... 2,000 1,997,967 ------------ Retail -- General Merchandise - 1.82% Wal-Mart Stores, Inc., 1.23%, 4-1-03 ......................... 4,000 4,000,000 ------------ Total Commercial Paper - 12.56% 27,640,038 United States Government Security - 0.68% United States Treasury Bill, 1.04%, 8-7-03 ......................... 1,500 1,494,453 ------------ TOTAL SHORT-TERM SECURITIES - 13.24% $ 29,134,491 (Cost: $29,134,491) TOTAL INVESTMENT SECURITIES - 101.48% $223,237,601 (Cost: $203,892,247) LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.48%) (3,257,705) NET ASSETS - 100.00% $219,979,896 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES CORE EQUITY FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost - $203,892) (Notes 1 and 3).......................................... $223,238 Cash ..................................................... 1 Receivables: Dividends and interest................................... 219 Investment securities sold .............................. 186 Fund shares sold ........................................ 148 Prepaid insurance premium ................................. 2 -------- Total assets .......................................... 223,794 -------- LIABILITIES Payable for investment securities purchased ............... 2,496 Payable to Fund shareholders ............................. 1,179 Accrued shareholder servicing (Note 2) ................... 97 Accrued accounting services fee (Note 2) ................. 5 Accrued distribution fee (Note 2) ........................ 4 Accrued management fee (Note 2) .......................... 4 Accrued service fee (Note 2) ............................. 2 Other .................................................... 27 -------- Total liabilities ..................................... 3,814 -------- Total net assets ..................................... $219,980 ======== NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 339 Additional paid-in capital............................... 265,665 Accumulated undistributed income (loss): Accumulated undistributed net investment loss ........... (7) Accumulated undistributed net realized loss on investment transactions ............................... (65,372) Net unrealized appreciation in value of investments ..... 19,355 -------- Net assets applicable to outstanding units of capital ........................................... $219,980 ======== Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $6.63 Class B .................................................. $6.45 Class C .................................................. $6.48 Class Y .................................................. $6.86 Capital shares outstanding: Class A .................................................. 1,948 Class B .................................................. 708 Class C .................................................. 30,880 Class Y .................................................. 358 Capital shares authorized .................................. 400,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS CORE EQUITY FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends (net of foreign withholding taxes of $46)...... $ 3,933 Interest and amortization ............................... 445 -------- Total income .......................................... 4,378 -------- Expenses (Note 2): Distribution fee: Class A ............................................... 1 Class B ............................................... 38 Class C ............................................... 1,924 Class Y ............................................... 7 Investment management fee ............................... 1,916 Shareholder servicing: Class A ............................................... 26 Class B ............................................... 28 Class C ............................................... 963 Class Y .............................................. 4 Service fee: Class A ............................................... 23 Class B ............................................... 13 Class C ............................................... 641 Accounting services fee ................................. 60 Custodian fees .......................................... 29 Audit fees .............................................. 19 Legal fees .............................................. 5 Other ................................................... 165 -------- Total expenses ........................................ 5,862 -------- Net investment loss .................................. (1,484) -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities .......................... (27,557) Realized net gain on foreign currency transactions ........ 7 -------- Realized net loss on investments ........................ (27,550) Unrealized depreciation in value of investments during the period ....................................... (63,354) -------- Net loss on investments ................................ (90,904) -------- Net decrease in net assets resulting from operations . $(92,388) ======== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS CORE EQUITY FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- DECREASE IN NET ASSETS Operations: Net investment loss ................... $ (1,484) $ (3,706) Realized net loss on investments ......................... (27,550) (37,801) Unrealized appreciation (depreciation) (63,354) 23,521 -------- -------- Net decrease in net assets resulting from operations .......... (92,388) (17,986) -------- -------- Distributions to shareholders from (Note 1E):(1) Net investment income: Class A ............................. --- --- Class B ............................. --- --- Class C ............................. --- --- Class Y ............................. --- --- Realized gains on investment transactions: Class A ............................. --- (247) Class B ............................. --- (199) Class C ............................. --- (12,921) Class Y ............................. --- (112) -------- -------- --- (13,479) -------- -------- Capital share transactions (Note 5) .... (62,188) (44,714) -------- -------- Total decrease ........................ (154,576) (76,179) NET ASSETS Beginning of period .................... 374,556 450,735 -------- -------- End of period .......................... $219,980 $374,556 ======== ======== Undistributed net investment loss ..... $ (7) $ (5) ======== ======== (1) See "Financial Highlights" on pages 35 - 38. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS CORE EQUITY FUND (1) Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(2) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.89 $9.51 $13.89 ----- ----- ------ Loss from investment operations: Net investment loss (0.08) (0.20) (0.00) Net realized and unrealized loss on investments .. (2.18) (0.11) (2.00) ----- ----- ------ Total from investment operations ....... (2.26) (0.31) (2.00) ----- ----- ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.31) (2.38) ----- ----- ------ Total distributions (0.00) (0.31) (2.38) ----- ----- ------ Net asset value, end of period .... $6.63 $8.89 $ 9.51 ===== ===== ====== Total return(3) .... -25.42% -3.18% -16.72% Net assets, end of period (in millions) ........ $13 $9 $4 Ratio of expenses to average net assets ........... 1.31% 1.26% 1.18%(4) Ratio of net investment income (loss) to average net assets ....... 0.28% -0.11% -0.11%(4) Portfolio turnover rate ............. 39.13% 22.36% 39.02%(5) (1) Core Equity Fund (formerly Total Return Fund) changed its name effective October 2, 2000. (2) Commencement of operations of the class. (3) Total return calculated without taking into account the sales load deducted on an initial purchase. (4) Annualized. (5) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS CORE EQUITY FUND (1) Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-11-00(2) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.74 $9.44 $14.10 ----- ----- ------ Loss from investment operations: Net investment loss (0.06) (0.14) (0.05) Net realized and unrealized loss on investments .. (2.23) (0.25) (2.23) ----- ----- ------ Total from investment operations ....... (2.29) (0.39) (2.28) ----- ----- ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.31) (2.38) ----- ----- ------ Total distributions (0.00) (0.31) (2.38) ----- ----- ------ Net asset value, end of period .... $6.45 $8.74 $ 9.44 ===== ===== ====== Total return ....... -26.20% -4.06% -18.50% Net assets, end of period (in millions) ........ $5 $6 $5 Ratio of expenses to average net assets ........... 2.36% 2.18% 2.11%(3) Ratio of net investment loss to average net assets ....... -0.76% -1.04% -1.02%(3) Portfolio turnover rate ............. 39.13% 22.36% 39.02%(4) (1) Core Equity Fund (formerly Total Return Fund) changed its name effective October 2, 2000. (2) Commencement of operations of the class. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS CORE EQUITY FUND (1) Class C Shares (2) For a Share of Capital Stock Outstanding Throughout Each Period(3) For the fiscal year ended March 31, ------------------------------------ 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........ $8.76 $9.45 $13.76 $11.52 $12.24 ----- ----- ------ ----- ----- Income (loss) from investment operations: Net investment income (loss).... (0.04) (0.08) (0.11) (0.01) 0.03 Net realized and unrealized gain (loss) on investments .. (2.24) (0.30) (1.82) 2.71 0.82 ----- ----- ------ ----- ----- Total from investment operations ....... (2.28) (0.38) (1.93) 2.70 0.85 Less distributions: ----- ----- ------ ----- ----- From net investment income .......... (0.00) (0.00) (0.00) (0.03) (0.01) From capital gains (0.00) (0.31) (2.38) (0.43) (1.56) ----- ----- ------ ----- ----- Total distributions (0.00) (0.31) (2.38) (0.46) (1.57) ----- ----- ------ ----- ----- Net asset value, end of period .... $6.48 $8.76 $ 9.45 $13.76 $11.52 ===== ===== ====== ====== ====== Total return ....... -26.03% -3.94% -16.40% 23.98% 7.47% Net assets, end of period (in millions) ........ $200 $356 $440 $585 $508 Ratio of expenses to average net assets ........... 2.18% 2.05% 1.97% 1.98% 1.93% Ratio of net investment income (loss) to average net assets ....... -0.58% -0.91% -0.93% -0.12% 0.30% Portfolio turnover rate ............. 39.13% 22.36% 39.02% 75.64% 54.73% (1) Core Equity Fund (formerly Total Return Fund) changed its name effective October 2, 2000. (2) See Note 5. (3) Per share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS CORE EQUITY FUND (1) Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period(2) For the fiscal year ended March 31, ------------------------------------ 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $9.19 $9.82 $14.08 $11.78 $12.46 ----- ----- ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) ... 0.04 (0.11) (0.04) 0.06 0.12 Net realized and unrealized gain (loss) on investments .. (2.37) (0.21) (1.84) 2.80 0.84 ----- ----- ------ ------ ------ Total from investment operations ....... (2.33) (0.32) (1.88) 2.86 0.96 Less distributions: ----- ----- ------ ------ ------ From net investment income .......... (0.00) (0.00) (0.00) (0.13) (0.08) From capital gains (0.00) (0.31) (2.38) (0.43) (1.56) ----- ----- ------ ------ ------ Total distributions (0.00) (0.31) (2.38) (0.56) (1.64) ----- ----- ------ ------ ------ Net asset value, end of period .... $6.86 $9.19 $ 9.82 $14.08 $11.78 ===== ===== ====== ====== ====== Total return ....... -25.35% -3.18% -15.62% 24.96% 8.37% Net assets, end of period (in millions) ....... $2 $4 $2 $2 $1 Ratio of expenses to average net assets ........... 1.20% 1.17% 1.15% 1.16% 1.15% Ratio of net investment income (loss) to average net assets ....... 0.40% -0.03% -0.11% 0.67% 1.10% Portfolio turnover rate ............. 39.13% 22.36% 39.02% 75.64% 54.73% (1) Core Equity Fund (formerly Total Return Fund) changed its name effective October 2, 2000. (2) Per share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Louise D. Rieke, portfolio manager of W&R Funds, Inc. - High Income Fund This report relates to the operation of W&R Funds, Inc. -- High Income Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund showed a positive return during the fiscal year, but underperformed its benchmark index. The Class C shares of the Fund increased 2.15 percent for the fiscal year, compared with the Citigroup High Yield Market Index (generally reflecting the performance of securities that represent the high yield bond market), which increased 4.92 percent during the period, and the Lipper High Current Yield Funds Universe Average (reflecting the performance of the universe of funds with similar objectives), which increased 2.89 percent during the period. Please note that while the Fund's benchmark index remains the same, its name has changed from the Salomon Brothers High Yield Market Index to the Citigroup High Yield Market Index. Why did the Fund lag its benchmark index during the fiscal year? We believe that this was primarily due to the Fund holding better-quality names and taking a more defensive approach. The vast majority of the Fund's underperformance occurred in the last fiscal quarter (December 2002 to March 2003). During this quarter, all of the sectors that the Fund exited from in 2001 (telecom, wireless towers and broadband) came back to life. Because the Fund was more quality oriented with a bent toward the defensive, we missed out on outperformance from some of these riskier sectors. What other market conditions or events influenced the Fund's performance during the fiscal year? Market conditions during the past fiscal year varied from negative returns in the first two quarters to positive returns in the last two quarters. The market turned in the fall of 2002 when money started flowing into the high yield area because of the yield pickup versus alternative investments. This, in conjunction with a lack of new issue product to buy, led to the improved performance of the sector in our opinion. What strategies and techniques did you employ that specifically affected the Fund's performance? We employed three major strategies over the past fiscal year: We held cash in the first half of the year and reduced it starting last fall, we bought short callable paper as a proxy to holding commercial paper at extremely low yields, and we looked for slightly distressed companies at a discount that, in our view, were on the verge of a turnaround. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? The industries we emphasized were health care, higher-quality lodging and leisure. In health care, investments included acute-care hospitals, imaging companies, specialty hospitals and distributors of supplies to the industry. The lodging companies we held are the better quality names with leading hotel properties. The values on these investments have held up well in this environment. The leisure names are in the movie theater business, as well as theme parks. Going forward, we intend to look for sectors that are leveraged to an economic rebound but that suffered in the last year or so. These may include publishing, some utilities, and paper and forest-products companies. Respectfully, Louise D. Rieke Manager W&R High Income Fund Comparison of Change in Value of $10,000 Investment Lipper Citigroup High W&R High Current High Income YieldYield Funds Fund, Class Market Universe C Shares Index Average ----------- ------ --------- 07-31-97 $10,000 $10,000 $10,000 03-31-98 11,177 10,868 10,847 03-31-99 10,986 10,982 10,749 03-31-00 11,005 10,720 10,837 03-31-01 11,025 11,010 10,565 03-31-02 11,860 11,164 10,448 03-31-03 12,114 11,713 10,750 +++++ W&R High Income Fund, Class C Shares(1) -- $12,114 ===== Citigroup High Yield Market Index -- $11,713 - ----- Lipper High Current Yield Funds Universe Average -- $10,750 (1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 -2.90% -1.74% 2.15% 3.03% 5-year period ended 3-31-03 --- --- 1.62% --- Since inception of Class through 3-31-03(4) 2.24% 2.63% 3.44% 3.66% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)7-3-00 for Class A shares, 7-18-00 for Class B shares, 7-31-97 for Class C shares and 12-30-98 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF HIGH INCOME FUND - -------------------------------------------------------------- High Income Fund GOALS To seek a high level of current income as a primary goal and capital growth as a secondary goal when consistent with its primary goal. Strategy Invests primarily in high-yield, high-risk, fixed-income securities of United States and foreign issuers. The Fund invests primarily in lower quality, non- investment grade bonds, commonly called junk bonds. The Fund may invest up to 20% of its total assets in common stocks in order to seek capital growth. Founded 1997 Scheduled Dividend Frequency Declared daily, paid monthly Performance Summary -- Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ------------------------------------------- Dividends paid $0.57 ===== Net asset value on 3-31-03 $8.07 3-31-02 8.48 ------ Change per share $(0.41) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF HIGH INCOME FUND - -------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------- With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -2.90% 3.02% -1.74% 2.06% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) 2.24% 4.47% 2.63% 3.58% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-3-00 for Class A shares and 7-18-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ -------- -------- 1-year period ended 3-31-03 2.15% 3.03% 5-year period ended 3-31-03 1.62% --- 10-year period ended 3-31-03 --- --- Since inception of Class(D) 3.44% 3.66% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 7-31-97 for Class C shares and 12-30-98 for Class Y shares (the date on which shares were first acquired by shareholders). Investing in high income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. SHAREHOLDER SUMMARY OF HIGH INCOME FUND - -------------------------------------------------------------- Portfolio Highlights On March 31, 2003, High Income Fund had net assets totaling $30,099,517 invested in a diversified portfolio of: 89.40% Corporate Debt Securities 9.43% Cash and Cash Equivalents 1.17% Preferred Stocks, Rights and Warrants As a shareholder of High Income Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $19.26 Consumer Services Bonds 10.29 Consumer Nondurables Bonds 9.43 Cash and Cash Equivalents 9.03 Business Equipment and Services Bonds 8.72 Retail Bonds 7.49 Capital Goods Bonds 6.49 Multi-Industry Bonds 6.41 Utilities Bonds 5.70 Energy Bonds 5.97 Health Care Bonds 3.78 Shelter Bonds 3.66 Shelter Bonds 2.21 Miscellaneous Bonds 1.17 Preferred Stocks, Rights and Warrants 1.15 Raw Materials Bonds THE INVESTMENTS OF HIGH INCOME FUND March 31, 2003 Shares Value PREFERRED STOCKS, RIGHTS AND WARRANTS Broadcasting - 0.01% Adelphia Communications Corporation, 13.0% Preferred* ...................... 2,500 $ 1,875 ----------- Communications Equipment - 0.00% Primus Telecommunications Group, Incorporated, Warrants* ............... 300 338 ---------- Multiple Industry - 1.16% Anvil Holdings, Inc., 13.0% Preferred* . 14,774 350,887 ----------- Security and Commodity Brokers - 0.00% ONO Finance Plc, Rights (A)* ............ 250 2 ---------- Utilities -- Telephone - 0.00% IWO Holdings, Inc., Warrants (A)* ...... 250 2 Intermedia Communications Inc., 13.5% Preferred* ............................ 1 10 ----------- 12 ----------- TOTAL PREFERRED STOCKS, RIGHTS AND WARRANTS - 1.17% $ 353,114 (Cost: $536,810) Principal Amount in Thousands CORPORATE DEBT SECURITIES Beverages - 0.86% Constellation Brands, Inc., 8.125%, 1-15-12 ..................... $250 258,750 ----------- Broadcasting - 7.19% Comcast Corporation, 5.5%, 3-15-11 ....................... 250 250,422 Cox Communications, Inc., 7.75%, 11-1-10 ...................... 250 292,243 Entravision Communications Corporation, 8.125%, 3-15-09 ..................... 100 102,750 Gray Communications Systems, Inc., 9.25%, 12-15-11 ..................... 375 406,406 LIN Television Corporation, 8.375%, 3-1-08 ...................... 500 520,000 Mediacom Broadband LLC and Mediacom Broadband Corporation, 11.0%, 7-15-13 ...................... 50 55,875 Sinclair Broadcast Group, Inc., 8.75%, 12-15-11 ..................... 250 265,625 Young Broadcasting Inc., 10.0%, 3-1-11 ....................... 255 270,300 ----------- 2,163,621 ----------- Business Equipment and Services - 8.15% Alderwoods Group, Inc., 12.25%, 1-2-09 ...................... 100 90,500 Allbritton Communications Company, 7.75%, 12-15-12 (A) ................. 100 101,750 Allied Waste North America, Inc., 10.0%, 8-1-09 ....................... 300 311,250 Avis Rent A Car, Inc., 11.0%, 5-1-09 ....................... 250 279,063 IESI Corporation, 10.25%, 6-15-12 ..................... 100 101,000 Iron Mountain Incorporated, 8.625%, 4-1-13 ...................... 300 324,000 Lamar Advertising Company, 8.625%, 9-15-07 ..................... 250 260,937 Moore North America Finance Inc., 7.875%, 1-15-11 (A) ................. 125 129,375 Owens & Minor, Inc., 8.5%, 7-15-11 ....................... 250 269,063 Synagro Technologies, Inc., 9.5%, 4-1-09 ........................ 100 107,000 UCAR Finance Inc., 10.25%, 2-15-12 ..................... 250 222,500 Vertis, Inc., 10.875%, 6-15-09 .................... 250 258,125 ----------- 2,454,563 ----------- Capital Equipment - 2.65% CSK Auto, Inc., 12.0%, 6-15-06 ...................... 280 303,800 Remington Arms Company, Inc., 10.5%, 2-1-11 (A) ................... 250 267,500 TRW Automotive Acquisition Corp.: 9.375%, 2-15-13 (A) ................. 150 150,000 11.0%, 2-15-13 (A) .................. 75 74,812 ----------- 796,112 ----------- Chemicals - Petroleum and Inorganic - 0.35% Berry Plastics Corporation, 10.75%, 7-15-12 ..................... 100 105,500 ----------- Chemicals -- Specialty - 0.80% Buckeye Cellulose Corporation, 8.5%, 12-15-05 ...................... 250 241,250 ----------- Coal - 0.84% Peabody Energy Corporation, 6.875%, 3-15-13 (A) ................. 250 253,125 ----------- Communications Equipment - 0.91% EchoStar DBS Corporation, 9.125%, 1-15-09 ..................... 250 273,125 ----------- Construction Materials - 1.73% ANR Pipeline Company, 8.875%, 3-15-10 (A) ................. 100 106,000 Brand Services, Inc., 12.0%, 10-15-12 (A) ................. 100 109,125 Interface, Inc., 10.375%, 2-1-10 ..................... 350 304,500 ----------- 519,625 ----------- Containers - 2.64% Crown European Holdings SA, 9.5%, 3-1-11 (A) .................... 500 499,375 MDP Acquisitions plc, 9.625%, 10-1-12 (A) ................. 280 295,050 ----------- 794,425 ----------- Cosmetics and Toiletries - 1.21% Armkel, LLC and Armkel Finance, Inc., 9.5%, 8-15-09 ....................... 100 109,750 Chattem, Inc., 8.875%, 4-1-08 ...................... 250 254,375 ----------- 364,125 ----------- Electrical Equipment - 2.77% Nortek, Inc., 9.25%, 3-15-07 ...................... 250 257,187 Northwest Pipeline Corporation, 8.125%, 3-1-10 (A) .................. 450 470,250 Rexnord Corporation, 10.125%, 12-15-12 (A) ............... 100 106,250 ----------- 833,687 ----------- Finance Companies - 3.78% American Seafoods Group LLC and American Seafoods, Inc., 10.125%, 4-15-10 .................... 300 317,250 DIRECTV Holdings LLC and DIRECTV Financing Co., Inc., 8.375%, 3-15-13 (A) ................. 125 137,812 NBC Acquisition Corp., 10.75%, 2-15-09 ..................... 150 147,750 Owens-Brockway Glass Container Inc., 8.75%, 11-15-12 (A) ................. 520 534,950 ----------- 1,137,762 ----------- Food and Related - 0.81% Pilgrim's Pride Corporation, 9.625%, 9-15-11 ..................... 250 242,500 ----------- Forest and Paper Products - 1.22% Georgia-Pacific Corporation, 8.875%, 2-1-10 (A) .................. 200 207,500 Jefferson Smurfit Corporation, 8.25%, 10-1-12 ...................... 150 160,500 ----------- 368,000 ----------- Furniture and Furnishings - 0.73% Associated Materials Incorporated, 9.75%, 4-15-12 ...................... 205 219,350 ----------- Health Care - General - 0.51% Sybron Dental Specialties, Inc., 8.125%, 6-15-12 ..................... 150 153,000 ----------- Hospital Supply and Management - 4.70% Columbia/HCA Healthcare Corporation: 8.12%, 8-4-03 ....................... 125 127,056 7.0%, 7-1-07 ........................ 250 268,686 HCA Inc., 6.3%, 10-1-12 ....................... 250 256,823 Tenet Healthcare Corporation, 7.375%, 2-1-13 ...................... 150 150,750 Triad Hospitals, Inc., 8.75%, 5-1-09 ....................... 250 270,000 US Oncology, Inc., 9.625%, 2-1-12 ...................... 200 209,000 United Surgical Partners Holdings, Inc., 10.0%, 12-15-11 ..................... 125 131,250 ----------- 1,413,565 ----------- Hotels and Gaming - 4.64% Chumash Casino and Resort Enterprise, 9.0%, 7-15-10 (A) ................... 150 159,375 Hilton Hotels Corporation, 7.625%, 12-1-12 ..................... 300 300,750 John Q Hammons Hotels, L.P. and John Q Hammons Hotels Finance Corporation III, 8.875%, 5-15-12 ..................... 50 48,750 MGM MIRAGE, 8.5%, 9-15-10 ....................... 250 276,250 Mohegan Tribal Gaming Authority, 8.0%, 4-1-12 ........................ 150 155,437 Prime Hospitality Corp., 8.375%, 5-1-12 ...................... 100 88,500 Turning Stone Casino Resort Enterprise, 9.125%, 12-15-10 (A) ................ 100 104,500 Venetian Casino Resort, LLC and Las Vegas Sands, Inc., 11.0%, 6-15-10 ...................... 250 261,563 ----------- 1,395,125 ----------- Household -- General Products - 4.77% Alltrista Corporation, 9.75%, 5-1-12 ....................... 200 209,000 Central Garden & Pet Company, 9.125%, 2-1-13 (A) .................. 50 52,250 Del Monte Corporation, 8.625%, 12-15-12 (A) ................ 100 106,000 Fort James Corporation, 6.625%, 9-15-04 ..................... 300 301,500 Levi Strauss & Co., 12.25%, 12-15-12 (A) ................ 250 236,875 Sealy Mattress Company, 10.875%, 12-15-07 ................... 250 261,562 Simmons Company, 10.25%, 3-15-09 ..................... 250 269,375 ----------- 1,436,562 ----------- Leisure Time Industry - 1.20% Hollywood Park, Inc., 9.25%, 2-15-07 ...................... 250 216,875 Premier Parks Inc., 9.75%, 6-15-07 ...................... 150 145,500 ----------- 362,375 ----------- Metal Fabrication - 0.35% Wolverine Tube, Inc., 10.5%, 4-1-09 ....................... 100 106,000 ----------- Motion Pictures - 3.87% AMC Entertainment Inc.: 9.5%, 3-15-09 ....................... 150 149,625 9.5%, 2-1-11 ........................ 150 149,250 Cinemark USA, Inc.: 9.625%, 8-1-08 ...................... 325 329,469 9.0%, 2-1-13 (A) .................... 250 265,625 Regal Cinemas Corporation, 9.375%, 2-1-12 ...................... 250 271,875 ----------- 1,165,844 ----------- Motor Vehicle Parts - 0.32% Collins & Aikman Floorcoverings, Inc., 9.75%, 2-15-10 ...................... 100 96,500 ----------- Motor Vehicles - 0.18% Sonic Automotive, Inc., 11.0%, 8-1-08 ....................... 50 53,375 ----------- Multiple Industry - 6.49% Cablevision Systems Corporation, 7.875%, 12-15-07 .................... 250 252,500 Doane Pet Care Company, 10.75%, 3-1-10 (A) .................. 300 307,500 Fisher Scientific International Inc., 8.125%, 5-1-12 (A) .................. 100 106,500 Phoenix Color Corp., 10.375%, 2-1-09 ..................... 500 445,000 Tyco International Group S.A., 6.125%, 11-1-08 ..................... 150 141,000 3.125%, 1-15-23, Convertible (A) .... 100 89,000 Tyco International Ltd., 0.0%, 11-17-20, Convertible ......... 150 112,313 United Industries Corporation, 9.875%, 4-1-09 (A) .................. 300 312,750 WESCO Distribution, Inc., 9.125%, 6-1-08 ...................... 250 187,500 ----------- 1,954,063 ----------- Petroleum -- Domestic - 1.91% Chesapeake Energy Corporation: 8.125%, 4-1-11 ...................... 200 211,000 7.5%, 9-15-13 (A) ................... 150 153,375 Encore Acquisition Company, 8.375%, 6-15-12 ..................... 100 104,750 Westport Resources Corporation, 8.25%, 11-1-11 ...................... 100 106,750 ----------- 575,875 ----------- Petroleum -- Services - 2.95% Key Energy Services, Inc., 8.375%, 3-1-08 ...................... 250 265,625 Pemex Project Funding Master Trust, 7.375%, 12-15-14 (A) ................ 300 307,875 R&B Falcon Corporation, 9.5%, 12-15-08 ...................... 250 315,540 ----------- 889,040 ----------- Publishing - 2.36% Dex Media East LLC and Dex Media East Finance Co.: 9.875%, 11-15-09 (A) ................ 150 169,125 12.125%, 11-15-12 (A) ............... 150 174,750 Hollinger International Publishing Inc., 9.0%, 12-15-10 (A) .................. 100 105,750 TransWestern Publishing Company LLC, 9.625%, 11-15-07 .................... 250 260,937 ----------- 710,562 ----------- Railroad - 0.80% Kansas City Southern Railway Company (The), 7.5%, 6-15-09 ....................... 225 239,625 ----------- Real Estate Investment Trust - 1.71% La Quinta Properties, Inc., 8.875%, 3-15-11 (A) ................. 250 250,938 Meritage Corporation, 9.75%, 6-1-11 ....................... 250 263,750 ----------- 514,688 ----------- Restaurants - 1.61% Carrols Corporation, 9.5%, 12-1-08 ....................... 250 236,875 Host Marriott, L.P., 9.25%, 10-1-07 ...................... 250 248,750 ----------- 485,625 ----------- Retail -- General Merchandise - 4.77% Advance Stores Company, Incorporated, 10.25%, 4-15-08 ..................... 250 262,813 AutoNation, Inc., 9.0%, 8-1-08 ........................ 250 263,750 Domino's, Inc., 10.375%, 1-15-09 .................... 250 268,125 Roundy's, Inc., 8.875%, 6-15-12 ..................... 300 298,500 United Auto Group, Inc., 9.625%, 3-15-12 ..................... 350 341,250 ----------- 1,434,438 ----------- Retail -- Specialty Stores - 2.34% Cole National Group, Inc., 8.875%, 5-15-12 ..................... 350 316,750 Jo-Ann Stores, Inc., 10.375%, 5-1-07 ..................... 110 116,050 Michaels Stores, Inc., 9.25%, 7-1-09 ....................... 250 272,500 ----------- 705,300 ----------- Timesharing and Software - 0.87% NDCHealth Corporation, 10.5%, 12-1-12 (A)................... 250 261,875 ----------- Utilities -- Gas and Pipeline - 2.91% AmeriGas Partners, L.P. and AP Eagle Finance Corp., 8.875%, 5-20-11 ..................... 100 106,000 El Paso Energy Partners, L.P. and El Paso Energy Partners Finance Corporation, 8.5%, 6-1-10 (A) .................... 500 510,000 Wynn Las Vegas, LLC and Wynn Las Vegas Capital Corp., 12.0%, 11-1-10 ...................... 250 261,250 ----------- 877,250 ----------- Utilities -- Telephone - 3.50% Nextel Communications, Inc.: 10.65%, 9-15-07 ..................... 350 364,875 9.95%, 2-15-08 ...................... 150 156,375 Triton PCS, Inc.: 9.375%, 2-1-11 ...................... 125 108,750 8.75%, 11-15-11 ..................... 500 422,500 ----------- 1,052,500 ----------- TOTAL CORPORATE DEBT SECURITIES - 89.40% $26,908,707 (Cost: $25,947,675) SHORT-TERM SECURITIES Chemicals - Petroleum and Inorganic - 0.82% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ............... 246 246,000 ------------ Food and Related - 4.98% McCormick & Co. Inc., 1.45%, 4-1-03 ......................... 1,000 1,000,000 Sara Lee Corporation, 1.35%, 4-16-03 ........................ 500 499,719 ------------ 1,499,719 ------------ Forest and Paper Products - 1.66% Sonoco Products Co., 1.44%, 4-1-03 ......................... 500 500,000 ------------ Retail - Food Stores - 5.95% Kroger Co. (The), 1.9%, 4-1-03 .......................... 1,790 1,790,000 ------------ TOTAL SHORT-TERM SECURITIES - 13.41% $ 4,035,719 (Cost: $4,035,719) TOTAL INVESTMENT SECURITIES - 103.98% $31,297,540 (Cost: $30,520,204) LIABILITIES, NET OF CASH AND OTHER ASSETS - (3.98%) (1,198,023) NET ASSETS - 100.00% $30,099,517 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2003, the total value of these securities amounted to $7,116,941 or 23.64% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES HIGH INCOME FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost - $30,520) (Notes 1 and 3).......................................... $31,298 Cash ..................................................... 1 Receivables: Dividends and interest................................... 587 Fund shares sold ........................................ 125 Prepaid registration fees ................................. 6 ------- Total assets .......................................... 32,017 ------- LIABILITIES Payable for investment securities purchased ............... 1,790 Payable to Fund shareholders ............................. 53 Dividends payable ........................................ 20 Accrued shareholder servicing (Note 2) ................... 8 Accrued accounting services fee (Note 2) ................. 2 Accrued distribution and service fees (Note 2) ........... 1 Accrued management fee (Note 2) .......................... 1 Other .................................................... 42 ------- Total liabilities ..................................... 1,917 ------- Total net assets ..................................... $30,100 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 37 Additional paid-in capital............................... 35,352 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ............................ (6,066) Net unrealized appreciation in value of investments ..... 777 ------- Net assets applicable to outstanding units of capital . $30,100 ======= Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $8.07 Class B .................................................. $8.07 Class C .................................................. $8.07 Class Y .................................................. $8.07 Capital shares outstanding: Class A .................................................. 777 Class B .................................................. 212 Class C .................................................. 2,289 Class Y .................................................. 451 Capital shares authorized .................................. 200,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS HIGH INCOME FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ............................... $1,948 Dividends ............................................... 34 ------ Total income .......................................... 1,982 ------ Expenses (Note 2): Distribution fee: Class A ............................................... 1 Class B ............................................... 9 Class C ............................................... 130 Class Y ............................................... 1 Investment management fee ............................... 139 Shareholder servicing: Class A ............................................... 9 Class B ............................................... 5 Class C ............................................... 59 Class Y ............................................... 1 Service fee: Class A ............................................... 9 Class B ............................................... 3 Class C ............................................... 43 Registration fees ....................................... 24 Accounting services fee ................................. 14 Audit fees .............................................. 12 Custodian fees .......................................... 8 Other ................................................... 13 ------ Total ................................................... 480 Less expenses in excess of voluntary waiver of investment management fee (Note 2).................... (119) ------ Total expenses ....................................... 361 ------ Net investment income .............................. 1,621 ------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ......................... (1,158) Unrealized appreciation in value of investments during the period ....................................... 259 ------ Net loss on investments.................................. (899) ------ Net increase in net assets resulting from operations ........................................... $ 722 ====== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS HIGH INCOME FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE IN NET ASSETS Operations: Net investment income ................. $1,621 $1,596 Realized net loss on investments ...... (1,158) (641) Unrealized appreciation ............... 259 490 ------- ------- Net increase in net assets resulting from operations .......... 722 1,445 ------- ------- Distributions to shareholders from net investment income (Note 1E):(1) Class A ............................... (288) (94) Class B ............................... (81) (72) Class C ............................... (1,224) (1,428) Class Y ............................... (28) (2) ------- ------- (1,621) (1,596) ------- ------- Capital share transactions (Note 5) .............................. 10,768 733 ------- ------- Total increase ........................ 9,869 582 NET ASSETS Beginning of period .................... 20,231 19,649 ------- ------- End of period .......................... $30,100 $20,231 ======= ======= Undistributed net investment income ... $ --- $ --- ======= ======= (1) See "Financial Highlights" on pages 57 - 60. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.48 $8.54 $9.04 Income (loss) from ----- ----- ----- investment operations: Net investment income .......... 0.64 0.74 0.58 Net realized and unrealized loss on investments (0.41) (0.06) (0.50) Total from investment ----- ----- ----- operations ....... 0.23 0.68 0.08 Less distributions: ----- ----- ----- Declared from net investment income (0.64) (0.74) (0.58) From capital gains (0.00) (0.00) (0.00) ----- ----- ----- Total distributions (0.64) (0.74) (0.58) Net asset value, ----- ----- ----- end of period .... $8.07 $8.48 $8.54 ===== ===== ===== Total return(2) .... 3.02% 8.46% 0.90% Net assets, end of period (000 omitted) ......... $6,269 $1,895 $442 Ratio of expenses to average net assets including voluntary expense waiver ... 0.91% 0.84% 1.05%(3) Ratio of net investment income to average net assets including voluntary expense waiver ........... 7.83% 9.00% 9.01%(3) Ratio of expenses to average net assets excluding voluntary expense waiver ... 1.44% 1.14% 1.42%(3) Ratio of net investment income to average net assets excluding voluntary expense waiver ........... 7.30% 8.70% 8.64%(3) Portfolio turnover rate 52.20% 82.42% 114.89%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-18-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.48 $8.54 $ 9.03 Income (loss) from ----- ----- ------ investment operations: Net investment income ......... 0.56 0.68 0.48 Net realized and unrealized loss on investments (0.41) (0.06) (0.49) Total from investment ----- ----- ------ operations ...... 0.15 0.62 (0.01) ----- ----- ------ Less distributions: Declared from net investment income (0.56) (0.68) (0.48) From capital gains (0.00) (0.00) (0.00) ----- ----- ------ Total distributions (0.56) (0.68) (0.48) ----- ----- ------ Net asset value, end of period .... $8.07 $8.48 $8.54 ===== ===== ===== Total return ....... 2.06% 7.64% 0.09% Net assets, end of period (in millions) ........ $2 $1 $1 Ratio of expenses to average net assets including voluntary expense waiver ... 1.84% 1.74% 1.85%(2) Ratio of net investment income to average net assets including voluntary expense waiver ........... 6.90% 8.09% 8.30%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 2.37% 2.36% 2.50%(2) Ratio of net investment income to average net assets excluding voluntary expense waiver ........... 6.37% 7.47% 7.65%(2) Portfolio turnover rate 52.20% 82.42% 114.89%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ----------------------------------- 2003 2002 2001 2000 1999 ------- ------ ------ ------ ------ Net asset value, beginning of period $8.48 $8.54 $9.27 $9.94 $10.79 ----- ----- ----- ----- ------ Income (loss) from investment operations: Net investment income 0.57 0.68 0.73 0.69 0.63 Net realized and unrealized loss on investments .. (0.41) (0.06) (0.73) (0.67) (0.82) ----- ----- ----- ----- ------ Total from investment operations ....... 0.16 0.62 0.00 0.02 (0.19) ----- ----- ----- ----- ------ Less distributions: Declared from net investment income (0.57) (0.68) (0.73) (0.69) (0.63) From capital gains (0.00) (0.00) (0.00) (0.00) (0.03) ----- ----- ----- ----- ------ Total distributions (0.57) (0.68) (0.73) (0.69) (0.66) Net asset value, ----- ----- ----- ----- ------ end of period .... $8.07 $8.48 $8.54 $9.27 $ 9.94 ===== ===== ===== ===== ====== Total return ....... 2.15% 7.58% 0.18% 0.17% -1.72% Net assets, end of period (in millions) .... $18 $17 $19 $23 $25 Ratio of expenses to average net assets including voluntary expense waiver ... 1.74% 1.82% 1.78% 2.17% 2.20% Ratio of net investment income to average net assets including voluntary expense waiver ........... 7.05% 8.01% 8.38% 7.16% 6.29% Ratio of expenses to average net assets excluding voluntary expense waiver ... 2.27% 2.46% 2.41% 2.26% --- Ratio of net investment income to average net assets excluding voluntary expense waiver ........... 6.52% 7.36% 7.75% 7.07% --- Portfolio turnover rate ............. 52.20% 82.42% 114.89% 71.31% 50.98% (1) See Note 5. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS HIGH INCOME FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the period For the fiscal from year ended March 31, 12-30-98(1) ---------------------------- to 2003 2002 2001 2000 3-31-99 ------ ------ -------------- ------ Net asset value, beginning of period $8.48 $8.54 $9.27 $9.94 $9.97 Income (loss) from ----- ----- ----- ----- ----- investment operations: Net investment income 0.64 0.75 0.78 0.77 0.20 Net realized and unrealized gain (loss) on investments... (0.41) (0.06) (0.73) (0.67) 0.00 Total from investment ----- ----- ----- ----- ----- operations ........ 0.23 0.69 0.05 0.10 0.20 Less distributions: ----- ----- ----- ----- ----- Declared from net investment income (0.64) (0.75) (0.78) (0.77) (0.20) From capital gains (0.00) (0.00) (0.00) (0.00) (0.03) ----- ----- ----- ----- ----- Total distributions (0.64) (0.75) (0.78) (0.77) (0.23) ----- ----- ----- ----- ----- Net asset value, end of period ..... $8.07 $8.48 $8.54 $9.27 $9.94 ===== ===== ===== ===== ===== Total return ....... 3.03% 8.50% 0.79% 0.94% 2.45% Net assets, end of period (000 omitted) $3,643 $64 $12 $6 $6 Ratio of expenses to average net assets including voluntary expense waiver ... 1.08% 0.79% 1.20% 1.40% 0.26%(2) Ratio of net investment income to average net assets including voluntary expense waiver ........... 7.22% 8.99% 8.95% 7.85% 8.55%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 1.61% 1.08% 1.62% 1.46% --- Ratio of net investment income to average net assets excluding voluntary expense waiver ........... 6.69% 8.71% 8.52% 7.79% --- Portfolio turnover rate ............. 52.20% 82.42% 114.89% 71.31% 50.98%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 1999. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Thomas A. Mengel, portfolio manager of W&R Funds, Inc. - International Growth Fund This report relates to the operation of W&R Funds, Inc. -- International Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund struggled during what proved to be a difficult environment for international equities, slightly underperforming its benchmark index. The Class C shares of the Fund declined 23.63 percent, compared with the Morgan Stanley Capital International E.A.FE. Index (the index that generally reflects the performance of the securities markets in Europe, Australia and the Far East), which declined 23.24 percent for the fiscal year. However, the Fund slightly outperformed the Lipper International Funds Universe Average (the index that generally reflects the performance of funds with similar investment objectives), which declined 24.61 percent during the period. Why did the Fund slightly lag its benchmark index during the fiscal year? Country selection was the primary factor causing the Fund to slightly lag the benchmark return. However, the Fund did benefit from our stock selection and from stronger foreign currency movements. The Fund benefited significantly from a weaker U.S. dollar over the past twelve months. What other market conditions or events influenced the Fund's performance during the fiscal year? Investor sentiment remained very cautious during this third difficult year for equity market investments. Early in the fiscal year, global economic growth slowed and manufacturing employment weakened in the largest industrialized countries. Interest rates stayed low but business spending failed to recover. Rising budget deficits suggested that fiscal stimulus would be limited, especially in Europe. In recent months, global geopolitical concerns triggered extreme global market volatility and risk aversion. Continental Europe suffered some of the weakest equity markets, due to their inflexible corporate legal structure and labor markets. In mid-March the Asian consumer markets were shocked by an outbreak of atypical pneumonia that is depressing travel and consumer sectors. What strategies and techniques did you employ that specifically affected the Fund's performance? Early in the fiscal year, many of the Fund's large-cap stocks were hurt by broad corporate profit concerns and accounting issues that remained in the spotlight. The Fund continued to hold what we feel are fundamentally sound growth companies that were negatively impacted by these factors. Looking at country selection, the Fund was underweight in Japanese equities, which had a negative effect on performance. Japan's Nikkei was the best- performing developed market for calendar year 2002 because, in our view, broad market expectations of severe financial stress in Japan did not materialize. Throughout the year, we held underweight positions in the weakest sectors (financials, technology and industrials) and made very careful selections in retail stocks. Both strategies had a positive effect on performance. What industries did you emphasize during the fiscal year, and what looks attractive to you going forward? We have continued to emphasize growth companies in Continental Europe with defensive characteristics (consumer products, impressive management, strong balance sheet, attractive dividend yield and solid competitive position). In Britain, we have focused on growth stocks that are, in our view, benefiting from the relatively strong domestic economy. Despite continuing imbalances within Japan's economy, we believe that there are still good companies with solid balance sheets, good management and growth prospects, especially some of the larger exporters we have selected. In Asia, we have concentrated our holdings in what we see as industry leaders that we believe should benefit from continued strong Chinese business demand. We are alert to signs of over-leveraged households in several countries, especially those with recent housing booms. The difficult business climate of the last few years has forced many foreign companies to accelerate restructuring efforts. We feel that this positive improvement should be an important focus for investors once the broader financial and geopolitical environment improves. We continue to believe that foreign equity investments provide important long-term portfolio diversification for our customers. Respectfully, Thomas A. Mengel Manager W&R International Growth Fund Comparison of Change in Value of $10,000 Investment Morgan Stanley W&R Capital International International Lipper Growth E.A.FE. International Fund, Index Funds Class C (with net Universe Shares dividends) Average --------- ---------- ---------- 03-31-93 10,000 10,000 10,000 03-31-94 10,032 12,251 12,382 03-31-95 10,418 12,996 12,282 03-31-96 11,214 14,598 14,343 03-31-97 14,000 14,810 15,735 03-31-98 18,933 17,566 18,896 03-31-99 20,894 18,632 18,963 03-31-00 41,349 23,307 26,542 03-31-01 24,623 17,276 19,134 03-31-02 20,012 15,811 17,768 03-31-03 15,283 12,137 13,396 ===== W&R International Growth Fund, Class C (1) (2) -- $15,283 ***** Morgan Stanley Capital International E.A.FE. Index (with net dividends) - $12,137 *-*-* Lipper International Funds Universe Average - $13,396 Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Comparative performance of W&R International Growth Fund, Class C Shares following change in objective. Morgan Stanley W&R Capital International International Lipper Growth E.A.FE. International Fund, Index Funds Class C (with net Universe Shares dividends) Average --------- ---------- ---------- 04-30-95 10,000 10,000 10,000 03-31-96 10,625 10,826 11,309 03-31-97 13,265 10,983 12,406 03-31-98 17,939 13,027 14,899 03-31-99 19,797 13,817 14,952 03-31-00 39,178 17,284 20,928 03-31-01 23,330 12,811 15,087 03-31-02 18,961 11,726 14,009 03-31-03 14,480 9,001 10,562 ===== W&R International Growth Fund, Class C (2) (3) -- $14,480 ***** Morgan Stanley Capital International E.A.FE. Index (with net dividends) (3) - $9,001 *-*-* Lipper International Funds Universe Average (3) - $10,562 (1) Effective as of 4-20-95, the name of the Fund was changed to W&R International Growth Fund and its investment objective was changed to long- term appreciation, with realization of income as a secondary objective. (2) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. (3) Because the Fund's new investment objective became effective on a date other than at the end of a month, and partial month calculations of the performance of both the indexes are not available, the investments were effected as of April 30, 1995. Average Annual Total Return(4) Class A Class B Class C(5) Class Y --------------------------------------------- 1-year period ended 3-31-03 -27.35% -26.88% -23.63% -22.56% 5-year period ended 3-31-03 --- --- -4.19% -3.17% 10-year period ended 3-31-03 --- --- 4.33% --- Since inception of Class through 3-31-03(6) -27.24% -27.42% --- 5.75% (4)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (5)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (6)7-3-00 for Class A shares, 7-10-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND - ----------------------------------------------------------------- International Growth Fund GOALS To seek long-term appreciation of capital as a primary goal and current income as a secondary goal. Strategy Invests primarily in common stocks of foreign companies that have the potential to provide long-term growth. The Fund emphasizes growth stocks which are securities of companies whose earnings are likely to grow faster than the economy. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Net asset value on 3-31-03 $7.40 3-31-02 9.69 ------ Change per share $(2.29) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------- With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -27.35% -22.91% -26.88% -23.83% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -27.24% -25.65% -27.42% -26.85% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-3-00 for Class A shares and 7-10-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ ---------- ---------- 1-year period ended 3-31-03 -23.63% -22.56% 5-year period ended 3-31-03 -4.19% -3.17% 10-year period ended 3-31-03 4.33% --- Since inception of Class (D) --- 5.75% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). International investing involves special risks, including political, economic and currency risks. SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, International Growth Fund had net assets totaling $64,505,767 invested in a diversified portfolio of: 71.86% Common Stocks 21.36% Cash and Cash Equivalents 6.78% Other Government Security As a shareholder of International Growth Fund, for every $100 you had invested on March 31, 2003, your Fund was invested by geographic region and by industry, respectively, as follows: $56.74 Europe 21.36 Cash and Cash Equivalents 16.13 Pacific Basin 4.22 Scandinavia 1.03 Mexico 0.52 South America $21.36 Cash and Cash Equivalents 16.32 Financial Services Stocks 16.13 Consumer Goods Stocks 7.07 Health Care Stocks 6.78 Other Government Security 6.64 Utilities Stocks 5.45 Raw Materials Stocks 4.65 Miscellaneous Stocks 4.59 Energy Stocks 3.46 Consumer Services Stocks 3.26 Business Equipment and Services Stocks 2.68 Capital Goods Stocks 1.61 Retail Stocks THE INVESTMENTS OF INTERNATIONAL GROWTH FUND March 31, 2003 Shares Value COMMON STOCKS Australia - 1.34% Novogen LTD (A)* ....................... 474,580 $ 863,805 ------------ Austria - 1.18% Erste Bank der oesterreichischen Sparkassen AG (A) ..................... 10,700 762,690 ------------ Brazil - 0.52% Tele Norte Leste Participacoes S.A., ADR ............................. 40,700 335,775 ------------ Finland - 2.68% Nokia Oyj (A) .......................... 96,200 1,327,380 UPM-Kymmene Oyj (A) .................... 31,200 402,958 ------------ 1,730,338 ------------ France - 7.22% AXA (A) ................................ 29,500 347,885 BNP Paribas SA (A) ..................... 28,400 1,135,981 Carrefour SA (A) ....................... 16,900 639,334 Publicis Groupe S.A. (A) ............... 22,270 377,673 Renault SA (A) ......................... 7,900 261,062 Societe Generale, Class A (A) .......... 11,400 587,944 TotalFinaElf, S.A. (A) ................. 10,350 1,308,534 ------------ 4,658,413 ------------ Germany - 6.98% Altana AG (A) .......................... 17,000 798,570 BASF Aktiengesellschaft (A) ............ 26,760 1,001,843 Deutsche Boerse AG (A) ................. 20,000 765,546 Henkel Kommanditgesellschaft auf Aktien (A)......................... 14,700 905,216 Siemens AG (A) ......................... 3,000 122,941 VOLKSWAGEN AKTIENGESELLSCHAFT (A) ...... 28,400 906,618 ------------ 4,500,734 ------------ Hong Kong - 1.50% Cheung Kong (Holdings) Limited (A) ..... 54,000 298,400 Hutchison Whampoa Limited, Ordinary Shares (A) ................... 57,000 309,862 Johnson Electric Holdings Limited (A) .. 330,000 361,749 ------------ 970,011 ------------ Ireland - 1.17% DePfa Deutsche Pfandbriefbank AG (A) ... 17,100 752,947 ------------ Italy - 5.80% Assicurazioni Generali S.p.A. (A) ...... 27,500 565,876 Eni S.p.A. (A) ......................... 78,800 1,051,222 Saipem S.p.A. (A) ...................... 96,200 603,927 Telecom Italia Mobile S.p.A. (A) ....... 217,000 884,541 UniCredito Italiano SpA (A) ............ 166,500 633,325 ------------ 3,738,891 ------------ Japan - 13.29% Canon Inc. (A) ......................... 20,000 701,338 Eisai Co., Ltd. (A) .................... 18,500 342,389 FANUC LTD (A) .......................... 7,700 335,236 Honda Motor Co., Ltd. (A) .............. 19,000 635,694 Kao Corporation (A) .................... 40,000 811,452 Mitsubishi Corporation (A) ............. 105,000 651,025 Nintendo Co., Ltd. (A) ................. 3,700 300,864 Nissan Motor Co., Ltd. (A) ............. 105,300 704,616 Nomura Holdings, Inc. (A) .............. 82,000 857,784 Ricoh Company, Ltd. (A) ................ 24,000 376,690 SMC Corporation (A) .................... 3,900 306,556 Sony Corporation (A) ................... 21,200 754,193 Takeda Chemical Industries, Ltd. (A) ... 33,000 1,238,269 Toyota Motor Corporation (A) ........... 25,000 557,979 ------------ 8,574,085 ------------ Mexico - 1.03% Telefonos de Mexico, S.A. de C.V., ADR . 22,300 662,756 ------------ Netherlands - 4.10% ABN AMRO Holding N.V. (A) .............. 14,600 213,228 Koninklijke KPN N.V. (A)* .............. 80,900 518,457 Royal Dutch Petroleum Company (A) ....... 14,700 597,763 Unilever N.V. - Certicaaten Van Aandelen (A) .......................... 22,100 1,313,934 ------------ 2,643,382 ------------ Portugal - 1.82% Portugal Telecom, SGPS, S.A. (A) ....... 169,900 1,175,855 ------------ Spain - 1.18% Banco Bilbao Vizcaya Argentaria, S.A. (A) .................. 42,600 354,259 Banco Santander Central Hispano, S.A. (A)...................... 63,900 407,421 ------------ 761,680 ------------ Sweden - 1.54% H&M Hennes & Mauritz AB, Class B Shares (A) .................... 19,000 399,230 Nordea AB (A) .......................... 134,000 591,598 ------------ 990,828 ------------ Switzerland - 5.18% Credit Suisse Group, Registered Shares (A)* ................ 39,100 678,769 Nestle S.A., Registered Shares (A) ..... 5,000 988,033 Novartis AG, Registered Shares (A) ..... 26,000 961,291 Roche Holdings AG, Genussschein (A) .... 6,000 358,573 UBS AG (A)* ............................ 8,300 352,552 ------------ 3,339,218 ------------ United Kingdom - 15.33% BHP Billiton Plc (A) ................... 111,200 556,569 British Sky Broadcasting Group plc (A)* 125,100 1,237,465 Diageo plc (A) ......................... 200,000 2,049,412 HSBC Holdings plc (A) .................. 79,600 815,666 Reckitt Benckiser plc (A) .............. 68,500 1,121,564 Reed Elsevier plc (A) .................. 139,500 995,560 Rio Tinto plc (A) ...................... 56,300 1,048,038 Royal Bank of Scotland Group plc (The) (A) ................... 31,177 701,461 Vodafone Group Plc (A) ................. 766,100 1,366,843 ------------ 9,892,578 ------------ TOTAL COMMON STOCKS - 71.86% $ 46,353,986 (Cost: $51,067,544) Principal Amount in Thousands OTHER GOVERNMENT SECURITY - 6.78% Germany Bundesschwatzanweisungen Treasury Note, 4.25%, 6-13-03 (B) ..................... EUR4,000 $ 4,374,117 ----------- (Cost: $3,978,440) SHORT-TERM SECURITIES Commercial Paper Apparel - 1.55% NIKE, Inc., 1.18%, 4-17-03 ........................ $1,000 999,476 ----------- Chemicals -- Petroleum and Inorganic - 3.23% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. 2,083 2,083,000 ----------- Health Care -- Drugs - 6.98% Alcon Capital Corporation (Nestle S.A.), 1.25%, 4-28-03 ........................ 2,500 2,497,656 Pharmacia Corporation, 1.23%, 4-3-02 ......................... 2,000 1,999,863 ----------- 4,497,519 ----------- Household -- General Products - 4.17% Procter & Gamble Company (The), 1.19%, 4-24-03 ........................ 2,693 2,690,953 ----------- Multiple Industry - 3.41% BOC Group Inc. (DE), 1.39%, 4-1-03 ......................... 2,200 2,200,000 ----------- Security and Commodity Brokers - 2.44% UBS Finance Delaware LLC, 1.39%, 4-1-03 ......................... 1,575 1,575,000 ----------- Total Commercial Paper - 21.78% 14,045,948 Commercial Paper (backed by irrevocable bank letter of credit) - 1.98% Motor Vehicles Hyundai Motor Finance Co. (Bank of America N.A.), 1.4%, 4-1-03 .......................... 1,279 1,279,000 ----------- TOTAL SHORT-TERM SECURITIES - 23.76% $15,324,948 (Cost: $15,324,948) TOTAL INVESTMENT SECURITIES - 102.40% $66,053,051 (Cost: $70,370,932) LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.40%) (1,547,284) NET ASSETS - 100.00% $64,505,767 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Listed on an exchange outside the United States. (B)Principal amounts are denominated in the indicated foreign currency, where applicable (EUR-Euro). See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES INTERNATIONAL GROWTH FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (cost - $70,371) (Notes 1 and 3) ......................................... $66,053 Cash .................................................... 1 Receivables: Investment securities sold .............................. 645 Dividends and interest .................................. 430 Fund shares sold ........................................ 44 Prepaid insurance premium ................................ 1 ------- Total assets .......................................... 67,174 ------- LIABILITIES Payable to Fund shareholders ............................. 2,559 Accrued shareholder servicing (Note 2) ................... 46 Accrued accounting services fee (Note 2) ................. 3 Accrued distribution and service fees (Note 2) ........... 1 Accrued management fee (Note 2) .......................... 1 Other .................................................... 58 ------- Total liabilities ..................................... 2,668 ------- Total net assets ..................................... $64,506 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 86 Additional paid-in capital .............................. 125,203 Accumulated undistributed loss: Accumulated undistributed net investment loss ........... (2) Accumulated undistributed net realized loss on investment transactions ............................ (56,489) Net unrealized depreciation in value of investments ..... (4,292) -------- Net assets applicable to outstanding units of capital ........................................... $ 64,506 ======== Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $7.57 Class B .................................................. $7.35 Class C .................................................. $7.40 Class Y .................................................. $8.17 Capital shares outstanding: Class A .................................................. 717 Class B .................................................. 251 Class C .................................................. 6,219 Class Y .................................................. 1,372 Capital shares authorized .................................. 400,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS INTERNATIONAL GROWTH FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends (net of foreign withholding taxes of $122) .... $ 1,343 Interest and amortization ............................... 237 ------- Total income .......................................... 1,580 ------- Expenses (Note 2): Investment management fee ............................... 647 Distribution fee: Class A ............................................... 2 Class B ............................................... 15 Class C ............................................... 440 Class Y ............................................... 24 Shareholder servicing: Class A ............................................... 39 Class B ............................................... 19 Class C ............................................... 404 Class Y ............................................... 15 Service fee: Class A ............................................... 15 Class B ............................................... 5 Class C ............................................... 147 Custodian fees .......................................... 167 Accounting services fee ................................. 35 Audit fees .............................................. 18 Legal fees .............................................. 2 Other ................................................... 85 ------- Total expenses ........................................ 2,079 ------- Net investment loss .................................. (499) REALIZED AND UNREALIZED GAIN (LOSS) ON ------- INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities .......................... (15,365) Realized net loss on forward currency contracts .......... (270) Realized net loss on foreign currency transactions ....... (100) ------- Realized net loss on investments ........................ (15,735) ------- Unrealized depreciation in value of securities during the period ....................................... (2,922) Unrealized appreciation in value of forward currency contracts during the period..................... 65 ------- Unrealized depreciation in value of investments during the period ..................................... (2,857) ------- Net loss on investments ................................ (18,592) ------- Net decrease in net assets resulting from operations ......................................... $(19,091) ======= See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS INTERNATIONAL GROWTH FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- DECREASE IN NET ASSETS Operations: Net investment loss.................... $ (499) $ (1,063) Realized net loss on investments ...... (15,735) (27,914) Unrealized appreciation (depreciation) (2,857) 4,921 ------- -------- Net decrease in net assets resulting from operations .......... (19,091) (24,056) ------- -------- Distributions to shareholders from realized gains on investment transactions (Note 1E): (1) Class A ............................. --- (21) Class B ............................. --- (7) Class C ............................. --- (265) Class Y ............................. --- (19) ------- -------- --- (312) ------- -------- Capital share transactions (Note 5) .............................. (7,585) (21,059) ------- -------- Total decrease ........................ (26,676) (45,427) NET ASSETS Beginning of period .................... 91,182 136,609 ------- -------- End of period .......................... $64,506 $ 91,182 ======= ======== Undistributed net investment loss ..... $ (2) $ (2) ======= ======== (1) See "Financial Highlights" on pages 75 - 78. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.82 $12.03 $24.33 ----- ------ ------ Loss from investment operations: Net investment loss ............ (0.03) (0.17) (0.02) Net realized and unrealized loss on investments (2.22) (2.01) (6.46) ----- ------ ------ Total from investment operations ....... (2.25) (2.18) (6.48) ----- ------ ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.03) (5.82) ----- ------ ------ Total distributions (0.00) (0.03) (5.82) ----- ------ ------ Net asset value, end of period .... $7.57 $ 9.82 $12.03 ===== ====== ====== Total return(2) .... -22.91%-18.12% -29.73% Net assets, end of period (in millions) ........ $5 $7 $5 Ratio of expenses to average net assets 2.10% 1.89% 1.72%(3) Ratio of net investment loss to average net assets ....... -0.10% -0.49% -0.31%(3) Portfolio turnover rate 107.62%133.83% 103.03%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-10-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.65 $11.94 $24.59 ----- ------ ------ Loss from investment operations: Net investment loss ............ (0.11) (0.19) (0.09) Net realized and unrealized loss on investments (2.19) (2.07) (6.74) ----- ------ ------ Total from investment operations ....... (2.30) (2.26) (6.83) ----- ------ ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.03) (5.82) ----- ------ ------ Total distributions (0.00) (0.03) (5.82) ----- ------ ------ Net asset value, end of period .... $7.35 $ 9.65 $11.94 ===== ====== ====== Total return ....... -23.83%-18.93% -30.89% Net assets, end of period (in millions) ........ $2 $2 $2 Ratio of expenses to average net assets 3.24% 2.89% 2.61%(2) Ratio of net investment loss to average net assets ........... -1.22% -1.42% -1.30%(2) Portfolio turnover rate 107.62%133.83% 103.03%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $9.69 $11.96 $28.58 $15.58 $15.04 ----- ------ ------ ------ ------ Income (loss) from investment operations: Net investment loss (0.08) (0.11) (0.17) (0.34) (0.07) Net realized and unrealized gain (loss) on investments ..... (2.21) (2.13) (10.63) 15.14 1.55 ----- ------ ------ ------ ------ Total from investment operations ....... (2.29) (2.24) (10.80) 14.80 1.48 ----- ------ ------ ------ ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) (0.00) (0.00) From capital gains (0.00) (0.03) (5.82) (1.80) (0.94) ----- ------ ------ ------ ------ Total distributions (0.00) (0.03) (5.82) (1.80) (0.94) ----- ------ ------ ------ ------ Net asset value, end of period .... $7.40 $ 9.69 $11.96 $28.58 $15.58 ===== ====== ====== ====== ====== Total return ....... -23.63%-18.73% -40.45% 97.89% 10.36% Net assets, end of period (in millions) ........ $46 $74 $123 $233 $100 Ratio of expenses to average net assets 2.93% 2.62% 2.36% 2.37% 2.35% Ratio of net investment loss to average net assets ........... -0.86% -1.03% -1.03% -1.48% -0.53% Portfolio turnover rate 107.62%133.83% 103.03%125.71% 116.25% (1) See Note 5. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS INTERNATIONAL GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $10.55 $12.87 $29.86 $16.08 $15.35 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) .......... (0.16) (0.18) (0.17) (1.41) 0.05 Net realized and unrealized gain (loss) on investments ..... (2.22) (2.11) (11.00) 16.99 1.62 ------ ------ ------ ------ ------ Total from investment operations ....... (2.38) (2.29) (11.17) 15.58 1.67 ------ ------ ------ ------ ------ Less distributions: From net investment income .......... (0.00) (0.00) (0.00) (0.00) (0.00) From capital gains (0.00) (0.03) (5.82) (1.80) (0.94) ------ ------ ------ ------ ------ Total distributions (0.00) (0.03) (5.82) (1.80) (0.94) ------ ------ ------ ------ ------ Net asset value, end of period .... $8.17 $10.55 $12.87 $29.86 $16.08 ====== ====== ====== ====== ====== Total return ....... -22.56%-17.79% -39.91% 99.74% 11.41% Net assets, end of period (000 omitted) .......... $11,205 $8,314 $6,594 $5,296 $629 Ratio of expenses to average net assets 1.63% 1.52% 1.44% 1.48% 1.44% Ratio of net investment income (loss) to average net assets ....... 0.39% -0.11% -0.02% -0.80% 0.36% Portfolio turnover rate 107.62%133.83% 103.03%125.71% 116.25% See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Daniel P. Becker, portfolio manager of W&R Funds, Inc. - Large Cap Growth Fund This report relates to the operation of W&R Funds, Inc. -- Large Cap Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? In a difficult environment for large-cap U.S. stocks, the Fund posted a negative return for the period. Class A shares of the Fund declined 21.39 percent before the impact of sales load, and declined 25.91 percent after the impact of sales load. This compared with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which decreased 24.76 percent during the period, and the Lipper Large-Cap Growth Funds Universe Average (generally representing the performance of the universe of funds with similar investment objectives), which declined 27.02 percent during the period. It should be noted that the values for the benchmark index and the Lipper category do not reflect a sales load. Why did the Fund lag (with sales load impact) its benchmark index during the fiscal year? Primarily, in relation to its index, the Fund was adversely affected by the impact of the Fund's sales load. On a more favorable note, large holdings in health care companies early in the year, and select technology companies later in the year, had a positive effect on performance relative to the benchmark. In addition, the Fund was underweight in some of the large underperforming stocks that make up a large part of the S&P 500 Index. What other market conditions or events influenced the Fund's performance during the fiscal year? The year was characterized by a continued slowdown in economic growth, driven primarily by the capital spending- and industrial cyclical-linked industries. Many years of prosperity had resulted in overcapacity in many economically sensitive industries, and the unwinding of the prior-spending boom had a negative effect on the economy. Companies were quick to restructure by reducing employee levels, capital spending and R&D (research and development). These further cuts deepened the economic problems and were responsible for the sharpest decline in corporate profits in decades. Stocks leveraged to these cyclical events did very poorly in 2002. However, some stocks in health care and consumer staple industries did very well as they were far removed from the economic turmoil. What strategies and techniques did you employ that specifically affected the Fund's performance? During the middle of 2002, we felt it was appropriate to start to position the Fund to benefit from possible economic recovery. We felt the recovery would appear by early 2003, and added to positions in technology and decreased positions in what we felt were less economically leveraged stocks in consumer- related areas. The performance of the Fund was initially hurt by these moves. But by late 2002, performance had been enhanced by this strategy, which continued into 2003. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? During 2002, we emphasized the pharmaceutical, tobacco, financial and biotech industries. We tried to establish a balance between what we view as high quality, very profitable stable businesses and those that were less profitable but that we felt were set to improve as the economy improved. Looking forward, we intend to maintain our balance between those companies that we feel should benefit from stronger economic growth and those whose profits are relatively immune to economic fluctuations. We intend to emphasize drug, biotech, financial and capital-spending-linked companies. As we go further into the fiscal year, we expect to increase our exposure to economically linked industries and decrease our holdings in more stable businesses. Respectfully, Daniel P. Becker Manager W&R Large Cap Growth Fund Comparison of Change in Value of $10,000 Investment W&R Lipper Large Large-Cap Cap Growth Growth S&P Funds Fund, 500 Universe Class A Index Average --------- --------- ---------- 07-3-00 $ 9,425 $10,000 $10,000 03-31-01 9,023 8,043 6,528 03-31-02 8,766 8,060 6,154 03-31-03 6,891 6,064 4,491 ===== W&R Large Cap Growth Fund, Class A Shares (1) -- $6,891 +++++ S&P 500 Index -- $6,064 ***** Lipper Large-Cap Growth Funds Universe Average -- $4,491 (1) The value of the investment in the Fund is impacted by the sales load at the time of the investment and by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C Class Y --------------------------------------------- 1-year period ended 3-31-03 -25.91% -25.85% -22.28% -21.26% Since inception of Class through 3-31-03(3) -12.66% -13.15% -11.64% -10.77% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)6-30-00 for Class A shares, 7-6-00 for Class B shares, 7-3-00 for Class C shares and 7-6-00 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND - ----------------------------------------------------------------- Large Cap Growth Fund GOAL To seek the appreciation of your investment. Strategy Invests primarily in a diversified portfolio of common stocks issued by growth- oriented large to medium sized United States and foreign companies that the Fund's investment manager believes have appreciation potential. Founded 2000 Scheduled Dividend Frequency Annually (December) Performance Summary - Class A Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Net asset value on 3-31-03 $7.24 3-31-02 9.21 ------ Change per share $(1.97) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------- With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -25.91% -21.39% -25.85% -22.76% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -12.66% -10.76% -13.15% -12.18% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ --------- --------- 1-year period ended 3-31-03 -22.28% -21.26% 5-year period ended 3-31-03 --- --- 10-year period ended 3-31-03 --- --- Since inception of Class (D) -11.64% -10.77% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 7-3-00 for Class C shares and 7-6-00 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Large Cap Growth Fund had net assets totaling $27,808,893 invested in a diversified portfolio of: 80.87% Common Stocks 19.13% Cash and Cash Equivalents As a shareholder of Large Cap Growth Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $27.94 Health Care Stocks 19.96 Technology Stocks 19.13 Cash and Cash Equivalents 15.48 Financial Services Stocks 4.47 Energy Stocks 3.01 Consumer Nondurables Stocks 2.64 Miscellaneous Stocks 2.42 Business Equipment and Services Stocks 2.21 Consumer Durables Stocks 1.40 Retail Stocks 1.34 Raw Materials Stocks THE INVESTMENTS OF LARGE CAP GROWTH FUND March 31, 2003 Shares Value COMMON STOCKS Aircraft - 2.53% Lockheed Martin Corporation ............ 14,800 $ 703,740 ----------- Banks - 5.31% Bank of America Corporation ............ 9,500 634,980 Commerce Bancorp, Inc. ................. 5,200 206,648 Wells Fargo & Company .................. 14,100 634,359 ----------- 1,475,987 ----------- Beverages - 0.85% Anheuser-Busch Companies, Inc. ......... 5,100 237,711 ----------- Business Equipment and Services - 2.42% Manpower Inc. .......................... 22,500 672,300 ------------ Capital Equipment - 0.84% Parker Hannifin Corporation ............ 6,000 232,440 ------------ Chemicals -- Specialty - 1.34% Praxair, Inc. .......................... 6,600 371,910 ------------ Communications Equipment - 2.55% Cisco Systems, Inc.* ................... 54,600 708,162 ------------ Computers -- Micro - 1.09% Dell Computer Corporation* ............. 11,100 303,363 ------------ Computers -- Peripherals - 10.12% EMC Corporation* ....................... 144,211 1,042,646 Microsoft Corporation .................. 37,600 910,296 SAP Aktiengesellschaft, ADR ............ 45,400 860,784 ------------ 2,813,726 ------------ Consumer Electronics - 1.28% Harman International Industries, Incorporated .......................... 6,100 357,277 ----------- Electronic Components - 3.67% Analog Devices, Inc.* .................. 11,400 313,500 Maxim Integrated Products, Inc. ........ 9,400 339,528 Microchip Technology Incorporated ...... 18,500 369,075 ----------- 1,022,103 ----------- Health Care -- Drugs - 15.18% Amgen Inc.* ............................ 30,800 1,773,618 Forest Laboratories, Inc.* ............. 12,200 658,434 Gilead Sciences, Inc.* ................. 16,800 705,348 Pfizer Inc. ............................ 34,800 1,084,368 ----------- 4,221,768 ----------- Health Care -- General - 4.89% Johnson & Johnson ...................... 8,800 509,256 Zimmer Holdings, Inc.* ................. 17,500 851,025 ----------- 1,360,281 ----------- Hospital Supply and Management - 7.87% Health Management Associates, Inc., Class A ............................... 54,400 1,033,600 Medtronic, Inc. ........................ 25,600 1,155,072 ----------- 2,188,672 ----------- Hotels and Gaming - 1.18% International Game Technology* ......... 4,000 327,600 ----------- Household -- General Products - 2.16% Clorox Company (The) ................... 7,800 360,126 Procter & Gamble Company (The) ......... 2,700 240,435 ----------- 600,561 ----------- Insurance -- Property and Casualty - 0.75% MGIC Investment Corporation ............ 5,000 196,350 Travelers Property Casualty Corp., Class A ............................... 293 4,128 Travelers Property Casualty Corp., Class B ............................... 603 8,508 ----------- 208,986 ----------- Motor Vehicle Parts - 0.84% AutoZone, Inc.* ........................ 3,400 233,614 ----------- Motor Vehicles - 0.09% Harley-Davidson, Inc. .................. 600 23,826 ----------- Multiple Industry - 0.62% Garmin Ltd.* ........................... 4,800 171,864 ----------- Petroleum -- Services - 4.47% Smith International, Inc.* ............. 35,300 1,243,619 ----------- Retail -- General Merchandise - 1.40% Target Corporation ..................... 3,700 108,262 Wal-Mart Stores, Inc. .................. 5,400 280,962 ----------- 389,224 ----------- Security and Commodity Brokers - 9.42% Chicago Mercantile Exchange Holdings Inc. ......................... 7,400 356,310 Fannie Mae ............................. 4,800 313,680 Freddie Mac ............................ 6,900 366,390 Goldman Sachs Group, Inc. (The) ........ 9,100 619,528 SLM Corporation ........................ 8,700 965,004 ----------- 2,620,912 ----------- TOTAL COMMON STOCKS - 80.87% $22,489,646 (Cost: $23,335,933) Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Chemicals -- Petroleum and Inorganic - 2.37% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ............... $ 659 659,000 ----------- Food and Related - 4.23% General Mills, Inc., 1.4588%, Master Note ................ 1,176 1,176,000 ----------- Total Commercial Paper - 6.60% 1,835,000 Repurchase Agreement - 12.56% Merrill Lynch, Pierce, Fenner & Smith Inc., 1.25% Repurchase Agreement dated 3-31-03, to be repurchased at $3,492,121 on 4-1-03(A) ............ 3,492 3,492,000 ----------- TOTAL SHORT-TERM SECURITIES - 19.16% $ 5,327,000 (Cost: $5,327,000) TOTAL INVESTMENT SECURITIES - 100.03% $27,816,646 (Cost: $28,662,933) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%) (7,753) NET ASSETS - 100.00% $27,808,893 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Collateralized by $3,335,152 Government National Mortgage Association, 7.5% due 12-15-23; market value and accrued interest aggregate $3,635,663. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES LARGE CAP GROWTH FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost - $28,663) (Notes 1 and 3) ......................................... $27,817 Cash ..................................................... 1 Receivables: Fund shares sold ........................................ 47 Dividends and interest .................................. 3 ------- Total assets .......................................... 27,868 ------- LIABILITIES Payable to Fund shareholders ............................. 38 Accrued shareholder servicing (Note 2) ................... 12 Accrued accounting services fee (Note 2) ................. 2 Accrued management fee (Note 2) .......................... 1 Other .................................................... 6 ------- Total liabilities ..................................... 59 ------- Total net assets ..................................... $27,809 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 39 Additional paid-in capital .............................. 41,367 Accumulated undistributed loss: Accumulated undistributed net investment loss ........... ---* Accumulated undistributed net realized loss on investment transactions ............................... (12,751) Net unrealized depreciation in value of investments ..... (846) ------- Net assets applicable to outstanding units of capital ........................................... $27,809 ======= Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $7.24 Class B .................................................. $6.99 Class C .................................................. $7.08 Class Y .................................................. $7.26 Capital shares outstanding: Class A .................................................. 2,858 Class B .................................................. 270 Class C .................................................. 613 Class Y .................................................. 123 Capital shares authorized .................................. 400,000 *Not shown due to rounding. See Notes to Financial Statements. STATEMENT OF OPERATIONS LARGE CAP GROWTH FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends ............................................... $ 211 Interest and amortization ............................... 48 ------- Total income .......................................... 259 ------- Expenses (Note 2): Investment management fee ............................... 173 Shareholder servicing: Class A ............................................... 65 Class B ............................................... 25 Class C ............................................... 29 Class Y ............................................... 1 Service fee: Class A ............................................... 40 Class B ............................................... 5 Class C ............................................... 12 Distribution fee: Class A ............................................... 3 Class B ............................................... 15 Class C ............................................... 37 Class Y ............................................... 2 Registration fees ....................................... 26 Accounting services fee ................................. 18 Audit fees .............................................. 16 Custodian fees .......................................... 7 Other ................................................... 13 ------- Total ................................................. 487 Less expenses in excess of voluntary waiver of investment management fee (Note 2) ................. (93) ------- Total expenses ..................................... 394 ------- Net investment loss ............................... (135) ------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities ........................... (3,398) Realized net loss on purchased options .................... (67) ------- Realized net loss on investments ........................ (3,465) Unrealized depreciation in value of investments during the period ....................................... (2,633) ------- Net loss on investments ................................. (6,098) ------- Net decrease in net assets resulting from operations ........................................... $(6,233) ======= See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS LARGE CAP GROWTH FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment loss ................... $ (135) $ (196) Realized net loss on investments ...... (3,465) (5,708) Unrealized appreciation (depreciation) (2,633) 5,055 ------- ------- Net decrease in net assets resulting from operations .................... (6,233) (849) ------- ------- Distributions to shareholders from net investment income (Note 1E):(1) Class A ............................. --- --- Class B ............................. --- --- Class C ............................. --- --- Class Y ............................. --- --- ------- ------- --- --- ------- ------- Capital share transactions (Note 5) .... 4,829 1,934 ------- ------- Total increase (decrease) ........... (1,404) 1,085 NET ASSETS Beginning of period .................... 29,213 28,128 ------- ------- End of period .......................... $27,809 $29,213 ======= ======= Undistributed net investment income (loss) ........................ $ ---* $ --- ======= ======= * Not shown due to rounding. (1) See "Financial Highlights" on pages 91 - 94. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 6-30-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.21 $9.48 $10.00 Income (loss) from ----- ----- ------ investment operations: Net investment income (loss) ... (0.03) (0.04) 0.05 Net realized and unrealized loss on investments (1.94) (0.23) (0.45) Total from investment ----- ----- ------ operations ....... (1.97) (0.27) (0.40) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.06) From capital gains (0.00) (0.00) (0.06) ----- ----- ------ Total distributions (0.00) (0.00) (0.12) ----- ----- ------ Net asset value, end of period .... $7.24 $9.21 $ 9.48 ===== ===== ====== Total return(2) .... -21.39% -2.85% -4.27% Net assets, end of period (in millions) .... $21 $20 $19 Ratio of expenses to average net assets including voluntary expense waiver ... 1.28% 1.58% 1.13%(3) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -0.23% -0.38% 0.89%(3) Ratio of expenses to average net assets excluding voluntary expense waiver ... 1.66% 1.69% 1.34%(3) Ratio of net investment income (loss) to average net assets excluding voluntary expense waiver ... -0.61% -0.49% 0.68%(3) Portfolio turnover rate 71.98% 98.59% 75.42% (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-6-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.05 $9.44 $10.02 ----- ----- ------ Loss from investment operations: Net investment loss ............ (0.14) (0.16) (0.03) Net realized and unrealized loss on investments (1.92) (0.23) (0.49) Total from investment ----- ----- ------ operations ........ (2.06) (0.39) (0.52) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.00) (0.06) ----- ----- ------ Total distributions (0.00) (0.00) (0.06) Net asset value, ----- ----- ------ end of period .... $6.99 $9.05 $ 9.44 ===== ===== ====== Total return ....... -22.76% -4.13% -5.32% Net assets, end of period (in millions) .... $2 $2 $2 Ratio of expenses to average net assets including voluntary expense waiver ... 2.93% 2.98% 2.53%(2) Ratio of net investment loss to average net assets including voluntary expense waiver ........... -1.87% -1.79% -0.60%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 3.31% 3.19% 3.00%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -2.25% -2.00% -1.07%(2) Portfolio turnover rate 71.98% 98.59% 75.42% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class C Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.10 $9.45 $10.00 ----- ----- ------ Loss from investment operations: Net investment loss ............ (0.10) (0.12) (0.00) Net realized and unrealized loss on investments (1.92) (0.23) (0.48) Total from investment ----- ----- ------ operations ....... (2.02) (0.35) (0.48) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.01) From capital gains (0.00) (0.00) (0.06) ----- ----- ------ Total distributions (0.00) (0.00) (0.07) Net asset value, ----- ----- ------ end of period .... $7.08 $9.10 $ 9.45 ===== ===== ====== Total return ....... -22.28% -3.60% -4.93% Net assets, end of period (in millions) .... $4 $7 $7 Ratio of expenses to average net assets including voluntary expense waiver ... 2.26% 2.51% 2.06%(2) Ratio of net investment loss to average net assets including voluntary expense waiver ........... -1.20% -1.31% -0.08%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 2.64% 2.68% 2.44%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -1.58% -1.48% -0.46%(2) Portfolio turnover rate 71.98% 98.59% 75.42% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LARGE CAP GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-6-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $9.22 $9.48 $10.02 Income (loss) from ----- ----- ------ investment operations: Net investment income (loss) ... (0.30) (0.01) 0.09 Net realized and unrealized loss on investments (1.66) (0.25) (0.50) Total from investment ----- ----- ------ operations ....... (1.96) (0.26) (0.41) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.07) From capital gains (0.00) (0.00) (0.06) ----- ----- ------ Total distributions (0.00) (0.00) (0.13) Net asset value, ----- ----- ------ end of period .... $7.26 $9.22 $ 9.48 ===== ===== ====== Total return ....... -21.26% -2.74% -4.38% Net assets, end of period (000 omitted) ......... $892 $768 $279 Ratio of expenses to average net assets including voluntary expense waiver ... 1.05% 1.36% 1.13%(2) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -0.00% -0.20% 1.11%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 1.43% 1.45% 1.34%(2) Ratio of net investment income (loss) to average net assets excluding voluntary expense waiver ... -0.38% -0.29% 0.90%(2) Portfolio turnover rate 71.98% 98.59% 75.42% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with W. Patrick Sterner, portfolio manager of W&R Funds, Inc. - Limited-Term Bond Fund This report relates to the operation of W&R Funds, Inc. -- Limited-Term Bond Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund underperformed its benchmark during the fiscal year, with Class C shares of the Fund showing a positive return of 5.22 percent. The Citigroup 1-5 Years Treasury/Government Sponsored/Credit Index (reflecting the performance of securities generally representing the limited-term sector of the bond market) increased 9.37 percent for the fiscal year, while the Lipper Short-Intermediate Investment Grade Debt Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives) returned 7.94 percent. The Citigroup 1-5 Years Treasury/Government Sponsored/Credit Index replaces the Citigroup 1-5 Years Treasury/Government Sponsored/Corporate Index in this year's report. We believe that the new index provides a more accurate basis for comparing the Fund's performance to the types of securities in which the Fund invests. Both indexes are presented in this year's report for comparison purposes. In addition, the name of both indexes has changed from the Salomon Brothers indexes to the Citigroup indexes. Why did the Fund lag its benchmark index during the fiscal year? Several factors contributed negatively to the Fund's performance last year, the most important of which was a one percent position in WorldCom bonds. We failed to react quickly enough to the company's deteriorating financial condition, and suffered a substantial loss upon the sale of the securities. In addition, the Fund held the securities of several troubled utility companies with energy trading operations. Although we sold the bonds before major losses were incurred, and overall exposure to the sector was small, performance was still adversely impacted. What other market conditions or events influenced the Fund's performance during the fiscal year? The portfolio's shorter duration during a period of falling interest rates hurt performance. We had expected rates to rise along with an improving economy during the latter part of the year, but economic growth disappointed on the low side. As a result, the Federal Reserve Board cut the funds rate from 1.75 percent to 1.25 percent, and market rates moved lower. A substantial weighting in mortgage-backed securities also hurt performance during the second half of the year as rates moved sharply lower. What strategies and techniques did you employ that specifically affected the Fund's performance? Our management style attempts to identify relative value opportunities between sectors of the market. Those sectors include treasuries, agencies, corporates and mortgage-backed securities. Based on our determination that intermediate maturity corporates offered good value, we overweighted the sector. Although corporates outperformed at the very end of the year, for the year as a whole they lagged. Sectors such as utilities and telecom were especially poor performers. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Although we feel that the next move in interest rates is up, we also believe that they will most likely stay in a range around current levels until the economic numbers signal that a sustained recovery is in place. We intend to continue to watch initial unemployment claims, capital-spending trends, and the size and makeup of the fiscal stimulus plan coming out of Washington. In this environment, we believe that both mortgage-backed securities and corporate bonds should provide superior total return potential over treasuries. We also intend to continue to maintain a shorter duration to help protect against rising yields. Respectfully, W. Patrick Sterner Manager W&R Limited-Term Bond Fund Comparison of Change in Value of $10,000 Investment W&R Citigroup Lipper Short- Citigroup Limited- 1-5 Years Intermediate 1-5 Years Term Treasury/ Investment Treasury/ Bond Government Grade Debt Government Fund, Sponsored/ Funds Sponsored/ Class C Credit Universe Corporate Shares Index Average Index --------- ---------- -------------- -------------- 03-31-93 10,000 10,000 10,000 10,000 03-31-94 10,141 10,270 10,239 10,270 03-31-95 10,417 10,717 10,573 10,717 03-31-96 11,188 11,640 11,493 11,640 03-31-97 11,582 12,240 12,041 12,240 03-31-98 12,410 13,264 13,071 13,264 03-31-99 12,987 14,123 13,778 14,123 03-31-00 13,082 14,545 14,070 14,545 03-31-01 14,322 16,157 15,517 16,157 03-31-02 14,961 17,063 16,145 17,061 03-31-03 15,741 18,661 17,427 18,660 ===== W&R Limited-Term Bond Fund, Class C Shares (1) -- $15,741 ***** Citigroup 1-5 Years Treasury/ Government Sponsored/Credit Index -- $18,661 - ----- Lipper Short-Intermediate Investment Grade Debt Funds Universe Average -- $17,427 +++++ Citigroup 1-5 Years Treasury/ Government Sponsored/ Corporate Index -- $18,661 (1)The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Please not that the performance of the Citigroup 1-5 Years Treasury/Government Sponsored/Credit Index (Credit Index) is substantially similar to the performance of the Citigroup 1-5 Years Treasury/Government Sponsored/Corporate Index (Corporate Index). The Credit Index was introduced by Citigroup in April of 2001. In creating the performance history for the Credit Index, Citigroup used the performance history of the Corporate Index for the period prior to April of 2001. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 1.64% 1.18% 5.22% 6.14% 5-year period ended 3-31-03 --- --- 4.87% 5.84% 10-year period ended 3-31-03 --- --- 4.64% --- Since inception of Class through 3-31-03(4) 5.36% 5.30% --- 5.63% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 4.25%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)8-17-00 for Class A shares, 7-3-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND - ----------------------------------------------------------------- Limited-Term Bond Fund GOAL To seek a high level of current income consistent with preservation of capital. Strategy Invests primarily in investment-grade debt securities of United States issuers, including corporate bonds, mortgage-backed securities and United States Government securities. The Fund maintains a dollar-weighted average maturity of not less than two years and not more than five years. Founded 1992 Scheduled Dividend Frequency Declared daily, paid monthly Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ------------------------------------------- Dividends paid $0.28 ===== Net asset value on 3-31-03 $10.45 3-31-02 10.20 ------ Change per share $ 0.25 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 1.64% 6.15% 1.18% 5.18% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) 5.36% 7.12% 5.30% 6.30% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 4.25% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 8-17-00 for Class A shares and 7-3-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B)Class Y(C) - ------ ------------------- 1-year period ended 3-31-03 5.22% 6.14% 5-year period ended 3-31-03 4.87% 5.84% 10-year period ended 3-31-03 4.64% --- Since inception of Class (D) --- 5.63% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Limited-Term Bond Fund had net assets totaling $77,844,136 invested in a diversified portfolio of: 95.87% Bonds 4.13% Cash and Cash Equivalents As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $58.98Corporate Bonds 36.89United States Government Securities 4.13Cash and Cash Equivalents THE INVESTMENTS OF LIMITED-TERM BOND FUND March 31, 2003 Principal Amount in Thousands Value CORPORATE DEBT SECURITIES Aircraft - 4.88% Lockheed Martin Corporation, 7.25%, 5-15-06 ........................ $1,600 $1,810,944 Raytheon Company, 6.75%, 8-15-07 ........................ 1,800 1,989,205 ----------- 3,800,149 ----------- Banks - 1.99% First Union Corporation, 6.875%, 9-15-05 ....................... 1,397 1,547,197 ----------- Broadcasting - 2.99% Clear Channel Communications, Inc., 7.875%, 6-15-05 ....................... 2,112 2,326,719 ----------- Business Equipment and Services - 2.85% USA Waste Services, Inc., 7.125%, 10-1-07 ....................... 2,000 2,220,058 ----------- Construction Materials - 1.16% Black & Decker Corp., 7.5%, 4-1-03 .......................... 901 901,000 ----------- Finance Companies - 4.85% Aristar, Inc., 5.85%, 1-27-04 ........................ 670 694,343 General Motors Acceptance Corporation, 6.625%, 10-15-05 ...................... 1,500 1,575,133 Grand Metropolitan Investment Corp., 7.125%, 9-15-04 ....................... 800 860,799 John Deere Capital Corporation, 5.125%, 10-19-06 ...................... 600 644,186 ----------- 3,774,461 ----------- Food and Related - 4.90% ConAgra, Inc., 7.4%, 9-15-04 ......................... 2,100 2,253,999 Earthgrains Company (The), 8.375%, 8-1-03 ........................ 800 818,400 Kellogg Company, 4.875%, 10-15-05 ...................... 700 742,215 ----------- 3,814,614 ----------- Forest and Paper Products - 1.30% International Paper Company, 6.125%, 11-1-03 ....................... 985 1,011,208 ----------- Insurance -- Life - 1.24% American General Finance Corporation, 6.75%, 11-15-04 ....................... 900 967,720 ----------- Leisure Time Industry - 2.78% Walt Disney Company (The), 4.5%, 9-15-04 ......................... 2,100 2,166,755 ----------- Multiple Industry - 10.41% Ford Motor Credit Company, 6.7%, 7-16-04 ......................... 1,600 1,630,976 General Electric Capital Corporation, 2.85%, 1-30-06 ........................ 2,000 2,027,960 Honeywell International Inc., 6.875%, 10-3-05 ....................... 1,100 1,218,357 Household Finance Corporation, 6.5%, 1-24-06 ......................... 950 1,034,575 National Rural Utilities Cooperative Finance Corporation, 6.0%, 5-15-06 ......................... 2,000 2,190,518 ----------- 8,102,386 ----------- Petroleum -- Domestic - 1.50% Anadarko Petroleum Corporation, 6.5%, 5-15-05 ......................... 1,083 1,170,161 ----------- Petroleum -- International - 2.24% Chevron Corporation Profit Sharing/Savings Plan Trust Fund, 8.11%, 12-1-04 ........................ 166 179,130 Conoco Inc., 5.9%, 4-15-04 ......................... 1,500 1,567,250 ----------- 1,746,380 ----------- Railroad - 4.06% Norfolk Southern Corporation, 7.35%, 5-15-07 ........................ 850 971,165 Union Pacific Corporation: 7.6%, 5-1-05 .......................... 1,450 1,601,493 6.7%, 12-1-06 ......................... 525 586,300 ----------- 3,158,958 ----------- Retail -- Food Stores - 2.20% Safeway Inc., 7.25%, 9-15-04 ........................ 1,600 1,711,094 ----------- Security and Commodity Brokers - 2.13% CIT Group Holdings, Inc. (The), 6.625%, 6-15-05 ....................... 600 636,087 Salomon Smith Barney Holdings Inc., 6.25%, 6-15-05 ........................ 950 1,024,479 ----------- 1,660,566 ----------- Utilities -- Electric - 5.60% Dominion Resources, Inc., 7.625%, 7-15-05 ....................... 2,000 2,220,434 Kansas City Power & Light Company, 7.125%, 12-15-05 ...................... 950 1,049,795 PacifiCorp, 6.75%, 4-1-05 ......................... 1,000 1,086,419 ----------- 4,356,648 ----------- Utilities -- Telephone - 1.90% GTE Corporation, 6.36%, 4-15-06 ........................ 1,344 1,480,386 ----------- TOTAL CORPORATE DEBT SECURITIES - 58.98% $45,916,460 (Cost: $44,763,094) UNITED STATES GOVERNMENT SECURITIES Agency Obligations - 7.09% Federal Home Loan Bank, 4.875%, 5-14-04 ....................... 895 930,525 Federal National Mortgage Association: 5.125%, 2-13-04 ....................... 1,500 1,550,658 3.78%, 8-9-04 ......................... 1,500 1,504,145 4.5%, 10-17-06 ........................ 900 915,572 Tennessee Valley Authority, 5.0%, 12-18-03 ........................ 600 615,431 ----------- Total Agency Obligations 5,516,331 ----------- Mortgage-Backed Obligations - 23.45% Federal Home Loan Mortgage Corporation Fixed Rate Participation Certificates: 5.5%, 2-1-16 .......................... 407 422,039 5.5%, 1-1-17 .......................... 755 784,197 5.5%, 5-1-17 .......................... 834 865,404 4.5%, 4-1-18 (A) ...................... 2,000 2,029,376 Federal National Mortgage Association Fixed Rate Pass-Through Certificates: 8.0%, 2-1-08 .......................... 24 25,515 6.5%, 12-1-10 ......................... 167 177,603 6.0%, 1-1-11 .......................... 142 148,939 6.5%, 2-1-11 .......................... 155 164,435 7.0%, 5-1-11 .......................... 71 76,316 7.0%, 7-1-11 .......................... 84 90,088 7.0%, 9-1-12 .......................... 81 86,084 6.0%, 11-1-13 ......................... 203 212,959 7.0%, 9-1-14 .......................... 155 165,676 7.0%, 10-1-14 ......................... 175 186,927 6.0%, 6-1-16 .......................... 311 325,989 6.5%, 6-1-16 .......................... 329 348,445 5.5%, 2-1-17 .......................... 1,452 1,508,519 5.0%, 11-1-17 ......................... 1,474 1,516,813 5.5%, 1-1-18 .......................... 1,967 2,043,065 7.0%, 4-1-26 .......................... 100 105,610 Government National Mortgage Association Fixed Rate Pass-Through Certificates: 6.5%, 1-15-14 ......................... 194 206,854 6.0%, 5-15-14 ......................... 808 854,123 5.5%, 1-15-17 ......................... 811 850,351 6.0%, 1-15-17 ......................... 643 678,333 5.5%, 7-15-17 ......................... 1,561 1,636,866 5.0%, 12-15-17 ........................ 1,874 1,943,246 7.0%, 10-15-28 ........................ 334 355,377 7.0%, 4-15-29 ......................... 226 240,285 7.0%, 7-15-29 ......................... 193 205,401 ----------- Total Mortgage-Backed Obligations 18,254,835 ----------- Treasury Obligations - 6.35% United States Treasury Notes: 2.875%, 6-30-04 ....................... 2,000 2,040,312 3.0%, 11-15-07 ........................ 2,000 2,027,500 5.0%, 8-15-11 ......................... 800 877,187 ----------- Total Treasury Obligations 4,944,999 ----------- TOTAL UNITED STATES GOVERNMENT SECURITIES - 36.89% $28,716,165 (Cost: $28,056,996) SHORT-TERM SECURITIES Chemicals -- Petroleum and Inorganic - 4.59% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ............... 3,571 3,571,000 ----------- Food and Related - 1.73% General Mills, Inc., 1.4588%, Master Note ................ 1,347 1,347,000 ----------- TOTAL SHORT-TERM SECURITIES - 6.32% $ 4,918,000 (Cost: $4,918,000) TOTAL INVESTMENT SECURITIES - 102.19% $79,550,625 (Cost: $77,738,090) LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.19%) (1,706,489) NET ASSETS - 100.00% $77,844,136 Notes to Schedule of Investments (A)Purchased on a when-issued basis with settlement subsequent to March 31, 2003. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES LIMITED-TERM BOND FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost - $77.738) (Notes 1 and 3) ......................................... $79,551 Cash ..................................................... 1 Receivables: Securities sold.......................................... 1,723 Interest ................................................ 1,024 Fund shares sold ........................................ 269 Prepaid registration fees ................................ 10 ------- Total assets .......................................... 82,578 ------- LIABILITIES Payable for investment securities purchased .............. 4,224 Payable to Fund shareholders ............................. 424 Dividends payable ........................................ 24 Accrued shareholder servicing (Note 2) ................... 14 Accrued accounting services fee (Note 2) ................. 3 Accrued distribution fee (Note 2) ........................ 1 Accrued management fee (Note 2) .......................... 1 Accrued service fee (Note 2) ............................. 1 Other .................................................... 42 ------- Total liabilities ..................................... 4,734 ------- Total net assets ..................................... $77,844 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 75 Additional paid-in capital............................... 76,710 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ............................ (754) Net unrealized appreciation in value of investments ..... 1,813 ------- Net assets applicable to outstanding units of capital ........................................... $77,844 ======= Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $10.45 Class B .................................................. $10.45 Class C .................................................. $10.45 Class Y .................................................. $10.45 Capital shares outstanding: Class A .................................................. 3,806 Class B .................................................. 523 Class C .................................................. 2,915 Class Y .................................................. 206 Capital shares authorized .................................. 200,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS LIMITED-TERM BOND FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ............................... $2,398 ------ Expenses (Note 2): Investment management fee ............................... 266 Distribution fee: Class A ............................................... 3 Class B ............................................... 25 Class C ............................................... 194 Class Y ............................................... 3 Service fee: Class A ............................................... 54 Class B ............................................... 8 Class C ............................................... 65 Shareholder servicing: Class A ............................................... 34 Class B ............................................... 11 Class C ............................................... 70 Class Y ............................................... 2 Accounting services fee ................................. 32 Audit fees .............................................. 14 Custodian fees .......................................... 8 Other ................................................... 54 ------ Total expenses ....................................... 843 ------ Net investment income .............................. 1,555 ------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ......................... (440) Unrealized appreciation in value of investments during the period ....................................... 1,641 ------ Net gain on investments ................................. 1,201 ------ Net increase in net assets resulting from operations .. $2,756 ====== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS LIMITED-TERM BOND FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE IN NET ASSETS Operations: Net investment income ................. $1,555 $ 1,005 Realized net loss on investments ......................... (440) (6) Unrealized appreciation (depreciation) 1,641 (40) ------- ------- Net increase in net assets resulting from operations .................... 2,756 959 ------- ------- Distributions to shareholders from net investment income (Note 1E):(1) Class A ............................... (755) (121) Class B ............................... (84) (33) Class C ............................... (671) (767) Class Y ............................... (45) (84) ------- ------- (1,555) (1,005) ------- ------- Capital share transactions (Note 5) .... 47,724 8,138 ------- ------- Total increase ........................ 48,925 8,092 NET ASSETS Beginning of period .................... 28,919 20,827 ------- ------- End of period .......................... $77,844 $28,919 ======= ======= Undistributed net investment income ... $ --- $ --- ======= ======= (1) See "Financial Highlights" on pages 109 - 112. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 8-17-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.20 $10.17 $ 9.84 ------ ------ ------ Income from investment operations: Net investment income .......... 0.36 0.51 0.36 Net realized and unrealized gain on investments 0.25 0.03 0.33 ------ ------ ------ Total from investment operations ....... 0.61 0.54 0.69 ------ ------ ------ Less distributions: Declared from net investment income (0.36) (0.51) (0.36) From capital gains (0.00) (0.00) (0.00) ------ ------ ------ Total distributions (0.36) (0.51) (0.36) ------ ------ ------ Net asset value, end of period .... $10.45 $10.20 $10.17 ====== ====== ====== Total return(2) .... 6.15% 5.42% 7.01% Net assets, end of period (000 omitted) ......... $39,765 $6,124 $494 Ratio of expenses to average net assets including voluntary expense waiver ... 1.09% 1.04% 0.85%(3) Ratio of net investment income to average net assets including voluntary expense waiver ........... 3.32% 4.76% 5.83%(3) Ratio of expenses to average net assets excluding voluntary expense waiver ... ---(4) 1.19% 1.09%(3) Ratio of net investment income to average net assets excluding voluntary expense waiver ........... ---(4) 4.61% 5.59%(3) Portfolio turnover rate 49.41% 32.97% 16.10%(5) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) Because the Fund's net assets exceeded $25 million for the entire period, there is no waiver of expenses. Therefore, no ratio is provided. (5) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.20 $10.17 $ 9.80 ------ ------ ------ Income from investment operations: Net investment income .......... 0.27 0.42 0.36 Net realized and unrealized gain on investments 0.25 0.03 0.37 ------ ------ ------ Total from investment operations ....... 0.52 0.45 0.73 ------ ------ ------ Less distributions: Declared from net investment income (0.27) (0.42) (0.36) From capital gains (0.00) (0.00) (0.00) ------ ------ ------ Total distributions (0.27) (0.42) (0.36) ------ ------ ------ Net asset value, end of period .... $10.45 $10.20 $10.17 ====== ====== ====== Total return ....... 5.18% 4.52% 7.54% Net assets, end of period (000 omitted) ......... $5,471 $1,419 $425 Ratio of expenses to average net assets including voluntary expense waiver ... 2.01% 1.88% 1.81%(2) Ratio of net investment income to average net assets including voluntary expense waiver ........... 2.47% 4.02% 4.91%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... ---(3) 2.15% 2.33%(2) Ratio of net investment income to average net assets excluding voluntary expense waiver ........... ---(3) 3.76% 4.39%(2) Portfolio turnover rate 49.41% 32.97% 16.10%(4) (1) Commencement of operations of the class. (2) Annualized. (3) Because the Fund's net assets exceeded $25 million for the entire period, there is no waiver of expenses. Therefore, no ratio is provided. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period $10.20 $10.17 $ 9.76 $10.16 $10.14 Income (loss) from ------ ------ ------ ------ ------ investment operations: Net investment income 0.27 0.42 0.48 0.47 0.44 Net realized and unrealized gain (loss) on investments ..... 0.25 0.03 0.41 (0.40) 0.02 Total from investment ------ ------ ------ ------ ------ operations ....... 0.52 0.45 0.89 0.07 0.46 Less distributions: ------ ------ ------ ------ ------ Declared from net investment income (0.27) (0.42) (0.48) (0.47) (0.44) From capital gains (0.00) (0.00) (0.00) (0.00) (0.00) ------ ------ ------ ------ ------ Total distributions (0.27) (0.42) (0.48) (0.47) (0.44) Net asset value, ------ ------ ------ ------ ------ end of period .... $10.45 $10.20 $10.17 $ 9.76 $10.16 ====== ====== ====== ====== ====== Total return ....... 5.22% 4.46% 9.48% 0.73% 4.65% Net assets, end of period (in millions) $30 $20 $18 $19 $21 Ratio of expenses to average net assets including voluntary expense waiver ... 1.98% 1.94% 1.82% 1.81% 2.11% Ratio of net investment income to average net assets including voluntary expense waiver ........... 2.59% 4.04% 4.97% 4.75% 4.34% Ratio of expenses to average net assets excluding voluntary expense waiver ... ---(2) 2.21% 2.34% 2.19% --- Ratio of net investment income to average net assets excluding voluntary expense waiver ........... ---(2) 3.77% 4.44% 4.37% --- Portfolio turnover rate ............. 49.41% 32.97% 16.10% 37.02% 32.11% (1) See Note 5. (2) Because the Fund's net assets exceeded $25 million for the entire period, there is no waiver of expenses. Therefore, no ratio is provided. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS LIMITED-TERM BOND FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period $10.20 $10.17 $ 9.76 $10.16 $10.14 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income 0.36 0.51 0.59 0.57 0.53 Net realized and unrealized gain (loss) on investments ..... 0.25 0.03 0.41 (0.40) 0.02 ------ ------ ------ ------ ------ Total from investment operations ....... 0.61 0.54 1.00 0.17 0.55 Less distributions: ------ ------ ------ ------ ------ Declared from net investment income (0.36) (0.51) (0.59) (0.57) (0.53) From capital gains (0.00) (0.00) (0.00) (0.00) (0.00) ------ ------ ------ ------ ------ Total distributions (0.36) (0.51) (0.59) (0.57) (0.53) Net asset value, ------ ------ ------ ------ ------ end of period .... $10.45 $10.20 $10.17 $ 9.76 $10.16 ====== ====== ====== ====== ====== Total return ....... 6.14% 5.41% 10.56% 1.69% 5.60% Net assets, end of period (000 omitted) $2,149 $906 $1,836 $1,229 $263 Ratio of expenses to average net assets including voluntary expense waiver ... 1.09% 1.04% 0.83% 0.69% 1.20% Ratio of net investment income to average net assets including voluntary expense waiver ........... 3.42% 4.97% 5.95% 6.03% 5.25% Ratio of expenses to average net assets excluding voluntary expense waiver ... ---(1) 1.18% 1.07% 0.84% --- Ratio of net investment income to average net assets excluding voluntary expense waiver ........... ---(1) 4.83% 5.71% 5.88% --- Portfolio turnover rate ............. 49.41% 32.97% 16.10% 37.02% 32.11% (1) Because the Fund's net assets exceeded $25 million for the entire period, there is no waiver of expenses. Therefore, no ratio is provided. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Kimberly A. Scott, portfolio manager of W&R Funds, Inc. - Mid Cap Growth Fund This report relates to the operation of W&R Funds, Inc. -- Mid Cap Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? It was a difficult period for equities, and the Fund struggled in an environment of declining markets and weak economic conditions. The Fund's Class A shares declined 25.13 percent before the impact of sales load and, with the sales load impact, declined 29.43 percent. This compares with the Russell Mid-Cap Growth Index (generally reflecting the performance of securities that represent the mid cap sector of the stock market), which declined 26.09 percent during the same period, and the Lipper Mid-Cap Growth Funds Universe Average (reflecting the universe of funds with similar investment objectives), which declined 27.40 percent for the period. It should be noted that the values for the benchmark index and the Lipper category do not reflect a sales load. Why did the Fund slightly lag (with sales load impact) its benchmark index during the fiscal year? Primarily, in relation to its index, the Fund was adversely affected by the impact of the Fund's sales load. On a more favorable note, the Fund's performance was positively impacted by the Fund's cash balance over the course of the year. What other market conditions or events influenced the Fund's performance during the fiscal year? Mid-cap growth stocks struggled through most of 2002, with a steady fall-off throughout the first quarter of the fiscal year. This decline picked up speed in the September quarter and finally found a bottom in early October, with the index down 36.5 percent. The index slightly recovered late in the year, regaining about 10 percentage points to end the March quarter at a loss of 26 percent for the year. The market reacted to ongoing weakness in domestic and international economies and the negative impact on earnings. It also reacted to the uncertainties surrounding the buildup to the war in Iraq that erupted just before the end of the March quarter. The Russell Mid-Cap Growth Index saw losses in all but the utilities sector. Losses were exceptionally large in the technology, health care, consumer discretionary, integrated oils, producer durables and financial services sectors. What strategies and techniques did you employ that specifically affected the Fund's performance? The Fund's performance was helped by its cash position, by underweight positions in the poorly performing technology, health care, and integrated oil sectors, and by stronger performing stocks in other energy sectors and the autos/transportation sector. The gains in the above groups were offset by weakness in others, such as financial services, where we had both an overweight position in a weak sector and poor stock selection. The Fund's performance in the consumer discretionary, consumer staples, and materials and processing sectors was also weak. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Areas of emphasis for the Fund last year relative to the Russell Mid-Cap Growth Index included the consumer discretionary sector. Media and advertising-related names remain an area of emphasis within the consumer discretionary sector, but less so than last year, as we have reduced our exposure to a number of companies that we felt had specific fundamental or management problems. Energy was another area of emphasis for the Fund last year, but we believe it is likely to be less so going forward. We intend to manage our slightly overweight energy position to a market weight or slight underweight in anticipation of other areas of the economy beginning to exhibit stronger earnings growth. We also intend to continue to increase our emphasis in the health care sector as stocks become attractive to us on both a fundamental and a valuation basis. We steadily increased our exposure to this sector over the past year and expect to reach a slight overweight position over the next year. We intend to de-emphasize the financial services and utilities sectors, and we have a renewed interest in investment opportunities in the industrial cyclical area. Respectfully, Kimberly A. Scott Manager W&R Mid Cap Growth Fund Comparison of Change in Value of $10,000 Investment W&R Lipper Mid Mid-Cap Cap Russell Growth Growth Mid-Cap Funds Fund Growth Universe Class A Index Average --------- --------- ---------- 07-3-00 $ 9,425 $10,000 $10,000 03-31-01 8,871 5,899 6,672 03-31-02 8,723 6,170 6,634 03-31-03 6,531 4,560 4,816 ===== W&R Mid Cap Growth Fund, Class A Shares (1) -- $6,531 +++++ Russell Mid-Cap Growth Index -- $4,560 ***** Lipper Mid-Cap Growth Funds Universe Average -- $4,816 (1) The value of the investment in the Fund is impacted by the sales load at the time of the investment and by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C Class Y --------------------------------------------- 1-year period ended 3-31-03 -29.43% -29.28% -25.88% -24.86% Since inception of Class through 3-31-03(3) -14.35% -14.72% -13.36% -13.16% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)6-30-00 for Class A shares, 7-6-00 for Class B shares, 7-3-00 for Class C shares and 7-10-00 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND - ----------------------------------------------------------------- Mid Cap Growth Fund GOAL To seek the growth of your investment. Strategy Invests primarily in common stocks of United States and foreign companies whose market capitalizations are within the range of capitalizations of companies comprising the Russell Mid Cap Growth Index and that the Fund's investment manager believes offer above-average growth potential. Founded 2000 Scheduled Dividend Frequency Annually (December) Performance Summary - Class A Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Net asset value on 3-31-03 $6.67 3-31-02 8.91 ------ Change per share $(2.24) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -29.43% -25.13% -29.28% -26.33% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -14.35% -12.48% -14.72% -13.79% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B)Class Y(C) - ------ ------------------- 1-year period ended 3-31-03 -25.88% -24.86% 5-year period ended 3-31-03 --- --- 10-year period ended 3-31-03 --- --- Since inception of Class (D) -13.36% -13.16% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 7-3-00 for Class C shares and 7-10-00 for Class Y shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Mid Cap Growth Fund had net assets totaling $18,689,548 invested in a diversified portfolio of: 80.54% Common Stocks 18.52% Cash and Cash Equivalents and Options 0.94% Preferred Stock As a shareholder of Mid Cap Growth Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $18.52 Cash and Cash Equivalents and Options 16.91 Business Equipment and Services Stocks 15.09 Health Care Stocks 14.73 Technology Stocks 9.45 Financial Services Stocks 6.20 Consumer Goods and Services Stocks 5.25 Capital Goods Stocks 4.25 Utilities Stocks 3.74 Energy Stocks 3.49 Retail Stocks 1.43 Transportation Stocks 0.94 Preferred Stock THE INVESTMENTS OF MID CAP GROWTH FUND March 31, 2003 Shares Value COMMON STOCKS Banks - 4.32% Charter One Financial, Inc. ............ 13,402 $ 370,699 Synovus Financial Corp. ................ 24,400 436,516 ----------- 807,215 ----------- Broadcasting - 2.00% Cox Radio, Inc., Class A* .............. 18,100 373,946 ----------- Business Equipment and Services - 8.30% Arbitron Inc.* ......................... 7,550 239,335 BearingPoint, Inc.* .................... 26,800 170,716 Convergys Corporation* ................. 25,150 331,980 Lamar Advertising Company* ............. 15,200 446,120 Stericycle, Inc.* ...................... 9,650 362,695 ----------- 1,550,846 ----------- Capital Equipment - 2.42% Cooper Cameron Corporation (A)* ........ 4,000 198,040 IDEX Corporation ....................... 8,800 255,200 ----------- 453,240 ----------- Communications Equipment - 2.13% ADC Telecommunications, Inc.* .......... 99,900 205,295 McData Corporation, Class A* ........... 20,100 173,362 McData Corporation, Class B* ........... 2,250 19,564 ----------- 398,221 ----------- Computers -- Micro - 1.59% Apple Computer, Inc.* .................. 21,050 297,963 ----------- Computers -- Peripherals - 3.18% Brocade Communications Systems, Inc.* ... 14,150 68,769 EMC Corporation* ....................... 30,500 220,515 Mercury Interactive Corporation* ....... 5,550 164,779 Siebel Systems, Inc.* .................. 17,550 140,488 ----------- 594,551 ----------- Cosmetics and Toiletries - 2.09% Estee Lauder Companies Inc. (The), Class A 12,850 390,126 ----------- Electrical Equipment - 0.96% Federal Signal Corporation ............. 12,650 179,630 ----------- Electronic Components - 6.18% Analog Devices, Inc.* .................. 5,850 160,875 Intersil Corporation, Class A* ......... 16,200 252,153 Microchip Technology Incorporated ...... 13,300 265,335 Network Appliance, Inc.* ............... 42,650 476,187 ----------- 1,154,550 ----------- Electronic Instruments - 1.65% Molex Incorporated ..................... 5,100 109,701 Molex Incorporated, Class A ............ 10,800 198,450 ----------- 308,151 ----------- Health Care -- Drugs - 5.50% Cephalon, Inc.* ........................ 5,650 225,520 Forest Laboratories, Inc.* ............. 10,300 555,891 Gilead Sciences, Inc.* ................. 2,400 100,764 Neurocrine Biosciences, Inc.* .......... 3,500 145,897 ----------- 1,028,072 ----------- Health Care -- General - 5.30% Biomet, Inc. ........................... 19,275 591,453 Kyphon Inc.* ........................... 6,400 56,256 Schein (Henry), Inc.* .................. 7,600 342,798 ----------- 990,507 ----------- Hospital Supply and Management - 4.29% Bard (C. R.), Inc. ..................... 5,700 359,442 Express Scripts, Inc., Class A* ........ 1,700 94,630 Laboratory Corporation of America Holdings* .................. 11,750 348,388 ----------- 802,460 ----------- Metal Fabrication - 1.87% Fastenal Company ....................... 12,400 349,618 ----------- Petroleum -- Domestic - 2.92% Burlington Resources Inc. .............. 7,550 360,210 Noble Energy, Inc. ..................... 5,400 185,166 ----------- 545,376 ----------- Petroleum -- Services - 0.82% Baker Hughes Incorporated .............. 5,100 152,643 ----------- Publishing - 2.11% Getty Images, Inc.* .................... 14,400 395,424 ----------- Restaurants - 0.59% Starbucks Corporation* ................. 4,250 109,523 ----------- Retail -- Food Stores - 0.71% Rite Aid Corporation* .................. 59,200 132,608 ----------- Retail -- Specialty Stores - 2.19% Abercrombie & Fitch, Class A* .......... 13,650 409,910 ----------- Security and Commodity Brokers - 5.13% Charles Schwab Corporation (The) ....... 46,000 332,120 Chicago Mercantile Exchange Holdings Inc. ......................... 13,000 625,950 ----------- 958,070 ----------- Timesharing and Software - 8.61% Concord EFS, Inc.* ..................... 31,300 294,220 eBay Inc. (A)* ......................... 10,600 904,127 Sabre Holdings Corporation* ............ 10,350 164,669 Total System Services, Inc. ............ 15,700 245,862 ----------- 1,608,878 ----------- Trucking and Shipping - 1.43% C.H. Robinson Worldwide, Inc. .......... 8,200 267,853 ----------- Utilities -- Telephone - 4.25% CenturyTel, Inc. ....................... 7,500 207,000 Citizens Communications Company* ....... 40,550 404,689 Commonwealth Telephone Enterprises, Inc.* .................... 4,700 182,172 ----------- 793,861 ----------- TOTAL COMMON STOCKS - 80.54% $15,053,242 (Cost: $17,696,482) PREFERRED STOCK - 0.94% Security and Commodity Brokers Prudential Financial, Inc. and Prudential Financial Capital Trust I, 6.75% Equity Security Units, Convertible ........... 3,400 $ 174,930 ----------- (Cost: $181,110) Number of Contracts PUT OPTION - 0.01% eBay Inc., April 70, Expires 4-19-03 ....................... 106 $ 2,120 ----------- (Cost: $17,278) Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Chemicals -- Petroleum and Inorganic - 4.54% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. $ 848 848,000 ----------- Food and Related - 4.26% General Mills, Inc., 1.45880%, Master Note ................. 796 796,000 ----------- Total Commercial Paper - 8.80% 1,644,000 Repurchase Agreement - 9.56% Merrill Lynch, Pierce, Fenner & Smith Inc., 1.25% Repurchase Agreement dated 3-31-03, to be repurchased at $1,787,062 on 4-1-03(B)............. 1,787 1,787,000 ----------- TOTAL SHORT-TERM SECURITIES - 18.36% $ 3,431,000 (Cost: $3,431,000) TOTAL INVESTMENT SECURITIES - 99.85% $18,661,292 (Cost: $21,325,870) CASH AND OTHER ASSETS, NET OF LIABILITIES- 0.15% 28,256 NET ASSETS - 100.00% $18,689,548 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Securities serve as cover for the following written call options outstanding at March 31, 2003. (See Note 6 to financial statements): Contracts Underlying Subject Expiration Month/Premium Market Security to Call Exercise Price Received Value - --------------------- ------- ------------ -------- ------ Cooper Cameron Corporation 40 May/55 $ 7,885 $ 4,000 eBay Inc. 106 April/85 11,872 31,800 ------- ------- $19,757 $35,800 ======= ======= (B)Collateralized by $1,835,237 Government National Mortgage Association, 7.0% due 10-20-28; market value and accrued interest aggregate $1,891,795. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MID CAP GROWTH FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (cost - $21,326) (Notes 1 and 3).......................................... $18,661 Receivables: Fund shares sold ........................................ 95 Dividends and interest .................................. 11 ------- Total assets .......................................... 18,767 ------- LIABILITIES Outstanding written options at market (Note 6) ........... 36 Payable to Fund shareholders ............................. 21 Accrued shareholder servicing (Note 2) ................... 10 Due to custodian ......................................... 2 Accrued accounting services fee (Note 2) ................. 1 Other .................................................... 7 ------- Total liabilities ..................................... 77 ------- Total net assets ..................................... $18,690 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 28 Additional paid-in capital .............................. 27,819 Accumulated undistributed income (loss): Accumulated undistributed net investment income.......... 3 Accumulated undistributed net realized loss on investment transactions ............................ (6,479) Net unrealized depreciation in value of investments ..... (2,681) ------- Net assets applicable to outstanding units of capital ........................................... $18,690 ======= Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $6.67 Class B .................................................. $6.49 Class C .................................................. $6.56 Class Y .................................................. $6.67 Capital shares outstanding: Class A .................................................. 2,056 Class B .................................................. 234 Class C .................................................. 479 Class Y .................................................. 49 Capital shares authorized .................................. 350,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS MID CAP GROWTH FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends ............................................... $ 73 Interest and amortization ............................... 50 ------ Total income .......................................... 123 Expenses (Note 2): ------ Investment management fee ............................... 153 Shareholder servicing: Class A ............................................... 61 Class B ............................................... 20 Class C ............................................... 23 Class Y ............................................... 1 Distribution fee: Class A ............................................... 3 Class B ............................................... 12 Class C ............................................... 25 Class Y ............................................... 1 Service fee: Class A ............................................... 29 Class B ............................................... 4 Class C ............................................... 8 Registration fees ....................................... 28 Audit fees .............................................. 16 Accounting services fee ................................. 12 Custodian fees .......................................... 12 Other ................................................... 13 ------- Total ................................................. 421 Less expenses in excess of voluntary waiver of investment management fee (Note 2) ................. (153) ------- Total expenses ..................................... 268 ------- Net investment loss ............................... (145) ------- See Notes to Financial Statements. STATEMENT OF OPERATIONS (Continued) MID CAP GROWTH FUND** For the Fiscal Year Ended March 31, 2003 (In Thousands) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities .......................... (2,769) Realized net gain on written options ..................... 69 Realized net loss on purchased options ................... (14) ------- Realized net loss on investments ........................ (2,714) Unrealized depreciation in value of securities during ------- the period .............................................. (2,629) Unrealized depreciation in value of written options during the period ............................... (19) Unrealized depreciation in value of purchased options during the period ............................... (15) Unrealized depreciation in value of investments ------- during the period ..................................... (2,663) ------- Net loss on investments ................................ (5,377) Net decrease in net assets resulting from ------- operations ......................................... $(5,522) ======= See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS MID CAP GROWTH FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) .......... $ (145) $ 5 Realized net loss on investments ...... (2,714) (1,919) Unrealized appreciation (depreciation) (2,663) 1,415 ------- ------- Net decrease in net assets resulting from operations .................... (5,522) (499) ------- ------- Distributions to shareholders from net investment income (Note 1E)(1): Class A ............................. (2) (75) Class B ............................. --- --- Class C ............................. --- --- Class Y ............................. (1) (3) ------- ------- (3) (78) ------- ------- Capital share transactions (Note 5) .... 2,703 4,911 ------- ------- Total increase (decrease) ............. (2,822) 4,334 NET ASSETS Beginning of period .................... 21,512 17,178 ------- ------- End of period .......................... $18,690 $21,512 ======= ======= Undistributed net investment income ... $ 3 $ 5 ======= ======= (1) See "Financial Highlights" on pages 127 - 130. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 6-30-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.91 $9.11 $10.00 ----- ----- ------ Income (loss) from investment operations: Net investment income (loss) ... (0.05) 0.02 0.11 Net realized and unrealized loss on investments (2.19) (0.17) (0.65) ----- ----- ------ Total from investment operations ....... (2.24) (0.15) (0.54) ----- ----- ------ Less distributions: From net investment income .......... (0.00)*(0.05) (0.06) From capital gains (0.00) (0.00) (0.29) ----- ----- ------ Total distributions (0.00) (0.05) (0.35) ----- ----- ------ Net asset value, end of period .... $6.67 $8.91 $ 9.11 ===== ===== ====== Total return(2) .... -25.13% -1.67% -5.88% Net assets, end of period (in millions) .... $14 $15 $11 Ratio of expenses to average net assets including voluntary expense waiver ... 1.17% 1.17% 1.01%(3) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -0.49% 0.34% 1.85%(3) Ratio of expenses to average net assets excluding voluntary expense waiver ... 2.02% 1.84% 1.65%(3) Ratio of net investment income (loss) to average net assets excluding voluntary expense waiver ... -1.34% -0.33% 1.21%(3) Portfolio turnover rate 35.89% 39.05% 110.18% (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. * Not shown due to rounding. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-6-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.81 $9.07 $10.01 Income (loss) from ----- ----- ------ investment operations: Net investment income (loss) ... (0.14) (0.09) 0.02 Net realized and unrealized loss on investments (2.18) (0.17) (0.66) Total from investment ----- ----- ------ operations ....... (2.32) (0.26) (0.64) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.01) From capital gains (0.00) (0.00) (0.29) ----- ----- ------ Total distributions (0.00) (0.00) (0.30) Net asset value, ----- ----- ------ end of period .... $6.49 $8.81 $ 9.07 ===== ===== ====== Total return ....... -26.33% -2.87% -6.85% Net assets, end of period (in millions) .... $2 $2 $2 Ratio of expenses to average net assets including voluntary expense waiver ... 2.73% 2.49% 2.40%(2) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -2.05% -0.95% 0.44%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 3.58% 3.90% 3.93%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -2.90% -2.37% -1.09%(2) Portfolio turnover rate 35.89% 39.05% 110.18% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class C Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.85 $9.08 $10.00 Income (loss) from ----- ----- ------ investment operations: Net investment income (loss) ... (0.10) (0.05) 0.04 Net realized and unrealized loss on investments (2.19) (0.18) (0.66) Total from investment ----- ----- ------ operations ....... (2.29) (0.23) (0.62) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.01) From capital gains (0.00) (0.00) (0.29) ----- ----- ------ Total distributions (0.00) (0.00) (0.30) Net asset value, ----- ----- ------ end of period .... $6.56 $8.85 $ 9.08 ===== ===== ====== Total return ....... -25.88% -2.53% -6.58% Net assets, end of period (in millions) .... $3 $4 $4 Ratio of expenses to average net assets including voluntary expense waiver ... 2.18% 2.10% 1.99%(2) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -1.50% -0.55% 0.84%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 3.03% 3.30% 3.26%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -2.35% -1.74% -0.43%(2) Portfolio turnover rate 35.89% 39.05% 110.18% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MID CAP GROWTH FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-10-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $8.91 $9.11 $10.23 Income (loss) from ----- ----- ------ investment operations: Net investment income (loss) ... (0.01) 0.00 0.11 Net realized and unrealized loss on investments (2.20) (0.14) (0.88) Total from investment ----- ----- ------ operations ....... (2.21) (0.14) (0.77) Less distributions: ----- ----- ------ From net investment income .......... (0.03) (0.06) (0.06) From capital gains (0.00) (0.00) (0.29) ----- ----- ------ Total distributions (0.03) (0.06) (0.35) Net asset value, ----- ----- ------ end of period .... $6.67 $8.91 $ 9.11 ===== ===== ====== Total return ....... -24.86% -1.52% -7.97% Net assets, end of period (000 omitted) ......... $329 $438 $184 Ratio of expenses to average net assets including voluntary expense waiver ... 0.86% 0.83% 1.03%(2) Ratio of net investment income (loss) to average net assets including voluntary expense waiver ... -0.18% 0.50% 1.77%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 1.71% 1.30% 1.68%(2) Ratio of net investment income (loss) to average net assets excluding voluntary expense waiver .......... -1.03% 0.03% 1.11%(2) Portfolio turnover rate 35.89% 39.05% 110.18% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Mira Stevovich, portfolio manager of W&R Funds, Inc. - Money Market Fund This report relates to the operation of W&R Funds, Inc. -- Money Market Fund for the fiscal year ended March 31, 2003. The following discussion and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund had a competitive return over the past fiscal year. However, due to declining interest rates, the Fund's overall yield declined. The Federal Reserve maintained a Federal Funds rate of 1.75 percent throughout most of the year, and then lowered it further to 1.25 percent in November 2002. This long period of historically low money market interest rates has made for a challenging environment for all money market funds. What market conditions or events influenced the Fund's performance during the fiscal year? As the fiscal year began, interest rates stood at 1.75 percent, having been lowered by the Federal Reserve a total of 4.75 percent during the previous fiscal year. Although rates remained fairly constant until the one-half percent decrease in November, market sentiment fluctuated throughout the year. At times, when the market anticipated a rebound in the economy, interest rates would occasionally move up with that anticipation. During these periods, we would attempt to take advantage of any increase in market rates to increase the yield of the Fund. In addition to interest rates, credit quality played a role in the management and performance of the Fund during the fiscal year. The weak economy has taken its toll on the credit quality of many companies. As a result, we have chosen to extend our overall maturity with very select securities of the highest quality, based on our strict credit risk constraints. We have remained vigilant in our review of the companies whose securities we purchase, due to the weak economic environment and risk potential. What strategies and techniques did you employ that specifically affected the Fund's performance? We have maintained a defensive posture during the weak economic period. We have maintained the average maturity of the Fund by carefully selecting securities in which to invest. Overall, we believe that this strategy helped performance. However, securities issued by the highest quality companies are issued at premium rates of interest (lowest-yielding securities). This ultimately affects Fund yield. To attempt to compensate for this, we timed the purchase of our longer-dated securities during periods in which the overall market anticipated higher future rates of interest, in an effort to take advantage of temporary rate increases. What industries did you emphasize during the fiscal year, and what looks attractive to you going forward? We intend to continue to invest in securities of the highest quality companies, as well as U.S. Treasury and government agency securities, when we feel that they look attractive on a relative basis. In light of the current interest rate climate, and the uncertainties regarding the U.S. economy, we intend to review security purchases on a case-by-case basis, following closely the developments in all industries and their effects on each company in which we invest. Respectfully, Mira Stevovich Manager W&R Money Market Fund Please remember that an investment in the Fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. THE INVESTMENTS OF MONEY MARKET FUND March 31, 2003 Principal Amount in Thousands Value CORPORATE OBLIGATIONS Commercial Paper Aluminum - 3.52% Alcoa Incorporated, 1.23%, 4-1-03 ......................... $ 750 $ 750,000 ----------- Banks - 3.99% Lloyds TSB Bank PLC, 1.24%, 4-22-03 ........................ 350 349,747 Wells Fargo & Company, 1.25%, 4-7-03 ......................... 500 499,896 ----------- 849,643 ----------- Beverages - 3.11% Coca-Cola Company (The), 1.24%, 5-5-03 ......................... 414 413,515 Diageo Capital plc, 1.23%, 4-29-03 ........................ 250 249,761 ----------- 663,276 ----------- Chemicals --Petroleum and Inorganic - 1.58% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. 336 336,000 ----------- Containers - 3.28% Bemis Company, Inc., 1.25%, 4-3-03 ......................... 300 299,979 Florens Container Inc. (Bank of America N.A.), 1.26%, 4-24-03 ........................ 400 399,678 ----------- 699,657 ----------- Finance Companies - 4.11% Caterpillar Financial Services Corp., 1.21%, 4-14-03 ........................ 250 249,891 PACCAR Financial Corp.: 1.24%, 4-16-03 ........................ 527 526,728 1.25%, 4-28-03 ........................ 100 99,906 ----------- 876,525 ----------- Food and Related - 3.51% Golden Peanut Co.: 1.28%, 4-4-03 ......................... 250 249,973 1.25%, 4-11-03 ........................ 250 249,913 1.22%, 6-12-03 ........................ 250 249,390 ----------- 749,276 ----------- Health Care -- Drugs - 7.74% Alcon Finance PLC (Nestle S.A.), 1.25%, 4-11-03 ........................ 900 899,688 GlaxoSmithKline Finance plc, 1.25%, 4-30-03 ........................ 250 249,748 Pharmacia Corporation, 1.25%, 4-2-03 ......................... 500 499,983 ----------- 1,649,419 ----------- Health Care -- General - 3.73% Johnson & Johnson, 1.1%, 9-18-03 ......................... 800 795,844 ----------- Household -- General Products - 2.58% Kimberly-Clark Worldwide Inc.: 1.24%, 4-7-03 ......................... 300 299,938 1.25%, 4-7-03 ......................... 250 249,948 ----------- 549,886 ----------- Multiple Industry - 1.41% BOC Group Inc. (DE), 1.3%, 4-4-03 .......................... 300 299,967 ----------- Publishing - 3.75% Gannett Co., 1.23%, 4-10-03 ........................ 800 799,754 ----------- Utilities -- Telephone - 9.38% BellSouth Corporation, 1.24%, 4-28-03 ........................ 300 299,721 SBC International Inc. (SBC Communications Inc.): 1.24%, 4-23-03 ........................ 350 349,735 1.24%, 5-7-03 ......................... 450 449,442 Verizon Network Funding Corporation: 1.24%, 4-16-03 ........................ 750 749,613 1.24%, 4-23-03 ........................ 150 149,886 ----------- 1,998,397 ----------- Total Commercial Paper - 51.69% 11,017,644 Commercial Paper (backed by irrevocable bank letter of credit) - 1.13% Motor Vehicles Hyundai Motor Finance Co. (Bank of America N.A.), 1.4%, 4-1-03 .......................... 240 240,000 ----------- Notes Banks - 5.16% Bank One, N.A., 1.29%, 5-27-03 ........................ 600 599,945 Wells Fargo & Company, 1.3275%, 4-1-03 ....................... 500 500,000 ----------- 1,099,945 ----------- Business Equipment and Services - 3.61% Playworld Systems Incorporated (Wachovia Bank), 1.41%, 4-2-03 ......................... 770 770,000 ----------- Health Care -- Drugs - 2.41% Merck & Co., Inc., 4.489%, 2-22-04 (A) ................... 500 514,382 ----------- Hospital Supply and Management - 1.85% Autumn House at Powder Mill, Inc. (Suntrust Bank), 1.35%, 4-3-03 ......................... 150 150,000 Meriter Management Services, Inc. (U.S. Bank Milwaukee, National Association), 1.45%, 4-2-03 ......................... 245 245,000 ----------- 395,000 ----------- Retail -- General Merchandise - 2.36% Wal-Mart Stores, Inc., 4.878%, 6-1-03 ........................ 500 501,853 ----------- Trucking and Shipping - 2.56% Volpe Family Partnership, L.P. (Wachovia Bank), 1.36%, 4-3-03 ......................... 545 545,000 ----------- Utilities -- Telephone - 1.64% BellSouth Corporation, 4.105%, 4-26-03 (A) ................... 350 350,321 ----------- Total Notes - 19.59% 4,176,501 TOTAL CORPORATE OBLIGATIONS - 72.41% $15,434,145 (Cost: $15,434,145) MUNICIPAL OBLIGATIONS California - 3.99% Pollution Control Financing Authority, Environmental Improvement Revenue Bonds, Air Products Manufacturing Corporation, Series 1997A (Taxable), 1.22%, 5-8-03 ......................... 850 850,000 ----------- Louisiana - 2.81% Industrial Development Board of the Parish of Calcasieu, Inc., Environmental Revenue Bonds (CITGO Petroleum Corporation Project), Series 1996 (Taxable), (Westdeutsche Landesbank Girozentrale), 1.275%, 4-30-03 ....................... 600 600,000 ----------- New York - 1.52% The City of New York, General Obligation Bonds, Fiscal 1995 Series B, Taxable Adjustable Rate Bonds (Bayerische Landesbank Girozentrale, New York Branch), 1.33%, 4-2-03 ......................... 325 325,000 ----------- Washington - 1.62% Washington State Housing Finance Commission: Taxable Variable Rate Demand Multifamily Revenue Bonds, Mill Pointe Apartments Project, Series 1999B (U.S. Bank, National Association), 1.35%, 4-1-03 ......................... 250 250,000 Taxable Variable Rate Demand Multifamily Revenue Bonds, Brittany Park Project, Series 1996B (U.S. Bank of Washington, National Association), 1.35%, 4-3-03 ......................... 95 95,000 ----------- 345,000 ----------- TOTAL MUNICIPAL OBLIGATIONS - 9.94% $ 2,120,000 (Cost: $2,120,000) UNITED STATES GOVERNMENT SECURITIES Federal Farm Credit Banks, 1.25%, 3-19-04 ........................ 400 400,000 Federal Home Loan Bank: 1.45%, 2-24-04......................... 250 250,000 1.35%, 4-5-04 ......................... 370 370,000 1.3%, 4-12-04 ......................... 300 300,000 Federal Home Loan Mortgage Corporation, 1.65%, 12-23-03........................ 800 800,000 Student Loan Marketing Association, 1.4%, 2-20-04 ......................... 500 500,000 United States Treasury Bills: 1.04%, 8-7-03 ......................... 300 298,891 1.035%, 8-21-03 ....................... 350 348,571 United States Treasury Note, 5.25%, 8-15-03 ........................ 400 405,185 TOTAL UNITED STATES GOVERNMENT SECURITIES - 17.23% $ 3,672,647 (Cost: $3,672,647) TOTAL INVESTMENT SECURITIES - 99.58% $21,226,792 (Cost: $21,226,792) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.42% 89,055 NET ASSETS - 100.00% $21,315,847 Notes to Schedule of Investments (A)Securities were purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2003, the total value of these securities amounted to $864,703 or 4.05% of net assets. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MONEY MARKET FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost-$21,227) (Notes 1 and 3).......................................... $21,227 Cash ..................................................... 30 Receivables: Fund shares sold ........................................ 214 Interest ................................................ 51 Prepaid insurance premium ................................ 1 ------- Total assets .......................................... 21,523 ------- LIABILITIES Payable to Fund shareholders ............................. 181 Accrued shareholder servicing (Note 2) ................... 3 Accrued accounting services fee (Note 2) ................. 1 Dividends payable ........................................ 1 Other .................................................... 21 ------- Total liabilities ..................................... 207 ------- Total net assets ..................................... $21,316 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 213 Additional paid-in capital .............................. 21,103 ------- Net assets applicable to outstanding units of capital ........................................... $21,316 ======= Net asset value, redemption and offering price per share: Class A .................................................. $1.00 Class B .................................................. $1.00 Class C .................................................. $1.00 Capital shares outstanding: Class A .................................................. 10,548 Class B .................................................. 1,188 Class C .................................................. 9,580 Capital shares authorized .................................. 300,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS MONEY MARKET FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ............................... $336 ---- Expenses (Note 2): Investment management fee ............................... 76 Distribution fee: Class B ............................................... 6 Class C ............................................... 65 Registration fees ....................................... 30 Shareholder servicing: Class A ............................................... 10 Class B ............................................... 2 Class C ............................................... 14 Service fee: Class B ............................................... 2 Class C ............................................... 22 Accounting services fee ................................. 12 Audit fees .............................................. 12 Custodian fees .......................................... 12 Legal fees .............................................. 1 Other ................................................... 13 ---- Total ................................................. 277 Less expenses in excess of voluntary waiver of investment management fee (Note 2) ................. (76) Less expenses in excess of voluntary reimbursement of expenses (Note 2): Class B 12b-1 fees ................................. (3) Class C 12b-1 fees ................................. (1) ---- Total expenses ..................................... 197 ---- Net investment income ............................. 139 ---- Net increase in net assets resulting from operations ..................................... $139 ==== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS MONEY MARKET FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income ................. $ 139 $ 271 ------- ------- Net increase in net assets resulting from operations .................... 139 271 ------- ------- Distributions to shareholders from net investment income (Note 1E):(1) Class A ............................... (122) (130) Class B ............................... (1) (7) Class C ............................... (16) (134) ------- ------- (139) (271) ------- ------- Capital share transactions (Note 5) .... 8,293 (2,179) ------- ------- Total increase (decrease) ............. 8,293 (2,179) NET ASSETS Beginning of period .................... 13,023 15,202 ------- ------- End of period .......................... $21,316 $13,023 ======= ======= Undistributed net investment income ... $ --- $ --- ======= ======= (1) See "Financial Highlights" on pages 141 - 143. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 6-30-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $1.00 $1.00 $1.00 ------- ------- ------- Net investment income ........... 0.0124 0.0259 0.0413 Less dividends declared ......... (0.0124)(0.0259) (0.0413) ------- ------- ------- Net asset value, end of period .... $1.00 $1.00 $1.00 ======= ======= ======= Total return ....... 1.25% 2.70% 4.11% Net assets, end of period (in millions) ........ $10 $5 $5 Ratio of expenses to average net assets including voluntary expense waiver ... 0.52% 0.81% 0.92%(2) Ratio of net investment income to average net assets including voluntary expense waiver ........... 1.26% 2.60% 5.49%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 0.92% 1.03% 1.18%(2) Ratio of net investment income to average net assets excluding voluntary expense waiver ........... 0.86% 2.38% 5.23%(2) (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-12-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $1.00 $1.00 $1.00 ------- ------- ------- Net investment income 0.0015 0.0147 0.0299 Less dividends declared ......... (0.0015)(0.0147) (0.0299) ------- ------- ------- Net asset value, end of period .... $1.00 $1.00 $1.00 ======= ======= ======= Total return ....... 0.16% 1.55% 2.97% Net assets, end of period (000 omitted) ......... $1,188 $578 $431 Ratio of expenses to average net assets including voluntary expense waivers .. 1.59% 1.88% 2.29%(2) Ratio of net investment income to average net assets including voluntary expense waivers .......... 0.14% 1.33% 4.05%(2) Ratio of expenses to average net assets excluding voluntary expense waivers .. 2.06% 2.39% 2.94%(2) Ratio of net investment income (loss) to average net assets excluding voluntary expense waivers .......... -0.33% 0.82% 3.41%(2) (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MONEY MARKET FUND Class C Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $1.00 $1.00 $1.00 ------- ------- ------- Net investment income 0.0019 0.0157 0.0332 Less dividends declared ......... (0.0019)(0.0157) (0.0332) ------- ------- ------- Net asset value, end of period .... $1.00 $1.00 $1.00 ======= ======= ======= Total return ....... 0.20% 1.63% 3.32% Net assets, end of period (in millions) ........ $10 $7 $10 Ratio of expenses to average net assets including voluntary expense waivers .. 1.56% 1.81% 1.98%(2) Ratio of net investment income to average net assets including voluntary expense waivers .......... 0.18% 1.58% 4.34%(2) Ratio of expenses to average net assets excluding voluntary expense waivers .. 1.99% 2.31% 2.54%(2) Ratio of net investment income (loss) to average net assets excluding voluntary expense waivers .......... -0.25% 1.08% 3.78%(2) (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Bryan J. Bailey, portfolio manager of W&R Funds, Inc. - Municipal Bond Fund This report relates to the operation of W&R Funds, Inc. -- Municipal Bond Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund showed relatively disappointing performance during the fiscal year, slightly underperforming its benchmark index. The Fund's Class C shares increased 7.75 percent for the fiscal year, compared with the Lehman Brothers Municipal Bond Index (reflecting the performance of securities that generally represent the municipal bond market), which increased 9.89 percent for the period, and the Lipper General Municipal Debt Funds Universe Average (reflecting the performance of funds with similar investment objectives), which increased 8.32 percent for the period. Why did the Fund lag its benchmark index during the fiscal year? An underweight position in Aaa-rated paper, primarily insured bonds, was the major factor leading to underperformance. While the overall quality of the Fund was upgraded significantly during the fiscal year, the Fund underperformed the highest credit-quality competitors. (The Fund's weighting in Aaa-rated bonds was significantly increased during the period, but the top performers tended to have a higher exposure to Aaa and high Aa-rated municipal bonds.) However, Fund performance was enhanced by overweight positions in 10-15 year bonds, which proved to be the "sweet spot" of the yield curve. Sector selection also benefited Fund performance. Overweight positions in the outperforming education and hospital sectors and underweight positions in the poorly performing airline, resource recovery and tobacco securitization sectors all had a positive impact on the Fund. Underweight positions in California and New York issuers also contributed positively to performance. What other market conditions or events influenced the Fund's performance during the fiscal year? The fiscal year was dominated by geopolitical risk, war distractions, corporate malfeasance issues, declining equity investor confidence, and heightened levels of uncertainty on almost all fronts. In this environment, investor risk aversion was very high, and fear became the emotional driver. Safety and preservation of capital became the dominant factor driving most investor decisions. Given this backdrop, we observed a large-scale investor flight to quality fixed-income instruments, which resulted in outperformance in the highest quality asset classes to the detriment of lower quality asset classes. This is what occurred in the municipal bond market in the fiscal year, as the highest quality bonds were the top performers. Sector-wise, numerous events resulted in severe underperformance in certain areas. Accounting fraud and financial statement transparency concerns resulted in severe markdowns for certain corporate-backed resource recovery issuers. Many power bonds were negatively pressured by the Enron debacle and the aftermath of the State of California energy crisis. Several paper companies were beaten down on concerns of litigation risk resulting from asbestos exposure. Tobacco bonds were also pressured by continued negative litigation headlines. The Fund was nimble and avoided many of the aforementioned credit disasters that plagued the market during this very difficult period. What strategies and techniques did you employ that specifically affected the Fund's performance? Upgrading the credit quality of the Fund, improved diversification between sectors and states, and smaller positions has dramatically reduced the volatility of the Fund. Our management style is essentially top-down with an emphasis on identifying relative value opportunities between sectors, states, and different security structures, while simultaneously attempting to exploit opportunities presented by the shape of the yield curve. Market timing has been de-emphasized, and the Fund is typically fully invested. A diligent approach to ongoing credit analysis and subsequent surveillance after purchase enabled the Fund to avoid many of the credit disasters that, we believe, plagued our competitors. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? Much of our performance can be attributed to what we de-emphasized. We continue to feel that we are in an investment environment where the winners will be the managers who can avoid the credit disasters, and we are therefore proceeding with extreme caution. Avoiding most Industrial Development Revenue/Pollution Control Revenue (IDR/PCR) debt, corporate-backed municipals, airlines, and tobacco securitization credits proved to be very beneficial. Going forward, we expect to slightly increase the credit quality of the Fund from its current AA3 rating to the high end of the AA category, while actively seeking relative value opportunities between sectors, states, and security structures. We believe that positioning and asset distribution across the yield curve will likely continue to be a vital part of our investment strategy. We expect to maintain the Fund's neutral to defensive exposure to interest rate risk and feel that the Fund is well positioned entering the new fiscal year. The objective of the Fund remains the same: to provide income that is not subject to Federal income taxes, while maximizing tax-free total return. To achieve that objective, we intend to continue investing in short, intermediate and longer-term (when appropriate) investment-grade municipal bonds with an emphasis on quality and capital preservation with minimal yield sacrifice. Respectfully, Bryan J. Bailey Manager W&R Municipal Bond Fund Comparison of Change in Value of $10,000 Investment W&R Lipper Municipal Lehman General Bond Brothers Municipal Fund, Municipal Debt Funds Class C Bond Universe Shares Index Average --------- --------- ---------- 03-31-93 10,000 10,000 10,000 03-31-94 10,076 10,231 10,185 03-31-95 10,718 10,991 10,820 03-31-96 11,521 11,912 11,599 03-31-97 12,133 12,564 12,151 03-31-98 13,455 13,910 13,450 03-31-99 14,079 14,773 14,109 03-31-00 13,202 14,761 13,774 03-31-01 14,287 16,374 15,142 03-31-02 14,915 16,999 15,560 03-31-03 16,072 18,680 16,854 ===== W&R Municipal Bond Fund, Class C Shares (1) -- $16,072 +++++ Lehman Brothers Municipal Bond Index -- $18,680 - ----- Lipper General Municipal Debt Funds Universe Average -- $16,854 (1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 4.09% 3.81% 7.75% 8.52% 5-year period ended 3-31-03 --- --- 3.62% --- 10-year period ended 3-31-03 --- --- 4.86% --- Since inception of Class through 3-31-03(4) 5.44% 5.19% --- 4.09% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 4.25%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)9-15-00 for Class A shares, 8-8-00 for Class B shares and 12-30-98 for Class Y shares (the date on which shares were first acquired and continuously held by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND - ----------------------------------------------------------------- Municipal Bond Fund GOAL To seek income which is not subject to Federal income tax. (Income may be subject to state and local taxes, and a significant portion may be subject to the Federal alternative minimum tax.) Strategy Invests primarily in tax-exempt municipal bonds, mainly of investment grade. The Fund diversifies its holdings among two main types of municipal bonds: general obligation bonds and revenue bonds. Founded 1992 Scheduled Dividend Frequency Declared daily, paid monthly Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ---------------------------------------- Dividends paid $0.32 ===== Net asset value on 3-31-03 $11.10 3-31-02 10.61 ------ Change per share $ 0.49 ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 4.09% 8.71% 3.81% 7.81% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) 5.44% 7.26% 5.19% 6.22% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 4.25% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 9-15-00 for Class A shares and 8-8-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ ---------- ---------- 1-year period ended 3-31-03 7.75% 8.52% 5-year period ended 3-31-03 3.62% --- 10-year period ended 3-31-03 4.86% --- Since inception of Class (D) --- 4.09% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 12-30-98 for Class Y shares (the date on which shares were first acquired and continuously held by shareholders). SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Municipal Bond Fund had net assets totaling $27,844,783 invested in a diversified portfolio. As a shareholder of Municipal Bond Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $15.05Education Revenue Bonds 12.80Hospital Revenue Bonds 9.39City and County General Obligation Bonds 8.84Water and Sewer Revenue Bonds 6.96Sales Revenue Bonds 6.62Public Power Revenue Bonds 6.39School General Obligation Bonds 6.30Other Municipal Bonds 6.04 Airport Revenue Bonds 5.55Housing Revenue Bonds 4.98Special Tax Bonds 4.85Lease/Certificate of Participation Bonds 4.79Transportation Revenue Bonds 1.44Cash and Cash Equivalents 2003 TAX YEAR TAXABLE EQUIVALENT YIELDS(1) - --------------------------------------------------------------------------- If your Taxable Income is: Your Equivalent Marginal Tax Free Yields Joint Single Tax--------------------------- return Return Bracket Is 3% 4% 5% 6% $ 0- 12,000 $ 0- 6,000 10% 3.33% 4.44% 5.56% 6.67% $ 12,001- 47,450 6,001- 28,400 15% 3.53% 4.71% 5.88% 7.06% $ 47,451-114,650 $ 28,401- 68,800 27% 4.11% 5.48% 6.85% 8.22% $114,651-174,700 $ 68,801-143,500 30% 4.29% 5.71% 7.14% 8.57% $174,701-311,950 $143,501-311,950 35% 4.62% 6.15% 7.69% 9.23% $311,951 and above$311,951 and above 38.6% 4.89% 6.51% 8.14% 9.77% (1) Table is for illustration only and does not represent the actual performance of W&R Funds, Inc. - Municipal Bond Fund. THE INVESTMENTS OF MUNICIPAL BOND FUND March 31, 2003 Principal Amount in Thousands Value MUNICIPAL BONDS Arizona - 2.99% The Industrial Development Authority of the City of Phoenix, Arizona, Single Family Mortgage Revenue Bonds, Series 2002-1A, 3.5%, 3-1-34 .......................... $500 $ 554,055 City of Bullhead City, Arizona, Bullhead Parkway Improvement District, Improvement Bonds, 6.1%, 1-1-13 .......................... 270 278,340 ----------- 832,395 ----------- California - 3.92% San Mateo County Community College District (County of San Mateo, California), 2002 General Obligation Bonds (Election of 2001), Series A (Current Interest Bonds), 5.375%, 9-1-15 ........................ 500 561,805 Trustees of the California State University Systemwide Revenue Bonds, Series 2002A, 5.5%, 11-1-15 ......................... 250 284,922 State of California Department of Water Resources, Power Supply Revenue Bonds, Series 2002A, 5.5%, 5-1-18 .......................... 215 245,025 ----------- 1,091,752 ----------- Colorado - 5.38% City of Aspen, Colorado, Sales Tax Revenue Bonds, Series 1999, 5.25%, 11-1-15 ........................ 500 535,520 Boulder County, Colorado, Hospital Development Revenue Bonds (Longmont United Hospital Project), Series 1997, 5.6%, 12-1-27 ......................... 500 493,380 El Paso County School District No. 12 - Cheyenne Mountain, El Paso County, Colorado, General Obligation Refunding Bonds, Series 2002, 0.0%, 9-15-12 ......................... 685 468,095 ----------- 1,496,995 ----------- Florida - 5.04% Polk County, Florida, Capital Improvement and Refunding Revenue Bonds, Series 2002, 5.25%, 12-1-09 ........................ 500 571,015 School District of Hillsborough County, Florida, Sales Tax Revenue Bonds, Series 2002, 5.375%, 10-1-13 ....................... 500 560,180 City of Jacksonville, Florida, Better Jacksonville Sales Tax Revenue Bonds, Series 2003, 5.25%, 10-1-19 ........................ 250 272,760 ----------- 1,403,955 ----------- Georgia - 0.83% Hospital Authority of Cobb County (Georgia), Revenue Anticipation Refunding and Improvement Certificates, Series 2003, 5.25%, 4-1-20 (A) ..................... 210 230,223 ----------- Illinois - 9.00% Village of Bedford Park, Cook County, Illinois, Water Revenue Bonds, Series 2000A, 6.0%, 12-15-12 ........................ 955 1,064,615 School District Number 116, Champaign County, Illinois (Urbana), General Obligation School Building Bonds, Series 1999C, 0.0%, 1-1-11 .......................... 850 630,522 Bloomington-Normal Airport Authority of McLean County, Illinois, Central Illinois Regional Airport, Passenger Facility Charge Revenue Bonds, Series 2001, 6.05%, 12-15-19 ....................... 645 594,658 Public Building Commission of Chicago, Building Revenue Bonds, Series 2003 (Chicago Transit Authority), 5.25%, 3-1-19 ......................... 200 215,696 ----------- 2,505,491 ----------- Indiana - 9.97% New Albany-Floyd County School Building Corporation, First Mortgage Bonds, Series 2002 (Floyd County, Indiana), 5.75%, 7-15-17 ........................ 675 764,687 Ball State University Board of Trustees, Ball State University Student Fee Bonds, Series K, 5.75%, 7-1-18 ......................... 500 563,210 Dyer (Indiana) Redevelopment Authority, Economic Development Lease Rental Bonds, Series 1999, 6.5%, 1-15-24 ......................... 500 549,305 Westfield High School 1995 Building Corporation (Hamilton County, Indiana), First Mortgage Bonds, Series 2002, 5.5%, 7-15-16 ......................... 435 487,000 East Chicago Elementary School Building Corporation (Lake County, Indiana), First Mortgage Bonds, Series 1993A, 5.5%, 1-15-16 ......................... 400 411,556 ----------- 2,775,758 ----------- Iowa - 1.22% Scott County, Iowa, Refunding Certificates of Participation (County Golf Course Project, Series 1993), 6.2%, 5-1-13 .......................... 340 340,534 ----------- Kansas - 4.86% Chisholm Creek Utility Authority, Water and Wastewater Facilities Revenue Bonds (Cities of Bel Aire and Park City, Kansas Project), Series 2002, 5.25%, 9-1-15 ......................... 755 839,651 Sedgwick County, Kansas and Shawnee County, Kansas, Single Family Mortgage Revenue Bonds (Mortgage-Backed Securities Program), 2001 Series A-1 (AMT), 6.3%, 12-1-32 ......................... 470 513,362 ----------- 1,353,013 ----------- Louisiana - 2.99% State of Louisiana, Gasoline and Fuels Tax Revenue Bonds, 2002 Series A, 5.25%, 6-1-13 ......................... 500 558,495 City of New Orleans, Louisiana, Limited Tax Certificates of Indebtedness, Series 2003, 5.0%, 3-1-07 .......................... 250 275,498 ----------- 833,993 ----------- Maryland - 1.94% Maryland Transportation Authority, Airport Parking Revenue Bonds, Series 2002B, Baltimore/Washington International Airport Projects (Qualified Airport Bonds - AMT), 5.375%, 3-1-15 ........................ 500 541,300 ----------- Minnesota - 5.62% City of Victoria, Minnesota, Private School Facility Revenue Bonds (Holy Family Catholic High School Project), Series 1999A, 5.6%, 9-1-19 .......................... 750 712,155 City of Perham, Minnesota, General Obligation Disposal System Revenue Bonds, Series 2001, 6.0%, 5-1-22 .......................... 500 516,105 City of Minneapolis, Minnesota, General Obligation Convention Center Bonds, Series 2002, 5.0%, 12-1-10 ......................... 300 335,988 ----------- 1,564,248 ----------- Missouri - 5.08% The City of St. Louis, Missouri, Airport Revenue Bonds, Series 2001A (Airport Development Program), 5.0%, 7-1-11 .......................... 500 546,540 City of Sikeston, Missouri, Electric System Revenue Refunding Bonds, 1996 Series, 6.0%, 6-1-14 .......................... 400 479,416 City of Kearney, Missouri, General Obligation Bonds, Series 2001, 5.5%, 3-1-16 .......................... 350 388,045 ----------- 1,414,001 ----------- Nebraska - 2.01% Nebraska Higher Education Loan Program, Inc., Senior Subordinate Bonds, 1993-2, Series A-5A, 6.2%, 6-1-13 .......................... 500 561,295 ----------- Nevada - 1.00% Carson City, Nevada Hospital Revenue Bonds (Carson-Tahoe Hospital Project), Series 2002, 6.0%, 9-1-15 .......................... 255 278,761 ----------- New Jersey - 0.98% Garden State Preservation Trust, Open Space and Farmland Preservation Bonds, 2003 Series A (Current Interest Bonds), 5.25%, 11-1-19 ........................ 250 272,002 ----------- New Mexico - 2.55% New Mexico Hospital Equipment Loan Council, Hospital Revenue Bonds (Memorial Medical Center, Inc. Project), Series 1998, 4.85%, 6-1-08 ......................... 725 711,348 ----------- New York - 9.94% The Port Authority of New York and New Jersey, Consolidated Bonds, One Hundred Twenty-Seventh Series, 5.5%, 12-15-14 ........................ 500 561,520 New York City, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, Fiscal 2003 Series D, 5.0%, 6-15-09 ......................... 500 557,670 New York State Thruway Authority, State Personal Income Tax Revenue Bonds (Transportation), Series 2002A, 5.25%, 3-15-10 ........................ 500 557,475 The City of New York, General Obligation Bonds, Fiscal 2003 Series A Current Interest Bonds, 5.5%, 8-1-10 .......................... 500 548,865 Dormitory Authority of the State of New York, Third General Resolution Revenue Bonds (State University Educational Facilities Issue), Series 2002B, 5.25%, 11-15-23 ....................... 500 543,745 ----------- 2,769,275 ----------- Oklahoma - 0.88% Tulsa Public Facilities Authority (Oklahoma), Assembly Center Lease Payment Revenue Bonds, Refunding Series 1985, 6.6%, 7-1-14 .......................... 200 245,040 ----------- Pennsylvania - 3.14% The School District of Philadelphia, Pennsylvania, General Obligation Bonds, Series A of 2002, 5.5%, 2-1-18 .......................... 500 550,990 Schuylkill County Industrial Development Authority, Variable Rate Demand Revenue Bonds (Pine Grove Landfill, Inc. Project), 1995 Series, 5.1%, 10-1-19 ......................... 320 322,464 ----------- 873,454 ----------- Rhode Island - 2.61% Rhode Island Health and Educational Building Corporation, Hospital Financing Revenue Bonds, St. Joseph Health Services of Rhode Island Issue, Series 1999, 5.4%, 10-1-09 ......................... 725 725,783 ------------- South Carolina - 1.99% South Carolina Public Service Authority, Santee Cooper, Revenue Obligations, 2002 Refunding Series D, 5.0%, 1-1-10 .......................... 500 554,505 ----------- Texas - 6.34% Board of Regents of Texas Tech University System, Revenue Financing System Bonds, Seventh Series (2001), 5.5%, 8-15-17 ......................... 500 551,180 Texas Department of Housing and Community Affairs, Single Family Mortgage Revenue Bonds, 1997 Series D (AMT) TEAMS Structure, 5.7%, 9-1-29 .......................... 465 477,006 Lufkin Health Facilities Development Corporation, Health System Revenue and Refunding Bonds (Memorial Health System of East Texas), Series 1995, 6.875%, 2-15-26 ....................... 495 462,879 Pflugerville Independent School District (Travis County, Texas), Unlimited Tax School Building Bonds, Series 2001, 5.5%, 8-15-19 ......................... 250 273,268 ----------- 1,764,333 ----------- Virginia - 1.98% City of Chesapeake, Virginia, General Obligation Public Improvement and Refunding Bonds, Series of 2001, 5.5%, 12-1-17 ......................... 500 551,220 ----------- Washington - 2.03% Energy Northwest, Project No. 1 Refunding Electric Revenue Bonds, Series 2002-A, 5.75%, 7-1-16 ......................... 500 564,145 ----------- Wisconsin - 2.37% Wisconsin Health and Educational Facilities Authority, Wheaton Franciscan Services, Inc., System Revenue and Refunding Bonds, Series 2002, 6.0%, 8-15-15 ......................... 600 660,882 ----------- Wyoming - 1.90% Wyoming Student Loan Corporation, Student Loan Revenue Refunding Bonds, Series 1999A (Non-AMT), 6.2%, 6-1-24 .......................... 500 528,440 ----------- TOTAL MUNICIPAL BONDS - 98.56% $27,444,141 (Cost: $26,432,153) TOTAL SHORT-TERM SECURITIES - 1.65% $ 459,000 (Cost: $459,000) TOTAL INVESTMENT SECURITIES - 100.21% $27,903,141 (Cost: $26,891,153) LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.21%) (58,358) NET ASSETS - 100.00% $27,844,783 Notes to Schedule of Investments (A)Purchased on a when-issued basis with settlement subsequent to March 31, 2003. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES MUNICIPAL BOND FUND March 31, 2003 (In Thousands, Except for Per Share and Share Amounts) ASSETS Investment securities -- at value (cost - $26,891) (Notes 1 and 3) ......................................... $27,903 Cash ..................................................... 1 Receivables: Interest ................................................ 338 Fund shares sold ........................................ 40 Prepaid registration fees ................................ 6 ------- Total assets .......................................... 28,288 ------- LIABILITIES Payable for investment securities purchased .............. 225 Payable to Fund shareholders ............................. 194 Dividends payable ........................................ 9 Accrued shareholder servicing (Note 2) ................... 6 Accrued accounting services fee (Note 2) ................. 2 Accrued distribution and service fees (Note 2) ........... 1 Other .................................................... 6 ------- Total liabilities ..................................... 443 ------- Total net assets ..................................... $27,845 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 25 Additional paid-in capital .............................. 27,701 Accumulated undistributed income (loss): Accumulated undistributed net investment income ......... 14 Accumulated undistributed net realized loss on investments ........................................ (907) Net unrealized appreciation in value of investments ..... 1,012 ------- Net assets applicable to outstanding units of capital ........................................... $27,845 ======= Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $11.10 Class B .................................................. $11.10 Class C .................................................. $11.10 Class Y .................................................. $11.10 Capital shares outstanding: Class A .................................................. 239,655 Class B .................................................. 47,889 Class C .................................................. 2,220,429 Class Y .................................................. 350 Capital shares authorized .................................200,000,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS MUNICIPAL BOND FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT INCOME Income (Note 1B): Interest and amortization ............................... $1,391 ------ Expenses (Note 2): Distribution fee: Class A ............................................... ---* Class B ............................................... 3 Class C ............................................... 185 Class Y ............................................... ---* Investment management fee ............................... 145 Service fee: Class A ............................................... 6 Class B ............................................... 1 Class C ............................................... 62 Shareholder servicing: Class A ............................................... 2 Class B ............................................... 1 Class C ............................................... 52 Class Y ............................................... ---* Accounting services fee ................................. 24 Audit fees .............................................. 13 Custodian fees .......................................... 4 Other ................................................... 40 ------ Total expenses ........................................ 538 ------ Net investment income ................................ 853 ------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3) Realized net gain on investments ......................... 42 Unrealized appreciation in value of investments during the period ....................................... 1,161 ------ Net gain on investments ............................... 1,203 ------ Net increase in net assets resulting from operations . $2,056 ====== *Not shown due to rounding. See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS MUNICIPAL BOND FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income ................. $ 853 $ 944 Realized net gain (loss) on investments 42 (270) Unrealized appreciation ............... 1,161 509 ------- ------- Net increase in net assets resulting from operations .......... 2,056 1,183 ------- ------- Distributions to shareholders from net investment income (Note 1E):(1) Class A ............................... (99) (70) Class B ............................... (13) (2) Class C ............................... (727) (872) Class Y ............................... ---* ---* ------- ------- (839) (944) ------- ------- Capital share transactions (Note 5) .... 119 (748) ------- ------- Total increase (decrease) ............. 1,336 (509) NET ASSETS Beginning of period .................... 26,509 27,018 ------- ------- End of period .......................... $27,845 $26,509 ======= ======= Undistributed net investment income ... $ 14 $ --- ======= ======= *Not shown due to rounding. (1) See "Financial Highlights" on pages 161 - 164. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 9-15-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.61 $10.52 $10.33 ------ ------ ------ Income from investment operations: Net investment income .......... 0.42 0.47 0.26 Net realized and unrealized gain on investments .. 0.49 0.09 0.19 ------ ------ ------ Total from investment operations ....... 0.91 0.56 0.45 ------ ------ ------ Less distributions: Declared from net investment income (0.42) (0.47) (0.26) From capital gains (0.00) (0.00) (0.00) ------ ------ ------ Total distributions (0.42) (0.47) (0.26) ------ ------ ------ Net asset value, end of period .... $11.10 $10.61 $10.52 ====== ====== ====== Total return(2) .... 8.71% 5.38% 4.32% Net assets, end of period (in millions) $3 $2 $1 Ratio of expenses to average net assets ........... 1.15% 1.17% 1.21%(3) Ratio of net investment income to average net assets ....... 3.79% 4.37% 4.69%(3) Portfolio turnover rate 40.03% 36.41% 34.78%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 8-8-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.61 $10.52 $10.26 ------ ------ ------ Income from investment operations: Net investment income .......... 0.33 0.32 0.22 Net realized and unrealized gain on investments .. 0.49 0.09 0.26 ------ ------ ------ Total from investment operations ....... 0.82 0.41 0.48 ------ ------ ------ Less distributions: Declared from net investment income (0.33) (0.32) (0.22) From capital gains (0.00) (0.00) (0.00) ------ ------ ------ Total distributions (0.33) (0.32) (0.22) ------ ------ ------ Net asset value, end of period .... $11.10 $10.61 $10.52 ====== ====== ====== Total return ....... 7.81% 3.97% 4.66% Net assets, end of period (000 omitted) $532 $120 $37 Ratio of expenses to average net assets 1.96% 2.44% 2.82%(2) Ratio of net investment income to average net assets ....... 2.98% 3.09% 3.11%(2) Portfolio turnover rate 40.03% 36.41% 34.78%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $10.61 $10.52 $10.11 $11.24 $11.45 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.32 0.37 0.40 0.42 0.42 Net realized and unrealized gain (loss) on investments ..... 0.49 0.09 0.41 (1.11) 0.10 ------ ------ ------ ------ ------ Total from investment operations ....... 0.81 0.46 0.81 (0.69) 0.52 ------ ------ ------ ------ ------ Less distributions: Declared from net investment income (0.32) (0.37) (0.40) (0.42) (0.42) From capital gains (0.00) (0.00) (0.00) (0.02) (0.31) ------ ------ ------ ------ ------ Total distributions (0.32) (0.37) (0.40) (0.44) (0.73) ------ ------ ------ ------ ------ Net asset value, end of period .... $11.10 $10.61 $10.52 $10.11 $11.24 ====== ====== ====== ====== ====== Total return ....... 7.75% 4.40% 8.22% -6.21% 4.64% Net assets, end of period (in millions) ........ $25 $24 $26 $28 $43 Ratio of expenses to average net assets 2.03% 2.13% 2.13% 1.98% 1.88% Ratio of net investment income to average net assets ....... 2.95% 3.44% 3.94% 3.94% 3.68% Portfolio turnover rate ............. 40.03% 36.41% 34.78% 16.95% 41.53% (1) See Note 5. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS MUNICIPAL BOND FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the period For the fiscal from year ended March 31, 12-30-98(1) --------------------------- to 2003 2002 2001 2000 3-31-99 ---- ---- ---- ---- ------- Net asset value, beginning of period ........... $10.61 $10.52 $10.11 $11.24 $11.58 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income .......... 0.40 0.44 0.47 0.48 0.13 Net realized and unrealized gain (loss) on investments ..... 0.49 0.09 0.41 (1.11) (0.03) ------ ------ ------ ------ ------ Total from investment operations ....... 0.89 0.53 0.88 (0.63) 0.10 ------ ------ ------ ------ ------ Less distributions: Declared from net investment income (0.40) (0.44) (0.47) (0.48) (0.13) From capital gains (0.00) (0.00) (0.00) (0.02) (0.31) ------ ------ ------ ------ ------ Total distributions (0.40) (0.44) (0.47) (0.50) (0.44) ------ ------ ------ ------ ------ Net asset value, end of period .... $11.10 $10.61 $10.52 $10.11 $11.24 ====== ====== ====== ====== ====== Total return ....... 8.52% 5.10% 9.04% -5.69% 0.80% Net assets, end of period (000 omitted) .... $4 $2 $2 $2 $2 Ratio of expenses to average net assets 1.33% 1.44% 1.47% 1.40% 1.00%(2) Ratio of net investment income to average net assets ........... 3.64% 4.09% 4.61% 4.52% 4.40%(2) Portfolio turnover rate 40.03% 36.41% 34.78% 16.95% 41.53%(3) (1) Recommencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 1999. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Zachary H. Shafran, portfolio manager of W&R Funds, Inc. - Science and Technology Fund This report relates to the operation of W&R Funds, Inc. -- Science and Technology Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? The Fund did relatively well, as it outperformed its benchmark index during the fiscal year. Even so, given the very challenging environment for the technology sector, it had a negative return for the year. The Class C shares of the Fund declined 22.76 percent for the fiscal year, compared with the Goldman Sachs Technology Industry Composite Index (reflecting the performance of securities that generally represent the technology sector of the stock market), which declined 35.90 percent for the year, and the Lipper Science & Technology Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 38.20 percent for the year. What helped the Fund outperform its benchmark index during the fiscal year? We feel that we were able to outperform our benchmark due primarily, we believe, to our relative underweight position in technology and a higher than normal cash reserve. Our generally defensive and diversified approach throughout the year proved to be beneficial. What other market conditions or events influenced the Fund's performance during the fiscal year? The global economy remained soft throughout the fiscal year, yet that softness was cushioned by strong domestic consumer confidence. Rising geopolitical tensions spread beyond the war in Iraq, including the general strike in Venezuela, growing anti-American sentiment in both North and South Korea and the increased threat of terrorist attacks around the globe. Information-technology (IT) spending by corporations was under pressure for most of the period, and consumer-related spending began to slow late in 2002. What strategies and techniques did you employ that specifically affected the Fund's performance? The Fund remained well diversified, and we were largely successful in avoiding the wrong areas during the year. Our underweight position in technology worked out well despite the late-year (2002) rally. We were overweight in health care, which also was relatively helpful to overall performance. Higher than normal cash reserves allowed us to be both defensive and opportunistic. What industries did you emphasize during the fiscal year, and what looks attractive to you going forward? Consistent with our mandate, we continued to focus on science and technology holdings during the fiscal year. However, we continue to take a broader view in two ways. We are looking more globally for opportunities and for industries that we feel are benefiting from advances in science and technology. A good example of this would be the energy sector, particularly natural gas in North America. We believe that supply will remain tight and that a key to new exploration and production efforts will be new technology. Science, particularly health care, likely will remain a focus within the Fund, as we feel that the opportunities to practice better medicine and address unmet clinical needs have never been greater. Overall, we continue to look for companies that we feel are well positioned to prosper in an ever-changing environment. Respectfully, Zachary H. Shafran Manager W&R Science and Technology Fund Comparison of Change in Value of $10,000 Investment Goldman Lipper Sachs Science & W&RTechnology Technology Science and Industry Funds Technology Fund,Composite Universe Class C Shares Index Average ------------------------------- 07-31-97 10,000 10,000 10,000 03-31-98 12,010 10,550 10,982 03-31-99 17,450 16,689 16,710 03-31-00 45,325 32,935 39,376 03-31-01 23,802 12,805 15,341 03-31-02 24,015 11,704 13,677 03-31-03 18,549 7,502 8,452 ===== W&R Science and Technology Fund, Class C Shares (1) - $18,549 ...... Goldman Sachs Technology Industry Composite Index - $7,502 ***** Lipper Science & Technology Funds Universe Average - $8,452 (1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 -26.58% -26.07% -22.76% -21.74% 5-year period ended 3-31-03 --- --- 9.08% --- Since inception of Class through 3-31-03(4) -21.91% -21.66% 11.52% 10.01% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)7-3-00 for Class A and Class B shares, 7-31-97 for Class C shares and 6-9-98 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND - ------------------------------------------------------------------------ Science and Technology Fund GOAL To seek long-term capital growth. Strategy Invests primarily in the equity securities of United States and foreign science and technology companies. Science and technology companies have products, processes or services that are being or are expected to be significantly benefited by the use or commercial application of scientific or technological developments or discoveries. As well, the Fund may invest in companies that utilize science and/or technology to improve their existing business even though the business is not within the science and technology industries. Founded 1997 Scheduled Dividend Frequency Annually (December) Performance Summary -- Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ------------------------------------------- Net asset value on 3-31-03 $13.88 3-31-02 17.97 ------ Change per share $(4.09) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND - ------------------------------------------------------------------------ Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- --------- 1-year period ended 3-31-03 -26.58% -22.10% -26.07% -22.99% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -21.91% -20.21% -21.66% -21.01% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-3-00 for Class A shares and Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ ---------- ---------- 1-year period ended 3-31-03 -22.76% -21.74% 5-year period ended 3-31-03 9.08% --- 10-year period ended 3-31-03 --- --- Since inception of Class (D) 11.52% 10.01% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 7-31-97 for Class C shares and 6-9-98 for Class Y shares (the date on which shares were first acquired by shareholders). Investing in companies involved in one specified sector may involve a greater degree of risk than an investment with greater diversification. SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND - ------------------------------------------------------------------------ Portfolio Highlights On March 31, 2003, Science and Technology Fund had net assets totaling $91,734,064 invested in a diversified portfolio of: 68.07% Common Stocks 31.93% Cash and Cash Equivalents and Options As a shareholder of Science and Technology Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $31.93 Cash and Cash Equivalents and Options 29.28 Health Care Stocks 11.54 Technology Stocks 10.24 Energy Stocks 5.97 Miscellaneous Stocks 5.62 Raw Materials Stocks 2.99 Business Equipment and Services Stocks 2.43 Utilities Stocks THE INVESTMENTS OF SCIENCE AND TECHNOLOGY FUND March 31, 2003 Shares Value COMMON STOCKS Aircraft - 3.80% Northrop Grumman Corporation ........... 31,200 $ 2,676,960 Raytheon Company ....................... 28,500 808,545 ------------ 3,485,505 ------------ Broadcasting - 0.03% Adelphia Communications Corporation, Class A* .............................. 167,000 27,555 ------------ Business Equipment and Services - 1.82% Edison Schools Inc.* ................... 182,000 165,620 Euronet Worldwide, Inc.* ............... 120,800 967,004 RSA Security Inc.* ..................... 76,100 540,310 ------------ 1,672,934 ------------ Capital Equipment - 0.73% Cooper Cameron Corporation* ............ 13,600 673,336 ------------ Chemicals -- Specialty - 2.43% Pall Corporation ....................... 111,500 2,230,000 ------------ Communications Equipment - 0.30% ADC Telecommunications, Inc.* .......... 136,300 280,097 ----------- Computers -- Main and Mini - 0.30% Cray Inc.* ............................. 41,517 274,843 ----------- Computers -- Peripherals - 5.03% Oracle Corporation* .................... 39,200 424,732 Palm, Inc.* ............................ 28,400 282,438 PeopleSoft, Inc. (A)* .................. 103,200 1,581,540 Symbol Technologies, Inc. .............. 270,575 2,329,651 ----------- 4,618,361 ----------- Consumer Electronics - 0.88% Sony Corporation, ADR .................. 23,000 807,990 ----------- Electronic Components - 2.11% Agere Systems Inc., Class A* ........... 385,500 616,800 IXYS Corporation* ...................... 58,380 301,241 United Microelectronics Corporation* ... 336,910 1,014,099 ----------- 1,932,140 ----------- Health Care -- Drugs - 14.99% Abbott Laboratories .................... 9,400 353,534 Alcon, Inc.* ........................... 71,600 2,937,032 Amylin Pharmaceuticals, Inc.* .......... 14,300 230,444 Biogen, Inc. (A)* ...................... 46,600 1,395,670 Forest Laboratories, Inc.* ............. 39,000 2,104,830 Genzyme Corporation - General Division (A)* ............... 72,800 2,652,104 Incyte Corporation* .................... 45,000 134,775 IVAX Corporation* ...................... 104,600 1,281,350 Pfizer Inc. ............................ 62,900 1,959,964 SICOR Inc.* ............................ 41,945 701,111 ------------ 13,750,814 ------------ Hospital Supply and Management - 14.29% Anthem, Inc.* .......................... 36,900 2,444,625 Cerner Corporation* .................... 26,000 840,710 HCA Inc. (A) ........................... 114,500 4,735,720 Province Healthcare Company* ........... 222,500 1,969,125 United Surgical Partners International, Inc.* ................................. 11,673 215,892 UnitedHealth Group Incorporated ........ 23,400 2,145,078 VCA Antech, Inc.* ...................... 48,700 757,041 ------------ 13,108,191 ------------ Mining - 2.80% Newmont Mining Corporation ............. 98,200 2,567,930 ----------- Multiple Industry - 2.17% Garmin Ltd. (A)* ....................... 41,600 1,489,488 Research In Motion Limited* ............ 38,400 501,312 ----------- 1,990,800 ------------ Petroleum -- Domestic - 8.94% Apache Corporation* .................... 30,713 1,896,190 Burlington Resources Inc. .............. 35,809 1,708,447 ConocoPhillips ......................... 14,400 771,840 Newfield Exploration Company* .......... 28,600 969,254 Noble Energy, Inc. ..................... 50,800 1,741,932 Unocal Corporation ..................... 42,200 1,110,282 ------------ 8,197,945 ------------ Petroleum -- Services - 1.30% Baker Hughes Incorporated .............. 39,700 1,188,221 ------------ Publishing - 2.16% Getty Images, Inc.* .................... 72,000 1,977,120 ------------ Steel - 0.39% Lone Star Technologies, Inc.* .......... 17,100 361,152 ------------ Timesharing and Software - 1.17% Alliance Data Systems Corporation* ...... 27,200 462,400 Manhattan Associates, Inc. (A)* ........ 10,633 186,556 Micromuse Inc.* ........................ 81,100 422,125 ------------ 1,071,081 ------------ Utilities -- Telephone - 2.43% Vodafone Group Plc, ADR ................ 122,300 2,228,306 ------------ TOTAL COMMON STOCKS - 68.07% $62,444,321 (Cost: $81,442,166) Number of Contracts PUT OPTIONS - 0.14% Garmin Ltd., May 27.5 Expires 5-17-03 ....................... 138 2,629 Garmin Ltd., May 27.5 Expires 5-24-03 ....................... 92 1,840 Garmin Ltd., May 27.5 Expires 5-31-03 ....................... 93 2,232 Sox Index, April 280, Expires 4-19-03 ....................... 36 22,680 Sox Index, April 290 Expires 4-19-03 ....................... 93 102,300 ----------- $ 131,681 ----------- (Cost: $318,890) Principal Amount in Thousands SHORT-TERM SECURITIES Beverages - 3.27% Diageo Capital plc, 1.25%, 4-15-03 ........................ $3,000 2,998,542 ------------ Chemicals -- Petroleum and Inorganic - 4.25% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. 3,894 3,894,000 ------------ Chemicals -- Specialty - 1.74% Air Products and Chemicals, Inc., 1.36%, 4-1-03 ......................... 1,597 1,597,000 ------------ Containers - 1.77% Bemis Company, Inc., 1.25%, 4-7-03 ......................... 1,628 1,627,661 ------------ Finance Companies - 1.63% Caterpillar Financial Services Corp., 1.22%, 4-7-03 ......................... 1,500 1,499,695 ------------ Food and Related - 7.84% General Mills, Inc., 1.45880%, Master Note ................. 4,189 4,189,000 Sara Lee Corporation, 1.35%, 4-16-03 ........................ 3,000 2,998,312 ------------ 7,187,312 ------------ Forest and Paper Products - 2.18% Sonoco Products Co., 1.44%, 4-1-03 ......................... 2,000 2,000,000 ------------ Household -- General Products - 6.04% Colgate-Palmolive Company, 1.22%, 5-1-03 ......................... 2,550 2,547,408 Procter & Gamble Company (The), 1.2%, 4-24-03 ......................... 3,000 2,997,700 ------------ 5,545,108 ------------ Retail -- General Merchandise - 2.40% May Department Stores Co., 1.27%, 4-22-03 ........................ 2,200 2,198,370 ----------- TOTAL SHORT-TERM SECURITIES - 31.12% $28,547,688 (Cost: $28,547,688) TOTAL INVESTMENT SECURITIES - 99.33% $91,123,690 (Cost: $110,308,744) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.67% 610,374 NET ASSETS - 100.00% $91,734,064 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Securities serve as cover for the following written call options outstanding at March 31, 2003. (See Note 6 to financial statements): Contracts Underlying Subject Expiration Month/Premium Market Security to Call Exercise Price Received Value ---------- ------------------------ -------- -------- Biogen, Inc.: 402 April/40 $ 75,875 $ 2,010 25 April/42.5 3,550 --- Garmin Ltd.: 138 May/37.5 8,878 16,043 92 May/37.5 5,428 10,580 93 May/37.5 6,603 13,299 Genzyme Corporation - General Division 728 April/35 80,080 183,456 Manhattan Associates, Inc. 106 June/25 11,464 3,880 PeopleSoft, Inc.: 233 April/25 23,999 24 472 April/22.5 68,457 2,360 Sox Index: 36 April/280 88,092 85,320 93 April/290 219,654 181,350 ------------------ $592,080 $498,322 ================== In addition to the above written call options, the following written put options were outstanding as of March 31, 2003. (See Note 6 to financial statements): Contracts Underlying Subject Expiration Month/Premium Market Security to Put Exercise Price Received Value ---------- ------------------------ -------- -------- Genzyme Corporation - General Division 728 April/25 $77,168 $7,280 ======= ====== See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SCIENCE AND TECHNOLOGY FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (cost - $110,309) (Notes 1 and 3) ......................................... $91,124 Cash ..................................................... 1 Receivables: Investment securities sold .............................. 1,584 Fund shares sold ........................................ 73 Dividends and interest .................................. 17 Prepaid insurance premium ................................. 1 ------- Total assets .......................................... 92,800 ------- LIABILITIES Outstanding written options at market (Note 6) ........... 506 Payable to Fund shareholders ............................. 474 Accrued shareholder servicing (Note 2) ................... 61 Accrued accounting services fee (Note 2) ................. 3 Accrued distribution fee (Note 2) ........................ 2 Accrued management fee (Note 2) .......................... 2 Accrued service fee (Note 2) .............................. 1 Other .................................................... 17 ------- Total liabilities ..................................... 1,066 ------- Total net assets ..................................... $91,734 ======= NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 66 Additional paid-in capital............................... 148,963 Accumulated undistributed income (loss): Accumulated undistributed net investment loss ........... (3) Accumulated undistributed net realized loss on investment transactions ............................ (38,271) Net unrealized depreciation in value of purchased options (187) Net unrealized appreciation in value of written options . 164 Net unrealized depreciation in value of securities ...... (18,998) -------- Net assets applicable to outstanding units of capital ........................................... $ 91,734 Net asset value per share (net assets divided by ======== shares outstanding): Class A .................................................. $14.17 Class B .................................................. $13.77 Class C .................................................. $13.88 Class Y .................................................. $14.51 Capital shares outstanding: Class A .................................................. 1,010 Class B .................................................. 287 Class C .................................................. 5,063 Class Y .................................................. 221 Capital shares authorized .................................. 400,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS SCIENCE AND TECHNOLOGY FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization ............................... $ 515 Dividends (net of foreign withholding taxes of $14) ..... 390 -------- Total income .......................................... 905 Expenses (Note 2): -------- Investment management fee ............................... 856 Distribution fee: Class A ............................................... 3 Class B ............................................... 29 Class C ............................................... 618 Class Y ............................................... 7 Shareholder servicing: Class A ............................................... 63 Class B ............................................... 38 Class C ............................................... 537 Class Y ............................................... 5 Service fee: Class A ............................................... 27 Class B ............................................... 10 Class C ............................................... 206 Accounting services fee ................................. 39 Custodian fees .......................................... 26 Audit fees .............................................. 13 Legal fees .............................................. 1 Other ................................................... 88 -------- Total expenses ........................................ 2,566 -------- Net investment loss .................................. (1,661) REALIZED AND UNREALIZED GAIN (LOSS) -------- ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities .......................... (15,491) Realized net gain on written options ..................... 857 Realized net loss on purchased options ................... (220) Realized net loss from foreign currency transactions ..... (12) -------- Realized net loss on investments ........................ (14,866) Unrealized depreciation in value of securities -------- during the period ....................................... (12,355) Unrealized appreciation in value of written options during the period ............................... 156 Unrealized depreciation in value of purchased options during the period ............................... (187) -------- Unrealized depreciation in value of investments during the period ..................................... (12,386) -------- Net loss on investments ............................... (27,252) Net decrease in net assets resulting -------- from operations .................................... $(28,913) ======== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS SCIENCE AND TECHNOLOGY FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- DECREASE IN NET ASSETS Operations: Net investment loss ................... $(1,661) $ (1,922) Realized net loss on investments ......................... (14,866) (22,049) Unrealized appreciation (depreciation) (12,386) 25,014 -------- -------- Net increase (decrease) in net assets resulting from operations .......... (28,913) 1,043 -------- -------- Distributions to shareholders from realized gains on investment transactions (Note 1E):(1) Class A ............................... --- (12) Class B ............................... --- (4) Class C ............................... --- (134) Class Y ............................... --- (3) -------- -------- --- (153) -------- -------- Capital share transactions (Note 5) .... (10,197) (14,291) -------- -------- Total decrease......................... (39,110) (13,401) NET ASSETS Beginning of period .................... 130,844 144,245 -------- -------- End of period .......................... $ 91,734 $130,844 ======== ======== Undistributed net investment loss ...... $ (3) $ (2) ======== ======== (1) See "Financial Highlights" on pages 179 - 182. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $18.19 $17.93 $34.91 ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) ... (0.32) (0.45) 0.02 Net realized and unrealized gain (loss) on investments .. (3.70) 0.73 (9.35) ------ ------ ------ Total from investment operations ....... (4.02) 0.28 (9.33) ------ ------ ------ Less distribution from capital gains (0.00) (0.02) (7.65) ------ ------ ------ Net asset value, end of period .... $14.17 $18.19 $17.93 ====== ====== ====== Total return(2) .... -22.10% 1.56% -31.95% Net assets, end of period (in millions) $14 $12 $6 Ratio of expenses to average net assets 1.79% 1.75% 1.70%(3) Ratio of net investment income (loss) to average net assets ....... -0.92% -0.76% 0.26%(3) Portfolio turnover rate ............. 74.48% 90.92% 111.25%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $17.88 $17.80 $34.91 ------ ------ ------ Income (loss) from investment operations: Net investment loss (0.34) (0.38) (0.06) Net realized and unrealized gain (loss) on investments .. (3.77) 0.48 (9.40) ------ ------ ------ Total from investment operations ....... (4.11) 0.10 (9.46) ------ ------ ------ Less distribution from capital gains (0.00) (0.02) (7.65) ------ ------ ------ Net asset value, end of period .... $13.77 $17.88 $17.80 ====== ====== ====== Total return ....... -22.99% 0.56% -32.37% Net assets, end of period (in millions) $4 $4 $3 Ratio of expenses to average net assets 3.00% 2.75% 2.53%(2) Ratio of net investment loss to average net assets ....... -2.12% -1.73% -0.55%(2) Portfolio turnover rate ............. 74.48% 90.92% 111.25%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class C Shares (1) For a Share of Capital Stock Outstanding Throughout Each Period: For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period $17.97 $17.83 $45.03 $17.45 $12.01 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment loss ............ (0.25) (0.24) (0.12) (0.95) (0.09) Net realized and unrealized gain (loss) on investments .. (3.84) 0.40 (19.43) 28.77 5.53 ------ ------ ------ ------ ------ Total from investment operations ....... (4.09) 0.16 (19.55) 27.82 5.44 ------ ------ ------ ------ ------ Less distribution from capital gains .... (0.00) (0.02) (7.65) (0.24) (0.00) ------ ------ ------ ------ ------ Net asset value, end of period .... $13.88 $17.97 $17.83 $45.03 $17.45 ====== ====== ====== ====== ====== Total return ....... -22.76% 0.89% -47.49%159.75% 45.30% Net assets, end of period (in millions) $70 $112 $134 $283 $44 Ratio of expenses to average net assets 2.67% 2.45% 2.27% 2.20% 2.57% Ratio of net investment loss to average net assets ....... -1.77% -1.40% -0.44% -1.68% -1.26% Portfolio turnover rate ............. 74.48% 90.92% 111.25% 44.19% 51.00% (1) See Note 5. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SCIENCE AND TECHNOLOGY FUND Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the period For the fiscal from year ended March 31, 6-9-98(1) ----------------------------- to 2003 2002 2001 2000 3-31-99 -------------- -------------- ------ Net asset value, beginning of period $18.54 $18.21 $45.36 $17.65 $12.20 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) ... (0.26) (0.51) (0.01) (6.09) 0.01 Net realized and unrealized gain (loss) on investments .. (3.77) 0.86 (19.49) 34.04 5.44 ------ ------ ------ ------ ------ Total from investment operations ....... (4.03) 0.35 (19.50) 27.95 5.45 ------ ------ ------ ------ ------ Less distribution from capital gains .... (0.00) (0.02) (7.65) (0.24) (0.00) ------ ------ ------ ------ ------ Net asset value, end of period .... $14.51 $18.54 $18.21 $45.36 $17.65 ====== ====== ====== ====== ====== Total return ....... -21.74% 1.92% -47.00%158.67% 44.67% Net assets, end of period (000 omitted) $3,198 $3,035 $1,466 $2,108 $53 Ratio of expenses to average net assets 1.41% 1.39% 1.35% 1.36% 0.62%(2) Ratio of net investment income (loss) to average net assets -0.53% -0.43% 0.47% -0.96% 0.54%(2) Portfolio turnover rate ............. 74.48% 90.92% 111.25% 44.19% 51.00%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 1999. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Grant P. Sarris, portfolio manager of W&R Funds, Inc. - Small Cap Growth Fund This report relates to the operation of W&R Funds, Inc. -- Small Cap Growth Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? In a difficult environment for equities, the Fund showed a negative return for the fiscal year. However, the Fund significantly outperformed its benchmark index. The Class C shares of the Fund decreased 22.70 percent for the fiscal year, compared with the Russell 2000 Growth Index (reflecting the performance of securities that generally represent the small companies sector of the stock market), which decreased 31.62 percent for the year, and the Lipper Small-Cap Growth Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which decreased 30.88 percent for the same period. What helped the Fund outperform its benchmark index during the fiscal year? We believe that the Fund did better than the index primarily through individual stock selection. Although we had less of an emphasis on technology and producer durables than the benchmark did, and this helped performance a small amount, on the whole sector weightings had minimal impact on the Fund's relative performance. What other market conditions or events influenced the Fund's performance during the fiscal year? Obviously, this past fiscal year was a challenging year for equity returns, and particularly for those of small-cap growth equities. Economic growth continued to be weak, with no strong recovery in sight. In this environment, we took a somewhat conservative approach, which helped relative performance. What strategies and techniques did you employ that affected performance during the fiscal year? In keeping with our conservative approach, we emphasized companies with solid balance sheets and consistent, albeit slower, growth prospects. Cash levels were kept in the mid-teens as a percentage of the Fund for most of the year. However, due to the timing of money flows in and out of the Fund, cash levels had almost no impact on the Fund's performance. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? The Fund was slightly overweight in health care, energy, and consumer discretionary shares throughout the past year. Producer durables, technology, and financials were underemphasized versus the benchmark. Although the magnitude of these relative weightings was very small, they resulted in a more balanced portfolio than in the recent past. At present, we would expect the above relative weightings to continue until a clear leading sector can be identified. We feel this will be more likely when there is greater visibility of an economic recovery. Going forward, we believe that individual stock selection will be of utmost importance in this sideways market. Our focus continues to be on companies that we feel have the financial wherewithal to weather the current storm, while having strong potential to grow when the economy turns around. Respectfully, Grant P. Sarris Manager W&R Small Cap Growth Fund Comparison of Change in Value of $10,000 Investment W&R Lipper Small Cap Small-Cap Growth Russell Growth Fund, 2000 Funds Class C Growth Universe Shares Index Average ------- ----------- -------- 03-31-93 10,000 10,000 10,000 03-31-94 12,316 11,076 11,329 03-31-95 15,101 11,859 12,394 03-31-96 19,113 15,559 17,043 03-31-97 17,016 14,651 16,983 03-31-98 28,139 20,687 24,967 03-31-99 34,219 18,396 23,348 03-31-00 59,330 29,248 44,795 03-31-01 38,463 17,624 28,664 03-31-02 42,810 18,509 30,577 03-31-03 33,091 12,656 21,134 ===== W&R Small Cap Growth Fund, Class C Shares (1) -- $33,091 ...... Russell 2000 Growth Index -- $12,656 - ----- Lipper Small-Cap Growth Funds Universe Average -- $21,134 (1) The value of the investment in the Fund is impacted by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C(3) Class Y --------------------------------------------- 1-year period ended 3-31-03 -26.58% -26.06% -22.70% -21.95% 5-year period ended 3-31-03 --- --- 3.30% 4.20% 10-year period ended 3-31-03 --- --- 12.71% --- Since inception of Class through 3-31-03(4) -17.44% -16.55% --- 9.34% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry maximum contingent deferred sales charges (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (4)7-3-00 for Class A shares, 7-6-00 for Class B shares and 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND - ----------------------------------------------------------------- Small Cap Growth Fund GOAL To seek growth of capital. Strategy Invests primarily in common stocks of United States and foreign companies whose market capitalizations are within the range of capitalizations of companies included in the Lipper, Inc. Small Cap Category. The Fund emphasizes relatively new or unseasoned companies in the early stages of development or smaller companies positioned in new or emerging industries where there is an opportunity for rapid growth. Founded 1992 Scheduled Dividend Frequency Annually (December) Performance Summary - Class C Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ------------------------------------------- Net asset value on 3-31-03 $ 8.07 3-31-02 10.44 ------ Change per share $(2.37) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -26.58% -22.10% -26.06% -22.98% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -17.44% -15.64% -16.55% -15.93% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 7-3-00 for Class A shares and 7-6-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) Class Y(C) - ------ ---------- ---------- 1-year period ended 3-31-03 -22.70% -21.95% 5-year period ended 3-31-03 3.30% 4.20% 10-year period ended 3-31-03 12.71% --- Since inception of Class(D) --- 9.34% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data from 3-24-00 represents the actual performance of Class C shares. Performance data prior to 3-24-00 represents the performance of the Fund's original Class B shares. The original Class B shares were combined with Class C shares effective 3-24-00, and redesignated as Class C shares. The original Class B's performance has been adjusted to reflect the current contingent deferred sales charge (CDSC) structure applicable to Class C (1.00% maximum and declining to zero at the end of the first year after investment). Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. New Class B shares, with fees and expenses different from the original Class B shares, were added to the Fund on 6-30-00. (C) Performance data does not include the effect of sales charges, as Class Y shares are not subject to these charges. (D) 12-29-95 for Class Y shares (the date on which shares were first acquired by shareholders). Investing in small cap stocks may carry more risk than investing in stocks of larger, more well-established companies. SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Small Cap Growth Fund had net assets totaling $342,405,986 invested in a diversified portfolio of: 82.24% Common Stocks 17.76% Cash and Cash Equivalents As a shareholder of Small Cap Growth Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $20.86 Business Equipment and Services Stocks 21.21 Health Care Stocks 17.76 Cash and Cash Equivalents 11.88 Technology Stocks 6.08 Energy Stocks 5.32 Miscellaneous Stocks 3.77 Consumer Nondurables Stocks 3.20 Consumer Durables Stocks 2.78 Financial Services Stocks 2.65 Retail Stocks 2.58 Raw Materials Stocks 1.91 Transportation Stocks THE INVESTMENTS OF SMALL CAP GROWTH FUND March 31, 2003 Shares Value COMMON STOCKS Business Equipment and Services - 15.52% Acxiom Corporation* .................... 715,200 $ 12,029,664 Catalina Marketing Corporation* ........ 219,500 4,220,985 CheckFree Corporation* ................. 538,994 12,108,500 ITT Educational Services, Inc.* ........ 246,500 6,902,000 MSC Industrial Direct Co., Inc., Class A* ........................ 693,800 11,093,862 MAXIMUS, Inc.* ......................... 290,500 6,164,410 MemberWorks Incorporated* .............. 29,577 615,054 ------------ 53,134,475 ------------ Chemicals -- Specialty - 2.58% IMC Global Inc. ........................ 580,000 5,579,600 Minerals Technologies Inc. ............. 85,000 3,239,350 ------------ 8,818,950 ------------ Communications Equipment - 3.09% Advanced Fibre Communications, Inc.* ... 410,100 6,206,864 Tekelec* ............................... 504,500 4,381,582 ------------ 10,588,446 ------------ Computers -- Peripherals - 3.26% NetIQ Corporation* ..................... 267,000 2,985,060 Sanchez Computer Associates, Inc.* ..... 287,000 1,181,005 Take-Two Interactive Software, Inc.* ... 226,200 5,047,653 Transaction Systems Architects, Inc., Class A* .............................. 328,600 1,955,170 ------------ 11,168,888 ------------ Electrical Equipment - 0.46% Intermagnetics General Corp.* .......... 87,600 1,559,718 ------------ Electronic Components - 2.28% Cree, Inc.* ............................ 420,300 7,790,261 ------------ Electronic Instruments - 3.25% Lam Research Corporation* .............. 417,500 4,749,062 PerkinElmer, Inc. ...................... 422,001 3,751,589 Plexus Corp.* .......................... 287,800 2,633,370 ------------ 11,134,021 ------------ Finance Companies - 1.08% Financial Federal Corporation* ......... 194,200 3,709,220 ------------ Food and Related - 3.77% American Italian Pasta Company, Class A* .............................. 230,000 9,947,500 Smucker (J.M.) Company (The) ........... 85,000 2,972,450 ------------ 12,919,950 ------------ Health Care -- Drugs - 6.04% Affymetrix, Inc.* ...................... 199,993 5,198,818 Cell Therapeutics, Inc.* ............... 182,600 1,507,363 Charles River Laboratories International, Inc.* .................. 153,400 3,914,768 Gene Logic Inc.* ....................... 474,400 2,402,836 Sepracor Inc.* ......................... 564,700 7,640,391 ------------ 20,664,176 ------------ Health Care -- General - 11.77% Apria Healthcare Group Inc.* ........... 238,700 5,576,032 ArthroCare Corporation* ................ 320,000 3,984,000 Cholestech Corporation* ................ 97,500 792,675 IDEXX Laboratories, Inc.* .............. 145,004 5,065,715 IMPATH Inc.* ........................... 353,200 4,759,370 Omnicare, Inc. ......................... 454,700 12,372,387 Urologix, Inc.* ........................ 225,940 492,549 VISX, Incorporated* .................... 685,800 7,269,480 ------------ 40,312,208 ------------ Hospital Supply and Management - 3.40% Amsurg Corp.* .......................... 235,309 5,939,199 Cerner Corporation* .................... 176,500 5,707,127 ------------ 11,646,326 ------------ Motor Vehicle Parts - 3.20% Gentex Corporation* .................... 429,700 10,938,014 ------------ Petroleum -- Domestic - 6.08% Newfield Exploration Company* .......... 264,000 8,946,960 Patterson-UTI Energy, Inc.* ............ 170,000 5,495,250 Stone Energy Corporation* .............. 190,000 6,380,200 ------------ 20,822,410 ------------ Publishing - 2.71% Getty Images, Inc.* .................... 338,000 9,281,480 ------------ Railroad - 1.91% Kansas City Southern* .................. 583,000 6,547,090 ------------ Retail -- General Merchandise - 0.83% Tuesday Morning Corporation* ........... 144,100 2,835,167 ------------ Retail -- Specialty Stores - 1.82% O'Reilly Automotive, Inc.* ............. 230,000 6,224,950 ------------ Security and Commodity Brokers - 1.70% Chicago Mercantile Exchange Holdings Inc. 121,097 5,830,820 ------------ Timesharing and Software - 5.34% Digital Insight Corporation* ........... 525,000 7,326,375 FactSet Research Systems, Inc. ......... 338,000 10,968,100 ------------ 18,294,475 ------------ Utilities -- Telephone - 2.15% Commonwealth Telephone Enterprises, Inc.* .................... 190,000 7,364,400 ------------ TOTAL COMMON STOCKS - 82.24% $281,585,445 (Cost: $302,941,448) Principle Amount in Thousands SHORT-TERM SECURITIES Commercial Paper Aluminum - 0.87% Alcoa Incorporated, 1.25%, 4-10-03 ........................ $ 3,000 2,999,062 ------------ Beverages - 0.44% Coca-Cola Company (The), 1.18%, 4-15-03 ........................ 1,500 1,499,312 ------------ Chemicals - Petroleum and Inorganic - 1.69% du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. 5,776 5,776,000 ------------ Containers - 1.26% Bemis Company, Inc., 1.25%, 4-3-03 ......................... 4,318 4,317,700 ------------ Cosmetics and Toiletries - 0.64% Gillette Company (The), 1.34%, 4-1-03 ......................... 2,208 2,208,000 ------------ Electrical Equipment - 1.46% Emerson Electric Co., 1.23%, 4-11-03 ........................ 5,000 4,998,292 ------------ Food and Related - 0.11% General Mills, Inc., 1.45880%, Master Note ................. 393 393,000 ------------ Forest and Paper Products - 0.48% Sonoco Products Co., 1.44%, 4-1-03 ......................... 1,644 1,644,000 ------------ Health Care -- Drugs - 1.46% Merck & Co., Inc., 1.2%, 5-23-03 ......................... 3,000 2,994,800 Pfizer Inc., 1.25%, 4-9-03 ......................... 2,000 1,999,444 ------------ 4,994,244 ------------ Household -- General Products - 0.99% Kimberly-Clark Worldwide Inc., 1.24%, 4-14-03 ........................ 3,393 3,391,481 ------------ Restaurants - 5.26% McDonald's Corporation: 1.23%, 4-1-03 ......................... 8,010 8,010,000 1.21%, 4-3-03 ......................... 10,000 9,999,328 ------------ 18,009,328 ------------ Utilities -- Electric - 0.66% Progress Energy Carolinas, Inc., 1.35%, 4-23-03 ........................ 2,250 2,248,144 ------------ Total Commercial Paper - 15.32% 52,478,563 United States Government Securities - 2.33% United States Treasury Bills: 1.24%, 5-8-03 ......................... 4,000 3,994,923 1.04%, 8-7-03 ......................... 4,000 3,985,209 ------------ 7,980,132 ------------ TOTAL SHORT-TERM SECURITIES - 17.65% $ 60,458,695 (Cost: $60,458,695) TOTAL INVESTMENT SECURITIES - 99.89% $342,044,140 (Cost: $363,400,143) CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.11% 361,846 NET ASSETS - 100.00% $342,405,986 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES SMALL CAP GROWTH FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities--at value (cost - $363,400) (Notes 1 and 3) ......................................... $342,044 Receivables: Investment securities sold .............................. 1,694 Fund shares sold ........................................ 380 Dividends and interest .................................. 6 Prepaid insurance premium ................................ 3 -------- Total assets .......................................... 344,127 -------- LIABILITIES Payable to Fund shareholders ............................. 1,535 Accrued shareholder servicing (Note 2) ................... 122 Accrued management fee (Note 2) .......................... 8 Accrued distribution fee (Note 2) ........................ 6 Accrued accounting services fee (Note 2) ................. 5 Accrued service fee (Note 2) ............................. 2 Other .................................................... 43 -------- Total liabilities ..................................... 1,721 -------- Total net assets ..................................... $342,406 ======== NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 419 Additional paid-in capital .............................. 468,847 Accumulated undistributed loss: Accumulated undistributed net investment loss ........... (9) Accumulated undistributed net realized loss on investment transactions ............................... (105,495) Net unrealized depreciation in value of investments ..... (21,356) -------- Net assets applicable to outstanding units of capital ........................................... $342,406 ======== Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $8.25 Class B .................................................. $8.01 Class C .................................................. $8.07 Class Y .................................................. $8.89 Capital shares outstanding: Class A .................................................. 2,440 Class B .................................................. 870 Class C .................................................. 33,834 Class Y .................................................. 4,768 Capital shares authorized .................................. 400,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS SMALL CAP GROWTH FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Interest and amortization ............................... $ 837 Dividends ............................................... 381 -------- Total income .......................................... 1,218 -------- Expenses (Note 2): Investment management fee ............................... 3,163 Distribution fee: Class A ............................................... 3 Class B ............................................... 53 Class C ............................................... 2,368 Class Y ............................................... 83 Shareholder servicing: Class A ............................................... 59 Class B ............................................... 48 Class C ............................................... 1,158 Class Y ............................................... 51 Service fee: Class A ............................................... 39 Class B ............................................... 18 Class C ............................................... 789 Accounting services fee ................................. 64 Custodian fees .......................................... 27 Audit fees .............................................. 18 Legal fees .............................................. 7 Other ................................................... 210 --------- Total expenses ........................................ 8,158 --------- Net investment loss .................................. (6,940) --------- REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on investments ......................... (34,938) Unrealized depreciation in value of investments during the period ....................................... (70,595) --------- Net loss on investments ............................... (105,533) --------- Net decrease in net assets resulting from operations ......................................... $(112,473) ========= See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS SMALL CAP GROWTH FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment loss ................... $(6,940) $(8,408) Realized net loss on investments ......................... (34,938) (51,517) Unrealized appreciation (depreciation) (70,595) 111,638 -------- -------- Net increase (decrease) in net assets resulting from operations .......... (112,473) 51,713 -------- -------- Distributions to shareholders from realized gains on investment transactions (Note 1E):(1) Class A ............................... --- --- Class B ............................... --- --- Class C ............................... --- --- Class Y ............................... --- --- -------- -------- --- --- -------- -------- Capital share transactions (Note 5) .... (51,670) (34,621) -------- -------- Total increase (decrease) ............. (164,143) 17,092 NET ASSETS Beginning of period .................... 506,549 489,457 -------- -------- End of period .......................... $342,406 $506,549 ======== ======== Undistributed net investment loss ..... $ (9) $ (7) ======== ======== (1) See "Financial Highlights" on pages 196 - 199. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-3-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.59 $ 9.43 $19.64 ------ ------ ------ Income (loss) from investment operations: Net investment loss ............ (0.23) (0.59) (0.02) Net realized and unrealized gain (loss) on investments ..... (2.11) 1.75 (4.74) ------ ------ ------ Total from investment operations ....... (2.34) 1.16 (4.76) ------ ------ ------ Less distribution from capital gains (0.00) (0.00) (5.45) ------ ------ ------ Net asset value, end of period .... $ 8.25 $10.59 $ 9.43 ====== ====== ====== Total return(2) .... -22.10% 12.30% -28.30% Net assets, end of period (in millions) ........ $20 $16 $4 Ratio of expenses to average net assets 1.54% 1.39% 1.49%(3) Ratio of net investment loss to average net assets ....... -1.22% -0.93% -0.39%(3) Portfolio turnover rate ............. 30.63% 28.77% 47.85%(4) (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. (4) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-6-00(1) -------------- to 2003 2002 3-31-01 ------- ------- ------- Net asset value, beginning of period $10.40 $ 9.36 $19.26 ------ ------ ------ Income (loss) from investment operations: Net investment loss ............ (0.21) (0.26) (0.06) Net realized and unrealized gain (loss) on investments .. (2.18) 1.30 (4.39) ------ ------ ------ Total from investment operations ....... (2.39) 1.04 (4.45) ------ ------ ------ Less distribution from capital gains (0.00) (0.00) (5.45) ------ ------ ------ Net asset value, end of period .... $ 8.01 $10.40 $ 9.36 ====== ====== ====== Total return ....... -22.98% 11.11% -27.29% Net assets, end of period (in millions) ........ $7 $8 $5 Ratio of expenses to average net assets 2.64% 2.43% 2.31%(2) Ratio of net investment loss to average net assets ....... -2.31% -1.94% -1.18%(2) Portfolio turnover rate ............. 30.63% 28.77% 47.85%(3) (1) Commencement of operations of the class. (2) Annualized. (3) For the fiscal year ended March 31, 2001. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND(1) Class C Shares(2) For a Share of Capital Stock Outstanding Throughout Each Period:(3) For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $10.44 $ 9.38 $21.64 $14.74 $14.29 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment loss ............ (0.16) (0.16) (0.10) (0.18) (0.11) Net realized and unrealized gain (loss) on investments .. (2.21) 1.22 (6.71) 10.22 2.91 ------ ------ ------ ------ ------ Total from investment operations ....... (2.37) 1.06 (6.81) 10.04 2.80 ------ ------ ------ ------ ------ Less distribution from capital gains (0.00) (0.00) (5.45) (3.14) (2.35) ------ ------ ------ ------ ------ Net asset value, end of period .... $ 8.07 $10.44 $ 9.38 $21.64 $14.74 ====== ====== ====== ====== ====== Total return ....... -22.70% 11.30% -35.17% 73.38% 21.61% Net assets, end of period (in millions) ........ $273 $435 $459 $801 $425 Ratio of expenses to average net assets 2.31% 2.20% 2.12% 2.11% 2.10% Ratio of net investment loss to average net assets ....... -1.98% -1.70% -0.81% -0.90% -0.90% Portfolio turnover rate ............. 30.63% 28.77% 47.85% 82.24% 51.41% (1) Small Cap Growth Fund (formerly Growth Fund) changed its name effective June 30, 2000. (2) See Note 5. (3) Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS SMALL CAP GROWTH FUND(1) Class Y Shares For a Share of Capital Stock Outstanding Throughout Each Period:(2) For the fiscal year ended March 31, ------------------------------------- 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ Net asset value, beginning of period ........... $11.39 $10.14 $22.65 $15.21 $14.55 ------ ------ ------ ------ ------ Income (loss) from investment operations: Net investment income (loss) ... (0.11) (0.34) (0.20) (0.15) 0.00 Net realized and unrealized gain (loss) on investments .. (2.39) 1.59 (6.86) 10.73 3.01 ------ ------ ------ ------ ------ Total from investment operations ....... (2.50) 1.25 (7.06) 10.58 3.01 ------ ------ ------ ------ ------ Less distribution from capital gains (0.00) (0.00) (5.45) (3.14) (2.35) ------ ------ ------ ------ ------ Net asset value, end of period .... $ 8.89 $11.39 $10.14 $22.65 $15.21 ====== ====== ====== ====== ====== Total return ....... -21.95% 12.33% -34.67% 74.71% 22.73% Net assets, end of period (in millions) ........ $42 $48 $21 $17 $8 Ratio of expenses to average net assets 1.33% 1.31% 1.30% 1.30% 1.18% Ratio of net investment income (loss) to average net assets ....... -1.00% -0.83% -0.02% -0.09% 0.08% Portfolio turnover rate ............. 30.63% 28.77% 47.85% 82.24% 51.41% (1) Small Cap Growth Fund (formerly Growth Fund) changed its name effective June 30, 2000. (2) Per-share amounts have been adjusted retroactively to reflect the 100% stock dividend effected June 26, 1998. See Notes to Financial Statements. MANAGER'S DISCUSSION - ----------------------------------------------------------------- March 31, 2003 An interview with Barry M. Ogden, portfolio manager of W&R Funds, Inc. - Tax- Managed Equity Fund This report relates to the operation of W&R Funds, Inc. -- Tax-Managed Equity Fund for the fiscal year ended March 31, 2003. The following discussion, graphs and tables provide you with information regarding the Fund's performance during that period. How did the Fund perform during the last fiscal year? In a challenging market environment, the Fund showed a negative return for the fiscal year. However, the Fund significantly outperformed its benchmark index. For the fiscal year, the Fund's Class A shares declined 10.89 percent without the impact of sales load and, with the sales load impact, declined 16.01 percent. This compares with the S&P 500 Index (reflecting the performance of securities that generally represent the stock market), which decreased 24.76 percent during the period, and the Lipper Large-Cap Growth Funds Universe Average (generally reflecting the performance of the universe of funds with similar investment objectives), which declined 27.02 percent during the period. It should be noted that, in the comparison charts, the values for the benchmark index and the Lipper category do not reflect a sales load. In addition, please note that the Fund's performance numbers do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. What helped the Fund outperform its benchmark index during the fiscal year? We believe the Fund outperformed its benchmark index primarily due to overweight positions in the health care, biotechnology and energy sectors, relatively underweight positions in telecommunications and technology, and a relatively high cash position through the first half of the fiscal year. These factors combined to make for a successful year, relative to our peers and the S&P 500. What other market conditions or events influenced the Fund's performance during the fiscal year? The war with Iraq clearly took center stage for most investors toward the end of the fiscal year. During the past few months, the broader stock market was reacting to the ongoing developments in Iraq, with headlines of Saddam Hussein's demise pushing the markets higher and headlines of U.S. casualties or setbacks driving the markets lower. We expect that this correlation between the war and the markets likely will remain extremely high for the foreseeable future, but ultimately, we believe that the market will again focus on the underlying economic and company fundamentals, which, we believe, should determine the direction of stock prices. What strategies and techniques did you employ that specifically affected the Fund's performance? We made very few significant changes to the Fund during the fiscal year, other than gradually reducing our cash position. After starting the year with more than 25 percent cash, we reduced our cash position throughout the year and finished the fiscal year at less than 8 percent. We anticipate remaining around this level of cash, barring some unforeseen material change to our thinking on the economic outlook and the broader markets. Going forward, our strategy remains focused on investing in what we feel are high quality, growth-oriented companies. Generally, these companies are market share leaders in their industry, are highly profitable and exhibit some sustainable competitive advantage. We also target companies that show strong recurring revenue growth with operating free cash flow and a strong balance sheet. Additionally, valuation relative to future growth opportunities is taken into account and plays a key role in all investment decisions. What industries or sectors did you emphasize during the fiscal year, and what looks attractive to you going forward? We emphasized the health care, biotechnology, defense and energy sectors throughout the year and remain substantially overweight in each of these areas as of the fiscal-year end. We added to our biotechnology weighting throughout the year and recently began to reduce our exposure in the defense sector, as we see defense becoming much less visible following the resolution of the war with Iraq. We anticipate remaining overweight in the health care, biotechnology and energy sectors for the rest of 2003, while staying broadly diversified within other sectors until the economic outlook becomes more certain. Our current assessment of the economy is one of cautious optimism and we believe that the likelihood of going back into recession in the coming year is relatively low. In our view, housing remains one of the brightest components of the economy, as individuals are taking advantage of record low mortgage rates and above-trend housing price appreciation. We suspect that the strength in housing price appreciation and activity could slow in the coming year, but should still remain at relatively high levels. We remain positive about the long-term outlook for the broader markets and expect a modest economic recovery in 2003, although we feel it is likely to be slow and gradual. In our opinion, higher energy prices, weakening consumer confidence, rising unemployment rates and an overall difficult labor market are likely to dampen consumer spending over the near-term. Mortgage refinancings, a growth driver for the economy and a catalyst for increased consumer spending over the past few years, are running at unsustainably high levels and should slow throughout the year in our opinion, unless mortgage rates move significantly lower from current levels. We feel that corporate profits could potentially grow in 2003, but we suspect that they may disappoint, relative to current expectations. We believe that there will need to be an improvement in consumer confidence and job creation prior to any sustainable improvement in the broader stock markets. Unfortunately, the economy still is not creating any new jobs as a whole, and consumer confidence has weakened recently. Until both the labor markets and consumer confidence improve, we expect to maintain a high degree of diversification and adopt a slightly more defensive position, while opportunistically taking advantage of market opportunities. Respectfully, Barry M. Ogden Manager W&R Tax-Managed Equity Fund Comparison of Change in Value of $10,000 Investment W&R Lipper Tax- Large-Cap Managed Growth Equity S&P Funds Fund, 500 Universe Class A Index Average --------- --------- ---------- 06-30-00 Purchase $9,425 $10,000 $10,000 03-31-01 6,777 8,043 6,528 03-31-02 6,060 8,060 6,154 03-31-03 5,401 6,064 4,491 ===== W&R Tax-Managed Equity Fund, Class A Shares (1) -- $5,401 +++++ S&P 500 Index -- $6,064 ***** Lipper Large-Cap Growth Funds Universe Average -- $4,491 (1) The value of the investment in the Fund is impacted by the sales load at the time of the investment and by the ongoing expenses of the Fund and assumes reinvestment of dividends and distributions. Average Annual Total Return(2) Class A Class B Class C -------------------------------- 1-year period ended 3-31-03 -16.01% -15.11% -11.87% Since inception of Class through 3-31-03(3) -20.07% -20.41% -19.30% (2)Performance data quoted represents past performance and is based on deduction of the maximum applicable sales load for each of the periods. Class A shares carry a maximum front-end sales load of 5.75%. Class B and Class C shares carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%, respectively. (Accordingly, the Class C shares reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase.) Total returns reflect share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Investment return and principal value will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. (3)6-30-00 for Class A shares, 7-13-00 for Class B shares and 7-6-00 for Class C shares (the date on which shares were first acquired by shareholders). Past performance is not necessarily indicative of future performance. Indexes are unmanaged. The performance graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND - ----------------------------------------------------------------- Tax-Managed Equity Fund GOAL To seek long-term growth of capital while minimizing taxable gains and income to shareholders. Strategy Invests primarily in a diversified portfolio of common stocks issued by large to medium sized United States and foreign companies. The Fund seeks stocks that are favorably priced in relation to their fundamental value and that will likely grow over time. Founded 2000 Scheduled Dividend Frequency Annually (December) Performance Summary - Class A Shares Per Share Data For the Fiscal Year Ended March 31, 2003 - ------------------------------------------- Net asset value on 3-31-03 $5.73 3-31-02 6.43 ------ Change per share $(0.70) ====== Past performance is not necessarily indicative of future results. SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND - ----------------------------------------------------------------- Because of ongoing market volatility, the Fund's performance may be subject to substantial short-term fluctuation and current performance may be less than the results shown below. Please check the Waddell & Reed website at www.waddell.com for more current performance information. Average Annual Total Return (A) Class A Class B ----------------------- ------------------------ With Without With Without Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E) - ------ ---------- ---------- ----------- ---------- 1-year period ended 3-31-03 -16.01% -10.89% -15.11% -11.57% 5-year period ended 3-31-03 --- --- --- --- 10-year period ended 3-31-03 --- --- --- --- Since inception of Class (F) -20.07% -18.33% -20.41% -19.51% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data is based on deduction of 5.75% sales load on the initial purchase in the periods. (C) Performance data does not take into account the sales load deducted on an initial purchase. (D) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end of each of the periods. (E) Performance data does not reflect the effect of paying the applicable CDSC upon redemption at the end of each of the periods. (F) 6-30-00 for Class A shares and 7-13-00 for Class B shares (the date on which shares were first acquired by shareholders). Average Annual Total Return(A) Period Class C(B) - ------ --------- 1-year period ended 3-31-03 -11.87% 5-year period ended 3-31-03 --- 10-year period ended 3-31-03 --- Since inception of Class (C) -19.30% (A) Performance data represents share price appreciation (depreciation), including reinvestment of all income and capital gains distributions. Performance data represents past performance and is no guarantee of future results. Share price, investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. (B) Performance data reflects the effect of paying the applicable contingent deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero at the end of the first year after investment. Accordingly, these returns reflect no CDSC since it only applies to Class C shares redeemed within twelve months after purchase. (C) 7-6-00 for Class C shares (the date on which shares were first acquired by shareholders). SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND - ----------------------------------------------------------------- Portfolio Highlights On March 31, 2003, Tax-Managed Equity Fund had net assets totaling $4,464,671 invested in a diversified portfolio of: 93.30% Common Stocks 6.70% Cash and Cash Equivalents As a shareholder of Tax-Managed Equity Fund, for every $100 you had invested on March 31, 2003, your Fund owned: $31.22 Health Care Stocks 21.66 Technology Stocks 10.90 Energy Stocks 10.01 Retail Stocks 10.00 Financial Services Stocks 6.70 Cash and Cash Equivalents 5.78 Business Equipment and Services Stocks 2.59 Miscellaneous Stocks 1.14 Consumer Nondurables Stocks THE INVESTMENTS OF TAX-MANAGED EQUITY FUND March 31, 2003 Shares Value COMMON STOCKS Air Transportation - 2.06% Southwest Airlines Co. ................. 6,400 $ 91,904 ---------- Aircraft - 6.12% Lockheed Martin Corporation (A) ......... 3,400 161,670 Northrop Grumman Corporation (A) ........ 1,300 111,540 ---------- 273,210 ---------- Business Equipment and Services - 1.96% Accenture Ltd, Class A* ................ 4,000 62,000 BearingPoint, Inc.* .................... 4,000 25,480 ---------- 87,480 ---------- Communications Equipment - 2.77% Cisco Systems, Inc.* ................... 6,300 81,711 Nokia Corporation, Series A, ADR ....... 3,000 42,030 ---------- 123,741 ---------- Computers -- Micro - 3.67% Dell Computer Corporation* ............. 6,000 163,980 ---------- Computers -- Peripherals - 7.93% EMC Corporation (A)* ................... 9,000 65,070 Intuit Inc.* ........................... 900 33,439 Lexmark International, Inc.* ........... 900 60,255 Microsoft Corporation .................. 5,800 140,418 SAP Aktiengesellschaft, ADR ............ 2,900 54,984 ---------- 354,166 ---------- Electronic Components - 1.17% Intel Corporation (A) .................. 3,200 52,096 ---------- Farm Machinery - 0.53% Deere & Company ........................ 600 23,556 ---------- Health Care -- Drugs - 22.24% Abbott Laboratories .................... 1,300 48,893 Alcon, Inc.* ........................... 800 32,816 AmerisourceBergen Corporation .......... 700 36,750 Amgen Inc.* ............................ 3,200 184,272 Barr Laboratories, Inc. (A)* ........... 900 51,300 Biogen, Inc.* .......................... 2,400 71,880 Forest Laboratories, Inc.* ............. 4,000 215,880 Gilead Sciences, Inc. (A)* ............. 1,300 54,581 Pfizer Inc. ............................ 2,600 81,016 Pharmacia Corporation .................. 1,900 82,270 Teva Pharmaceutical Industries Limited, ADR .......................... 3,200 133,248 ---------- 992,906 ---------- Health Care -- General - 4.04% Johnson & Johnson ...................... 1,000 57,870 Wyeth .................................. 800 30,256 Zimmer Holdings, Inc.* ................. 1,900 92,397 ---------- 180,523 ---------- Hospital Supply and Management - 4.94% Accredo Health, Incorporated* .......... 1,000 24,340 Anthem, Inc.* .......................... 1,400 92,750 HCA Inc. ............................... 1,200 49,632 WellPoint Health Networks Inc.* ........ 700 53,725 ---------- 220,447 ---------- Insurance -- Property and Casualty - 5.40% American International Group, Inc. ..... 2,000 98,900 Berkshire Hathaway Inc., Class B* ...... 50 106,850 MGIC Investment Corporation (A) ......... 900 35,343 ---------- 241,093 ---------- Petroleum -- Canada - 1.79% Nabors Industries Ltd.* ................ 2,000 79,740 ---------- Petroleum -- Domestic - 7.78% Anadarko Petroleum Corporation ......... 1,900 86,450 Apache Corporation* .................... 1,890 116,689 Burlington Resources Inc. .............. 1,600 76,336 Patterson-UTI Energy, Inc.* ............ 2,100 67,882 ---------- 347,357 ---------- Petroleum -- International - 1.33% Exxon Mobil Corporation ................ 1,700 59,415 ---------- Retail -- General Merchandise - 7.66% Kohl's Corporation* .................... 1,300 73,554 Sears, Roebuck and Co. ................. 2,500 60,375 Wal-Mart Stores, Inc. (A) ............... 4,000 208,120 ---------- 342,049 ---------- Retail -- Specialty Stores - 2.35% Bed Bath & Beyond Inc. (A)* ............ 2,200 75,988 Gap, Inc. (The) ........................ 2,000 28,980 ---------- 104,968 ---------- Security and Commodity Brokers - 4.60% Fannie Mae ............................. 1,000 65,350 Freddie Mac ............................ 1,100 58,410 Goldman Sachs Group, Inc. (The) ........ 500 34,040 Merrill Lynch & Co., Inc. .............. 700 24,780 Morgan Stanley ......................... 600 23,010 ---------- 205,590 ---------- Timesharing and Software - 3.82% eBay Inc. (A)* ......................... 2,000 170,590 ---------- Tobacco - 1.14% Altria Group, Inc. ..................... 1,700 50,932 ---------- TOTAL COMMON STOCKS - 93.30% $4,165,743 (Cost: $4,140,620) Principal Amount in Thousands SHORT-TERM SECURITIES Commercial Paper - 4.12% Chemicals -- Petroleum and Inorganic du Pont (E.I.) de Nemours and Company, 1.16315%, Master Note ................. $184 184,000 ---------- Repurchase Agreement - 3.70% Merrill Lynch, Pierce, Fenner & Smith Inc., 1.25% Repurchase Agreement dated 3-31-03, to be repurchased at $165,006 on 4-1-03(B) .............. 165 165,000 ---------- TOTAL SHORT-TERM SECURITIES - 7.82% $ 349,000 (Cost: $349,000) TOTAL INVESTMENT SECURITIES - 101.12% $4,514,743 (Cost: $4,489,620) LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.12%) (50,072) NET ASSETS - 100.00% $4,464,671 Notes to Schedule of Investments *No income dividends were paid during the preceding 12 months. (A)Securities serve as cover for the following written call options outstanding at March 31, 2003. (See Note 6 to financial statements): Contracts Underlying Subject Expiration Month/Premium Market Security to Call Exercise Price Received Value - --------------------- ------- ------------ -------- ------ Barr Laboratories, Inc. 6 May/53.375 $ 2,262 $ 4,140 Bed Bath & Beyond Inc. 22 May/35 2,046 4,400 eBay Inc.: 10 May/90 1,350 2,587 10 April/80 2,470 6,500 EMC Corporation 90 July/10 4,544 1,800 Gilead Sciences, Inc. 13 May/42.5 1,261 3,380 Intel Corporation 32 April/17.5 2,176 1,120 Lockheed Martin Corporation 34 June/50 3,162 7,480 MGIC Investment Corporation 9 June/40 1,998 2,790 Northrop Grumman Corporation 13 May/90 1,976 2,925 Wal-Mart Stores, Inc. 40 June/55 3,520 6,000 ------- ------- $26,765 $43,122 ======= ======= (B)Collateralized by $169,613 Government National Mortgage Association, 7.0% due 12-20-30; market value and accrued interest aggregate $172,943. See Note 1 to financial statements for security valuation and other significant accounting policies concerning investments. See Note 3 to financial statements for cost and unrealized appreciation and depreciation of investments owned for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES TAX-MANAGED EQUITY FUND March 31, 2003 (In Thousands, Except for Per Share Amounts) ASSETS Investment securities -- at value (cost - $4,490) (Notes 1 and 3) ......................................... $4,515 Cash ..................................................... 1 Dividends and interest receivable ........................ 3 ------ Total assets .......................................... 4,519 ------ LIABILITIES Outstanding written options at market (Note 6) ........... 43 Payable to Fund shareholders ............................. 5 Accrued shareholder servicing (Note 2) ................... 1 Other .................................................... 5 ------ Total liabilities ..................................... 54 ------ Total net assets ..................................... $4,465 ====== NET ASSETS $0.01 par value capital stock: Capital stock ........................................... $ 8 Additional paid-in capital .............................. 7,633 Accumulated undistributed income (loss): Accumulated undistributed net realized loss on investment transactions ............................... (3,185) Net unrealized appreciation in value of securities ...... 25 Net unrealized depreciation in value of written options . (16) ------ Net assets applicable to outstanding units of capital ........................................... $4,465 ====== Net asset value per share (net assets divided by shares outstanding): Class A .................................................. $5.73 Class B .................................................. $5.58 Class C .................................................. $5.57 Capital shares outstanding: Class A .................................................. 616 Class B .................................................. 44 Class C .................................................. 123 Capital shares authorized .................................. 350,000 See Notes to Financial Statements. STATEMENT OF OPERATIONS TAX-MANAGED EQUITY FUND For the Fiscal Year Ended March 31, 2003 (In Thousands) INVESTMENT LOSS Income (Note 1B): Dividends ............................................... $ 28 Interest and amortization ............................... 13 ----- Total income .......................................... 41 Expenses (Note 2): ----- Investment management fee ............................... 32 Registration fees ....................................... 27 Audit fees .............................................. 15 Service fee: Class A ............................................... 9 Class B ............................................... 1 Class C ............................................... 2 Shareholder servicing: Class A ............................................... 5 Class B ............................................... 1 Class C ............................................... 4 Custodian fees .......................................... 9 Distribution fee: Class A ............................................... 1 Class B ............................................... 2 Class C ............................................... 6 Other ................................................... 3 ----- Total.................................................... 117 Less expenses in excess of voluntary waiver of investment management fee (Note 2) ................... (32) ----- Total expenses ....................................... 85 ----- Net investment loss ................................ (44) ----- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) Realized net loss on securities .......................... (513) Realized net gain on written options ..................... 13 Realized net loss on purchased options ................... (4) ----- Realized net loss on investments ........................ (504) Unrealized depreciation in value of securities ----- during the period ....................................... (76) Unrealized depreciation in value of written options during the period ............................... (16) ----- Unrealized depreciation in value of investments during the period ..................................... (92) ----- Net loss on investments ............................... (596) Net decrease in net assets resulting from ----- operations ......................................... $(640) ===== See Notes to Financial Statements. STATEMENT OF CHANGES IN NET ASSETS TAX-MANAGED EQUITY FUND (In Thousands) For the Fiscal Year Ended March 31, ------------------------ 2003 2002 ----------- --------- DECREASE IN NET ASSETS Operations: Net investment loss ................... $ (44) $ (70) Realized net loss on investments ...... (504) (1,417) Unrealized appreciation (depreciation) (92) 828 ------ ------ Net decrease in net assets resulting from operations .................... (640) (659) ------ ------ Capital share transactions (Note 5) .... (544) 570 ------ ------ Total decrease ........................ (1,184) (89) NET ASSETS Beginning of period .................... 5,649 5,738 ------ ------ End of period .......................... $4,465 $5,649 ====== ====== Undistributed net investment income.... $ --- $ --- ====== ====== See Notes to Financial Statements. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class A Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 6-30-00(1) -------------- to 2003 2002 3-31-01 Net asset value, ------- ------- ------- beginning of period $6.43 $7.19 $10.00 Loss from investment ----- ----- ------ operations: Net investment loss (0.03) (0.08) (0.00) Net realized and unrealized loss on investments (0.67) (0.68) (2.81) Total from investment ----- ----- ------ operations ....... (0.70) (0.76) (2.81) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.00) (0.00) ----- ----- ------ Total distributions (0.00) (0.00) (0.00) Net asset value, ----- ----- ------ end of period .... $5.73 $6.43 $ 7.19 ===== ===== ====== Total return(2) .... -10.89%-10.57% -28.10% Net assets, end of period (in millions) ........ $4 $4 $4 Ratio of expenses to average net assets including voluntary expense waiver ... 1.50% 1.62% 1.27%(3) Ratio of net investment loss to average net assets including voluntary expense waiver ........... -0.67% -0.92% -0.09%(3) Ratio of expenses to average net assets excluding voluntary expense waiver ... 2.15% 2.17% 1.80%(3) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -1.32% -1.46% -0.62%(3) Portfolio turnover rate 145.24% 95.60% 73.46% (1) Commencement of operations of the class. (2) Total return calculated without taking into account the sales load deducted on an initial purchase. (3) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class B Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-13-00(1) -------------- to 2003 2002 3-31-01 Net asset value, ------- ------- ------- beginning of period $6.31 $7.12 $10.06 Loss from investment ----- ----- ------ operations: Net investment loss ............ (0.11) (0.13) (0.05) Net realized and unrealized loss on investments (0.62) (0.68) (2.89) Total from investment ----- ----- ------ operations ....... (0.73) (0.81) (2.94) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.00) (0.00) ----- ----- ------ Total distributions (0.00) (0.00) (0.00) Net asset value, ----- ----- ------ end of period .... $5.58 $6.31 $ 7.12 ===== ===== ====== Total return ....... -11.57%-11.38% -29.22% Net assets, end of period (000 omitted) .... $247 $358 $296 Ratio of expenses to average net assets including voluntary expense waiver ... 2.47% 2.56% 2.45%(2) Ratio of net investment loss to average net assets including voluntary expense waiver ........... -1.63% -1.86% -1.74%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 3.12% 3.42% 3.48%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -2.28% -2.71% -2.77%(2) Portfolio turnover rate ............. 145.24% 95.60% 73.46% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. FINANCIAL HIGHLIGHTS TAX-MANAGED EQUITY FUND Class C Shares For a Share of Capital Stock Outstanding Throughout Each Period: For the For the fiscal period year ended from March 31, 7-6-00(1) -------------- to 2003 2002 3-31-01 Net asset value, ------- ------- ------- beginning of period $6.32 $7.13 $10.01 Loss from investment ----- ----- ------ operations: Net investment loss (0.12) (0.19) (0.06) Net realized and unrealized loss on investments (0.63) (0.62) (2.82) Total from investment ----- ----- ------ operations ....... (0.75) (0.81) (2.88) Less distributions: ----- ----- ------ From net investment income .......... (0.00) (0.00) (0.00) From capital gains (0.00) (0.00) (0.00) ----- ----- ------ Total distributions (0.00) (0.00) (0.00) Net asset value, ----- ----- ------ end of period .... $5.57 $6.32 $ 7.13 ===== ===== ====== Total return ....... -11.87%-11.36% -28.77% Net assets, end of period (000 omitted) ...... $685 $865 $2 Ratio of expenses to average net assets including voluntary expense waiver ... 2.64% 2.76% 2.35%(2) Ratio of net investment loss to average net assets including voluntary expense waiver ........... -1.81% -2.07% -1.52%(2) Ratio of expenses to average net assets excluding voluntary expense waiver ... 3.29% 3.69% 3.34%(2) Ratio of net investment loss to average net assets excluding voluntary expense waiver ........... -2.46% -2.99% -2.50%(2) Portfolio turnover rate 145.24% 95.60% 73.46% (1) Commencement of operations of the class. (2) Annualized. See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS March 31, 2003 Note 1 - Significant Accounting Policies W&R Funds, Inc. (the "Corporation") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Corporation issues twelve series of capital shares; each series represents ownership of a separate mutual fund. The assets belonging to each Fund are held separately by the custodian. The capital shares of each Fund represent a pro rata beneficial interest in the principal, net income and realized and unrealized capital gains or losses of its respective investments and other assets. The following is a summary of significant accounting policies consistently followed by the Corporation in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. A. Security valuation -- Each stock and convertible bond is valued at the latest sale price thereof on each business day of the fiscal period as reported by the principal securities exchange on which the issue is traded or, if no sale is reported for a stock, the average of the latest bid and asked prices. Bonds, other than convertible bonds, are valued using a pricing system provided by a pricing service or dealer in bonds. Convertible bonds are valued using this pricing system only on days when there is no sale reported. Stocks which are traded over-the-counter are priced using the Nasdaq Stock Market, which provides information on bid and asked prices quoted by major dealers in such stocks. Gold bullion is valued at the last settlement price for current delivery as calculated by the Commodity Exchange, Inc. as of the close of that exchange. Restricted securities and securities for which quotations are not readily available are valued as determined in good faith in accordance with procedures established by and under the general supervision of the Corporation's Board of Directors. Short-term debt securities are valued at amortized cost, which approximates market value. Short-term debt securities denominated in foreign currencies are valued at amortized cost in that currency. B. Security transactions and related investment income -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Premium and discount on the purchase of bonds are amortized for both financial and tax reporting purposes over the remaining lives of the bonds. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income is recorded on the accrual basis. See Note 3 -- Investment Securities Transactions. C. Foreign currency translations -- All assets and liabilities denominated in foreign currencies are translated into United States dollars daily. Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. The Corporation combines fluctuations from currency exchange rates and fluctuations in market value when computing net realized and unrealized gain or loss from investments. D. Forward foreign currency exchange contracts -- A forward foreign currency exchange contract (Forward Contract) is an obligation to purchase or sell a specific currency at a future date at a fixed price. Forward Contracts are "marked-to-market" daily at the applicable translation rates and the resulting unrealized gains or losses are reflected in the Corporation's financial statements. Gains or losses are realized by the Corporation at the time the forward contract is extinguished. Contracts may be extinguished either by entry into a closing transaction or by delivery of the currency. Risks may arise from the possibility that the other party will not complete the obligations of the contract and from unanticipated movements in the value of the foreign currency relative to the United States dollar. The Corporation uses forward contracts to attempt to reduce the overall risk of its investments. E. Federal income taxes -- It is the Corporation's policy to distribute all of its taxable income and capital gains to its shareholders and otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, the Corporation intends to pay distributions as required to avoid imposition of excise tax. Accordingly, provision has not been made for Federal income taxes. See Note 4 -- Federal Income Tax Matters. F. Dividends and distributions -- Dividends and distributions to shareholders are recorded by each Fund on the business day following record date. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences are due to differing treatments for items such as deferral of wash sales and post-October losses, foreign currency transactions, net operating losses and expiring capital loss carryovers. At March 31, 2003 the following amounts were reclassified: Accumulated Accumulated Undistributed Realized Net Investment Additional Capital Gains Income Paid-in Capital ------------------------------------------------------------- Core Equity Fund $ --- $1,475,042 $(1,475,042) International Growth Fund (29,298) 599,138 (569,840) Large Cap Growth Fund --- 135,458 (135,458) Mid Cap Growth Fund --- 146,163 (146,163) Science and Technology Fund --- 1,672,116 (1,672,116) Small Cap Growth Fund --- 6,937,971 (6,937,971) Tax-Managed Equity Fund --- 43,950 (43,950) G. Change in Accounting Principle -- Effective April 1, 2001, the Corporation adopted the new provision in the AICPA Audit and Accounting Guide for Investment Companies, as revised, that requires mandatory amortization of all premiums and discounts on debt securities. The cumulative effect of this required change had no impact on the total net assets of any fund, but for Municipal Bond Fund resulted in a $13,719 increase to the cost of securities held and a corresponding increase to accumulated undistributed net investment income. The effect of this change during the period was to increase net investment income and decrease unrealized appreciation by $13,719. The Statement of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change in presentation. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. NOTE 2 -- Investment Management And Payments To Affiliated Persons Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell & Reed, Inc. ("W&R"), serves as the Corporation's investment manager. WRIMCO provides advice and supervises investments for which 228 services it is paid a fee. The fee is payable by each Fund at the following annual rates: Annual Fund Net Assets Breakpoints Rate ------------------------------------------------------------ W&R Asset Strategy Fund Up to $1 Billion .700% Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% W&R Core Equity Fund Up to $1 Billion .700% Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% W&R High Income Fund Up to $500 Million .625% Over $500 Million up to $1 Billion .600% Over $1 Billion up to $1.5 Billion .550% Over $1.5 Billion .500% W&R International Up to $1 Billion .850% Growth Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Large Cap Growth Up to $1 Billion .700% Fund Over $1 Billion up to $2 Billion .650% Over $2 Billion up to $3 Billion .600% Over $3 Billion .550% W&R Limited-Term Up to $500 Million .500% Bond Fund Over $500 Million up to $1 Billion .450% Over $1 Billion up to $1.5 Billion .400% Over $1.5 Billion .350% W&R Mid Cap Growth Up to $1 Billion .850% Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Money Market Fund All levels .400% W&R Municipal Bond Fund Up to $500 Million .525% Over $500 Million up to $1 Billion .500% Over $1 Billion up to $1.5 Billion .450% Over $1.5 Billion .400% W&R Science and Up to $1 Billion .850% Technology Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Small Cap Growth Up to $1 Billion .850% Fund Over $1 Billion up to $2 Billion .830% Over $2 Billion up to $3 Billion .800% Over $3 Billion .760% W&R Tax-Managed Up to $1 Billion .650% Equity Fund Over $1 Billion up to $2 Billion .600% Over $2 Billion up to $3 Billion .550% Over $3 Billion .500% The fee is accrued and paid daily. However, WRIMCO has agreed to waive a Fund's management fee on any day that the Fund's net assets are less than $25 million, subject to WRIMCO's right to change or modify this waiver. During the period ended March 31, 2003, WRIMCO voluntarily waived its fee as shown in the following table: High Income Fund ............. $119,466 Large Cap Growth Fund ........ 93,158 Mid Cap Growth Fund .......... 152,532 Money Market Fund ............ 76,352 Tax-Managed Equity Fund ...... 31,791 The Corporation also reimburses WRIMCO for certain expenses, including additional Fund-related security costs incurred by WRIMCO as a result of the September 11, 2001 terrorist activities. The amount reimbursed represents the Corporation's share of incremental security-related costs including the cost of using private transportation for WRIMCO's personnel in lieu of commercial transportation, certain security-related personnel and facilities costs. At March 31, 2003, additional security costs amounted to $66,554, which is included in other expenses. The Corporation has an Accounting Services Agreement with Waddell & Reed Services Company ("WRSCO"), a wholly owned subsidiary of W&R. Under the agreement, WRSCO acts as the agent in providing bookkeeping and accounting services and assistance to the Corporation, including maintenance of Fund records, pricing of Fund shares, preparation of prospectuses for existing shareholders, preparation of proxy statements and certain shareholder reports. For these services, each of the Funds pays WRSCO a monthly fee of one-twelfth of the annual fee shown in the following table. Accounting Services Fee Average Net Asset Level Annual Fee Rate (in millions) for Each Level ----------------------- --------------- From $ 0 to $ 10 $ 0 From $ 10 to $ 25 $ 11,000 From $ 25 to $ 50 $ 22,000 From $ 50 to $ 100 $ 33,000 From $ 100 to $ 200 $ 44,000 From $ 200 to $ 350 $ 55,000 From $ 350 to $ 550 $ 66,000 From $ 550 to $ 750 $ 77,000 From $ 750 to $1,000 $ 93,500 $1,000 and Over $110,000 In addition, for each class of shares in excess of one, each Fund pays the Agent a monthly per-class fee equal to 2.5% of the monthly base fee. Under the Shareholder Servicing Agreement, with respect to Class A, Class B and Class C shares, for each shareholder account that was in existence at any time during the prior month: Asset Strategy Fund pays the Agent a monthly fee of $1.5792; High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund each pay the Agent a monthly fee of $1.6958; and Core Equity Fund, International Growth Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology Fund, Small Cap Growth Fund and Tax-Managed Equity Fund each pay the Agent a monthly fee of $1.5042. Money Market Fund pays the Agent a monthly fee of $1.75 for each shareholder account that was in existence at any time during the prior month plus, for Class A shareholder accounts, $0.75 for each shareholder check processed in the prior month. For Class Y shares, each Fund pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of the class for the preceding month. Each Fund also reimburses W&R and WRSCO for certain out-of-pocket costs for all classes. As principal underwriter for the Corporation's shares, W&R receives gross sales commissions (which are not an expense of the Corporation) for Class A shares. A contingent deferred sales charge ("CDSC") may be assessed against a shareholder's redemption amount of Class B, Class C or certain Class A shares and is paid to W&R. During the period ended March 31, 2003, W&R received the following amounts in gross sales commissions and deferred sales charges: CDSC Gross Sales ------------------------- Commissions Class A Class B Class C Asset Strategy Fund.... $ 44,257 $--- $ 7,456 $1,583 Core Equity Fund ...... 57,848 --- 11,967 5,298 High Income Fund ...... 68,060 --- 1,763 607 International Growth Fund 25,086 --- 3,373 956 Large Cap Growth Fund.. 69,362 --- 5,076 646 Limited-Term Bond Fund. 304,314 --- 9,546 1,971 Mid Cap Growth Fund ... 69,276 --- 5,227 895 Money Market Fund ..... --- --- 5,068 1,302 Municipal Bond Fund.... 4,102 --- 60 1,459 Science and Technology Fund ................ 58,512 --- 6,600 3,203 Small Cap Growth Fund.. 135,333 --- 14,141 6,708 Tax-Managed Equity Fund 11,805 --- 816 26 With respect to Class A, Class B and Class C shares, W&R pays sales commissions and all expenses in connection with the sale of the Corporation's shares, except for registration fees and related expenses. During the period ended March 31, 2003, W&R paid the following amounts: Asset Strategy Fund................ $ 58,543 Core Equity Fund................... 106,467 High Income Fund................... 62,129 International Growth Fund.......... 36,130 Large Cap Growth Fund.............. 53,742 Limited-Term Bond Fund............. 246,960 Mid Cap Growth Fund................ 50,177 Money Market Fund.................. --- Municipal Bond Fund................ 13,037 Science and Technology Fund........ 81,378 Small Cap Growth Fund.............. 179,933 Tax-Managed Equity Fund............ 8,328 Under a Distribution and Service Plan for Class A shares adopted by the Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940, each Fund may pay a distribution and/or service fee to W&R in an amount not to exceed 0.25% of the Fund's average annual net assets. The fee is to be paid to compensate W&R for amounts it expends in connection with the distribution of the Class A shares and/or provision of personal services to Fund shareholders and/or maintenance of shareholder accounts. Under the Distribution and Service Plan adopted by the Corporation for Class B shares and Class C shares, respectively, each Fund may pay W&R a service fee not to exceed 0.25% and a distribution fee not to exceed 0.75% of a Fund's average annual net assets attributable to that class to compensate W&R for its services in connection with the distribution of shares of that class and/or the service and/or maintenance of shareholder accounts of that class. The Class B Plan and the Class C Plan each permit W&R to receive compensation, through the distribution fee and service fee, respectively, for its distribution activities for that class, which are similar to the distribution activities described with respect to the Class A Plan, and for its activities in providing personal services to shareholders of that class and/or maintaining shareholder accounts of that class, which are similar to the corresponding activities for which it is entitled to compensation under the Class A Plan. In the current environment of low interest rates, W&R has voluntarily agreed to reimburse sufficient distribution and service fees to any class of W&R Money Market Fund in order to insure the yield of that class remains at or above 0.05%. Under the Class Y Plan, each Fund may pay W&R a fee of up to 0.25%, on an annual basis, of the average daily net assets of the Fund's Class Y shares to compensate W&R for, either directly or through third parties, distributing the Class Y shares of that Fund, providing personal service to Class Y shareholders and/or maintaining Class Y shareholder accounts. The Corporation paid Directors' fees of $53,089, which are included in other expenses. W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding company. NOTE 3 -- Investment Securities Transactions Investment securities transactions for the period ended March 31, 2003 are summarized as follows: Asset Core High Strategy Equity Income Fund Fund Fund ----------- ---------- ----------- Purchases of investment securities, excluding short- term and United States Government securities ...............$ 30,180,026 $ 97,872,122 $ 19,933,958 Purchases of bullion ....... 5,057,300 --- --- Purchases of United States Government securities ............... 40,507,773 --- --- Purchases of short-term securities ............... 120,375,509 1,189,077,022 277,558,315 Purchases of options ....... 4,557,322 --- --- Proceeds from maturities and sales of investment securities, excluding short-term and United States Government securities .... 17,442,836 163,629,331 10,715,087 Proceeds from sales of bullion ............... 1,806,586 --- --- Proceeds from maturities and sales of United States Government securities .... 40,825,613 --- --- Proceeds from maturities and sales of short-term securities ............... 121,255,938 1,184,035,194 274,700,328 Proceeds from options ...... 4,223,798 --- --- International Large Cap Limited- Growth Growth Term Bond Fund Fund Fund ----------- ---------- ----------- Purchases of investment securities, excluding short- term and United States Government securities ...............$ 70,344,267 $ 19,027,348 $ 41,981,069 Purchases of United States Government securities ............... --- --- 27,197,061 Purchases of short-term securities ............... 688,378,549 294,822,928 144,923,637 Purchases of options ....... --- 81,608 --- Proceeds from maturities and sales of investment securities, excluding short-term and United States Government securities .... 85,465,684 15,715,106 13,709,566 Proceeds from maturities and sales of United States Government securities .... --- --- 10,705,826 Proceeds from maturities and sales of short-term securities ............... 681,530,456 293,480,000 139,373,202 Proceeds from options ...... --- 14,454 --- Mid Cap Municipal Science and Growth Bond Technology Fund Fund Fund ----------- ---------- ---------- Purchases of investment securities, excluding short- term and United States Government securities ...............$ 8,998,518 $10,626,876 $ 53,565,361 Purchases of United States Government securities ............... --- --- --- Purchases of short-term securities ............... 352,652,535 17,560,945 1,451,624,954 Purchases of options ....... 202,763 --- 3,334,701 Proceeds from maturities and sales of investment securities, excluding short-term and United States Government securities .... 5,397,806 10,710,951 69,598,943 Proceeds from maturities and sales of United States Government securities .... --- --- --- Proceeds from maturities and sales of short-term securities ............... 353,871,000 17,652,000 1,445,451,000 Proceeds from options ...... 237,162 --- 4,865,768 Small Cap Tax-Managed Growth Equity Fund Fund ----------- ---------- Purchases of investment securities, excluding short- term and United States Government securities ...............$ 100,430,036 $ 6,580,949 Purchases of United States Government securities ............... --- --- Purchases of short-term securities ...............1,945,735,927 86,102,349 Purchases of options ....... --- 14,601 Proceeds from maturities and sales of investment securities, excluding short-term and United States Government securities .... 139,285,179 6,061,392 Proceeds from maturities and sales of United States Government securities .... --- --- Proceeds from maturities and sales of short-term securities ...............1,960,844,329 87,366,000 Proceeds from options ...... --- 50,027 For Federal income tax purposes, cost of investments owned at March 31, 2003 and the related unrealized appreciation (depreciation) were as follows: Aggregate Appreciation Cost AppreciationDepreciation(Depreciation) ----------- ------------------------------------- Asset Strategy Fund .$ 65,144,235 $ 1,247,541 $ 1,345,860 $ (98,319) Core Equity Fund ....204,081,906 36,708,024 17,552,329 19,155,695 High Income Fund .... 30,520,204 1,269,599 492,263 777,336 International Growth Fund ............. 70,378,767 1,544,290 5,870,006 (4,325,716) Large Cap Growth Fund 28,662,933 1,283,984 2,130,271(846,287) Limited-Term Bond Fund 77,738,090 1,842,859 30,324 1,812,535 Mid Cap Growth Fund . 21,358,709 1,356,915 4,054,332 (2,697,417) Money Market Fund ... 21,226,792 --- --- --- Municipal Bond Fund . 26,958,878 1,038,070 93,807 944,263 Science and Technology Fund ............. 111,293,574 4,749,588 24,919,472 (20,169,884) Small Cap Growth Fund 367,310,196 50,341,016 75,607,072 (25,266,056) Tax-Managed Equity Fund 4,523,203 410,613 419,073 (8,460) NOTE 4 -- Federal Income Tax Matters For Federal income tax purposes, the Fund's distributed and undistributed earnings and profit for the fiscal year ended March 31, 2003 and the related Capital loss carryover and Post-October activity were as follows: Asset Core High Strategy Equity Income Fund Fund Fund ------------------------------------- Net ordinary income ............... $ 324,654 $ --- $1,623,792 Distributed ordinary income ....... 374,528 --- 1,619,183 Undistributed ordinary income ..... 25,243 --- 35,113 Realized long-term capital gains .. --- --- --- Distributed long-term capital gains --- --- --- Undistributed long-term capital gains --- --- --- Capital loss carryover ............ --- 32,352,928 1,182,962 Post-October losses deferred ...... --- 4,137,423 55,426 International Large Cap Limited- Growth Growth Term Bond Fund Fund Fund ------------------------------------- Net ordinary income ...............$ --- $ --- $1,555,211 Distributed ordinary income ....... --- --- 1,544,291 Undistributed ordinary income...... --- --- 24,714 Realized long-term capital gains .. --- --- --- Distributed long-term capital gains --- --- --- Undistributed long-term capital gains --- --- --- Capital loss carryover ............19,460,037 4,727,341 456,813 Post-October losses deferred ...... 5,229,066 835,240 --- Mid Cap Money Municipal Growth Market Bond Fund Fund Fund ------------------------------------- Net ordinary income ...............$ --- $138,944 $838,698 Distributed ordinary income ....... 3,132 139,244 840,097 Undistributed ordinary income ..... --- 1,179 9,887 Realized long-term capital gains .. --- --- --- Distributed long-term capital gains --- --- --- Undistributed long-term capital gains --- --- --- Capital loss carryover ............ 3,437,031 --- 75,199 Post-October losses deferred ...... 244,321 --- --- Science and Small Cap Tax-Managed Technology Growth Equity Fund Fund Fund ------------------------------------- Net ordinary income ...............$ ---$ --- $ --- Distributed ordinary income ....... --- --- --- Undistributed ordinary income ..... --- --- --- Realized long-term capital gains .. --- --- --- Distributed long-term capital gains --- --- --- Undistributed long-term capital gains --- --- --- Capital loss carryover ............15,864,785 24,660,890 1,005,096 Post-October losses deferred ...... --- 16,385,158 173,190 Internal Revenue Code regulations permit each Fund to defer into its next fiscal year net capital losses or net long-term capital losses incurred between each November 1 and the end of its fiscal year ("post-October losses"). Capital loss carryovers are available to offset future realized capital gain net income for Federal income tax purposes. The following shows the totals by year in which the capital loss carryovers will expire if not utilized. Asset Core High International Strategy Equity Income Growth Fund Fund Fund Fund ----------- ------------------------------------- March 31, 2007 .......$ --- $ --- $ 501,692 $ --- March 31, 2008 ....... --- --- 472,930 --- March 31, 2009 ....... --- --- 2,581,600 --- March 31, 2010 ....... 2,567,657 28,691,576 1,271,702 31,762,625 March 31, 2011 ....... --- 32,352,928 1,182,962 19,460,037 ---------- ----------- ---------- ----------- Total carryover ......$2,567,657 $61,044,504 $6,010,886 $51,222,662 ========== =========== ========== =========== Large Cap Limited- Mid Cap Municipal Growth Term Bond Growth Bond Fund Fund Fund Fund ----------- ------------------------------------- March 31, 2005 .......$ --- $ 72,428 $ --- $ --- March 31, 2006 ....... --- 64,500 --- --- March 31, 2009 ....... --- 159,953 --- 519,289 March 31, 2010 ....... 7,188,151 --- 2,752,716 230,753 March 31, 2011 ....... 4,727,341 456,813 3,437,031 75,199 ---------- -------- ---------- ----------- Total carryover ......$11,915,492 $753,694 $6,189,747 $825,241 ========== ======== ========== =========== Science and Small Cap Tax-Managed Technology Growth Equity Fund Fund Fund ------------------------------------- March 31, 2009 ....... $ --- $ --- $ 59,107 March 31, 2010 ....... 21,421,176 60,539,358 1,914,377 March 31, 2011 ....... 15,864,785 24,660,890 1,005,096 ----------- ----------- ----------- Total carryover ...... $37,285,961 $85,200,248 $2,978,580 =========== =========== =========== NOTE 5 -- Multiclass Operations Each Fund within the Corporation (other than Money Market Fund which offers only Class A, Class B and Class C shares) currently offers four classes of shares, Class A, Class B, Class C and Class Y, each of which have equal rights as to assets and voting privileges. A comprehensive discussion of the terms under which shares of each class are offered is contained in the Prospectuses and the Statement of Additional Information for the Corporation. Income, non-class specific expenses, and realized and unrealized gains and losses are allocated daily to each class of shares based on the value of their relative net assets as of the beginning of each day adjusted for the prior day's capital share activity. Class B shares were combined with Class C shares effective March 24, 2000 and were redesignated Class C shares. Transactions in capital stock for the fiscal period ended March 31, 2003 are summarized below. Amounts are in thousands. Asset Core High Strategy Equity Income Fund Fund Fund ----------- ---------- ----------- Shares issued from sale of shares: Class A ............ 739 1,940 690 Class B ............ 119 219 124 Class C ............ 1,901 2,655 726 Class Y ............ 62 69 558 Shares issued from reinvestment of dividends: Class A ............ 8 --- 30 Class B ............ 1 --- 8 Class C ............ 23 --- 147 Class Y ............ 1 --- 3 Shares redeemed: Class A ............ (266) (1,040) (167) Class B ............ (46) (208) (32) Class C ............ (1,539) (12,363) (625) Class Y ............ (15) (90) (118) --- ----- --- Increase (decrease) in outstanding capital shares 988 (8,818) 1,344 === ====== ===== Value issued from sale of shares: Class A ............ $ 8,291 $ 13,695 $ 5,535 Class B ............ 1,333 1,592 988 Class C ............ 21,310 18,932 5,820 Class Y ............ 698 520 4,466 Value issued from reinvestment of dividends: Class A ............ 85 --- 236 Class B ............ 12 --- 66 Class C ............ 262 --- 1,174 Class Y ............ 11 --- 25 Value redeemed: Class A ............ (2,965) (7,407) (1,332) Class B ............ (514) (1,466) (265) Class C ............ (17,189) (87,355) (5,007) Class Y ............ (174) (699) (938) ------- -------- ------ Increase (decrease) in outstanding capital $11,160 $(62,188) $10,768 ======= ======== ====== International Large Cap Limited- Growth Growth Term Bond Fund Fund Fund ----------- ---------- ----------- Shares issued from sale of shares: Class A ............ 4,496 2,011 6,921 Class B ............ 69 88 473 Class C ............ 616 280 1,711 Class Y ............ 17,611 49 369 Shares issued from reinvestment of dividends: Class A ............ --- --- 68 Class B ............ --- --- 8 Class C ............ --- --- 63 Class Y ............ --- --- 4 Shares redeemed: Class A ............ (4,449) (1,270) (3,784) Class B ............ (38) (84) (96) Class C ............ (2,056) (384) (866) Class Y ............ (17,027) (10) (256) ----- --- ----- Increase (decrease) in outstanding capital shares (778) 680 4,615 === === ===== Value issued from sale of shares: Class A ............ $ 38,377 $14,751 $71,487 Class B ............ 574 659 4,892 Class C ............ 5,307 2,093 17,693 Class Y ............ 153,398 372 3,831 Value issued from reinvestment of dividends: Class A ............ --- --- 702 Class B ............ --- --- 81 Class C ............ --- --- 654 Class Y ............ --- --- 43 Value redeemed: Class A ............ (38,451) (9,456) (39,049) Class B ............ (316) (625) (995) Class C ............ (17,451) (2,890) (8,953) Class Y ............ (149,023) (75) (2,662) -------- ------- ------- Increase (decrease) in outstanding capital $ (7,585) $ 4,829 $47,724 ======== ======= ======= Mid Cap Money Municipal Growth Market Bond Fund Fund Fund ----------- ---------- ---------- Shares issued from sale of shares: Class A ............ 1,079 23,939 340 Class B ............ 72 1,022 36 Class C ............ 190 12,225 313 Class Y ............ 50 N/A ---* Shares issued from reinvestment of dividends: Class A ............ ---* 114 7 Class B ............ --- 1 1 Class C ............ --- 16 60 Class Y ............ ---* N/A ---* Shares redeemed: Class A ............ (681) (18,823) (304) Class B ............ (60) (413) ---* Class C ............ (204) (9,788) (443) Class Y ............ (49) N/A --- --- ------ --- Increase in outstanding capital shares 397 8,293 10 === ===== == Value issued from sale of shares: Class A ............ $7,414 $23,939 $3,751 Class B ............ 508 1,022 390 Class C ............ 1,373 12,225 3,442 Class Y ............ 355 N/A 2 Value issued from reinvestment of dividends: Class A ............ 2 114 73 Class B ............ --- 1 8 Class C ............ --- 16 658 Class Y ............ 1 N/A ---* Value redeemed: Class A ............ (4,745) (18,823) (3,368) Class B ............ (421) (413) (3) Class C ............ (1,422) (9,788) (4,834) Class Y ............ (362) N/A --- ------ ------- ------ Increase in outstanding capital $2,703 $ 8,293 $ 119 ====== ======= ====== *Not shown due to rounding. Science and Small Cap Tax-Managed Technology Growth Equity Fund Fund Fund ----------- ---------- ---------- Shares issued from sale of shares: Class A ............ 800 3,910 156 Class B ............ 99 317 3 Class C ............ 569 2,885 31 Class Y ............ 151 10,907 --- Shares issued from reinvestment of dividends: Class A ............ --- --- --- Class B ............ --- --- --- Class C ............ --- --- --- Class Y ............ --- --- --- Shares redeemed: Class A ............ (456) (2,969) (228) Class B ............ (53) (216) (16) Class C ............ (1,707) (10,689) (45) Class Y ............ (94) (10,368) --- ----- ------ --- Decrease in outstanding capital shares ............. (691) (6,223) (99) === ===== == Value issued from sale of shares: Class A ............ $11,616 $ 32,860 $913 Class B ............ 1,447 2,669 19 Class C ............ 8,405 24,235 177 Class Y ............ 2,271 103,179 --- Value issued from reinvestment of dividends: Class A ............ --- --- --- Class B ............ --- --- --- Class C ............ --- --- --- Class Y ............ --- --- --- Value redeemed: Class A ............ (6,696) (24,603) (1,308) Class B ............ (755) (1,712) (90) Class C ............ (25,069) (88,011) (255) Class Y ............ (1,416) (100,287) --- ------- -------- ------ Decrease in outstanding capital $(10,197) $(51,670) $ (544) ======== ======== ====== Transactions in capital stock for the fiscal year ended March 31, 2002 are summarized below. Amounts are in thousands. Asset Core High Strategy Equity Income Fund Fund Fund ----------- ---------- ----------- Shares issued from sale of shares: Class A ............ 278 932 216 Class B ............ 123 343 54 Class C ............ 807 3,045 371 Class Y ............ 17 215 11 Shares issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 13 28 10 Class B ............ 8 23 7 Class C ............ 154 1,474 164 Class Y ............ 2 12 ---* Shares redeemed: Class A ............ (135) (335) (54) Class B ............ (62) (145) (28) Class C ............ (1,340) (10,459) (661) Class Y ............ (10) (91) (5) ----- ------ --- Increase (decrease) in outstanding capital shares (145) (4,958) 85 ===== ====== === Value issued from sale of shares: Class A ............ $ 3,215 $ 8,461 $1,820 Class B ............ 1,438 3,155 458 Class C ............ 9,437 27,796 3,139 Class Y ............ 195 2,087 93 Value issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 152 243 83 Class B ............ 86 196 56 Class C ............ 1,728 12,760 1,380 Class Y ............ 26 111 2 Value redeemed: Class A ............ (1,530) (2,990) (456) Class B ............ (717) (1,284) (236) Class C ............ (15,529) (94,385) (5,563) Class Y ............ (109) (864) (43) ------- -------- ------ Increase (decrease) in outstanding capital $(1,608) $(44,714) $ 733 ======= ======== ====== *Not shown due to rounding. International Large Cap Limited- Growth Growth Term Bond Fund Fund Fund ----------- ---------- ----------- Shares issued from sale of shares: Class A ............ 647 1,094 664 Class B ............ 92 106 116 Class C ............ 519 406 796 Class Y ............ 1,834 171 15 Shares issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 2 --- 11 Class B ............ 1 --- 3 Class C ............ 26 --- 74 Class Y ............ 2 --- 8 Shares redeemed: Class A ............ (426) (965) (124) Class B ............ (45) (92) (21) Class C ............ (3,137) (390) (639) Class Y ............ (1,560) (117) (115) ----- --- --- Increase (decrease) in outstanding capital shares (2,045) 213 788 ===== === === Value issued from sale of shares: Class A ............ $ 6,829 $9,985 $6,852 Class B ............ 979 968 1,191 Class C ............ 5,559 3,717 8,205 Class Y ............ 19,389 1,580 151 Value issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 20 --- 115 Class B ............ 6 --- 31 Class C ............ 258 --- 756 Class Y ............ 19 --- 84 Value redeemed: Class A ............ (4,428) (8,924) (1,275) Class B ............ (461) (821) (220) Class C ............ (32,705) (3,504) (6,573) Class Y ............ (16,524) (1,067) (1,179) -------- ------ ------ Increase (decrease) in outstanding capital $(21,059) $1,934 $8,138 ======== ====== ====== Mid Cap Money Municipal Growth Market Bond Fund Fund Fund ----------- ---------- ---------- Shares issued from sale of shares: Class A ............ 883 6,770 141 Class B ............ 98 1,094 8 Class C ............ 314 18,256 222 Class Y ............ 150 N/A --- Shares issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 8 128 6 Class B ............ --- 7 ---* Class C ............ --- 129 71 Class Y ............ ---* N/A ---* Shares redeemed: Class A ............ (507) (6,390) (63) Class B ............ (60) (954) (1) Class C ............ (232) (21,219) (455) Class Y ............ (122) N/A --- --- ------ --- Increase (decrease) in outstanding capital shares 532 (2,179) (71) === ====== === Value issued from sale of shares: Class A ............ $7,968 $ 6,770 $1,516 Class B ............ 881 1,094 87 Class C ............ 2,828 18,256 2,389 Class Y ............ 1,337 N/A --- Value issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 75 128 61 Class B ............ --- 7 2 Class C ............ --- 129 758 Class Y ............ 3 N/A ---* Value redeemed: Class A ............ (4,559) (6,390) (680) Class B ............ (529) (954) (6) Class C ............ (2,047) (21,219) (4,875) Class Y ............ (1,046) N/A --- ------ ------- ------ Increase (decrease) in outstanding capital $4,911 $(2,179) $ (748) ====== ======= ====== *Not shown due to rounding. Science and Small Cap Tax-Managed Technology Growth Equity Fund Fund Fund ----------- ---------- ---------- Shares issued from sale of shares: Class A ............ 566 5,892 248 Class B ............ 129 396 26 Class C ............ 720 3,337 63 Class Y ............ 141 24,633 --- Shares issued from reinvestment of dividends and/or capital gains distribution: Class A ............ ---* --- --- Class B ............ ---* --- --- Class C ............ 7 --- --- Class Y ............ ---* --- --- Shares redeemed: Class A ............ (224) (4,819) (80) Class B ............ (66) (158) (11) Class C ............ (2,030) (10,698) (164) Class Y ............ (58) (22,478) --- ----- ------ --- Increase (decrease) in outstanding capital shares ............. (815) (3,895) 82 ===== ====== === Value issued from sale of shares: Class A ............ $ 10,531 $ 59,708 $1,672 Class B ............ 2,365 4,011 181 Class C ............ 13,288 33,660 441 Class Y ............ 2,655 273,657 --- Value issued from reinvestment of dividends and/or capital gains distribution: Class A ............ 11 --- --- Class B ............ 4 --- --- Class C ............ 129 --- --- Class Y ............ 3 --- --- Value redeemed: Class A ............ (4,148) (49,068) (540) Class B ............ (1,191) (1,578) (77) Class C ............ (36,830) (106,518) (1,107) Class Y ............ (1,108) (248,493) --- -------- -------- ----- Increase (decrease) in outstanding capital $(14,291) $(34,621) $ 570 ======== ======== ===== *Not shown due to rounding. NOTE 6 -- Options Options purchased by a Fund are accounted for in the same manner as marketable portfolio securities. The cost of portfolio securities acquired through the exercise of call options is increased by the premium paid to purchase the call. The proceeds from securities sold through the exercise of put options are decreased by the premium paid to purchase the put. When the Fund writes (sells) an option, an amount equal to the premium received by the Fund is recorded as a liability. The amount of the liability is subsequently adjusted to reflect the current market value of the option written. The current market value of an option is the last sales price on the principal exchange on which the option is traded or, in the absence of transactions, the mean between the bid and asked prices or at a value supplied by a broker-dealer. When an option expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the call option was sold) and the liability related to such option is extinguished. When a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. For the Fund, when a written put is exercised, the cost basis of the securities purchased by the Fund is reduced by the amount of the premium received. For Asset Strategy Fund, transactions in call options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 135 $ 48,515 Options written 10,430 2,745,523 Options terminated in closing purchase transactions (10,565) (2,794,038) Options exercised --- --- Options expired --- --- ----- ---------- Outstanding at March 31, 2003 --- $ --- ===== ========== For Asset Strategy Fund, transactions in put options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 --- $ --- Options written 516 100,756 Options terminated in closing purchase transactions (516) (100,756) Options exercised --- --- Options expired --- --- ---- -------- Outstanding at March 31, 2003 --- $ --- ==== ======== For Mid Cap Growth Fund, transactions in call options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 137 $ 25,049 Options written 941 162,907 Options terminated in closing purchase transactions (513) (106,071) Options exercised --- --- Options expired (419) (62,128) ---- -------- Outstanding at March 31, 2003 146 $ 19,757 ==== ======== For Mid Cap Growth Fund, transactions in put options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 --- $ --- Options written 180 45,274 Options terminated in closing purchase transactions (144) (30,947) Options exercised (17) (2,414) Options expired (19) (11,913) ---- ------- Outstanding at March 31, 2003 --- $ --- ==== ======= For Science and Technology Fund, transactions in call options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 95 $ 28,804 Options written 12,894 2,996,017 Options terminated in closing purchase transactions (7,831) (1,676,201) Options exercised (1,851) (544,253) Options expired (889) (212,287) ----- ---------- Outstanding at March 31, 2003 2,418 $ 592,080 ===== ========== For Science and Technology Fund, transactions in put options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 --- $ --- Options written 4,995 721,730 Options terminated in closing purchase transactions (2,987) (491,811) Options exercised (269) (27,707) Options expired (1,011) (125,044) ----- -------- Outstanding at March 31, 2003 728 $ 77,168 ===== ======== For Tax-Managed Equity Fund, transactions in call options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 --- $ --- Options written 369 41,386 Options terminated in closing purchase transactions (69) (12,668) Options exercised --- --- Options expired (21) (1,953) ---- ------- Outstanding at March 31, 2003 279 $26,765 ==== ======= For Tax-Managed Equity Fund, transactions in put options written were as follows: Number of Premiums Contracts Received --------- -------- Outstanding at March 31, 2002 --- $ --- Options written 42 5,474 Options terminated in closing purchase transactions (42) (5,474) Options exercised --- --- Options expired --- --- ----- ------ Outstanding at March 31, 2003 --- $ --- ===== ====== NOTE 7 -- Futures The Corporation may engage in buying and selling interest rate futures contracts, but only Debt Futures and Municipal Bond Index Futures. Upon entering into a futures contract, the Corporation is required to deposit, in a segregated account, an amount of cash or United States Treasury Bills equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent payments ("variation margins") are made or received by the Corporation each day, dependent on the daily fluctuations in the value of the underlying debt security or index. These changes in the variation margins are recorded by the Corporation as unrealized gains or losses. Upon the closing of the contracts, the cumulative net change in the variation margin is recorded as realized gain or loss. The Corporation uses futures to attempt to reduce the overall risk of its investments. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, W&R Funds, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Asset Strategy Fund, Core Equity Fund, High Income Fund, International Growth Fund, Large Cap Growth Fund, Limited-Term Bond Fund, Mid Cap Growth Fund, Money Market Fund, Municipal Bond Fund, Science and Technology Fund, Small Cap Growth Fund and Tax-Managed Equity Fund (collectively the "Funds") comprising W&R Funds, Inc. as of March 31, 2003, and the related statements of operations for the fiscal year then ended, the statements of changes in net assets for each of the two fiscal years in the period then ended, and the financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of each of the respective Funds comprising W&R Funds, Inc., as of March 31, 2003, the results of their operations for the fiscal year then ended, the changes in their net assets for each of the two fiscal years in the period then ended, and their financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri May 9, 2003 INCOME TAX INFORMATION The amounts of the dividends and long-term capital gains below, multiplied by the number of shares owned by you in the Funds shown on the record dates, will give you the total amounts to be reported in your Federal income tax return for the years in which they were received or reinvested. PER-SHARE AMOUNTS REPORTABLE AS: -------------------------------------------------------------------- For Individuals For Corporations ---------------------------------------------------- Record OrdinaryLong-Term Non-Long-Term Date Total IncomeCapital Gain QualifyingQualifyingCapital Gain -------- ----- ----------------- ---------------------------- Asset Strategy Fund Class A 6-12-02 $0.0470 $0.0470 $--- $0.0083 $0.0387 $--- 9-11-02 0.0320 0.0320 --- 0.0092 0.0228 --- 12-11-02 0.0430 0.0430 --- 0.0123 0.0307 --- 3-12-03 0.0280 0.0280 --- 0.0081 0.0199 --- ------- ------- ---- ------- ------- ---- Total $0.1500 $0.1500 $--- $0.0379 $0.1121 $--- ======= ======= ==== ======= ======= ==== Asset Strategy Fund Class B 6-12-02 $0.0240 $0.0240 $--- $0.0043 $0.0197 $--- 9-11-02 0.0060 0.0060 --- 0.0017 0.0043 --- 12-11-02 0.0150 0.0150 --- 0.0043 0.0107 --- 3-12-03 0.0010 0.0010 --- 0.0003 0.0007 --- ------- ------- ---- ------- ------- ---- Total $0.0460 $0.0460 $--- $0.0106 $0.0354 $--- ======= ======= ==== ======= ======= ==== Asset Strategy Fund Class C 6-12-02 $0.0250 $0.0250 $--- $0.0044 $0.0206 $--- 9-11-02 0.0100 0.0100 --- 0.0029 0.0071 --- 12-11-02 0.0210 0.0210 --- 0.0060 0.0150 --- 3-12-03 0.0050 0.0050 --- 0.0015 0.0035 --- ------- ------- ---- ------- ------- ---- Total $0.0610 $0.0610 $--- $0.0148 $0.0462 $--- ======= ======= ==== ======= ======= ==== Asset Strategy Fund Class Y 6-12-02 $0.0500 $0.0500 $--- $0.0089 $0.0411 $--- 9-11-02 0.0340 0.0340 --- 0.0098 0.0242 --- 12-11-02 0.0450 0.0450 --- 0.0129 0.0321 --- 3-12-03 0.0300 0.0300 --- 0.0087 0.0213 --- ------- ------- ---- ------- ------- ---- Total $0.1590 $0.1590 $--- $0.0403 $0.1187 $--- ======= ======= ==== ======= ======= ==== Mid Cap Growth Fund Class A 12-11-02 $0.0010 $0.0010 $--- $0.0010 $--- $--- ======= ======= ==== ======= ==== ==== Mid Cap Growth Fund Class Y 12-11-02 $0.0260 $0.0260 $--- $0.0260 $--- $--- ======= ======= ==== ======= ==== ==== Dividends are declared and recorded by each of the following Funds on each day the New York Stock Exchange is open for business. Dividends are paid monthly usually on the 27th of the month or on the preceding business day if the 27th is a weekend or holiday. Exempt Interest Dividends - The exempt interest portion of dividends paid represents the distribution of state and municipal bond interest and is exempt from Federal income taxation. The table below shows the taxability of dividends and long-term capital gains paid during the fiscal year ended March 31, 2003: PER-SHARE AMOUNTS REPORTABLE AS: -------------------------------------------------------------------- For Individuals For Corporations -------------------------------------------------------------- Record Ordinary Long-Term Non- Long-Term Date Total Income Capital Gain QualifyingQualifyingCapital Gain - ----------- ------------- --------------- ---------------------------- High Income Fund Class A, Class B, Class C and Class Y April 2002 through December 2002 100.0000%100.0000% ---% 2.3212% 97.6788% ---% January 2003 through March 2003 100.0000%100.0000% ---% 1.8825% 98.1175% ---% Limited-Term Bond Fund Class A, Class B, Class C and Class Y April 2002 through March 2003 100.0000%100.0000% ---% ---%100.0000% ---% Money Market Fund Class A, Class B and Class C April 2002 through March 2003 100.0000%100.0000% ---% ---%100.0000% ---% Municipal Bond Fund Class A, Class B, Class C and Class Y For Individuals For Corporations ------------------------------------------------------------------ Record OrdinaryLong-TermExempt Non-Long-Term Exempt Date Total IncomeCapital GainInterestQualifyingCapital GainInterest - ------------- ------------------------------------------------------ April 2002 through December 2002100.0000%1.3546% ---%98.6454% 1.3546% ---%98.6454% January 2003 through March 2003100.0000%0.3330% ---%99.6670% 0.3330% ---%99.6670% CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as Qualifying Dividends are eligible for the dividends received deduction in the year received as provided by Section 243 of the Internal Revenue Code. The tax status of dividends paid will be reported to you on Form 1099-DIV after the close of the applicable calendar year. Income from Municipal Bond Fund may be subject to the alternative minimum tax. Shareholders are advised to consult with their tax advisors concerning the tax treatment of dividends and distributions from all the Funds. The Board of Directors of W&R Funds, Inc. Each of the individuals listed below serves as a director for each of the portfolios within the Waddell & Reed Advisors Funds, W&R Funds, Inc., Waddell & Reed InvestEd Portfolios, Inc. and W&R Target Funds, Inc. (the "Fund Complex") for a total of 48 portfolios served. Three of the four interested directors are "interested" by virtue of their current or former engagement as officers of Waddell & Reed Financial, Inc. (WDR) or its wholly-owned subsidiaries, including the funds' investment advisor, Waddell & Reed Investment Management Company (WRIMCO); the funds' principal underwriter, Waddell & Reed, Inc. (W&R); and the funds' transfer agent, Waddell & Reed Services Company (WRSCO), as well as by virtue of their personal ownership of shares of WDR. The fourth interested director is a partner in a law firm that has represented W&R within the past two years. The other directors (more than a majority of the total number) are disinterested; that is, they are not employees or officers of, and have no financial interest in, WDR or any of its wholly-owned subsidiaries, including W&R, WRIMCO and WRSCO. Disinterested Directors James M. Concannon (55) Washburn Law School, 1700 College, Topeka, KS 66621 Position held with Fund: Director Director since: 1997 Principal Occupations During Past 5 Years: Professor of Law, Washburn Law School; formerly, Dean, Washburn Law School Other Directorships held by Director: Director, Am Vestors CBO II, Inc., a bond investment firm John A. Dillingham (64) 4040 Northwest Claymont Drive, Kansas City, MO 64116 Position held with Fund: Director Director since: 1997 Principal Occupations During Past 5 Years: President and Director, JoDill Corp. and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor at Central Missouri State University; formerly, Consultant and Director, McDougal Construction Co. Other Directorships held by Director: Chairman, Clay Co. IDA and Kansas City Municipal Assistance Corp., both bonding authorities; Director, American Royal and Salvation Army David P. Gardner (70) 2441 Iron Canyon Drive, Park City UT 84060 Position held with Fund: Director Director since: 1998 Principal Occupation During Past 5 Years: formerly, President, William and Flora Hewlett Foundation Other Directorships held by Director: Chairman, J. Paul Getty Trust; Director, Fluor Corp., Campus Pipeline, John & Karen Huntsman Foundation and Huntsman Cancer Foundation; formerly, Chairman, George S. and Dolores Dor'e Eccles Foundation; formerly, Director, First Security Corp., Digital Ventures and Charitableway Linda K. Graves (49) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1995 Principal Occupation During Past 5 Years: formerly, First Lady of Kansas Other Directorships held by Director: Director, American Guaranty Life Insurance Company Joseph Harroz, Jr. (36) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1998 Principal Occupations During Past 5 Years: General Counsel of the University of Oklahoma, Cameron University and Rogers State University; Vice President of the University of Oklahoma; Adjunct Professor, University of Oklahoma Law School; Managing Member, Harroz Investments, LLC, commercial enterprise investments Other Directorships held by Director: Director and Treasurer, Oklahoma Appleseed Center for Law and Justice; Trustee, Ivy Fund John F. Hayes (83) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1988 Principal Occupation During Past 5 Years: Chairman, Gilliland & Hayes, PA, a law firm Other Directorships held by Director: Director, Central Bank & Trust; Director, Central Financial Corp. Glendon E. Johnson (79) 13635 Deering Bay Drive, Unit 284, Miami, FL 33158 Position held with Fund: Director Director since: 1971 Principal Occupations During Past 5 Years: Retired; formerly, Chief Executive Officer and Director, John Alden Financial Corp. Other Directorships held by Director: Manager, Castle Valley Ranches LLC; Chairman, Wellness Council of America; Chairman, Bank Assurance Partners, marketing; Executive Board and Advisory Committee, Boy Scouts of America Eleanor B. Schwartz (66) 1213 W. 95th Ct., Chartwell #4, Kansas City, MO 64114 Position held with Fund: Director Director since: 1995 Principal Occupations During Past 5 Years: Professor Emeritus, formerly Professor of Business Administration, University of Missouri at Kansas City; formerly, Chancellor, University of Missouri at Kansas City Other Directorships held by Director: Trustee, Ivy Fund Frederick Vogel III (67) 6300 Lamar Avenue, Overland Park, KS 66202 Position held with Fund: Director Director since: 1971 Principal Occupation During Past 5 Years: Retired Other Directorships held by Director: None Interested Directors Robert L. Hechler (66) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director; formerly, President, Principal Financial Officer Director since: 1998 Principal Occupations During Past 5 Years: Consultant of WDR and W&R (2001 to present); Director of WDR (1998 to present); Executive Vice President and Chief Operating Officer of WDR (1998 to 2001); Director, Principal Financial Officer and Treasurer of W&R (1981 to 2001); Chief Executive Officer and President of W&R (1993 to 2001); Director, Executive Vice President, Principal Financial Officer and Treasurer of WRIMCO (1985 to 2001); Director and Treasurer of WRSCO (1981 to 2001); President of WRSCO (1981 to 1999) Other Directorships held by Director: None Henry J. Herrmann (60) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Director and President; formerly, Vice President Director since: 1998; President since: 2001 Principal Occupation(s) During Past 5 Years: Director, President and Chief Investment Officer of WDR (1998 to present); Treasurer of WDR (1998 to 1999); Director of W&R (1993 to present); Director of WRIMCO (1992 to present); President and Chief Executive Officer of WRIMCO (1993 to present); Chief Investment Officer of WRIMCO (1991 to present); President, Chief Executive Officer and Director of Waddell & Reed Ivy Investment Company (WRIICO), an affiliate of WDR (2002 to present); President of each of the Funds in the Fund Complex (2001 to present); Director of each of the Funds in the Fund Complex (1998 to present); President of Ivy Fund (2002 to present) Other Directorships held by Director: Director, Austin, Calvert & Flavin, an affiliate of WRIMCO; Director, Ivy Funds Distributor, Inc. (IFDI) and affiliate of WRIMCO; Trustee, Ivy Fund Frank J. Ross, Jr. (49) Polsinelli, Shalton & Welte,700 West 47th Street, Suite 1000, Kansas City, MO 64112 Position held with Fund: Director Director since: 1996 Principal Occupation During Past 5 Years: Shareholder/Director, Polsinelli, Shalton & Welte, a law firm Other Directorships held by Director: Director, Columbian Bank & Trust Keith A. Tucker (58) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Chairman of the Board of Directors and Director; formerly, President Director since: 1993; Chairman of the Board of Directors since: 1998 Principal Occupation(s) During Past 5 Years: Chairman of the Board of Directors, Director and Chief Executive Officer of WDR (1998 to present); Principal Financial Officer of WDR (1998 to 1999); Chairman of the Board of Directors and Director of W&R, WRIMCO and WRSCO (1993 to present); Chairman of the Board of Directors of each of the Funds in the Fund Complex (1998 to present); Director of each of the Funds in the Fund Complex (1993 to present); Vice Chairman of the Board of Directors of Torchmark Corporation (1991 to 1998); Other Directorships held by Director: Chairman of the Board and Trustee, Ivy Fund Officers Theodore W. Howard (60) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Treasurer, Principal Accounting Officer, and Principal Financial Officer Length of Time Served: Vice President, Treasurer and Principal Accounting Officer, 11 years; Principal Financial Officer, 1 year Principal Occupation(s) During Past 5 Years: Senior Vice President of WRSCO (2001 to present); Treasurer and Principal Accounting Officer of each of the Funds in the Fund Complex (1976 to present); Vice President of each of the Funds in the Fund Complex (1987 to present); Principal Financial Officer of each of the Funds in the Fund Complex (2002 to present); Vice President of Ivy Fund (2002 to present); Treasurer of Ivy Fund (since 2003); Assistant Treasurer of Ivy Fund (2002 to 2003); Vice President of WRSCO (1988 to 2001) Directorships held: None Kristen A. Richards (35) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Secretary and Associate General Counsel Length of Time Served: 3 years Principal Occupation(s) During Past 5 Years: Vice President, Associate General Counsel and Chief Compliance Officer of WRIMCO (2000 to present); Vice President, Associate General Counsel and Chief Compliance Officer of WRIICO (2002 to present); Vice President and Secretary of each of the Funds in the Fund Complex (2000 to present); Vice President and Secretary of Ivy Fund (2002 to present); Assistant Secretary of each of the funds in the Fund Complex (1998 to 2000); Compliance Officer of WRIMCO (1995 to 1998) Directorships held: None Daniel C. Schulte (37) 6300 Lamar Avenue, Overland Park, KS 66202 Positions held with Fund: Vice President, Assistant Secretary and General Counsel Length of Time Served: 3 years Principal Occupation(s) During Past 5 Years: Vice President, Secretary and General Counsel of WDR (2000 to present); Senior Vice President, Secretary and General Counsel of W&R, WRIMCO and WRSCO (2000 to present); Senior Vice President, General Counsel and Assistant Secretary of Ivy Services, Inc. (2002 to present); Vice President, General Counsel and Assistant Secretary of WRIICO (2002 to present); Vice President, General Counsel and Assistant Secretary of each of the Funds in the Fund Complex (2000 to present); Vice President and Assistant Secretary of Ivy Fund (2002 to present); Assistant Secretary of WDR (1998 to 2000); an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C. (1994 to 1998) Directorships held: None Annual Privacy Notice Waddell & Reed, Inc., Waddell & Reed Advisors Group of Mutual Funds, W&R Funds, Inc. and Waddell & Reed InvestEd Portfolios, Inc. ("Waddell & Reed") are committed to ensuring their customers have access to a broad range of products and services to help them achieve their personal financial goals. In the course of doing business with Waddell & Reed, customers are requested to share financial information and they may be asked to provide other personal details. Customers can be assured that Waddell & Reed is diligent in its efforts to keep such information confidential. Recognition of a Customer's Expectation of Privacy At Waddell & Reed, we believe the confidentiality and protection of customer information is one of our fundamental responsibilities. And while information is critical to providing quality service, we recognize that one of our most important assets is our customers' trust. Thus, the safekeeping of customer information is a priority for Waddell & Reed. Information Collected In order to tailor available financial products to your specific needs, Waddell & Reed may request that you complete a variety of forms that require nonpublic personal information about your financial history and other personal details, including but not limited to, your name, address, social security number, assets, income and investments. Waddell & Reed may also gather information about your transactions with us, our affiliates and others. Categories of Information that may be Disclosed While Waddell & Reed may disclose information it collects from applications and other forms, as described above, we at Waddell & Reed also want to assure all of our customers that whenever information is used, it is done with discretion. The safeguarding of customer information is an issue we take seriously. Categories of Parties to whom we disclose nonpublic personal information Waddell & Reed may disclose nonpublic personal information about you to the following types of third parties: selectively chosen financial service providers, whom we believe have valuable products or services that could benefit you. Whenever we do this, we carefully review the company and the product or service to make sure that it provides value to our customers. We share the minimum amount of information necessary for that company to offer its product or service. We may also share information with unaffiliated companies that assist us in providing our products and services to our customers; in the normal course of our business (for example, with consumer reporting agencies and government agencies); when legally required or permitted in connection with fraud investigations and litigation; and at the request or with the permission of a customer. Opt Out Right If you prefer that we not disclose nonpublic personal information about you to nonaffiliated third parties, you may opt out of those disclosures, that is, you may direct us not to make those disclosures (other than disclosures permitted by law). If you wish to opt out of disclosures to nonaffiliated third parties, please provide a written request to opt-out with your name and account number(s) or social security number to: Waddell & Reed, Attn: Opt Out Notices, P.O. Box 29220, Shawnee Mission, Kansas 66201. You may also call 1-888-Waddell and a Client Services Representative will assist you. Confidentiality and Security We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products and services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. If you decide to close your account(s) or become an inactive customer, we will adhere to the privacy policies and practices as described in this notice. Householding Notice If you currently receive one copy of the shareholder reports and prospectus for your household (even if more than one person in your household owns shares of the Fund) and you would prefer to receive separate shareholder reports and prospectuses for each account holder living at your address, you can do either of the following: Fax your request to 800-532-2749. Write to us at the address listed on the inside back cover for Waddell & Reed, Inc. Please list each account for which you would like to receive separate shareholder reports and prospectus mailings. We will resume sending separate documents within 30 days of receiving your request. To all traditional IRA Planholders: As required by law, income tax will automatically be withheld from any distribution or withdrawal from a traditional IRA unless you make a written election not to have taxes withheld. The election may be made on the distribution/withdrawal form provided by Waddell & Reed, Inc. which can be obtained from your Waddell & Reed financial advisor or by submitting Internal Revenue Service Form W-4P. Once made, an election can be revoked by providing written notice to Waddell & Reed, Inc. If you elect not to have tax withheld you may be required to make payments of estimated tax. Penalties may be imposed by the IRS if withholding and estimated tax payments are not adequate. W&R Funds, Inc. Asset Strategy Fund Core Equity Fund High Income Fund International Growth Fund Large Cap Growth Fund Limited-Term Bond Fund Mid Cap Growth Fund Money Market Fund Municipal Bond Fund Science and Technology Fund Small Cap Growth Fund Tax-Managed Equity Fund - ------------------------------------ FOR MORE INFORMATION: Contact your financial advisor, or your local office as listed on your Account Statement, or contact: WADDELL & REED CLIENT SERVICES 6300 Lamar Avenue P.O. Box 29217 Shawnee Mission, KS 66201-9217 (888) WADDELL (888) 923-3355 Our INTERNET address is: http://www.waddell.com WRR3000A(3-03) For more complete information regarding any of the mutual funds in W&R Funds, Inc., including charges and expenses, please obtain the Corporation's prospectus by calling or writing to the number or address listed above. Please read the prospectus carefully before investing. EX-99.(17)(V) 27 c78747exv99wx17yxvy.txt EX-(17)(V) IVY FUNDS ANNUAL REPORT - DECEMBER 2002 Exhibit (17)(v) IVY FUNDS [PICTURE OF GLOBE IN HANDS] This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus and current fund performance information. ANNUAL REPORT DECEMBER 31, 2002 IVY CUNDILL GLOBAL VALUE FUND IVY DEVELOPING MARKETS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND IVY GROWTH FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND IVY BOND FUND IVY MONEY MARKET FUND [IVY FUNDS LOGO] TABLE OF CONTENTS Letter from the President ........................................... 1 Management's Discussion and Analysis WORLDWIDE FUNDS Ivy Cundill Global Value Fund ......................... 2 Ivy Developing Markets Fund ........................... 4 Ivy European Opportunities Fund ....................... 6 Ivy Global Fund ....................................... 8 Ivy Global Natural Resources Fund ..................... 10 Ivy Global Science & Technology Fund .................. 12 Ivy International Fund ................................ 14 Ivy International Small Companies Fund ................ 16 Ivy International Value Fund .......................... 18 Ivy Pacific Opportunities Fund ........................ 20 DOMESTIC FUNDS Ivy Growth Fund ....................................... 22 Ivy US Blue Chip Fund ................................. 24 Ivy US Emerging Growth Fund ........................... 26 FIXED INCOME FUNDS Ivy Bond Fund ......................................... 28 Ivy Money Market Fund ................................. 30 Schedules of Investments ............................................. 32 Statements of Assets and Liabilities ................................. 54 Statements of Operations ............................................. 58 Statements of Changes in Net Assets .................................. 62 Financial Highlights ................................................. 68 Notes to Financial Statements ........................................ 96 January 1, 2003 Dear Shareholder, (PHOTO) Henry J.Herrmann "Ultimately, we believe that it is essential for serious investors to maintain a long-term perspective and a focus on financial goals. Remember, a financial strategy that is appropriate for you is appropriate regardless of inevitable market changes." As you no doubt have heard, Waddell & Reed Ivy Investment Company, a subsidiary of Waddell & Reed Financial, Inc., became manager and advisor to the Ivy Funds in December 2002.(*) As president and chief investment officer of Waddell & Reed Ivy Investment Company, I want to personally let you know that we are enthusiastic about our new relationship, and I think there is strong reason for you to be pleased as well. Waddell & Reed has been in the investment management business since 1937 and has garnered a reputation as one of the strongest, most fundamentally focused firms in the industry. We pledge to bring the full resources of our renowned investment management team to bear on the Ivy Funds going forward. Enclosed is our report on your Fund's operations for the 12 months ended December 31, 2002. While the last 12 months brought a wave of geopolitical turmoil and corporate accounting scandals that served to dash investor confidence for most of the year, economic news did turn more positive during the period. The U.S. economy, in fact, has been quite resilient throughout 2002, after enduring many challenges. The Federal Reserve reduced short-term interest rates in November to 1.25 percent, the lowest level in many years. By December 31, we recognized numerous factors that may point to better economic growth prospects in the future. Consumer spending continues to be the underlying support mechanism, while inflation remains tame and personal income has increased consistently. With meager inflation, low interest rates, manageable debt burdens and rising personal income, we expect the economy to steer clear of the "double dip" recession that has been predicted by some economists. While we do expect equity market volatility to continue, the underlying trends lead us to believe that the prospects for stocks are positive. We anticipate market support from tax relief and the possible elimination of the double taxation of dividends. While we do not expect returns similar to those experienced in the late 1990s, we believe the equity markets have the potential for positive returns in 2003. At December 31, virtually all of the primary equity indexes had shown negative returns, although a slight rally in the fourth quarter did moderate the declines slightly. For the last 12 months, the Dow Jones Industrial Average declined 14.94 percent. The other two major indexes suffered even more, with the S&P 500 Index declining 22.10 percent over the last 12 months, and the NASDAQ Composite Index declining 31.53 percent over the period. In contrast to stocks, bonds did much better during the last 12 months, as evidenced by the Salomon Brothers Broad Investment Grade Index's increase of 10.09 percent for the period. Skepticism surrounding corporate accounting, along with geopolitical uncertainty, has brought out some risk aversion among investors, driving them toward the more conservative fixed income securities. Bond performance over the period also has been aided by low and declining inflation rates and an accommodative Federal Reserve. The very nature of financial markets is one of fluctuation, of bulls and bears. While ongoing change can be disconcerting, we believe that the best way to approach a fluctuating market is to develop and maintain a diversified portfolio. From our experience, those who adhere to a structured and consistent investment program over time take advantage of opportunities presented by the market's periodic downdrafts. Ultimately, we believe that it is essential for serious investors to maintain a long-term perspective and a focus on financial goals. We believe that it remains important for all investors to review their investment asset allocation on a regular basis to ensure that it continues to adhere to individual risk tolerance and is adaptable to market changes. Remember, a financial strategy that is appropriate for you is appropriate regardless of inevitable market changes. Thank you for your investment in the Ivy Funds. Respectfully, /s/ Henry J. Herrmann - --------------------- Henry J. Herrmann President (*)With the exception of Ivy Global Natural Resources Fund, which is advised by Mackenzie Financial Corporation. IVY CUNDILL GLOBAL VALUE FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH. (PHOTO) Ivy Cundill Global Value Fund is sub-advised by Peter Cundill & Associates, Inc. The following is an interview with Peter Cundill, management team leader of the Fund. LIPPER CATEGORY Global "As always, our strategy will consist of bottom-up, individual stock selection using the `deep value' style of investing based on the principles of Benjamin Graham, the `father of value investing.' This strategy involves seeking out companies that we believe are trading below their intrinsic value." Q: PETER, HOW DID IVY CUNDILL GLOBAL VALUE FUND PERFORM IN 2002? A: For 2002, Ivy Cundill Global Value Fund returned -17.22%, including the impact of the maximum sales charge, and -12.17% without the sales charge. The Fund outperformed its benchmark, the MSCI World Index, which returned -19.89%, and its peer group (as measured by the Lipper Global Funds average), which returned -19.53%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Global markets were extremely volatile in 2002. Geopolitical concerns, corporate accounting scandals and sluggish economic growth worldwide caused the MSCI World Index, the most common indicator of global market performance, to show its worst annual decline in quite some time. The Ivy Cundill Global Value Fund also had a disappointing year. Despite a negative return, however, the Fund outperformed its index and peer group on a relative basis. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: North American holdings were the bright spot for the Fund in 2002. Exposure to North America remained consistent throughout the year, and the portfolio's positions held up well despite the economic slowdown. During the period, we were fully hedged on international currency exposure. As a result of foreign currency appreciation, the hedging had a negative effect on performance. In addition, holdings in Asia ex-Japan were weak in comparison with its respective regional markets and also had a negative effect. For most of 2002, the Fund's Japanese holdings limited the downside with strong performance. Unfortunately, the fourth quarter was not kind to the Japanese markets. Market sentiment deteriorated rapidly as fear of a hard landing from banking reform took hold. The Japanese market was hitting 20-year lows, and sentiment and valuations were rivaling 1998 and 1995 trough levels. Despite the "margin of safety" (the difference between the underlying value of the company and the price we are paying for it) and growing business values in the Fund's Japanese holdings, they were not spared in the sell-off. These declines negatively impacted performance toward the end of the year. Q: WHAT CHANGES WERE MADE? A: During the year, we strove to improve the quality of the portfolio by switching out of names that we believed no longer offered good value into stocks that we felt offered more attractive valuations and growth prospects. As investors rushed for the exits from Japan during the fourth quarter, for example, we took the opportunity to upgrade the Fund's Japanese holdings. We took advantage of Shiseido (cosmetics manufacturer) and Fast Retailing appreciating to our measure of fair value by fully divesting the Fund of these positions. We redeployed these funds into positions such as Aiful (consumer finance), Asatsu-DK (advertising agency) and existing positions. In Asia ex-Japan, we also took advantage of market weakness to upgrade the quality of the portfolio's holdings and buy more of our existing holdings. In North America, weak stock market sentiment gave us the opportunity to replace what we saw as fairly valued positions such as The Limited (US-based retailer) and IDT (US-based telecommunications company) with undervalued positions such as Liberty Media (US-based media) during the year. Q: WHAT IS YOUR STRATEGY FOR 2003? A: Although we were disappointed with performance in 2002, we are optimistic about the future. We believe that the "margin of safety" in the portfolio has improved as the discount to what we think the assets are worth has widened. We believe that weakness in the Fund's performance and global markets presents great opportunities for improving the quality of the portfolio. As always, our strategy will consist of bottom-up, individual stock selection using the "deep value" style of investing based on the principles of Benjamin Graham, the "father of value investing." This strategy involves seeking out companies that we believe are trading below their intrinsic value. In 2003, we will continue to be opportunistic and diligently search for value globally. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%.The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 2 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1YEAR 5 YEARS 10 YEARS INCEPTION ------------- ----- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (17.22%) N/A N/A (14.70%) ICDAX w/o Reimb. & 5.75% sales charge (19.42%) N/A N/A (22.36%) B SHARES w/Reimb. & w/ 5.00% CDSC (16.99%) N/A N/A (8.28%) ICDBX w/Reimb. & w/o 5.00% CDSC (12.62%) N/A N/A (5.25%) w/o Reimb. & w/ 5.00% CDSC (19.21%) N/A N/A (16.71%) w/o Reimb. & w/o 5.00% CDSC (14.94%) N/A N/A (13.96%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.75%) N/A N/A (7.57%) ICDCX w/Reimb. & w/o 1.00% CDSC (12.88%) N/A N/A (7.57%) w/o Reimb. & w/ 1.00% CDSC (15.97%) N/A N/A (16.09%) w/o Reimb. & w/o 1.00% CDSC (15.12%) N/A N/A (16.09%) I SHARES w/Reimb. N/A N/A N/A (5.23%) N/A w/o Reimb. N/A N/A N/A (21.18%) ADVISOR SHARES w/Reimb. (11.86%) N/A N/A (3.72%) ICDVX w/o Reimb. (14.21%) N/A N/A (12.48%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Advisor Class commenced operations April 19, 2000. Class A, B and C shares commenced operations on September 4, 2001, September 26, 2001 and October 19, 2001, respectively. Class I shares commenced operations on November 5, 2002. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Cundill Global Value Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/00) of a $10,000 Investment (Advisor Class Shares) [GRAPH]

MSCI WORLD IVY CUNDILL GLOBAL VALUE FUND INDEX ------------------------------- ---------- 19-Apr-00 10000 10000 30-Apr-00 10120 9576 31-May-00 9730 9332 30-Jun-00 10260 9646 31-Jul-00 9840 9373 31-Aug-00 10410 9677 30-Sep-00 10240 9161 31-Oct-00 10090 9006 30-Nov-00 10000 8458 31-Dec-00 10466 8594 31-Jan-01 10362 8763 28-Feb-01 10705 8022 31-Mar-01 10404 7490 30-Apr-01 10788 8039 31-May-01 11027 7927 30-Jun-01 10944 7678 31-Jul-01 10684 7585 31-Aug-01 10549 7220 30-Sep-01 9791 6583 31-Oct-01 9759 6708 30-Nov-01 9905 7104 31-Dec-01 10243 7148 31-Jan-02 10286 6931 28-Feb-02 10243 6870 31-Mar-02 10886 7173 30-Apr-02 11004 6929 31-May-02 11476 6940 30-Jun-02 10565 6518 31-Jul-02 10028 5968 31-Aug-02 9900 5978 30-Sep-02 9385 5320 31-Oct-02 9385 5712 30-Nov-02 9578 6019 31-Dec-02 9028 5727

The Morgan Stanley Capital International (MSCI) World Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Japan 35% 2. Canada 13% 3. US 8% 4. Hong Kong 5% 5. South Korea 4% 6. Switzerland 3% 7. India 2%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Consumer Discretionary 20% 2. Financials 15% 3. Healthcare 11% 4. Consumer Staples 9% 5. Industrials 8% 6. Materials 3% 7. Information Technology 3% 8. Telecommunication Services 2%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets -------- --------------------- 1. Asatsu-DK 5.0% 2. Sankyo Company, Limited 4.8% 3. Nikko Cordial Corporation 4.7% 4. Nippon Broadcasting System, Inc. 4.4% 5. Aiful Corporation 4.1% 6. Tokyo Broadcasting System, Inc. 3.9% 7. Torstar Corporation 3.7% 8. Lion Corporation 3.5% 9. QLT Inc. 3.4% 10. First Pacific Company Ltd. 3.3%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 3 IVY DEVELOPING MARKETS FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTMENT IN EQUITY SECURITIES OF COMPANIES THAT SHOULD BENEFIT FROM THE DEVELOPMENT AND GROWTH OF EMERGING MARKETS. (PHOTO) Note: Ivy Developing Markets Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Developing Markets Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Emerging Markets "We intend to concentrate on developing countries that possess unique opportunities of competitive advantage or niche strategies in an investor-friendly sovereign structure." Q: MOIRA, HOW DID IVY DEVELOPING MARKETS FUND PERFORM IN 2002? A: For 2002, Ivy Developing Markets Fund returned -17.32%, including the impact of the maximum sales charge, and -12.28% without the sales charge. The Fund underperformed its benchmark, the MSCI Emerging Markets Free Index, which returned -6.00%, and its peer group (as measured by the Lipper Emerging Markets Funds average), which returned -5.10%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Emerging markets fared considerably better than the world's major developed markets in 2002. At the beginning of the year, ample liquidity and hopes for a global recovery contributed to strong absolute performance. However, while the asset class continued to outperform on a relative basis, emerging equity markets were unable to shake-off turmoil in the rest of the world as the year progressed. Latin American markets suffered from a combination of global events and local crises. Stock markets in developing Asia posted mixed performance, with Hong Kong, Singapore and Taiwan all posting double-digit declines while smaller, more speculative markets such as Indonesia and Thailand posted gains. All the volatility caused the MSCI EMF Index to give up its first-quarter gains, and to end the year in negative territory. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's exposure to Taiwanese technology stocks had the largest negative effect on performance. These stocks performed strongly in the last quarter of 2001 and into the first quarter of 2002. However, they then sold off sharply as investors began to worry that the increased demand seen in the first quarter would decline as inventories were rebuilt. An overweight position in Brazil also hurt performance. Socialist rhetoric from the leading presidential candidate compounded fears that problems in Argentina would spill over to the Brazilian economy. This led to a sharp sell-off in both the Brazilian equity market and its currency, the real. While the Fund's export-oriented holdings did well as a result of the weakening real, its more domestically oriented names took a hit. Indonesia, Pakistan and Thailand were among the world's best performing markets in 2002. Performance suffered from lack of exposure to these high-risk markets. However, while the Fund missed out in those markets, it benefited from staying out of harm's way in Argentina, which fell 50% in dollar terms, and Venezuela, where trading has been suspended since the end of November due to a general strike designed to oust the President. Q: THOMAS, HOW WILL YOU POSITION THE FUND FOR 2003? A: Going forward, the Fund's emerging market exposure will likely be less broadly dispersed. We intend to concentrate on developing countries that possess unique opportunities of competitive advantage or niche strategies in an investor-friendly sovereign structure. We will closely monitor developments in these areas in an effort to limit risk and take advantage of exciting new investment opportunities that can emerge as these countries increase the size and efficiency of private business, often through a pro-business public policy and privatization of government-owned industry. In turn, the relative size and cost of the government sector should shrink, while the consumer and business sectors grow. In terms of stock selection, there will be an increased emphasis on strong growth characteristics as a basic requirement rather than the prior selection process that heavily favored undervalued stocks. Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each specific region or country. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%.The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 4 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (17.32%) (4.86%) N/A (6.40%) IVCAX w/o Reimb. & 5.75% sales charge (19.41%) (6.54%) N/A (8.11%) B SHARES w/Reimb. & w/ 5.00% CDSC (17.32%) (5.01%) N/A (6.53%) IVCBX w/Reimb. & w/o 5.00% CDSC (12.96%) (4.63%) N/A (6.53%) w/o Reimb. & w/ 5.00% CDSC (19.50%) (6.74%) N/A (8.25%) w/o Reimb. & w/o 5.00% CDSC (15.25%) (6.36%) N/A (8.25%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.93%) (4.60%) N/A (7.87%) IVCCX w/Reimb. & w/o 1.00% CDSC (13.06%) (4.60%) N/A (7.87%) w/o Reimb. & w/ 1.00% CDSC (16.19%) (6.43%) N/A (9.23%) w/o Reimb. & w/o 1.00% CDSC (15.34%) (6.43%) N/A (9.23%) ADVISOR SHARES w/Reimb. (11.96%) N/A N/A (5.66%) IVCVX w/o Reimb. (14.17%) N/A N/A (7.35%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A and Class B commenced operations November 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations April 30, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Developing Markets Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (11/94) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) [GRAPH]

IVY MSCI DEVELOPING EMERGING MARKETS MARKETS FUND FREE INDEX ------------ ---------------- 01-Nov-94 9425 10000 30-Nov-94 8845 9480 31-Dec-94 8152 8719 31-Jan-95 7459 7791 28-Feb-95 7567 7591 31-Mar-95 7874 7639 30-Apr-95 8059 7982 31-May-95 8518 8407 30-Jun-95 8362 8432 31-Jul-95 8775 8621 31-Aug-95 8705 8418 30-Sep-95 8748 8378 31-Oct-95 8431 8057 30-Nov-95 8389 7914 31-Dec-95 8675 8265 31-Jan-96 9480 8852 29-Feb-96 9317 8711 31-Mar-96 9211 8779 30-Apr-96 9508 9130 31-May-96 9700 9089 30-Jun-96 9786 9146 31-Jul-96 9135 8521 31-Aug-96 9336 8739 30-Sep-96 9432 8815 31-Oct-96 9326 8580 30-Nov-96 9537 8724 31-Dec-96 9701 8763 31-Jan-97 10161 9361 28-Feb-97 10497 9762 31-Mar-97 10257 9505 30-Apr-97 10248 9522 31-May-97 10708 9794 30-Jun-97 11177 10319 31-Jul-97 11149 10473 31-Aug-97 9701 9140 30-Sep-97 9682 9393 31-Oct-97 7861 7852 30-Nov-97 7276 7565 31-Dec-97 7041 7748 31-Jan-98 6710 7140 28-Feb-98 7753 7885 31-Mar-98 7939 8228 30-Apr-98 7722 8138 31-May-98 6649 7023 30-Jun-98 5936 6286 31-Jul-98 6081 6485 31-Aug-98 4419 4610 30-Sep-98 4821 4903 31-Oct-98 5678 5419 30-Nov-98 6359 5870 31-Dec-98 6219 5784 31-Jan-99 5620 5691 28-Feb-99 5444 5747 31-Mar-99 6157 6504 30-Apr-99 7645 7309 31-May-99 7614 7266 30-Jun-99 8358 8091 31-Jul-99 8037 7871 31-Aug-99 8017 7942 30-Sep-99 7676 7674 31-Oct-99 7872 7837 30-Nov-99 8378 8540 31-Dec-99 9124 9626 31-Jan-00 9061 9683 29-Feb-00 8999 9811 31-Mar-00 9197 9859 30-Apr-00 8239 8924 31-May-00 7855 8555 30-Jun-00 8510 8857 31-Jul-00 8427 8401 31-Aug-00 8500 8443 30-Sep-00 7834 7705 31-Oct-00 7199 7147 30-Nov-00 6523 6522 31-Dec-00 6953 6679 31-Jan-01 7684 7597 28-Feb-01 7016 7000 31-Mar-01 6337 6315 30-Apr-01 6723 6619 31-May-01 6869 6698 30-Jun-01 6598 6561 31-Jul-01 6347 6155 31-Aug-01 6118 6094 30-Sep-01 5126 5151 31-Oct-01 5523 5470 30-Nov-01 6159 6041 31-Dec-01 6640 6521 31-Jan-2002 6671 6742 28-Feb-2002 6723 6853 31-Mar-2002 7078 7265 30-Apr-2002 7162 7312 31-May-2002 7047 7196 30-Jun-2002 6462 6656 31-Jul-2002 5888 6150 31-Aug-2002 5992 6244 30-Sep-2002 5272 5571 31-Oct-2002 5648 5932 30-Nov-2002 6076 6340 31-Dec-2002 5825 6130

The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Past performance does not guarantee future results. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. South Korea 23% 2. Mexico 19% 3. Hong Kong 10% 4. Brazil 9% 5. Taiwan 9% 6. South Africa 6% 7. Poland 5% 8. Hungary 4% 9. United Kingdom 4% 10. Peru 3% 11. India 2% 12. Russia 2% 13. Luxembourg 2% 14. Chile 1% 15. Israel 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Telecommunication Services 21% 2. Financials 21% 3. Materials 16% 4. Information Technology 13% 5. Consumer Discretionary 10% 6. Consumer Staples 7% 7. Energy 7% 8. Industrials 5%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets - -------- --------------------- 1. Samsung Electronics 3.7% 2. Fomento Economico Mexicano 3.6% 3. POSCO 3.6% 4. Telefonos de Mexico S.A 3.5% 5. Kookmin Bank 3.5% 6. Korea Telecom Corporation 3.4% 7. Standard Bank Group Limited 3.2% 8. LG Chem Limited 3.0% 9. Grupo Financiero BBVA Banc 2.9% 10. Embraer Brasileira de Aeronautica 2.9%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 5 IVY EUROPEAN OPPORTUNITIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN COMPANIES LOCATED IN OR DOING BUSINESS IN EUROPE. [PHOTO] Ivy European Opportunities Fund is sub-advised by London-based Henderson Investment Management Limited. The following is an interview with Stephen Peak, head of Henderson's Continental European Equities Team and portfolio manager of Ivy European Opportunities Fund. LIPPER CATEGORY European Region "We expect to retain a relatively cautious approach over the short- to medium-term while continuing our focus on opportunities to purchase companies that have been heavily oversold." Q: STEPHEN, HOW DID IVY EUROPEAN OPPORTUNITIES FUND PERFORM IN 2002? A: For 2002, Ivy European Opportunities Fund returned -8.86%, including the impact of the maximum sales charge, and -3.30% without the sales charge. The Fund outperformed its benchmark, the MSCI Europe Index, which returned -18.38%, and its peer group (as measured by the Lipper European Region Funds average), which returned -17.36%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The year was difficult for European equity investors. Concerns initially centered on questions about when company earnings would start to improve. However, these concerns were soon eclipsed by fears that the US economic recovery was slowing down rapidly, as well as the growing threat of war between the US and Iraq. Many investors abandoned equities in favor of the safer havens offered by government bonds. European markets did rally strongly in the fourth quarter and were boosted further as the euro rose above parity with the US dollar and hit a three-year high. Following poor economic newsflow, particularly in Germany, the European Central Bank was persuaded to cut interest rates by 0.50% to 2.75% in early December, and this gave markets an added boost. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: We made some significant changes to the portfolio over 2002 that contributed positively to performance. For example, financials experienced heavy losses during the first three quarters, which led to some woeful performance within the sector. However, this financial distress also created interesting buying opportunities. As a result, we increased exposure to the sector. This strategy had a large positive effect on performance when financials proved to be one of the key sectors that underpinned the market advance in the fourth quarter. Conversely, tobacco stocks held up well throughout the year as the defensive European tobacco sector consistently outperformed the MSCI Europe Index. Our decision to sell and take profits from tobacco stocks, made during the fourth quarter of the year, proved beneficial to Fund performance. At the time, a significant move was made to shift into more attractively valued sectors with higher growth potential. Following a period of sustained underperformance for most of 2002, the European technology sector produced some good performance during the fourth quarter as investors took advantage of compelling valuations. However, it was technology-related and traditional cyclical stocks that suffered the largest losses in December as investors, increasingly cautious about the global economic and political prospects, took profits from November's gains. We retained our cautious approach toward technology, while at the same time continuing to focus on opportunities to purchase stocks that were overly hit by negative sentiment or that had resorted to fund raising to shore up their debts. We also established positions in companies with relatively stable businesses that we felt had been ignored by overly cautious investors. Q: WHAT IS OUR OUTLOOK AND STRATEGY GOING FORWARD? A: Because of ongoing political uncertainties and sluggish economic growth prospects, the outlook for European equities in 2003 remains uncertain. Valuations are no longer at the extremely distressed levels seen last September, but they are also not at the technically overbought levels reached at the end of November. In addition, risks abound over the potential war with Iraq and inflated oil prices. However, in our opinion European valuations remain relatively attractive, and we expect the region to perform well as the recovery gathers pace. Consequently, we believe the equity market will trade within a range until greater clarity -- on the economic, political and military fronts -- emerges. We expect to retain a relatively cautious approach over the short- to medium-term while continuing our focus on opportunities to purchase companies that have been heavily oversold. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 6 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (8.86)% N/A N/A 26.80% IEOAX w/o Reimb. & 5.75% sales charge (8.86)% N/A N/A 26.68% B SHARES w/Reimb. & w/ 5.00% CDSC (9.28)% N/A N/A 27.23% IEOBX w/Reimb. & w/o 5.00% CDSC (4.51)% N/A N/A 27.71% w/o Reimb. & w/ 5.00% CDSC (9.28)% N/A N/A 27.13% w/o Reimb. & w/o 5.00% CDSC (4.51)% N/A N/A 27.57% C SHARES w/Reimb. & w/ 1.00% CDSC (5.44)% N/A N/A 5.50% IEOCX w/Reimb. & w/o 1.00% CDSC (4.49)% N/A N/A 5.50% w/o Reimb. & w/ 1.00% CDSC (5.44)% N/A N/A 5.41% w/o Reimb. & w/o 1.00% CDSC (4.49)% N/A N/A 5.41% I SHARES w/Reimb. (3.34)% N/A N/A (19.93)% N/A w/o Reimb. (3.34)% N/A N/A (19.93)% ADVISOR SHARES w/Reimb. (3.33)% N/A N/A 29.21% IEOVX w/o Reimb. (3.33)% N/A N/A 28.96%

CDSC = Contingent Deferred Sales Charge Advisor Class and I Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations May 4, 1999; Class B commenced operations May 24, 1999; Class C commenced operations October 24, 1999; Class I commenced operations March 16, 2000; Advisor Class commenced operations May 4, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy European Opportunities Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (5/99) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy European MSCI Opportunities Europe Fund Index ------------- ------ 05-May-99 9,425 10,000 30-May-99 10,969 9,520 30-Jun-99 16,119 9,680 31-Jul-99 17,890 9,770 31-Aug-99 18,812 9,870 30-Sep-99 18,671 9,793 31-Oct-99 19,534 10,154 30-Nov-99 26,034 10,428 31-Dec-99 29,743 11,496 31-Jan-2000 31,844 10,678 29-Feb-2000 42,748 11,234 31-Mar-2000 43,078 11,506 30-Apr-2000 39,362 10,998 31-May-2000 38,182 10,908 30-Jun-2000 40,404 11,142 31-Jul-2000 39,067 10,964 31-Aug-2000 38,702 10,835 30-Sep-2000 36,167 10,328 31-Oct-2000 34,171 10,249 30-Nov-2000 29,569 9,853 31-Dec-2000 31,084 10,532 31-Jan-2001 31,751 10,546 28-Feb-2001 30,652 9,621 31-Mar-2001 27,156 8,896 30-Apr-2001 27,210 9,517 31-May-2001 27,318 9,030 30-Jun-2001 24,975 8,685 31-Jul-2001 24,435 8,741 31-Aug-2001 24,957 8,514 30-Sep-2001 20,741 7,664 31-Oct-2001 21,876 7,908 30-Nov-2001 23,642 8,225 31-Dec-2001 24,661 8,436 31-Jan-2002 23,758 7,995 28-Feb-2002 23,993 7,994 31-Mar-2002 26,631 8,427 30-Apr-2002 27,335 8,363 31-May-2002 28,419 8,337 30-Jun-2002 27,245 8,048 31-Jul-2002 24,246 7,152 31-Aug-2002 24,481 7,151 30-Sep-2002 21,445 6,210 31-Oct-2002 22,493 6,810 30-Nov-2002 24,246 7,145 31-Dec-2002 23,848 6,886

If the Fund had not invested in IPOs, the one-year and since-inception average annual returns would have been (3.30)% and 1.03% respectively. The since-inception cumulative return with sales charge was 138.48%. If the Fund had not invested in IPOs, the since-inception cumulative return would have been (3.82)%. The Morgan Stanley Capital International (MSCI) Europe Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. The Ivy European Opportunities Fund was initially seeded on April 26, 1999, commenced operations on May 4, 1999 and received initial subscriptions on May 5, 1999, the date proceeds from share sales were invested according to Ivy European Opportunities Fund's investment objective. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets 1. United Kingdom 33% 2. Netherlands 18% 3. France 16% 4. Switzerland 8% 5. Greece 6% 6. Germany 5% 7. Spain 4% 8. South Africa 3% 9. Finland 2% 10. Italy 2% 11. Denmark 1% 12. Austria 1% 13. Belgium 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets 1. Consumer Discretionary 25% 2. Industrials 25% 3. Financials 22% 4. Information Technology 7% 5. Consumer Staples 7% 6. Materials 5% 7. Energy 5% 8. Telecommunication Services 3% 9. Utilities 1%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets 1. IHC Caland NV 3.8% 2. Sagem SA 3.5% 3. Nasper Limited 3.3% 4. Fugro NV 3.2% 5. Aegon NV 3.0% 6. Zurich Financial Services AG 2.9% 7. Shell Transport & Trading Co. 2.8% 8. Hellenic Telecommunications Org. 2.8% 9. PHS Group plc 2.7% 10. easyJet plc 2.5%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 7 IVY GLOBAL FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN STOCKS OF COMPANIES WORLDWIDE -- INCLUDING THE US. [PHOTO] Note: Ivy Global Fund utilized a dual management approach until December 16th, 2002. The international portion was managed by Moira McLachlan and the Ivy International Equities team, while the US portion was managed by Paul Baran. At right, they discuss factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Global Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Global "Our basic stock selection approach will focus on what we feel are stable companies with impressive corporate management, in sectors best positioned for the current market environment." Q: HOW DID IVY GLOBAL FUND PERFORM IN 2002? A: For 2002, Ivy Global Fund returned -25.01%, including the impact of the maximum sales charge, and -20.44% without the sales charge. The Fund underperformed its benchmark, the MSCI World Index, which returned -19.89%, and its peer group (as measured by the Lipper Global Funds average), which returned -19.53%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: International markets were extremely volatile in 2002, and this contributed to the Fund's negative return. Equities around the world were dragged down by sluggish economic growth, poor corporate profits and the Iraq situation. The performance of the Fund's international portion was particularly hurt by an underweight in Japan, a market that was relatively resilient in 2002. Stock selection in Japan was another negative. A number of Japanese holdings were impacted as investors became concerned about the pace of the global recovery and the strength of external demand. Poor stock selection in the UK also had a negative impact. Stock selection in France had the most significant positive impact on performance. In the US, 2002 saw a continuation of the bear market that began in early 2000. In this challenging environment, the performance of the US portion was positively affected by our avoidance of "disaster stocks" in high-profile companies that experienced financial scandals. Performance also benefited from holdings in the banking sector, many of which rose in price during the period. Certain consumer stocks also increased in price, while others declined but still outperformed the market. In addition, underexposure to the troubled electricity merchant-area helped performance, as did our stock picks in the general energy area. Performance was negatively impacted by investments in the technology sector. AOL Time Warner also hurt performance, as did Home Depot, Schering-Plough and Bristol-Myers. Q: THOMAS, WHAT IS YOUR STRATEGY FOR IVY GLOBAL FUND GOING FORWARD? A: We intend to focus more on stocks with strong growth characteristics and less on stocks that appear to be undervalued. Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region. Our basic stock selection approach will focus on what we feel are stable companies with impressive corporate management, in sectors best positioned for the current market environment. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: We expect global equity markets to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. In this environment of little or no corporate pricing power, we will seek investments in companies that we feel are best able to thrive. Our North American focus will be on companies with earnings that we believe are sustainable despite the risk of an Iraqi war and the possibility of weaker U.S. consumer spending. In Continental Europe, we believe that the best opportunities are likely in growth companies with defensive characteristics such as consumer product focus, impressive management, strong balance sheets, attractive dividend yields and solid competitive market position. In Britain, growth stocks should, in our opinion, still be able to benefit from the relatively strong domestic economy. Despite continuing imbalances in Japan's economy, we feel that there are still quality companies with good growth prospects, especially some of the larger exporters. In Asia, we prefer to concentrate our holdings in industry leaders that benefit from continued Chinese dominance of business demand in the region. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 8 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (25.01)% (6.19)% 0.66% 1.41% MCGLX w/o Reimb. & 5.75% sales charge (26.80)% (7.43)% (0.09)% 0.44)% B SHARES w/Reimb. & w/ 5.00% CDSC (26.14)% (6.54)% N/A (2.09)% IVGBX w/Reimb. & w/o 5.00% CDSC (22.25)% (6.17)% N/A (2.09)% w/o Reimb. & w/ 5.00% CDSC (27.90)% (7.78)% N/A (2.86)% w/o Reimb. & w/o 5.00% CDSC (24.10)% (7.41)% N/A (2.86)% C SHARES w/Reimb. & w/ 1.00% CDSC (23.51)% (6.45)% N/A (5.89)% IVGCX w/Reimb. & w/o 1.00% CDSC (22.73)% (6.45)% N/A (5.89)% w/o Reimb. & w/ 1.00% CDSC (25.30)% (7.71)% N/A (6.84)% w/o Reimb. & w/o 1.00% CDSC (24.54)% (7.71)% N/A (6.84)% ADVISOR SHARES w/Reimb. (21.36)% N/A N/A (9.29)% IVGVX w/o Reimb. (23.23)% N/A N/A (10.84)%

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations April 18, 1991; Class B commenced operations April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations April 30, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Global Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/91) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy MSCI Global World Fund Index ------ ------ 15-Apr-91 9,425 10,000 01-May-91 9,331 10,075 31-May-91 9,472 10,300 28-Jun-91 8,871 9,661 31-Jul-91 9,258 10,114 30-Aug-91 9,465 10,079 30-Sep-91 9,531 10,340 31-Oct-91 9,692 10,505 30-Nov-91 9,277 10,044 31-Dec-91 10,113 10,772 31-Jan-92 10,444 10,569 29-Feb-92 10,614 10,384 31-Mar-92 10,330 9,891 29-Apr-92 10,595 10,026 29-May-92 10,880 10,422 30-Jun-92 10,637 10,069 31-Jul-92 10,627 10,092 31-Aug-92 10,445 10,334 30-Sep-92 10,274 10,236 31-Oct-92 10,163 9,955 30-Nov-92 10,213 10,130 31-Dec-92 10,389 10,209 31-Jan-93 10,492 10,240 28-Feb-93 10,441 10,480 31-Mar-93 10,800 11,084 30-Apr-93 11,015 11,595 31-May-93 11,241 11,859 30-Jun-93 11,120 11,756 31-Jul-93 11,120 11,995 31-Aug-93 11,737 12,542 30-Sep-93 11,601 12,308 31-Oct-93 12,334 12,644 30-Nov-93 12,470 11,926 31-Dec-93 13,467 12,506 31-Jan-94 14,240 13,328 28-Feb-94 13,800 13,153 31-Mar-94 13,006 12,583 30-Apr-94 13,312 12,969 31-May-94 13,492 12,999 30-Jun-94 12,977 12,960 31-Jul-94 13,729 13,204 31-Aug-94 14,301 13,598 30-Sep-94 13,881 13,238 31-Oct-94 13,913 13,611 30-Nov-94 13,232 13,018 31-Dec-94 12,848 13,141 31-Jan-95 12,283 12,941 28-Feb-95 12,451 13,126 31-Mar-95 12,826 13,756 30-Apr-95 13,281 14,232 31-May-95 13,714 14,350 30-Jun-95 13,654 14,343 31-Jul-95 14,249 15,057 31-Aug-95 14,108 14,718 30-Sep-95 14,370 15,144 31-Oct-95 13,976 14,902 30-Nov-95 14,227 15,416 31-Dec-95 14,400 15,864 31-Jan-96 15,254 16,148 29-Feb-96 15,327 16,243 31-Mar-96 15,447 16,509 30-Apr-96 16,048 16,894 31-May-96 16,133 16,906 30-Jun-96 16,084 16,988 31-Jul-96 15,230 16,384 31-Aug-96 15,724 16,569 30-Sep-96 16,000 17,214 31-Oct-96 16,145 17,331 30-Nov-96 16,626 18,299 31-Dec-96 16,734 18,002 31-Jan-97 17,242 18,216 28-Feb-97 17,484 18,422 31-Mar-97 17,319 18,054 30-Apr-97 17,281 18,641 31-May-97 18,157 19,788 30-Jun-97 18,831 20,771 31-Jul-97 19,466 21,725 31-Aug-97 17,674 20,268 30-Sep-97 18,500 21,366 31-Oct-97 16,061 20,238 30-Nov-97 15,400 20,592 31-Dec-97 15,276 20,840 31-Jan-98 15,485 21,417 28-Feb-98 17,288 22,862 31-Mar-98 18,392 23,824 30-Apr-98 18,532 24,054 31-May-98 17,875 23,749 30-Jun-98 16,799 24,309 31-Jul-98 16,841 24,266 31-Aug-98 13,487 21,026 30-Sep-98 13,361 21,395 31-Oct-98 14,982 23,325 30-Nov-98 16,296 24,709 31-Dec-98 16,588 25,912 31-Jan-99 16,441 26,476 28-Feb-99 16,017 25,767 31-Mar-99 16,808 26,837 30-Apr-99 18,640 27,891 31-May-99 18,039 26,868 30-Jun-99 19,563 28,117 31-Jul-99 19,314 28,029 31-Aug-99 19,402 27,975 30-Sep-99 18,815 27,700 31-Oct-99 19,226 29,136 30-Nov-99 19,621 29,952 31-Dec-99 20,985 32,373 31-Jan-00 19,515 30,515 29-Feb-00 19,421 30,594 31-Mar-00 20,625 32,705 30-Apr-00 19,875 31,318 31-May-00 19,703 30,522 30-Jun-00 20,844 31,546 31-Jul-00 20,719 30,654 31-Aug-00 21,141 31,647 30-Sep-00 19,421 29,961 31-Oct-00 19,093 29,455 30-Nov-00 17,748 27,663 31-Dec-00 18,066 28,107 31-Jan-01 18,423 28,660 28-Feb-01 16,655 26,236 31-Mar-01 15,449 24,494 30-Apr-01 16,621 26,293 31-May-01 16,366 25,925 30-Jun-01 15,823 25,111 31-Jul-01 15,636 24,807 31-Aug-01 14,871 23,612 30-Sep-01 13,256 21,529 31-Oct-01 13,732 21,940 30-Nov-01 14,684 23,233 31-Dec-01 14,803 23,378 31-Jan-2002 14,412 22,667 28-Feb-2002 14,378 22,468 31-Mar-2002 14,956 23,458 30-Apr-2002 14,412 22,660 31-May-2002 14,327 22,698 30-Jun-2002 13,562 21,317 31-Jul-2002 12,407 19,518 31-Aug-2002 12,322 19,552 30-Sep-2002 10,911 17,399 31-Oct-2002 11,897 18,681 30-Nov-2002 12,542 19,686 31-Dec-2002 11,778 18,729

The Morgan Stanley Capital International (MSCI) World Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. US 55% 2. United Kingdom 10% 3. Japan 7% 4. France 6% 5. Netherlands 5% 6. Switzerland 4% 7. Germany 3% 8. Mexico 2% 9. Australia 2% 10. Italy 2% 11. Spain 1% 12. South Korea 1% 13. Finland 1% 14. Hong Kong 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Financials 23% 2. Consumer Discretionary 14% 3. Information Technology 12% 4. Industrials 11% 5. Healthcare 10% 6. Consumer Staples 10% 7. Materials 6% 8. Telecommunication Services 6% 9. Energy 5% 10. Utilities 3%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets -------- --------------------- 1. Microsoft Corporation 2.1% 2. S&P 500 Depository Receipts 1.9% 3. Exxon Mobil Corporation 1.9% 4. General Electric Company 1.8% 5. Wal-Mart Stores, Inc. 1.8% 6. Unilever plc 1.4% 7. HBOS plc 1.4% 8. Citigroup Inc. 1.4% 9. Pfizer Inc. 1.3% 10. Vodafone AirTouch plc 1.3%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 9 IVY GLOBAL NATURAL RESOURCES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN EQUITY SECURITIES OF COMPANIES THAT EXPLORE, DEVELOP, PRODUCE AND/OR DISTRIBUTE NATURAL RESOURCES AND OTHER BASIC COMMODITIES, OR IN THOSE THAT SUPPLY GOODS AND SERVICES TO SUCH COMPANIES. [PHOTO] The following is an interview with Fred Sturm, portfolio manager of Ivy Global Natural Resources Fund and member of the Mackenzie Financial Corporation investment team, the Fund's investment advisor. LIPPER CATEGORY Natural Resources "Looking at the resources sector as a whole, we believe that while stronger performance from other sectors may hold back resource stocks, economic activity should support commodity prices going forward." Q: FRED, HOW DID IVY GLOBAL NATURAL RESOURCES FUND PERFORM IN 2002? A: For 2002, Ivy Global Natural Resources Fund returned -1.35%, including the impact of the maximum sales charge, and 4.66% without the sales charge. The Fund outperformed its benchmark, the MSCI Commodities-Related Index, which returned - -5.26%, and its peer group (as measured by the Lipper Natural Resources Funds average), which returned -6.25%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The natural resources sector held up better than the broader stock market, but it still showed disappointing results for the year. The third quarter was particularly volatile as investors worried about a possible double dip recession and the resultant downward revision in earnings expectations. However, both the market and the sector rallied in the fourth quarter. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Although the Fund performed well relative to its benchmark and peer group, absolute performance was disappointing. This was due to two factors: broader market fears of a double-dip recession, and our somewhat early entry into the more depressed areas of the market. For example, although the Fund successfully bypassed the carnage in independent energy producers, we made some initial purchases in that area -- to take advantage of depressed prices, which in our view offered good buying opportunities -- during the year that have yet to bear fruit. However, our three-part investment strategy led to some strong relative performance throughout the year. The first part of the strategy involves anchoring the portfolio with international low-cost leaders. This led to gains in 2002 as we emphasized leading low-cost Canadian energy and Brazilian pulp producers over their US counterparts. Strong performance from world-class nickel producer Inco, a Canadian company, also helped the Fund. Augmenting the portfolio with companies adding value through exploration and development is the second part of the strategy, and this, too, helped performance. For example, our stock selection in energy services and gold focused on growth-oriented smaller companies, many of which outperformed the larger-cap producers. Finally, we seek to take advantage of commodity price trends by making subsector shifts when necessary. This yielded positive results in the precious metals and energy areas. The Fund had a proportionally larger weighting in gold (which performed strongly) than its competitors, but as gold became more expensive we reduced the Fund's gold weighting and increased exposure to energy, a move that helped performance in the first half of 2002. Q: DID THE FUND BENEFIT FROM CONSOLIDATION IN THE RESOURCES SECTOR? A: Yes. Undervalued companies often become takeover targets, and the initial benefits accrue to the target, rather than the acquirer. We were fortunate over the year to identify acquisition targets and to benefit from this trend. For example, we invested in Fording, a leading producer of metallurgical coal, and later sold at meaningful gains into a takeover bid. Q: WHAT IS YOUR STRATEGY GOING FORWARD? A: We believe that both gold and oil prices, having risen in anticipation of war with Iraq, may trade lower once this issue gets more clarity. With this in mind, we reduced exposure to gold, using the proceeds to increase the Fund's weightings in forest products, but have maintained a significant energy exposure because we believe that energy stocks still have room to advance after a pullback in oil prices. Looking at the resources sector as a whole, we believe that while stronger performance from other sectors may hold back resource stocks, economic activity should support commodity prices going forward. Resource sectors also tend to perform well when currencies are under pressure. For reasons of inflation protection, portfolio diversification and return opportunities, we believe that the Fund continues to merit attention. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 10 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (1.35)% 4.49% N/A 4.90% IGNAX w/o Reimb. & 5.75% sales charge (1.52)% 2.19% N/A 2.96% B SHARES w/Reimb. & w/ 5.00% CDSC (1.48)% 4.63% N/A 5.05% IGNBX w/Reimb. & w/o 5.00% CDSC 3.52% 4.96% N/A 5.18% w/o Reimb. & w/ 5.00% CDSC (1.66)% 2.45% N/A 3.22% w/o Reimb. & w/o 5.00% CDSC 3.34% 2.78% N/A 3.35% C SHARES w/Reimb. & w/ 1.00% CDSC 2.46% 4.63% N/A 4.87% IGNCX w/Reimb. & w/o 1.00% CDSC 3.46% 4.63% N/A 4.87% w/o Reimb. & w/ 1.00% CDSC 2.28% 2.01% N/A 2.67% w/o Reimb. & w/o 1.00% CDSC 3.28% 2.01% N/A 2.67% ADVISOR SHARES w/Reimb. 4.46% N/A N/A 15.14% IGNVX w/o Reimb. 4.29% N/A N/A 12.99%

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class commenced operations April 8, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Global Natural Resources Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (1/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy Global MSCI Natural Commodity- Resources Related Fund Index 02-Jan-97 9,425 10,000 31-Jan-97 10,151 10,053 28-Feb-97 11,112 9,916 31-Mar-97 10,264 9,709 30-Apr-97 10,452 9,621 31-May-97 11,546 10,326 30-Jun-97 10,980 10,416 31-Jul-97 11,376 11,218 31-Aug-97 11,810 11,093 30-Sep-97 13,138 11,617 31-Oct-97 11,536 10,788 30-Nov-97 9,368 10,041 31-Dec-97 10,080 9,778 31-Jan-98 10,315 9,714 28-Feb-98 10,359 10,012 31-Mar-98 10,527 10,357 30-Apr-98 11,232 10,600 31-May-98 9,722 9,662 30-Jun-98 8,581 9,216 31-Jul-98 7,865 8,359 31-Aug-98 5,940 6,937 30-Sep-98 6,947 8,609 31-Oct-98 7,719 9,126 30-Nov-98 7,384 8,569 31-Dec-98 7,122 8,349 31-Jan-99 7,279 7,937 28-Feb-99 6,975 7,921 31-Mar-99 8,102 8,554 30-Apr-99 9,668 10,152 31-May-99 8,823 9,416 30-Jun-99 9,296 10,067 31-Jul-99 9,657 9,815 31-Aug-99 9,905 10,043 30-Sep-99 10,649 10,140 31-Oct-99 9,815 9,761 30-Nov-99 9,634 9,634 31-Dec-99 10,040 10,140 31-Jan-2000 9,725 9,308 29-Feb-2000 9,522 8,700 31-Mar-2000 9,837 9,748 30-Apr-2000 9,849 9,752 31-May-2000 10,232 10,435 30-Jun-2000 10,694 9,553 31-Jul-2000 10,198 9,286 31-Aug-2000 11,088 9,970 30-Sep-2000 10,773 9,574 31-Oct-2000 9,995 9,845 30-Nov-2000 9,556 10,072 31-Dec-2000 11,030 11,715 31-Jan-2001 11,404 11,050 28-Feb-2001 11,958 11,062 31-Mar-2001 11,494 10,378 30-Apr-2001 13,125 11,476 31-May-2001 13,861 11,778 30-Jun-2001 13,034 11,217 31-Jul-2001 11,845 11,547 31-Aug-2001 11,607 11,433 30-Sep-2001 10,248 10,398 31-Oct-2001 11,460 10,825 30-Nov-2001 11,664 11,275 31-Dec-2001 12,728 11,540 31-Jan-2002 13,165 11,860 28-Feb-2002 14,248 12,217 31-Mar-2002 15,665 12,796 30-Apr-2002 15,964 12,583 31-May-2002 16,575 13,055 30-Jun-2002 14,928 12,597 31-Jul-2002 12,532 10,806 31-Aug-2002 13,016 11,021 30-Sep-2002 12,014 10,281 31-Oct-2002 12,509 10,430 30-Nov-2002 12,831 11,025 31-Dec-2002 13,322 10,933

The Morgan Stanley Capital International (MSCI) Commodity-Related Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. US 40% 2. Canada 32% 3. South Africa 8% 4. Brazil 7% 5. Finland 4% 6. Mexico 4% 7. Peru 2% 8. Australia 1% 9. France 1% 10. Norway 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Materials 48% 2. Energy 44% 3. Industrials 3% 4. Utilities 2% 5. Consumer Staples 1%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets -------- --------------------- 1. Impala Platinum Holdings Limited 5.1% 2. Trican Well Service Ltd. 4.9% 3. NQL Drilling Tools Inc. 4.3% 4. National-Oilwell, Inc. 4.2% 5. Cemex S.A. De C.V 4.1% 6. Votorantim Celulose e Papel 3.1% 7. Outokumpu Oyj 3.0% 8. Noble Corporation 3.0% 9. Stelmar Shipping Ltd. 2.9% 10 Canadian Natural Resources Ltd. 2.8%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 11 IVY GLOBAL SCIENCE & TECHNOLOGY FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING PRIMARILY IN THE COMMON STOCK OF COMPANIES THAT ARE EXPECTED TO BENEFIT FROM THE DEVELOPMENT, ADVANCEMENT AND/OR USE OF SCIENCE AND TECHNOLOGY. [PHOTO] Note: Ivy Global Science & Technology Fund was managed by James W. Broadfoot until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. Zachary H. Shafran, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Global Science & Technology Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Science & Technology "We intend to continue to scan the global markets in search of investments to construct a diverse investment portfolio within the science and technology areas." Q: JIM, HOW DID IVY GLOBAL SCIENCE & TECHNOLOGY FUND PERFORM IN 2002? A: For 2002, Ivy Global Science & Technology Fund returned -49.44%, including the impact of the maximum sales charge, and -46.36% without the sales charge. The Fund underperformed its benchmark, the Russell 3000 Technology Index, which returned -39.06%, as well as its peer group (as measured by the Lipper Science and Technology Funds average), which returned -43.01%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Economic weakness, threats of war, accounting scandals and large declines in the broader market all took their toll on the technology sector in 2002. These issues made investors extremely nervous, leading them to shun higher-risk stocks. It was no surprise, then, to see that technology and telecom were the two worst performing equity sectors in 2002. Investors did not want to hold risky assets. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's small- and mid-cap bias had a negative impact on performance as smaller-cap, higher-risk stocks significantly underperformed larger-cap names. Performance was also negatively impacted by holdings in the semiconductor area, which tends to be one of the more volatile technology sectors. These stocks rallied in the fourth quarter, but experienced difficult second and third quarters. In 2002, corporate IT departments continued to hold back on spending, and this negatively affected some of the Fund's software holdings. For example, software companies that sell their products to retailers suffered as consumer spending declined toward the end of the period. Firm-specific issues in certain videogame holdings also hurt performance, as did an underweight in large technology companies such as Microsoft and Dell. Both comprise a large portion of the Russell 3000 Technology Index and showed better relative performance than the Fund's smaller technology holdings. On the positive side, some of the Fund's healthcare names did well. Stocks such as Teva Pharmaceutical Industries, a leading manufacturer of generic drugs, and Varian Medical Systems, a manufacturer of X-ray and oncology products, showed positive returns for the period. Consumer-related holdings also did well, despite a pullback in the fourth quarter. In addition, a number of the Fund's government- and defense-related stocks showed positive returns. Q: ZACK, WHAT IS YOUR OUTLOOK FOR 2003? A: Following three years of poor equity market performance, with the global science and technology sectors being particularly hard hit, many expect 2003 to be a year of recovery. But while we believe there are signs of economic recovery and market stabilization, the potential for a sharp sustained rise in corporate profits is, in our view, unlikely in the near term. The lingering effects of overcapacity, particularly in technology, have created an especially difficult competitive environment. Healthcare, particularly in the developed world is suffering from just the opposite: inflation. It is in this type of a slow growth, competitive environment that companies with the potential to grow through execution and innovation will be rewarded. Q: HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD? A: Upon commencing management of the Fund in late December 2002, we repositioned for increased exposure in healthcare and decreased exposure in technology. We also raised the cash reserve position. In light of our 2003 outlook, we are unable to identify a broad based "market moving" theme. We are therefore working diligently to identify individual companies that meet our investment criteria. We will likely not position the Fund to track a particular index, either by industry, subsector, or geography. Rather, we intend to continue to scan the global markets in search of investments to construct a diverse investment portfolio within the science and technology areas. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 12 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------- -------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (49.44)% (15.95)% N/A (4.67)% IVTAX w/o Reimb. & 5.75% sales charge (50.13)% (16.23)% N/A (4.94)% B SHARES w/Reimb. & w/ 5.00% CDSC (49.55)% (15.97)% N/A (4.64)% IVTBX w/Reimb. & w/o 5.00% CDSC (46.89)% (15.63)% N/A (4.50)% w/o Reimb. & w/ 5.00% CDSC (50.26)% (16.26)% N/A (4.91)% w/o Reimb. & w/o 5.00% CDSC (47.64)% (15.92)% N/A (4.76)% C SHARES w/Reimb. & w/ 1.00% CDSC (47.32)% (15.58)% N/A (4.42)% IVTCX w/Reimb. & w/o 1.00% CDSC (46.79)% (15.58)% N/A (4.42)% w/o Reimb. & w/ 1.00% CDSC (48.06)% (15.87)% N/A (4.68)% w/o Reimb. & w/o 1.00% CDSC (47.54)% (15.87)% N/A (4.68)% ADVISOR SHARES w/Reimb. (46.25)% N/A N/A (18.23)% IVTVX w/o Reimb. (46.98)% N/A N/A (18.49)%

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations July 22, 1996; Advisor Class commenced operations April 15, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Global Science & Technology Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (7/96) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy Global Science Russell & 3000 Technology Technology Fund Index ---------- ---------- 22-Jul-96 9,425 10,000 31-Jul-96 9,491 10,000 31-Aug-96 11,084 10,484 30-Sep-96 14,081 11,633 31-Oct-96 14,467 11,610 30-Nov-96 14,995 13,242 31-Dec-96 15,489 12,845 31-Jan-97 15,905 14,233 28-Feb-97 14,186 12,957 31-Mar-97 12,523 12,309 30-Apr-97 12,420 13,241 31-May-97 15,017 14,569 30-Jun-97 15,716 14,665 31-Jul-97 16,821 17,413 31-Aug-97 16,981 17,143 30-Sep-97 18,322 17,630 31-Oct-97 17,132 16,075 30-Nov-97 16,764 16,331 31-Dec-97 16,500 15,396 31-Jan-98 16,566 16,334 28-Feb-98 18,030 17,994 31-Mar-98 18,644 18,021 30-Apr-98 18,956 19,160 31-May-98 17,501 17,769 30-Jun-98 18,634 19,304 31-Jul-98 18,030 19,752 31-Aug-98 14,158 16,342 30-Sep-98 16,037 18,784 31-Oct-98 16,642 20,041 30-Nov-98 19,126 22,510 31-Dec-98 22,318 25,902 31-Jan-99 24,745 29,831 28-Feb-99 22,129 26,049 31-Mar-99 24,736 27,671 30-Apr-99 24,679 28,225 31-May-99 24,443 28,242 30-Jun-99 27,446 31,857 31-Jul-99 26,625 31,885 31-Aug-99 28,391 33,866 30-Sep-99 30,025 33,402 31-Oct-99 33,774 34,060 30-Nov-99 40,216 38,494 31-Dec-99 49,670 46,166 31-Jan-2000 49,791 44,255 29-Feb-2000 64,926 52,588 31-Mar-2000 60,792 55,212 30-Apr-2000 49,781 50,105 31-May-2000 43,382 44,724 30-Jun-2000 51,681 50,287 31-Jul-2000 48,481 47,823 31-Aug-2000 55,876 54,322 30-Sep-2000 50,767 45,821 31-Oct-2000 42,153 42,792 30-Nov-2000 27,659 32,980 31-Dec-2000 28,316 30,187 31-Jan-2001 31,247 34,751 28-Feb-2001 20,540 24,913 31-Mar-2001 15,583 21,268 30-Apr-2001 19,728 25,013 31-May-2001 18,843 23,910 30-Jun-2001 18,329 24,066 31-Jul-2001 15,963 22,513 31-Aug-2001 13,700 19,690 30-Sep-2001 10,697 15,727 31-Oct-2001 11,952 18,578 30-Nov-2001 13,165 21,686 31-Dec-2001 13,690 21,341 31-Jan-2002 13,104 21,510 28-Feb-2002 10,934 18,316 31-Mar-2002 12,271 19,588 30-Apr-2002 10,903 17,277 31-May-2002 9,977 16,648 30-Jun-2002 8,969 14,477 31-Jul-2002 7,550 13,129 31-Aug-2002 7,251 13,009 30-Sep-2002 6,490 10,672 31-Oct-2002 7,385 12,864 30-Nov-2002 8,383 15,175 31-Dec-2002 7,344 13,004

The Russell 3000 Technology Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. US 89% 2. Japan 4% 3. Switzerland 4% 4. United Kingdom 3%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets --------------------- 1. Healthcare 38% 2. Information Technology 12% 3. Energy 12% 4. Industrials 12% 5. Consumer Discretionary 3% 6. Telecommunication Services 2% 7. Materials 2%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets --------------------- 1. Forest Laboratories, Inc. 6.4% 2. Concord EFS, Inc. 4.9% 3. HCA Inc. 4.7% 4. Guidant Corporation 3.9% 5. Biogen, Inc. 3.5% 6. Northrop Gruman Corporation 3.4% 7. Alcon, Inc. 3.3% 8. Abbott Laboratories 2.6% 9. Pfizer Inc. 2.5% 10. Vodafone Group plc 2.5%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 13 IVY INTERNATIONAL FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING IN EQUITY SECURITIES TRADED IN EUROPEAN, PACIFIC BASIN AND LATIN AMERICAN MARKETS. [PHOTO] Note: Ivy International Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY International "Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region or country." Q: MOIRA, HOW DID IVY INTERNATIONAL FUND PERFORM IN 2002? A: For 2002, Ivy International Fund returned -25.51%, including the impact of the maximum sales charge, and -20.96% without the sales charge. The Fund underperformed its benchmark, the MSCI EAFE index, which returned -15.94%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: International markets were extremely volatile in 2002. Fears of a double-dip recession and global deflation contributed to sharp declines interspersed with equally sharp rallies. Despite ample global liquidity and much-improved valuations, markets were impacted by sluggish economic growth, poor corporate profits and the Iraq situation. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance suffered from an underweight position in Japan, a market that was relatively resilient in 2002. Our stock selection in Japan was another negative. A number of Japanese holdings were impacted as investors became concerned about the pace of the global recovery and the strength of external demand. Poor stock selection in the UK also had a negative impact. While we limited losses by eliminating exposure to "problem stocks" early in the year, we did not do so soon enough. In addition, overweights in Germany and the Netherlands hurt performance. In the third quarter, increased concerns about the solvency of European insurers contributed to sharp sell-offs in both markets, and in France. Poor equity market performance, in turn, led to forced selling by the insurers, reinforcing the downdraft. While the Fund fared better than most in France, its German and Dutch holdings took the brunt of the downturn. Stock selection in France had the most significant positive impact on performance. In contrast to the money-center banks and European insurers, French banks performed well. As a result of their domestic focus, they were insulated from problem loans to Argentina and the corporate collapses in the US that plagued more globally oriented banks. Q: THOMAS, WHAT IS YOUR STRATEGY FOR IVY INTERNATIONAL FUND GOING FORWARD? A: Strong fundamental equity analysis will be the basis of our stock selection process, within the framework of our global asset allocation strategy and with important input regarding economic, financial and political issues for each region or country. Our basic stock selection approach will focus on what we believe are stable companies with impressive corporate management, in sectors we feel are best positioned for the current market environment. Q: WHAT ARE YOUR EXPECTATIONS FOR 2003? A: We expect global equity markets to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. In this environment of little or no corporate pricing power, we will seek investments in companies that we feel are best able to thrive. In Continental Europe, we believe that the best opportunities are likely in companies with defensive characteristics such as consumer product focus, impressive management, strong balance sheets, attractive dividend yields and solid competitive market position. In Britain, growth stocks should, in our opinion, still be able to benefit from the relatively strong domestic economy. Despite continuing imbalances in Japan's economy, we feel that there are still quality companies with good prospects, especially some of the larger exporters. In Asia, we prefer to concentrate our holdings in industry leaders that benefit from continued Chinese dominance of business demand in the region. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 14 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- -------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (25.51)% (8.76)% 3.80% 7.35% IVINX w/o Reimb. & 5.75% sales charge (25.51)% (8.75)% 3.79% 7.34% B SHARES w/Reimb. & w/ 5.00% CDSC (25.90)% (8.93)% N/A 0.31% IVIBX w/Reimb. & w/o 5.00% CDSC (22.00)% (8.56)% N/A 0.31% w/o Reimb. & w/ 5.00% CDSC (25.90)% (8.92)% N/A 0.30% w/o Reimb. & w/o 5.00% CDSC (22.00)% (8.57)% N/A 0.30% C SHARES w/Reimb. & w/ 1.00% CDSC (22.78)% (8.54)% N/A (3.64)% IVNCX w/Reimb. & w/o 1.00% CDSC (22.00)% (8.54)% N/A (3.64)% w/o Reimb. & w/ 1.00% CDSC (22.78)% (8.55)% N/A (3.65)% w/o Reimb. & w/o 1.00% CDSC (22.00)% (8.55)% N/A (3.65)% I SHARES w/Reimb. (20.95)% (7.39)% N/A 1.31% IVIIX w/o Reimb. (20.95)% (7.40)% N/A 1.30% ADVISOR SHARES w/Reimb. (18.71)% N/A N/A (21.83)% N/A w/o Reimb. (18.71)% N/A N/A (21.86)%

CDSC = Contingent Deferred Sales Charge Advisor Class and I Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations November 15, 1985 (performance here is calculated based on the date the Fund first became available for sale to the public, April 30, 1986); Class B commenced operations October 22, 1993; Class C commenced operations April 30, 1996; Class I commenced operations October 6, 1994; Advisor Class commenced operations August 31, 2000. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy International Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy MSCI International EAFE Fund Index ------------- ----- 31-Dec-92 9425 10000 31-Jan-93 9545 9999 28-Feb-93 9779 10301 31-Mar-93 10458 11199 30-Apr-93 10818 12261 31-May-93 11317 12520 30-Jun-93 11232 12325 31-Jul-93 11317 12757 31-Aug-93 12241 13445 30-Sep-93 12385 13143 31-Oct-93 12996 13548 30-Nov-93 12560 12363 31-Dec-93 13984 13256 31-Jan-94 14900 14377 28-Feb-94 14290 14337 31-Mar-94 13573 13720 30-Apr-94 13988 14302 31-May-94 13928 14220 30-Jun-94 13711 14420 31-Jul-94 14391 14559 31-Aug-94 15112 14904 30-Sep-94 14890 14434 31-Oct-94 15339 14915 30-Nov-94 14663 14198 31-Dec-94 14532 14287 31-Jan-95 13806 13738 28-Feb-95 14137 13699 31-Mar-95 14622 14553 30-Apr-95 15003 15101 31-May-95 15326 14866 30-Jun-95 15348 14659 31-Jul-95 15980 15572 31-Aug-95 15425 14978 30-Sep-95 15888 15270 31-Oct-95 15720 14860 30-Nov-95 15875 15273 31-Dec-95 16369 15888 31-Jan-96 16636 15954 29-Feb-96 16839 16008 31-Mar-96 17010 16348 30-Apr-96 17490 16823 31-May-96 17746 16513 30-Jun-96 18365 16606 31-Jul-96 17506 16121 31-Aug-96 18093 16156 30-Sep-96 18221 16585 31-Oct-96 18371 16416 30-Nov-96 19230 17069 31-Dec-96 19597 16849 31-Jan-97 19876 16260 28-Feb-97 20307 16525 31-Mar-97 20307 16585 30-Apr-97 20258 16673 31-May-97 21568 17758 30-Jun-97 22650 18738 31-Jul-97 23201 19041 31-Aug-97 21629 17619 30-Sep-97 23168 18606 31-Oct-97 21159 17176 30-Nov-97 21143 17000 31-Dec-97 21632 17149 31-Jan-98 21499 17933 28-Feb-98 22990 19084 31-Mar-98 24314 19671 30-Apr-98 24730 19827 31-May-98 24059 19731 30-Jun-98 23655 19880 31-Jul-98 24259 20082 31-Aug-98 20390 17594 30-Sep-98 19947 17054 31-Oct-98 21937 18832 30-Nov-98 23217 19797 31-Dec-98 23220 20578 31-Jan-99 23186 20517 28-Feb-99 22746 20028 31-Mar-99 23885 20864 30-Apr-99 25130 21710 31-May-99 24093 20592 30-Jun-99 24865 21394 31-Jul-99 25012 22030 31-Aug-99 25091 22111 30-Sep-99 25017 22333 31-Oct-99 25203 23170 30-Nov-99 25908 23975 31-Dec-99 28107 26127 31-Jan-00 25827 24467 29-Feb-00 26555 25125 31-Mar-00 27099 26099 30-Apr-00 25976 24726 31-May-00 26036 24122 30-Jun-00 27194 25065 31-Jul-00 25977 24014 31-Aug-00 26413 24223 30-Sep-00 24098 23043 31-Oct-00 23390 22499 30-Nov-00 22418 21655 31-Dec-00 23257 22425 31-Jan-01 23345 22433 28-Feb-01 21330 20755 30-Mar-01 19555 19346 30-Apr-01 20958 20674 31-May-01 20425 19909 30-Jun-01 19670 19091 31-Jul-01 19298 18801 31-Aug-01 18765 18324 30-Sep-01 16306 16468 31-Oct-01 17052 16890 30-Nov-01 18037 17513 31-Dec-01 18366 17617 31-Jan-2002 17505 16680 28-Feb-2002 17567 16798 31-Mar-2002 18454 17706 30-Apr-2002 18321 17823 31-May-2002 18250 18049 30-Jun-2002 17469 17331 31-Jul-2002 15498 15620 31-Aug-2002 15348 15584 30-Sep-2002 13448 13911 31-Oct-2002 14487 14658 30-Nov-2002 15454 15324 31-Dec-2002 14516 14808

The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets 1. United Kingdom 22% 2. Japan 16% 3. France 14% 4. Netherlands 9% 5. Switzerland 7% 6. Germany 5% 7. Spain 4% 8. Mexico 4% 9. Hong Kong 4% 10. Australia 4% 11. Finland 3% 12. South Korea 3% 13. Italy 3% 14. Taiwan 1% 15. Norway 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets 1. Financials 22% 2. Industrials 13% 3. Consumer Discretionary 12% 4. Materials 11% 5. Telecommunication Services 10% 6. Consumer Staples 9% 7. Information Technology 8% 8. Energy 6% 9. Healthcare 5% 10. Utilities 3%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets 1. Vodafone AirTouch plc 2.6% 2. GlaxoSmithKline plc 2.4% 3. Societe Generale 2.3% 4. HBOS plc 2.3% 5. BHP Ltd. 2.2% 6. UBS AG 2.2% 7. TotalFinaElf 2.1% 8. Unilever 2.0% 9. Rio Tinto plc 2.0% 10. BP Amoco plc 2.0%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 15 IVY INTERNATIONAL SMALL COMPANIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTMENT IN FOREIGN EQUITY SECURITIES OF COMPANIES WITH A TOTAL MARKET CAPITALIZATION OF LESS THAN $2 BILLION. [PHOTO] Ivy International Small Companies Fund is sub-advised by Henderson Investment Management Limited's smaller companies team. The following is an interview with Simon Chisholm, Henderson's Associate Director of European Equities. He has led the team since September of 2002 and is responsible for the Fund's regional allocations. LIPPER CATEGORY International Small-Cap "Looking to the medium-term, we are still broadly positive but continue to be cautious about the outlook for smaller-capitalization stocks, as we believe that an improving global economic outlook will initially favor larger, more liquid stocks. In the longer term, however, we are optimistic about the chances for solid performance from the sector." Q: SIMON, HOW DID IVY INTERNATIONAL SMALL COMPANIES FUND PERFORM IN 2002? A: For 2002, Ivy International Small Companies Fund returned -29.51%, including the impact of the maximum sales charge, and -25.21% without the sales charge. The Fund underperformed its benchmark, the Salomon Smith Barney EMI World ex-US index, which returned -7.29%, and its peer group (as measured by the Lipper International Small-Cap Funds average), which returned -12.13%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: It was another difficult year for global equity markets, as concerns about global growth prospects and increasing political tensions between the US and Iraq encouraged investors to seek safety in government bonds. Throughout the year, smaller companies generally outperformed their larger counterparts, but performance was still largely negative. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Continental Europe continued to be the Fund's largest exposure throughout the year, and the region again proved to be a difficult environment for equity investors. In particular, growth stocks in Europe, an area in which the Fund has significant positions, performed poorly as valuations continued to decline. The Fund also suffered from its exposure to growth stocks in the UK, despite retaining an underweight position in this market. Following a period of strong performance in the early part of the year, the Fund's holding in Alliance Unichem, a UK pharmaceutical retailer, suffered as investors switched away from defensive sectors. Two other big negative contributors were Fitness First and the software company, Game Group, which fell sharply following unexpected profit warnings. In addition, holdings in Japan, a market in which we maintained an overweight throughout the year, also negatively impacted performance. Japan enjoyed a period of outperformance in the early part of the year, but ended 2002 with a difficult quarter that eroded much of this performance. Financial and cyclical stocks were hit hard as investors fled to the safety of more defensive sectors. Although Japanese smaller company stocks outperformed the overall market, the Fund suffered from a number of stock-specific events. For example, Konami Sports, Japan's largest fitness group and a Fund holding, saw persistent poor performance due to ongoing weak data for the stock. We later sold the stock and added to Tokyo Style, a cash-rich apparel maker that has recently become more shareholder-friendly. Q: WHAT CHANGES WERE MADE TO THE PORTFOLIO OVER THE YEAR? A: In an effort to increase the diversification of the portfolio, we entered into the Austrian market via Telekom Austria and took positions in Greece based on the expectation that the region will benefit from hosting the 2004 Olympic Games. We also took positions in the Scandinavian market via Swedish Match (tobacco) and Instrumentarium, a Finnish medical technology company. In addition, we established an exposure to what we see as a relatively low-risk and attractively valued market in New Zealand, purchasing a stake in Fisher & Paykel Appliances, a household appliance distributor. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: Moving into 2003, our short-term outlook is that equities may be weaker as concerns continue to grow about the growing threat of war with Iraq. Looking to the medium-term, we are still broadly positive but continue to be cautious about the outlook for smaller-capitalization stocks, as we believe that an improving global economic outlook will initially favor larger, more liquid stocks. In the longer term, however, we are optimistic about the chances for solid performance from the sector. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 16 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- -------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (29.51)% (6.93)% N/A (7.88)% IYSAX w/o Reimb. & 5.75% sales charge (31.24)% (9.66)% N/A (10.41)% B SHARES w/Reimb. & w/ 5.00% CDSC (29.46)% (6.88)% N/A (7.81)% IYSBX w/Reimb. & w/o 5.00% CDSC (25.75)% (6.50)% N/A (7.65)% w/o Reimb. & w/ 5.00% CDSC (31.24)% (9.58)% N/A (10.25)% w/o Reimb. & w/o 5.00% CDSC (27.61)% (9.21)% N/A (10.10)% C SHARES w/Reimb. & w/ 1.00% CDSC (26.37)% (6.45)% N/A (7.60)% IYSCX w/Reimb. & w/o 1.00% CDSC (25.62)% (6.45)% N/A (7.60)% w/o Reimb. & w/ 1.00% CDSC (28.20)% (9.33)% N/A (10.24)% w/o Reimb. & w/o 1.00% CDSC (27.47)% (9.33)% N/A (10.24)% ADVISOR SHARES w/Reimb. (24.91)% N/A N/A (11.85)% IYSVX w/o Reimb. (26.72)% N/A N/A (14.05)%

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class commenced operations July 1, 1999. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy International Small Companies Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (1/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy Salomon International Smith Barney Small EMI World Companies ex-US Fund Index ------------- ------------ 02-Jan-97 9425 10000 31-Jan-97 9585 9784 28-Feb-97 9566 9948 31-Mar-97 9510 9817 30-Apr-97 9331 9670 31-May-97 9548 10290 30-Jun-97 9783 10522 31-Jul-97 9849 10363 31-Aug-97 9274 9921 30-Sep-97 9472 10097 31-Oct-97 8803 9698 30-Nov-97 8369 9265 31-Dec-97 8245 9060 31-Jan-98 8369 9438 28-Feb-98 8997 10142 31-Mar-98 9682 10619 30-Apr-98 9701 10700 31-May-98 9502 10899 30-Jun-98 9102 10581 31-Jul-98 8873 10508 31-Aug-98 7674 9220 30-Sep-98 7740 8980 31-Oct-98 8092 9614 30-Nov-98 8616 9922 31-Dec-98 8677 10162 31-Jan-99 8124 10131 28-Feb-99 8502 9934 31-Mar-99 8764 10307 30-Apr-99 9385 10864 31-May-99 9162 10580 30-Jun-99 9540 10941 31-Jul-99 9782 11350 31-Aug-99 9695 11525 30-Sep-99 9559 11498 31-Oct-99 9588 11383 30-Nov-99 10596 11772 31-Dec-99 12100 12548 31-Jan-2000 12547 12238 29-Feb-2000 14481 12751 31-Mar-2000 14491 12802 30-Apr-2000 13733 12022 31-May-2000 13130 11814 30-Jun-2000 13898 12579 31-Jul-2000 14190 12148 31-Aug-2000 14977 12522 30-Sep-2000 14666 11918 31-Oct-2000 13743 11262 30-Nov-2000 12732 10801 31-Dec-2000 12697 11254 31-Jan-2001 12967 11364 28-Feb-2001 12048 10925 31-Mar-2001 10579 10061 30-Apr-2001 10969 10779 31-May-2001 11069 10754 30-Jun-2001 9620 10369 31-Jul-2001 8971 10097 31-Aug-2001 8761 10062 30-Sep-2001 7463 8770 31-Oct-2001 8002 9131 30-Nov-2001 8202 9481 31-Dec-2001 8170 9494 31-Jan-2002 7800 9276 28-Feb-2002 7590 9449 31-Mar-2002 8060 10064 30-Apr-2002 8270 10267 31-May-2002 8480 10650 30-Jun-2002 7890 10265 31-Jul-2002 7200 9368 31-Aug-2002 6900 9303 30-Sep-2002 6050 8457 31-Oct-2002 5890 8614 30-Nov-2002 6140 8926 31-Dec-2002 6110 8801

The Salomon Smith Barney EMI World ex-US Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets 1. Japan 22% 2. United Kingdom 11% 3. Spain 11% 4. Switzerland 7% 5. France 6% 6. Netherlands 5% 7. Italy 5% 8. Australia 4% 9. Austria 4% 10. Germany 4% 11. Belgium 4% 12. Hong Kong 3% 13. Ireland 3% 14. Finland 3% 15. South Korea 2% 16. Greece 2% 17. Sweden 2% 18. New Zealand 1%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets 1. Consumer Discretionary 24% 2. Industrials 18% 3. Consumer Staples 13% 4. Healthcare 11% 5. Information Technology 11% 6. Financials 10% 7. Materials 7% 8. Utilities 4% 9. Energy 1%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets --------------------- 1. Baron de Ley, S.A. 2.6% 2. Kobayashi Pharmaceutical Co. 2.6% 3. OBIC Co., Ltd. 2.5% 4. KOA Corporation 2.5% 5. Mitsubishi Securities Co., Ltd. 2.5% 6. Tokyo Style Co., Ltd. 2.5% 7. ASATSU-DK Inc. 2.4% 8. Taiyo Ink Mfg. Co., Ltd. 2.4% 9. Enterprise Inns plc 2.3% 10. Tokyo Steel Manufacturing Co. 2.1%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 17 IVY INTERNATIONAL VALUE FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING IN EQUITY SECURITIES TRADED IN EUROPE, THE FAR EAST AND LATIN AMERICA. [PHOTO] Note: Ivy International Value Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Value Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY International "We will continue to focus on what we believe are companies with impressive management, good cash flow, attractive dividend yields and strong balance sheets in situations where we believe the companies' underlying assets are undervalued." Q: MOIRA, HOW DID IVY INTERNATIONAL VALUE FUND PERFORM IN 2002? A: For 2002, Ivy International Value Fund returned -20.77%, including the impact of the maximum sales charge, and -15.93% without the sales charge. This compares to the Fund's benchmark, the MSCI EAFE Index, which returned -15.94%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Market conditions were exceptionally volatile. Value stocks continued to outperform the broader market through the first half of the year. However, in the third quarter, market leadership shifted, with value stocks underperforming for the first time since the beginning of the bear market. This shift in leadership was largely due to the predominance of financials and industrials (both sectors that performed particularly poorly during the quarter) in the value universe. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: The Fund's French holdings made the largest positive contribution. In addition to consumer holdings, which performed strongly, performance benefited from outsized exposure to French banks. In contrast to the money-center banks and the European insurers, French banks performed well. An overweight position in basic materials also made a positive contribution. Commodity prices changed course in 2002 after sharp declines in 2001, contributing to strong performance for many stocks in this sector. The Fund's positions in commodity producers realized solid gains. To help offset volatility, we also maintained a substantial overweight in consumer staples, which helped performance. Unfortunately, what we got right in 2002 was largely offset by what we got wrong. A combination of poor stock selection in Japan and an underweight in that market hurt performance. Throughout the year, we maintained the underweight position in Japan based on our belief that periodic market rallies would be short-lived, as we felt little was being done to address the country's underlying structural problems. Despite the host of problems the Japanese economy faces, its stock market proved considerably more resilient than other major markets in 2002. Q: THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD? A: In mid-2002, the Fund responded to higher financial market uncertainties by focusing on higher quality companies that were still reasonably priced. Going forward, we will continue to focus on what we believe are companies with impressive management, good cash flow, attractive dividend yields and strong balance sheets in situations where we believe the companies' underlying assets are undervalued. Q: What is your outlook for 2003? A: Global equity markets are expected to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. Despite a high level of financial market uncertainty early in the year, we feel that consensus earnings expectations need to be reduced further. Corporations are facing higher operating costs, but generally cannot raise output prices. Questions remain regarding U.S. employment and consumer sentiment, which is a critical end-market for much of the world's exports. Consumer demand is extremely weak in core Europe, and appears to be finally moderating in the faster-pace economies of Britain, Canada, South Korea and Australia where, as in the United States, spectacular housing demand has been a significant economic boost. We believe there is some potential for further interest rate cuts, especially in Continental Europe where economic growth has stalled and inflation trends could potentially improve before mid-year. Asian economies are relatively better positioned for domestic growth, and regional trade remains impressive. Weak capital spending plans are restraining global growth, a combined result of excess high-tech capacity and Iraqi war concerns. There is hope that visibility will soon improve for these two important business and sentiment issues. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 18 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- ------- ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (20.77%) (3.67%) N/A (5.11%) IVIAX w/o Reimb. & 5.75% sales charge (21.26%) (3.97%) N/A (5.37%) B SHARES w/Reimb. & w/ 5.00% CDSC (22.48%) (4.07%) N/A (5.38%) IIFBX w/Reimb. & w/o 5.00% CDSC (18.39%) (3.68%) N/A (5.21%) w/o Reimb. & w/ 5.00% CDSC (22.97%) (4.37%) N/A (5.64%) w/o Reimb. & w/o 5.00% CDSC (18.91%) (3.99%) N/A (5.48%) C SHARES w/Reimb. & w/ 1.00% CDSC (19.21%) (3.69%) N/A (5.22%) IVIFX w/Reimb. & w/o 1.00% CDSC (18.39%) (3.69%) N/A (5.22%) w/o Reimb. & w/ 1.00% CDSC (19.72%) (4.00%) N/A (5.49%) w/o Reimb. & w/o 1.00% CDSC (18.91%) (4.00%) N/A (5.49%) ADVISOR SHARES w/Reimb. (17.51%) N/A N/A (4.08%) IVIVX w/o Reimb. (18.02%) N/A N/A (4.45%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A, Class B and Class C commenced operations May 13, 1997; Advisor Class commenced operations February 23, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy International Value Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (5/97) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH)

Ivy International MSCI Value EAFE Fund Index ------------- ----- 13-May-97 9425 10000 31-May-97 9538 10651 30-Jun-97 9660 11238 31-Jul-97 9896 11420 31-Aug-97 9001 10567 30-Sep-97 9604 11159 31-Oct-97 8615 10301 30-Nov-97 8427 10196 31-Dec-97 8455 10285 31-Jan-98 8540 10756 28-Feb-98 9256 11446 31-Mar-98 9783 11798 30-Apr-98 9868 11892 31-May-98 9783 11834 30-Jun-98 9472 11923 31-Jul-98 9434 12044 31-Aug-98 7806 10552 30-Sep-98 7740 10229 31-Oct-98 8427 11295 30-Nov-98 9001 11874 31-Dec-98 9016 12342 31-Jan-99 8940 12305 28-Feb-99 8854 12012 31-Mar-99 9225 12514 30-Apr-99 10062 13021 31-May-99 9700 12350 30-Jun-99 10043 12832 31-Jul-99 10224 13213 31-Aug-99 10290 13261 30-Sep-99 10138 13395 31-Oct-99 10185 13896 30-Nov-99 10490 14379 31-Dec-99 11521 15670 31-Jan-2000 10599 14674 29-Feb-2000 10676 15069 31-Mar-2000 11127 15653 30-Apr-2000 10695 14830 31-May-2000 10551 14467 30-Jun-2000 11050 15033 31-Jul-2000 10791 14403 31-Aug-2000 10877 14528 30-Sep-2000 10301 13821 31-Oct-2000 10157 13494 30-Nov-2000 10022 12988 31-Dec-2000 10686 13450 31-Jan-2001 10647 13454 28-Feb-2001 10016 12448 31-Mar-2001 9181 11603 30-Apr-2001 9706 12399 31-May-2001 9618 11941 30-Jun-2001 9346 11450 31-Jul-2001 9123 11276 31-Aug-2001 9094 10990 30-Sep-2001 7929 9877 31-Oct-2001 8182 10130 30-Nov-2001 8648 10503 31-Dec-2001 8851 10566 31-Jan-2002 8423 10004 28-Feb-2002 8432 10075 31-Mar-2002 8860 10620 30-Apr-2002 8929 10690 31-May-2002 9036 10825 30-Jun-2002 8763 10394 31-Jul-2002 7761 9368 31-Aug-2002 7791 9347 30-Sep-2002 6769 8343 31-Oct-2002 7188 8792 30-Nov-2002 7703 9191 31-Dec-2002 7440 8882

The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Past performance does not guarantee future results. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02

% of Total Net Assets 1. United Kingdom 20% 2. Japan 15% 3. France 10% 4. Switzerland 9% 5. Germany 9% 6. Netherlands 6% 7. South Korea 4% 8. Australia 4% 9. Hong Kong 4% 10. Spain 4% 11. Italy 4% 12. Mexico 3% 13. Brazil 2% 14. Ireland 2% 15. Finland 2%

SECTOR BREAKDOWN 12/31/02

% of Total Net Assets 1. Financials 26% 2. Industrials 13% 3. Consumer Discretionary 11% 4. Materials 10% 5. Consumer Staples 9% 6. Energy 8% 7. Telecommunication Services 8% 8. Information Technology 5% 9. Utilities 4% 10. Healthcare 4%

TOP 10 HOLDINGS 12/31/02

Security % of Total Net Assets 1. Vodafone AirTouch plc 2.9% 2. ENI S.p.A. 2.6% 3. Rio Tinto plc 2.5% 4. Canon Inc. 2.5% 5. BHP Ltd. 2.4% 6. Schneider SA 2.3% 7. Novartis AG 2.2% 8. Bank of Ireland 2.2% 9. Societe Generale 2.2% 10. UBS AG 2.1%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 19 IVY PACIFIC OPPORTUNITIES FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN SECURITIES TRADED IN PACIFIC REGION MARKETS. EXAMPLES OF PACIFIC REGION COUNTRIES INCLUDE AUSTRALIA, CHINA, HONG KONG, INDIA, KOREA, SINGAPORE, SRI LANKA AND TAIWAN. [PHOTO] Note: Ivy Pacific Opportunities Fund was managed by Moira McLachlan and the Ivy International Equities team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Pacific Opportunities Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Pacific ex-Japan "We feel that Asian economies are better positioned for domestic growth than many other markets, and regional trade remains impressive. We believe that our refocusing of the Fund will allow us to take better advantage of investment opportunities in the region as we move forward." Q: MOIRA, HOW DID IVY PACIFIC OPPORTUNITIES FUND PERFORM IN 2002? A: For 2002, Ivy Pacific Opportunities Fund returned -16.41%, including the impact of the maximum sales charge, and -11.31% without the sales charge. The Fund underperformed its benchmark, the MSCI Asia Pacific Free Ex-Japan index, which returned -5.09%, and its peer group (as measured by the Lipper Pacific Ex-Japan Funds average), which returned -7.98%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: While ex-Japan Asia was a relative outperformer in 2002, most regional stock markets finished the year in negative territory. Stocks were depressed by sluggish economic growth and turmoil in the US and European markets. The major Asian markets fell heavily, with Hong Kong, Singapore and Taiwan all posting double-digit declines. However, a number of the smaller, more speculative markets posted gains. Despite a sharp sell-off after the Bali disco bombing, the Indonesia market ended the year in positive territory. The Thai market gained around 17% and the Pakistani market was up over 100%. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: An overweight position in Taiwanese technology stocks had a negative impact on performance. These stocks performed strongly in the last quarter of 2001 and into the first quarter of 2002. However, they then sold off sharply as investors worried about a recovery in end-user demand. While we locked in some gains early in the year, performance suffered from not cutting the Fund's exposure further than we did. The Fund's exposure to Hong Kong financials also hurt performance. Interest rate sensitive stocks in Hong Kong -- banks and property stocks -- came under pressure as investors worried that an Argentine-style default in Brazil would prove the final blow to the Hong Kong dollar's peg to the US currency. Stock selection in Australia made the most significant positive contribution to performance. As commodity prices recovered from the sharp declines of 2001, the Fund benefited from overweight positions in commodity producers. The Fund also benefited from exposure to Australian banks, which did not suffer the credit-quality problems plaguing other developed-market banks. In South Korea, performance benefited from both an overweight position and good stock selection. The Korean market performed well due to financial sector reform, attractive valuations and strong growth in domestic consumption. Korean exporters also posted solid gains as a result, in part, of strong demand from China. Q: THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD? A: The Fund will likely be less concentrated in the future, as we increase the number of holdings and thereby reduce the average weighting of each stock. Along with this broader dispersion, we will reduce exposure to the technology sector in an effort to reduce volatility. We intend to concentrate on the core Asian markets of Hong Kong, China, South Korea, Australia and Taiwan, with particular focus on industry leaders that we believe benefit most from the continued Chinese dominance of business demand in the region. During our gradual process of restructuring this Fund its cash position may be slightly higher than what we would consider normal, but only until the transition is completed. Q: WHAT IS YOUR OUTLOOK FOR THE REGION? A: Global equity markets are expected to remain volatile as investors continue to monitor corporate, financial, economic and geopolitical issues. However, we feel that Asian economies are better positioned for domestic growth than many other markets, and regional trade remains impressive. We believe that our refocusing of the Fund will allow us to take better advantage of investment opportunities in the region as we move forward. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 20 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (16.41%) (6.29%) N/A (5.41%) IPOAX w/o Reimb. & 5.75% sales charge (17.56%) (7.25%) N/A (6.10%) B SHARES w/Reimb. & w/ 5.00% CDSC (16.73%) (6.43%) N/A (5.60%) IPOBX w/Reimb. & w/o 5.00% CDSC (12.35%) (6.05%) N/A (5.60%) w/o Reimb. & w/ 5.00% CDSC (17.92%) (7.36%) N/A (6.27%) w/o Reimb. & w/o 5.00% CDSC (13.59%) (6.98%) N/A (6.27%) C SHARES w/Reimb. & w/ 1.00% CDSC (13.09%) (5.97%) N/A (6.84%) IPOCX w/Reimb. & w/o 1.00% CDSC (12.21%) (5.97%) N/A (6.84%) w/o Reimb. & w/ 1.00% CDSC (14.33%) (6.90%) N/A (7.56%) w/o Reimb. & w/o 1.00% CDSC (13.46%) (6.90%) N/A (7.56%) ADVISOR SHARES w/Reimb. (11.84%) N/A N/A (5.41%) IPOVX w/o Reimb. (13.08%) N/A N/A (6.18%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A and Class B commenced operations October 22, 1993; Class C commenced operations April 30, 1996; Advisor Class commenced operations February 10, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Pacific Opportunities Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (10/93) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) IVY PACIFIC MSCI ASIA PACIFIC FREE OPPORTUNITIES FUND (EXCLUDING JAPAN) INDEX 25-Oct-93 9425 10000 31-Oct-93 9652 10000 30-Nov-93 9685 9788 31-Dec-93 10900 11878 31-Jan-94 10426 11493 28-Feb-94 9837 10977 31-Mar-94 9011 9872 30-Apr-94 9111 10255 31-May-94 9392 10669 30-Jun-94 8905 10269 31-Jul-94 9309 10799 31-Aug-94 9647 11597 30-Sep-94 9624 11303 31-Oct-94 9431 11519 30-Nov-94 8620 10622 31-Dec-94 8188 10419 31-Jan-95 7289 9471 28-Feb-95 7760 10150 31-Mar-95 7927 10137 30-Apr-95 7732 10191 31-May-95 8452 11021 30-Jun-95 8352 10858 31-Jul-95 8825 11218 31-Aug-95 8506 10843 30-Sep-95 8722 10937 31-Oct-95 8545 10753 30-Nov-95 8244 10600 31-Dec-95 8318 11053 31-Jan-96 9247 11792 29-Feb-96 9189 11969 31-Mar-96 9044 12035 30-Apr-96 9160 12486 31-May-96 9209 12342 30-Jun-96 9121 12136 31-Jul-96 8782 11341 31-Aug-96 8966 11758 30-Sep-96 9063 11924 31-Oct-96 9131 11840 30-Nov-96 9731 12378 31-Dec-96 10023 12339 31-Jan-97 9935 12457 28-Feb-97 10081 12588 31-Mar-97 9682 12006 30-Apr-97 10198 11926 31-May-97 10967 12413 30-Jun-97 11356 12866 31-Jul-97 11736 12930 31-Aug-97 11463 10924 30-Sep-97 11210 11004 31-Oct-97 8495 8795 30-Nov-97 7970 8296 31-Dec-97 7824 8119 31-Jan-98 6529 7750 28-Feb-98 7989 8924 31-Mar-98 7795 8829 30-Apr-98 7191 8238 31-May-98 6267 7209 30-Jun-98 5498 6634 31-Jul-98 5060 6527 31-Aug-98 4350 5596 30-Sep-98 4953 6071 31-Oct-98 6053 7133 30-Nov-98 6286 7668 31-Dec-98 6215 7760 31-Jan-99 5732 7832 28-Feb-99 5653 7672 31-Mar-99 6176 8377 30-Apr-99 7320 9700 31-May-99 7162 9294 30-Jun-99 8692 10464 31-Jul-99 8366 10302 31-Aug-99 8484 10335 30-Sep-99 7991 9796 31-Oct-99 8090 9974 30-Nov-99 8800 10812 31-Dec-99 9119 11627 31-Jan-00 9009 11467 29-Feb-00 8631 11219 31-Mar-00 9488 11404 30-Apr-00 8969 10538 31-May-00 8551 9750 30-Jun-00 9189 10454 31-Jul-00 9448 9969 31-Aug-00 9169 9928 30-Sep-00 8312 8948 31-Oct-00 7485 8276 30-Nov-00 7116 8083 31-Dec-00 7455 8143 31-Jan-01 8198 9021 28-Feb-01 7565 8599 31-Mar-01 6932 7646 30-Apr-01 6993 7870 31-May-01 6832 7858 30-Jun-01 6731 7786 31-Jul-01 6450 7477 31-Aug-01 6219 7407 30-Sep-01 5174 6306 31-Oct-01 5566 6707 30-Nov-01 6279 7499 31-Dec-01 6762 7945 31-Jan-2002 6883 8178 28-Feb-2002 6984 8234 31-Mar-2002 7225 8710 30-Apr-2002 7346 8744 31-May-2002 7316 8765 30-Jun-2002 6994 8339 31-Jul-2002 6611 7910 31-Aug-2002 6460 7893 30-Sep-2002 5847 7188 31-Oct-2002 6128 7565 30-Nov-2002 6420 7891 31-Dec-2002 5998 7541 The Morgan Stanley Capital International (MSCI) Asia Pacific Free (Excluding-Japan) Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Net Assets 1. Australia 27% 2. South Korea 22% 3. Hong Kong 21% 4. Taiwan 11% 5. Singapore 7% 6. India 7% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 27% 2. Materials 16% 3. Information Technology 15% 4. Consumer Discretionary 13% 5. Consumer Staples 9% 6. Telecommunication Services 8% 7. Industrials 7% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. POSCO 5.8% 2. BHP Limited 4.9% 3. Rio Tinto Ltd. 4.9% 4. Westpac Banking Corp. Ltd. 4.6% 5. Samsung Electronics 4.4% 6. Hyundai Motor Co., Ltd. 4.4% 7. Australia & New Zealand Banking 4.3% 8. Hero Honda Motors Ltd. 4.1% 9. Cathay Pacific Airways 4.0% 10. Sun Hung Kai Properties Ltd. 3.7% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. 21 IVY GROWTH FUND The Fund's goal: to provide long-term capital growth by investing in US companies of any size. [PHOTO] Note: Ivy Growth Fund utilized a dual management approach until December 16th, 2002. The large-cap portion was managed by Paul Baran, while the small/mid-cap portion was managed by James W. Broadfoot. At right, they discuss factors relating to Fund performance in 2002. Antonio Intagliata, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Growth Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Multi-Cap Growth "After a detailed analysis of the portfolio, we decided to: (1) significantly reduce the number of holdings so that each stock would have more of an impact on the Fund, and (2) select fewer small-cap stocks and a greater amount of medium- and large-cap stocks." Q: HOW DID IVY GROWTH FUND PERFORM IN 2002? A: For 2002, Ivy Growth Fund returned -32.78%,including the impact of the maximum sales charge, and -28.68% without the sales charge. The Fund underperformed its bench-mark, the Russell 3000 Growth Index, which returned - -28.03%,and its peer group (as measured by the Lipper Multi-Cap Growth Funds average), which returned -29.92%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: WHAT FACTORS AFFECTED PERFORMANCE OVER THE PERIOD? A: Until mid-December, the Fund was divided into two portions: one consisting of small/mid-cap stocks, and the other consisting of large-cap stocks. Performance in the large-cap portion was negatively affected by holdings in the technology sector. However, losses in technology were offset to a degree by exposure to banks and other financial stocks, many of which rose in price during the period. Certain consumer stocks also increased in price, while others declined but still outperformed the market. This had a large positive impact on relative performance. Our stock picks in the general energy area also had a positive effect on performance. Performance in the small/mid-cap portion was negatively affected by our focus on stocks with higher expected growth rates and price-to-earnings ratios, which underperformed more conservative, slower-growth stocks last year. Specifically, minimal exposure to slower-growth areas such as finance, consumer staples and materials, all of which outperformed, hurt the portfolio. An underweight in the top-performing financials sector had the largest negative effect. Holdings in healthcare and business services also negatively affected performance. The portfolio's consumer-related holdings did well as they benefited from strong consumer demand throughout most of the year. In addition, select holdings in network security, waste management and natural gas contributed positively to relative performance. Q: TONY, HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD? A: After a detailed analysis of the portfolio, we decided to: (1) significantly reduce the number of holdings so that each stock would have more of an impact on the Fund, and (2) select fewer small-cap stocks and a greater amount of medium- and large-cap stocks. In terms of sectors, while geopolitical considerations continue to make gold and energy the two focus areas, we believe the next leadership will come from the cyclical groups. Due to our economic and market outlook -- a weak economy, sluggish capital spending, and modest GDP growth and equity returns -- we favor a large exposure to healthcare, based on the sector's demographics and pricing power. We also favor defense stocks. We believe that defense spending will likely continue at a lower pace than 2002. However, the defense cycle is a long-term cycle and we believe the stocks are attractive fundamentally and on a price basis. They have visible earnings growth and have corrected recently. We have underweighted technology, but not by a huge amount. In technology, fundamentals are still poor, but the sector seems over-sold on a technical basis. Oil is a risky area, but we believe that an average weight makes sense, based on a tight supply and, eventually, an increasing global demand. Particular emphasis should be in the natural gas area. Financials will continue to be de-emphasized as, if expected, interest rates move up later in the year. We believe that these strategies have the Fund well-positioned for the year ahead. Performance cited is for Class A shares at net asset value and at maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 22 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- ------ ------- -------- --------- A SHARES w/Reimb.& 5.75% sales charge (32.78%) (9.44%) 1.02% 8.26% IVYFX w/o Reimb.& 5.75% sales charge (32.78%) (9.44%) 1.00% 8.26% B SHARES w/Reimb.& w/5.00% CDSC (32.96%) (9.62%) N/A (0.22%) IVYBX w/Reimb.& w/o 5.00% CDSC (29.43%) (9.26%) N/A (0.22%) w/o Reimb.& w/5.00% CDSC (32.96%) (9.62%) N/A (0.24%) w/o Reimb.& w/o 5.00% CDSC (29.43%) (9.26%) N/A (0.24%) C SHARES w/Reimb.& w/ 1.00% CDSC (30.29%) (9.23%) N/A (4.97%) IVYCX w/Reimb.& w/o 1.00% CDSC (29.59%) (9.23%) N/A (4.97%) w/o Reimb.& w/1.00% CDSC (30.29%) (9.23%) N/A (4.97%) w/o Reimb.& w/o 1.00% CDSC (29.59%) (9.23%) N/A (4.97%) ADVISOR SHARES w/Reimb. (28.67%) N/A N/A (11.55%) IVYVX w/o Reimb. (28.67%) N/A N/A (11.55%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations January 12,1960; Class B commenced operations October 22,1993; Class C commenced operations April 30,1996;Advisor Class commenced operations April 30,1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy Growth Fund-- $11,066 Russell 3000 Growth Index-- $18,414 Ivy Growth Russell 3000 Fund Growth Index 31-Dec-92 9425 10000 31-Jan-93 9469 9902 28-Feb-93 9356 9718 31-Mar-93 9677 9910 30-Apr-93 9381 9519 31-May-93 9683 9869 30-Jun-93 9670 9787 31-Jul-93 9658 9634 31-Aug-93 10186 10034 30-Sep-93 10066 9994 31-Oct-93 10363 10272 30-Nov-93 10207 10174 31-Dec-93 10583 10369 31-Jan-94 11033 10612 28-Feb-94 10824 10432 31-Mar-94 10210 9915 30-Apr-94 10315 9960 31-May-94 10380 10077 30-Jun-94 9890 9767 31-Jul-94 10320 10082 31-Aug-94 10925 10662 30-Sep-94 10646 10535 31-Oct-94 10739 10769 30-Nov-94 10156 10416 31-Dec-94 10269 10598 31-Jan-95 10189 10779 28-Feb-95 10596 11236 31-Mar-95 10849 11564 30-Apr-95 11087 11810 31-May-95 11451 12197 30-Jun-95 11772 12703 31-Jul-95 12390 13277 31-Aug-95 12452 13308 30-Sep-95 12833 13885 31-Oct-95 12442 13823 30-Nov-95 12898 14367 31-Dec-95 13076 14473 31-Jan-96 13482 14896 29-Feb-96 13779 15208 31-Mar-96 13966 15256 30-Apr-96 14466 15735 31-May-96 14575 16312 30-Jun-96 14341 16218 31-Jul-96 13295 15161 31-Aug-96 13896 15624 30-Sep-96 14646 16727 31-Oct-96 14568 16745 30-Nov-96 15309 17926 31-Dec-96 15328 17640 31-Jan-97 15932 18800 28-Feb-97 15406 18578 31-Mar-97 14689 17546 30-Apr-97 14767 18591 31-May-97 16251 20051 30-Jun-97 16761 20843 31-Jul-97 17831 22612 31-Aug-97 17184 21475 30-Sep-97 18107 22599 31-Oct-97 17020 21708 30-Nov-97 16968 22482 31-Dec-97 17120 22710 31-Jan-98 17024 23295 28-Feb-98 18428 25075 31-Mar-98 19322 26079 30-Apr-98 19582 26421 31-May-98 19034 25562 30-Jun-98 19361 27011 31-Jul-98 18688 26648 31-Aug-98 15225 22472 30-Sep-98 16062 24240 31-Oct-98 17014 26135 30-Nov-98 18515 28126 31-Dec-98 19526 30663 31-Jan-99 20076 32432 28-Feb-99 18838 30841 31-Mar-99 19654 32428 30-Apr-99 20371 32664 31-May-99 19889 31739 30-Jun-99 21156 33920 31-Jul-99 20764 32844 31-Aug-99 20960 33252 30-Sep-99 20970 32644 31-Oct-99 22247 34995 30-Nov-99 23474 37004 31-Dec-99 25748 41034 31-Jan-00 25039 39221 29-Feb-00 27910 41671 31-Mar-00 29038 44028 30-Apr-00 26050 41763 31-May-00 24214 39554 30-Jun-00 27085 42692 31-Jul-00 25667 40781 31-Aug-00 28201 44513 30-Sep-00 25667 40436 31-Oct-00 23621 38427 30-Nov-00 19099 32675 31-Dec-00 20004 31836 31-Jan-01 21059 34062 28-Feb-01 18015 28358 31-Mar-01 16425 25309 30-Apr-01 18429 28502 31-May-01 18242 28162 30-Jun-01 17841 27621 31-Jul-01 17026 26813 31-Aug-01 15678 24654 30-Sep-01 13634 22091 31-Oct-01 14316 23310 30-Nov-01 15437 25530 31-Dec-01 15517 25588 31-Jan-2002 15103 25104 28-Feb-2002 14140 24023 31-Mar-2002 14982 24937 30-Apr-2002 13940 23005 31-May-2002 13512 22391 30-Jun-2002 12483 20331 31-Jul-2002 11414 19075 31-Aug-2002 11481 19128 30-Sep-2002 10532 17182 31-Oct-2002 11280 18712 30-Nov-2002 11788 19781 31-Dec-2002 11066 18414 The Russell 3000 Growth Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Healthcare 16% 2. Information Technology 14% 3. Financials 12% 4. Consumer Discretionary 10% 5. Industrials 10% 6. Energy 6% 7. Consumer Staples 6% 8. Telecommunication Services 1% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. S&P 500 Depository Receipts 3.0% 2. Microsoft Corporation 2.2% 3. General Electric Company 1.9% 4. Wal-Mart Stores, Inc. 1.9% 5. Cisco Systems, Inc. 1.6% 6. Pfizer Inc. 1.6% 7. Exxon Mobil Corporation 1.5% 8. American International Group 1.3% 9. International Business Machines 1.1% 10. Merck & Co., Inc. 1.1% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 23 IVY US BLUE CHIP FUND The Fund's goal: to provide long-term capital growth primarily by investing in common stocks of established domestic companies that either hold a leading industry position or that are expected to do so in the future. [PHOTO] An interview with Paul Baran, portfolio manager of the Ivy US Blue Chip Fund. NOTE: EFFECTIVE FEBRUARY 2003, IVY US BLUE CHIP FUND WILL BE MANAGED BY JIM WINELAND OF WADDELL & Reed Ivy Investment Company. LIPPER CATEGORY Large-Cap Core "We believe that most, if not all, of the corporate excesses have been wrung out after three years of declines. We think we'll see higher earnings growth and modest GDP growth in the year ahead." Q: PAUL, HOW DID IVY US BLUE CHIP FUND PERFORM IN 2002? A: For 2002, Ivy US Blue Chip Fund returned -26.29%,including the impact of the maximum sales charge, and -21.79% without the sales charge. This compares to the Fund's benchmark, the S&P 500 Index, which returned -22.10%,and its peer group (as measured by the Lipper Large-Cap Core Funds average), which returned - -23.48%. It should be noted that the benchmark index and the Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: Last year saw a continuation of the bear market that began in early 2000, and it also marked the first time since 1939 that the US experienced three consecutive years of declining markets. Weak economic conditions and the boom in financial fraud negatively affected corporate earnings, which, in turn, caused the market to reprice itself lower. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Given the challenging market environment, we took steps to help reduce risk and improve performance. First, we increased the number of holdings in an effort to minimize the effect of any individual stock. Second, we actively traded by taking gains when appropriate and making purchases when we felt stocks were unfairly punished. These strategies, combined with our avoidance of "disaster stocks" in high-profile companies that experienced financial scandals, were the primary factors driving performance. Unfortunately, the Fund still showed a negative return for the year, with performance impacted by a few factors. Investments in the technology sector had the largest negative effect. Holdings such as Texas Instruments, Applied Materials and Intel all declined further than the market. AOL Time Warner also hurt performance, as did Home Depot, Schering-Plough and Bristol Myers. On the positive side, performance benefited from holdings in the banking sector, many of which rose in price during the period. Certain consumer stocks, such as Procter & Gamble and Anheuser Busch, also increased in price, while others -- Wal-Mart, PepsiCo and Philip Morris -- declined but still outperformed the market. This had a large positive impact on performance relative to the benchmark. In addition, underexposure to the troubled electricity merchant-area helped performance, as did our stock picks in the general energy area. Q: WHAT CHANGES WERE MADE TO THE PORTFOLIO? A: Throughout the year, we increased exposure to defense-related companies, many of which did well in anticipation of a possible war with Iraq. Lockheed Martin and United Technologies both outperformed the market and contributed positively to performance. In terms of general strategy, we adhered to our long-term approach of staying fully invested and sector-neutral. Our focus remained on stock selection and, unlike many of the Fund's competitors, Ivy US Blue Chip Fund did not hold large amounts of cash. Q: WHAT IS YOUR OUTLOOK GOING FORWARD? A: We are optimistic as we enter 2003. Interest rates are unlikely to rise, and we believe that most, if not all, of the corporate excesses have been wrung out after three years of declines. We think we'll see higher earnings growth and modest GDP growth in the year ahead. In our opinion, all of these factors, as well as recent government proposals for tax reform, could lead to better equity returns in 2003. As markets settle during the year, we may reduce the number of holdings and increase our weightings on attractive stocks. We also intend to continue to stay fully invested, sector-neutral and focused on stock selection. In our view, these steps have the Fund well positioned for 2003. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 24 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A SHARES w/Reimb.& 5.75% sales charge (26.29%) N/A N/A (8.07%) IBCAX w/o Reimb.& 5.75% sales charge (26.67%) N/A N/A (8.79%) B SHARES w/Reimb.& w/ 5.00% CDSC (26.27%) N/A N/A (8.53%) IBCBX w/Reimb.& w/o 5.00% CDSC (22.39%) N/A N/A (8.08%) w/o Reimb.& w/ 5.00% CDSC (26.66%) N/A N/A (9.27%) w/o Reimb.& w/o 5.00% CDSC (22.79%) N/A N/A (8.80%) C SHARES w/Reimb.& w/ 1.00% CDSC (23.19%) N/A N/A (8.11%) IBCCX w/Reimb.& w/o 1.00% CDSC (22.42%) N/A N/A (8.11%) w/o Reimb.& w/ 1.00% CDSC (23.59%) N/A N/A (8.85%) w/o Reimb.& w/o 1.00% CDSC (22.82%) N/A N/A (8.85%) ADVISOR SHARES w/Reimb. (21.50%) N/A N/A (6.44%) IBCVX w/o Reimb. (21.90%) N/A N/A (7.28%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A and Advisor Class commenced operations November 2,1998; Class B and Class C commenced operations November 6, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy US Blue Chip Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (11/98) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH) Ivy US Blue Chip Fund S&P 500 Index 02-Nov-98 9425 10000 30-Nov-98 9906 10606 31-Dec-98 10122 11217 31-Jan-99 10377 11686 28-Feb-99 10094 11323 31-Mar-99 10358 11776 30-Apr-99 10763 12232 31-May-99 10518 11943 30-Jun-99 11140 12606 31-Jul-99 10763 12213 31-Aug-99 10735 12152 30-Sep-99 10368 11819 31-Oct-99 11131 12567 30-Nov-99 11225 12822 31-Dec-99 11676 13578 31-Jan-2000 11069 12895 29-Feb-2000 11259 12651 30-Mar-2000 12301 13889 30-Apr-2000 11761 13471 31-May-2000 11278 13195 30-Jun-2000 11894 13520 31-Jul-2000 11638 13309 30-Aug-2000 12311 14135 30-Sep-2000 11297 13389 31-Oct-2000 11212 13332 30-Nov-2000 10074 12281 31-Dec-2000 10194 12341 30-Jan-2001 10579 12779 28-Feb-2001 9530 11614 31-Mar-2001 9000 10878 30-Apr-2001 9713 11724 31-May-2001 9751 11802 30-Jun-2001 9482 11519 31-Jul-2001 9434 11406 31-Aug-2001 8817 10692 30-Sep-2001 8134 9828 31-Oct-2001 8336 10016 30-Nov-2001 8971 10784 31-Dec-2001 9010 10878 31-Jan-2002 8923 10720 28-Feb-2002 8769 10513 31-Mar-2002 9010 10908 30-Apr-2002 8461 10247 31-May-2002 8375 10171 30-Jun-2002 7855 9447 31-Jul-2002 7335 8710 31-Aug-2002 7325 8768 30-Sep-2002 6526 7815 31-Oct-2002 7171 8503 30-Nov-2002 7499 9003 31-Dec-2002 7046 8474 The S&P 500 Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Financials 24% 2. Information Technology 14% 3. Healthcare 14% 4. Consumer Discretionary 13% 5. Industrials 11% 6. Consumer Staples 9% 7. Energy 6% 8. Telecommunication Services 4% 9. Utilities 3% 10. Materials 2% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. S&P 500 Depository Receipts 4.6% 2. Microsoft Corporation 3.9% 3. Exxon Mobil Corporation 3.4% 4. General Electric Company 3.3% 5. Wal-Mart Stores, Inc. 3.2% 6. Citigroup Inc. 2.5% 7. Pfizer Inc. 2.4% 8. American International Group 2.3% 9. Johnson & Johnson 2.1% 10. International Business Machines 1.9% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 25 IVY US EMERGING GROWTH FUND THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH THROUGH INVESTMENT IN THE COMMON STOCKS OF SMALL- AND MEDIUM-SIZED COMPANIES THAT ARE IN THE EARLY STAGES OF THEIR LIFECYCLES AND THAT HAVE THE POTENTIAL FOR RAPID GROWTH. [PHOTO] Note: Ivy US Emerging Growth Fund was managed by James W. Broadfoot until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. Kimberly A. Scott, Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy US Emerging Growth Fund on December 17th, 2002. She discusses how the Fund is positioned going forward. LIPPER CATEGORY Mid-Cap Growth "In a market in which no one sector is likely to lead for a prolonged period of time, we believe that balance across sectors and holding more rather than fewer names is the best approach." Q: JIM, HOW DID IVY US EMERGING GROWTH FUND PERFORM IN 2002? A: For 2002, Ivy US Emerging Growth Fund returned -41.28%, including the impact of the maximum sales charge, and -37.70% without the sales charge. The Fund underperformed its benchmark, the Russell 2500 Growth Index, which returned - -29.09%, as well as its peer group (as measured by the Lipper Mid-Cap Growth Funds average), which returned -28.33%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: It was a difficult year for growth stocks, particularly for those with higher expected growth rates and price-to-earnings ratios. As the year ended, these stocks were weighed down by uncertain economic conditions, continuing threats of terrorism and a potential war with Iraq. In this environment, investors were not willing to give as much credit for future growth expectations as they might have in more stable times. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance was negatively affected by our focus on high-beta (higher risk and expected growth) stocks, which underperformed last year. Specifically, lack of exposure to slower-growth areas such as finance, consumer staples and materials hurt the Fund as many of these sectors outperformed. An underweight in the top-performing financials sector had the largest negative effect. Holdings in the healthcare sector also negatively impacted performance. We added these stocks for their defensive qualities, but many underperformed in 2002, mostly for political reasons. Pharmaceuticals suffered as government scrutiny of the industry increased, and biotechnology companies had problems with the Food & Drug Administration's slow approval process and continued absence of leadership. Some healthcare holdings, such as Varian Medical Systems, did well, but the overall effect was negative. In addition, holdings in the business services sector hurt performance. As geopolitical concerns mounted, most corporations became hesitant to spend. On the positive side, consumer spending remained strong throughout most of the year, and this had a positive impact on the Fund's consumer-related holdings. Consumer stocks that did well included The University of Phoenix Online and Weight Watchers International. Outside the consumer area, holdings in certain network security, waste management and natural gas companies also did well. Q: KIM, WHAT IS YOUR OUTLOOK FOR 2003? A: We believe that stable to rising earnings in the context of a much more reasonably valued stock market should produce moderate gains in stocks over the course of 2003. While geopolitical issues should lead to continued volatility, we think that a combination of low interest rates and benign inflation will likely provide stock market valuation support. However, we believe that corporate operating earnings must continue to strengthen, preferably as a result of renewed revenue growth, to allow the stock market to move appreciably higher. Q: WHAT IS YOUR STRATEGY GOING FORWARD? A: In a market in which no one sector is likely to lead for a prolonged period of time, we believe that balance across sectors and holding more rather than fewer names is the best approach. We think the current environment requires a keen focus on specific stocks, as we feel it is those companies that have strong management teams, strong balance sheets, and real and sustainable earnings profiles that investors will continue to favor. In terms of sectors, we intend to emphasize those that we believe to have greater potential for growth, including healthcare, technology, and consumer and related areas, but we are unlikely to deviate significantly from the sector weightings in the mid-cap growth index. We believe that these strategies will have the Fund well-positioned for the year ahead. Performance cited is for Class A shares at net asset value and maximum sales load of 5.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 26 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION - ------------- ------ ------- -------- --------- A SHARES w/Reimb. & 5.75% sales charge (41.28%) (11.09%) N/A 4.02% IVEGX w/o Reimb. & 5.75% sales charge (41.28%) (11.09%) N/A 4.00% B SHARES w/Reimb. & w/ 5.00% CDSC (41.29%) (11.09%) N/A (0.03%) IVEBX w/Reimb. & w/o 5.00% CDSC (38.20%) (10.73%) N/A (0.03%) w/o Reimb. & w/ 5.00% CDSC (41.29%) (11.09%) N/A (0.02%) w/o Reimb. & w/o 5.00% CDSC (38.20%) (10.73%) N/A (0.02%) C SHARES w/Reimb. & w/ 1.00% CDSC (38.83%) (10.72%) N/A (8.29%) IVGEX w/Reimb. & w/o 1.00% CDSC (38.22%) (10.72%) N/A (8.29%) w/o Reimb. & w/ 1.00% CDSC (38.83%) (10.72%) N/A (8.29%) w/o Reimb. & w/o 1.00% CDSC (38.22%) (10.72%) N/A (8.29%) ADVISOR SHARES w/Reimb. (37.57%) N/A N/A (10.83%) IVEVX w/o Reimb. (37.57%) N/A N/A (10.83%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations March 3, 1993 (performance here is calculated based on the date the Fund first became available for sale to the public, April 30, 1993); Class B commenced operations October 22, 1993; Class C commenced operations April 30, 1996; Advisor Class commenced operations February 18, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy US Emerging Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW Performance Comparison of the Fund Since Inception (4/93) of a $10,000 Investment (Class A shares including 5.75% maximum sales charge) (GRAPH] - - Ivy US Emerging Growth Fund - $14,460 - - Russell 2500 Growth Index - $17,465 Ivy US Emerging Russell 2500 Growth Fund Growth Index 30-Apr-93 9425 10000 31-May-93 10304 10616 30-Jun-93 11176 10642 31-Jul-93 11492 10650 31-Aug-93 12785 11211 30-Sep-93 13574 11499 31-Oct-93 13786 11726 30-Nov-93 13377 11300 31-Dec-93 13698 11797 31-Jan-94 14181 12137 28-Feb-94 14137 12158 31-Mar-94 13465 11451 30-Apr-94 13113 11438 31-May-94 12723 11208 30-Jun-94 11811 10710 31-Jul-94 11949 10943 31-Aug-94 13285 11747 30-Sep-94 13792 11742 31-Oct-94 14123 11944 30-Nov-94 13601 11415 31-Dec-94 14148 11646 31-Jan-95 14165 11532 28-Feb-95 14682 12159 31-Mar-95 15385 12631 30-Apr-95 15217 12774 31-May-95 15520 12970 30-Jun-95 16719 13757 31-Jul-95 18144 14842 31-Aug-95 18782 14966 30-Sep-95 19877 15286 31-Oct-95 19278 14746 30-Nov-95 19987 15349 31-Dec-95 20101 15553 31-Jan-96 20034 15601 29-Feb-96 20917 16287 31-Mar-96 21649 16641 30-Apr-96 24772 17780 31-May-96 25571 18415 30-Jun-96 24031 17491 31-Jul-96 20975 15753 31-Aug-96 22757 16838 30-Sep-96 24897 17732 31-Oct-96 23490 17180 30-Nov-96 23290 17810 31-Dec-96 23824 17897 31-Jan-97 24784 18432 28-Feb-97 22387 17624 31-Mar-97 20027 16465 30-Apr-97 19237 16539 31-May-97 22585 18521 30-Jun-97 23267 19141 31-Jul-97 24766 20356 31-Aug-97 24883 20852 30-Sep-97 26992 22325 31-Oct-97 25170 20932 30-Nov-97 24658 20611 31-Dec-97 24838 20538 31-Jan-98 24461 20269 28-Feb-98 26481 22009 31-Mar-98 27621 22827 30-Apr-98 28141 23034 31-May-98 26095 21555 30-Jun-98 27208 21713 31-Jul-98 25772 20096 31-Aug-98 19928 15530 30-Sep-98 22360 16891 31-Oct-98 23474 18032 30-Nov-98 26517 19315 31-Dec-98 29308 21174 31-Jan-99 30996 21787 28-Feb-99 26687 20019 31-Mar-99 27657 20951 30-Apr-99 27800 22623 30-May-99 27432 22857 30-Jun-99 30260 24472 31-Jul-99 29227 23973 31-Aug-99 29649 23455 30-Sep-99 31472 23623 31-Oct-99 34371 24773 30-Nov-99 39936 27698 31-Dec-99 47618 32922 31-Jan-00 47175 32739 29-Feb-00 58010 41136 31-Mar-00 55593 37909 30-Apr-00 46309 34215 31-May-00 42261 31169 30-Jun-00 49521 35290 31-Jul-00 45725 32398 31-Aug-00 50629 36621 30-Sep-00 48142 34252 31-Oct-00 41536 32134 30-Nov-00 30752 26012 31-Dec-00 35330 27625 31-Jan-01 36275 29414 28-Feb-01 31052 24875 31-Mar-01 27264 22123 30-Apr-01 31880 25495 31-May-01 31554 26234 30-Jun-01 31146 26847 31-Jul-01 28150 24850 31-Aug-01 25096 23197 30-Sep-01 20189 19564 31-Oct-01 21634 21494 30-Nov-01 23010 23351 31-Dec-01 23499 24632 31-Jan-2002 21996 23579 28-Feb-2002 19932 22123 31-Mar-2002 21646 23905 30-Apr-2002 19956 23111 31-May-2002 18953 21947 30-Jun-2002 17426 19929 31-Jul-2002 15095 17453 31-Aug-2002 15258 17450 30-Sep-2002 14489 16130 31-Oct-2002 14990 17057 30-Nov-2002 15689 18643 31-Dec-2002 14640 17465 The Russell 2500 Growth Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 28% 2. Healthcare 18% 3. Technology 13% 4. Financials 8% 5. Energy 5% 6. Producer Durables 4% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Lamar Advertising Company 2.5% 2. Concord EFS, Inc. 2.4% 3. Weight Watchers International 2.4% 4. AmSurg Corp. 2.2% 5. Network Appliance, Inc. 2.1% 6. Waste Connections, Inc. 2.1% 7. Biomet, Inc. 2.0% 8. Convergys Corporation 2.0% 9. Synovus Financial Corp. 2.0% 10. Cox Radio, Inc. 2.0% The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be representative of the Fund's current or future investments. 27 IVY BOND FUND THE FUND'S GOAL: TO PROVIDE A HIGH LEVEL OF CURRENT INCOME BY INVESTING AT LEAST 80% OF THE FUND'S TOTAL ASSETS IN BONDS RATED IN THE FOUR HIGHEST RATINGS CATEGORIES USED BY MOODY'S INVESTOR SERVICES AND STANDARD AND POOR'S CORPORATION. [PHOTO] Note: Ivy Bond Fund was managed by Richard Gluck until December 16th, 2002. At right, he discusses factors relating to Fund performance in 2002. James C. Cusser, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Bond Fund on December 17th, 2002. He discusses how the Fund is positioned going forward. LIPPER CATEGORY Corporate Debt BBB-Rated "We believe that the government will join the household sector in spending and boosting economic prospects, and that corporations will begin to spend hand in hand with their prospects for profitability." Q: RICHARD, HOW DID IVY BOND FUND PERFORM IN 2002? A: For 2002,Ivy Bond Fund returned 4.30%, including the impact of the maximum sales charge,and 9.49% without the sales charge. This compares to the Fund's benchmark,the Lehman Brothers US Credit Index, which returned 10.53%, and its peer group (as measured by the Lipper Corporate Debt BBB-Rated Funds average), which returned 7.35%. It should be noted that the benchmark index and Lipper category do not reflect sales charges. Q: HOW WERE MARKET CONDITIONS? A: The past year was extremely difficult for the corporate bond market. Accounting scandals at some of the country's largest companies shook investor confidence and diminished their faith in corporate America. As more and more corporations came out with disturbing revelations, the merest hint of any problem, real or perceived, could destroy a company's bonds in a matter of days, if not hours. Volatility was also caused by the realization that US corporations had over-leveraged themselves during the 1990s, borrowing to buy back stock and to invest in businesses (fixed and wireless telecom companies, merchant power generators and others) perceived to have enormous future returns -- returns that, for many, never materialized. Q: WHAT FACTORS AFFECTED PERFORMANCE? A: Performance was hurt by light exposure to noncorporate holdings, an area that outperformed. In addition, the Fund was concentrated in BBB-rated corporate bonds, which underperformed higher-rated corporate bonds in 2002. This helps to explain why the Fund underperformed its benchmark, which contains a more diverse range of debt issues. On the positive side, the Fund's focus on value situations helped it avoid companies involved in the over-leveraging and excessive capital-spending trend. The Fund did not hold troubled names involved in financial scandals, and this significantly helped performance. The Fund also did not hold many electric utilities, which were the worst performing sector in the bond market. However, the Fund did hold CalPine, which had a negative effect on performance. In addition,the Fund was not exposed to the hardest-hit telecom names,focusing instead on companies with stronger fundamentals such as Verizon and Poland's TPSA. Performance also benefited from an overweight in the consumer sector, which showed resilience for most of the year despite uncertain economic conditions, and from large healthcare holdings such as McKesson and Health Care Corporation of America. In addition, holdings in REITS (real estate investment trusts), energy and home construction benefited performance. Holdings in Delta Airlines, which announced higher-than-expected losses in the third quarter, and Ford Motors hurt performance. Q: JIM, WHAT IS YOUR STRATEGY FOR 2003? A: In the past, Ivy Bond Fund has been comprised almost entirely of corporate bonds. Corporate bonds will still play a major role, but we will most likely add a greater number of mortgage-backed securities, Treasury bonds and other types of debt securities. However, much depends on market conditions. Q: WHAT IS YOUR OUTLOOK FOR 2003? A: The Federal Reserve reduced interest rates to a historically low 1.25% in the fourth quarter. Of course, the Fed can only bring the "horse to water"; making the economy "drink" is up to the economy's investors -- households, corporations, and governments. We believe that the government will join the household sector in spending and boosting economic prospects,and that corporations will begin to spend hand in hand with their prospects for profitability. We also believe that the household's continued spending, governmental deficits, and the return of corporate confidence bode: higher interest rates in 2003, higher corporate profitability, tighter corporate spreads and a continuing steep yield curve. We will closely monitor these factors as we position the Fund for the year ahead. Performance cited is for Class A shares at net asset value and at maximum sales load of 4.75%. The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. 28 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002

SHARE CLASS/ SINCE NASDAQ SYMBOL 1 YEAR 5 YEARS 10 YEARS INCEPTION ------------- ------ ------- -------- --------- A Shares w/Reimb. 4.75% sales charge 4.30% 1.62% 5.47% 7.11% MCFIX w/o Reimb. & 4.75% sales charge 4.30% 1.62% 5.47% 2.34% B Shares w/Reimb. & w/ 5.00% CDSC 2.65% 1.17% N/A 4.48% IVBBX w/Reimb. & w/o 5.00% CDSC 7.65% 1.55% N/A 4.48% w/o Reimb. & w/ 5.00% CDSC 2.65% 1.17% N/A 4.48% w/o Reimb. & w/o 5.00% CDSC 7.65% 1.55% N/A 4.48% C Shares w/Reimb. & w/ 1.00% CDSC 6.79% 1.60% N/A 4.11% IVBCX w/Reimb. & w/o 1.00% CDSC 7.79% 1.60% N/A 4.11% w/o Reimb. & w/ 1.00% CDSC 6.79% 1.60% N/A 4.11% w/o Reimb. & w/o 1.00% CDSC 7.79% 1.60% N/A 4.11% Advisor Shares w/Reimb. 8.52% 2.50 N/A 2.53% IVBVX w/o Reimb. 8.52% 0.65 N/A 0.66%

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Class A commenced operations September 6, 1985; Class B commenced operations April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced operations January 20, 1998. Total returns in some periods were higher due to reimbursement of certain Fund expenses. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy Bond Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. PERFORMANCE OVERVIEW 10-Year Performance Comparison of a $10,000 Investment in the Fund (Class A shares including 4.75% maximum sales charge) (GRAPH)

LEHMAN IVY BROTHERS BOND US CREDIT FUND INDEX ----- --------- 31-Dec-92 9525 10000 31-Jan-93 9771 10233 28-Feb-93 9990 10468 31-Mar-93 10085 10504 30-Apr-93 10123 10585 31-May-93 10219 10598 30-Jun-93 10499 10855 31-Jul-93 10570 10934 31-Aug-93 10855 11206 30-Sep-93 10885 11232 31-Oct-93 10991 11289 30-Nov-93 10890 11150 31-Dec-93 10996 11216 31-Jan-94 11268 11434 28-Feb-94 11066 11164 31-Mar-94 10722 10821 30-Apr-94 10593 10717 31-May-94 10574 10677 30-Jun-94 10500 10651 31-Jul-94 10660 10920 31-Aug-94 10743 10932 30-Sep-94 10609 10729 31-Oct-94 10590 10704 30-Nov-94 10558 10686 31-Dec-94 10545 10775 31-Jan-95 10560 11003 28-Feb-95 10765 11320 31-Mar-95 10780 11413 30-Apr-95 11094 11605 31-May-95 11519 12152 30-Jun-95 11594 12262 31-Jul-95 11659 12208 31-Aug-95 11811 12404 30-Sep-95 11958 12551 31-Oct-95 12031 12715 30-Nov-95 12168 12958 31-Dec-95 12381 13172 31-Jan-96 12519 13257 29-Feb-96 12324 12942 31-Mar-96 12258 12832 30-Apr-96 12238 12725 31-May-96 12363 12703 30-Jun-96 12517 12889 31-Jul-96 12566 12914 31-Aug-96 12553 12874 30-Sep-96 12887 13147 31-Oct-96 13151 13506 30-Nov-96 13447 13795 31-Dec-96 13379 13604 31-Jan-97 13496 13623 28-Feb-97 13695 13681 31-Mar-97 13471 13468 30-Apr-97 13636 13672 31-May-97 13827 13826 30-Jun-97 14080 14022 31-Jul-97 14646 14535 31-Aug-97 14445 14321 30-Sep-97 14736 14571 31-Oct-97 14845 14756 30-Nov-97 14886 14839 31-Dec-97 14968 14996 31-Jan-98 15124 15174 28-Feb-98 15124 15170 31-Mar-98 15172 15226 30-Apr-98 15221 15322 31-May-98 15276 15504 30-Jun-98 15312 15618 31-Jul-98 15278 15603 31-Aug-98 14864 15676 30-Sep-98 14919 16184 31-Oct-98 14578 15935 30-Nov-98 15081 16235 31-Dec-98 14968 16282 31-Jan-99 14902 16443 28-Feb-99 14448 16053 31-Mar-99 14669 16166 30-Apr-99 14715 16214 31-May-99 14560 15997 30-Jun-99 14490 15914 31-Jul-99 14421 15825 31-Aug-99 14255 15787 30-Sep-99 14298 15958 31-Oct-99 14205 16032 30-Nov-99 14175 16049 31-Dec-99 14045 15964 31-Jan-00 14025 15908 29-Feb-00 14181 16055 31-Mar-00 14434 16192 30-Apr-00 13894 16050 31-May-00 13600 15990 30-Jun-00 13854 16391 31-Jul-00 14042 16590 30-Aug-00 14227 16806 30-Sep-00 14218 16894 31-Oct-00 14193 16911 30-Nov-00 14198 17130 31-Dec-00 14310 16938 31-Jan-01 14600 17402 28-Feb-01 14739 17554 31-Mar-01 14815 17663 30-Apr-01 14705 17599 31-May-01 14836 17761 30-Jun-01 14928 17850 31-Jul-01 15324 18316 31-Aug-01 15548 18561 30-Sep-01 15378 18533 31-Oct-01 15696 18993 30-Nov-01 15577 18828 31-Dec-01 15554 18698 31-Jan-2002 15705 18857 28-Feb-2002 15798 19000 31-Mar-2002 15589 18648 30-Apr-2002 15921 18908 31-May-2002 16042 19157 30-Jun-2002 16122 19188 31-Jul-2002 16105 19178 31-Aug-2002 16442 19675 30-Sep-2002 16799 20049 31-Oct-2002 16296 19816 30-Nov-2002 16577 20074 31-Dec-2002 17031 20666

The Lehman Brothers US Credit Index is an unmanaged index which assumes reinvestment of dividends and unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. CREDIT QUALITY (S&P) 12/31/02 % of Total Investments 1. BBB 64% 2. A 16% 3. BB 7% 4. AAA 7% 5. AA 6% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Storage USA Partnership L.P. 5.4% 2. Northrop Grumman Corp. 4.4% 3. BRE Properties Inc. 4.3% 4. Spieker Properties 4.0% 5. Tele Communications Inc. 4.0% 6. RJ Reynolds Tobacco Holdings Inc. 4.0% 7. TE Products Pipeline Co. 3.7% 8. Time Warner Inc. 3.4% 9. Indiantown Cogeneration 3.2% 10. Pulte Corp. 3.1% The top 10 holdings and the credit quality distribution are as of 12/31/02 and may not be representative of the Fund's current or future investments. 29 IVY MONEY MARKET FUND THE FUND'S GOAL: TO OBTAIN AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL AND LIQUIDITY BY INVESTING IN HIGH QUALITY, SHORT-TERM SECURITIES. [PHOTO] Note: Ivy Money Market Fund was managed by Richard Gluck until December 16th, 2002. Mira Stevovich, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy Money Market Fund on December 17th, 2002. The Fund's manager actively monitors the portfolio on a daily basis, while searching out attractive investments within the money market universe to provide investors with a competitive yield. INVESTMENT STRATEGY In pursuit of its objective, Ivy Money Market Fund invests in money market instruments maturing within 13 months or less and maintains a portfolio with a dollar-weighted average maturity of 90 days or less. While there are no guarantees, the Fund's emphasis on securities with relatively short-term maturities is designed to enable the Fund to maintain a constant net asset value of $1.00 per share. However, it is important to note that the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Thus, although the Fund manager seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing in the Fund. PORTFOLIO HOLDINGS The Fund is invested in U.S. dollar-denominated, high-quality money market obligations and instruments, including debt securities issued or guaranteed by the U.S.government. CREDIT QUALITY The value of Ivy Money Market Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issue specific, political or economic developments. The Fund's debt investments are required to present minimal credit risk and be included in one of the two highest short-term rating categories that apply to debt securities. Within this environment,the Fund's manager actively monitors the portfolio on a daily basis, while searching out attractive investments within the money market universe to provide investors with a competitive yield. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions,and no forecasts can be guaranteed. 30 [PHOTOGRAPH] "See first that the design is wise and just; that ascertained, pursue it resolutely." - William Shakespeare 31 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY CUNDILL GLOBAL VALUE FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 70.5% - ------------------------------ EUROPE - 2.5% - ------------------------------ SWITZERLAND - 2.5% Sulzer AG (a) 1,000 $ 135,967 ---------------- FAR EAST - 46.8% - ------------------------------ HONG KONG - 5.4% First Pacific Company Ltd. (a) 2,010,000 180,422 Jardine Strategic Holdings Limited 46,000 116,380 ---------------- 296,802 ---------------- INDIA - 2.4% Videsh Sanchar Nigam Ltd. 32,000 131,200 ---------------- JAPAN - 35.3% Aiful Corporation 6,000 225,499 Asatsu-DK Inc. 15,500 274,943 Coca-Cola West Japan Company Limited 8,000 119,660 Lion Corporation 49,000 194,068 Nikko Cordial Corporation 76,000 256,172 Nippon Broadcasting System, Incorporated 8,000 239,319 NIPPONKOA Insurance Company, Limited 41,000 154,437 Sankyo Company, Ltd. 21,000 263,495 Tokyo Broadcasting System, Inc. 17,000 213,736 ---------------- 1,941,329 ---------------- SOUTH KOREA - 3.7% Korea Tobacco & Ginseng Corporation (KT & G) 11,400 157,632 Korea Tobacco & Ginseng Corporation (KT & G) - GDR (f) 7,000 46,550 ---------------- 204,182 ---------------- NORTH AMERICA - 21.2% - ------------------------------ CANADA - 12.7% Brascan Corporation 8,000 160,782 QLT Inc. (a) 22,000 186,608

NAME OF SECURITY SHARES VALUE Teck Cominco Limited CL B 20,000 $ 146,856 Torstar Corporation CL B 12,700 204,997 ---------------- 699,243 ---------------- UNITED STATES - 8.5% Alderwoods Group, Inc. (a) 30,400 144,096 Apple Computer, Inc. (a) 7,500 107,475 Liberty Media Corporation (a) 18,720 167,357 Sun Microsystems, Inc. (a) 15,000 46,650 ---------------- 465,578 ---------------- TOTAL INVESTMENTS - 70.5% (Cost - $4,055,193) $ 3,874,301 (Cost on Federal income tax basis - $4,220,924) OTHER ASSETS, LESS LIABILITIES - 29.5% 1,620,299 ---------------- NET ASSETS - 100% $ 5,494,600 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 132,905 Gross unrealized depreciation (313,797) ---------------- Net unrealized depreciation for financial statement purposes (180,892) Less: tax basis adjustments (165,731) ---------------- Net unrealized depreciation for Federal income tax purposes $ (346,623) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $6,552,426 and $3,755,784, respectively, for the period ended December 31, 2002. Forward foreign currency contracts at December 31, 2002 were:

CONTRACTS TO BUY ------------------------------------- SETTLEMENT LOCAL VALUE IN EXCHANGE UNREALIZED CURRENCY DATE CURRENCY IN U.S.$ FOR U.S.$ APPRECIATION - ---------------------------------------------------------------------------------------------- British Pound January 8, 2003 8,887 14,000 14,299 $ 299 British Pound January 8, 2003 64,770 103,385 104,214 829 Hong Kong Dollar January 8, 2003 429,033 55,000 55,013 13 Hong Kong Dollar January 8, 2003 522,747 67,000 67,030 30 Hong Kong Dollar January 8, 2003 507,124 65,000 65,027 27 Hong Kong Dollar January 8, 2003 265,190 34,000 34,004 4 Japanese Yen January 8, 2003 29,375,500 245,000 247,601 2,601 Swiss Franc January 8, 2003 10,388 7,000 7,514 514 Swiss Franc January 8, 2003 123,463 84,000 89,301 5,301 -------------- $ 9,618 ==============

32 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

CONTRACTS TO SELL ------------------------------------- UNREALIZED SETTLEMENT LOCAL VALUE IN EXCHANGE APPRECIATION/ CURRENCY DATE CURRENCY IN U.S.$ FOR U.S.$ (DEPRECIATION) - ---------------------------------------------------------------------------------------------- Japanese Yen January 8, 2003 53,505,560 457,000 450,989 $ 6,011 Japanese Yen January 8, 2003 44,655,800 382,000 376,396 5,604 -------- $ 11,615 -------- British Pound January 8, 2003 35,874 52,000 57,722 $ (5,722) British Pound January 8, 2003 25,540 39,000 41,094 (2,094) British Pound January 8, 2003 12,242 19,000 19,698 (698) Hong Kong Dollar January 8, 2003 554,943 71,000 71,158 (158) Hong Kong Dollar January 8, 2003 39,091 5,000 5,013 (13) Hong Kong Dollar January 8, 2003 156,236 20,000 20,034 (34) Hong Kong Dollar January 8, 2003 125,024 16,000 16,031 (31) Hong Kong Dollar January 8, 2003 132,697 17,000 17,015 (15) Hong Kong Dollar January 8, 2003 374,376 48,000 48,005 (5) Hong Kong Dollar January 8, 2003 1,170,150 150,000 150,044 (44) Hong Kong Dollar June 11, 2003 476,087 61,000 61,002 (2) Japanese Yen January 8, 2003 63,760,770 513,000 537,429 (24,429) Japanese Yen January 8, 2003 21,156,660 174,000 178,326 (4,326) Japanese Yen June 11, 2003 36,086,910 291,000 305,858 (14,858) South Korean Won January 8, 2003 82,236,000 66,000 69,278 (3,278) South Korean Won January 8, 2003 49,101,000 39,000 41,364 (2,364) South Korean Won January 8, 2003 58,512,000 48,000 49,292 (1,292) Swiss Franc January 8, 2003 61,035 39,000 44,146 (5,146) Swiss Franc January 8, 2003 193,323 130,000 139,830 (9,830) Swiss Franc January 8, 2003 42,572 29,000 30,792 (1,792) -------------- $(76,131) -------------- Net unrealized depreciation on forward foreign currency contracts $(54,898) ==============

IVY DEVELOPING MARKETS FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 100.3% - ------------------------------ AFRICA - 5.8% - ------------------------------ SOUTH AFRICA - 5.8% Nedcor Limited 8,400 $ 108,763 Standard Bank Group Limited 38,067 133,759 ---------------- 242,522 ---------------- EASTERN EUROPE - 10.5% - ------------------------------ HUNGARY - 4.2% Magyar Tavkozlesi Rt 23,600 85,557 OTP Bank Rt 9,000 88,475 ---------------- 174,032 ---------------- POLAND - 4.6% Bank Pekao S.A. (a) 4,000 98,578 Telekomunikacja Polska S.A. (a) 28,200 93,767 ---------------- 192,345 ---------------- RUSSIA - 1.7% LUKOIL 1,200 73,455 ---------------- EUROPE - 6.1% - ------------------------------ LUXEMBOURG - 1.8% Tenaris S.A. (a) 3,861 74,208 ---------------- UNITED KINGDOM - 4.3% Anglo American plc 4,850 72,069 South African Breweries plc 15,500 109,984 ---------------- 182,053 ----------------

NAME OF SECURITY SHARES VALUE FAR EAST - 44.1% - ------------------------------ HONG KONG - 9.6% Cathay Pacific Airways 67,000 $ 91,500 China Mobile (Hong Kong) Ltd. (a) 38,300 91,104 Esprit Holdings Limited 60,000 101,175 Sun Hung Kai Properties Ltd. 20,000 118,486 ---------------- 402,265 ---------------- INDIA - 2.4% Hero Honda Motors Ltd. 17,600 99,617 ---------------- SOUTH KOREA - 22.7% Hyundai Motor Co., Ltd. 4,800 112,306 Kookmin Bank 4,140 146,604 Korea Telecom Corporation 3,300 141,065 LG Chem Limited 3,600 123,233 POSCO 1,490 148,240 Samsung Electronics 590 156,199 SK Telecom Co., Ltd. 620 119,708 ---------------- 947,355 ---------------- TAIWAN - 9.4% Asustek Computer Inc. 24,000 42,105 Formosa Plastic Corporation 44,940 58,938 Hon Hai Precision Industry Co., Ltd. 30,360 104,780 Taiwan Semiconductor Manufacturing Company (a) 96,360 118,060 United Microelectronics Corporation (a) 113,763 69,036 ---------------- 392,919 ----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 33 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY DEVELOPING MARKETS FUND (CONTINUED) NAME OF SECURITY SHARES VALUE LATIN AMERICA - 32.3% - ------------------------------ BRAZIL - 9.2% Cia Brasileira de Distribuicao Grupo Pao de Acucar 3,498,100 $ 53,854 Cia Vale do Rio Doce (c) 13,300 -- Embraer Brasileira de Aeronautica S.A. (Embraer) 7,553 120,093 Petroleo Brasileiro S.A. - Petrobras 9,143 119,839 Tele Norte Leste Participacoes S.A. 12,406 91,184 Telesp Celular Participacoes S.A. 1 -- ---------------- 384,970 ---------------- CHILE - 1.3% Antofagasta plc 5,363 53,962 ---------------- MEXICO - 19.2% America Movil S.A. de C.V. 6,900 99,084 Cemex S.A. De C.V. 22,955 98,563 Fomento Economico Mexicano, S.A. Sponsored ADR 4,100 149,322 Grupo Financiero Banorte S.A. de C.V. 30,580 74,521 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 160,000 120,948 Grupo Televisa S.A. Sponsored GDR (a) 4,000 111,720 Telefonos de Mexico S.A. Class L - ADR 4,600 147,108 ---------------- 801,266 ---------------- PERU - 2.6% Cia de Minas Buenaventura S.A. Sponsored ADR 4,200 110,838 ---------------- MIDDLE EAST - 1.5% - ------------------------------ ISRAEL - 1.5% Check Point Software Technologies Ltd. (a) 4,700 60,959 ---------------- TOTAL INVESTMENTS - 100.3% (Cost - $4,866,013) $ 4,192,766 (Cost on Federal income tax basis - $4,913,737) LIABILITIES, IN EXCESS OF OTHER ASSETS - 0.3% (12,352) ---------------- NET ASSETS - 100% $ 4,180,414 ================

NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 473,293 Gross unrealized depreciation (1,146,540) ---------------- Net unrealized depreciation for financial statement purposes (673,247) Less: tax basis adjustments (47,724) ---------------- Net unrealized depreciation for Federal income tax purposes $ (720,971) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $2,461,048 and $3,079,883, respectively, for the period ended December 31, 2002.

IVY EUROPEAN OPPORTUNITIES FUND EQUITY SECURITIES -100.3% - ------------------------------ AFRICA - 3.3% - ------------------------------ SOUTH AFRICA - 3.3% Nasper Limited (a) 84,700 $ 2,286,900 ---------------- EUROPE - 97.0% - ------------------------------ AUSTRIA - 1.4% Telecom Austria AG (a) 100,000 1,012,624 Yline Internet Business Services AG (a)(c) 26,940 -- ---------------- 1,012,624 ---------------- BELGIUM - 0.8% Agfa Gevaert NV 25,000 557,468 ---------------- DENMARK - 1.1% ISS A/S (a) 22,000 792,561 ---------------- FINLAND - 2.1% M-real Oyj 175,000 1,469,091 ---------------- FRANCE - 16.1% AXA 120,000 1,610,544 BNP Paribas SA 37,000 1,507,613 Cie Francaise d'Etudes et de Construction (Technip SA) 21,500 1,538,663 Essilor International SA 32,000 1,317,985 JC Decaux SA (a) 135,000 1,629,117 Sagem SA - Preferred 50,000 2,486,962 Wanadoo (a) 274,400 1,229,512 ---------------- 11,320,396 ---------------- GERMANY - 4.7% Continental AG (a) 50,000 768,650 Deutsche Boerse AG 26,000 1,036,759 Porsche AG 3,600 1,495,955 ---------------- 3,301,364 ----------------

34 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE GREECE - 6.3% Folli-Follie SA 90,000 $ 1,522,398 Hellenic Telecommunications Organization SA (OTE) 175,000 1,928,182 Public Power Corporation (PPC) 68,000 941,897 ---------------- 4,392,477 ---------------- ITALY - 2.0% Telecom Italia SpA 150,000 757,107 Tod's SpA (a) 20,000 640,314 ---------------- 1,397,421 ---------------- NETHERLANDS - 18.3% Aegon NV 165,000 2,122,732 Buhrmann NV 325,000 1,418,723 Fugro NV 50,000 2,262,925 Hagemeyer NV 100,000 724,052 IHC Caland NV 51,000 2,691,900 Koninklijke Ahold NV 72,780 924,098 Van der Moolen Holding NV 60,000 1,290,702 Vedior NV 250,000 1,427,117 ---------------- 12,862,249 ---------------- SPAIN - 4.0% Altadis, S.A. 42,000 958,141 Compania Espanola De Petroleos, S.A. 89,615 1,635,314 Telepizza, S.A. (a) 229,667 180,751 ---------------- 2,774,206 ---------------- SWITZERLAND - 7.9% Credit Suisse Group 50,000 1,084,842 Credit Suisse Group Rights (a) 50,000 -- Kaba Holdings AG 8,267 1,536,584 Lonza Group AG 13,791 837,819 Zurich Financial Services AG 22,000 2,052,521 ---------------- 5,511,766 ---------------- UNITED KINGDOM - 32.3% Aberdeen Asset Management PLC 1,500,000 1,714,562 British American Tobacco plc 100,000 998,953 British Sky Broadcasting Group plc ("BSkyB") 150,000 1,543,105 Chubb Security 1,000,000 1,416,727 easyJet plc (a) 400,000 1,783,788 Filtronic plc (a) 700,000 974,805 HBOS plc 100,000 1,054,496 Imperial Tobacco Group plc 100,000 1,693,633 Johnston Press plc 263,600 1,563,819 Kidde plc 893,250 1,006,641 PHS Group plc 1,500,000 1,883,603 Punch Taverns plc 490,816 1,493,427 Royal Bank of Scotland Group plc 70,000 1,674,636 Shell Transport & Trading Co. plc 300,000 1,974,161 The Berkeley Group plc 68,000 649,730 Xstrata plc (a) 120,000 1,253,803 ---------------- 22,679,889 ---------------- NORTH AMERICA - 0.0% - ------------------------------ UNITED STATES OF AMERICA -0.0% Global TeleSystems Group, Inc. (a)(c) 3,400,000 -- ----------------

NAME OF SECURITY SHARES VALUE TOTAL INVESTMENTS - 100.3% (Cost - $101,136,872) (b) $ 70,358,412 LIABILITIES, IN EXCESS OF OTHER ASSETS - 0.3% (196,735) ---------------- NET ASSETS - 100% $ 70,161,677 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 8,457,994 Gross unrealized depreciation (39,236,454) ---------------- Net unrealized depreciation $ (30,778,460) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $59,378,318 and $84,374,539, respectively, for the period ended December 31, 2002. IVY GLOBAL FUND

EQUITY SECURITIES - 99.3% - ------------------------------ EUROPE - 31.5% - ------------------------------ FINLAND - 1.2% Nokia Oyj 1,750 $ 27,821 Stora Enso Oyj 2,600 27,419 ---------------- 55,240 ---------------- FRANCE - 6.0% Aventis SA 600 32,614 AXA 2,400 32,211 Cie Francaise d'Etudes et de Construction (Technip SA) 226 16,174 LVMH Moet Hennessy Louis Vuitton SA 645 26,498 Schneider SA 700 33,121 Societe Generale 700 40,767 Societe Television Francaise 1 1,200 32,060 Thomson Multimedia (a) 1,300 22,181 TotalFinaElf - B Shares 270 38,560 ---------------- 274,186 ---------------- GERMANY - 2.8% Adidas-Salomon AG 500 42,499 Deutsche Lufthansa AG (a) 1,700 16,073 Medion AG 600 20,777 Siemens AG 422 17,934 Volkswagen AG Pfd 1,200 31,103 ---------------- 128,386 ---------------- ITALY - 1.7% Assicurazioni Generali S.p.A. 1,300 26,738 ENEL S.p.A. 9,500 49,445 ---------------- 76,183 ---------------- NETHERLANDS - 4.7% Akzo Nobel NV 1,174 37,241 ING Groep NV 1,344 22,763 Koninklijke (Royal) KPN NV (a) 5,200 33,831

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 35 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY GLOBAL FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Koninklijke (Royal) Philips Electronicas NV 1,534 $ 26,882 Koninklijke Ahold NV 2,520 31,997 Royal Dutch Petroleum Company 1,000 44,020 TPG NV 1,200 19,455 ---------------- 216,189 ---------------- NORWAY - 0.7% Norsk Hydro A.S. Sponsored ADR 750 33,307 ---------------- SPAIN - 0.9% Amadeus Global Travel Distribution S.A. 2,350 9,691 Iberdrola S.A. 2,200 30,820 ---------------- 40,511 ---------------- SWITZERLAND - 3.5% Credit Suisse Group 950 20,612 Holcim Ltd. 190 34,491 Novartis AG 580 21,162 STMicroelectronics NV 1,454 28,368 UBS AG 1,200 58,321 ---------------- 162,954 ---------------- UNITED KINGDOM - 10.0% Abbey National plc 2,900 24,137 Amvescap plc 4,000 25,485 BAE Systems plc 8,580 17,094 BT Group plc 11,072 34,759 Diageo plc 3,436 37,366 GlaxoSmithKline plc 2,573 49,376 HBOS plc 6,100 64,324 Rio Tinto plc Sponsored ADR 639 50,820 Royal Bank of Scotland Group plc 2,037 1,795 Unilever plc 6,900 65,651 Vodafone AirTouch plc 33,779 61,723 WPP Group plc 3,600 27,356 ---------------- 459,886 ---------------- FAR EAST - 11.6% - ------------------------------ AUSTRALIA - 1.7% BHP Ltd. 8,385 47,924 National Australia Bank Ltd. 1,700 30,394 ---------------- 78,318 ---------------- HONG KONG - 1.2% Hang Seng Bank 3,000 31,930 Sun Hung Kai Properties Ltd. 4,000 23,697 ---------------- 55,627 ---------------- JAPAN - 7.0% Asahi Glass Company, Ltd. 4,300 26,343 Canon Inc. 930 35,031 Kirin Brewery Company, Limited 5,000 31,811 Murata Manufacturing Company, Ltd. 400 15,674 Nintendo Co., Ltd. 400 37,381 Nissan Motor Co., Ltd. 5,000 39,016 Nomura Holdings, Inc. 2,600 29,227 NTT DoCoMo, Inc. 10 18,454 Sharp Corporation 2,600 24,692 SMC Corporation 300 28,162 Sony Corporation 900 37,617 ---------------- 323,408 ----------------

NAME OF SECURITY SHARES VALUE SOUTH KOREA - 1.3% POSCO 300 $ 29,847 Samsung Electronics 110 29,122 ---------------- 58,969 ---------------- TAIWAN - 0.4% Taiwan Semiconductor Manufacturing Company (a) 13,200 16,173 ---------------- LATIN AMERICA - 1.6% - ------------------------------ MEXICO - 1.6% Fomento Economico Mexicano, S.A. Sponsored ADR 600 21,852 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 26,500 20,032 Telefonos de Mexico S.A. Class L - ADR 1,050 33,579 ---------------- 75,463 ---------------- NORTH AMERICA - 54.6% - ------------------------------ UNITED STATES - 54.6% 3M Co. 195 24,044 Abbott Laboratories 565 22,600 Air Products and Chemicals, Inc. 245 10,474 Alcoa Inc. 675 15,377 ALLTEL Corporation 175 8,925 American Express Company 670 23,685 American International Group, Inc. 1,010 58,429 Amgen Inc. (a) 520 25,137 Anadarko Petroleum Corporation 205 9,820 Analog Devices, Inc. (a) 150 3,581 Anheuser-Busch Companies, Inc. 445 21,538 AOL Time Warner Inc. (a) 1,500 19,650 Applied Materials, Inc. (a) 1,055 13,747 AT&T Corp. 256 6,684 Automatic Data Processing, Inc. 425 16,681 Bank of America Corporation 630 43,829 Bank One Corporation 595 21,747 BB&T Corporation 440 16,276 Bed Bath & Beyond Inc. (a) 330 11,395 BellSouth Corporation 615 15,910 Bristol-Myers Squibb Company 850 19,678 Carnival Corp 555 13,847 Chevron Texaco Corporation 495 32,908 Cisco Systems, Inc. (a) 2,925 38,318 Citigroup Inc. 1,760 61,934 Colgate-Palmolive Company 325 17,040 Comcast Corporation (a) 1,154 27,200 ConocoPhillips 325 15,727 Dell Computer Corporation (a) 1,135 30,350 DTE Energy Company 270 12,528 Du Pont E.I. du Pont de Nemours and Company 485 20,564 Eli Lilly and Company 460 29,210 Exelon Corporation 290 15,303 Exxon Mobil Corporation 2,505 87,525 Fannie Mae 455 29,270 Fifth Third Bancorp 295 17,272 First Data Corporation 480 16,997 FPL Group, Inc. 210 12,627 Freddie Mac 290 17,125 Gannett Co., Inc. 210 15,078 General Dynamics Corporation 165 13,096

36 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE General Electric Company 3,465 $ 84,373 General Motors Corporation 270 9,952 Gillette Company 575 17,457 Harley-Davidson Inc. 250 11,550 Hewlett-Packard Company 1,375 23,870 Home Depot, Inc. 955 22,882 Honeywell International Inc. 605 14,520 Intel Corporation 2,440 37,991 International Business Machines Corp. 615 47,663 International Paper Company 380 13,289 ITT Industries, Inc. 175 10,621 J.P. Morgan Chase and Co. 775 18,600 Johnson & Johnson 1,065 57,201 Kimberly-Clark Corporation 215 10,206 Kohl's Corporation (a) 185 10,351 Lehman Brothers Holdings Inc. 185 9,859 Linear Technology Corporation 145 3,729 Lockheed Martin Corporation 330 19,058 Lowe's Companies, Inc. 485 18,188 Maxim Integrated Products, Inc. 155 5,121 McDonald's Corporation 595 9,568 Medtronic, Inc. 540 24,624 Merck & Co., Inc. 825 46,703 Merrill Lynch & Co., Inc. 455 17,267 Microsoft Corporation (a) 1,875 96,938 Morgan Stanley 425 16,966 Motorola, Inc. 1,230 10,640 Nike, Inc. 120 5,336 Noble Corporation (a) 85 2,988 Oracle Corporation (a) 2,445 26,406 PepsiCo, Inc. 760 32,087 Pfizer Inc. 2,025 61,904 Pharmacia Corporation 570 23,826 Philip Morris Companies Inc. 895 36,274 Pulte Homes, Inc. 200 9,574 S&P 500 Depository Receipts 1,000 88,290 SBC Communications Inc. 1,110 30,092 Schering-Plough Corporation 695 15,429 State Street Corporation 370 14,430 SunTrust Banks, Inc. 250 14,230 Sysco Corporation 470 14,001 Target Corporation 570 17,100 Texas Instruments Inc. 1,020 15,310 The Boeing Company 535 17,650 The Coca-Cola Company 805 35,275 The Goldman Sachs Group, Inc. 200 13,620 The Procter & Gamble Company 505 43,400 The Southern Company 545 15,473 The Walt Disney Company 990 16,147 Tyco International Ltd. 955 16,312 U.S. Bancorp 1,085 23,024 United Parcel Service, Inc. 440 27,755 United Technologies Corporation 285 17,653 UnitedHealth Group Incorporated 175 14,613 Verizon Communications 910 35,263 Viacom Inc. Cl B (a) 795 32,404 Wachovia Corporation 720 26,237 Walgreen Co. 385 11,238 Wal-Mart Stores, Inc. 1,620 81,826 Washington Mutual, Inc. 605 20,891 Wells Fargo & Company 745 34,918

NAME OF SECURITY SHARES VALUE Wyeth 575 $ 21,505 ---------------- 2,514,784 ---------------- TOTAL INVESTMENTS - 99.3% (Cost - $5,277,698) $ 4,569,584 (Cost on Federal income tax basis - $5,388,293) OTHER ASSETS, LESS LIABILITIES - 0.7% 33,159 ---------------- NET ASSETS - 100% $ 4,602,743 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 300,320 Gross unrealized depreciation (1,008,434) ---------------- Net unrealized depreciation for financial statement purposes (708,114) Less: tax basis adjustments (110,595) ---------------- Net unrealized depreciation for Federal income tax purposes $ (818,709) ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $3,693,509 and $5,275,807, respectively, for the period ended December 31, 2002.

IVY GLOBAL NATURAL RESOURCES FUND EQUITY SECURITIES - 98.1% - ------------------------------ ENERGY UTILITIES - 4.1% Duke Energy Corporation 10,000 $ 195,400 El Paso Corporation 75,000 522,000 Mirant Corporation (a) 300,000 567,000 ---------------- 1,284,400 ---------------- INTEGRATED OIL & GAS - 2.9% Hurricane Hydrocarbons Ltd. (a) 50,000 521,592 Petroleo Brasileiro S.A. - Petrobras 25,000 373,500 ---------------- 895,092 ---------------- OIL & GAS DRILLING - 13.5% ENSCO International Incorporated 30,000 883,500 GlobalSantaFe Corporation 35,000 851,200 Noble Corporation (a) 27,000 949,050 Precision Drilling Corporation (a) 22,500 725,655 Pride International, Inc. (a) 55,000 819,500 ---------------- 4,228,905 ---------------- OIL & GAS EQUIPMENT & SERVICES - 18.5% BJ Services Company (a) 10,000 323,100 National-Oilwell, Inc. (a) 60,000 1,310,400 NQL Drilling Tools Inc. (a) 250,000 1,345,124 Pason Systems Inc. (a) 30,000 226,930 Smith International, Inc. (a) 22,000 717,640 Trican Well Service Ltd. (a) 120,000 1,534,391 Weatherford International Ltd. (a) 9,000 359,370 ---------------- 5,816,955 ----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 37 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY GLOBAL NATURAL RESOURCES FUND (CONTINUED) NAME OF SECURITY SHARES VALUE OIL & GAS EXPLORATION & PRODUCTION - 4.9% Canadian Natural Resources Ltd. 30,000 $ 888,731 Compton Petroleum Corporation (a) 50,000 161,099 Ocean Energy, Inc. 10,800 215,676 Talisman Energy Inc. 8,000 287,888 ---------------- 1,553,394 ---------------- OIL & GAS REFINING & TRANSPORT - 5.2% Stelmar Shipping Ltd. (a) 60,000 903,600 Valero Energy Corporation 20,000 738,800 ---------------- 1,642,400 ---------------- ALTERNATE ENERGY - 4.7% CONSOL Energy Inc. 35,000 604,800 Peabody Energy Corporation 30,000 876,900 ---------------- 1,481,700 ---------------- INDUSTRIAL MATERIALS - 5.7% Cemex S.A. De C.V. 60,000 1,290,600 Slater Steel, Inc. (a) 80,000 189,900 Steel Dynamics, Inc. (a) 25,000 300,750 ---------------- 1,781,250 ---------------- DIVERSIFIED METALS & MINING - 8.5% Cameco Corporation 15,000 355,872 Freeport-McMoRan Copper & Gold, Inc. (a) 18,000 302,040 Inco Limited (a) 40,000 845,181 Outokumpu Oyj 109,375 952,614 Pechiney SA 6,500 228,087 ---------------- 2,683,794 ---------------- PAPER & FOREST PRODUCTS -12.1% Aracruz Celulose S.A. 46,000 853,760 Cascades Inc. 45,000 445,790 Domtar, Inc. 20,000 198,762 Norske Skogindustrier ASA 27,000 381,942 Sappi Limited 10,000 133,441 Sino-Forest Corp. (a) 400,000 296,244 Smurfit-Stone Container Corporation (a) 18,000 277,038 UPM-Kymmene Oyj 7,400 243,534 Votorantim Celulose e Papel S.A. 60,000 986,400 ---------------- 3,816,911 ----------------

NAME OF SECURITY SHARES VALUE PRECIOUS METALS & MINERALS - 16.5% Anglo American Platinum Corporation Limited 10,000 $ 368,275 Cia de Minas Buenaventura S.A. Sponsored ADR 25,000 659,750 Gabriel Resources Ltd. (a) 225,000 662,276 Gold Fields Limited 22,500 314,404 Gold Fields Limited ADR 2,500 34,900 Impala Platinum Holdings Limited 25,000 1,587,897 Newmont Mining Corp 20,000 580,600 Repadre Capital Corporation (a) 82,500 638,681 Sons of Gwalia Limited 225,364 328,678 ---------------- 5,175,461 ---------------- AGRICULTURAL PRODUCTS - 1.4% Agricore United Ltd. 125,000 435,187 ---------------- WARRANTS - 0.1% Harmony Gold Warrants (a) 2,800 36,711 ---------------- TOTAL INVESTMENTS - 98.1% $ 30,832,160 (Cost - $30,207,560) (Cost on Federal income tax basis - $31,332,104) OTHER ASSETS, LESS LIABILITIES - 1.9% 596,969 ---------------- NET ASSETS - 100% $ 31,429,129 ================ Other Information: At December 31, 2002, net unrealized appreciation (depreciation) based on cost for financial statement and Federal Income tax purposes, respectively, is as follows: Gross unrealized appreciation $ 4,355,835 Gross unrealized depreciation (3,731,235) ---------------- Net unrealized appreciation for financial statement purposes 624,600 Less: tax basis adjustments (1,124,544) ---------------- Net unrealized depreciation for Federal income tax purposes $ (499,944) ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $37,189,952 and $18,801,227, respectively, for the period ended December 31, 2002. 38 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

IVY GLOBAL SCIENCE & TECHNOLOGY FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 81.4% - ------------------------------ CONSUMER DISCRETIONARY - 1.3% - ------------------------------ EDUCATION SERVICES - 0.3% Edison Schools Inc. (a) 20,850 $ 33,777 ---------------- SERVICES: COMMERCIAL - 1.0% Getty Images Inc. (a) 3,400 103,870 ---------------- FINANCIAL SERVICES - 5.8% - ------------------------------ DIVERSIFIED FINANCIAL SERVICES - 0.9% Euronet Worldwide Inc. (a) 11,800 88,618 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 4.9% Concord EFS Inc. (a) 31,600 497,384 ---------------- HEALTH CARE - 38.5% - ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 6.1% Biogen Inc. (a)(g) 3,450 354,531 Genzyme Corp. (a) 7,200 212,904 Incyte Genomics Inc. (a) 11,250 51,300 ---------------- 618,735 ---------------- DRUGS & PHARMACEUTICALS -13.8% Abbott Laboratories 6,650 266,000 Forest Laboratories Inc. (a)(g) 4,600 648,252 IVAX Corp. (a) 12,150 147,380 Pfizer Inc. 8,400 256,788 SICOR Inc. (a) 4,850 76,872 ---------------- 1,395,292 ---------------- HEALTH CARE FACILITIES - 4.7% HCA Inc. 11,350 471,025 ---------------- HEALTH CARE MANAGEMENT SERVICES - 2.6% Cerner Corp. (a) 1,400 43,764 UnitedHealth Group Inc. 2,650 221,275 ---------------- 265,039 ---------------- HEALTH CARE SERVICES - 4.1% Anthem Inc. (a) 3,750 235,875 Province Healthcare Co. (a) 18,800 182,924 ---------------- 418,799 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 7.2% Alcon Inc. (a) 8,350 329,407 Guidant Corp. (a) 12,850 396,423 ---------------- 725,830 ---------------- INTEGRATED OILS - 2.2% - ------------------------------ OIL: INTEGRATED DOMESTIC -2.2% ConocoPhillips 1,550 75,004 Unocal Corp. 4,750 145,255 ---------------- 220,259 ----------------

NAME OF SECURITY SHARES VALUE MATERIALS AND PROCESSING - 2.5% - ------------------------------ GOLD - 2.2% Newmont Mining Corp. 7,650 $ 222,080 ---------------- METAL FABRICATING - 0.3% Lone Star Technologies Inc. (a) 1,950 29,035 ---------------- OTHER ENERGY - 9.7% - ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 2.2% Baker Hughes Inc. 4,500 144,855 Cooper Cameron Corp. (a) 1,600 79,712 ---------------- 224,567 ---------------- OIL: CRUDE PRODUCERS - 7.5% Apache Corp. 3,950 225,111 Burlington Resources Inc. 4,000 170,600 Newfield Exploration Co. (a) 4,000 144,200 Noble Energy Inc. 5,700 214,035 ---------------- 753,946 ---------------- PRODUCER DURABLES - 6.9% - ------------------------------ AEROSPACE - 3.4% Northrop Grumman Corp. 3,550 344,350 ---------------- IDENTIFICATION CONTROL & FILTER DEVICES - 3.5% Garmin Ltd. (a) 4,800 140,640 Pall Corp. 13,000 216,840 ---------------- 357,480 ---------------- TECHNOLOGY - 12.0% - ------------------------------ COMMUNICATIONS TECHNOLOGY - 3.7% ADC Telecommunications Inc. (a) 15,500 32,395 Cisco Systems Inc. (a) 8,150 106,765 Symbol Technologies Inc. 28,000 230,160 ---------------- 369,320 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 2.6% Manhattan Associates Inc. (a) 550 13,013 Micromuse Inc. (a) 9,400 35,908 PeopleSoft Inc. (a) 11,750 215,025 ---------------- 263,946 ---------------- COMPUTER TECHNOLOGY - 0.5% RSA Security Inc. (a) 8,700 52,113 ---------------- ELECTRONICS - 1.8% Sony Corp. 4,450 183,830 ---------------- ELECTRONICS: SEMI-CONDUCTORS/ COMPONENTS - 2.4% Agere Systems Inc (a) 44,450 64,008 IXYS Corp. (a) 6,700 47,302 United Microelectronics Corp. (a) 39,000 131,040 ---------------- 242,350 ---------------- ELECTRONICS: TECHNOLOGY - 1.0% Raytheon Co. 3,300 101,475 ----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 39 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY GLOBAL SCIENCE & TECHNOLOGY FUND (CONTINUED) NAME OF SECURITY SHARES VALUE UTILITIES - 2.5% - ------------------------------ UTILITIES: TELECOMMUNICATIONS - 2.5% Vodafone Group PLC 14,100 $ 255,492 ---------------- TOTAL INVESTMENTS - 81.4% (Cost - $8,325,263) $ 8,238,612 (Cost on Federal income tax basis - $8,378,157) OTHER ASSETS, LESS LIABILITIES - 18.6% 1,873,426 ---------------- NET ASSETS - 100% $ 10,112,038 ================

NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 81,573 Gross unrealized depreciation (168,224) ---------------- Net unrealized depreciation for financial statement purposes (86,651) Less: tax basis adjustments (52,894) ---------------- Net unrealized depreciation for Federal income tax purposes $ (139,545) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $24,888,259 and $32,068,111, respectively, for the period ended December 31, 2002. Call options written at December 31, 2002 were:

SHARES EXPIRATION EXERCISE SUBJECT FAIR DATE PRICE TO CALL VALUE - ------------------------------------------------------------------------------------------ Biogen, Inc. February 15, 2003 $ 43 3,400 $ 6,120 Biogen, Inc. April 19, 2003 45 5,400 11,070 Forest Laboratories February 15, 2003 105 4,400 11,000 ------- Total (premiums received $28,823) $28,190 =======

Put options purchased at December 31, 2002 were:

EXPIRATION EXERCISE SHARES FAIR DATE PRICE PURCHASED VALUE - -------------------------------------------------------------------------------------------- Biogen, Inc. February 15, 2003 $ 38 3,400 $ 5,270 Forest Laboratories February 15, 2003 90 2,400 6,000 ------- Total (premiums paid $12,294) $11,270 =======

IVY INTERNATIONAL FUND NAME OF SECURITY SHARES VALUE EQUITY SECURITIES - 98.5% - ------------------------------ EUROPE - 67.8% - ------------------------------ BELGIUM - 0.9% Fortis 103,000 $ 1,800,665 ---------------- FINLAND - 2.6% Nokia Oyj 170,417 2,709,233 Stora Enso Oyj 263,000 2,773,592 ---------------- 5,482,825 ---------------- FRANCE - 13.7% Aventis SA 50,529 2,746,574 AXA 251,664 3,377,633 Cie Francaise d'Etudes et de Construction (Technip SA) 24,829 1,776,906 LVMH Moet Hennessy Louis Vuitton SA (d) 60,056 2,467,226 Schneider SA 72,404 3,425,812 Societe Generale 84,025 4,893,530 Societe Television Francaise 1 (d) 138,637 3,703,892 Thomson Multimedia (a)(d) 111,000 1,893,932 TotalFinaElf - B Shares 31,174 4,452,167 ---------------- 28,737,672 ----------------

NAME OF SECURITY SHARES VALUE GERMANY - 5.1% Adidas-Salomon AG 35,450 $ 3,013,159 Deutsche Lufthansa AG (a) 196,094 1,854,001 Siemens AG (d) 57,462 2,442,061 Volkswagen AG Pfd 130,600 3,385,017 ---------------- 10,694,238 ---------------- ITALY - 3.3% Assicurazioni Generali S.p.A. 147,593 3,035,587 ENEL S.p.A. (d) 750,650 3,906,969 ---------------- 6,942,556 ---------------- NETHERLANDS - 8.8% Akzo Nobel NV 110,049 3,490,961 ING Groep NV 154,080 2,609,580 Koninklijke (Royal) KPN NV (a) 500,400 3,255,590 Koninklijke Ahold NV 228,745 2,904,409 Royal Dutch Petroleum Company 90,869 4,000,078 TPG NV 137,000 2,221,109 ---------------- 18,481,727 ---------------- NORWAY - 1.2% Norsk Hydro A.S. Sponsored ADR (d) 55,500 2,464,755 ----------------

40 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE SPAIN - 3.6% Amadeus Global Travel Distribution S.A. 548,700 $ 2,262,811 Iberdrola S.A. (d) 215,000 3,011,900 Telefonica S.A. Sponsored ADR (a) 85,000 2,258,450 ---------------- 7,533,161 ---------------- SWITZERLAND - 6.9% Credit Suisse Group 106,700 2,315,052 Holcim Ltd. 20,281 3,681,614 Novartis AG 61,000 2,225,698 STMicroelectronics NV 86,215 1,682,055 UBS AG 94,190 4,577,720 ---------------- 14,482,139 ---------------- UNITED KINGDOM - 21.7% Abbey National plc 329,000 2,738,356 Amvescap plc 368,000 2,344,619 BAE Systems plc 851,948 1,697,312 BP Amoco plc 612,369 4,214,565 BT Group plc 1,210,690 3,800,765 Diageo plc 377,141 4,101,404 GlaxoSmithKline plc 258,078 4,952,571 HBOS plc 455,787 4,806,254 Rio Tinto plc 212,596 4,240,625 Unilever plc 450,690 4,288,139 Vodafone AirTouch plc 3,023,062 5,523,908 WPP Group plc 378,000 2,872,349 ---------------- 45,580,867 ---------------- FAR EAST - 26.8% - ------------------------------ AUSTRALIA - 3.6% BHP Ltd. (d) 805,259 4,602,438 National Australia Bank Ltd. 169,800 3,035,762 ---------------- 7,638,200 ---------------- HONG KONG - 3.6% Hang Seng Bank 262,900 2,798,110 Hutchison Whampoa Ltd. 401,000 2,509,345 Sun Hung Kai Properties Ltd. 395,000 2,340,104 ---------------- 7,647,559 ---------------- JAPAN - 15.8% Asahi Glass Company, Ltd. 518,700 3,177,676 Canon Inc. 91,970 3,464,277 Kirin Brewery Company, Limited (d) 434,000 2,761,186 Murata Manufacturing Company, Ltd. 43,000 1,684,924 Nintendo Co., Ltd. 33,000 3,083,929 Nissan Motor Co., Ltd. 535,000 4,174,685 Nomura Holdings, Inc. 181,300 2,038,039 NTT DoCoMo, Inc. 1,200 2,214,544 Sharp Corporation 351,800 3,341,017 SMC Corporation 39,500 3,708,013 Sony Corporation 85,300 3,565,247 ---------------- 33,213,537 ---------------- SOUTH KOREA - 2.9% POSCO 33,200 3,303,065 Samsung Electronics 10,770 2,851,296 ---------------- 6,154,361 ----------------

NAME OF SECURITY SHARES VALUE TAIWAN - 0.9% Taiwan Semiconductor Manufacturing Company (a) 1,528,560 $ 1,872,781 ---------------- LATIN AMERICA - 3.9% - ------------------------------ MEXICO - 3.9% Fomento Economico Mexicano, S.A. Sponsored ADR 66,700 2,429,214 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 2,780,000 2,101,472 Telefonos de Mexico S.A. Class L - ADR 110,900 3,546,582 ---------------- 8,077,268 ---------------- TOTAL INVESTMENTS - 98.5% (Cost - $260,333,316) $ 206,804,311 (Cost on Federal income tax basis - $264,892,714) OTHER ASSETS, LESS LIABILITIES - 1.5% 3,227,291 ---------------- NET ASSETS - 100% $ 210,031,602 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 15,901,651 Gross unrealized depreciation (69,430,656) ---------------- Net unrealized depreciation for financial statement purposes (53,529,005) Less: tax basis adjustments (4,559,398) ---------------- Net unrealized depreciation for Federal income tax purposes $ (58,088,403) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $107,347,300 and $319,490,022, respectively, for the period ended December 31, 2002.

IVY INTERNATIONAL SMALL COMPANIES FUND EQUITY SECURITIES - 99.4% - ------------------------------ EUROPE - 66.0% - ------------------------------ AUSTRIA - 4.4% OMV AG 550 $ 54,009 Telecom Austria AG (a) 6,979 70,671 Voest-Alpine AG (a) 2,335 56,723 ---------------- 181,403 ---------------- BELGIUM - 3.5% Agfa Gevaert NV 3,000 66,896 Omega Pharma S.A. 2,794 80,099 ---------------- 146,995 ---------------- FINLAND - 2.7% Instrumentarium Corporation 1,400 56,090 Kone Corporation 1,840 55,240 ---------------- 111,330 ---------------- FRANCE - 6.3% Carbone Lorraine SA 2,432 56,808

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 41 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY INTERNATIONAL SMALL COMPANIES FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Financiere Marc de Lacharriere SA (Fimalac) 2,149 $ 57,120 Medidep SA (a) 3,550 57,182 Pinguely-Haulotte 8,000 31,732 Unibail (Union du Credit-Bail Immobilier) 800 56,917 ---------------- 259,759 ---------------- GERMANY - 4.1% Continental AG (a) 2,000 30,746 Fraport AG 2,997 53,463 GfK AG 2,890 37,908 Medion AG 1,409 48,792 ---------------- 170,909 ---------------- GREECE - 2.2% Coca-Cola Hellenic Bottling Company S.A. 3,300 45,848 Public Power Corporation (PPC) 3,100 42,940 ---------------- 88,788 ---------------- IRELAND - 2.9% Irish Life & Permanent plc 5,000 54,041 Jurys Doyle Hotel Group plc 9,107 67,373 ---------------- 121,414 ---------------- ITALY - 5.3% Amplifon S.p.A. 3,349 59,462 Campari Group 1,500 46,859 Italgas S.p.A. 3,950 53,718 Permasteelisa S.p.A. 3,900 61,346 ---------------- 221,385 ---------------- NETHERLANDS - 4.9% CSM NV 2,200 46,125 IHC Caland NV 1,089 57,480 United Services Group NV 3,336 37,317 Van der Moolen Holding NV 2,880 61,954 ---------------- 202,876 ---------------- SPAIN - 10.6% ACS Actividades de Construccion y Servicios, S.A. 2,536 81,564 Aldeasa, S.A. 4,187 61,643 Aurea Concesions de Infraestructuras del Estado S.A. 3,287 82,057 Baron de Ley, S.A. (a) 3,737 107,447 Grupo Auxiliar Metalurgico, S.A. (Gamesa) (a) 3,148 51,566 Metrovacesa, S.A. 2,637 55,896 ---------------- 440,173 ---------------- SWEDEN - 1.6% Swedish Match AB 8,500 66,823 ---------------- SWITZERLAND - 6.9% Lonza Group AG 954 57,957 PubliGroupe S.A. (a) 150 23,866 Schindler Holding AG 345 64,874

NAME OF SECURITY SHARES VALUE SEZ Holding AG (a) 814 $ 13,246 Swisslog Holdings AG 3,121 28,666 Unilabs SA 3,420 66,041 Unique Zurich Airport (a) 1,062 33,027 ---------------- 287,677 ---------------- UNITED KINGDOM - 10.6% Cattles plc 10,000 46,446 Dairy Crest Group plc 11,100 61,116 Eidos plc (a) 27,909 57,175 Enterprise Inns plc 10,534 96,750 HIT Entertainment plc 13,059 44,676 HMV Group plc (a) 14,000 26,821 Luminar plc 4,000 25,211 Man Group plc (a) 2,000 28,528 Sanctuary Group plc 37,126 23,908 SSL International plc 7,000 29,019 ---------------- 439,650 ---------------- FAR EAST - 33.4% - ------------------------------ AUSTRALIA - 4.1% Billabong International Ltd. 13,000 50,876 Foodland Associated Limited 4,164 41,619 Hills Motorway Group 8,000 22,749 Toll Holdings Limited (a) 15,000 53,636 ---------------- 168,880 ---------------- HONG KONG - 3.1% Cafe De Coral Holdings Limited 64,000 43,086 Convenience Retail Asia Limited (a) 116,000 30,680 Techtronic Industries 58,248 55,272 ---------------- 129,038 ---------------- JAPAN - 22.7% Asatsu-Dk Inc. 5,700 101,108 Koa Corporation 16,700 103,293 Kobayashi Pharmaceutical Co., Ltd. 3,100 106,059 Mitsubishi Securities Co., Ltd. 25,000 102,595 Moshi Moshi Hotline, Inc 2,050 64,953 OBIC Co., Ltd. 600 104,407 Otsuka Kagu. Ltd. 4,600 72,487 Taiyo Ink Mfg. Co., Ltd. 3,500 98,803 Tokyo Steel Manufacturing Co., Ltd. 26,500 87,537 Tokyo Style Co., Ltd 12,000 101,728 ---------------- 942,970 ---------------- NEW ZEALAND - 1.2% Fisher & Paykel Appliances Holdings Ltd. 9,178 48,246 ---------------- SOUTH KOREA - 2.3% Lotte Chilsung Beverage 110 51,937 Lotte Confectionery Co., Ltd. 110 44,239 ---------------- 96,176 ----------------

42 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE TOTAL INVESTMENTS - 99.4% (Cost - $4,680,734) $ 4,124,492 (Cost on Federal income tax basis - $4,690,986) OTHER ASSETS, LESS LIABILITIES - 0.6% 25,414 ---------------- NET ASSETS - 100.0% $ 4,149,906 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 282,386 Gross unrealized depreciation (838,628) ---------------- Net unrealized depreciation for financial statement purposes (556,242) Less: tax basis adjustments (10,252) ---------------- Net unrealized depreciation for Federal income tax purposes $ (566,494) ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $10,495,156 and $14,630,598, respectively, for the period ended December 31, 2002.

IVY INTERNATIONAL VALUE FUND EQUITY SECURITIES - 98.5% - ------------------------------ EUROPE - 66.5% - ------------------------------ BELGIUM - 1.0% Fortis 26,910 $ 470,445 ---------------- FINLAND - 1.6% Metso Oyj 65,382 706,669 ---------------- FRANCE - 10.3% AXA 52,100 699,244 Cie Francaise d'Etudes et de Construction (Technip SA) (d) 3,000 214,697 Credit Lyonnais SA (d) 16,000 894,887 Schneider SA 22,009 1,041,361 Societe Generale 16,900 984,239 TotalFinaElf - B Shares 5,921 845,617 ---------------- 4,680,045 ---------------- GERMANY - 8.5% Adidas-Salomon AG 6,900 586,482 Deutsche Lufthansa AG (a) 55,000 520,006 Merck KGaA 33,555 884,148 Muenchener Rueckversicherungs- Gesellschaft AG 3,000 358,563 RWE AG 15,500 398,491 Siemens AG 9,650 410,113 Volkswagen AG 12,740 461,221 Volkswagen AG Pfd 9,000 233,271 ---------------- 3,852,295 ---------------- IRELAND - 2.2% Bank of Ireland 97,982 1,006,583 ----------------

NAME OF SECURITY SHARES VALUE ITALY - 3.7% ENEL S.p.A. 91,700 $ 477,278 ENI S.p.A. 74,000 1,176,428 ---------------- 1,653,706 ---------------- NETHERLANDS - 5.7% Akzo Nobel NV 26,802 850,210 ING Groep NV 28,000 474,223 Koninklijke Ahold NV 60,300 765,638 TPG NV 31,600 512,314 ---------------- 2,602,385 ---------------- NORWAY - 1.0% Norsk Hydro A.S. Sponsored ADR 9,900 439,659 ---------------- SPAIN - 3.9% Amadeus Global Travel Distribution S.A. 41,500 171,144 Iberdrola S.A. (d) 60,700 850,336 Telefonica S.A. Sponsored ADR (a) 725 19,263 Union Electrica Fenosa, S.A. (d) 55,880 735,904 ---------------- 1,776,647 ---------------- SWITZERLAND - 8.6% Credit Suisse Group 27,900 605,342 Holcim Ltd. 4,835 877,699 Nestle SA 2,080 440,764 Novartis AG 27,800 1,014,334 UBS AG 19,500 947,718 ---------------- 3,885,857 ---------------- UNITED KINGDOM - 20.0% Abbey National plc 63,000 524,366 Amvescap plc 122,500 780,478 BAE Systems plc 248,100 494,283 BP Amoco plc 87,000 598,768 BT Group plc 242,650 761,761 Diageo plc 61,904 673,205 Pilkington plc 618,829 580,323 Rio Tinto plc 57,412 1,145,190 Shell Transport & Trading Co. plc 127,539 839,275 Unilever plc 81,800 778,295 Vodafone AirTouch plc 719,337 1,314,413 WPP Group plc 78,000 592,707 ---------------- 9,083,064 ---------------- FAR EAST - 27.4% - ------------------------------ AUSTRALIA - 3.8% BHP Ltd. 186,244 1,064,473 Westpac Banking Corp. Ltd. 85,381 661,074 ---------------- 1,725,547 ---------------- HONG KONG - 4.3% Cathay Pacific Airways 395,000 539,439 Hang Seng Bank 72,000 766,314 Sun Hung Kai Properties Ltd. 107,000 633,902 ---------------- 1,939,655 ---------------- JAPAN - 14.8% Canon Inc. (a) 30,000 1,130,024 Fuji Photo Film Co., Ltd. (a) 11,000 358,726 Kirin Brewery Company, Limited (a)(d) 100,000 636,218 Matsushita Electric Industrial Co. 25,000 246,482

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 43 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY INTERNATIONAL VALUE FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Nikko Exchange Traded Index 8,410 $ 606,637 Nintendo Co., Ltd. (a) 8,000 747,619 Nissan Motor Co., Ltd. (a) 115,000 897,362 Nomura Holdings, Inc. 55,000 618,269 Sharp Corporation (a) 66,000 626,797 Sony Corporation 20,500 856,829 ---------------- 6,724,963 ---------------- SOUTH KOREA - 4.5% KT Corporation (a)(d) 40,000 862,000 POSCO 7,000 696,429 Samsung Electronics 1,780 471,245 ---------------- 2,029,674 ---------------- LATIN AMERICA - 4.5% - ------------------------------ BRAZIL - 1.8% Embraer Brasileira de Aeronautica S.A. (Embraer) 20,000 318,000 Tele Norte Leste Participacoes S.A. (a) 70,000 514,500 ---------------- 832,500 ---------------- MEXICO - 2.7% Fomento Economico Mexicano, S.A. Sponsored ADR 18,000 655,560 Grupo Financiero BBVA Bancomer, S.A. de C.V. (GFB) (a) 737,500 557,495 ---------------- 1,213,055 ---------------- TOTAL INVESTMENTS - 98.4% (Cost - $49,376,967) $ 44,622,749 (Cost on Federal income tax basis - $49,560,018) OTHER ASSETS, LESS LIABILITIES - 1.6% 701,750 ---------------- NET ASSETS - 100% $ 45,324,499 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 4,092,371 Gross unrealized depreciation (8,846,589) ---------------- Net unrealized depreciation for financial statement purposes (4,754,218) Less: tax basis adjustments (183,051) ---------------- Net unrealized depreciation for Federal income tax purposes $ (4,937,269) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $27,937,651 and $44,893,995, respectively, for the period ended December 31, 2002.

IVY PACIFIC OPPORTUNITIES FUND AUSTRALIA - 26.7% Australia & New Zealand Banking Group Ltd. 38,005 $ 371,301 BHP Ltd. 73,748 421,505

NAME OF SECURITY SHARES VALUE Foster's Brewing Group Ltd. 110,849 $ 280,886 Qantas Airways Limited 62,519 134,833 Rio Tinto Ltd. 21,827 417,273 Westpac Banking Corp. Ltd. 51,040 395,184 Woolsworths Ltd. 41,445 266,050 ---------------- 2,287,032 ---------------- HONG KONG - 21.2% Cathay Pacific Airways 250,000 341,418 China Mobile (Hong Kong) Ltd. (a) 92,200 219,316 Hang Lung Properties Ltd. 273,500 264,789 Hang Seng Bank 26,600 283,111 Henderson Land Development Company Ltd. 82,000 246,052 Hutchison Whampoa Ltd. 24,000 150,185 Sun Hung Kai Properties Ltd. 53,000 313,989 ---------------- 1,818,860 ---------------- INDIA - 6.6% Hero Honda Motors Ltd. 62,715 354,971 ITC Ltd. 15,300 210,722 ---------------- 565,693 ---------------- SINGAPORE - 7.4% Capitaland Limited 237,000 151,668 Haw Par Corporation Limited 1,551 2,915 Singapore Press Holdings Ltd. 21,000 220,350 United Overseas Bank Limited 38,000 258,517 ---------------- 633,450 ---------------- SOUTH KOREA - 22.2% Hyundai Motor Co., Ltd. 16,030 375,054 Kookmin Bank 6,141 217,463 Korea Telecom Corporation 4,000 170,988 POSCO 4,980 495,460 Samsung Electronics 1,430 378,584 SK Telecom Co., Ltd. 1,378 266,061 ---------------- 1,903,610 ---------------- TAIWAN - 10.7% Asustek Computer Inc. 54,150 95,000 Hon Hai Precision Industry Co., Ltd. 83,808 289,242 Quanta Computer Inc. 65,550 107,459 Taiwan Semiconductor Manufacturing Company (a) 243,637 298,502 United Microelectronics Corporation 211,858 128,565 ---------------- 918,768 ---------------- TOTAL INVESTMENTS - 94.8% (Cost - $8,502,983) $ 8,127,413 (Cost on Federal income tax basis - $8,828,989)

44 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE OTHER ASSETS, LESS LIABILITIES - 5.2% $ 441,284 ---------------- NET ASSETS - 100% $ 8,568,697 ================ Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 1,033,235 Gross unrealized depreciation (1,408,805) ---------------- Net unrealized depreciation for financial statement purposes (375,570) Less: tax basis adjustments (326,006) ---------------- Net unrealized depreciation for Federal income tax purposes $ (701,576) ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $1,562,302 and $3,408,651, respectively, for the period ended December 31, 2002.

IVY GROWTH FUND EQUITY SECURITIES - 75.4% - ------------------------------- AUTOS AND TRANSPORTATION - 1.3% - ------------------------------- AIR TRANSPORT - 0.4% JetBlue Airways Corp. (a) 18,600 $ 502,200 ---------------- RECREATIONAL VEHICLES & BOATS - 0.3% Harley-Davidson Inc. 6,570 303,534 ---------------- TRANSPORTATION MISC - 0.6% United Parcel Service Inc. 11,135 702,396 ---------------- CONSUMER DISCRETIONARY - 14.4% - ------------------------------ CONSUMER ELECTRONICS - 1.0% Harman International Industries Inc. 9,900 589,050 Take-Two Interactive Software Inc. (a) 25,700 603,693 ---------------- 1,192,743 ---------------- CONSUMER PRODUCTS - 0.6% Gillette Co. 15,245 462,838 Yankee Candle Co. Inc. (a) 18,100 289,600 ---------------- 752,438 ---------------- EDUCATION SERVICES - 2.1% Apollo Group Inc. - University of Phoenix Online (a) 29,766 1,066,813 Career Education Corp. (a) 20,700 828,000 Education Management Corp. (a) 13,400 503,840 ---------------- 2,398,653 ---------------- ENTERTAINMENT - 1.3% The Walt Disney Company 26,225 427,730 Viacom Inc. Cl B (a) 26,430 1,077,287 ---------------- 1,505,017 ---------------- LEISURE TIME - 0.5% Carnival Corp. 22,355 557,757 ----------------

NAME OF SECURITY SHARES VALUE PUBLISHING: NEWSPAPERS - 0.6% Gannett Co. Inc. 9,680 $ 695,024 ---------------- RADIO & TV BROADCASTERS - 0.8% Hispanic Broadcasting Corp. (a) 19,300 396,615 Radio One Inc. Cl D (a) 37,100 535,353 ---------------- 931,968 ---------------- RESTAURANTS - 0.6% Panera Bread Co. (a) 18,900 657,909 ---------------- RETAIL - 4.0% A.C. Moore Arts & Crafts Inc. (a) 34,400 437,224 Kohl's Corp. (a) 5,380 301,011 Lowe's Companies, Inc. 13,665 512,437 Home Depot, Inc. 25,185 603,433 Pacific Sunwear of California Inc. (a) 7,550 133,559 Target Corporation 15,350 460,500 Wal-Mart Stores, Inc. 43,480 2,196,175 ---------------- 4,644,339 ---------------- SERVICES: COMMERCIAL - 2.9% Advisory Board Co. (a) 13,600 406,640 BearingPoint Inc. (a) 23,600 162,840 Coinstar Inc. (a) 14,600 330,690 Copart Inc. (a) 60,150 712,176 eBay Inc. (a) 7,500 508,650 Robert Half International Inc. 22,500 362,475 Waste Connections Inc. (a) 24,300 938,223 ---------------- 3,421,694 ---------------- CONSUMER STAPLES - 5.2% - ------------------------------ BEVERAGE: BREWERS (WINERIES) - 0.6% Anheuser-Busch Companies, Inc. 14,440 698,896 ---------------- BEVERAGE: SOFT DRINKS - 1.6% The Coca-Cola Company 21,945 961,630 PepsiCo, Inc. 22,450 947,839 ---------------- 1,909,469 ---------------- FOODS - 0.4% Sysco Corp. 15,232 453,761 ---------------- SOAPS & HOUSEHOLD CHEMICALS - 1.6% Colgate-Palmolive Co. 11,875 622,606 Procter & Gamble Co. 14,490 1,245,271 ---------------- 1,867,877 ---------------- TOBACCO - 1.0% Philip Morris Cos. Inc. 28,390 1,150,647 ---------------- FINANCIAL SERVICES - 10.2% - ------------------------------ BANKS: OUTSIDE NEW YORK CITY - 4.9% Bank of America Corp. 16,645 1,157,993 Bank One Corp. 15,775 576,576 BB&T Corp. 12,650 467,924 Fifth Third Bancorp 7,830 458,446 State Street Corp. 11,800 460,200 SunTrust Banks Inc. 6,810 387,625 U.S. Bancorp 26,165 555,221

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 45 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY GROWTH FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Wachovia Corp. 19,665 $ 716,593 Wells Fargo & Co. 20,540 962,710 ---------------- 5,743,288 ---------------- DIVERSIFIED FINANCIAL SERVICES - 1.6% American Express Company 17,930 633,825 The Goldman Sachs Group, Inc. 5,375 366,037 Merrill Lynch & Co., Inc. 10,735 407,393 Morgan Stanley 12,840 512,573 ---------------- 1,919,828 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 1.6% Affiliated Computer Services Inc. (a) 16,400 863,460 Automatic Data Processing Inc. 13,885 544,986 First Data Corp. 14,285 505,832 ---------------- 1,914,278 ---------------- INSURANCE: MULTI-LINE - 1.3% American International Group Inc. 27,035 1,563,975 ---------------- SAVINGS & LOAN - 0.5% Washington Mutual, Inc. 17,300 597,369 ---------------- SECURITIES BROKERAGE & SERVICES - 0.3% Lehman Brothers Holdings Inc. 5,845 311,480 ---------------- HEALTH CARE - 16.4% - ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 2.0% Amgen Inc. (a) 17,400 841,116 Cephalon Inc. (a) 3,700 180,072 Charles River Laboratories International Inc. (a) 11,300 434,824 ICOS Corp. (a) 9,700 227,077 Integra LifeSciences Holdings Corp. (a) 37,100 654,815 ---------------- 2,337,904 ---------------- DRUGS & PHARMACEUTICALS - 6.9% Abbott Laboratories 15,685 627,400 Bristol-Myers Squibb Co. 25,470 589,630 Eli Lilly & Co. 13,165 835,978 Gilead Sciences Inc. (a) 10,400 353,600 Medicis Pharmaceutical Corp. (a) 15,100 750,017 Merck & Co., Inc. 22,940 1,298,633 Pfizer Inc. 59,420 1,816,469 Pharmacia Corporation 19,270 805,486 Schering-Plough Corporation 18,400 408,480 Wyeth 15,325 573,155 ---------------- 8,058,848 ---------------- ELECTRONICS: MEDICAL SYSTEMS - 0.9% Intuitive Surgical Inc. (a) 55,500 341,880 Medtronic, Inc. 16,125 735,300 ---------------- 1,077,180 ----------------

NAME OF SECURITY SHARES VALUE HEALTH CARE FACILITIES - 1.1% Pharmaceutical Product Development Inc. (a) 16,000 $ 468,320 United Surgical Partners International Inc. (a) 50,900 795,109 ---------------- 1,263,429 ---------------- HEALTH CARE MANAGEMENT SERVICES - 3.5% AMERIGROUP Corp. (a) 20,900 633,479 Amsurg Inc. (a) 47,700 974,511 Centene Corp. (a) 16,900 567,671 Cerner Corp. (a) 9,700 303,222 Community Health Systems Inc. (a) 31,800 654,762 Orthodontic Centers of America Inc. (a) 26,900 293,479 UnitedHealth Group Inc. 8,480 708,080 ---------------- 4,135,204 ---------------- HEALTH CARE SERVICES - 1.4% Accredo Health Inc. (a) 22,050 777,263 Odyssey HealthCare Inc. (a) 13,100 454,570 Province Healthcare Co. (a) 38,200 371,686 ---------------- 1,603,519 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 0.6% Cytyc Corp. (a) 33,400 340,680 SonoSite Inc. (a) 27,700 362,039 ---------------- 702,719 ---------------- INTEGRATED OILS - 2.6% - ------------------------------ OIL: INTEGRATED DOMESTIC -0.3% ConocoPhillips 8,420 407,444 ---------------- OIL: INTEGRATED INTERNATIONAL - 2.3% ChevronTexaco Corp. 12,827 852,739 Exxon Mobil Corp. 51,480 1,798,711 ---------------- 2,651,450 ---------------- OTHER - 6.6% - ------------------------------ MULTI-SECTOR COMPANIES - 6.6% 3M Co. 5,240 646,092 General Electric Company 91,920 2,238,252 ITT Industries Inc. 8,515 516,775 Gen-Probe Inc. (a) 9,500 226,090 MTC Technologies Inc. (a) 20,900 528,770 Standard & Poor's Depositary Receipts 39,695 3,504,672 ---------------- 7,660,651 ---------------- OTHER ENERGY - 3.7% - ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 1.2% BJ Services Co. (a) 9,800 316,638 Key Energy Services Inc. (a) 39,000 349,830 National-Oilwell Inc. (a) 14,300 312,312

46 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE Noble Corp. (a) 3,350 $ 117,753 Weatherford International Ltd. (a) 7,200 287,496 ---------------- 1,384,029 ---------------- OFFSHORE DRILLING - 0.5% GlobalSantaFe Corp. 12,200 296,704 Rowan Companies, Inc. 14,500 329,150 ---------------- 625,854 ---------------- OIL: CRUDE PRODUCERS - 2.0% Anadarko Petroleum Corp. 6,875 329,313 Chesapeake Energy Corp. 38,200 295,668 PetroQuest Energy Inc. (a) 46,600 193,390 Pioneer Natural Resources Co. 18,900 477,225 Remington Oil & Gas Corp. (a) 14,900 244,509 XTO Energy Inc. 30,000 741,000 ---------------- 2,281,105 ---------------- PRODUCER DURABLES - 2.5% - ------------------------------ AEROSPACE - 1.6% Lockheed Martin Corporation 9,580 553,245 United Technologies Corporation 12,725 788,186 Veridian Corp. (a) 27,000 576,180 ---------------- 1,917,611 ---------------- PRODUCTION TECHNOLOGY EQUIPMENT - 0.9% Applied Materials, Inc. (a) 55,000 716,650 KLA-Tencor Corp. (a) 10,000 353,700 ---------------- 1,070,350 ---------------- TECHNOLOGY - 10.7% - ------------------------------ COMMUNICATIONS TECHNOLOGY - 3.2% Cisco Systems, Inc. (a) 143,370 1,878,147 L-3 Communications Holdings Inc. (a) 14,800 664,668 Motorola, Inc. 38,539 333,362 UTStarcom Inc. (a) 18,000 356,940 Verisity Ltd. (a) 23,100 440,286 ---------------- 3,673,403 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 4.3% Caci International Inc-Cl A (a) 22,900 816,156 ManTech International Corp. (a) 11,700 223,119 Microsoft Corporation (a) 49,765 2,572,851 NetScreen Technologies Inc. (a) 39,400 663,496 PEC Solutions Inc. (a) 10,300 307,970 Symantec Corp. (a) 10,300 416,635 ---------------- 5,000,227 ---------------- COMPUTER TECHNOLOGY - 2.5% Dell Computer Corporation (a) 35,000 935,900 Hewlett-Packard Company 38,580 669,749 International Business Machines Corp. 16,880 1,308,200 ---------------- 2,913,849 ---------------- ELECTRONICS - 0.4% Flir Systems Inc. (a) 10,600 517,280 ---------------- ELECTRONICS: TECHNOLOGY - 0.3% General Dynamics Corporation 4,450 353,197 ----------------

NAME OF SECURITY SHARES VALUE UTILITIES - 1.8% - ------------------------------ UTILITIES: CABLE TV & RADIO - 0.7% Comcast Corp. (a) 33,810 $ 796,902 ---------------- UTILITIES: TELECOMMUNICATIONS - 1.1% Alltel Corp. 6,000 306,000 Intrado Inc. (a) 35,700 354,465 Verizon Communications 15,000 581,250 ---------------- 1,241,715 ---------------- TOTAL INVESTMENTS - 75.4% (Cost - $86,180,907) $ 88,070,410 (Cost on Federal income tax basis - $87,694,767) OTHER ASSETS, LESS LIABILITIES - 24.6% 28,720,204 ---------------- NET ASSETS - 100% $ 116,790,614 ================ Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 10,563,116 Gross unrealized depreciation (8,673,613) ---------------- Net unrealized appreciation for financial statement purposes 1,889,503 Less: tax basis adjustments (1,513,860) ---------------- Net unrealized appreciation for Federal income tax purposes $ 375,643 ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $122,934,339 and $164,263,943, respectively, for the period ended December 31, 2002.

IVY US BLUE CHIP FUND EQUITY SECURITIES - 99.7% - ------------------------------ CONSUMER DISCRETIONARY - 12.8% - ------------------------------ AOL Time Warner Inc. (a) 21,320 $ 279,292 Bed Bath & Beyond Inc. (a) 4,535 156,594 Carnival Corp 7,820 195,109 Comcast Corporation (a) 16,166 381,033 eBay Inc. (a) 1,250 84,775 Gannett Co., Inc. 2,995 215,041 General Motors Corporation 3,845 141,727 Harley-Davidson Inc. 3,535 163,317 Home Depot, Inc. 13,575 325,257 Kohl's Corporation (a) 2,655 148,547 Lowe's Companies, Inc. 6,575 246,563 Pulte Homes, Inc. 2,815 134,754 Target Corporation 8,125 243,750 The Walt Disney Company 13,955 227,606 Viacom Inc. Cl B (a) 10,970 447,137 Wal-Mart Stores, Inc. 22,730 1,148,092 ---------------- 4,538,594 ---------------- CONSUMER STAPLES - 9.3% - ------------------------------ Anheuser-Busch Companies, Inc. 6,125 296,450 Colgate-Palmolive Company 4,415 231,478 Gillette Company 8,165 247,889

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 47 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY US BLUE CHIP FUND (CONTINUED) NAME OF SECURITY SHARES VALUE Kimberly-Clark Corporation 2,930 $ 139,087 PepsiCo, Inc. 10,520 444,154 Philip Morris Companies Inc. 12,430 503,788 Sysco Corporation 6,650 198,104 The Coca-Cola Company 11,405 499,767 The Procter & Gamble Company 7,065 607,166 Walgreen Co. 4,915 143,469 ---------------- 3,311,352 ---------------- ENERGY - 5.8% - ------------------------------ Anadarko Petroleum Corporation 2,865 137,234 ChevronTexaco Corporation 7,050 468,684 ConocoPhillips 4,255 205,899 Exxon Mobil Corporation 34,585 1,208,400 Noble Corporation (a) 1,175 41,301 ---------------- 2,061,518 ---------------- FINANCIALS - 19.8% - ------------------------------ American Express Company 9,425 333,174 American International Group, Inc. 14,245 824,073 Bank of America Corporation 8,855 616,042 Bank One Corporation 8,535 311,954 BB&T Corporation 6,200 229,338 Citigroup Inc. 24,715 869,721 Fannie Mae 6,565 422,326 Fifth Third Bancorp 4,080 238,884 Freddie Mac 4,195 247,715 J.P. Morgan Chase and Co. 10,880 261,120 Lehman Brothers Holdings Inc. 2,685 143,084 Merrill Lynch & Co., Inc. 6,375 241,931 Morgan Stanley 5,990 239,121 State Street Corporation 4,885 190,515 SunTrust Banks, Inc. 3,500 199,220 The Goldman Sachs Group, Inc. 2,820 192,042 U.S. Bancorp 15,245 323,499 Wachovia Corporation 10,130 369,137 Washington Mutual, Inc. 8,515 294,023 Wells Fargo & Company 10,480 491,198 ---------------- 7,038,117 ---------------- HEALTH CARE - 14.1% - ------------------------------ Abbott Laboratories 8,115 324,600 Amgen Inc. (a) 7,470 361,100 Bristol-Myers Squibb Company 12,005 277,916 Eli Lilly and Company 6,330 401,955 Johnson & Johnson 14,155 760,265 Medtronic, Inc. 7,470 340,632 Merck & Co., Inc. 11,465 649,034 Pfizer Inc. 27,855 851,527 Pharmacia Corporation 7,985 333,773 Schering-Plough Corporation 9,600 213,120 UnitedHealth Group Incorporated 2,445 204,158 Wyeth 8,060 301,444 ---------------- 5,019,524 ---------------- INDUSTRIALS - 10.9% - ------------------------------ 3M Co. 2,750 339,075 Automatic Data Processing, Inc. 6,005 235,696 First Data Corporation 6,745 238,841 General Dynamics Corporation 2,335 185,329 General Electric Company 48,225 1,174,279

NAME OF SECURITY SHARES VALUE Honeywell International Inc. 8,520 $ 204,480 ITT Industries, Inc. 2,360 143,229 Lockheed Martin Corporation 4,505 260,164 The Boeing Company 7,490 247,095 Tyco International Ltd. 13,530 231,092 United Parcel Service, Inc. 5,855 369,333 United Technologies Corporation 3,780 234,133 ---------------- 3,862,746 ---------------- INFORMATION TECHNOLOGY - 13.9% - ------------------------------ Analog Devices, Inc. (a) 2,100 50,127 Applied Materials, Inc. (a) 14,910 194,277 Cisco Systems, Inc. (a) 40,765 534,021 Dell Computer Corporation (a) 15,705 419,952 Hewlett-Packard Company 19,295 334,961 Intel Corporation 34,410 535,764 International Business Machines Corp. 8,665 671,538 Linear Technology Corporation 2,060 52,983 Maxim Integrated Products, Inc. 2,210 73,018 Microsoft Corporation (a) 26,460 1,367,982 Motorola, Inc. 17,450 150,943 Oracle Corporation (a) 33,960 366,768 Texas Instruments Inc. 13,845 207,813 ---------------- 4,960,147 ---------------- MATERIALS - 2.4% - ------------------------------ Air Products and Chemicals, Inc. 3,430 146,632 Alcoa Inc. 9,710 221,194 Du Pont E.I. du Pont de Nemours and Company 6,995 296,588 International Paper Company 5,505 192,510 ---------------- 856,924 ---------------- MISCELLANEOUS - 4.6% - ------------------------------ S&P 500 Depository Receipts 18,395 1,624,095 ---------------- TELECOMMUNICATION SERVICES - 3.9% - ------------------------------ Alltel Corporation 2,490 126,990 AT&T Corp. 3,523 91,985 BellSouth Corporation 8,825 228,303 SBC Communications Inc. 15,910 431,320 Verizon Communications 13,120 508,400 ---------------- 1,386,998 ---------------- UTILITIES - 2.2% - ------------------------------ DTE Energy Company 3,815 177,016 Exelon Corporation 4,175 220,315 FPL Group, Inc. 3,010 180,991 The Southern Company 7,865 223,287 ---------------- 801,609 ---------------- TOTAL INVESTMENTS - 99.7% (Cost - $34,893,096) $ 35,461,624 (Cost on Federal income tax basis - $37,030,200) OTHER ASSETS, LESS LIABILITIES - 0.3% 92,539 ---------------- NET ASSETS - 100% $ 35,554,163 ================

48 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized appreciation (depreciation) based on cost for financial statement and Federal Income tax purposes, respectively, is as follows: Gross unrealized appreciation $ 3,348,563 Gross unrealized depreciation (2,780,035) ---------------- Net unrealized appreciation for financial statement purposes 568,528 Less: tax basis adjustments (2,137,104) ---------------- Net unrealized depreciation for Federal income tax purposes $ (1,568,576) ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $39,743,614 and $51,310,230, respectively, for the period ended December 31, 2002.

IVY US EMERGING GROWTH FUND EQUITY SECURITIES - 76.2% - ------------------------------ AUTOS AND TRANSPORTATION -0.7% - ------------------------------ TRANSPORTATION MISC - 0.7% C.H. Robinson Worldwide Inc. 6,400 $ 199,680 ---------------- CONSUMER DISCRETIONARY - 28.2% - ------------------------------ ADVERTISING AGENCIES - 2.5% Lamar Advertising Co. (a) 21,400 720,110 ---------------- CONSUMER ELECTRONICS - 3.6% Electronic Arts Inc. (a) 5,600 278,712 Harman International Industries Inc. 6,100 362,950 Take-Two Interactive Software Inc. (a) 16,026 376,451 ---------------- 1,018,113 ---------------- COSMETICS - 1.4% Estee Lauder Cos. 14,900 393,360 ---------------- EDUCATION SERVICES - 2.6% Apollo Group Inc. - University of Phoenix Online (a) 11,749 421,084 Education Management Corp. (a) 8,317 312,719 ---------------- 733,803 ---------------- RADIO & TV BROADCASTERS - 4.2% Cox Radio Inc. (a) 24,950 569,109 Hispanic Broadcasting Corp. (a) 13,400 275,370 Radio One Inc. Cl D (a) 23,800 343,434 ---------------- 1,187,913 ---------------- RESTAURANTS - 2.4% Krispy Kreme Doughnuts Inc. (a) 8,000 270,160 Panera Bread Co. (a) 12,000 417,720 ---------------- 687,880 ---------------- SERVICES: COMMERCIAL - 11.5% Advisory Board Co. (a) 8,500 254,150 BearingPoint Inc. (a) 17,500 120,750

NAME OF SECURITY SHARES VALUE Convergys Corp. (a) 38,000 $ 575,700 Copart Inc. (a) 37,150 439,856 Corporate Executive Board Co. (a) 8,900 284,088 eBay Inc. (a) 4,600 311,972 Waste Connections Inc. (a) 15,200 586,872 Weight Watchers International Inc. (a) 14,650 673,461 ---------------- 3,246,849 ---------------- FINANCIAL SERVICES - 7.9% - ------------------------------ BANKS: OUTSIDE NEW YORK CITY - 2.0% Synovus Financial Corp. 29,650 575,210 ---------------- FINANCIAL DATA PROCESSING SERVICES & SYSTEMS - 4.3% Affiliated Computer Services Inc. (a) 10,421 548,666 Concord EFS Inc. (a) 42,900 675,246 ---------------- 1,223,912 ---------------- SAVINGS & LOAN - 1.6% Charter One Financial Inc. 16,150 463,989 ---------------- HEALTH CARE - 17.8% - ------------------------------ BIOTECHNOLOGY RESEARCH & PRODUCTION - 4.2% Cephalon Inc. (a) 4,400 214,139 Charles River Laboratories International Inc. (a) 7,500 288,600 Integra LifeSciences Holdings Corp. (a) 22,822 402,808 Neurocrine Biosciences Inc. (a) 3,150 143,829 NPS Pharmaceuticals Inc. (a) 5,750 144,728 ---------------- 1,194,104 ---------------- DRUGS & PHARMACEUTICALS - 2.6% Gilead Sciences Inc. (a) 6,300 214,200 Medicis Pharmaceutical Corp. (a) 10,369 515,028 ---------------- 729,228 ---------------- HEALTH CARE FACILITIES - 1.3% Laboratory Corp. of America Holdings (a) 15,850 368,354 ---------------- HEALTH CARE MANAGEMENT SERVICES - 2.2% Amsurg Inc. (a) 30,223 617,456 ---------------- HEALTH CARE SERVICES - 4.3% Accredo Health Inc. (a) 13,516 476,439 Odyssey HealthCare Inc. (a) 8,600 298,420 Stericycle Inc. (a) 13,400 433,879 ---------------- 1,208,738 ---------------- MEDICAL & DENTAL INSTRUMENTS & SUPPLIES - 3.2% Biomet Inc. 20,150 577,499 Henry Schein Inc. (a) 7,200 324,000 ---------------- 901,499 ----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 49 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY US EMERGING GROWTH FUND (CONTINUED) NAME OF SECURITY SHARES VALUE OTHER ENERGY - 4.8% - ------------------------------ MACHINERY: OIL WELL EQUIP & SERV - 1.4% BJ Services Co. (a) 6,000 $ 193,860 National-Oilwell Inc. (a) 9,200 200,928 ---------------- 394,788 ---------------- OFFSHORE DRILLING - 0.7% GlobalSantaFe Corp. 7,500 182,400 ---------------- OIL: CRUDE PRODUCERS - 2.7% Pioneer Natural Resources Co. (a) 12,300 310,575 XTO Energy Inc. 18,557 458,358 ---------------- 768,933 ---------------- PRODUCER DURABLES - 3.7% - ------------------------------ ELECTRICAL EQUIPMENT & COMPONENTS - 1.4% Molex Inc. 20,200 401,778 ---------------- IDENTIFICATION CONTROL & FILTER DEVICES - 1.5% IDEX Corp. 12,800 418,560 ---------------- MANUFACTURING - 0.8% Federal Signal Corp. 11,350 220,417 ---------------- TECHNOLOGY - 13.1% - ------------------------------ COMMUNICATIONS TECHNOLOGY - 2.3% L-3 Communications Holdings Inc. (a) 9,200 413,172 UTStarcom Inc. (a) 11,200 222,096 ---------------- 635,268 ---------------- COMPUTER SERVICES SOFTWARE & SYSTEMS - 3.9% CACI International Inc-Cl A (a) 8,434 300,588 Mercury Interactive Corp. (a) 8,600 254,990 NetScreen Technologies Inc. (a) 24,900 419,316 Siebel Systems Inc. (a) 18,450 136,530 ---------------- 1,111,424 ---------------- COMPUTER TECHNOLOGY - 2.8% McDATA Corp. (a) 29,150 206,965 Network Appliance Inc. (a) 59,050 590,500 ---------------- 797,465 ---------------- ELECTRONICS: SEMI-CONDUCTORS/ COMPONENTS - 4.1% Analog Devices Inc. (a) 9,050 216,023 Intersil Corp. (a) 23,650 329,681 Marvell Technology Group Ltd. (a) 9,700 182,942 Microchip Technology Inc. (a) 17,450 426,653 ---------------- 1,155,299 ---------------- TOTAL INVESTMENTS - 76.2% (Cost $20,161,386) $ 21,556,530 (Cost on Federal income tax basis - $20,358,490) OTHER ASSETS, LESS LIABILITIES - 23.8% 6,746,877 ---------------- NET ASSETS - 100% $ 28,303,407 ================

NAME OF SECURITY SHARES VALUE Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 2,607,017 Gross unrealized depreciation (1,211,873) ---------------- Net unrealized appreciation for financial statement purposes 1,395,144 Less: tax basis adjustments (197,104) ---------------- Net unrealized appreciation for Federal income tax purposes $ 1,198,040 ================

Purchases and sale proceeds of securities other than short-term obligations aggregated $49,467,304 and $74,354,189, respectively, for the period ended December 31, 2002.

IVY BOND FUND NAME OF SECURITY PRINCIPAL VALUE U.S. CORPORATE BONDS - 91.5% - ------------------------------ Allied Waste, 7.625%, 01/01/2006(e) $ 250,000 $ 248,750 American Standard, 7.375%, 04/15/2005(e) 480,000 499,200 BRE Properties Inc., 7.125%, 02/15/2013 2,000,000 2,197,500 Calpine Corp, 8.5%, 02/15/2011(e) 1,000,000 435,000 CBS Corp., 7.125%, 11/01/2023 1,000,000 1,102,500 Citigroup Inc, 6.50%, 01/18/2011 1,000,000 1,122,500 Coca-Cola Enterprises, 5.38%, 08/15/2006 500,000 541,875 Countrywide Home, 5.50%, 08/01/2006 500,000 531,875 Daimlerchrysler, 7.75%, 01/18/2011 500,000 571,250 Darden Restaurants Inc., 7.125%, 02/01/2016 1,250,000 1,404,687 Dean Foods Co 6.75%, 06/15/2005(e) 650,000 651,625 Dell Computer Corporation, 6.55%, 04/15/2008 500,000 561,875 Delta Air Lines, 9.59%, 01/12/2017 1,500,000 1,066,530 Ford Motor Credit Company, 7.375%, 10/28/2009 1,000,000 991,250 Grupo Televisa 8.000% 09/13/2011 625,000 651,562 HCA Inc. 6.30%, 10/01/2012 1,000,000 1,008,750 Heller Financial, 6.375%, 03/15/2006 425,000 471,219 Hertz Corp, 7.4%, 03/01/2011 1,000,000 945,000 Household Financial Corp, 6.50%, 01/24/2006 1,000,000 1,065,000 Indiantown Cogeneration, 9.77%, 12/15/2020 1,500,000 1,618,125 International Paper Company, 7.625%, 01/15/2007 1,000,000 1,142,500

50 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. December 31, 2002 SCHEDULES OF INVESTMENTS (continued)

NAME OF SECURITY PRINCIPAL VALUE Kansas Gas & El Wr, 7.6%, 12/15/2003(e) $ 500,000 $ 506,875 Key Energy Services, Inc. 8.375%, 03/01/2008(e) 500,000 522,500 McKesson Corporation, 7.75%, 02/01/2012 500,000 574,375 Meritor Automotive, 6.80%, 02/15/2009 1,000,000 988,750 News America Holdings, 7.70%, 10/30/2025 1,000,000 1,028,750 Northrop Grumman Corp., 9.375%, 10/15/2024 2,000,000 2,225,000 Pulte Corp., 7.625%, 10/15/2017 1,500,000 1,580,625 RJ Reynolds Tobacco Holdings Inc., 7.375%, 05/15/2003 2,000,000 2,025,000 Spieker Properties, 7.35%, 12/01/2017 1,950,000 2,064,563 Storage USA Partnership L.P., 8.20%, 06/01/2017 2,240,000 2,769,200 TE Products Pipeline Co., 7.51%, 01/15/2028 2,000,000 1,862,500 Tele Communications Inc., 9.25%, 01/15/2023 2,000,000 2,050,000 Telefonos de Mexico SA de CV (Telmex), 8.25%, 01/26/2006 500,000 547,500 Tenet Healthcare Corporation, 6.375%, 12/01/2011 750,000 675,000 Time Warner Inc., 9.125%, 01/15/2013 1,000,000 1,172,500 Time Warner Inc., 9.15%, 02/01/2023 1,500,000 1,723,125 Transocean Sedco Forex Inc. 6.50% 04/15/2003 647,000 653,470 Unisys Corporation, 7.875%, 04/01/2008(e) 550,000 561,000 US Bank NA, 6.30%, 02/04/2014 1,000,000 1,125,000 Verizon Global Fdg Corp 7.25%, 12/01/2010 1,000,000 1,136,250 Wal-Mart Stores, Inc., 6.55%, 08/10/2004 500,000 537,500 Watson Pharmaceuticals, 7.125%, 05/15/2008 1,500,000 1,573,125 ---------------- (Cost $45,499,753) 46,731,181 ---------------- U.S. DOLLAR DENOMINATED FOREIGN CORPORATE BONDS - 3.2% - ------------------------------ Abitibi Consold, 7.50%, 04/01/2028 1,000,000 946,250 Corp Durango Sa 13.125%, 08/01/2006(e) 978,000 347,190 PEMEX Master Trust, 8.00%, 11/15/2011 (f) 300,000 322,500 ---------------- (Cost $2,279,607) 1,615,940 ----------------

SHARES VALUE WARRANTS - 0.0% - ------------------------------ Chesapeake Energy Warrants - 144A (f) 2,671 $ -- Chesapeake Energy Warrants - 144A (f) 1,324 -- Gothic Energy Restricted Warrants (f) 4,767 -- ---------------- (Cost $0) -- ---------------- TOTAL INVESTMENTS - 94.7% (Cost - $47,779,360) (b) $ 48,347,121 OTHER ASSETS, LESS LIABILITIES - 5.3% 2,718,838 ---------------- NET ASSETS - 100% $ 51,065,959 ================ Other Information: At December 31, 2002, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation $ 2,698,351 Gross unrealized depreciation (2,130,590) ---------------- Net unrealized appreciation $ 567,761 ================

Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $7,993,342 and $17,732,005, respectively, for the period ended December 31, 2002.

IVY MONEY MARKET FUND NAME OF SECURITY PRINCIPAL VALUE U.S. GOVERNMENT AGENCY OBLIGATIONS - 88.9% - ------------------------------ Federal Home Loan Bank, 1.28%, 01/08/2003 $2,000,000 $ 1,999,573 Federal Home Loan Bank, 1.30%, 01/17/2003 5,209,000 5,206,179 Federal Home Loan Mortgage Corp., 1.28%, 01/07/2003 2,000,000 1,999,644 Federal National Mortgage Association Discount Note, 1.26%, 01/03/2003 2,000,000 1,999,930 Federal National Mortgage Association Discount Note, 1.27%, 01/02/2003 2,000,000 2,000,000 Federal National Mortgage Association Discount Note, 1.28%, 01/22/2003 2,000,000 1,998,578 Federal National Mortgage Association Discount Note, 1.28%, 01/03/2003 2,000,000 1,999,929 Federal National Mortgage Association Discount Note, 1.28%, 01/06/2003 2,000,000 1,999,716 ---------------- 19,203,549 ---------------- COMMERCIAL PAPER - 11.2% - ------------------------------ Anheuser-Busch Companies, Inc., 1.3%, 01/16/2003 500,000 499,747 BellSouth Corporation, 1.32%, 01/13/2003 500,000 499,798

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 51 December 31, 2002 SCHEDULES OF INVESTMENTS

IVY MONEY MARKET FUND (CONTINUED) NAME OF SECURITY PRINCIPAL VALUE BOC Group plc, 1.2%, 01/02/2003 $ 483,000 $ 483,000 Emerson Electric Co., 1.4%, 01/06/2003 434,000 433,933 USAA Capital Corporation, 1.35%, 01/10/2003 500,000 499,850 ---------------- 2,416,328 ---------------- TOTAL INVESTMENTS - 100.1% (Cost - $21,619,877) (b) $ 21,619,877 OTHER LIABILITIES, LESS ASSETS - (0.1%) (18,028) ---------------- NET ASSETS - 100% $ 21,601,849 ================

Footnotes - --------- (a) Non-income producing security (b) Cost is approximately the same for Federal income tax purposes. (c) Security valued in good faith by the Valuation Sub-Committee of the Board of Trustees. See Note 1 to the Financial Statements. (d) As of December 31, 2002, a portion of the securities are on loan. The market value at December 31, 2002 of all securities on loan for Ivy International Fund and Ivy International Value Fund is $12,844,759 and $2,554,332, respectively. See Note 1 to the Financial Statements. (e) Below investment grade security. (f) 144A restricted security. (g) Security used as collateral for call options written at December 31, 2002. ADR - American Depository Receipt GDR - Global Depository Receipt 52 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. (This page intentionally left blank) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 53 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2002

IVY CUNDILL GLOBAL IVY DEVELOPING IVY EUROPEAN IVY GLOBAL VALUE FUND MARKETS FUND OPPORTUNITIES FUND FUND ASSETS Investments, at value (a) $3,874,301 $ 4,192,766 $ 70,358,412 $ 4,569,584 Investments of cash collateral for securities loaned at identified cost and value - - - - Cash 1,593,596 6,910 - 39,376 Receivables Put options purchased, at value Investments sold - - 1,405 - Premiums on call options written - - - - Fund shares sold 203,468 2,400 100 - Dividends, interest and tax reclaims 5,703 12,266 110,305 14,619 Manager for expense reimbursement 9,692 3,658 - - Unrealized appreciation on forward foreign currency contracts 21,233 - - - Other assets 11,643 13,713 15,690 20,058 -------------------------------------------------------------------------- Total assets 5,719,636 4,231,713 70,485,912 4,643,637 -------------------------------------------------------------------------- LIABILITIES Payables Call options written, at value - - - - Distributions to shareholders - 92 - - Investments purchased 126,238 - - 2,531 Collateral for securities loaned, at value - - - - Premiums on put options purchased - - - - Fund shares repurchased - 28,048 142,422 6,588 Management fee 2,197 1,782 28,517 1,909 12b-1 service and distribution fees 1,158 1,064 20,032 842 Transfer agent fee 1,059 3,348 28,959 3,039 Other payables to related parties 808 769 5,212 781 Unrealized depreciation on open forward foreign currency contracts 76,131 - - - Due to custodian - - 18,390 - Accrued expenses 17,445 16,196 80,703 25,204 -------------------------------------------------------------------------- Total liabilities 225,036 51,299 324,235 40,894 -------------------------------------------------------------------------- NET ASSETS $5,494,600 $ 4,180,414 $ 70,161,677 $ 4,602,743 ========================================================================== CLASS A Net Assets $1,402,718 $ 2,210,078 $ 20,451,607 $ 3,339,028 Outstanding Shares 167,278 398,056 1,549,179 482,150 Net asset value and redemption price per share $ 8.39 $ 5.55 $ 13.20 $ 6.93 Maximum offering price per share* $ 8.90 $ 5.89 $ 14.01 $ 7.35 -------------------------------------------------------------------------- CLASS B Net Assets $2,089,392 $ 1,490,261 $ 24,627,281 $ 1,123,622 Outstanding Shares 251,198 282,330 1,904,191 172,929 Net asset value, offering price and redemption price** per share $ 8.32 $ 5.28 $ 12.93 $ 6.50 -------------------------------------------------------------------------- CLASS C Net Assets $ 445,672 $ 433,339 $ 19,324,187 $ 71,937 Outstanding Shares 53,962 81,731 1,488,760 11,565 Net asset value, offering price and redemption price*** per share $ 8.26 $ 5.30 $ 12.98 $ 6.22 -------------------------------------------------------------------------- CLASS ADVISOR Net Assets $1,515,161 $ 46,736 $ 5,728,759 $ 68,156 Outstanding Shares 181,587 8,395 429,567 9,851 Net asset value, offering price and redemption price per share $ 8.34 $ 5.57 $ 13.34 $ 6.92 -------------------------------------------------------------------------- CLASS I Net Assets $ 41,657 $ na $ 29,843 $ na Outstanding Shares 5,013 na 2,241 na Net asset value, offering price and redemption price per share $ 8.31 $ na $ 13.32 $ na -------------------------------------------------------------------------- NET ASSETS CONSIST OF Capital paid-in $6,269,783 $ 16,874,392 $157,296,907 $ 8,169,576 Accumulated net realized gain/(loss) on investments and foreign currency transactions (539,887) (11,984,839) (56,367,674) (2,858,914) Undistributed (accumulated) net investment income (loss) (261) (36,083) - (1,266) Net unrealized appreciation (depreciation) on investments and foreign currency transactions (235,035) (673,056) (30,767,556) (706,653) -------------------------------------------------------------------------- NET ASSETS $5,494,600 $ 4,180,414 $ 70,161,677 $ 4,602,743 ========================================================================== (a) Investments, identified cost $4,055,193 $ 4,866,013 $101,136,872 $ 5,277,698 -------------------------------------------------------------------------- * On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75% for all Funds except Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%; Ivy Money Market Fund does not have a sales charge. ** Subject to a maximum deferred sales charge of 5%. *** Subject to a maximum deferred sales charge of 1%.

54 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF ASSETS AND LIABILITIES (continued) December 31, 2002

IVY GLOBAL NATURAL IVY GLOBAL SCIENCE IVY INTERNATIONAL IVY INTERNATIONAL RESOURCES FUND & TECHNOLOGY FUND FUND SMALL COMPANIES FUND $30,832,160 $ 8,238,612 $ 206,804,311 $ 4,124,492 - - 13,597,770 - 573,676 1,975,273 1,888,965 - 11,270 - - - 164,424 - 28,823 - - 40,860 8 7,677 - 33,418 660 2,480,146 10,962 5,908 - - 3,823 - - - - 23,584 12,971 51,155 21,700 - -------------------------------------------------------------------------------------- 31,509,606 10,267,617 224,830,024 4,325,401 - -------------------------------------------------------------------------------------- - 28,190 - - 52 - 136 - - 17,792 360,803 - - - 13,597,770 - - 12,294 - - 19,164 50,725 413,706 5,645 12,856 4,241 87,213 1,696 7,375 2,599 43,861 1,138 10,222 15,727 64,742 3,526 2,466 1,605 11,730 760 - - - - - - - 135,466 28,342 22,406 218,461 27,264 - -------------------------------------------------------------------------------------- 80,477 155,579 14,798,422 175,495 - -------------------------------------------------------------------------------------- $31,429,129 $ 10,112,038 $ 210,031,602 $ 4,149,906 ====================================================================================== $17,052,725 $ 4,967,601 $ 126,732,527 $ 1,434,748 1,482,867 696,198 7,751,142 234,809 $ 11.50 $ 7.14 $ 16.35 $ 6.11 $ 12.20 $ 7.57 $ 17.36 $ 6.48 - -------------------------------------------------------------------------------------- $ 8,617,404 $ 3,982,677 $ 68,429,651 $ 1,474,803 770,248 582,737 4,381,450 248,114 $ 11.19 $ 6.83 $ 15.62 $ 5.94 - -------------------------------------------------------------------------------------- $ 5,189,159 $ 987,501 $ 13,563,252 $ 944,721 472,901 143,826 874,083 157,986 $ 10.97 $ 6.87 $ 15.52 $ 5.98 - -------------------------------------------------------------------------------------- $ 569,841 $ 174,259 $ 2,477 $ 295,634 49,871 24,304 147 47,802 $ 11.43 $ 7.17 $ 16.85 $ 6.18 - -------------------------------------------------------------------------------------- $ na $ - $ 1,303,695 $ - na - 79,108 - $ na $ - $ 16.48 $ - - -------------------------------------------------------------------------------------- $40,620,087 $ 59,027,157 $ 546,124,414 $ 16,028,386 (9,311,633) (48,828,077) (282,705,831) (11,327,326) (503,705) - (182,407) - 624,380 (87,042) (53,204,574) (551,154) - -------------------------------------------------------------------------------------- $31,429,129 $ 10,112,038 $ 210,031,602 $ 4,149,906 ====================================================================================== $30,207,560 $ 8,325,263 $ 260,333,316 $ 4,680,734 - --------------------------------------------------------------------------------------

55 STATEMENTS OF ASSETS AND LIABILITIES December 31, 2002

IVY INTERNATIONAL IVY PACIFIC IVY GROWTH VALUE FUND OPPORTUNITIES FUND FUND ASSETS Investments, at value (a) $ 44,622,749 $ 8,127,413 $ 88,070,410 Investments of cash collateral for securities loaned at identified cost and value 2,670,997 - - Cash 684,536 1,364,809 9,848,471 Receivables Investments sold - - 18,945,870 Fund shares sold 7,148 1,071 5,796 Dividends, interest and tax reclaims 215,693 7,555 124,103 Manager for expense reimbursement 2,356 - - Other assets 16,317 12,235 38,042 --------------------------------------------------------- Total assets 48,219,796 9,513,083 117,032,692 --------------------------------------------------------- LIABILITIES Payables Distributions to shareholders - - - Investments purchased 53,347 - - Collateral for securities loaned, at value 2,670,997 - - Fund shares repurchased 65,878 902,479 35,033 Management fee 18,553 3,944 41,434 12b-1 service and distribution fees 16,073 1,923 3,781 Transfer agent fee 12,030 5,985 57,143 Other payables to related parties 4,216 985 7,944 Due to custodian - - - Accrued expenses 54,203 29,070 96,743 --------------------------------------------------------- Total liabilities 2,895,297 944,386 242,078 --------------------------------------------------------- NET ASSETS $ 45,324,499 $ 8,568,697 $116,790,614 ========================================================= CLASS A Net Assets $ 7,853,999 $ 5,317,520 $113,984,697 Outstanding Shares 1,026,858 891,803 13,767,403 Net asset value and redemption price per share $ 7.65 $ 5.96 $ 8.28 Maximum offering price per share* $ 8.12 $ 6.33 $ 8.78 --------------------------------------------------------- CLASS B Net Assets $ 28,123,301 $ 2,678,409 $ 2,510,639 Outstanding Shares 3,842,278 465,920 320,145 Net asset value, offering price and redemption price** per share $ 7.32 $ 5.75 $ 7.84 --------------------------------------------------------- CLASS C Net Assets $ 9,223,440 $ 539,131 $ 157,481 Outstanding Shares 1,259,980 93,819 20,619 Net asset value, offering price and redemption price*** per share $ 7.32 $ 5.75 $ 7.64 --------------------------------------------------------- CLASS ADVISOR Net Assets $ 123,759 $ 33,637 $ 137,797 Outstanding Shares 16,417 5,791 16,678 Net asset value, offering price and redemption price per share $ 7.54 $ 5.81 $ 8.26 --------------------------------------------------------- NET ASSETS CONSIST OF Capital paid-in $ 66,382,807 $ 19,671,575 $191,106,164 Accumulated net realized gain/(loss) on investments and foreign currency transactions (16,306,552) (10,726,338) (76,206,011) Undistributed (accumulated) net investment income (loss) (19,958) (464) - Net unrealized appreciation (depreciation) on investments and foreign currency transactions (4,731,798) (376,076) 1,890,461 --------------------------------------------------------- NET ASSETS $ 45,324,499 $ 8,568,697 $116,790,614 ========================================================= (a) Investments, identified cost $ 49,376,967 $ 8,502,983 $ 86,180,907 --------------------------------------------------------- * On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75% for all Funds except Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%; Ivy Money Market Fund does not have a sales charge. ** Subject to a maximum deferred sales charge of 5%. *** Subject to a maximum deferred sales charge of 1%.

56 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF ASSETS AND LIABILITIES (continued) December 31, 2002

IVY US BLUE IVY US EMERGING IVY BOND IVY MONEY CHIP FUND GROWTH FUND FUND MARKET FUND $ 35,461,624 $ 21,556,530 $ 48,347,121 $21,619,877 - - - - - 7,968,028 1,741,275 1,323 289,935 - - - - - - - 58,964 934 1,059,245 - 17,433 - - 16,915 18,696 17,442 24,098 13,265 - --------------------------------------------------------------- 35,846,652 29,542,934 51,171,739 21,651,380 - --------------------------------------------------------------- - - - 7,736 30,260 1,115,703 - - - - - - 65,046 47,305 35,483 1,100 11,182 10,092 10,515 3,816 6,315 6,487 11,093 - 18,053 22,503 10,141 8,530 2,671 2,368 2,811 1,908 120,406 - - - 38,556 35,069 35,737 26,441 - --------------------------------------------------------------- 292,489 1,239,527 105,780 49,531 - --------------------------------------------------------------- $ 35,554,163 $ 28,303,407 $ 51,065,959 $21,601,849 =============================================================== $ 24,949,718 $ 16,481,481 $ 31,148,484 $14,684,422 3,410,038 1,312,166 3,728,556 14,684,422 $ 7.32 $ 12.56 $ 8.35 $ 1.00 $ 7.76 $ 13.33 $ 8.77 $ - - --------------------------------------------------------------- $ 9,437,836 $ 10,103,899 $ 17,170,631 $ 6,104,362 1,322,723 852,045 2,083,270 6,104,362 $ 7.14 $ 11.86 $ 8.24 $ 1.00 - --------------------------------------------------------------- $ 447,908 $ 1,237,746 $ 2,186,109 $ 813,065 62,845 104,413 264,243 813,065 $ 7.13 $ 11.85 $ 8.27 $ 1.00 - --------------------------------------------------------------- $ 718,701 $ 480,281 $ 560,735 $ - 96,953 37,773 67,652 - $ 7.41 $ 12.71 $ 8.29 $ - - --------------------------------------------------------------- $ 51,491,882 $ 69,487,371 $ 79,113,243 $21,601,849 (16,506,247) (42,579,107) (28,615,045) - - - - - 568,528 1,395,143 567,761 - - --------------------------------------------------------------- $ 35,554,163 $ 28,303,407 $ 51,065,959 $21,601,849 =============================================================== $ 34,893,096 $ 20,161,386 $ 47,779,360 $21,619,877 - ---------------------------------------------------------------

57 STATEMENTS OF OPERATIONS For the Year Ended December 31, 2002

IVY EUROPEAN IVY CUNDILL GLOBAL IVY DEVELOPING OPPORTUNITIES VALUE FUND MARKETS FUND FUND INVESTMENT INCOME Dividends, net of foreign taxes withheld (a) $ 80,086 $ 93,433 $ 1,855,458 Interest 8,176 1,787 87,006 ------------------------------------------------------- 88,262 95,220 1,942,464 ------------------------------------------------------- EXPENSES Management fee 37,970 53,057 785,647 Transfer agent 9,304 39,217 375,315 Administrative services fee 3,792 5,306 87,624 Custodian fees 25,083 28,666 108,254 Blue Sky fees 37,529 35,372 38,152 Auditing and accounting fees 8,187 16,204 42,458 Shareholder reports 1,080 4,599 48,585 Fund accounting 16,676 17,176 110,283 Trustees' fees 4,883 4,971 14,734 12b-1 service and distribution fees 13,813 32,441 589,326 Legal 30,340 24,532 29,511 Other 2,353 4,923 26,200 ------------------------------------------------------- 191,010 266,464 2,256,089 Expenses reimbursed by Manager (103,157) (130,561) - ------------------------------------------------------- Net expenses 87,853 135,903 2,256,089 ------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 409 (40,683) (313,625) ------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY AND WRITTEN CALL OPTION TRANSACTIONS Net realized gain (loss) (502,286) (100,522) (20,869,819) Net realized gain (loss) on written call options - - - Net change in unrealized appreciation (depreciation) on written call options - - - Net change in unrealized appreciation (depreciation) (297,214) (529,684) 17,645,789 ------------------------------------------------------- Net gain (loss) on investment, foreign currency and written call option transactions (799,500) (630,206) (3,224,030) ------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(799,091) $(670,889) $ (3,537,655) ======================================================= (a) Foreign taxes withheld $ 6,544 $ 9,827 $ 217,458 -------------------------------------------------------

58 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF OPERATIONS (continued) For the Year Ended December 31, 2002

IVY GLOBAL IVY GLOBAL IVY IVY GLOBAL NATURAL SCIENCE & INTERNATIONAL FUND RESOURCES FUND TECHNOLOGY FUND FUND $ 113,093 $ 365,676 $ 126,088 $ 6,395,759 3,064 19,251 10,357 598,006 - ------------------------------------------------------------------ 116,157 384,927 136,445 6,993,765 - ------------------------------------------------------------------ 61,356 293,992 167,880 3,178,450 32,709 107,432 170,051 1,052,425 6,136 29,399 16,788 309,037 47,461 35,933 12,751 270,699 33,713 34,726 38,164 39,375 19,445 19,119 17,749 145,522 4,012 12,260 21,670 123,223 17,570 44,775 36,906 211,731 5,076 7,322 6,418 44,481 29,335 158,759 104,123 1,556,179 24,590 25,607 25,109 48,071 5,530 8,428 11,864 78,936 - ------------------------------------------------------------------ 286,933 777,752 629,473 7,058,129 (137,953) (45,707) (197,902) - - ------------------------------------------------------------------ 148,980 732,045 431,571 7,058,129 - ------------------------------------------------------------------ (32,823) (347,118) (295,126) (64,364) - ------------------------------------------------------------------ (1,134,688) (1,362,580) (8,505,195) (124,650,724) 4,595 - - 972,561 1,564 - - (84,026) (374,665) 268,841 (3,019,899) 49,772,411 - ------------------------------------------------------------------ (1,503,194) (1,093,739) (11,525,094) (73,989,778) - ------------------------------------------------------------------ $(1,536,017) $(1,440,857) $(11,820,220) $ (74,054,142) ================================================================== $ 6,077 $ 18,757 $ 700 $ 648,268 - ------------------------------------------------------------------

59 STATEMENTS OF OPERATIONS For the Year Ended December 31, 2002

IVY INTERNATIONAL IVY PACIFIC SMALL IVY INTERNATIONAL OPPORTUNITIES IVY GROWTH COMPANIES FUND VALUE FUND FUND FUND INVESTMENT INCOME Dividends, net of foreign taxes withheld (a) $ 103,608 $ 1,500,654 $ 247,520 $ 1,107,805 Interest 3,133 92,977 5,799 83,008 ---------------------------------------------------------------------- 106,741 1,593,631 253,319 1,190,813 ---------------------------------------------------------------------- EXPENSES Management fee 71,997 595,781 105,358 1,232,314 Transfer agent 42,502 244,778 66,761 627,178 Administrative services fee 7,200 59,578 10,536 144,978 Custodian fees 70,718 76,968 29,138 30,354 Blue Sky fees 38,974 37,297 32,694 35,317 Auditing and accounting fees 15,162 35,399 23,316 70,172 Shareholder reports 5,165 25,898 7,927 76,491 Amortization of organization expenses - 3,240 - - Fund accounting 19,290 86,488 30,611 138,319 Trustees' fees 5,234 11,406 5,615 21,698 12b-1 service and distribution fees 46,068 515,176 57,130 118,837 Legal 24,640 27,193 24,802 32,197 Other 5,581 19,764 7,124 39,470 ---------------------------------------------------------------------- 352,531 1,738,966 401,012 2,567,325 Expenses reimbursed by Manager (166,048) (329,958) (138,434) - ---------------------------------------------------------------------- Net expenses 186,483 1,409,008 262,578 2,567,325 ---------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) (79,742) 184,623 (9,259) (1,376,512) ---------------------------------------------------------------------- NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY AND WRITTEN CALL OPTION TRANSACTIONS Net realized gain (loss) (4,056,208) (6,096,478) 75,568 (29,141,392) Net realized gain (loss) on written call options - 78,077 - - Net change in unrealized appreciation (depreciation) on written call options - 38,366 - (44,156) Net change in unrealized appreciation (depreciation) 2,105,794 (5,965,738) (1,130,497) (20,603,572) ---------------------------------------------------------------------- Net gain (loss) on investment, foreign currency and written call option transactions (1,950,414) (11,945,773) (1,054,929) (49,789,120) ---------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(2,030,156) $(11,761,150) $(1,064,188) $(51,165,632) ====================================================================== (a) Foreign taxes withheld $ 13,174 $ 153,049 $ 18,745 $ 3,071 ----------------------------------------------------------------------

60 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF OPERATIONS (continued) For the Year Ended December 31, 2002

IVY US IVY US BLUE EMERGING IVY BOND IVY MONEY CHIP FUND GROWTH FUND FUND MARKET FUND $ 746,044 $ 9,633 $ - $ - 11,079 19,621 3,996,416 336,721 - ---------------------------------------------------------- 757,123 29,254 3,996,416 336,721 - ---------------------------------------------------------- 355,192 397,693 270,234 81,621 232,254 256,383 158,464 100,635 47,359 46,787 54,047 20,405 19,221 17,798 8,366 28,033 38,832 34,326 38,851 27,928 28,936 31,017 33,104 9,908 26,016 32,825 16,606 9,541 - - - - 72,248 68,748 46,704 28,899 10,018 10,016 10,939 6,815 216,110 255,655 282,809 - 27,398 27,396 28,120 26,470 15,972 19,480 15,381 6,814 - ---------------------------------------------------------- 1,089,556 1,198,124 963,625 347,069 (238,824) - - (173,624) - ---------------------------------------------------------- 850,732 1,198,124 963,625 173,445 - ---------------------------------------------------------- (93,609) (1,168,870) 3,032,791 163,276 - ---------------------------------------------------------- (8,301,051) (14,815,732) 730,591 - - 256,259 - - - (22,465) - - (4,146,746) (9,059,324) 446,120 - - ---------------------------------------------------------- (12,447,797) (23,641,262) 1,176,711 - - ---------------------------------------------------------- $(12,541,406) $(24,810,132) $4,209,502 $ 163,276 ========================================================== $ 2,046 $ - $ - $ - - ----------------------------------------------------------

61 STATEMENTS OF CHANGES IN NET ASSETS

IVY CUNDILL GLOBAL VALUE FUND IVY DEVELOPING MARKETS FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ 409 $ 4,208 $ (40,683) $ (18,659) Net realized gain (loss) on investments, foreign currency and option transactions (502,286) (11,053) (100,522) (839,162) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (297,214) 31,902 (529,684) 413,420 -------------------------------------------------------------- Net increase (decrease) resulting from operations (799,091) 25,057 (670,889) (444,401) -------------------------------------------------------------- Class A distributions Dividends from net investment income - (483) - - Distributions from realized gains (12,598) (5,550) (12,058) - -------------------------------------------------------------- Total distributions to Class A shareholders (12,598) (6,033) (12,058) - -------------------------------------------------------------- Class B distributions Dividends from net investment income - (1,954) - - Distributions from realized gains (17,782) (22,475) (8,904) - -------------------------------------------------------------- Total distributions to Class B shareholders (17,782) (24,429) (8,904) - -------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains (5,319) (850) (2,490) - -------------------------------------------------------------- Total distributions to Class C shareholders (5,319) (850) (2,490) - -------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - (2,320) - - Distributions from realized gains (13,199) (26,675) (254) - -------------------------------------------------------------- Total distributions to Advisor Class shareholders (13,199) (28,995) (254) - -------------------------------------------------------------- Class I distributions Dividends from net investment income (379) - - - Distributions from realized gains - - - - -------------------------------------------------------------- Total distributions to Class I shareholders (379) - - - -------------------------------------------------------------- Fund share transactions (Note 4) Class A 1,296,061 211,494 157,759 (1,737,612) Class B 1,461,220 859,802 (748,738) (1,738,699) Class C 460,178 29,498 (101,441) (480,164) Class Advisor 1,006,438 262,419 (31,028) (31,672) Class I 44,206 - - - -------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions 4,268,103 1,363,213 (723,448) (3,988,147) -------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 3,419,735 1,327,963 (1,418,043) (4,432,548) Net assets beginning of period 2,074,865 746,902 5,598,457 10,031,005 -------------------------------------------------------------- NET ASSETS END OF PERIOD $5,494,600 $2,074,865 $ 4,180,414 $ 5,598,457 ============================================================== UNDISTRIBUTED NET INVESTMENT INCOME $ - $ 2,077 $ - $ - --------------------------------------------------------------

62 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued)

IVY EUROPEAN IVY GLOBAL NATURAL OPPORTUNITIES FUND IVY GLOBAL FUND RESOURCES FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (313,625) $ (1,108,594) $ (32,823) $ (87,678) $ (347,118) $ 17,480 (20,869,819) (32,949,388) (1,130,093) (1,707,991) (1,362,580) (129,942) 17,645,789 (2,857,973) (373,101) (357,083) 268,841 939,703 - ---------------------------------------------------------------------------------------------------- (3,537,655) (36,915,955) (1,536,017) (2,152,752) (1,440,857) 827,241 - ---------------------------------------------------------------------------------------------------- - - - - - (123,220) - (79,656) - - (97,855) - - ---------------------------------------------------------------------------------------------------- - (79,656) - - (97,855) (123,220) - ---------------------------------------------------------------------------------------------------- - - - - - (72,803) - (89,127) - - - - - ---------------------------------------------------------------------------------------------------- - (89,127) - - - (72,803) - ---------------------------------------------------------------------------------------------------- - - - - - (25,855) - (65,137) - - (3,161) - - ---------------------------------------------------------------------------------------------------- - (65,137) - - (3,161) (25,855) - ---------------------------------------------------------------------------------------------------- - - - - - (10,125) - (22,555) - - (4,055) - - ---------------------------------------------------------------------------------------------------- - (22,555) - - (4,055) (10,125) - ---------------------------------------------------------------------------------------------------- - - - - - - - (33) - - - - - ---------------------------------------------------------------------------------------------------- - (33) - - - - - ---------------------------------------------------------------------------------------------------- (9,398,115) (12,356,980) (1,184,488) (1,292,078) 10,315,109 1,944,691 (7,902,090) (11,307,942) (821,826) (1,559,669) 3,579,421 1,647,979 (4,696,091) (14,959,642) (52,999) 2,801 3,896,774 1,087,331 (2,988,959) (6,208,579) (6,502) (30,156) 5,039 461,155 30,709 33 - - - - - ---------------------------------------------------------------------------------------------------- (24,954,546) (44,833,110) (2,065,815) (2,879,102) 17,796,343 5,141,156 - ---------------------------------------------------------------------------------------------------- (28,492,201) (82,005,573) (3,601,832) (5,031,854) 16,250,415 5,736,394 98,653,878 180,659,451 8,204,575 13,236,429 15,178,714 9,442,320 - ---------------------------------------------------------------------------------------------------- $ 70,161,677 $ 98,653,878 $ 4,602,743 $ 8,204,575 $31,429,129 $15,178,714 ==================================================================================================== $ - $ - $ - $ - $ - $ - - ----------------------------------------------------------------------------------------------------

63 STATEMENTS OF CHANGES IN NET ASSETS

IVY GLOBAL SCIENCE IVY INTERNATIONAL & TECHNOLOGY FUND FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ (295,126) $ (850,970) $ (64,364) $ (803,812) Net realized gain (loss) on investments, foreign currency and option transactions (8,505,195) (34,588,967) (123,678,163) (117,343,526) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (3,019,899) (736,843) 49,688,385 (65,204,565) ----------------------------------------------------------------- Net increase (decrease) resulting from operations (11,820,220) (36,176,780) (74,054,142) (183,351,903) ----------------------------------------------------------------- Class A distributions Dividends from net investment income - - - - Distributions from realized gains - - (22,133) - ----------------------------------------------------------------- Total distributions to Class A shareholders - - (22,133) - ----------------------------------------------------------------- Class B distributions Dividends from net investment income - - - - Distributions from realized gains - - (12,413) - ----------------------------------------------------------------- Total distributions to Class B shareholders - - (12,413) - ----------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains - - (2,440) - ----------------------------------------------------------------- Total distributions to Class C shareholders - - (2,440) - ----------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - - - - Distributions from realized gains - - - - ----------------------------------------------------------------- Total distributions to Advisor Class shareholders - - - - ----------------------------------------------------------------- Class I distributions Dividends from net investment income - - - - Distributions from realized gains - - (343) - ----------------------------------------------------------------- Total distributions to Class I shareholders - - (343) - ----------------------------------------------------------------- Fund share transactions (Note 4) Class A (2,822,473) (2,017,011) (174,708,492) (130,688,855) Class B (2,960,646) (2,241,470) (44,486,381) (90,315,247) Class C (731,553) (2,535,725) (8,318,805) (20,256,233) Class Advisor (36,495) (38,620) (2,162) 1,566 Class I - - (13,329,840) (10,732,630) ----------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions (6,551,167) (6,832,826) (240,845,680) (251,991,399) ----------------------------------------------------------------- TOTAL (DECREASE) INCREASE IN NET ASSETS (18,371,387) (43,009,606) (314,937,151) (435,343,302) Net assets beginning of period 28,483,425 71,493,031 524,968,753 960,312,055 ----------------------------------------------------------------- NET ASSETS END OF PERIOD $ 10,112,038 $ 28,483,425 $ 210,031,602 $ 524,968,753 ================================================================= UNDISTRIBUTED NET INVESTMENT INCOME $ - $ - $ - $ - -----------------------------------------------------------------

64 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued)

IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (79,742) $ (244,285) $ 184,623 $ (10,164) $ (9,259) $ (108,619) (4,056,208) (6,817,197) (6,018,401) (5,500,755) 75,568 (2,117,974) 2,105,794 (1,290,455) (5,927,372) (15,899,870) (1,130,497) 755,091 - ---------------------------------------------------------------------------------------------------- (2,030,156) (8,351,937) (11,761,150) (21,410,789) (1,064,188) (1,471,502) - ---------------------------------------------------------------------------------------------------- - - - (27,423) - (8,050) - (3,531) - - - (1,649) - ---------------------------------------------------------------------------------------------------- - (3,531) - (27,423) - (9,699) - ---------------------------------------------------------------------------------------------------- - - - (97,290) - (5,214) - (3,188) - - - (1,068) - ---------------------------------------------------------------------------------------------------- - (3,188) - (97,290) - (6,282) - ---------------------------------------------------------------------------------------------------- - - - (34,090) - (1,203) - (2,267) - - - (246) - ---------------------------------------------------------------------------------------------------- - (2,267) - (34,090) - (1,449) - ---------------------------------------------------------------------------------------------------- - - - (773) - (4) - (942) - - - (1) - ---------------------------------------------------------------------------------------------------- - (942) - (773) - (5) - ---------------------------------------------------------------------------------------------------- - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------- - - - - - - - ---------------------------------------------------------------------------------------------------- (1,356,976) (2,382,665) (3,478,391) (6,604,271) (214,260) (2,223,328) (1,094,512) (69,144) (10,675,076) (16,393,092) (997,562) (1,762,254) (891,987) (541,670) (4,469,914) (8,894,349) (333,108) (461,062) (539,730) (1,796,577) (212,063) (184,624) 625 (26,101) - - - - - - - ---------------------------------------------------------------------------------------------------- (3,883,205) (4,790,056) (18,835,444) (32,076,336) (1,544,305) (4,472,745) - ---------------------------------------------------------------------------------------------------- (5,913,361) (13,151,918) (30,596,594) (53,646,701) (2,608,493) (5,961,682) 10,063,267 23,215,185 75,921,093 129,567,794 11,177,190 17,138,872 - ---------------------------------------------------------------------------------------------------- $ 4,149,906 $ 10,063,267 $ 45,324,499 $ 75,921,093 $ 8,568,697 $11,177,190 ==================================================================================================== $ - $ - $ - $ - $ - $ - - ----------------------------------------------------------------------------------------------------

65 STATEMENTS OF CHANGES IN NET ASSETS

IVY GROWTH FUND IVY US BLUE CHIP FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 INCREASE (DECREASE) IN NET ASSETS Operations Net investment income (loss) $ (1,376,512) $ (1,271,936) $ (93,609) $ (273,384) Net realized gain (loss) on investments, foreign currency and option transactions (29,141,392) (46,425,575) (8,301,051) (7,653,606) Net change in unrealized appreciation (depreciation) on investments, foreign currency and written call option transactions (20,647,728) (10,892,142) (4,146,746) (1,306,669) --------------------------------------------------------------- Net increase (decrease) resulting from operations (51,165,632) (58,589,653) (12,541,406) (9,233,659) --------------------------------------------------------------- Class A distributions Dividends from net investment income - - - - Distributions from realized gains - (150,031) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class A shareholders - (150,031) - - --------------------------------------------------------------- Class B distributions Dividends from net investment income - - - - Distributions from realized gains - (4,963) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class B shareholders - (4,963) - - --------------------------------------------------------------- Class C distributions Dividends from net investment income - - - - Distributions from realized gains - (306) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Class C shareholders - (306) - - --------------------------------------------------------------- Class Advisor distributions Dividends from net investment income - - - - Distributions from realized gains - (246) - - Return of capital - - - - --------------------------------------------------------------- Total distributions to Advisor Class shareholders - (246) - - --------------------------------------------------------------- Fund share transactions (Note 4) Class A (17,230,199) (24,244,560) (5,583,778) (13,083,890) Class B (1,832,126) 39,091 (6,026,613) (1,937,914) Class C (117,794) (219,317) (467,317) (1,480,938) Class Advisor (78,349) 21,369 113,195 (127,958) Class I - - - - --------------------------------------------------------------- Net increase (decrease) resulting from Fund share transactions (19,258,468) (24,403,417) (11,964,513) (16,630,700) --------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (70,424,100) (83,148,616) (24,505,919) (25,864,359) Net assets beginning of period 187,214,714 270,363,330 60,060,082 85,924,441 --------------------------------------------------------------- NET ASSETS END OF PERIOD $116,790,614 $187,214,714 $ 35,554,163 $ 60,060,082 =============================================================== UNDISTRIBUTED NET INVESTMENT INCOME $ - $ - $ - $ - ---------------------------------------------------------------

66 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS (continued)

IVY US EMERGING GROWTH FUND IVY BOND FUND IVY MONEY MARKET FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2001 2002 2001 2002 2001 $ (1,168,870) $ (1,761,414) $ 3,032,791 $ 3,819,656 $ 163,276 $ 728,899 (14,559,473) (25,941,075) 730,591 (1,814,351) - - (9,081,789) (18,236,680) 446,120 3,250,094 - - - ---------------------------------------------------------------------------------------------------- (24,810,132) (45,939,169) 4,209,502 5,255,399 163,276 728,899 - ---------------------------------------------------------------------------------------------------- - - (1,995,695) (2,485,231) (104,700) (513,765) - - - - - - - - - (75,056) - - - ---------------------------------------------------------------------------------------------------- - - (1,995,695) (2,560,287) (104,700) (513,765) - ---------------------------------------------------------------------------------------------------- - - (909,043) (968,691) (53,398) (188,742) - - - - - - - - - (29,256) - - - ---------------------------------------------------------------------------------------------------- - - (909,043) (997,947) (53,398) (188,742) - ---------------------------------------------------------------------------------------------------- - - (105,075) (130,441) (5,178) (26,392) - - - - - - - - - (3,939) - - - ---------------------------------------------------------------------------------------------------- - - (105,075) (134,380) (5,178) (26,392) - ---------------------------------------------------------------------------------------------------- - - (22,896) (10,247) - - - - - - - - - - - (309) - - - ---------------------------------------------------------------------------------------------------- - - (22,896) (10,556) - - - ---------------------------------------------------------------------------------------------------- (13,056,371) (9,332,403) (5,990,673) (16,994,627) 1,780,289 (7,489,724) (8,023,668) (12,090,864) (2,507,083) (1,183,399) (575,556) 808,338 (1,477,554) (2,343,242) (48,003) (585,610) 293,770 (1,456,010) (146,978) (386,693) 371,156 (26,727) - - - - - - - - - ---------------------------------------------------------------------------------------------------- (22,704,571) (24,153,202) (8,174,603) (18,790,363) 1,498,503 (8,137,396) - ---------------------------------------------------------------------------------------------------- (47,514,703) (70,092,371) (6,997,810) (17,238,134) 1,498,503 (8,137,396) 75,818,110 145,910,481 58,063,769 75,301,903 20,103,346 28,240,742 - ---------------------------------------------------------------------------------------------------- $ 28,303,407 $ 75,818,110 $ 51,065,959 $ 58,063,769 $21,601,849 $20,103,346 ==================================================================================================== $ - $ - $ - $ - $ - $ - - ----------------------------------------------------------------------------------------------------

67 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY CUNDILL GLOBAL VALUE FUND A 01/01 to 12/31/2002 $ 9.64 09/04(e) to 12/31/2001 10.15 B 01/01 to 12/31/2002 9.61 09/26(e) to 12/31/2001 9.26 C 01/01 to 12/31/2002 9.57 10/19(e) to 12/31/2001 9.44 I 11/05(e) to 12/31/2002 8.85 ADVISOR 01/01 to 12/31/2002 9.55 01/01 to 12/31/2001 10.07 04/19(e) to 12/31/2000 10.00 ------------------------------------------------- IVY DEVELOPING MARKETS FUND A 01/01 to 12/31/2002 6.36 01/01 to 12/31/2001 6.66 01/01 to 12/31/2000 8.77 01/01 to 12/31/1999 6.02 01/01 to 12/31/1998 6.82 B 01/01 to 12/31/2002 6.10 01/01 to 12/31/2001 6.49 01/01 to 12/31/2000 8.63 01/01 to 12/31/1999 5.93 01/01 to 12/31/1998 6.77 C 01/01 to 12/31/2002 6.13 01/01 to 12/31/2001 6.52 01/01 to 12/31/2000 8.67 01/01 to 12/31/1999 5.96 01/01 to 12/31/1998 6.79 ADVISOR 01/01 to 12/31/2002 6.36 01/01 to 12/31/2001 6.70 01/01 to 12/31/2000 8.80 01/01 to 12/31/1999 6.05 04/30(e) to 12/31/1998 7.48 ------------------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND A 01/01 to 12/31/2002 13.65 01/01 to 12/31/2001 17.25 01/01 to 12/31/2000 17.13 05/04(e) to 12/31/1999 10.01 B 01/01 to 12/31/2002 13.54 01/01 to 12/31/2001 17.26 01/01 to 12/31/2000 17.13 05/24(e) to 12/31/1999 10.21 C 01/01 to 12/31/2002 13.59 01/01 to 12/31/2001 17.32 01/01 to 12/31/2000 17.13 10/24(e) to 12/31/1999 11.57 I 01/01 to 12/31/2002 13.78 01/01 to 12/31/2001 17.37 03/16(e) to 12/31/2000 26.00 ADVISOR 01/01 to 12/31/2002 13.80 01/01 to 12/31/2001 17.39 01/01 to 12/31/2000 17.23 05/03(e) to 12/31/1999 10.01

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Developing Markets and European Opportunities excluding redemption fees would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%) and (20.78%) for the year ended 12/31/01, respectively. 68 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .00 (c)(d) $(1.17) $(1.17) $- $ .08 $ .08 .01 (c) (.23) (.22) .02 .27 .29 (.05)(c)(d) (1.16) (1.21) - .08 .08 .01 (c) .62 .63 .02 .26 .28 (.07)(c)(d) (1.16) (1.23) - .08 .08 .01 (c) .40 .41 .02 .26 .28 .26 (.72) (.46) - .08 .08 .04 (c)(d) (1.17) (1.13) - .08 .08 .03 (c) (.25) (.22) .02 .28 .30 .05 (c) .41 .46 .19 .20 .39 - --------------------------------------------------------------------------------------------------- (.02)(c)(d) (.76) (.78) - .03 .03 .01 (c) (.31)(h) (.30) - - - (.02)(c) (2.07) (2.09) - .02 .02 .01 (c) 2.80 2.81 .01 .05 .06 .06 (c)(d) (.86) (.80) - - - (.07)(c)(d) (.72) (.79) - .03 .03 (.05)(c) (.34) (.39) - - - (.10)(c) (2.02) (2.12) - .02 .02 (.04)(c) 2.76 2.72 - .02 .02 .01 (c)(d) (.85) (.84) - - - (.07)(c)(d) (.73) (.80) - .03 .03 (.05)(c) (.34) (.39) - - - (.14)(c) (1.99) (2.13) - .02 .02 (.03)(c) 2.76 2.73 - .02 .02 .01 (c)(d) (.84) (.83) - - - (0.01)(c)(d) (.75) (.76) - .03 .03 .04 (c) (.38) (.34) - - - .02 (c) (2.10) (2.08) - .02 .02 .03 (c) 2.83 2.86 .06 .05 .11 .04 (c)(d) (1.47) (1.43) - - - - --------------------------------------------------------------------------------------------------- .01 (c)(d) (.46)(h) (.45) - - - (.08)(c) (3.49)(h) (3.57) - .03 .03 (.07) .82 .75 - .63 .63 - (c) 16.35 16.35 .01 9.22 9.23 (.10)(c)(d) (.51) (.61) - - - (.20)(c) (3.49) (3.69) - .03 .03 (.18) .83 .65 - .52 .52 (.01)(c) 16.15 16.14 - 9.22 9.22 (.10)(c)(d) (.51) (.61) - - - (.22)(c) (3.48) (3.70) - .03 .03 (.22) .88 .66 - .47 .47 (.01)(c) 6.00 5.99 .01 .42 .43 .07 (c)(d) (.53) (.46) - - - (.01)(c) (3.55) (3.56) - .03 .03 (.01) (7.92) (7.93) - .70 .70 .06 (c)(d) (.52) (.46) - - - (.02)(c) (3.54) (3.56) - .03 .03 (.02) .85 .83 - .67 .67 - (c) 16.46 16.46 .02 9.22 9.24

69 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY CUNDILL GLOBAL VALUE FUND A $ 8.39 (12.17) 9.64 (2.07) B 8.32 (12.62) 9.61 6.91 C 8.26 (12.88) 9.57 4.44 I 8.31 (5.23) ADVISOR 8.34 (11.86) 9.55 (2.13) 10.07 4.66 ------------------------------------- IVY DEVELOPING MARKETS FUND A 5.55 (12.28) 6.36 (4.50)(h) 6.66 (23.79) 8.77 46.70 6.02 (11.67) B 5.28 (12.96) 6.10 (6.01) 6.49 (24.53) 8.63 45.82 5.93 (12.35) C 5.30 (13.06) 6.13 (5.98) 6.52 (24.53) 8.67 45.84 5.96 (12.16) ADVISOR 5.57 (11.96) 6.36 (5.07) 6.70 (23.60) 8.80 47.38 6.05 (19.06) ------------------------------------- IVY EUROPEAN OPPORTUNITIES FUND A 13.20 (3.30)(h) 13.65 (20.67)(h) 17.25 4.51 17.13 215.58 B 12.93 (4.51) 13.54 (21.35) 17.26 4.12 17.13 209.41 C 12.98 (4.49) 13.59 (21.32) 17.32 3.98 17.13 51.80 I 13.32 (3.34) 13.78 (20.46) 17.37 (30.40) ADVISOR 13.34 (3.33) 13.80 (20.44) 17.39 5.01 17.23 217.16

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. na -- not applicable (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Developing Markets and European Opportunities excluding redemption fees would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%) and (20.78%) for the year ended 12/31/01, respectively. 70 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 1,403 2.28 4.97 .02 (c) 122 213 4.47(g) 31.77(g) .94 (c)(g) 57 2,089 2.84 5.53 (.54)(c) 122 867 6.04(g) 39.53(g) .60 (c)(g) 57 446 3.10 5.79 (.80)(c) 122 30 7.71(g) 51.61(g) .99 (c)(g) 57 42 11.51(g) 28.44(g) 2.96 (c)(g) 122 1,515 1.83 4.52 .47 (c) 122 964 1.40 10.30 .37 (c) 57 747 1.95(g) 19.15(g) .70 (c)(g) 53 - ------------------------------------------------------------------------------------------- 2,210 2.18 4.64 (.39)(c) 48 2,390 2.19 4.35 .17 (c) 14 4,213 2.12 3.50 (.27)(c) 76 5,652 2.30 3.28 .13 (c) 37 5,487 2.18 3.47 .88 (c) 47 1,490 2.98 5.44 (1.18)(c) 48 2,506 2.96 5.12 (.59)(c) 14 4,525 2.90 4.28 (1.04)(c) 76 7,676 2.92 3.90 (.49)(c) 37 6,145 2.96 4.25 .10 (c) 47 433 2.95 5.41 (1.16)(c) 48 619 3.01 5.17 (.65)(c) 14 1,173 2.85 4.23 (1.00)(c) 76 3,474 2.85 3.83 (.43)(c) 37 2,641 2.96 4.25 .10 (c) 47 47 1.88 4.34 (.09)(c) 48 83 1.84 4.00 .52 (c) 14 120 1.71 3.09 .14 (c) 76 337 1.74 2.72 .69 (c) 37 82 1.68(g) 2.97(g) 1.38 (c)(g) 47 - ------------------------------------------------------------------------------------------- 20,452 2.15 2.15 .06 (c) 69 30,833 2.15 2.17 (.44)(c) 66 54,655 na 1.83 (.36) 46 13,932 2.22(g) 6.10(g) (.15)(c)(g) 108 24,627 2.92 2.92 (.70)(c) 69 33,705 2.89 2.91 (1.18)(c) 66 57,283 na 2.59 (1.12) 46 5,900 2.96(g) 6.84(g) (.89)(c)(g) 108 19,324 2.92 2.92 (.70)(c) 69 24,918 2.91 2.93 (1.20)(c) 66 49,527 na 2.58 (1.11) 46 8,076 2.96(g) 6.84(g) (.89)(c)(g) 108 30 1.65 1.65 .56 (c) 69 13 1.80 1.82 (.08)(c) 66 17 na 1.54(g) (.07)(g) 46 5,729 1.81 1.81 .40 (c) 69 9,186 1.72 1.74 (.00)(c) 66 19,178 na 1.55 (.09) 46 5,246 1.93(g) 5.81(g) .14 (c)(g) 108

71 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY GLOBAL FUND A 01/01 to 12/31/2002 $ 8.71 01/01 to 12/31/2001 10.63 01/01 to 12/31/2000 13.42 01/01 to 12/31/1999 11.32 01/01 to 12/31/1998 10.93 B 01/01 to 12/31/2002 8.36 01/01 to 12/31/2001 10.30 01/01 to 12/31/2000 13.14 01/01 to 12/31/1999 11.19 01/01 to 12/31/1998 10.90 C 01/01 to 12/31/2002 8.05 01/01 to 12/31/2001 9.93 01/01 to 12/31/2000 12.75 01/01 to 12/31/1999 10.90 01/01 to 12/31/1998 10.67 ADVISOR 01/01 to 12/31/2002 8.80 01/01 to 12/31/2001 10.73 01/01 to 12/31/2000 13.50 01/01 to 12/31/1999 11.36 04/30(e) to 12/31/1998 13.26 ------------------------------------------------- IVY GLOBAL NATURAL RESOURCES FUND A 01/01 to 12/31/2002 11.05 01/01 to 12/31/2001 9.74 01/01 to 12/31/2000 8.91 01/01 to 12/31/1999 6.32 01/01 to 12/31/1998 9.01 B 01/01 to 12/31/2002 10.81 01/01 to 12/31/2001 9.56 01/01 to 12/31/2000 8.77 01/01 to 12/31/1999 6.27 01/01 to 12/31/1998 9.00 C 01/01 to 12/31/2002 10.61 01/01 to 12/31/2001 9.40 01/01 to 12/31/2000 8.63 01/01 to 12/31/1999 6.21 01/01 to 12/31/1998 9.00 ADVISOR 01/01 to 12/31/2002 11.02 01/01 to 12/31/2001 9.74 01/01 to 12/31/2000 8.90 04/08(e) to 12/31/1999 7.00

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Global and Global Natural Resources excluding redemption fees would have been (21.28%) and 4.40% for the year ended 12/31/02. 72 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.02)(c)(d) $(1.76)(h) $(1.78) $- $ - $ - (.06)(c) (1.86) (1.92) - - - 02 (c) (1.91) (1.89) - .90 .90 .01 (c) 2.98 2.99 - .89 .89 .02 (c) .91 .93 - .54 .54 (.09)(c)(d) (1.77) (1.86) - - - (.17)(c) (1.77) (1.94) - - - (.09)(c) (1.85) (1.94) - .90 .90 (.10)(c) 2.94 2.84 - .89 .89 (.09)(c) .92 .83 - .54 .54 (.09)(c)(d) (1.74) (1.83) - - - (.13)(c) (1.75) (1.88) - - - (.11)(c) (1.81) (1.92) - .90 .90 (.16)(c) 2.90 2.74 - .89 .89 (.16)(c) .93 .77 - .54 .54 - (c)(d) (1.88) (1.88) - - - (.05)(c) (1.88) (1.93) - - - 05 (c) (1.92) (1.87) - .90 .90 .08 (c) 2.95 3.03 - .89 .89 .05 (c) (1.41) (1.36) - .54 .54 - --------------------------------------------------------------------------------------------------- (.11)(c)(d) .63 (h) .52 - .07 .07 .04 (c)(d) 1.45 1.49 .18 - .18 (.07)(c) .95 .88 .05 - .05 - (c)(d) 2.59 2.59 - - - .03 (c) (2.68) (2.65) .04 - .04 (.19)(c)(d) .57 .38 - - - (.02)(c)(d) 1.42 1.40 .15 - .15 (.09)(c) .90 .81 .02 - .02 (.04)(c)(d) 2.54 2.50 - - - (.04)(c) (2.65) (2.69) .04 - .04 (.18)(c)(d) .55 .37 - .01 .01 (.02)(c)(d) 1.39 1.37 .16 - .16 (.07)(c) .89 .82 .05 - .05 (.04)(c)(d) 2.46 2.42 - - - (.14)(c) (2.61) (2.75) .04 - .04 (.07)(c) .56 .49 - .08 .08 .09 (c)(d) 1.43 1.52 .24 - .24 (.05)(c) .95 .90 .06 - .06 .02 (c)(d) 1.88 1.90 - - -

73 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY GLOBAL FUND A $ 6.93 (20.44)(h) 8.71 (18.06) 10.63 (13.91) 13.42 26.51 11.32 8.59 B 6.50 (22.25) 8.36 (18.83) 10.30 (14.58) 13.14 25.31 11.19 7.69 C 6.22 (22.73) 8.05 (18.93) 9.93 (14.88) 12.75 25.24 10.90 7.30 ADVISOR 6.92 (21.36) 8.80 (17.99) 10.73 (13.67) 13.50 26.77 11.36 (10.19) ----------------------------------- IVY GLOBAL NATURAL RESOURCES FUND A 11.50 4.66(h) 11.05 15.40 9.74 9.86 8.91 40.98 6.32 (29.35) B 11.19 3.52 10.81 14.73 9.56 9.27 8.77 39.87 6.27 (29.82) C 10.97 3.46 10.61 14.62 9.40 9.49 8.63 38.97 6.21 (30.49) ADVISOR 11.43 4.46 11.02 15.71 9.74 10.17 8.90 27.14

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return for Global and Global Natural Resources excluding redemption fees would have been (21.28%) and 4.40% for the year ended 12/31/02. 74 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 3,339 2.13 4.38 (.23)(c) 61 5,542 2.14 4.21 (.58)(c) 72 8,135 2.17 3.11 .16 (c) 102 11,828 2.17 2.77 .09 (c) 50 14,660 2.18 2.54 .16 (c) 17 1,124 3.12 5.37 (1.23)(c) 61 2,421 3.05 5.12 (1.49)(c) 72 4,769 2.99 3.93 (.66)(c) 102 7,316 2.99 3.59 (.72)(c) 50 7,495 2.97 3.33 (.63)(c) 17 72 3.19 5.44 (1.30)(c) 61 148 3.20 5.27 (1.64)(c) 72 178 3.36 4.30 (1.03)(c) 102 267 3.23 3.83 (.96)(c) 50 428 3.30 3.66 (.96)(c) 17 68 1.95 4.20 (.06)(c) 61 94 2.02 4.09 (.45)(c) 72 155 1.95 2.89 .38 (c) 102 179 1.96 2.56 .31 (c) 50 321 1.75(g) 2.11(g) .59 (c)(g) 17 - ------------------------------------------------------------------------------------------- 17,053 2.22 2.38 (.91)(c) 67 7,695 2.25 3.71 .38 (c) 169 5,549 2.29 4.54 (.69)(c) 134 5,823 2.16 4.53 .02 (c) 157 1,345 2.22 5.75 .29 (c) 98 8,617 2.93 3.09 (1.62)(c) 67 5,231 2.87 4.33 (.24)(c) 169 3,157 2.80 5.05 (1.20)(c) 134 2,520 2.71 5.08 (.53)(c) 157 1,320 2.90 6.43 (.39)(c) 98 5,189 2.94 3.10 (1.64)(c) 67 1,788 2.86 4.32 (.23)(c) 169 715 2.70 4.95 (1.10)(c) 134 472 2.73 5.10 (.55)(c) 157 41 3.57 7.10 (1.06)(c) 98 570 1.82 1.98 (.51)(c) 67 465 1.78 3.24 .85 (c) 169 22 2.02 4.27 (.42)(c) 134 26 1.87(g) 4.24(g) .31 (c)(g) 157

75 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY GLOBAL SCIENCE & TECHNOLOGY FUND A 01/02 to 12/31/2002 $13.31 01/01 to 12/31/2001 27.53 01/01 to 12/31/2000 48.90 01/01 to 12/31/1999 23.63 01/01 to 12/31/1998 17.47 B 01/02 to 12/31/2002 12.86 01/01 to 12/31/2001 26.80 01/01 to 12/31/2000 47.97 01/01 to 12/31/1999 23.31 01/01 to 12/31/1998 17.37 C 01/02 to 12/31/2002 12.91 01/01 to 12/31/2001 26.93 01/01 to 12/31/2000 48.19 01/01 to 12/31/1999 23.38 01/01 to 12/31/1998 17.40 ADVISOR 01/02 to 12/31/2002 13.34 01/01 to 12/31/2001 27.54 01/01 to 12/31/2000 48.82 01/01 to 12/31/1999 23.62 04/15(e) to 12/31/1998 20.19 ------------------------------------------------- IVY INTERNATIONAL FUND A 01/02 to 12/31/2002 20.69 01/01 to 12/31/2001 26.20 01/01 to 12/31/2000 47.09 01/01 to 12/31/1999 41.20 01/01 to 12/31/1998 39.03 B 01/02 to 12/31/2002 20.03 01/01 to 12/31/2001 25.64 01/01 to 12/31/2000 46.78 01/01 to 12/31/1999 40.97 01/01 to 12/31/1998 38.82 C 01/02 to 12/31/2002 19.90 01/01 to 12/31/2001 25.46 01/01 to 12/31/2000 46.57 01/01 to 12/31/1999 40.79 01/01 to 12/31/1998 38.64 I 01/02 to 12/31/2002 20.85 01/01 to 12/31/2001 26.35 01/01 to 12/31/2000 47.09 01/01 to 12/31/1999 41.21 01/01 to 12/31/1998 39.06 ADVISOR 01/01 to 12/31/2002(i) 20.67 01/01 to 12/31/2001 26.25 08/31(e) to 12/31/2000 40.05

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. na -- not applicable (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return would have been (21.10%) as of 12/31/02 and (21.15%) as of 12/31/01. (i) Advisor Class shares were outstanding for the period from 01/01/02 through 06/11/02 and from 07/03/02 through 12/31/02. 76 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.13)(c)(d) $ (6.04) $ (6.17) $ - $ - $ - (.31)(c) (13.91) (14.22) - - - (.64) (20.38) (21.02) - .35 .35 (.43) 29.27 28.84 - 3.57 3.57 (.36)(d) 6.52 6.16 - - - (.20)(c)(d) (5.83) (6.03) - - - (.45)(c) (13.49) (13.94) - - - (.93) (19.89) (20.82) - .35 .35 (.62) 28.67 28.05 - 3.39 3.39 (.50)(d) 6.44 5.94 - - - (.20)(c)(d) (5.84) (6.04) - - - (.53)(c) (13.49) (14.02) - - - (1.10) (19.81) (20.91) - .35 .35 (.70) 28.87 28.17 - 3.36 3.36 (.48)(d) 6.46 5.98 - - - (.10)(c)(d) (6.07) (6.17) - - - (.27)(c) (13.93) (14.20) - - - (.43) (20.50) (20.93) - .35 .35 (.24) 29.07 28.83 - 3.63 3.63 (.20)(d) 3.63 3.43 - - - - --------------------------------------------------------------------------------------------------- .06 (c)(d) (4.40)(h) (4.34) - - - .05 (c) (5.56)(h) (5.51) - - - .19 (12.44) (12.25) .04 8.60 8.64 .30 8.31 8.61 .24 2.48 2.72 .37 2.50 2.87 .35 .35 .70 (.12)(c)(d) (4.29) (4.41) - - - (.21)(c) (5.40) (5.61) - - - (.17) (12.33) (12.50) .04 8.60 8.64 (.06) 8.27 8.21 - 2.40 2.40 - 2.50 2.50 - .35 .35 (.11)(c)(d) (4.27) (4.38) - - - (.21)(c) (5.35) (5.56) - - - (.19) (12.28) (12.47) .04 8.60 8.64 (.05) 8.23 8.18 - 2.40 2.40 - 2.50 2.50 - .35 .35 .14 (c)(d) (4.51) (4.37) - - - .15 (c) (5.65) (5.50) - - - .64 (12.74) (12.10) .04 8.60 8.64 .52 8.34 8.86 .42 2.56 2.98 .55 2.48 3.03 .53 .35 .88 (.24) (3.58) (3.82) - - - .01 (c) (5.59) (5.58) - - - .02 (5.18) (5.16) .04 8.60 8.64

77 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY GLOBAL SCIENCE & TECHNOLOGY FUND A $ 7.14 (46.36) 13.31 (51.65) 27.53 (42.99) 48.90 122.56 23.63 35.26 B 6.83 (46.89) 12.86 (52.01) 26.80 (43.41) 47.97 120.82 23.31 34.20 C 6.87 (46.79) 12.91 (52.06) 26.93 (43.40) 48.19 120.98 23.38 34.37 ADVISOR 7.17 (46.25) 13.34 (51.56) 27.54 (42.88) 48.82 122.56 23.62 16.99 -------------------------------- IVY INTERNATIONAL FUND A 16.35 (20.96)(h) 20.69 (21.03)(h) 26.20 (17.26) 47.09 21.05 41.20 7.34 B 15.62 (22.00) 20.03 (21.88) 25.64 (17.95) 46.78 20.15 40.97 6.43 C 15.52 (22.00) 19.90 (21.84) 25.46 (17.97) 46.57 20.16 40.79 6.46 I 16.48 (20.95) 20.85 (20.87) 26.35 (16.92) 47.09 21.66 41.21 7.75 ADVISOR 16.85 (18.71) 20.67 (21.26) 26.25 (12.09)

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (21.10%) for the year ended 12/31/02 and (21.15%) for the year ended 12/31/01. 78 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 4,968 2.19 3.37 (1.37)(c) 153 13,472 2.20 2.46 (1.65)(c) 135 32,016 na 1.82 (1.53) 69 41,516 na 1.98 (1.80) 62 17,888 na 2.16 (1.88) 73 3,983 2.97 4.15 (2.15)(c) 153 11,731 2.96 3.22 (2.41)(c) 135 28,675 na 2.55 (2.26) 69 35,879 na 2.74 (2.55) 62 10,197 na 2.95 (2.67) 73 987 3.02 4.20 (2.20)(c) 153 2,918 2.98 3.24 (2.43)(c) 135 9,977 na 2.53 (2.23) 69 18,769 na 2.68 (2.49) 62 8,431 na 2.84 (2.56) 73 174 1.95 3.13 (1.13)(c) 153 361 2.01 2.27 (1.46)(c) 135 826 na 1.64 (1.34) 69 431 na 1.89 (1.71) 62 15 na 2.18(g) (1.91)(g) 73 - ------------------------------------------------------------------------------------------- 126,733 1.89 1.89 .32 34 344,641 1.60 1.66 .18 (c) 43 588,282 na 1.66 .37 91 1,573,615 na 1.66 .63 7 1,613,797 na 1.58 .83 15 68,430 2.85 2.85 (.64) 34 136,831 2.54 2.60 (.76)(c) 43 280,782 na 2.50 (.47) 91 540,514 na 2.42 (.13) 7 542,997 na 2.41 (.01) 15 13,563 2.83 2.83 (.62) 34 26,430 2.54 2.60 (.76)(c) 43 57,337 na 2.49 (.46) 91 143,320 na 2.42 (.13) 7 154,378 na 2.40 .01 15 1,304 1.51 1.51 .70 34 17,062 1.24 1.30 .54 (c) 43 33,907 na 1.24 .79 91 166,816 na 1.18 1.11 7 156,999 na 1.18 1.23 15 2 3.46(g) 3.46(g) (1.24)(g) 34 5 1.69 1.75 .09 (c) 43 4 na 2.10(g) (.08)(g) 91

79 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM PERIOD IVY INTERNATIONAL SMALL COMPANIES FUND A 01/01 to 12/31/2002 $ 8.17 01/01 to 12/31/2001 12.71 01/01 to 12/31/2000 12.45 01/01 to 12/31/1999 8.95 01/01 to 12/31/1998 8.66 B 01/01 to 12/31/2002 8.00 01/01 to 12/31/2001 12.53 01/01 to 12/31/2000 12.30 01/01 to 12/31/1999 8.92 01/01 to 12/31/1998 8.63 C 01/01 to 12/31/2002 8.04 01/01 to 12/31/2001 12.60 01/01 to 12/31/2000 12.38 01/01 to 12/31/1999 8.97 01/01 to 12/31/1998 8.65 ADVISOR 01/01 to 12/31/2002 8.23 01/01 to 12/31/2001 12.76 01/01 to 12/31/2000 12.48 07/01(e) to 12/31/1999 9.94 ------------------------------------------------- IVY INTERNATIONAL VALUE FUND A 01/01 to 12/31/2002 9.10 01/01 to 12/31/2001 11.01 01/01 to 12/31/2000 11.99 01/01 to 12/31/1999 9.48 01/01 to 12/31/1998 8.98 B 01/01 to 12/31/2002 8.97 01/01 to 12/31/2001 10.94 01/01 to 12/31/2000 11.91 01/01 to 12/31/1999 9.42 01/01 to 12/31/1998 8.93 C 01/01 to 12/31/2002 8.97 01/01 to 12/31/2001 10.94 01/01 to 12/31/2000 11.92 01/01 to 12/31/1999 9.42 01/01 to 12/31/1998 8.93 ADVISOR 01/01 to 12/31/2002 9.14 01/01 to 12/31/2001 11.03 01/01 to 12/31/2000 11.99 01/01 to 12/31/1999 9.48 02/23(e) to 12/31/1998 9.63

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (16.24%) for the year ended 12/31/02 and (17.26%) for the year ended 12/31/01. 80 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $(.06)(c)(d) $(2.0) $(2.06) $ - $ - $ - (.12)(c)(d) (4.41) (4.53) - .01 .01 (.03)(c)(d) .64 .61 - .35 .35 (.05)(c) 3.58 3.53 - .03 .03 .04 (c) .41 .45 .15 .01 .16 (.10)(c)(d) (1.96) (2.06) - - - (.18)(c)(d) (4.34) (4.52) - .01 .01 (.13)(c) .65 .52 - .29 .29 (.13)(c) 3.54 3.41 - .03 .03 (.03)(c) .41 .38 .08 .01 .09 (.10)(c)(d) (1.96) (2.06) - - - (.18)(c)(d) (4.37) (4.55) - .01 .01 (.12)(c) .64 .52 - .30 .30 (.12)(c) 3.56 3.44 - .03 .03 (.03)(c) .42 .39 .06 .01 .07 (.03)(c)(d) (2.02) (2.05) - - - (.08)(c)(d) (4.44) (4.52) - .01 .01 .02 (c)(d) .64 .66 - .38 .38 - (c) 2.57 2.57 - .03 .03 - --------------------------------------------------------------------------------------------------- .08 (c)(d) (1.53)(h) (1.45) - - - .07 (c) (1.96)(h) (1.89) .02 - .02 .14 (c) (1.01) (.87) .04 .07 .11 .09 (c) 2.54 2.63 .10 .02 .12 .08 (c) .52 .60 .08 .02 .10 .01 (c)(d) (1.66) (1.65) - - - (.02)(c) (1.93) (1.95) .02 - .02 .02 (c) (.96) (.94) .01 .02 .03 .01 (c) 2.51 2.52 .01 .02 .03 .01 (c) .51 .52 .01 .02 .03 .01 (c)(d) (1.66) (1.65) - - - (.02)(c) (1.93) (1.95) .02 - .02 .02 (c) (.97) (.95) .01 .02 .03 .02 (c) 2.51 2.53 .01 .02 .03 .01 (c) .51 .52 .01 .02 .03 .10 (c)(d) (1.70) (1.60) - - - .11 (c) (1.98) (1.87) .02 - .02 .50 (c) (1.33) (.83) .05 .08 .13 .04 (c) 2.64 2.68 .10 .07 .17 .11 (c) (.13) (.02) .11 .02 .13

81 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY INTERNATIONAL SMALL COMPANIES FUND A $6.11 (25.21) 8.17 (35.65) 12.71 4.94 12.45 39.45 8.95 5.24 B 5.94 (25.75) 8.00 (36.09) 12.53 4.27 12.30 38.24 8.92 4.46 C 5.98 (25.62) 8.04 (36.13) 12.60 4.25 12.38 38.36 8.97 4.55 ADVISOR 6.18 (24.91) 8.23 (35.44) 12.76 5.32 12.48 25.87 ----------------------------------- IVY INTERNATIONAL VALUE FUND A 7.65 (15.93)(h) 9.10 (17.17)(h) 11.01 (7.25) 11.99 27.79 9.48 6.63 B 7.32 (18.39) 8.97 (17.84) 10.94 (7.94) 11.91 26.81 9.42 5.84 C 7.32 (18.39) 8.97 (17.84) 10.94 (7.97) 11.92 26.91 9.42 5.79 ADVISOR 7.54 (17.51) 9.14 (17.03) 11.03 (6.90) 11.99 28.30 9.48 (.15)

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (16.24%) for the year ended 12/31/02 and (17.26%) for the year ended 12/31/01. 82 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 1,435 2.28 4.59 (.79)(c) 146 3,583 2.24 3.15 (1.15)(c) 118 8,976 2.24 3.77 (.21)(c) 124 1,069 2.33 8.56 (.47)(c) 98 980 2.47 6.38 .39 (c) 18 1,475 2.93 5.24 (1.44)(c) 146 3,190 2.95 3.86 (1.85)(c) 118 5,553 2.96 4.49 (.93)(c) 124 1,238 3.10 9.33 (1.23)(c) 98 1,027 3.24 7.15 (.38)(c) 18 945 2.92 5.23 (1.43)(c) 146 2,308 2.96 3.87 (1.87)(c) 118 4,522 2.96 4.49 (.93)(c) 124 1,196 3.04 9.27 (1.18)(c) 98 1,125 3.16 7.07 (.30)(c) 18 296(g) 1.84 4.15 (.35)(c) 146 982 1.87 2.78 (.78)(c) 118 4,165 1.89 3.42 .15 (c) 124 291 1.83(g) 8.06(g) .03 (c)(g) 98 - ------------------------------------------------------------------------------------------- 7,854 1.77 2.32 .91 (c) 48 13,238 1.77 2.15 .58 (c) 39 23,565 1.74 1.92 .96 (c) 36 32,624 1.72 1.87 .92 (c) 21 24,993 1.74 1.88 .80 (c) 16 28,123 2.50 3.05 .18 (c) 48 46,210 2.50 2.88 (.15)(c) 39 75,609 2.51 2.69 .20 (c) 36 95,363 2.51 2.66 .12 (c) 21 80,938 2.49 2.63 .05 (c) 16 9,223 2.50 3.05 .18 (c) 48 16,096 2.51 2.89 (.16)(c) 39 29,726 2.51 2.69 .19 (c) 36 43,995 2.49 2.64 .14 (c) 21 40,408 2.52 2.66 .03 (c) 16 124 1.50 2.05 1.18 (c) 48 377 1.47 1.85 .89 (c) 39 668 1.35 1.53 1.36 (c) 36 2,748 1.38 1.53 1.25 (c) 21 510 1.32(g) 1.45(g) 1.23 (c)(g) 16

83 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM PERIOD IVY PACIFIC OPPORTUNITIES FUND A 01/02 to 12/31/2002 $ 6.72 01/01 to 12/31/2001 7.42 01/01 to 12/31/2000 9.15 01/01 to 12/31/1999 6.30 01/01 to 12/31/1998 8.04 B 01/01 to 12/31/2002 6.56 01/01 to 12/31/2001 7.33 01/01 to 12/31/2000 9.04 01/01 to 12/31/1999 6.24 01/01 to 12/31/1998 7.96 C 01/01 to 12/31/2002 6.55 01/01 to 12/31/2001 7.31 01/01 to 12/31/2000 9.07 01/01 to 12/31/1999 6.25 01/01 to 12/31/1998 7.94 ADVISOR 01/01 to 12/31/2002 6.59 01/01 to 12/31/2001 7.30 01/01 to 12/31/2000 9.03 01/01 to 12/31/1999 6.27 02/10(e) to 12/31/1998 7.89 ------------------------------------------------- IVY GROWTH FUND A 01/01 to 12/31/2002 11.61 01/01 to 12/31/2001 14.98 01/01 to 12/31/2000 22.15 01/01 to 12/31/1999 19.88 01/01 to 12/31/1998 17.80 B 01/02 to 12/31/2002 11.11 01/01 to 12/31/2001 14.48 01/01 to 12/31/2000 21.72 01/01 to 12/31/1999 19.60 01/01 to 12/31/1998 17.72 C 01/01 to 12/31/2002 10.85 01/01 to 12/31/2001 14.14 01/01 to 12/31/2000 21.28 01/01 to 12/31/1999 19.27 01/01 to 12/31/1998 17.47 ADVISOR 01/01 to 12/31/2002 11.58 01/01 to 12/31/2001 14.99 01/01 to 12/31/2000 22.18 01/01 to 12/31/1999 19.91 04/30(e) to 12/31/1998 20.36

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (11.58%) for the year ended 12/31/02 and (9.83%) for the year ended 12/31/01. 84 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .01 (c)(d) $ (.77)(h) $ (.76) $ - $ - $ - (.03)(c)(d) (.66)(h) (.69) .01 - .01 .07 (c) (1.74) (1.67) .06 - .06 .08 (c) 2.86 2.94 .08 .01 .09 .13 (c) (1.78) (1.65) .09 - .09 (.04)(c)(d) (.77) (.81) - - - (.08)(c)(d) (.68) (.76) .01 - .01 .01 (c) (1.71) (1.70) .01 - .01 .02 (c) 2.81 2.83 .02 .01 .03 .05 (c) (1.73) (1.68) .04 - .04 (.03)(c)(d) (.77) (.80) - - - (.08)(c)(d) (.67) (.75) .01 - .01 .01 (c) (1.71) (1.70) .06 - .06 .02 (c) 2.82 2.84 .01 .01 .02 .08 (c) (1.75) (1.67) .02 - .02 .04 (c)(d) (.82) (.78) - - - (.02)(c)(d) (.68) (.70) .01 - .01 .12 (c)(d) (1.82) (1.70) .03 - .03 .04 (c) 2.86 2.90 .13 .01 .14 .08 (c) (1.62) (1.54) .08 - .08 - --------------------------------------------------------------------------------------------------- (.09)(c)(d) (3.24) (3.33) - - - (.07)(d) (3.29) (3.36) - .01 .01 (.15) (4.84) (4.99) - 2.18 2.18 (.32) 6.61 6.29 - 4.02 4.02 .01 2.49 2.50 .02 .40 .42 (.18)(c)(d) (3.09) (3.27) - - - (.19)(d) (3.17) (3.36) - .01 .01 (.30) (4.76) (5.06) - 2.18 2.18 (.21) 6.17 5.96 - 3.84 3.84 (.16) 2.46 2.30 .02 .40 .42 (.20)(c)(d) (3.01) (3.21) - - - (.19)(d) (3.09) (3.28) - .01 .01 (.26) (4.70) (4.96) - 2.18 2.18 (.25) 6.08 5.83 - 3.82 3.82 (.16) 2.38 2.22 .02 .40 .42 (.06)(c)(d) (3.26) (3.32) - - - (.08)(d) (3.32) (3.40) - .01 .01 (.15) (4.86) (5.01) - 2.18 2.18 (.04) 6.33 6.29 - 4.02 4.02 .03 (.06) (.03) .02 .40 .42

85 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY PACIFIC OPPORTUNITIES FUND A $ 5.96 $(11.31)(h) 6.72 (9.29)(h) 7.42 (18.25) 9.15 46.72 6.30 (20.56) B 5.75 (12.35) 6.56 (10.35) 7.33 (18.80) 9.04 45.33 6.24 (21.04) C 5.75 (12.21) 6.55 (10.25) 7.31 (18.79) 9.07 45.41 6.25 (21.02) ADVISOR 5.81 (11.84) 6.59 (9.58) 7.30 (18.77) 9.03 46.29 6.27 (19.56) ------------------------------------- IVY GROWTH FUND A 8.28 (28.68) 11.61 (22.43) 14.98 (22.31) 22.15 31.87 19.88 14.05 B 7.84 (29.43) 11.11 (23.21) 14.48 (23.07) 21.72 30.63 19.60 12.99 C 7.64 (29.59) 10.85 (23.20) 14.14 (23.08) 21.28 30.43 19.27 12.72 ADVISOR 8.26 (28.67) 11.58 (22.68) 14.99 (22.37) 22.18 31.78 19.91 (.14)

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been (11.58%) for the year ended 12/31/02 and (9.83%) for the year ended 12/31/01. 86 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 5,318 2.21 3.52 .20 (c) 16 6,291 2.21 3.57 (.49)(c) 82 9,096 2.16 3.10 .83 (c) 108 12,738 2.19 2.84 1.01 (c) 23 9,061 2.30 2.86 1.60 (c) 56 2,678 2.96 4.27 (.55)(c) 16 3,966 2.95 4.31 (1.22)(c) 82 6,462 2.92 3.86 .07 (c) 108 7,508 2.97 3.62 .24 (c) 23 6,080 3.08 3.64 .82 (c) 56 539 2.94 4.25 (.53)(c) 16 917 2.90 4.26 (1.18)(c) 82 1,539 3.03 3.97 (.03)(c) 108 776 3.03 3.68 .18 (c) 23 704 2.98 3.54 .92 (c) 56 34 1.74 3.05 .67 (c) 16 3 2.03 3.39 (.31)(c) 82 42 1.77 2.71 1.23 (c) 108 313 1.79 2.44 1.42 (c) 23 10 2.92(g) 3.48(g) .98 (c)(g) 56 - ------------------------------------------------------------------------------------------- 113,985 1.75 1.75 (.92) 89 180,806 na 1.51 (.55) 114 261,744 na 1.34 (.73) 94 363,723 na 1.38 (.13) 51 318,444 na 1.38 .03 59 2,511 2.75 2.75 (1.93) 89 5,763 na 2.50 (1.54) 114 7,517 na 2.31 (1.70) 94 8,070 na 2.34 (1.09) 51 4,889 na 2.32 (.90) 59 157 2.99 2.99 (2.17) 89 350 na 2.55 (1.59) 114 744 na 2.33 (1.72) 94 576 na 2.47 (1.22) 51 263 na 2.53 (1.11) 59 138 1.68 1.68 (.86) 89 296 na 1.58 (.62) 114 359 na 1.41 (.80) 94 438 na 1.42 (.17) 51 347 na 1.18(g) .24 (g) 59

87 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY US BLUE CHIP FUND A 01/01 to 12/31/2002 $ 9.36 01/01 to 12/31/2001 10.59 01/01 to 12/31/2000 12.32 01/01 to 12/31/1999 10.74 11/02(e) to 12/31/1998 10.00 B 01/01 to 12/31/2002 9.20 01/01 to 12/31/2001 10.48 01/01 to 12/31/2000 12.29 01/01 to 12/31/1999 10.72 11/06(e) to 12/31/1998 10.30 C 01/01 to 12/31/2002 9.19 01/01 to 12/31/2001 10.49 01/01 to 12/31/2000 12.30 01/01 to 12/31/1999 10.72 11/06(e) to 12/31/1998 10.30 ADVISOR 01/01 to 12/31/2002 9.44 01/01 to 12/31/2001 10.65 01/01 to 12/31/2000 12.35 01/01 to 12/31/1999 10.74 11/02(e) to 12/31/1998 10.00 ------------------------------------------------- IVY US EMERGING GROWTH FUND A 01/01 to 12/31/2002 20.16 01/01 to 12/31/2001 30.31 01/01 to 12/31/2000 47.29 01/01 to 12/31/1999 32.65 01/01 to 12/31/1998 27.67 B 01/01 to 12/31/2002 19.19 01/01 to 12/31/2001 29.10 01/01 to 12/31/2000 46.01 01/01 to 12/31/1999 31.93 01/01 to 12/31/1998 27.26 C 01/01 to 12/31/2002 19.18 01/01 to 12/31/2001 29.08 01/01 to 12/31/2000 45.98 01/01 to 12/31/1999 31.91 01/01 to 12/31/1998 27.23 ADVISOR 01/01 to 12/31/2002 20.36 01/01 to 12/31/2001 30.57 01/01 to 12/31/2000 47.57 01/01 to 12/31/1999 32.79 02/18(e) to 12/31/1998 28.82

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total returns for US Blue Chip and US Emerging Growth were not affected as redemption fees were less than 0.01 per share. 88 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .00 (c)(d) $(2.04)(h) $(2.04) $ - $ - $ - (.02)(c)(d) (1.21) (1.23) - - - (.03)(c) (1.54) (1.57) - .16 .16 (.01)(c) 1.66 1.65 .07 - .07 - (c)(d) .74 .74 - - - (.06)(c)(d) (2.00) (2.06) - - - (.09)(c)(d) (1.19) (1.28) - - - (.09)(c) (1.56) (1.65) - .16 .16 (.07)(c) 1.65 1.58 .01 - .01 (.01)(c)(d) .43 .42 - - - (.07)(c)(d) (1.99) (2.06) - - - (.09)(c)(d) (1.21) (1.30) - - - (.12)(c) (1.53) (1.65) - .16 .16 (.07)(c) 1.66 1.59 .01 - .01 (.01)(c)(d) .43 .42 - - - .04 (c)(d) (2.07) (2.03) - - - .01 (c)(d) (1.22) (1.21) - - - (.01)(c) (1.53) (1.54) - .16 .16 .02 (c) 1.69 1.71 .10 - .10 .01 (c)(d) .73 .74 - - - - --------------------------------------------------------------------------------------------------- (.34)(c)(d) (7.26)(h) (7.60) - - - (.37) (9.78)(h) (10.15) - - - (.50) (11.94) (12.44) - 4.54 4.54 (.49) 20.70 20.21 - 5.57 5.57 (.44)(d) 5.42 4.98 - - - (.45)(c)(d) (6.88) (7.33) - - - (.58) (9.33) (9.91) - - - (.81) (11.56) (12.37) - 4.54 4.54 (.77) 20.15 19.38 - 5.30 5.30 (.65)(d) 5.32 4.67 - - - (.45)(c)(d) (6.88) (7.33) - - - (.61) (9.29) (9.90) - - - (.92) (11.44) (12.36) - 4.54 4.54 (.80) 20.19 19.39 - 5.32 5.32 (.63)(d) 5.31 4.68 - - - (.31)(c)(d) (7.34) (7.65) - - - (.34) (9.87) (10.21) - - - (.40) (12.06) (12.46) - 4.54 4.54 (.44) 20.85 20.41 - 5.63 5.63 (.23)(d) 4.20 3.97 - - -

89 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A)(F) IVY US BLUE CHIP FUND A $ 7.32 (21.79)(h) 9.36 (11.61) 10.59 (12.69) 12.32 15.35 10.74 7.40 B 7.14 (22.39) 9.20 (12.21) 10.48 (13.37) 12.29 14.74 10.72 4.08 C 7.13 (22.42) 9.19 (12.39) 10.49 (13.36) 12.30 14.84 10.72 4.08 ADVISOR 7.41 (21.50) 9.44 (11.36) 10.65 (12.42) 12.35 15.89 10.74 7.40 ----------------------------------- IVY US EMERGING GROWTH FUND A 12.56 (37.70)(h) 20.16 (33.49)(h) 30.31 (25.81) 47.29 62.47 32.65 18.00 B 11.86 (38.20) 19.19 (34.05) 29.10 (26.38) 46.01 61.27 31.93 17.13 C 11.85 (38.22) 19.18 (34.04) 29.08 (26.37) 45.98 61.32 31.91 17.19 ADVISOR 12.71 (37.57) 20.36 (33.40) 30.57 (25.70) 47.57 62.85 32.79 13.78

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. na -- not applicable (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total returns for US Blue Chip and US Emerging Growth were not affected as redemption fees were less than $0.01 per share. 90 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 24,950 1.57 2.08 .03 (c) 85 38,754 1.56 1.83 (.16)(c) 74 57,584 1.57 1.81 (.47)(c) 69 3,353 1.46 3.49 (.12)(c) 80 726 1.43(g) 6.34(g) .02 (c)(g) 3 9,438 2.31 2.82 (.71)(c) 85 19,379 2.31 2.58 (.90)(c) 74 24,314 2.31 2.55 (1.21)(c) 69 8,742 2.15 4.18 (.81)(c) 80 1,047 2.13(g) 7.04(g) (.68)(c)(g) 3 448 2.40 2.91 (.80)(c) 85 1,119 2.36 2.63 (.96)(c) 74 2,965 2.30 2.54 (1.20)(c) 69 2,497 2.08 4.11 (.74)(c) 80 110 2.22(g) 7.13(g) (.77)(c)(g) 3 719 1.16 1.67 .43 (c) 85 808 1.26 1.53 .14 (c) 74 1,061 1.24 1.48 (.13)(c) 69 920 1.10 3.13 .24 (c) 80 537 1.08(g) 5.99(g) .37 (c)(g) 3 - ------------------------------------------------------------------------------------------- 16,481 2.24 2.24 (2.17) 109 43,974 na 1.80 (1.33) 133 78,840 na 1.55 (1.23) 83 101,798 na 1.69 (1.53) 107 62,961 na 1.70 (1.48) 67 10,104 3.08 3.08 (3.01) 109 26,856 na 2.61 (2.14) 133 56,036 na 2.31 (2.00) 83 79,659 na 2.43 (2.27) 107 52,940 na 2.45 (2.23) 67 1,238 3.06 3.06 (3.00) 109 3,998 na 2.61 (2.14) 133 9,048 na 2.30 (1.98) 83 15,438 na 2.39 (2.23) 107 9,664 na 2.40 (2.18) 67 480 2.04 2.04 (1.98) 109 991 na 1.63 (1.16) 133 1,987 na 1.36 (1.04) 83 1,432 na 1.46 (1.30) 107 740 na 1.22 (g) (1.00)(g) 67

91 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE SHARE BEGINNING FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD IVY BOND FUND A 01/01 to 12/31/2002 $ 8.09 01/01 to 12/31/2001 7.89 01/01 to 12/31/2000 8.29 01/01 to 12/31/1999 9.54 01/01 to 12/31/1998 10.22 B 01/01 to 12/31/2002 8.06 01/01 to 12/31/2001 7.88 01/01 to 12/31/2000 8.28 01/01 to 12/31/1999 9.53 01/01 to 12/31/1998 10.22 C 01/01 to 12/31/2002 8.08 01/01 to 12/31/2001 7.91 01/01 to 12/31/2000 8.31 01/01 to 12/31/1999 9.55 01/01 to 12/31/1998 10.24 ADVISOR 01/01 to 12/31/2002 8.12 01/01 to 12/31/2001 7.90 01/01 to 12/31/2000 8.28 01/01 to 12/31/1999 9.54 01/20(e) to 12/31/1998 10.28 ------------------------------------------------- IVY MONEY MARKET FUND A 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00 B 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00 C 01/01 to 12/31/2002 1.00 01/01 to 12/31/2001 1.00 01/01 to 12/31/2000 1.00 01/01 to 12/31/1999 1.00 01/01 to 12/31/1998 1.00

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been 8.83% for the year ended 12/31/102 and 8.55% for the year ended 12/31/01. (i) Dividend includes a return of capital distribution of $0.01 per average share. (j) The seven day and thirty day yield for Class A shares at December 31, 2002 was 0.45% and 0.40%, respectively. The seven day yield for Class B shares at December 31, 2002 was 0.46% and the thirty day yield was 0.42%. The seven day yield for Class C shares at December 31, 2002 was 0.55% and the thirty day yield was 0.46%. 92 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

SELECTED PER SHARE DATA INCREASE (DECREASE) FROM INVESTMENT OPERATIONS NET GAINS OR LESS DISTRIBUTIONS NET (LOSSES) ON DIVIDENDS INVESTMENT SECURITIES TOTAL FROM FROM NET DISTRIBUTIONS INCOME (REALIZED AND INVESTMENT INVESTMENT FROM TOTAL (LOSS) UNREALIZED) OPERATIONS INCOME REALIZED GAINS DISTRIBUTIONS $ .48 (d) $ .26 (h) $ .74 $ .48 $ - $ .48 .49 (d) .18 (h) .67 .47(i) - .47 .55 (.40) .15 .55 - .55 .67 (1.24) (.57) .68 - .68 .69 (.69) - .68 - .68 .41 (d) .19 .60 .42 - .42 .42 (d) .17 .59 .41(i) - .41 .48 (.40) .08 .48 - .48 .59 (1.24) (.65) .60 - .60 .59 (.67) (.08) .61 - .61 .42 (d) .19 .61 .42 - .42 .42 (d) .16 .58 .41(i) - .41 .48 (.40) .08 .48 - .48 .62 (1.25) (.63) .61 - .61 .60 (.68) (.08) .61 - .61 .51 (d) .16 .67 .50 - .50 .49 (d) .21 .70 .48(i) - .48 .56 (.38) .18 .56 - .56 .67 (1.24) (.57) .69 - .69 .69 (.72) (.03) .71 - .71 - --------------------------------------------------------------------------------------------------- .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05 .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05 .01 (c)(d) - .01 .01 - .01 .03 (c) - .03 .03 - .03 .05 (c) - .05 .05 - .05 .04 (c) - .04 .04 - .04 .05 (c) - .05 .05 - .05

93 FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA NET ASSET VALUE AT TOTAL SHARE END OF RETURN FUND NAME CLASS PERIOD (%)(A) IVY BOND FUND A $ 8.35 9.49(h) 8.09 8.70(h) 7.89 1.89 8.29 (6.17) 9.54 - B 8.24 7.64 8.06 7.61 7.88 1.03 8.28 (6.97) 9.53 (.81) C 8.27 7.79 8.08 7.51 7.91 1.07 8.31 (6.81) 9.55 (.81) ADVISOR 8.29 8.52 8.12 9.07 7.90 2.26 8.28 (6.21) 9.54 (.30) -------------------------------- IVY MONEY MARKET FUND A 1.00 .78 1.00 3.12 1.00 5.37 1.00 4.16 1.00 4.51 B 1.00 .85 1.00 3.19 1.00 5.35 1.00 4.30 1.00 4.59 C 1.00 .74 1.00 3.10 1.00 5.65 1.00 4.14 1.00 4.55

(a) Total return does not reflect a sales charge. (b) For 1997, total expenses include fees paid indirectly, if any, through an expense offset arrangement. (c) Net investment income (loss) is net of expenses reimbursed by Manager. (d) Based on average shares outstanding. na -- not applicable (e) Commencement. (f) Total return represents aggregate total return. (g) Annualized. (h) Includes redemption fees added to capital paid-in (see Note 1). Total return excluding redemption fees would have been 8.83% for the year ended 12/31/02 and 8.55% for the year ended 12/31/01. (i) Dividend includes a return of capital distribution of $0.01 per average share. (j) See page 92 for yields. 94 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS (continued)

RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF RATIO OF NET ASSETS, EXPENSES TO EXPENSES TO NET INVESTMENT END OF AVERAGE NET AVERAGE NET INCOME (LOSS) PORTFOLIO PERIOD ASSETS WITH ASSETS WITHOUT TO AVERAGE TURNOVER (000) REIMBURSEMENT (%)(B) REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) $ 31,148 1.48 1.48(g) 5.91 (g) 15 36,401 na 1.41 6.03 22 52,305 na 1.62 6.71 26 69,249 na 1.52 7.40 28 109,445 na 1.39 6.88 43 17,171 2.31 2.31(g) 5.09 (g) 15 19,305 na 2.25 5.19 22 20,079 na 2.45 5.88 26 27,550 na 2.36 6.55 28 42,166 na 2.13 6.13 43 2,186 2.26 2.26(g) 5.14 (g) 15 2,188 na 2.18 5.25 22 2,726 na 2.40 5.93 26 3,928 na 2.26 6.65 28 11,266 na 2.12 6.15 43 561 1.27 1.27(g) 6.13 (g) 15 170 na 1.32 6.12 22 192 na 1.49 6.84 26 332 na 1.43 7.49 28 347 na 1.11 (g) 7.16 (g) 43 - ------------------------------------------------------------------------------------------- 14,684 .88(g) 1.73(g) .78 (c)(g) na 12,904 .87 1.59 3.12 (c) na 20,394 .85 1.52 5.38 (c) na 18,524 .88 1.40 4.17 (c) na 19,103 .87 1.42 4.50 (c) na 6,104 .80(g) 1.65(g) .85 (c)(g) na 6,680 .80 1.52 3.19 (c) na 5,872 .87 1.54 5.36 (c) na 7,486 .77 1.29 4.28 (c) na 6,636 .76 1.31 4.61 (c) na 813 .84(g) 1.69(g) .82 (c)(g) na 519 .88 1.60 3.10 (c) na 1,975 .72 1.39 5.51 (c) na 372 .87 1.39 4.18 (c) na 423 .81 1.36 4.56 (c) na

95 December 31, 2002 NOTES TO FINANCIAL STATEMENTS Ivy Cundill Global Value Fund ("Cundill"), Ivy Developing Markets Fund ("Developing Markets"), Ivy European Opportunities Fund ("European Opportunities"), Ivy Global Fund ("Global"), Ivy Global Natural Resources Fund ("Natural Resources"), Ivy Global Science & Technology Fund ("Science & Technology"), Ivy International Fund ("International"), Ivy International Small Companies Fund ("Small Companies"), Ivy International Value Fund ("International Value"), Ivy Pacific Opportunities Fund ("Pacific Opportunities"), Ivy Growth Fund ("Growth"), Ivy US Blue Chip Fund ("Blue Chip"), Ivy US Emerging Growth Fund ("Emerging Growth"), Ivy Bond Fund ("Bond"), and Ivy Money Market Fund ("Money Market"), (the "Funds"), are each a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B, Class C, and (except for Money Market) Advisor Class are authorized. Cundill, European Opportunities, Science & Technology, International, Small Companies, International Value, Blue Chip and Bond also have an unlimited number of shares of Class I authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or The Nasdaq Stock Market, Inc. ("Nasdaq") system, are valued at the last quoted sale price reported as of the close of regular trading on the market on which the security is traded most extensively. If there were no sales on the market on which the security is traded most extensively and the security is traded on more than one market, or on one or more exchanges in the over-the-counter market, the market reflecting the last quoted sale will be used. Otherwise, the security is valued at the calculated mean between the last bid and asked price on the market on which the security is traded most extensively. Securities not traded on an exchange or Nasdaq, but traded in another over-the-counter market are valued at the calculated mean between the last bid and the last asked price in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the "Board"), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities, or on the basis of dealer quotes. All other securities or groups of securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income, net of foreign withholding taxes, is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Corporate actions on foreign securities, including dividends, are recorded on the ex-dividend date. Realized gains and losses from security transactions are calculated on an identified cost basis. CASH -- The Funds classify as cash amounts on deposit with the Funds' custodian. These amounts earn interest at variable interest rates. At December 31, 2002, the interest rate was 0.60%. Amounts classified as Due to Custodian at period end represent bank overdrafts. FEDERAL INCOME TAXES -- The Funds intend to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code of 1986, as amended (the "Code"), and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The following funds earned foreign source dividends that were subject to foreign withholding tax in the amounts noted below. The funds intend to elect to pass through to their shareholders their proportionate share of such taxes. Shareholders may report their share of foreign taxes paid as either a tax credit or itemized deduction.

FOREIGN SOURCE FOREIGN FUND DIVIDENDS WITHHOLDING TAX Cundill $ 86,007 $ 6,544 European Opportunities 2,072,916 217,458 International 7,044,026 648,268 Small Companies 116,782 13,174 International Value 1,653,703 153,049

The following Funds have net tax-basis capital loss carryovers as of December 31, 2002 which may be applied against any realized net taxable gain of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. The approximate carryover amounts and expiration dates are as follows. 96 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued)

CAPITAL LOSS FUND CARRYOVER EXPIRATION DATES Cundill $ 294,000 $79,000 in 2009 and 215,000 in 2010. - ------------------------------------------------------------------------------ Developing Markets 11,599,000 $529,000 in 2005, 6,822,000 in 2006, 1,314,000 in 2007, 1,669,000 in 2008, 1,015,000 in 2009 and 250,000 in 2010. - ------------------------------------------------------------------------------ European Opportunities 53,741,000 $34,091,000 in 2009 and 19,650,000 in 2010. - ------------------------------------------------------------------------------ Global 2,625,000 $1,490,000 in 2009 and 1,135,000 in 2010. - ------------------------------------------------------------------------------ Natural Resources 8,693,000 $430,000 in 2005, 1,920,000 in 2006, 5,086,000 in 2007 and 1,257,000 in 2010. - ------------------------------------------------------------------------------ Science & Technology 47,348,000 $1,283,000 in 2008, 39,009,000 in 2009 and 7,056,000 in 2010. - ------------------------------------------------------------------------------ International 266,204,000 $141,106,000 in 2009 and 125,098,000 in 2010. - ------------------------------------------------------------------------------ Small Companies 10,693,000 $4,695,000 in 2009 and 5,998,000 in 2010. - ------------------------------------------------------------------------------ International Value 15,693,000 $3,103,000 in 2006, 1,065,000 in 2008, 3,397,000 in 2009 and 8,128,000 in 2010. - ------------------------------------------------------------------------------ Pacific Opportunities 10,379,000 $203,000 in 2003, 1,033,000 in 2004, 1,937,000 in 2005, 4,238,000 in 2006, 129,000 in 2007, 852,000 in 2008, 1,867,000 in 2009 and 120,000 in 2010. - ------------------------------------------------------------------------------ Growth 71,194,000 $39,979,000 in 2009 and 31,215,000 in 2010. - ------------------------------------------------------------------------------ Blue Chip 13,979,000 $6,919,000 in 2009 and 7,060,000 in 2010. - ------------------------------------------------------------------------------ Emerging Growth 39,369,000 $24,758,000 in 2009 and 14,611,000 in 2010. - ------------------------------------------------------------------------------ Bond 28,615,000 $1,484,000 in 2003, 366,000 in 2006, 12,226,000 in 2007, 10,317,000 in 2008 and 4,222,000 in 2009. - ------------------------------------------------------------------------------

The following funds have elected to treat net capital and currency losses incurred in the two-month period ended December 31, 2002, as having been incurred in the following fiscal year for federal income tax purposes. The amounts are as follows:

FUND AMOUNT Cundill $ 134,859 - -------------------------------------------------------------------------- European Opportunities 2,627,020 - -------------------------------------------------------------------------- Global 124,291 - -------------------------------------------------------------------------- Natural Resources 281,940 - -------------------------------------------------------------------------- Science & Technology 1,479,825 - -------------------------------------------------------------------------- International 12,125,005 - -------------------------------------------------------------------------- Small Companies 623,915 - -------------------------------------------------------------------------- International Value 450,043 - -------------------------------------------------------------------------- Pacific Opportunities 17,312 - -------------------------------------------------------------------------- Growth 3,497,497 - -------------------------------------------------------------------------- Blue Chip 389,873 - -------------------------------------------------------------------------- Emerging Growth 3,012,650 - --------------------------------------------------------------------------

Distributions during the year ended December 31, 2002 were characterized as follows for tax purposes:

ORDINARY LONG-TERM RETURN OF TOTAL FUND INCOME CAPITAL GAIN CAPITAL DISTRIBUTION Cundill $ 49,277 $ -- $ -- $ 49,277 - ----------------------------------------------------------------------------- Developing Markets 23,706 -- -- 23,706 - ----------------------------------------------------------------------------- Natural Resources 105,071 -- -- 105,071 - ----------------------------------------------------------------------------- International 37,329 -- -- 37,329 - ----------------------------------------------------------------------------- Bond 3,032,709 -- -- 3,032,709 - ----------------------------------------------------------------------------- Money Market 163,276 -- -- 163,276 - -----------------------------------------------------------------------------

Distributions during the year ended December 31, 2001 were characterized as follows for tax purposes:

ORDINARY LONG-TERM RETURN OF TOTAL FUND INCOME CAPITAL GAIN CAPITAL DISTRIBUTION Cundill $ 60,307 $ -- $ -- $ 60,307 - ----------------------------------------------------------------------------- European Opportunities 253,993 2,515 -- 256,508 - ----------------------------------------------------------------------------- Natural Resources 232,003 -- -- 232,003 - ----------------------------------------------------------------------------- Small Companies 9,928 -- -- 9,928 - ----------------------------------------------------------------------------- International Value 159,576 -- -- 159,576 - ----------------------------------------------------------------------------- Pacific Opportunities 17,435 -- -- 17,435 - ----------------------------------------------------------------------------- Growth -- 155,546 -- 155,546 - ----------------------------------------------------------------------------- Bond 3,594,609 -- 108,561 3,703,170 - ----------------------------------------------------------------------------- Money Market 728,899 -- -- 728,899 - -----------------------------------------------------------------------------

97 December 31, 2002 NOTES TO FINANCIAL STATEMENTS The net unrealized appreciation (depreciation) for U.S. Federal income tax purposes at December 31, 2002 were comprised of the following:

NET UNREALIZED UNREALIZED UNREALIZED APPRECIATION/ FUND APPRECIATION DEPRECIATION (DEPRECIATION) Cundill $ 132,905 $ (479,528) $ (346,623) - -------------------------------------------------------------------- Developing Markets 473,293 (1,194,264) (720,971) - -------------------------------------------------------------------- European Opportunities 8,457,994 (39,236,454) (30,778,460) - -------------------------------------------------------------------- Global 300,320 (1,119,029) (818,709) - -------------------------------------------------------------------- Natural Resources 4,355,835 (4,855,779) (499,944) - -------------------------------------------------------------------- Science & Technology 82,980 (222,525) (139,545) - -------------------------------------------------------------------- International 15,901,651 (73,990,054) (58,088,403) - -------------------------------------------------------------------- Small Companies 282,386 (848,880) (566,494) - -------------------------------------------------------------------- International Value 4,092,371 (9,029,640) (4,937,269) - -------------------------------------------------------------------- Pacific Opportunities 1,033,235 (1,734,811) (701,576) - -------------------------------------------------------------------- Growth 10,187,473 (9,811,830) 375,643 - -------------------------------------------------------------------- Blue Chip 3,348,563 (4,917,139) (1,568,576) - -------------------------------------------------------------------- Emerging Growth 2,607,017 (1,408,977) 1,198,040 - -------------------------------------------------------------------- Bond 2,698,351 (2,130,590) 567,761 - --------------------------------------------------------------------

UNDISTRIBUTED UNDISTRIBUTED ORDINARY LONG-TERM FUND INCOME CAPITAL GAIN Natural Resources $276,704 $ - - ---------------------------------------------------------------------

DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared and paid monthly for Bond. Distributions from net investment income are declared daily and paid monthly for Money Market. Distributions from net investment income for all other Funds and distributions from realized gains for all Funds, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities and dividends and interest receivable, are translated at the closing daily rate of exchange; and (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Foreign transactions may involve risks not typically associated with domestic transactions including, but not limited to, unanticipated movements in exchange rates, the degree of government supervision and regulation of security markets and the possibility of political and economic instability. For foreign securities, the Funds do not isolate that portion of gains and losses on investment securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. For tax reporting purposes, Code Section 988 provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts are agreements to exchange one currency for another at a future date and at a specified price. The Funds (excluding Money Market) may use forward foreign currency contracts to facilitate transactions in foreign securities and to manage the Fund's foreign currency exposure. The U.S. dollar market value, contract value and the foreign currencies that each fund has committed to buy or sell are shown in the Schedule of Investments, as applicable. These amounts represent the aggregate exposure to each foreign currency acquired or hedged through forward foreign currency contracts at December 31, 2002. Forward foreign currency contracts are reflected as both a forward foreign currency contract to buy and a forward foreign currency contract to sell. Forward foreign currency contracts to buy generally are used to acquire exposure to foreign currencies, while forward foreign currency contracts to sell are used to hedge investments against currency fluctuations. Also, a forward foreign currency contract to buy or sell can offset a previously acquired opposite forward foreign currency contract. Forward foreign currency contracts are marked-to-market daily. The change in a contract's market value is recorded by a fund as an unrealized gain or loss. When the contract is closed or delivery is taken, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Fund's securities, but it does establish a rate of exchange that can be achieved in the future. These forward foreign currency contracts involve market risk in excess of unrealized appreciation (depreciation) of forward foreign currency contracts reflected in the Fund's Statement of Assets and Liabilities. Although forward foreign currency contracts used for hedging purposes limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. OPTIONS -- An option is a right to buy or sell a particular security at a specified price within a limited period of time. The buyer of the option, in return for a premium paid to the seller, has the right to buy, in the case of a call option, or sell, in the case of a put option, the underlying security of the contract. An option on a stock index gives the purchaser the right to receive from the seller cash equal to the difference between the closing price of the index and the exercise price of the option. The Fund, as writer of a covered call option, has no control over whether the underlying securities may be sold (called) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the securities underlying the written option. By writing a covered call option, the Fund is obligated to own or have the right to acquire, through exchange or conversion, the underlying security during the option period. 98 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued) Certain Funds may invest in option contracts for the purpose of increasing or decreasing the exposure to changing security prices, interest rates, currency exchange rates, commodity prices, or other factors that affect the value of the Fund's securities. When the fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset or a liability. The asset or liability is subsequently marked-to-market daily to reflect the current market value of the option written. Premiums received or paid from writing or purchasing options which expire on the stipulated expiration date or as a result of the Fund entering into a closing purchase transaction are treated by the Fund on the expiration date as realized gains (or losses if the cost of the closing transaction exceeds the premium received upon the original sale) without regard to any unrealized gain or loss on the underlying security. If an option is exercised, the premium paid or received is added to the cost of purchase or proceeds of the sale of the underlying security in determining whether the Fund has realized a gain or loss on the transaction. Exchange traded written options are valued daily at the last sale price or, in the absence of a sale, at the calculated mean of the last bid and the last asked price. Transactions in written covered call options or purchased put options, if any, are reflected in the Schedules of Investments. Transactions in call options written for the year ended December 31, 2002 were:

NUMBER OF PREMIUMS CONTRACTS RECEIVED GLOBAL Options outstanding at December 31, 2001 40 $ 4,883 Options written - - Options terminated in closing purchase transactions (10) (875) Options expired (30) (4,008) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ====================== SCIENCE & TECHNOLOGY Options outstanding at December 31, 2001 - $ - Options written 132 28,823 Options terminated in closing purchase transactions - - Options expired - - Options exercised - - ---------------------- Options outstanding at December 31, 2002 132 $ 28,823 ====================== INTERNATIONAL Options outstanding at December 31, 2001 401,110 $1,041,190 Options written - - Options terminated in closing purchase transactions (2,378) (208,027) Options expired (398,732) (833,163) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ======================

NUMBER OF PREMIUMS CONTRACTS RECEIVED INTERNATIONAL VALUE Options outstanding at December 31, 2001 43,650 $ 78,077 Options written - - Options terminated in closing purchase transactions - - Options expired (43,650) (78,077) Options exercised - - ---------------------- Options outstanding at December 31, 2002 - $ - ====================== GROWTH Options outstanding at December 31, 2001 790 $ 274,091 Options written 546 111,606 Options terminated in closing purchase transactions (182) (79,091) Options expired (918) (237,674) Options exercised (236) (68,932) ---------------------- Options outstanding at December 31, 2002 - $ - ====================== EMERGING GROWTH Options outstanding at December 31, 2001 943 $ 333,190 Options written 483 97,986 Options terminated in closing purchase transactions (199) (87,030) Options expired (962) (258,636) Options exercised (265) (85,510) ---------------------- Options outstanding at December 31, 2002 - $ - ====================== Transactions in put options purchased for the year ended December 31, 2002 were: SCIENCE & TECHNOLOGY Options outstanding at December 31, 2001 - $ - Options purchased 58 12,294 Options terminated in closing purchase transactions - - Options expired - - Options exercised - - ---------------------- Options outstanding at December 31, 2002 58 $ 12,294 ======================

SECURITIES LENDING -- Boston Global Advisors ("BGA") as lending agent, may loan the securities of designated Funds to certain qualified institutions approved by the Funds. For securities loaned, collateral values for domestic and foreign securities are maintained at not less than 102% and 105%, respectively, of the value of the securities on loan by pricing both the securities on loan and the collateral daily. The collateral consists of cash invested in the Quality Portfolio of the Boston Global Investment Trust ("Trust") which consists predominantly of collateral pledged by borrowers in securities lending transactions arranged by BGA. The Trust invests in money market instruments, U.S. Treasury Bills, U.S. agency obligations, commercial paper and other highly rated, liquid investments. Securities' lending, as with other extensions of credit, involves the risk that the borrower may default. Although securities loaned will be fully collateralized at all times, the Funds may experience delays in, or may be prevented from, recovering the collateral. During the period that the Funds seek to enforce their rights against the borrower, the collateral and securities loaned remain subject to fluctuation in market value. For the year ended December 31, 2002, International and International Value received $245,916 and $51,834, respectively, in income, net of related expenses, resulting from securities lending activities which is included in interest income on the Statement of Operations. Securities on loan as of December 31, 2002 are indicated in the Schedule of Investments. 99 December 31, 2002 NOTES TO FINANCIAL STATEMENTS DEFERRED ORGANIZATION EXPENSES -- Organization expenses incurred prior to the effectiveness of Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" for International Value have been deferred and are being amortized on a straight-line basis over a five year period. REDEMPTION FEES -- Each Fund (other than Money Market) may deduct a redemption or exchange fee of 2.00% from any redemption or exchange proceeds if a shareholder sells or exchanges Class A shares after holding them less than 30 days. These fees are paid to the Fund rather than the investment adviser or transfer agent and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short-term shareholder trading. Fees collected by the Fund are recorded as additions to capital paid-in and are included in the Class A fund share transactions on the Statement of Changes in Net Assets. As presented in gross dollars and per average shares outstanding for the year ended December 31, 2002, the Funds received the following redemption fees:

YEAR ENDING PER SHARE FUND 12/31/02 12/31/02 Cundill $ 62 $ - - ------------------------------------------------------------------- Developing Markets 30 - - ------------------------------------------------------------------- European Opportunities 128,514 0.02 - ------------------------------------------------------------------- Global 66,770 0.08 - ------------------------------------------------------------------- Natural Resources 67,653 0.03 - ------------------------------------------------------------------- Science & Technology 2,538 - - ------------------------------------------------------------------- International 585,021 0.03 - ------------------------------------------------------------------- Small Companies 96 - - ------------------------------------------------------------------- International Value 216,857 0.03 - ------------------------------------------------------------------- Pacific Opportunities 26,064 0.02 - ------------------------------------------------------------------- Growth 2,113 - - ------------------------------------------------------------------- Blue Chip 105 - - ------------------------------------------------------------------- Emerging Growth 1,569 - - ------------------------------------------------------------------- Bond 307,897 0.05 - -------------------------------------------------------------------

RECLASSIFICATIONS -- The timing and characterization of certain income and capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to net operating losses, capital loss carryovers, wash sales, option transactions, foreign denominated securities, passive foreign investment companies and non-deductible organization expenses, if applicable. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, each of the Funds may make reclassifications among certain of their capital accounts without impacting the net asset value of each respective Fund. 2. RELATED PARTIES Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business management services to the Funds and was the Investment Adviser to all Funds other than Natural Resources. Effective December 16, 2002, Waddell & Reed Financial, Inc. ("Waddell & Reed"), a U.S. mutual fund firm, completed its acquisition of the entire operation of Mackenzie Investment Management Inc. ("MIMI"). At this time, Ivy Acquisition Corporation ("IAC") was formed as a registered investment adviser. On December 31, 2002, IMI merged into IAC and IAC changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the Funds' current investment adviser. WRIICO and Ivy Mackenzie Distributors, Inc. ("IMDI"), the Funds' distributor, are now indirect subsidiaries of Waddell & Reed. For its services, WRIICO receives a fee paid monthly based on average daily net assets ("ANA") at the following annual rates: Cundill (1) 1.00% International Value 1.00% Developing Markets 1.00% Pacific Opportunities 1.00% Natural Resources (2) 1.00% Blue Chip 0.75% Science & Technology 1.00% Emerging Growth 0.85% Small Companies (3) 1.00% Money Market 0.40% For certain funds, the annual rates decrease as overall ANA increases. The following chart summarizes those funds and relevant rate and asset sizes: European Opportunities (3) 1.00% of the first $250 million ANA 0.85% next $250 million ANA 0.75% excess - ------------------------------------------------------------ Global 1.00% of the first $500 million ANA 0.75% excess - ------------------------------------------------------------ International 1.00% of the first $2.5 billion ANA 0.90% next $500 million 0.80% next $500 million 0.70% excess - ------------------------------------------------------------ Growth 0.85% of the first $350 million ANA 0.75% excess - ------------------------------------------------------------ Bond 0.50% of the first $500 million ANA 0.40% excess (1) Peter Cundill & Associates, Inc. is the sub-advisor of the Fund. WRIICO, not the Fund, is obligated to compensate the sub-advisor. (2) For Natural Resources, Mackenzie Financial Corporation ("MFC") is the investment advisor of the Fund. MFC receives a fee monthly at the annual rate of 0.50% of ADNA. The fee is collected from the Fund and remitted to MFC by WRIICO. (3) Henderson Investment Management Limited is the sub-advisor of the Funds. WRIICO, not the Funds, is obligated to compensate the sub-advisor. For the year ended December 31, 2002, with respect to Cundill, Developing Markets, Global, Natural Resources, Science & Technology, Small Companies, and Pacific Opportunities, WRIICO contractually limited each Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of 1.95% of each Fund's ANA. For the year ended December 31, 2002 with respect to International Value, Blue Chip and Money Market, WRIICO voluntarily limits each Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to annual rates of 1.50%, 1.34% and .85%, respectively. 100 December 31, 2002 NOTES TO FINANCIAL STATEMENTS (continued) Effective November 1, 2001 through the one-year period ended October 31, 2002, IMI, now WRIICO had contractually agreed to waive 12% of the 1.00% annual management fee for European Opportunities. MIMI provided certain administrative, accounting and pricing services for each Fund. Effective December 17, 2002, IAC, now WRIICO assumed all of MIMI's duties under the Fund Accounting Services Agreement and the Administrative Services Agreement. For those services, each Fund pays WRIICO fees plus certain out-of-pocket expenses. Such fees and expenses are reflected as Administrative services fee and Fund accounting in each Fund's Statement of Operations. At December 31, 2002, WRIICO owned approximately 9% of Cundill's shares outstanding. IMDI, a wholly owned subsidiary of WRIICO, is the underwriter and distributor of each Fund's shares, and as such, purchases shares from each Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 2002, the net amount of underwriting discount retained by IMDI is listed below.

FUND AMOUNT Cundill $ 4,568 Developing Markets 233 European Opportunities 5,485 Global 301 Natural Resources 23,194 Science & Technology 4,494 International 8,489 Small Companies 347 International Value 377 Pacific Opportunities 287 Growth 6,343 Blue Chip 1,846 Emerging Growth 5,499 Bond 2,856

Under Service and Distribution Plans, each Fund except Growth, Blue Chip and International, reimburses IMDI for service fee payments made to brokers at an annual rate of .25% of its average net assets, excluding Class I and Advisor Class. For Growth, Blue Chip and International, each Fund reimburses IMDI at an annual rate not to exceed .25% of its average net assets of shares issued after December 31, 1991, excluding Class I and Advisor Class. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net assets attributable to Class B and Class C. IMDI may use such distribution fee for purposes of advertising and marketing shares of each Fund. Such fees, detailed below, are reflected as 12b-1 service and distribution fees in the Statement of Operations.

FUND CLASS A CLASS B CLASS C Cundill $ 1,421 $ 10,916 $ 1,476 Developing Markets 6,667 20,152 5,622 European Opportunities 68,690 297,574 223,062 Global 10,405 17,747 1,183 Natural Resources 38,138 79,517 41,104 Science & Technology 20,504 66,839 16,780 International 378,397 986,230 191,552 Small Companies 6,573 22,835 16,660 International Value 26,116 366,679 122,381 Pacific Opportunities 15,765 33,518 7,847 Growth 79,323 37,410 2,104 Blue Chip 66,022 142,492 7,596 Emerging Growth 68,411 163,675 23,569 Bond 84,849 177,437 20,523

3. BOARD'S COMPENSATION Trustees who are not affiliated with WRIICO receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 101 NOTES TO FINANCIAL STATEMENTS 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C, Advisor Class, and Class I were as follows:

CLASS A FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 CUNDILL (A) SHARES AMOUNT SHARES AMOUNT - ----------- ----------- ------------- ----------- ------------- Sold 157,980 $ 1,414,301 21,522 $ 205,778 Issued on reinvestment of dividends 1,442 11,998 615 5,756 Repurchased (14,277) (130,238) (4) (40) ----------- ------------- ----------- ------------- Net increase 145,145 1,296,061 22,133 211,494 =========== ============= =========== ============= DEVELOPING MARKETS - ---------------------------------------------------------- Sold 153,271 980,500 339,521 2,182,850 Issued on reinvestment of dividends 1,956 11,289 - - Repurchased (132,675) (834,030) (597,013) (3,920,462) ----------- ------------- ----------- ------------- Net increase/(decrease) 22,552 157,759 (257,492) (1,737,612) =========== ============= =========== ============= EUROPEAN OPPORTUNITIES - ---------------------------------------------------------- Sold 780,914 10,573,221 3,394,170 52,939,002 Issued on reinvestment of dividends - - - - Repurchased (1,490,408) (19,971,336) (4,303,990) (65,295,982) ----------- ------------- ----------- ------------- Net decrease (709,494) (9,398,115) (909,820) (12,356,980) =========== ============= =========== ============= GLOBAL - ---------------------------------------------------------- Sold 216,701 1,830,792 924,949 8,866,381 Issued on reinvestment of dividends - - 1 11 Repurchased (370,983) (3,015,280) (1,053,590) (10,158,470) ----------- ------------- ----------- ------------- Net increase/(decrease) (154,282) (1,184,488) (128,640) (1,292,078) =========== ============= =========== ============= NATURAL RESOURCES - ---------------------------------------------------------- Sold 1,993,532 25,084,977 936,310 10,453,386 Issued on reinvestment of dividends 7,271 84,787 9,409 100,865 Repurchased (1,214,071) (14,854,655) (819,044) (8,609,560) ----------- ------------- ----------- ------------- Net increase 786,732 10,315,109 126,675 1,944,691 =========== ============= =========== ============= SCIENCE & TECHNOLOGY - ---------------------------------------------------------- Sold 324,013 2,683,766 599,749 11,715,938 Issued on reinvestment of dividends - - - - Repurchased (640,157) (5,506,239) (750,211) (13,732,949) ----------- ------------- ----------- ------------- Net decrease (316,144) (2,822,473) (150,462) (2,017,011) =========== ============= =========== ============= INTERNATIONAL - ---------------------------------------------------------- Sold 4,966,625 90,325,388 11,954,096 272,548,928 Issued on reinvestment of dividends 941 15,328 4,608 116,485 Repurchased (13,872,768) (265,049,208) (17,756,706) (403,354,268) ----------- ------------- ----------- ------------- Net decrease (8,905,202) (174,708,492) (5,798,002) (130,688,855) =========== ============= =========== ============= SMALL COMPANIES - ---------------------------------------------------------- Sold 51,397 396,014 409,940 4,536,884 Issued on reinvestment of dividends - - 341 2,724 Repurchased (255,122) (1,752,990) (677,820) (6,922,273) ----------- ------------- ----------- ------------- Net decrease (203,725) (1,356,976) (267,539) (2,382,665) =========== ============= =========== =============

(a) For the period 11/06/2002 to 12/31/2002 for Class I. 102 NOTES TO FINANCIAL STATEMENTS (continued)

CLASS B CLASS C FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 175,815 $ 1,595,946 91,196 $ 870,058 71,858 $ 632,564 3,540 $ 33,617 1,879 15,505 2,435 22,746 583 4,771 91 850 (16,729) (150,231) (3,398) (33,002) (21,597) (177,157) (513) (4,969) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 160,965 1,461,220 90,233 859,802 50,844 460,178 3,118 29,498 ========== ============ ========== ============ ========== ============ ========== ============ 14,934 92,201 28,545 186,235 33,382 194,332 6,257 40,979 1,033 5,672 - - 276 1,522 - - (144,323) (846,611) (314,894) (1,924,934) (53,011) (297,295) (84,939) (521,143) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (128,356) (748,738) (286,349) (1,738,699) (19,353) (101,441) (78,682) (480,164) ========== ============ ========== ============ ========== ============ ========== ============ 280,262 3,645,449 269,607 4,333,792 231,057 3,089,090 508,103 8,429,668 - - 4,642 61,040 - - 2,609 34,419 (865,969) (11,547,539) (1,103,861) (15,702,774) (576,456) (7,785,181) (1,535,966) (23,423,729) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (585,707) (7,902,090) (829,612) (11,307,942) (345,399) (4,696,091) (1,025,254) (14,959,642) ========== ============ ========== ============ ========== ============ ========== ============ 21,391 152,554 34,789 302,014 183,237 1,200,074 4,580 38,984 - - - - - - - - (138,031) (974,380) (208,290) (1,861,683) (190,086) (1,253,073) (4,077) (36,183) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (116,640) (821,826) (173,501) (1,559,669) (6,849) (52,999) 503 2,801 ========== ============ ========== ============ ========== ============ ========== ============ 482,442 5,824,547 295,482 3,085,399 559,393 6,863,314 329,847 3,600,692 1 15 5,059 53,020 228 2,540 2,191 22,541 (195,981) (2,245,141) (146,873) (1,490,440) (255,224) (2,969,080) (239,652) (2,535,902) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ 286,462 3,579,421 153,668 1,647,979 304,397 3,896,774 92,386 1,087,331 ========== ============ ========== ============ ========== ============ ========== ============ 38,169 365,275 200,295 3,660,997 15,690 163,533 30,632 540,875 - - - - - - - - (368,020) (3,325,921) (357,536) (5,902,467) (97,853) (895,086) (175,152) (3,076,600) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (329,851) (2,960,646) (157,241) (2,241,470) (82,163) (731,553) (144,520) (2,535,725) ========== ============ ========== ============ ========== ============ ========== ============ 138,342 2,449,545 262,059 5,828,882 550,585 9,231,191 560,914 12,092,051 430 6,691 - - 60 928 - - (2,586,978) (46,942,617) (4,384,509) (96,144,129) (1,004,565) (17,550,924) (1,484,846) (32,348,284) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (2,448,206) (44,486,381) (4,122,450) (90,315,247) (453,920) (8,318,805) (923,932) (20,256,233) ========== ============ ========== ============ ========== ============ ========== ============ 7,897 54,949 139,814 1,584,972 8,483 60,812 84,341 956,399 - - 276 2,153 - - 110 866 (158,698) (1,149,461) (184,316) (1,656,269) (137,467) (952,799) (156,289) (1,498,935) ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ (150,801) (1,094,512) (44,226) (69,144) (128,984) (891,987) (71,838) (541,670) ========== ============ ========== ============ ========== ============ ========== ============

103 NOTES TO FINANCIAL STATEMENTS

ADVISOR CLASS FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 CUNDILL (A) SHARES AMOUNT SHARES AMOUNT - ----------- ---------- ------------ ---------- ------------ Sold 655,616 $ 6,312,901 29,622 $ 294,347 Issued on reinvestment of dividends 1,581 13,076 3,128 28,995 Repurchased (576,628) (5,319,539) (5,933) (60,923) ---------- ------------ ---------- ------------ Net increase 80,569 1,006,438 26,817 262,419 ========== ============ ========== ============ DEVELOPING MARKETS - ------------------------------------------------------------ Sold 1,755 11,179 2,696 17,117 Issued on reinvestment of dividends 44 254 - - Repurchased (6,508) (42,461) (7,536) (48,789) ---------- ------------ ---------- ------------ Net decrease (4,709) (31,028) (4,840) (31,672) ========== ============ ========== ============ EUROPEAN OPPORTUNITIES - ------------------------------------------------------------ Sold 1,032,746 14,305,755 757,364 11,699,008 Issued on reinvestment of dividends - - 459 5,789 Repurchased (1,268,855) (17,294,714) (1,194,671) (17,913,376) ---------- ------------ ---------- ------------ Net increase/(decrease) (236,111) (2,988,959) (436,848) (6,208,579) ========== ============ ========== ============ GLOBAL - ------------------------------------------------------------ Sold 680 5,318 4,763 49,819 Issued on reinvestment of dividends - - - - Repurchased (1,519) (11,820) (8,537) (79,975) ---------- ------------ ---------- ------------ Net decrease (839) (6,502) (3,774) (30,156) ========== ============ ========== ============ NATURAL RESOURCES - ------------------------------------------------------------ Sold 612,019 7,969,518 234,198 2,522,781 Issued on reinvestment of dividends 296 3,428 439 4,689 Repurchased (604,618) (7,967,907) (194,697) (2,066,315) ---------- ------------ ---------- ------------ Net increase 7,697 5,039 39,940 461,155 ========== ============ ========== ============ SCIENCE & TECHNOLOGY - ------------------------------------------------------------ Sold 7,828 76,027 14,893 260,748 Issued on reinvestment of dividends - - - - Repurchased (10,595) (112,522) (17,796) (299,368) ---------- ------------ ---------- ------------ Net decrease (2,767) (36,495) (2,903) (38,620) ========== ============ ========== ============ INTERNATIONAL - ------------------------------------------------------------ Sold 397 7,865 77 1,566 Issued on reinvestment of dividends - - - - Repurchased (491) (10,027) - - ---------- ------------ ---------- ------------ Net increase/(decrease) (94) (2,162) 77 1,566 ========== ============ ========== ============ SMALL COMPANIES - ------------------------------------------------------------ Sold 3,744 30,080 43,715 520,230 Issued on reinvestment of dividends - - 7 54 Repurchased (75,245) (569,810) (250,868) (2,316,861) ---------- ------------ ---------- ------------ Net decrease (71,501) (539,730) (207,146) (1,796,577) ========== ============ ========== ============

104 NOTES TO FINANCIAL STATEMENTS (continued)

CLASS 1 FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT ---------- ------------ -------- ------------ 4,967 $ 43,827 - $ - 46 379 - - - - - - ---------- ------------ -------- ------------ 5,013 44,206 - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ 5,773 89,250 - - - - 2 33 (4,496) (58,541) - - ---------- ------------ -------- ------------ 1,277 30,709 2 33 ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============ 948,949 16,230,972 333,205 7,717,070 13 212 - - (1,688,192) (29,561,024) (801,870) (18,449,700) ---------- ------------ -------- ------------ (739,230) (13,329,840) (468,665) (10,732,630) ========== ============ ======== ============ - - - - - - - - - - - - ---------- ------------ -------- ------------ - - - - ========== ============ ======== ============

105 NOTES TO FINANCIAL STATEMENTS

CLASS A FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 INTERNATIONAL VALUE SHARES AMOUNT SHARES AMOUNT - ------------------- ----------- ------------ ----------- ------------ Sold 1,425,171 $ 11,972,367 3,063,414 $ 31,144,482 Issued on reinvestment of dividends 2 15 1,680 14,902 Repurchased (1,852,546) (15,450,773) (3,751,978) (37,763,655) ----------- ------------ ----------- ------------ Net decrease (427,373) (3,478,391) (686,884) (6,604,271) =========== ============ =========== ============ PACIFIC OPPORTUNITIES - ------------------------------------------------------------ Sold 1,019,807 6,632,147 1,098,100 7,131,564 Issued on reinvestment of dividends 4 25 1,307 8,415 Repurchased (1,063,853) (6,846,432) (1,389,038) (9,363,307) ----------- ------------ ----------- ------------ Net decrease (44,042) (214,260) (289,631) (2,223,328) =========== ============ =========== ============ GROWTH - ------------------------------------------------------------ Sold 411,236 4,049,840 592,667 7,832,934 Issued on reinvestment of dividends - - 12,132 140,733 Repurchased (2,213,773) (21,280,039) (2,509,722) (32,218,227) ----------- ------------ ----------- ------------ Net decrease (1,802,537) (17,230,199) (1,904,923) (24,244,560) =========== ============ =========== ============ US BLUE CHIP - ------------------------------------------------------------ Sold 720,972 6,367,977 833,406 8,155,869 Issued on reinvestment of dividends - - 22 235 Repurchased (1,451,618) (11,951,755) (2,130,483) (21,239,994) ----------- ------------ ----------- ------------ Net decrease (730,646) (5,583,778) (1,297,055) (13,083,890) =========== ============ =========== ============ EMERGING GROWTH - ------------------------------------------------------------ Sold 253,447 4,065,017 871,969 23,179,206 Issued on reinvestment of dividends - - 96 2,773 Repurchased (1,122,518) (17,121,388) (1,292,259) (32,514,382) ----------- ------------ ----------- ------------ Net decrease (869,071) (13,056,371) (420,194) (9,332,403) =========== ============ =========== ============ BOND - ------------------------------------------------------------ Sold 2,428,422 20,179,062 4,966,912 40,051,473 Issued on reinvestment of dividends 158,621 1,293,289 195,980 1,582,587 Repurchased (3,358,936) (27,463,024) (7,289,189) (58,628,687) ----------- ------------ ----------- ------------ Net decrease (771,893) (5,990,673) (2,126,297) (16,994,627) =========== ============ =========== ============ MONEY MARKET - ------------------------------------------------------------ Sold 18,445,179 18,445,179 54,208,886 54,208,886 Issued on reinvestment of dividends 104,986 104,986 443,340 443,340 Repurchased (16,769,876) (16,769,876) (62,141,950) (62,141,950) ----------- ------------ ----------- ------------ Net increase/(decrease) 1,780,289 1,780,289 (7,489,724) (7,489,724) =========== ============ =========== ============

106 NOTES TO FINANCIAL STATEMENTS (continued)

CLASS B CLASS C FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ 287,436 $ 2,317,711 543,615 $ 5,251,194 528,192 $ 3,794,521 252,194 $ 2,573,097 - - 4,222 36,979 - - 1,509 13,215 (1,598,762) (12,992,787) (2,308,387) (21,681,265) (1,063,044) (8,264,435) (1,176,870) (11,480,661) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (1,311,326) (10,675,076) (1,760,550) (16,393,092) (534,852) (4,469,914) (923,167) (8,894,349) ========== ============ ========== ============ =========== ============ ========== ============ 586,472 3,598,141 32,021 226,228 235,902 1,391,308 30,974 223,503 - - 706 4,434 - - 162 1,015 (725,610) (4,595,703) (309,174) (1,992,916) (282,074) (1,724,416) (101,540) (685,580) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (139,138) (997,562) (276,447) (1,762,254) (46,172) (333,108) (70,404) (461,062) ========== ============ ========== ============ =========== ============ ========== ============ 94,997 885,213 209,874 2,581,690 86,266 678,725 16,220 196,718 - - 355 3,919 - - 25 267 (293,492) (2,717,339) (210,613) (2,546,518) (97,882) (796,519) (36,607) (416,302) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (198,495) (1,832,126) (384) 39,091 (11,616) (117,794) (20,362) (219,317) ========== ============ ========== ============ =========== ============ ========== ============ 314,507 2,688,872 432,235 4,111,397 22,903 195,806 80,026 780,897 - - 2 29 - - - - (1,099,072) (8,715,485) (644,289) (6,049,340) (81,786) (663,123) (240,991) (2,261,835) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (784,565) (6,026,613) (212,052) (1,937,914) (58,883) (467,317) (160,965) (1,480,938) ========== ============ ========== ============ =========== ============ ========== ============ 72,752 1,146,087 149,165 3,458,298 6,579 95,750 24,889 593,383 - - - - - - - - (620,327) (9,169,755) (675,205) (15,549,162) (110,606) (1,573,304) (127,619) (2,936,625) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (547,575) (8,023,668) (526,040) (12,090,864) (104,027) (1,477,554) (102,730) (2,343,242) ========== ============ ========== ============ =========== ============ ========== ============ 619,731 5,035,721 870,263 7,031,320 511,687 4,179,508 304,343 2,462,017 40,558 328,252 46,068 371,395 4,911 39,908 5,444 44,017 (972,491) (7,871,056) (1,067,501) (8,586,114) (523,042) (4,267,419) (383,769) (3,091,644) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (312,202) (2,507,083) (151,170) (1,183,399) (6,444) (48,003) (73,982) (585,610) ========== ============ ========== ============ =========== ============ ========== ============ 8,740,535 8,740,535 5,996,965 5,996,965 14,599,769 14,599,769 8,411,592 8,411,592 51,921 51,921 165,171 165,171 3,667 3,667 13,876 13,876 (9,368,012) (9,368,012) (5,353,798) (5,353,798) (14,309,666) (14,309,666) (9,881,478) (9,881,478) ---------- ------------ ---------- ------------ ----------- ------------ ---------- ------------ (575,556) (575,556) 808,338 808,338 293,770 293,770 (1,456,010) (1,456,010) ========== ============ ========== ============ =========== ============ ========== ============

107 NOTES TO FINANCIAL STATEMENTS

ADVISOR CLASS FOR THE PERIOD FOR THE PERIOD JANUARY 1, 2002 JANUARY 1, 2001 TO DECEMBER 31, 2002 TO DECEMBER 31, 2001 INTERNATIONAL VALUE SHARES AMOUNT SHARES AMOUNT - ------------------- -------- ----------- -------- ---------- Sold 2,719 $ 23,457 10,877 $ 105,206 Issued on reinvestment of dividends - - 74 658 Repurchased (27,527) (235,520) (30,252) (290,488) -------- ----------- ------- --------- Net decrease (24,808) (212,063) (19,301) (184,624) ======== =========== ======= ========= PACIFIC OPPORTUNITIES - ------------------------------------------------------------ Sold 413,311 2,523,230 16,889 114,000 Issued on reinvestment of dividends - - Repurchased (408,049) (2,522,605) (22,075) (140,101) -------- ----------- ------- --------- Net increase/(decrease) 5,262 625 (5,186) (26,101) ======== =========== ======= ========= GROWTH - ------------------------------------------------------------ Sold 20,873 221,354 13,685 169,233 Issued on reinvestment of dividends - - 21 242 Repurchased (29,725) (299,703) (12,107) (148,106) -------- ----------- ------- --------- Net increase/(decrease) (8,852) (78,349) 1,599 21,369 ======== =========== ======= ========= US BLUE CHIP - ------------------------------------------------------------ Sold 21,899 193,930 15,651 151,766 Issued on reinvestment of dividends - - - - Repurchased (10,547) (80,735) (29,636) (279,724) -------- ----------- ------- --------- Net increase/(decrease) 11,352 113,195 (13,985) (127,958) ======== =========== ======= ========= US EMERGING GROWTH - ------------------------------------------------------------ Sold 5,514 87,021 12,721 298,722 Issued on reinvestment of dividends - - - - Repurchased (16,402) (233,999) (29,054) (685,415) -------- ----------- ------- --------- Net decrease (10,888) (146,978) (16,333) (386,693) ======== =========== ======= ========= BOND - ------------------------------------------------------------ Sold 727,682 5,961,554 9,742 79,018 Issued on reinvestment of dividends 1,883 15,411 914 7,391 Repurchased (682,852) (5,605,809) (14,021) (113,136) -------- ----------- ------- --------- Net increase/(decrease) 46,713 371,156 (3,365) (26,727) ======== =========== ======= =========

5. CHANGE IN INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP ("PwC") previously served as the independent accountants of Ivy Fund (the "Fund"). On December 16, 2002, PwC resigned as the Fund's independent accountants on the basis that it was no longer "independent" of the Fund within the meaning of the professional standards applicable to independent accountants. This loss of independence was caused by the change of control of the Fund's investment adviser, which took place on December 16, 2002. The decision to change independent accountants was recommended by the Audit Committee of the Fund's Board of Trustees and approved by the Board. PwC's reports on the Fund's financial statements for the two fiscal years prior to their resignation contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for those two periods and through PwC's resignation on December 16, 2002, there have been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the Fund's financial statements for such years. On December 17, 2002, the Audit Committee of the Fund's Board of Trustees recommended and the Board approved Deloitte & Touche LLP as the Fund's new independent accountants, effective as of December 16, 2002, for the Fund's fiscal year ending December 31, 2002. 108 INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Ivy Fund: We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy Growth Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, Ivy Bond Fund and Ivy Money Market Fund (collectively the "Funds") comprising Ivy Fund, as of December 31, 2002, and the related statements of operations, the statements of changes in net assets and the financial highlights for the fiscal year then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements and the financial highlights of the Funds for each of the periods presented in the four-year period ended December 31, 2001 were audited by other auditors whose report, dated February 8, 2002, expressed an unqualified opinion on those statements and financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of each of the respective Funds comprising Ivy Fund as of December 31, 2002, the results of their operations, the changes in their net assets and their financial highlights for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 7, 2003 109 OFFICERS AND NON-INDEPENDENT TRUSTEES The address for each Trustee and Executive Officer in the following tables is 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The non-Independent Trustees (as defined below) and Executive Officers of the Trust and their principal occupations during the past five years are:

TERM OF OFFICE AND PRINCIPAL TOTAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF HELD WITH TIME DURING PAST 5 IVY FUNDS NAME AND AGE TRUST SERVED YEARS OVERSEEN Keith A. Tucker* (58) Trustee and Chairman Trustee Chairman of the Board, Director and 16 since CEO of Waddell & Reed; Chairman of the December 16, Board of Waddell & Reed, Inc. ("WRI") 2002 (underwriter); Chairman of the Board and Director of Waddell & Reed Investment Management Co. ("WRIMCO"); Chairman of the Board and Director of Waddell & Reed Services Co.; President and CEO of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Waddell & Reed Development, Inc.; Chairman of the Board of Waddell & Reed Distributors, Inc. Henry J. Herrmann* (60) Trustee and Trustee Chairman of the Board, CEO and 16 President since President of Waddell & Reed Ivy December 16, Investment Company ("WRIICO"); 2002 President, Chief Investment Officer and Director of Waddell & Reed; President and CEO of WRIMCO; Chief Investment Officer of WRIMCO; Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Executive Vice President of Waddell & Reed Financial Services, Inc.; formerly, Chairman of the Board of Austin, Calvert & Flavin, Inc. Kristen A. Richards* (35) Secretary and Vice Appointed Vice President, Associate General 16 President December 17, Counsel and Chief Compliance Officer 2002 of WRIICO and WRIMCO; Vice President, Secretary and Associate General Counsel of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R InvestEd Portfolios, Inc.; formerly Assistant Secretary of each of those funds; formerly, Compliance Officer of WRIMCO. Beverly J. Yanowitch* Treasurer 1 year Senior Vice President, Chief Financial 16 (52) Officer and Treasurer of WRIICO and Ivy Services Inc.; Senior Vice President, Treasurer and Director, IMDI; formerly, Vice President, Chief Financial Officer and Treasurer of MIMI.

OTHER DIRECTORSHIPS NAME AND AGE HELD Keith A. Tucker* (58) Chairman of the Board and Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Chairman of the Board and Director of W&R Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of W&R Target Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Henry J. Herrmann* (60) Chairman of the Board and Director, Ivy Mackenzie Services Corporation; Director of WRI; Director of Waddell & Reed Development, Inc.; Director of Waddell & Reed Services Co.; Director of Austin Calvert & Flavin, Inc.; Director and President of Waddell & Reed Advisors Funds (20 portfolios overseen); Director and President of W&R Funds, Inc. (12 portfolios overseen); Director and President of W&R Target Funds, Inc. (12 portfolios overseen); Director and President of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Kristen A. Richards* (35) None. Beverly J. Yanowitch* None. (52)

* Trustees considered by the Trust and its counsel to be "interested persons" (as defined in the 1940 Act) of the Funds or of their investment manager because of their employment by Waddell & Reed or its subsidiaries. 110 DISINTERESTED TRUSTEES The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their principal occupations during the past five years are:

TERM OF OFFICE AND PRINCIPAL TOTAL POSITION(S) LENGTH OF OCCUPATION(S) NUMBER OF HELD WITH TIME DURING PAST 5 IVY FUNDS NAME AND AGE TRUST SERVED YEARS OVERSEEN Jarold W. Boettcher (62) Trustee Trustee President of Boettcher Enterprises, Inc. 16 since (diversified agricultural products and December 16, services); President of Boettcher Supply, 2002 Inc. (electrical and plumbing supplies distributor). James D. Gressett (52) Trustee Trustee CEO of PacPizza, Inc.; Secretary of 16 since Street Homes, LLP; formerly, President of December 16, Alien, Inc. (real estate development). 2002 Joseph Harroz, Jr. (35) Trustee Trustee General Counsel, University of Oklahoma, 16 since Cameron University and Rogers State December 16, University; University-wide Vice 2002 President of the University of Oklahoma; Adjunct Professor of Law, University of Oklahoma College of Law; Managing Member, Harroz Investment, LLC (commercial real estate); Managing Member, JHJ Investments, LLC (commercial real estate). Glendon E. Johnson, Jr. (51) Trustee Trustee Of Counsel, Lee & Smith, PC (law firm); 16 since Member/Manager, Castle Valley Ranches, December 16, LLC, formerly Partner, Kelley, Drye & 2002 Warren LLP (law firm). Eleanor B. Schwartz (65) Trustee Trustee Professor of Business Administration, 16 since University of Missouri -- Kansas City; December 16, formerly, Chancellor of University of 2002 Missouri -- Kansas City. Michael G. Smith (58) Trustee Trustee Associated with Graue Mill Partners, LLC; 16 since formerly, Managing December 16, Director -- Institutional Sales, Merrill 2002 Lynch. Edward M. Tighe (60) Trustee 4 years Chairman, CEO and Director of JBE 16 Technology Group, Inc. (telecommunications and computer network consulting); President of Global Mutual Fund Services; President and CEO of Global Technology.

OTHER DIRECTORSHIPS NAME AND AGE HELD Jarold W. Boettcher (62) Director of Guaranty State Bank & Trust Co.; Director of Guaranty, Inc. James D. Gressett (52) Director of Collins Financial Services. Joseph Harroz, Jr. (35) Co-Lead Independent Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Co-Lead Independent Director of W&R Target Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of W&R Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Glendon E. Johnson, Jr. (51) None. Eleanor B. Schwartz (65) Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Director of W&R Target Funds, Inc. (12 portfolios overseen); Director of W&R Funds, Inc. (12 portfolios overseen); Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Michael G. Smith (58) None. Edward M. Tighe (60) Director of Hansberger Institutional Funds (2 portfolios overseen); Director of Asgard Holding, LLC.

Each fund's statement of additional information ("SAI") contains additional information about the Trustees and is available without charge, upon request, by calling 1-800-456-5111. 111 SHAREHOLDER MEETING RESULTS (unaudited) On December 10, 2002 a special shareholder meeting (the "Meeting") was held at the offices of Mackenzie Investment Management Inc., Boca Raton, Florida, for the following purposes (and with the following results): PROPOSAL 1: For shareholders of all Funds, except for Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management and Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy Management, Inc. ("IMI"); and FOR AGAINST ABSTAIN ------------------------------------------------------------------------ 51,498,803.247 1,377,315.682 1,493,850.977 ------------------------------------------------------------------------ PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management Agreement between the Trust, on behalf of the Fund, and IMI; and - --------------------------------------------------------- FOR AGAINST ABSTAIN 2,121,469.663 27,123.541 10,068.003 - --------------------------------------------------------- PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Henderson Global Investors (North America) Inc. ("HGINA"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,488,037.381 89,305.745 85,262.146 - ------------------------------------------------------------ PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between HGINA and Henderson Investment Management Limited ("Henderson"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,489,481.210 93,343.546 80,135.834 - ------------------------------------------------------------ PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Peter Cundill & Associates, Inc. ("Cundill"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 251,879.738 7,112.670 7,527.179 - ------------------------------------------------------------ PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election of eight nominees to serve as Trustees on the Board of Trustees. - ----------------------------------------------------------------------------- NOMINEE: FOR AGAINST KEITH A. TUCKER 54,459,082.827 2,069,192.008 HENRY J. HERRMANN 54,455,836.913 2,073,536.552 JAMES D. GRESSETT 54,480,456.334 2,047,818.501 JAROLD W. BOETTCHER 54,484,155.922 2,044,118.913 MICHAEL G. SMITH 54,473,248.468 2,052,569.367 JOSEPH HARROZ, JR. 53,859,972.525 2,051,162.062 ELEANOR B. SCHWARTZ 53,853,424.194 2,057,551.889 GLENDON E. JOHNSON, JR. 53,901,560.595 2,008,266.240 - ----------------------------------------------------------------------------- Edward M. Tighe, who was elected by shareholders, continued his term of office after the meeting. This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Annual Report December 31, 2002 Ivy International Growth Fund IVY INTERNATIONAL GROWTH FUND The Fund's goal: to provide long-term capital growth by investing at least 65% of its assets in equity securities principally traded in European, Pacific and Latin American markets. Ivy International Growth Fund was managed by Moira McLachlan and the Ivy International Equities Team until December 16th, 2002. At right, she discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed management of Ivy International Growth Fund on December 17th, 2002. The Fund was liquidated in February, 2003. LIPPER CATEGORY International "Market conditions were extremely volatile in 2002, continuing a trend seen in the previous two years." Q: Moira, how did Ivy International Growth Fund perform in 2002? A: For 2002, Ivy International Growth Fund returned -28.46%.* The Fund underperformed its benchmark, the MSCI EAFE Growth Index, which returned - -16.02%, and its peer group (as measured by the Lipper International Funds average), which returned -16.67%. Q: How were market conditions? A: Market conditions were extremely volatile in 2002, continuing a trend seen in the previous two years. Fears of a double-dip recession and global deflation contributed to sharp declines periodically interspersed with equally sharp rallies. Despite ample global liquidity and much-improved valuations, sluggish economic growth, poor corporate profits and fears about the possible fallout from potential military action in Iraq all contributed to a significant drop in international markets over the course of the year. Q: What factors affected performance? A: Two growth-oriented sectors were particularly hard hit by market volatility: information technology, which was affected by the slowdown in corporate spending, and consumer electronics, which suffered from downward pressure on pricing. Unfortunately, the Fund was overweight in both of these sectors, and this had a significantly negative effect on performance. Holdings in the consumer electronics area suffered the worst declines and had the single largest negative effect. The Fund was also negatively impacted by lack of exposure to traditional defensive sectors such as consumer staples and utilities. Minimal exposure to energy, which was one of the few bright spots last year as oil stocks and oil prices rallied in response to the Iraq situation, also hurt performance. And while the Fund had some exposure to basic materials, a sector that did well, it was not enough to offset the losses experienced in consumer electronics and information technology. On the positive side, an underweight in Sweden and in the financials sector helped performance. The latter helped the Fund avoid dramatic declines in European insurers and banks. Performance cited is for Advisor Class shares at net asset value. (The Fund has no A, B or C shares outstanding. Advisor Class shares do not carry a sales charge.) The opinions expressed in this report are those of the portfolio managers and are current only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Average annual total returns For the periods ended 12/31/02

1 5 10 Since Year Years Years Inception A Shares w/Reimb. & 5.75% sales charge N/A N/A N/A N/A w/o Reimb. & 5.75% sales charge N/A N/A N/A N/A B Shares w/Reimb. & w/ 5.00% CDSC N/A N/A N/A N/A w/Reimb. & w/o 5.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/ 5.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/o 5.00% CDSC N/A N/A N/A N/A C Shares w/Reimb. & w/ 1.00% CDSC N/A N/A N/A N/A w/Reimb. & w/o 1.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/ 1.00% CDSC N/A N/A N/A N/A w/o Reimb. & w/o 1.00% CDSC N/A N/A N/A N/A Advisor Shares w/Reimb. (28.46%) N/A N/A (27.25%) w/o Reimb. (45.77%) N/A N/A (44.35%)

CDSC = Contingent Deferred Sales Charge Advisor Class Shares are not subject to an initial sales charge or a CDSC. Advisor Class commenced operations December 29, 2000. As of December 31, 2001, the Fund had no A, B or C shares outstanding. All charts and tables reflect past results and assume reinvestment of dividends and capital gain distributions. Future results will, of course, be different. The investment return and principal value of Ivy International Growth Fund will fluctuate and at redemption shares may be worth more or less than the amount of the original investment. Performance overview Performance Comparison of the Fund Since Inception (12/00) of a $10,000 Investment (Advisor Class Shares)

IVY INTERNATIONAL MSC I GROWTH FUND EAFE GROWTH INDEX NO SALES CHARGES ON ADVISOR SHARES 29-Dec-2000 10000 10000 30-Jan-2001 10230 9978 28-Feb-2001 9191 8961 31-Mar-2001 8202 8325 30-Apr-2001 8751 8890 31-May-2001 8322 8527 30-Jun-2001 7812 8114 31-Jul-2001 7682 7939 31-Aug-2001 7403 7577 30-Sep-2001 6663 6860 31-Oct-2001 6923 7132 30-Nov-2001 7273 7499 31-Dec-2001 7398 7542 31-Jan-2002 6948 7135 28-Feb-2002 6887 7232 31-Mar-2002 7398 7506 30-Apr-2002 7112 7546 31-May-2002 6866 7561 30-Jun-2002 6539 7366 31-Jul-2002 5812 6581 31-Aug-2002 5710 6530 30-Sep-2002 5075 5962 31-Oct-2002 5413 6299 30-Nov-2002 5853 6484 31-Dec-2002 5292 6334

The Morgan Stanley Capital International (MSCI) EAFE Growth Index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Past performance does not guarantee future results.The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or redemptions. COUNTRY BREAKDOWN 12/31/02 % of Total Investments 1. United Kingdom 28% 2. Japan 17% 3. Switzerland 12% 4. Netherlands 8% 5. Germany 6% 6. France 5% 7. Spain 4% 8. Italy 4% 9. South Korea 4% 10. Finland 3% 11. Brazil 3% 12. Norway 3% 13. Taiwan 2% 14. Israel 1% SECTOR BREAKDOWN 12/31/02 % of Total Net Assets 1. Consumer Discretionary 20% 2. Information Technology 15% 3. Healthcare 14% 4. Telecommunication Services 11% 5. Consumer Staples 11% 6. Financials 10% 7. Industrials 10% 8. Materials 6% 9. Energy 3% TOP 10 HOLDINGS 12/31/02 Security % of Total Net Assets 1. Vodafone AirTouch plc 6.1% 2. Nestle SA 5.6% 3. GlaxoSmithKline plc 4.5% 4. Diageo plc 4.2% 5. Rio Tinto plc 4.0% 6. NTT DoCoMo, Inc. 3.5% 7. WPP Group plc 3.2% 8. Nokia Oyj 3.1% 9. Nomura Holdings, Inc. 3.0% 10. Nissan Motor Co., Ltd. 2.9% The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and may not be representative of the Fund's current or future investments. IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002

SHARES VALUE EQUITY SECURITIES - 93.8% - ----------------------------------------------------------- EUROPE - 68.5% - ----------------------------------------------------------- FINLAND - 3.1% Nokia Oyj 518 $ 8,235 ------------- FRANCE - 5.1% Aventis SA 73 3,968 STMicroelectronics N.V. 110 2,156 Thomson Multimedia (a) 440 7,508 ------------- 13,632 ------------- GERMANY - 5.9% Fresenius AG 80 2,997 Hugo Boss AG 300 3,025 Medion AG 200 6,926 Merck KGaA 100 2,635 ------------- 15,583 ------------- ITALY - 3.7% IntesaBci S.p.A. 2,000 4,218 Mondadori (Arnoldo) Editora S.p.A. 900 5,572 ------------- 9,790 ------------- NETHERLANDS - 7.1% ING Groep NV 203 3,438 Koninklijke (Royal) Philips Electronicas NV 373 6,537 Koninklijke Ahold NV 190 2,412 TPG NV 400 6,485 ------------- 18,872 ------------- NORWAY - 2.4% Norsk Hydro ASA 140 6,275 ------------- SPAIN - 3.9% Amadeus Global Travel Distribution S.A. 1,493 6,157 Prosegur, Compania de Seguridad SA 422 4,296 ------------- 10,453 ------------- SWITZERLAND - 11.5% Credit Suisse Group 140 3,038 Nestle SA 70 14,833 Novartis AG 140 5,108 UBS AG 155 7,533 ------------- 30,512 -------------

UNITED KINGDOM - 25.8% AstraZeneca PLC 200 7,125 BT Group plc 1,000 3,139 Diageo plc 1,019 11,082 GlaxoSmithKline plc 621 11,917 Rio Tinto plc 525 10,472 Vodafone AirTouch plc 8,871 16,210 WPP Group plc 1,100 8,359 ------------- 68,304 ------------- FAR EAST - 21.1% - ----------------------------------------------------------- JAPAN - 16.1% Mitsubishi Electric Corporation 1,000 2,309 Nintendo Co., Ltd. 70 6,542 Nissan Motor Co., Ltd. 1,000 7,803 Nomura Holdings, Inc. 700 7,869 NTT DoCoMo, Inc. 5 9,227 Sharp Corporation 500 4,748 Sony Corporation 100 4,180 ------------- 42,678 ------------- SOUTH KOREA - 3.5% POSCO 40 3,980 Samsung Electronics 20 5,295 ------------- 9,275 ------------- TAIWAN - 1.5% Taiwan Semiconductor Manufacturing Company (a) 3,300 4,043 ------------- LATIN AMERICA - 2.7% - ----------------------------------------------------------- BRAZIL - 2.7% Embraer Brasileira de Aeronautica S.A. (Embraer) 456 7,250 ------------- MIDDLE EAST - 1.5% - ----------------------------------------------------------- ISRAEL - 1.5% Check Point Software Technologies Ltd. (a) 300 3,891 ------------- Total Investments - 93.8% $ 248,793 (Cost - $310,578) (Cost on Federal income tax basis - $319,556) Other Assets, Less Liabilities - 6.2% 16,449 ------------- Net Assets - 100.0% $ 265,242 ============= Other Information: At December 31, 2002, net unrealized depreciation based on cost for financial statement and Federal Income tax purposes is as follows: Gross unrealized appreciation $ 5,803 Gross unrealized depreciation (67,588) ------------- Net unrealized depreciation for financial statement purposes (61,785) Less: tax basis adjustments (8,978) ------------- Net unrealized depreciation for Federal income tax purposes $ (70,763) ============= Purchases and sales proceeds of securities other than U.S. Government securities and short-term obligations aggregated $175,036 and $168,225, respectively, for the year ended December 31, 2002. (a) Non-income producing security. The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Assets and Liabilities December 31, 2002 ASSETS Investments, at value (identified cost - $310,578 ) .......... $ 248,793 Cash ......................................................... 35,482 Receivables Dividends and Interest ..................................... 663 Other assets ................................................. 15 --------- Total assets ............................................... 284,953 --------- LIABILITIES Payables Investments purchased ..................................... 336 Management fee ............................................ 109 Transfer agent fee ........................................ 6 Other payables to related parties ......................... 601 Accrued expenses ............................................. 18,659 --------- Total liabilities .......................................... 19,711 --------- NET ASSETS ................................................... $ 265,242 ========= ADVISOR CLASS Net asset value, offering price and redemption price per share ($265,242/51,692 shares outstanding) ....................... $ 5.13 ========= NET ASSETS CONSIST OF Capital paid-in ............................................ $ 522,748 Accumulated net realized loss on investments and foreign currency transactions ............................ (195,738) Accumulated net investment loss ............................ (315) Net unrealized depreciation on investments and foreign currency transactions ............................ (61,453) --------- NET ASSETS ................................................... $ 265,242 ========= The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Operations For the Year Ended December 31, 2002 INVESTMENT INCOME Dividends, net of $709 foreign taxes withheld ............... $ 5,014 Interest ................................................... 320 --------- 5,334 --------- EXPENSES Management fee ............................................. 3,155 Transfer agent ............................................. 294 Administrative services fee ................................ 315 Custodian fees ............................................. 20,546 Auditing and accounting fees ............................... 16,694 Fund accounting ............................................ 15,129 Trustees' fees ............................................. 4,385 Legal ...................................................... 25,417 Other ...................................................... 150 --------- 86,085 Expenses reimbursement by Manager .......................... (81,332) --------- Net expenses ............................................. 4,753 --------- NET INVESTMENT INCOME ........................................ 581 --------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS Net realized loss on investments and foreign currency transactions ........................... (34,736) Net change in unrealized depreciation on investments and foreign currency transactions ........................ (71,254) --------- Net loss on investments ................................. (105,990) --------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................ $(105,409) ========= The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Statement of Changes in Net Assets

For the For the year ended year ended ----------------- ----------------- December 31, 2002 December 31, 2001 ----------------- ----------------- DECREASE IN NET ASSETS Operations Net investment income ................................. $ 581 $ 821 Net realized loss on investments and foreign currency transactions ....... (34,736) (165,918) Net change in unrealized (depreciation) appreciation on investments and foreign currency transactions ....... (71,254) 9,299 --------- --------- Net decrease resulting from operations ........... (105,409) (155,798) --------- --------- Advisor Class distributions Dividends from net investment income .................. (2,148) (8,620) --------- --------- Total distributions to Advisor Class shareholders (2,148) (8,620) --------- --------- Fund share transactions (Note 3) Advisor Class ......................................... 2,148 34,608 --------- --------- Net increase resulting from Fund share transactions ........................ 2,148 34,608 --------- --------- TOTAL DECREASE IN NET ASSETS ............................ (105,409) (129,810) NET ASSETS AT BEGINNING OF PERIOD ....................... 370,651 500,461 --------- --------- NET ASSETS AT END OF PERIOD ............................. 265,242 370,651 ========= ========= UNDISTRIBUTED NET INVESTMENT INCOME ..................... $ -- $ 1,477 ========= =========

The accompanying notes are an integral part of the financial statements. Ivy International Growth Fund Financial Highlights

FOR THE PERIOD FOR THE YEAR FOR THE YEAR DECEMBER 29, 2000 ADVISOR CLASS ENDED ENDED (COMMENCEMENT) DECEMBER 31, DECEMBER 31, TO DECEMBER 31, SELECTED PER SHARE DATA 2002 2001 2000 ------------ ------------- ----------------- Net asset value, beginning of period .................. $ 7.23 $ 10.01 $ 10.00 ------- ------- ------- Income from investment operations Net investment income(a) ............................ 0.01 0.02 -- Net (loss) gain on securities (both realized and unrealized) .......................... (2.07) (2.63) 0.01 ------- ------- ------- Total from investment operations .................... (2.06) (2.61) 0.01 ------- ------- ------- Less distributions Dividends From net investment income ........................ 0.04 0.17 -- ------- ------- ------- Total distributions ............................. 0.04 0.17 -- ------- ------- ------- Net asset value, end of period ........................ $ 5.13 $ 7.23 $ 10.01 ======= ======= ======= Total return (%)(b) ................................... (28.46) (26.02) 0.10 Ratios and Supplemental Data Net assets, end of period (in thousands) .............. $ 265 $ 371 $ 500 Ratio of expenses to average net assets (%) With expense reimbursement (%) ...................... 1.50 1.50 1.50 (c) Without expense reimbursement (%) ................... 27.30 26.08 443.30 (c) Ratio of net investment income (loss) to average net assets (%)(a) ........................... 0.18 0.16 (1.50) c) Portfolio turnover rate (%) ........................... 55 252 --

(a) Net investment income is net of expenses reimbursed by Manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. The accompanying notes are an integral part of the financial statements. IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Ivy International Growth Fund (the "Fund"), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B, Class C, Class I and Advisor Class are authorized. As of December 31, 2002, only Advisor Class shares have been issued. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION - Securities traded on a U.S. or foreign stock exchange, or The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the last quoted sale price reported as of the close of regular trading on the market on which the security is traded most extensively. If there were no sales on the market on which the security is traded most extensively and the security is traded on more than one market, or on one or more exchanges in the over-the-counter market, the market reflecting the last quoted sale will be used. Otherwise, the security is valued at the calculated mean between the last bid and asked price on the market on which the security is traded most extensively. Securities not traded on an exchange or Nasdaq, but traded in another over-the-counter market are valued at the calculated mean between the last bid and the last asked price in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the "Board"), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities, or on the basis of dealer quotes. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 2002, there were no Board valued securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are accounted for on the trade date. Dividend income, net of foreign taxes withheld, is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Corporate actions on foreign securities, including dividends, are recorded on the ex-dividend date. Realized gains and losses from security transactions are calculated on an identified cost basis. CASH - The Fund classifies as cash amounts on deposit with the Fund's custodian. These amounts earn interest at variable interest rates. At December 31, 2002, the interest rate was 0.60%. FEDERAL INCOME TAXES - The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code of 1986, as amended (the "Code"), and IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. Because Federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. These differences are primarily attributed to wash sales and non-deductible deferred offering costs. Accordingly, the character of distributions for tax purposes differ from those reflected in the accompanying financial statements. Distributions of $2,148 during the year ended December 31, 2002 were characterized as ordinary income for tax purposes. The net unrealized depreciation for U.S. Federal income tax purposes at December 31, 2002 was as follows: Unrealized appreciation $ 5,803 Unrealized depreciation (76,566) ---------- Net unrealized depreciation (70,763) ========== There was no undistributed ordinary income at December 31, 2002 for U.S. Federal income tax purposes. The Fund earned $5,723 in foreign source dividends that were subject to $709 in foreign withholding tax. The Fund intends to elect to pass through to the shareholders their proportionate share of such taxes. Shareholders may report their share of foreign taxes paid as either a tax credit or itemized deduction. The Fund has a net tax-basis capital loss carryover of approximately $177,000 as of December 31, 2002, which may be applied against any realized net taxable gain of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. Approximately $123,000 of the carryover expires in 2009 and approximately $54,000 expires in 2010. DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income and realized gain, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS - Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities and dividends and interest receivable are translated at the closing daily rate of exchange; and (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 separate component of Net realized and unrealized gain (loss) on investment transactions. Foreign transactions may involve risks not typically associated with domestic transactions including, but not limited to, unanticipated movements in exchange rates, the degree of government supervision and regulation of security markets and the possibility of political and economic instability. For foreign securities, the Fund does not isolate that portion of gains and losses on investment securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. For tax reporting purposes, Code Section 988 provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. 2. RELATED PARTIES Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business management services and was the Investment Adviser to the Fund. Effective December 16, 2002, Waddell & Reed Financial, Inc. ("Waddell & Reed"), a U.S. mutual fund firm, completed its acquisition of the entire operations of Mackenzie Investment Management Inc. ("MIMI"), of which IMI is a wholly owned subsidiary. At this time, Ivy Acquisition Corporation ("IAC") was formed as a registered investment adviser. On December 31, 2002, IMI merged into IAC and IAC changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the Fund's current investment adviser. For its services, WRIICO receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. For the year ended December 31, 2002, WRIICO limited the Fund's total operating expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of 1.50% of the Fund's average net assets. MIMI provided certain administrative, accounting and pricing services for the Fund. Effective December 17, 2002, IAC, now WRIICO, assumed all of MIMI's duties under the Fund Accounting Services Agreement and the Administrative Services Agreement. For those services, the Fund pays WRIICO fees plus certain out-of-pocket expenses. Such fees and expenses are reflected as Fund accounting and Administrative services fee in the Fund's Statement of Operations. At December 31, 2002, WRIICO owned approximately 99% of the Fund's shares outstanding. 3. FUND SHARE TRANSACTIONS Fund share transactions for Advisor Class were as follows: IVY INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002

FOR THE YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 ---------------------- --------------------------- ADVISOR CLASS SHARES AMOUNT SHARES AMOUNT ------ ------- ------- --------- Sold $ -- 24,567 $ 200,498 Issued on reinvestment of dividends 419 2,148 1,216 8,620 Repurchased -- -- (24,510) (174,510) --- ------- ------- --------- Net increase 419 $ 2,148 1,273 $ 34,608 === ======= ======= =========

4. GEOGRAPHIC RISK FACTORS There are certain risks involved in investing in foreign securities. These risks include those resulting from future adverse political and economic developments and the possible imposition of currency exchange restrictions or other foreign laws or restrictions. 5. CHANGE IN INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP ("PwC") previously served as the independent accountants of the Fund. On December 16, 2002, PwC resigned as the Fund's independent accountants on the basis that it was no longer "independent" of the Fund within the meaning of the professional standards applicable to independent accountants. This loss of independence was caused by the change of control of the Fund's investment adviser, which took place on December 16, 2002. The decision to change accountants was recommended by the audit committee of the Fund's Board of Trustees and approved by the Board. PwC's reports on the Fund's financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with its audits for the Fund's two most recent fiscal years and through PwC's resignation on December 16, 2002, there have been no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of PwC, would have caused PwC to make reference thereto in its reports on the Fund's financial statements for such years. On December 17, 2002, the audit committee of the Fund's Board of Trustees recommended and the Board approved Deloitte & Touche LLP as the Fund's new independent accountants, effective as of December 16, 2002, for the Fund's fiscal year ending December 31, 2002. INDEPENDENT AUDITORS' REPORT To the Board of Trustees and Shareholders of Ivy International Growth Fund: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Ivy International Growth Fund (the "Fund") as of December 31, 2002, and the related statement of operations, statement of changes in net assets and the financial highlights for the fiscal year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements and the financial highlights of the Fund for each of the periods presented in the two-year period ended December 31, 2001 were audited by other auditors whose report, dated February 8, 2002, expressed an unqualified opinion on those statements and financial highlights. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Ivy International Growth Fund as of December 31, 2002, the results of its operations, the changes in its net assets and the financial highlights for the fiscal year then ended in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Kansas City, Missouri February 7, 2003 OFFICERS AND NON-INDEPENDENT TRUSTEES The address for each Trustee and Executive Officer in the following tables is 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee and Officer serves an indefinite term, until he or she dies, resigns or becomes disqualified. The non-Independent Trustees (as defined below) and Executive Officers of the Trust and their principal occupations during the past five years are:

Position(s) Term of Office Held and Length of Name and Age with Trust Time Served - ------------ ----------- ----------------------- Keith A. Tucker* Trustee and Trustee since (58) Chairman December 16, 2002 Henry J. Herrmann* Trustee and Trustee since (60) President December 16, 2002

Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held - ------------ ----------------------- --------- ------------ Keith A. Tucker* Chairman of the Board, Director and CEO of 16 Chairman of the Board and Director (58) Waddell & Reed; Chairman of the Board of of Waddell & Reed Advisors Funds Waddell & Reed, Inc. ("WRI") (underwriter); (20 portfolios overseen); Chairman Chairman of the Board and Director of of the Board and Director of W&R Waddell & Reed Investment Management Co. Funds, Inc. (12 portfolios ("WRIMCO"); Chairman of the Board and overseen); Chairman of the Board Director of Waddell & Reed Services Co.; and Director of W&R Target Funds, President and CEO of Waddell & Reed Inc. (12 portfolios overseen); Financial Services, Inc.; Chairman of the Chairman of the Board and Director Board of Waddell & Reed Development, Inc.; of Waddell & Reed InvestEd Chairman of the Board of Waddell & Reed Portfolios, Inc. (3 portfolios Distributors, Inc. overseen). Henry J. Herrmann* Chairman of the Board, CEO and President of 16 Chairman of the Board and Director, (60) IMI and IAC; President, Chief Investment Ivy Mackenzie Services Corporation; Officer and Director of Waddell & Reed; Director of WRI; Director of Waddell President and CEO of WRIMCO; Chief & Reed Development, Inc.; Director of Investment Officer of WRIMCO; Chief Waddell & Reed Services Co.; Director Investment Officer of Waddell & Reed of Austin Calvert & Flavin, Inc.; Financial Services, Inc.; Executive Vice Director and President of Waddell & President of Waddell & Reed Financial Reed Advisors Funds (20 portfolios Services, Inc.; formerly, Chairman of the overseen); Director and President of Board of Austin, Calvert & Flavin, Inc. W&R Funds, Inc. (12 portfolios overseen); Director and President of W&R Target Funds, Inc. (12 portfolios overseen); Director and President of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen).

Position(s) Term of Office Held and Length of Name and Age with Trust Time Served - ------------ ----------- ----------------------- Kristen A. Richards Secretary and Appointed December 17, (35) Vice President 2002 Beverly J. Yanowitch Treasurer 1 year (52)

Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held - ------------ ----------------------- --------- ------------ Kristen A. Richards Vice President, Associate General Counsel 16 None. (35) and Chief Compliance Officer of IAC, IMI and WRIMCO; Vice President, Secretary and Associate General Counsel of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R Invested Portfolios, Inc.; formerly Assistant Secretary of each of those funds; formerly, Compliance Officer of WRIMCO. Beverly J. Yanowitch Senior Vice President, Chief Financial 16 None. (52) Officer and Treasurer of WRIICO and Ivy Services Inc.; Senior Vice President, Treasurer and Director, IMDI; formerly, Vice President, Chief Financial Officer and Treasurer of MIMI.

- --------- * Trustees considered by the Trust and its counsel to be "interested persons" (as defined in the 1940 Act) of the Funds or of their investment manager because of their employment by Waddell & Reed or its subsidiaries. DISINTERESTED TRUSTEES The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their principal occupations during the past five years are:

Position(s) Term of Office Held and Length of Name and Age with Trust Time Served - ------------ ----------- ----------------- Jarold W. Boettcher Trustee Trustee since (62) December 16, 2002 James D. Gressett Trustee Trustee since (52) December 16, 2002 Joseph Harroz, Jr. Trustee Trustee since (35) December 16, 2002 Glendon E. Johnson, Jr. Trustee Trustee since (51) December 16, 2002

Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held - ------------ ----------------------- --------- ------------ Jarold W. Boettcher President of Boettcher Enterprises, Inc. 16 Director of Guaranty State Bank (62) (diversified agricultural products and & Trust Co.; Director of services); President of Boettcher Supply, Guaranty, Inc. Inc. (electrical and plumbing supplies distributor). James D. Gressett CEO of PacPizza, Inc.; Secretary of Street 16 Director of Collins Financial (52) Homes, LLP; formerly, President of Alien, Services. Inc. (real estate development). Joseph Harroz, Jr. General Counsel, University of Oklahoma, 16 Co-Lead Independent Director of (35) Cameron University and Rogers State Waddell & Reed Advisors Funds University; University-wide Vice President (20 portfolios overseen); of the University of Oklahoma; Adjunct Co-Lead Independent Director of Professor of Law, University of Oklahoma W&R Target Funds, Inc. (12 College of Law; Managing Member, Harroz portfolios overseen); Co-Lead Investment, LLC (commercial real estate); Independent Director of W&R Managing Member, JHJ Investments, LLC Funds, Inc. (12 portfolios (commercial real estate). overseen); Co-Lead Independent Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Glendon E. Johnson, Jr. Of Counsel, Lee & Smith, PC (law firm); 16 None. (51) Member/Manager, Castle Valley Ranches, LLC, formerly Partner, Kelley, Drye & Warren LLP (law firm).

Position(s) Term of Office Held and Length of Name and Age with Trust Time Served - ------------ ----------- ----------------- Eleanor B. Schwartz Trustee Trustee since (65) December 16, 2002 Michael G. Smith Trustee Trustee since December (58) 16, 2002 Edward M. Tighe Trustee 4 years (60)

Total Number of Other Principal Occupation(s) Ivy Funds Directorships Name and Age During Past 5 Years Overseen Held - ------------ ----------------------- --------- ------------ Eleanor B. Schwartz Professor of Business Administration, 16 Director of Waddell & Reed (65) University of Missouri--Kansas City; Advisors Funds (20 portfolios formerly, Chancellor of University of overseen); Director of W&R Missouri--Kansas City. Target Funds, Inc. (12 portfolios overseen); Director of W&R Funds, Inc. (12 portfolios overseen); Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). Michael G. Smith Associated with Graue Mill Partners, LLC; 16 None. (58) formerly, Managing Director--Institutional Sales, Merrill Lynch. Edward M. Tighe Chairman, CEO and Director of JBE 16 Director of Hansberger (60) Technology Group, Inc. (telecommunications Institutional Funds (2 and computer network consulting); President portfolios overseen); Director of Global Mutual Fund Services.; President of Asgard Holding, LLC. and CEO of Global Technology.

Each fund's statement of additional information ("SAI") contains additional information about the Trustees and is available without charge, upon request, by calling 1-800-456-5111. SHAREHOLDER MEETING RESULTS (unaudited) On December 10, 2002 a special shareholder meeting (the "Meeting") was held at the offices of Mackenzie Investment Management Inc., Boca Raton, Florida, for the following purposes (and with the following results): PROPOSAL 1: For shareholders of all Funds, except for Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management and Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy Management, Inc. ("IMI"); and FOR AGAINST ABSTAIN ------------------------------------------------------------------------ 51,498,803.247 1,377,315.682 1,493,850.977 ------------------------------------------------------------------------ PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or disapprove a new Master Business Management Agreement between the Trust, on behalf of the Fund, and IMI; and - --------------------------------------------------------- FOR AGAINST ABSTAIN 2,121,469.663 27,123.541 10,068.003 - --------------------------------------------------------- PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Henderson Global Investors (North America) Inc. ("HGINA"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,488,037.381 89,305.745 85,262.146 - ------------------------------------------------------------ PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy International Small Companies Fund, to approve or disapprove a new Subadvisory Agreement between HGINA and Henderson Investment Management Limited ("Henderson"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 5,489,481.210 93,343.546 80,135.834 - ------------------------------------------------------------ PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or disapprove a new Subadvisory Agreement between IMI and Peter Cundill & Associates, Inc. ("Cundill"); and - ------------------------------------------------------------ FOR AGAINST ABSTAIN 251,879.738 7,112.670 7,527.179 - ------------------------------------------------------------ PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election of eight nominees to serve as Trustees on the Board of Trustees. - ----------------------------------------------------------------------------- NOMINEE: FOR AGAINST KEITH A. TUCKER 54,459,082.827 2,069,192.008 HENRY J. HERRMANN 54,455,836.913 2,073,536.552 JAMES D. GRESSETT 54,480,456.334 2,047,818.501 JAROLD W. BOETTCHER 54,484,155.922 2,044,118.913 MICHAEL G. SMITH 54,473,248.468 2,052,569.367 JOSEPH HARROZ, JR. 53,859,972.525 2,051,162.062 ELEANOR B. SCHWARTZ 53,853,424.194 2,057,551.889 GLENDON E. JOHNSON, JR. 53,901,560.595 2,008,266.240 - ----------------------------------------------------------------------------- Edward M. Tighe, who was elected by shareholders, continued his term of office after the meeting. BOARD OF TRUSTEES Jarold W. Boettcher James D. Gressett Joseph Harroz, Jr. Henry J. Herrmann Glendon E. Johnson,Jr. Eleanor B. Schwartz Michael G. Smith Edward M. Tighe Keith A. Tucker OFFICERS Keith A. Tucker, Chairman of the Board Henry J. Herrmann, President Beverly J. Yanowitch, Treasurer Kristen Richards, Secretary & Vice President LEGAL COUNSEL Bell, Boyd & Lloyd Chicago, Illinois CUSTODIAN Brown Brothers Harriman & Co. Boston, Massachusetts TRANSFER AGENT PFPC Inc. 4400 Computer Drive Westborough, MA 01581 AUDITORS Deloitte & Touche LLP Kansas City, Missouri DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 INVESTMENT MANAGER Waddell & Reed Ivy Investment Company 6300 Lamar Avenue P.O. Box 29217 Shawnee Mission, Kansas 66201-9217 913-236-2000 888-WADDELL EX-99.(17)(W) 28 c78747exv99wx17yxwy.txt EX-(17)(W)ADVFIXEDINC&BLENDEDFUNDS AR - SEPT. 2002 Exhibit (17)(w) [GRAPHIC] ADVANTUS FIXED INCOME AND BLENDED FUNDS [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] ANNUAL REPORT TO SHAREHOLDERS DATED SEPTEMBER 30, 2002 ADVANTUS BOND FUND, INC. AN AGGREGATE BOND FUND ADVANTUS INTERNATIONAL BALANCED FUND, INC. AN INTERNATIONAL STOCK AND BOND FUND ADVANTUS MONEY MARKET FUND, INC. A MONEY MARKET SECURITIES FUND ADVANTUS MORTGAGE SECURITIES FUND, INC. A MORTGAGE - RELATED SECURITIES FUND ADVANTUS SPECTRUM FUND, INC. AN ASSET ALLOCATION FUND CUT DOWN PAPERWORK, NOT TREES ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005. ADVANTUS Fixed Income and Blended Funds TABLE OF CONTENTS PERFORMANCE UPDATES Bond Fund 3 International Balanced Fund 9 Money Market Fund 16 Mortgage Securities Fund 19 Spectrum Fund 26 INVESTMENTS IN SECURITIES Bond Fund 32 International Balanced Fund 39 Money Market Fund 48 Mortgage Securities Fund 51 Spectrum Fund 58 FINANCIAL STATEMENTS Statements of Assets and Liabilities 70 Statements of Operations 72 Statements of Changes in Net Assets 74 Notes to Financial Statements 78 INDEPENDENT AUDITORS' REPORT 102 FEDERAL INCOME TAX INFORMATION 103 DIRECTORS AND EXECUTIVE OFFICERS 110 SHAREHOLDER SERVICES 112 LETTER FROM THE PRESIDENT [PHOTO of DIANNE ORBISON] Dear Shareholders: Although economic growth has slowed dramatically, we feel it has not stopped, and that is reason for optimism. Growth drives our economy and markets. In the first six months of the year, growth, as measured by the Gross National Product, dropped from 5 percent to 1.3 percent. The slowing economy has had a profound effect on business spending. Stimulative fiscal and monetary policies -- together with low inflation -- are in place. We believe these are powerful tools to help mend an ailing economy, but progress has been slow. STOCK MARKET: The S&P 500 Index(1) recorded a 20.48 percent loss for the one year period ended September 30, 2002. The stock market responds to earnings. When companies reduce or miss their forecasted earnings, investor sentiment sinks lower (i.e., more uncertainty is unleashed in the market). At the end of this reporting period (September 30, 2002), more than two stocks fell for every one that rose on the New York Stock Exchange and NASDAQ Stock Market. FIXED INCOME MARKET: The Lehman Brothers Aggregate Bond Index(2) returned 8.60 percent for the one year period ended September 30, 2002. Quality (i.e., investment grade) bonds have been strong performers in this economic cycle. MARKET OUTLOOK: The capital markets are facing some solemn issues. The threat of war with Iraq has contributed to lower investor confidence and higher oil prices, which, we feel, will likely crimp further economic growth into next year. We believe that double-digit returns in the stock market are not feasible in light of the economic and market environment. Investors need to adjust expectations to align with the current reality. Consider dollar cost averaging(3) into stock funds. This is an easy-to-implement strategy that can help smooth out the lows and highs of a volatile stock market. CHANGES AT ADVANTUS. You will notice that 5 of the 11 Advantus Funds are included in this report. The other six Advantus Funds were published in an equities annual report dated July 31, 2002. We have divided the 11 reports for the funds into two mailings to achieve economies of scale in report preparation and mailing. We are also moving forward with plans to combine Advantus Funds' prospectuses in the same way and for the same reasons. 1 I have been President of the Advantus Funds since July. Bill Westhoff, former President and investment management veteran, retired in late July after 31 years of service to shareholders. I look forward to communicating with you on a regular basis and bringing you news of the economy, markets, and Advantus. Sincerely, /s/ Dianne Orbison Dianne Orbison President, Advantus Funds (1) The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. (2) The LEHMAN BROTHERS AGGREGATE BOND INDEX is a market-weighted index that covers the U.S. investment grade fixed rate bond market. The index includes government and corporate securities, agency mortgage pass-through securities and asset backed securities. (3) Dollar cost averaging does not ensure a profit or protect against loss in declining markets. Also, since such a program involves regular purchases, regardless of price level, consider your financial ability to continue purchases through periods of low price levels. 2 ADVANTUS BOND FUND, INC. PERFORMANCE UPDATE WAYNE SCHMIDT, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The Fund's performance for the year ended September 30, 2002, for each class of shares offered was as follows: Class A 7.90 percent* Class B 6.99 percent* Class C 7.11 percent* The Fund's benchmark, the Lehman Brothers Aggregate Bond Index,** returned 8.60 percent for the same period. PERFORMANCE ANALYSIS The U.S. bond market has been rediscovered by investors as they seek a safe haven from the equity market and explore ways to earn incremental returns over low money market yields. The demand for fixed income combined with global economic weakness, declining equity markets, and worldwide tension has generated a tremendous rally in the fixed income market. Yields on U.S. Treasury securities fell to 40-year lows as the five-year U.S. Treasury Note declined 146 basis points (1.46 percent) to yield just 2.57 percent. The ten-year note declined 120 basis points (1.20 percent) during the quarter, bringing its yield down to 3.60 percent. The decline in interest rates paved the way for record mortgage refinancing as every homeowner enjoyed the opportunity to lower their mortgage interest cost. This refinancing wave has taken a toll on the mortgage sector of the fixed income market as loans are rapidly being paid off at a par dollar price. Over the past twelve months, mortgages were the weakest sector in the investment grade fixed income market returning 7.63 percent. We feel the corporate bond market continues to be a dangerous place in the wake of Enron and Worldcom. The volatility in the equity markets is reflected daily in the corporate bond market. Corporate bonds were the next weakest performing sector, but still returned a positive 8.19 percent. U.S. Treasuries were the star performers as investors opted for quality. U.S. Treasuries returned an attractive 10.45 percent for the period. The Fund's solid performance is attributable to a variety of factors. The Fund has been overweight in mortgage-backed securities, but the prepayment risk of the securities held was actively managed through the use of commercial mortgage backed securities, structured mortgages and low loan balance pools of mortgages. The Fund did not experience the rapid prepayment speeds of the 3 overall market. The Fund was also overweight in the corporate bond sector. We have maintained a diversified portfolio of corporate bonds and avoided the numerous credit disasters in this sector. While the Fund owns less U.S. Treasury securities than the index, the dollars invested in treasuries have been in the best performing securities: 30-year bonds and TIPS (treasury inflation protection securities). OUTLOOK We view yield and principal preservation as the key drivers to future returns in the bond market. The Fund will continue to overweight corporate bonds and mortgage-backed securities while staying conservative with our duration exposure. Within the corporate sector, we will selectively look for opportunities to add yield to the Fund. We believe the fixed income market can not continue producing double-digit returns indefinitely. We feel this could be the third consecutive year of annual fixed income returns near 10 percent. We expect the party in bonds will end when the equity market finds a bottom and begins to recover. Investors have been re-educated on the need for diversification and stability that fixed income brings to their portfolio. With interest rates at 40-year lows, we think investors need to bring their fixed income return expectations in line with the realities of today's market. We believe low single digit returns in an environment where rates move higher seems inevitable. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 4.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Lehman Brothers Aggregate Bond Index is an unmanaged benchmark which includes all publicly issued fixed rate, nonconvertible domestic corporate debt. 4 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS BOND FUND, LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Bond Fund compared to the Lehman Brothers Aggregate Bond Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on September 30, 1992 through September 30, 2002. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Bond Fund (August 19, 1994 and March 1, 1995 for Class B and C, respectively) through September 30, 2002. [CHART] CLASS A SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year 3.05% Five year 5.49% Ten year 6.13% (Thousands)

LEHMAN BROTHERS AGGREGATE CLASS A BOND INDEX CPI 9/30/92 $ 9,546 $ 10,000 $ 10,000 9/30/93 $ 10,661 $ 10,985 $ 10,402 9/30/94 $ 10,009 $ 10,579 $ 10,761 9/30/95 $ 11,516 $ 12,044 $ 10,998 9/30/96 $ 11,979 $ 12,628 $ 11,328 9/30/97 $ 13,246 $ 13,846 $ 11,579 9/30/98 $ 14,405 $ 15,411 $ 11,744 9/30/99 $ 14,064 $ 15,334 $ 12,053 9/30/00 $ 14,773 $ 16,406 $ 12,462 9/30/01 $ 16,794 $ 18,647 $ 12,793 9/30/02 $ 18,121 $ 20,252 $ 12,979

5 [CHART] CLASS B SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year 1.99% Five year 5.46% Since inception (8/19/94) 6.60% (Thousands)

LEHMAN BROTHERS AGGREGATE CLASS B BOND INDEX CPI 8/19/94 $ 10,000 $ 10,000 $ 10,000 9/30/94 $ 9,876 $ 9,957 $ 10,067 9/30/95 $ 10,801 $ 11,337 $ 10,289 9/30/96 $ 11,252 $ 11,886 $ 10,598 9/30/97 $ 12,480 $ 13,033 $ 10,833 9/30/98 $ 13,610 $ 14,506 $ 10,987 9/30/99 $ 13,200 $ 14,434 $ 11,276 9/30/00 $ 13,905 $ 15,443 $ 11,659 9/30/01 $ 15,702 $ 17,443 $ 11,968 9/30/02 $ 16,800 $ 18,945 $ 12,142

6 [CHART] CLASS C SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year 7.11% Five year 5.67% Since inception (3/1/95) 6.62% (Thousands)

LEHMAN BROTHERS AGGREGATE CLASS C BOND INDEX CPI 3/1/95 $ 10,000 $ 10,000 $ 10,000 9/30/95 $ 10,925 $ 10,808 $ 10,146 9/30/96 $ 11,265 $ 11,332 $ 10,450 9/30/97 $ 12,348 $ 12,426 $ 10,682 9/30/98 $ 13,372 $ 13,830 $ 10,834 9/30/99 $ 12,909 $ 13,761 $ 11,119 9/30/00 $ 13,459 $ 14,722 $ 11,497 9/30/01 $ 15,187 $ 16,629 $ 11,801 9/30/02 $ 16,266 $ 18,062 $ 11,974

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 4.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. The graphs and tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 7 TEN LARGEST BOND HOLDINGS

MARKET % OF BOND SECURITY DESCRIPTION VALUE PORTFOLIO - -------------------- ----------- --------- Federal Home Loan Mortgage Corporation 6.500%, 09/01/32 $ 726,604 3.1% U.S. Treasury Bond 6.000%, 02/15/26 699,398 3.0% U.S. Treasury Bond 5.250%, 02/15/29 638,695 2.7% Federal National Mortgage Association 7.500%, 05/01/31 540,884 2.3% Anheuser-Busch Companies, Inc. 7.100%, 06/15/07 540,760 2.3% St. George Funding Company - 144A Issue 8.485%, 12/29/49 513,510 2.2% Federal National Mortgage Association 7.000%, 02/01/32 496,418 2.1% Federal National Mortgage Association 7.000%, 11/01/31 478,621 2.0% Metropolitan Asset Funding - 144A Issue 7.525%, 04/20/27 435,961 1.8% National Collegiate 7.240%, 09/20/14 433,089 1.8% ----------- ------- $ 5,503,940 23.3% =========== =======

[CHART] U.S. Treasury 7.6% U.S. Government Agencies 26.2% AAA Rated 13.6% AA Rated 11.3% A Rated 15.0% BBB Rated 21.6% D Rated 0.3% Cash and Other Assets/Liabilities 4.4% 8 Advantus International Balanced Fund, Inc. PERFORMANCE UPDATE GARY CLEMONS AND TUCKER SCOTT III, CFA, PORTFOLIO MANAGERS TEMPLETON INVESTMENT COUNSEL, INC. ALEXANDER CALVO, PORTFOLIO MANAGER FRANKLIN ADVISORS, INC. PERFORMANCE The Advantus International Balanced Fund's performance for the year ended September 30, 2002 for each class of shares offered was as follows: Class A - 4.62 percent* Class B - 5.52 percent* Class C - 5.52 percent* By comparison, an international equity index, the MSCI EAFE Index,** returned - -15.14 percent, an international bond index, the J.P. Morgan Non-U.S. Government Bond Index+ returned 10.48 percent, and a blended index comprised of 60% MSCI EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index returned -5.26% for the same period. PERFORMANCE ANALYSIS During the 12 months under review, global equity markets experienced uncertainty, and the U.S. market in particular was the focus of worldwide attention. The terrorist attacks of September 11, 2001, exacerbated what had begun earlier in 2001: declines in employment, corporate earnings and gross domestic product (GDP) growth in Asia, Europe and the Americas. Paradoxically, we believe the attacks may have contributed to economic recovery. The U.S. Federal Reserve Board continued its efforts to stimulate the economy through cuts in short-term interest rates. The Fed made eleven cuts during 2001, four after September 11th. Most nations' central banks followed the U.S. lead and sought economic stimulus through cutting their own interest rates. In the U.S., the effects of monetary easing became apparent during the fourth quarter of 2001, as GDP grew at a 2.70 percent annualized rate. This trend continued in the first and second quarters of 2002, with annualized growth rates of 5.00 percent and 1.10 percent. However, relatively healthy consumer-related economic data contrasted with negative news on the corporate side. The Enron scandal raised concerns about other potential pitfalls, and as more corporate deception and fraudulent accounting came to light, investors became increasingly suspicious about corporate management credibility and companies' financial statements. Partly as a result, global market volatility spiked to levels not seen since the terrorist attacks and led to general stock price declines. Also contributing to the drop in stock prices were gloomy industry outlooks, led by 9 the Information Technology and Telecommunications Services sectors. In addition, ongoing U.S. terrorist fears and geopolitical conflicts added uncertainty to global financial markets. All considered, outside the U.S., equity markets generally declined during the reporting period. The Fund allocation at September 30, 2002 was 52 percent equity, 45 percent fixed income with the remaining portion in short-term instruments and cash. From an equity perspective, industry sectors that declined sharply in the broad market, such as Financials, Health Care, Information Technology and Telecommunications Services negatively affected the Fund's performance. However, in a couple of these cases, the negative effect to overall performance was proportionally less severe for the Fund than for the MSCI EAFE Index. This was especially true in the Financial and Telecommunications sectors. On the positive side, based on strong stock selection, our Consumer-related sectors delivered solid investment results. This was not the case for the Index, as media, hotel and leisure-related stocks faced challenges during the period and generated negative returns within the Index. Geographically, the Fund benefited from our exposure in Latin America, despite the fact that Latin America was battered by such unfavorable events as Argentina's currency devaluation, Brazils' political uncertainty and Mexico's economic jitters. In Asia, the Fund's relatively overweight positions in Hong Kong and South Korea drove much of the Fund's outperformance in the region. On a relative basis, our holdings in Japan also contributed to the Fund's overall performance. During the period, we remained unconvinced about the prospects of measurable corporate reforms in Japan. Turning to the fixed income portion of the Fund, during the twelve months ending September 30, 2002, the JP Morgan Global Government Bond Index ex. U.S.--a benchmark index for the fixed income portion of the Fund--posted a positive return of 10.48 percent in U.S. dollar terms, versus a return of 10.74 percent for the JPM U.S. Government Bond Index--a benchmark index for U.S. Treasuries. The Fund did not hold any U.S. Treasury bonds during the year ended September 30, 2002. While the U.S. dollar depreciated against most major currencies during the period, the slightly lower returns of the non U.S. index is in part due to the underperformance of Japanese bonds and 1.85 percent depreciation of the Yen relative to the U.S. dollar during the period. In addition to the strong returns of global government bonds during the period, the fixed income allocation of the Fund also benefited from its underweight position in Japan and overweight position in Europe and the Dollar bloc. The U.S. Treasury yield curve shifted down during the period, driven by the Federal Reserve's easing of monetary policy earlier in the fiscal year and the slower than previously anticipated recovery of the U.S. economy. The Fed reduced the Fed funds rate by 125 basis points (1.25 percent) from 3.00 to 1.75 percent. Meanwhile, the Euroland benchmark yield curve also shifted down during the period as the European Central Bank lowered its reference interest rate by 50 basis points (.50 percent) from 3.75 to 3.25 percent. 10 European bonds rose 17.59 percent in US dollar terms, as European bond markets offered positive returns in local currency terms and the Euro appreciated by 8.25 percent against the dollar. Performance was consistent across the region. Euro Area bonds, including German, Italian, French and Spanish bonds rose approximately 17.64 percent in U.S. dollar terms. The U.K. index outperformed as well, rising 17.02 percent in U.S. dollar terms as the Bank of England reduced its official interest rate by 75 basis points (.75 percent) from 4.75 to 4.00 percent during the fiscal year. The British Pound appreciated 6.38 percent against the dollar. The Japanese Index increased only 0.33 percent in U.S. dollar terms due to the weakness in the Japanese yen, as mentioned above. The Dollar-bloc bond markets posted mixed performance with Canadian bonds returning 7.60 percent, while Australian and New Zealand bonds outperformed, returning 16.55% percent and 24.44 percent, respectively. The Australian and New Zealand currencies appreciated 10.44 percent and 15.35 percent against the U.S. dollar versus the 0.48 percent depreciation of the Canadian dollar. OUTLOOK Periods such as the last year are disconcerting to investors. The outlook for the global economy and for equity markets was expected to improve, but it actually deteriorated, leaving investors with more questions than answers about their investments in equities. We believe, however, that these periods are similar to periods of extreme confidence, such as the first quarter of 2000. In both cases, emotion, not logical thinking guided investors' decisions and led them to irrational behavior. Another similarity that we believe exists in these kinds of periods is that they tend to be temporary, lasting only as long as the emotion persists. While there are a number of uncertainties going forward, particularly the direction of consumer spending, we believe the extreme volatility of equity markets continues to provide us with the opportunity to identify quality companies with good operating prospects, often with attractive dividend yields, at prices that we find compelling. In the longer term, we believe our investment philosophy of buying when others are blindly selling should benefit our investors and we remain comfortable with the Fund's long-term holdings. We thank you for your continued confidence in Templeton. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The MSCI EAFE Index is an unmanaged index of common stocks from European, Australian, and Far Eastern markets. +The J.P. Morgan Non-U.S. Government Bond Index includes all liquid foreign government issues of Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden and United Kingdom. 11 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS INTERNATIONAL BALANCED FUND, MSCI EAFE INDEX, J.P. MORGAN NON-U.S. GOVERNMENT BOND INDEX, BLENDED INDEX, AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus International Balanced Fund compared to the EAFE Index, the J.P. Morgan Non-U.S. Government Bond Index, Blended Index of 60% EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index and the Consumer Price Index. The four lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus International Balanced Fund (September 16, 1994 for Class A, January 31, 1997 for Class B, and March 1, 1995 for Class C) through September 30, 2002. [CHART] CLASS A SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -9.86% Five year -2.76% Since inception (9/16/94) 2.80% (Thousands)

J.P. MORGAN BLENDED CLASS A EAFE INDEX INDEX CPI INDEX 9/16/94 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/94 $ 9,274 $ 9,845 $ 10,094 $ 10,054 $ 9,944 9/30/95 $ 9,961 $ 10,460 $ 11,972 $ 10,275 $ 11,056 9/30/96 $ 11,030 $ 11,399 $ 12,605 $ 10,584 $ 11,890 9/30/97 $ 13,576 $ 12,819 $ 12,639 $ 10,818 $ 12,783 9/30/98 $ 11,809 $ 11,782 $ 14,133 $ 10,973 $ 12,783 9/30/99 $ 13,775 $ 15,472 $ 14,256 $ 11,261 $ 15,189 9/30/00 $ 14,639 $ 16,466 $ 13,087 $ 11,643 $ 15,304 9/30/01 $ 13,092 $ 11,809 $ 13,693 $ 11,952 $ 13,693 9/30/02 $ 12,488 $ 9,739 $ 15,128 $ 12,126 $ 12,973

12 [CHART] CLASS B SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -10.25% Five year -2.74% Since inception (1/31/97) -.40% (Thousands)

J.P. MORGAN BLENDED CLASS B EAFE INDEX INDEX CPI INDEX 1/31/97 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/97 $ 10,730 $ 11,246 $ 10,027 $ 10,094 $ 10,751 9/30/98 $ 9,264 $ 10,336 $ 11,212 $ 10,238 $ 10,752 9/30/99 $ 10,887 $ 13,573 $ 11,310 $ 10,507 $ 12,775 9/30/00 $ 11,589 $ 14,445 $ 10,382 $ 10,864 $ 12,872 9/30/01 $ 10,353 $ 10,360 $ 10,862 $ 11,151 $ 10,862 9/30/02 $ 9,776 $ 8,544 $ 12,000 $ 11,314 $ 10,291

13 [CHART] CLASS C SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -5.52% Five year -2.47% Since inception (3/1/95) 3.56% (Thousands)

J.P. MORGAN BLENDED CLASS C EAFE INDEX INDEX CPI INDEX 3/1/95 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/95 $ 11,026 $ 11,175 $ 11,198 $ 10,146 $ 11,192 9/30/96 $ 12,120 $ 12,179 $ 11,791 $ 10,450 $ 12,036 9/30/97 $ 14,780 $ 13,696 $ 11,822 $ 10,682 $ 12,940 9/30/98 $ 12,759 $ 12,588 $ 13,219 $ 10,834 $ 12,940 9/30/99 $ 14,763 $ 16,530 $ 13,335 $ 11,119 $ 15,375 9/30/00 $ 15,555 $ 17,592 $ 12,241 $ 11,497 $ 15,492 9/30/01 $ 13,801 $ 12,617 $ 12,807 $ 11,801 $ 12,807 9/30/02 $ 13,039 $ 10,406 $ 14,150 $ 11,974 $ 12,133

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. The graphs and tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 14 FIVE LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------- ----------- ---------- Nippon Telegraph & Telephone Corporation 158 $ 525,628 2.5% Korea Telecom ADR 21,900 485,742 2.3% BHP Billiton PLC 100,220 464,938 2.2% Checkpoint Software 33,700 463,038 2.2% Iberdrola SA 35,072 454,068 2.2% ----------- ---- $ 2,393,414 11.4% =========== ====

FIVE LARGEST BOND HOLDINGS

MARKET % OF BOND ISSUER VALUE PORTFOLIO - ------ ----------- --------- Canadian Government 6.00%, 06/01/11 $ 2,114,324 11.8% United Kingdom 7.50%, 12/07/06 1,638,662 9.1% Buoni Poliennali del Tesoro 7.75%, 11/01/06 1,575,217 8.7% Government of France 4.00%, 10/25/09 1,468,351 8.2% Federal Republic of Germany 5.00%, 07/04/11 1,281,373 7.1% ----------- ---- $ 8,077,927 44.9% =========== ====

[CHART] Health Care 1.8% Consumer Staples 2.5% Technology 2.7% Utilities 3.1% Consumer Cyclical 3.1% Communication Services 4.9% Energy 5.9% Basic Materials 7.1% Capital Goods 8.3% Financial 10.2% Foreign Government Bonds 43.8% Cash and Other Assets/Liabilities 6.6% 15 Advantus Money Market Fund, Inc. PERFORMANCE UPDATE STEVEN S. NELSON, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE For the year ended September 30, 2002, the Advantus Money Market Fund earned a total return of 1.27 percent.* This compares to the three-month U.S. Treasury Bill, which earned 2.0 percent for the same period. The seven-day compound yield of the Fund was .99 percent* at September 30, 2002. PERFORMANCE ANALYSIS With the U.S. economy showing few signs of improving and in the face of continued global economic weakness, equity market turmoil, and the prospect of war, U.S. Treasury rates fell significantly across the entire yield curve. As a result of such low rates, the yields offered in the commercial paper market were correspondingly lower, with most issuers offering well below 2.00 percent yields over much of the past year. The negative economic backdrop during the past year kept the Federal Reserve maintaining a very easy stance with respect to monetary policy. Market sentiment, which was increasingly positive at the beginning of 2002, definitely shifted again toward the negative during the past two quarters. Early in 2002, many investors were anticipating a stronger economy and the Federal Reserve to raise key short-term interest rates sometime later this year. However, such expectations have now been pushed well into the future, another reason for the rally in interest rates. *Historical performance is not an indication of future performance. Investment returns will fluctuate. Investments in the Money Market Account are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 16 OUTLOOK The investment approach applied to the Fund remained essentially unchanged over the past year. In other words, despite a dearth of attractive yields, the Fund's safety and liquidity was not compromised to marginally enhance returns. As always, principal preservation and minimal credit risk remained our primary focus. Three-quarters of the way through 2002, we feel high-quality U.S. corporate commercial paper remains a sound, albeit low-yielding, alternative for investors seeking a high degree of safety and liquidity for a portion of their portfolios. We believe this is particularly true given the current state of the global economy and the potential for further volatility with the growing probability of war with Iraq. The Advantus Money Market Fund has over 90 percent of its assets invested in high quality corporate commercial paper (i.e., commercial paper that is rated A-1 or higher by Standard and Poor's or P-1 by Moody's) or federal discount notes. In addition, the Fund's holdings are well diversified over a variety of stable industries. While we believe money market returns will remain low over the next several months, we think investors should consider the Fund's benefits of excellent liquidity and principal preservation as they make their asset allocation decisions. [CHART] AVERAGE DAYS TO MATURITY

NUMBER OF DAYS 10/2/01 40 10/9/01 40 10/16/01 47 10/23/01 48 11/6/01 45 11/13/01 45 11/20/01 40 11/27/01 52 12/4/01 48 12/11/01 51 12/18/01 52 12/25/01 57 1/1/02 53 1/8/02 48 1/22/02 49 1/29/02 48 2/5/02 46 2/12/02 52 2/19/02 54 2/26/02 47 3/5/02 43 3/12/02 36 3/19/02 35 3/26/02 31 4/2/02 34 4/9/02 35 4/16/02 36 4/23/02 40 5/7/02 45 5/14/02 44 5/21/02 46 5/28/02 39 6/4/02 33 6/11/02 47 6/18/02 54 6/25/02 47 7/2/02 55 7/9/02 56 7/16/02 53 7/23/02 48 7/30/02 53 8/6/02 48 8/13/02 49 8/20/02 54 8/27/02 53 9/3/02 49 9/10/02 49 9/17/02 47 9/24/02 48

17 [CHART] SEVEN-DAY COMPOUND YIELD*

PERCENTAGE 10/2/01 2.62% 10/9/01 2.74% 10/16/01 2.33% 10/23/01 1.98% 11/6/01 1.60% 11/13/01 1.64% 11/20/01 1.76% 11/27/01 1.78% 12/4/01 1.61% 12/11/01 1.64% 12/18/01 1.32% 12/25/01 1.38% 1/1/02 1.39% 1/8/02 1.29% 1/22/02 1.16% 1/29/02 1.24% 2/5/02 1.18% 2/12/02 1.24% 2/19/02 1.18% 2/26/02 1.23% 3/5/02 1.18% 3/12/02 1.22% 3/19/02 1.23% 3/26/02 1.24% 4/2/02 1.19% 4/9/02 1.19% 4/16/02 1.07% 4/23/02 0.87% 5/7/02 1.00% 5/14/02 1.14% 5/21/02 1.03% 5/28/02 0.99% 6/4/02 1.08% 6/11/02 1.02% 6/18/02 1.06% 6/25/02 1.02% 7/2/02 0.99% 7/9/02 1.08% 7/16/02 1.00% 7/23/02 1.05% 7/30/02 1.01% 8/6/02 1.02% 8/13/02 1.00% 8/20/02 1.00% 8/27/02 0.99% 9/3/02 0.93% 9/10/02 1.05% 9/17/02 0.98% 9/24/02 0.98%

The yield quotation more closely represents the current earnings of the Money Market Fund than the total return quotation. The seven-day compound yield is computed by determining the net change in the value of a hypothetical account having a balance of one share at the beginning of a seven calendar day period, dividing that change by seven, adding one to the quotient, raising the sum to the 365th power and subtracting one from the result. *Historical performance is not an indication of future performance. Investment returns will fluctuate. The graphs and tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 18 Advantus Mortgage Securities Fund, Inc. PERFORMANCE UPDATE KENT WEBER, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The performance of the Fund for the year ended September 30, 2002 was as follows for the three classes of shares currently outstanding: Class A 7.88 percent* Class B 6.99 percent* Class C 6.99 percent* The Fund's benchmark, the Lehman Brothers Mortgage-Backed Securities Index**, returned 7.36 percent for the same period. PERFORMANCE ANALYSIS The fixed income markets have been volatile over the last twelve months as prepayment and credit uncertainty ran high and investors continued to push yield premiums on mortgages and corporates wider and wider. Mortgages, which had performed admirably up through the third quarter of this year, did lag their duration-matched treasuries during the most recent quarter as interest rates pushed lower. Commercial mortgage-backed securities (CMBS) actually turned in the best performance during the period, as they remained relatively unaffected by the credit problems lurking in the corporate market and sheltered from the prepayment waves pounding the shores of the residential mortgage market. Over the course of the year, we have managed the duration of your Fund both shorter and longer than the index. Recently it has grown longer as the mortgage index has shortened dramatically relative to the Fund as interest rates reach new generation lows. We typically manage our duration within a range of +/- 20 percent of the mortgage index. We expect to see the index start to *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 4.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark composite which includes all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). The risks incurred by mortgage securities include, but are not limited to, reinvestment of prepaid loans at lower rates of return. In addition, the net asset value of mortgage securities may fluctuate in response to changes in interest rates and are not guaranteed. 19 extend back out as it becomes repopulated with low coupon/longer duration mortgages and its rates begin to drift moderately higher. We do not plan to chase the index shorter or longer, but stay the course and let the index bounce around until the markets settle down and interest rates become more stable. While we want to be on the right side of the duration fence, security selection truly offers us the greatest opportunity to consistently add value to your Fund. Therefore, we continued to pursue strategies that work to strengthen your overall diversification, reduce your prepayment risk (both fast and slow) and increase your total return opportunities while generating competitive yields. Securities that meet these criteria include specific mortgage pools backed by new low loan balances, seasoned AAA or AA-rated asset-backed securities, as well as select additions to the credit portions of your residential and commercial mortgage holdings. Additional income and returns have been generated throughout the year by embracing broad ownership of these prepayment-challenged sectors and by riding the improving credit ratings on our non-agency mortgage holdings. Solid security selection helps reduce your overall prepayment and credit volatility during challenging times like these, but does not completely immunize your Fund from spread volatility that continues to roll across different markets at different times. OUTLOOK We feel that the general level of interest rates is low and likely to remain low relative to our historical perspectives. Fortunately, mortgages are a large, diverse market of securities that, in our opinion, offer features specifically designed to address our current environment where prepayment and credit uncertainty runs high. Given the historically low level of interest rates, we believe it's likely that the fixed income markets will remain quite volatile and over the short term the mortgage market could even give back some of it's near double-digit year to date returns. We feel that investors would be wise to adjust lower their forward-looking return expectations on their fixed income holdings and remember that bond prices do move inversely with the direction of interest rates. Even at these low rate levels, we believe mortgages continue to offer attractive, consistently competitive levels of income and low volatility. We feel mortgages remain an attractive fixed income asset class, especially for those who pursue them opportunistically and on all available fronts. You deserve all the mortgage market has to offer and that's what we continue to offer you at Advantus; a unique, holistic, active, total return investment style that incorporates selective securities from numerous sectors of the mortgage market. We remain committed to building your Fund one bond at a time. We thank you for your business and trust in Advantus, and look forward to helping you meet your investment goals. 20 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS MORTGAGE SECURITIES FUND, LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Mortgage Securities Fund compared to the Lehman Brothers Mortgage-Backed Securities Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on September 30, 1992 through September 30, 2002. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares (August 19, 1994 and March 1, 1995, respectively) through September 30, 2002. [CHART] CLASS A SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year 3.03% Five year 7.04% Ten year 6.81% (Thousands)

LEHMAN BROTHERS MORTGAGE-BACKED CLASS A SECURITIES INDEX CPI 9/30/92 $ 9,548 $ 10,000 $ 10,000 9/30/93 $ 10,379 $ 10,664 $ 10,269 9/30/94 $ 10,000 $ 10,524 $ 10,624 9/30/95 $ 11,353 $ 11,947 $ 10,858 9/30/96 $ 11,901 $ 12,640 $ 11,184 9/30/97 $ 13,135 $ 13,908 $ 11,432 9/30/98 $ 14,283 $ 15,108 $ 11,595 9/30/99 $ 14,605 $ 15,449 $ 11,899 9/30/00 $ 15,729 $ 16,599 $ 12,303 9/30/01 $ 17,916 $ 18,646 $ 12,629 9/30/02 $ 19,335 $ 20,017 $ 12,814

21 [CHART] CLASS B SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: Class B: One year 1.99% Five year 6.98% Since inception (8/19/94) 7.57% (Thousands)

LEHMAN BROTHERS MORTGAGE-BACKED CLASS B SECURITIES INDEX CPI 8/19/94 $ 10,000 $ 10,000 $ 10,000 9/30/94 $ 9,928 $ 9,874 $ 10,067 9/30/95 $ 10,742 $ 11,209 $ 10,289 9/30/96 $ 11,297 $ 11,859 $ 10,598 9/30/97 $ 12,521 $ 13,049 $ 10,833 9/30/98 $ 13,633 $ 14,175 $ 10,987 9/30/99 $ 13,840 $ 14,495 $ 11,276 9/30/00 $ 14,955 $ 15,573 $ 11,659 9/30/01 $ 16,906 $ 17,494 $ 11,968 9/30/02 $ 18,087 $ 18,781 $ 12,142

22 [CHART] CLASS C SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: Class C: One year 6.99% Five year 7.21% Since inception (3/1/95) 7.61% (Thousands)

LEHMAN BROTHERS MORTGAGE-BACKED CLASS C SECURITIES INDEX CPI 3/1/95 $ 10,000 $ 10,000 $ 10,000 9/30/95 $ 10,791 $ 10,793 $ 10,146 9/30/96 $ 11,230 $ 11,419 $ 10,450 9/30/97 $ 12,314 $ 12,565 $ 10,682 9/30/98 $ 13,290 $ 13,649 $ 10,834 9/30/99 $ 13,489 $ 13,957 $ 11,119 9/30/00 $ 14,419 $ 14,995 $ 11,497 9/30/01 $ 16,301 $ 16,845 $ 11,801 9/30/02 $ 17,440 $ 18,084 $ 11,974

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 4.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. The graphs and tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 23 TEN LARGEST BOND HOLDINGS

MARKET % OF BOND SECURITY DESCRIPTION VALUE PORTFOLIO - -------------------- ------------ --------- Federal National Mortgage Association 6.000%, 10/01/32 $ 5,554,313 5.2% Federal Home Loan Mortgage Corporation 6.500%, 09/01/32 4,411,525 4.2% Federal National Mortgage Association 7.000%, 06/01/32 3,938,398 3.7% Federal National Mortgage Association 6.500%, 09/01/32 3,305,680 3.1% Federal National Mortgage Association 6.500%, 08/01/32 3,235,702 3.0% Paine Webber Mortgage Acceptance Corporation 7.655%, 01/02/12 2,695,407 2.6% Federal National Mortgage Association 6.500%, 03/01/32 2,388,390 2.3% Federal National Mortgage Association 6.500%, 07/01/32 2,300,745 2.2% BankAmerica Manufactured Housing Contract 7.800%, 10/10/26 2,161,824 2.0% Federal Home Loan Mortgage Corporation 6.000%, 09/01/32 2,134,202 2.0% ------------ ---- $ 32,126,186 30.3% ============ ====

[CHART] FHLMC 6.1% FNMA 29.6% GNMA 4.0% Vendee Mortgage Trust 1.2% Non-Agency Subprime Residential MBS 0.4% Non-Agency Prime Residential MBS 33.2% Non-Agency Commercial MBS 22.9% Other Agency Obligations 0.9% Cash and Other Assets/Liabilities 1.7% 24 [CHART] Public Issues 81.6% Liquid 144A Issues 12.9% Illiquid 144A Issues and Other Private Placement Illiquid Issues 3.8% Cash and Other Assets/Liabilities 1.7% [CHART] AAA Rated 57.5% AA Rated 17.9% A Rated 9.0% BBB Rated 13.1% BB Rated 0.4% D Rated 0.4% Cash and Other Assets/Liabilities 1.7% 25 Advantus Spectrum Fund, Inc. MATT FINN, ALLEN STEINKOPF AND WAYNE SCHMIDT, PORTFOLIO MANAGERS ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The Fund's performance for the year ended September 30, 2002, for each class of shares offered was as follows: Class A - 5.91 percent* Class B - 6.56 percent* Class C - 6.54 percent* This compares to the Fund's benchmark, a blend of 60 percent S&P 500 Index** and 40 percent Lehman Brothers Aggregate Bond Index+, which returned -9.35 percent over the same period. The S&P 500 Index and the Lehman Brothers Aggregate Bond Index returned -20.48% and 8.60%, respectively, for the same period. PERFORMANCE ANALYSIS Stock selection has been the largest contributor to the Fund's performance, helping the equity portion of the Fund to outperform the S&P 500 by over 800 basis points (8.00 percent) over the last year. As growth stocks rebounded strongly in the fourth quarter and first quarter of this year, the Fund was able to take advantage of these higher prices to exit from some of our positions and buy other stocks at good values that helped to reposition the Fund. This transition was completed in the first quarter of this year and the equity performance has continued to beat the benchmark every month this year. The solid performance from the fixed income portion of the Fund is attributable to a variety of factors. The Fund was overweighted in mortgage-backed securities, but the prepayment risk of the securities held was actively managed through the use of commercial mortgage-backed securities, structured mortgages and low loan balance pools of mortgages. The Fund maintained a diversified portfolio of corporate bonds and avoided the numerous credit *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. +The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities Index and the Lehman Brothers Asset-Backed Securities Index. 26 disasters in this sector. While the Fund owns less U.S. Treasury securities than the index, the dollars invested in treasuries have been in one of the better performing securities: 30-year bonds and TIPS (treasury inflation protection securities). OUTLOOK We feel the Fund is positioned to perform well in up and down markets. We have positioned the Fund to be slightly biased towards equity (as measured by a 60/40 stock/bond index) with a 61 percent weight in equities vs. a 35 percent weight in bonds and 4 percent cash. The equity portion is broadly diversified with no larger than a 3 percent overweight in any one sector and no more than 3 percent in one security. No one can predict were the market will go in the short run, but currently we believe the market is discounting very near zero percent growth for our economy into the future. We do not believe this to be the case and thus think that equities should be overweighted. We are being careful not to increase our weighting too much in order to avoid being disappointed in our performance. 27 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS SPECTRUM FUND, S&P 500 INDEX, LEHMAN BROTHERS AGGREGATE BOND INDEX, BLENDED INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Spectrum Fund compared to the Lehman Brothers Aggregate Bond Index, the S&P 500 Index, blended index of 60 percent S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index, and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on September 30, 1992 through September 30, 2002. The lines in the Class B and Class C graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Spectrum Fund (August 19, 1994 and March 1, 1995, respectively) through September 30, 2002. [CHART] CLASS A SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -11.08% Five year -2.01% Ten year 4.27% (Thousands)

LEHMAN BROTHERS BLENDED S&P 500 AGGREGATE CLASS A INDEX INDEX BOND INDEX CPI 9/30/92 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 10/31/92 $ 9,492 $ 10,941 $ 10,772 $ 9,867 $ 10,043 10/31/93 $ 10,316 $ 12,007 $ 11,832 $ 11,038 $ 10,312 9/30/94 $ 10,118 $ 12,224 $ 11,936 $ 10,641 $ 10,624 9/30/95 $ 11,978 $ 14,553 $ 15,075 $ 12,138 $ 10,858 9/30/96 $ 13,621 $ 16,372 $ 17,729 $ 12,733 $ 11,184 9/30/97 $ 15,889 $ 20,713 $ 24,435 $ 13,969 $ 11,432 9/30/98 $ 17,687 $ 22,556 $ 26,234 $ 15,578 $ 11,595 9/30/99 $ 20,531 $ 26,127 $ 33,087 $ 15,520 $ 11,899 9/30/00 $ 23,859 $ 28,737 $ 37,055 $ 16,621 $ 12,303 9/30/01 $ 16,141 $ 25,633 $ 27,187 $ 18,774 $ 12,629 9/30/02 $ 15,188 $ 23,618 $ 21,467 $ 20,390 $ 12,814

28 [CHART] CLASS B SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -11.24% Five year -1.89% Since inception (8/19/94) 4.45% (Thousands)

LEHMAN BROTHERS BLENDED S&P 500 AGGREGATE CLASS B INDEX INDEX BOND INDEX CPI 8/19/94 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/94 $ 10,003 $ 10,181 $ 9,863 $ 9,860 $ 10,067 9/30/95 $ 11,316 $ 12,121 $ 12,457 $ 11,343 $ 10,289 9/30/96 $ 12,953 $ 13,636 $ 14,651 $ 11,872 $ 10,598 9/30/97 $ 15,184 $ 17,251 $ 20,192 $ 13,005 $ 10,833 9/30/98 $ 16,913 $ 18,786 $ 21,678 $ 14,425 $ 10,987 9/30/99 $ 19,524 $ 21,760 $ 27,342 $ 14,401 $ 11,276 9/30/00 $ 22,712 $ 23,934 $ 30,620 $ 14,688 $ 11,659 9/30/01 $ 15,258 $ 21,349 $ 22,466 $ 17,369 $ 11,968 9/30/02 $ 14,257 $ 19,353 $ 17,864 $ 18,865 $ 12,142

29 [CHART] CLASS C SEC STANDARD AVERAGE ANNUAL TOTAL RETURN: One year -6.54% Five year -1.61% Since inception (3/1/95) 4.12% (Thousands)

LEHMAN BROTHERS BLENDED S&P 500 AGGREGATE CLASS C INDEX INDEX BOND INDEX CPI 3/1/95 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/95 $ 11,263 $ 11,905 $ 12,999 $ 10,818 $ 10,146 9/30/96 $ 12,713 $ 13,393 $ 15,288 $ 11,323 $ 10,450 9/30/97 $ 14,731 $ 16,944 $ 21,070 $ 12,404 $ 10,682 9/30/98 $ 16,288 $ 18,452 $ 22,621 $ 13,757 $ 10,834 9/30/99 $ 18,778 $ 21,373 $ 28,531 $ 13,708 $ 11,119 9/30/00 $ 21,653 $ 23,508 $ 31,952 $ 14,667 $ 11,497 9/30/01 $ 14,536 $ 20,969 $ 23,443 $ 16,566 $ 11,801 9/30/02 $ 13,585 $ 19,008 $ 18,642 $ 17,993 $ 11,974

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. The graphs and tables do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 30 FIVE LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ ---------- Exxon Mobil Corporation 35,200 $ 1,122,880 3.6% Wachovia Corporation 33,400 1,091,846 3.5% Pfizer, Inc. 34,725 1,007,720 3.3% Bank of America Corporation 11,800 752,840 2.5% Brunswick Corporation 34,400 723,776 2.4% ------------ ---------- $ 4,699,062 15.3% ============ ==========

[CHART] Common Stocks 60.6% Bonds 35.4% Cash and Other Assets/Liabilities 4.0% BOND PORTFOLIO CHARACTERISTICS-QUALITY BREAKDOWN

% OF BOND RATING PORTFOLIO - ------ --------- U.S. Treasury 5.7% U.S. Government Agencies 35.1% AAA rated 16.2% AA rated 5.1% A rated 17.7% BBB rated 19.6% D rated 0.6% ----- 100.0% =====

31 Advantus Bond Fund Investments in Securities SEPTEMBER 30, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- LONG-TERM DEBT SECURITIES (95.6%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (34.8%) Federal Home Loan Mortgage Corporation (FHLMC) (2.9%) $ 700,000 6.500% 09/01/32 $ 726,604 ----------- Federal National Mortgage Association (FNMA) (21.6%) 325,000 6.000% 09/01/17 337,724 625,000(f) 6.000% 10/01/32 642,401 147,480 6.230% 01/01/08 164,248 214,972 6.500% 12/01/31 222,938 92,564 6.500% 04/01/32 95,995 98,191 6.500% 05/01/32 102,321 207,061 6.500% 07/01/32 214,736 169,857 6.500% 08/01/32 176,153 404,214 6.500% 09/01/32 419,197 330,000(f) 6.500% 10/01/32 341,860 204,610 7.000% 09/01/31 213,684 458,295 7.000% 11/01/31 478,621 472,228 7.000% 02/01/32 496,418 375,526 7.000% 03/01/32 394,766 224,407 7.000% 06/01/32 234,368 244,975 7.000% 07/01/32 255,848 508,743 7.500% 05/01/31 540,884 ----------- 5,332,162 ----------- Government National Mortgage Association (GNMA) (1.7%) 219,563 6.500% 07/15/32 229,194 196,537 6.000% 02/17/30 199,304 ----------- 428,498 ----------- State and Local Government Obligations (1.0%) 205,000 City of Eden Prairie, Minnesota 7.350% 02/20/09 243,829 ----------- U.S. Treasury (7.6%) 170,440 Inflationary Index Bond(g) 3.375% 01/15/07 185,724 600,000 Bond 5.250% 02/15/29 638,695

See accompanying notes to investments in securities. 32

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- $600,000 Bond 6.000% 02/15/26 $ 699,398 300,000 Bond 6.125% 08/15/29 359,051 ----------- 1,882,868 ----------- Total U.S. government and agencies obligations (cost: $8,256,136) 8,613,961 ----------- CORPORATE OBLIGATIONS (60.8%) BASIC MATERIALS (6.2%) Agriculture Products (2.1%) 250,000 Archer-Daniels-Midland Company 7.000% 02/01/31 289,136 200,000 Cargill, Inc. -- 144A Issue(d) 6.375% 06/01/12 225,587 ----------- 514,723 ----------- Aluminum (.6%) 150,000 Alcoa, Inc. 4.250% 08/15/07 155,805 ----------- Construction (1.3%) 300,000 Vulcan Materials, Inc. 6.400% 02/01/06 330,904 ----------- Paper and Forest (2.2%) 300,000 International Paper Company 8.000% 07/08/03 311,805 200,000 Weyerhaeuser Company -- 144A Issue(d) 7.375% 03/15/32 215,346 ----------- 527,151 ----------- CONSUMER CYCLICAL (3.8%) Publishing (1.7%) 200,000 Gannett Company, Inc. 5.500% 04/01/07 218,239 200,000 Scholastic Corporation 5.750% 01/15/07 212,184 ----------- 430,423 ----------- Service (1.0%) 250,000 Hertz Corp 7.625% 06/01/12 234,020 ----------- Textiles (1.1%) 250,000 Mohawk Industries, Inc. 6.500% 04/15/07 275,565 -----------

See accompanying notes to investments in securities. 33

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- CONSUMER STAPLES (4.5%) Beverage (2.2%) $500,000 Anheuser-Busch Companies, Inc. 7.100% 06/15/07 $ 540,760 ----------- Broadcasting (.8%) 200,000 TCI Communications Inc 6.375% 05/01/03 197,241 ----------- Food (.9%) 200,000 General Mills, Inc. 6.000% 02/15/12 215,419 ----------- Retail (.6%) 150,000 Safeway, Inc. 4.800% 07/16/07 155,875 ----------- ENERGY (2.5%) Oil (1.7%) 250,000 Chevron Corporation 3.500% 09/17/07 253,771 150,000 Husky Energy, Inc. 6.250% 06/15/12 164,296 ----------- 418,067 ----------- Oil & Gas (.8%) 200,000 Canadian Natural Resources, Ltd. 5.450% 10/01/12 208,017 ----------- FINANCIAL (38.7%) Asset-Backed Securities (2.4%) 300,000 Caterpillar Financial Services 4.875% 06/15/07 317,824 250,000 Fortress CBO Investments I, Ltd. -- 144A Issue(b)(c) 7.850% 07/25/09 277,402 ----------- 595,226 ----------- Auto Finance (1.0%) 250,000 General Motors Acceptance Corporation 6.125% 08/28/07 251,735 ----------- Banks (3.3%) 153,448 Banco Hipotecario Nacional -- 144A Issue(b)(c)(h) 7.916% 07/25/09 61,379 500,000 St. George Funding Company -- 144A Issue (b)(c) 8.485% 12/29/49 513,510 200,000 Wells Fargo & Company 7.550% 06/21/10 239,980 ----------- 814,869 -----------

See accompanying notes to investments in securities. 34

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- Collateralized Mortgage Obligations/Mortgage Revenue Bonds (16.2%) $226,307 Chase Mortgage Finance Corporation 6.500% 09/25/13 $ 238,156 158,704 Countrywide Mortgage Backed Securities, Inc. 6.750% 03/25/24 162,065 381,743 GE Capital Mortgage Services, Inc. 6.750% 11/25/28 397,238 200,053 GE Capital Mortgage Services, Inc. -- 144A Issue(d) 6.500% 04/25/24 204,342 248,506 GMAC Commercial Mortgage Securities -- 144A Issue(d) 7.350% 10/15/11 275,786 240,893 Green Tree Financial Corporation 6.400% 10/15/18 249,080 250,000 Green Tree Financial Corporation 8.300% 05/15/19 268,717 250,000 GS Mortgage Securities Corporation 7.289% 07/13/30 277,451 280,035 Mellon Residential Funding 6.750% 06/26/28 289,970 400,000 Metropolitan Asset Funding -- 144A Issue(d) 7.525% 04/20/27 435,961 213,211 Norwest Asset Securities Corporation 7.000% 06/25/12 219,225 250,000 Paine Webber Mortgage Acceptance Corporation -- 144A Issue(d) 7.655% 01/02/12 275,042 199,331 Park Avenue Finance Corporation -- 144A Issue(d) 7.580% 05/12/07 223,618 300,000 Park Avenue Finance Corporation -- 144A Issue(d) 7.680% 05/12/07 344,310 156,894 Prudential Home Mortgage Security Company -- 144A Issue(d) 6.770% 04/28/24 159,910 ----------- 4,020,871 -----------

See accompanying notes to investments in securities. 35

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------- -------- ----------- Commercial Finance (.7%) $150,000 General Electric Capital Corporation 6.750% 03/15/32 $ 160,883 ----------- Commercial Mortgage-Backed Securities (1.5%) -- Asset Securitization Corporation(e) 7.500% 04/14/29 178,385 -- Asset Securitization Corporation -- 144A Issue(d)(e) 7.500% 10/13/26 197,313 ----------- 375,698 ----------- Consumer Finance (3.0%) 250,000 American Express Credit Corporation(i) 1.963% 03/15/10 249,985 250,000 Chase Credit Card Master Trust(i) 1.953% 03/16/09 250,088 250,000 Citibank Credit Card Issuance Trust(i) 1.856% 12/15/05 249,849 ----------- 749,922 ----------- Equipment Finance (.6%) 150,000 Boeing Capital Corporation 5.800% 01/15/13 153,029 ----------- Finance -- Diversified (1.8%) 406,955 National Collegiate 7.240% 09/20/14 433,089 ----------- Insurance (2.8%) 150,000 Principal Life Global -- 144A Issue(d) 6.250% 02/15/12 161,448 250,000 Safeco Corporation 7.250% 09/01/12 269,030 250,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 254,232 ----------- 684,710 ----------- Investment Bankers/Brokers (.7%) 150,000 Morgan Stanley 6.750% 04/15/11 163,985 ----------- Real Estate Investment Trust (3.6%) 150,000 New Plan Excel Realty Trust 5.875% 06/15/07 158,150 200,000 Prologis 6.700% 04/15/04 209,876

See accompanying notes to investments in securities. 36

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- $200,000 Reckson Operating Partnership LP 7.400% 03/15/04 $ 210,662 300,000 Vornado Realty Trust 5.625% 06/15/07 310,778 ----------- 889,466 ----------- Savings and Loans (1.1%) 250,000 Washington Mutual, Inc. 6.875% 05/15/11 285,017 ----------- TRANSPORTATION (2.1%) Airlines (1.0%) 250,000 American Airlines, Inc.(i) 2.420% 09/24/12 250,000 ----------- Railroads (1.1%) 250,000 CSX Corporation 7.250% 05/01/04 267,294 ----------- UTILITIES (3.0%) Electric Companies (3.0%) 200,000 Entergy Louisiana, Inc. 8.500% 06/01/03 206,972 250,000 Hydro-Quebec(b) 8.000% 02/01/13 322,895 200,000 Public Service Company of Colorado -- 144A Issue(d) 7.875% 10/01/12 200,190 ----------- 730,057 ----------- Total corporate obligations (cost: $14,339,747) 15,029,821 ----------- Total long-term debt securities (cost: $22,595,883) 23,643,782 -----------

PAR/SHARES - ---------- SHORT-TERM SECURITIES (7.1%) 300,000 H.J. Heinz Company -- 144A Issue(d) 6.490% 11/15/02 301,511 840 Blackrock Provident Institutional TempFund, current rate 1.690% 840 1,350,653 Dreyfus Funds -- Cash Management Plus Fund, current rate 1.780% 1,350,653 112,753 Federated Prime Obligation Fund, current rate 1.720% 112,753 ------------ Total short-term securities (cost: $1,765,413) 1,765,757 ------------ Total investments in securities (cost: $24,361,296)(j) $ 25,409,539 ============

See accompanying notes to investments in securities. 37 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) The Fund held 4.8% of net assets in foreign securities as of September 30, 2002. (c) Represents ownership in an illiquid security. (See note 7 to the financial statements) Information concerning the illiquid securities held at September 30, 2002, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY DATE COST -------- ----------- ---------- St. George Funding Company 144A Issue* 06/12/97 $ 500,169 Banco Hipotecario Nacional 144A Issue* 01/08/01 151,249 Fortress CBO Investments I, Ltd. 144A Issue* 01/16/01 247,534 ---------- $ 898,952 ==========

* A 144A issue represents a security which has not been registered with the Securities and Exchange Commisssion under the Securities Act of 1933. (d) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933 as amended, and may be sold only to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. (e) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principal payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimated timing and amount of future cash flows. (f) At September 30, 2002, the total cost of investments purchased on a when-issued or forward commitment basis is $983,576. (g) U.S. Treasury inflation-protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (h) Income is not being accrued on this security and any payments received are being treated as a reduction of principal. (i) Floating rate bond (j) At September 30, 2002, the cost of securities for federal income tax purposes was $24,428,864. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 1,147,665 Gross unrealized depreciation (166,990) ----------- Net unrealized appreciation $ 980,675 =========== See accompanying notes to financial statements. 38 Advantus International Balanced Fund Investments in Securities SEPTEMBER 30, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ ------------- COMMON STOCK (51.7%) AUSTRALIA (.6%) Mining (.6%) 91,000 Iluka Resources, Ltd. $ 229,940 ------------- BERMUDA (.8%) Insurance (.6%) 3,500 XL Capital, Ltd. Class A 257,250 Service (.2%) 6,000 Accenture Limited(b) 85,680 ------------- 342,930 ------------- BRAZIL (.7%) Mining (.7%) 12,360 Vale Rio Doce ADR 267,594 ------------- CANADA (2.7%) Electrical Equipment (1.2%) 223,000 Nortel Networks Corporation 120,420 17,000 BCE, Inc. 301,160 97,000 Nortel Networks Corporation 48,310 Oil & Gas (1.5%) 26,750 Husky Energy, Inc. 281,632 21,500 Transcanada Pipelines, Ltd. 306,330 ------------- 1,057,852 ------------- DENMARK (.6%) Telecommunication (.6%) 11,000 Tele Danmark `B' 238,570 ------------- FINLAND (1.5%) Insurance (.7%) 40,525 Sampo Insurance 266,338 Paper and Forest (.3%) 13,000 Stora Enso 125,909 Telecommunication (.5%) 21,000 Metso Corporation 182,638 ------------- 574,885 ------------- FRANCE (4.5%) Chemicals (1.0%) 7,498 Aventis 392,745 Electrical Equipment (.3%) 44,000 Alcatel A 102,190

See accompanying notes to investments in securities. 39

MARKET SHARES VALUE(a) - ------ ------------- Houseware (.8%) 9,570 BIC $ 316,844 Investment Bankers/Brokers (.6%) 24,000 AXA-UAP 235,532 Machinery (.2%) 21,534 Alstom 81,297 Mining (.6%) 9,320 Pechiney 247,775 Oil & Gas (1.0%) 3,110 Total Fina ELF 409,405 ------------- 1,785,788 ------------- GERMANY (3.4%) Banks (.5%) 4,000 Deutsche Bank Ag 183,033 Chemicals (.6%) 15,000 Bayer 258,539 Electric Companies (.8%) 6,860 E.On Ag 323,394 Manufacturing (.6%) 3,600 Adidas-Salomon 238,378 Technology (.3%) 3,200 SAP 142,315 Transport Services (.6%) 28,200 Deutsche Post Ag 232,715 ------------- 1,378,374 ------------- HONG KONG (3.7%) Chemicals (--) 1,880 CK Life Sciences International (b) 342 Electric Companies (.7%) 72,500 CLP Holdings, Ltd. 301,169 Investment Bankers/Brokers (--) 28,000 Peregrine Investments Holdings 0 Oil & Gas (.8%) 1,687,345 Petrochina 341,813 Real Estate (1.4%) 47,000 Cheung Kong 296,477 46,000 Hutchison Whampoa 266,578 Telecommunication (.8%) 16,000 China Mobile ADR(b) 180,800 205,900 Swire Pacific Class B 129,354 ------------- 1,516,533 -------------

See accompanying notes to investments in securities. 40

MARKET SHARES VALUE(a) - ------ ------------- INDIA (.3%) Office Equipment (.3%) 12,000 Satyam Computer ADR $ 106,800 ------------- ISRAEL (1.1%) Technology (1.1%) 33,700 Checkpoint Software(b) 463,038 ------------- ITALY (.3%) Banks (.3%) 25,000 San Paolo-IMI 140,586 ------------- JAPAN (6.1%) Drugs (1.1%) 14,000 Ono Pharmaceutical 425,497 Electrical Equipment (1.6%) 34,000 Hitachi 170,363 37,000 NEC 178,405 7,100 Sony Corporation 298,020 Investment Bankers/Brokers (.8%) 23,600 Nomura Securities 310,169 Machinery (.5%) 66,000 Komatsu 221,735 Telecommunication (1.3%) 158 Nippon Telegraph & Telephone Corporation 525,628 Water Utilities (.8%) 37,000 Kurita Water Industries 332,799 ------------- 2,462,616 ------------- MEXICO (.9%) Mining (.5%) 86,560 Grupo Carso S.A.(b) 220,007 Telecommunication (.4%) 5,700 Telefonos de Mexico ADR 160,455 ------------- 380,462 ------------- NETHERLANDS (3.2%) Chemicals (.7%) 8,180 Akzo Nobel 263,548 Electrical Equipment (.8%) 21,100 Philips Electronics 306,541 Investment Bankers/Brokers (1.7%) 27,960 ING Group 387,137 7,350 Rodamco Europe 281,117 ------------- 1,238,343 -------------

See accompanying notes to investments in securities. 41

MARKET SHARES VALUE(a) - ------ ------------- NEW ZEALAND (.5%) Telecommunication (.5%) 87,000 Telecom Corporation of New Zealand $ 200,751 ------------- SOUTH KOREA (2.5%) Electric Companies (.4%) 18,200 Korea Electric Power 169,806 Electrical Equipment (.9%) 3,000 Samsung Electronics GDR 355,500 Technology (1.2%) 21,900 Korea Telecom ADR 485,742 ------------- 1,011,048 ------------- SPAIN (1.7%) Electric Companies (1.1%) 35,072 Iberdrola SA 454,068 Oil & Gas (.6%) 20,550 Repsol 243,512 Telecommunication ( -- ) 528 Telefonica SA(b) 3,786 ------------- 701,366 ------------- SWEDEN (4.0%) Banks (2.0%) 35,600 Foreningssparbanken 355,136 113,190 Nordic 453,056 Machinery (.4%) 10,000 Atlas Copco 166,622 Trucks and Parts (1.6%) 17,200 Autoliv 362,576 20,800 Volvo Free `B' 301,709 ------------- 1,639,099 ------------- SWITZERLAND (1.8%) Banks (.6%) 6,000 UBS AG(b) 249,661 Food (.7%) 1,300 Nestle SA 284,143 Insurance (.5%) 3,520 Swiss Reinsurance 197,958 ------------- 731,762 ------------- UNITED KINGDOM (10.8%) Chemicals (1.5%) 76,909 Imperial Chemical Industries 246,732

See accompanying notes to investments in securities. 42

MARKET SHARES VALUE(a) - ------ ------------- 44,000 Shire Pharmaceuticals(b) $ 356,351 Electrical Equipment (1.1%) 17,000 BAE Systems PLC 51,330 137,200 Kidde PLC 135,929 37,000 WPP Group 248,164 Food (.9%) 57,100 J Sainsbury PLC 251,427 12,750 Unilever PLC 115,692 Investment Bankers/Brokers (.5%) 24,000 Abbey National 194,373 Manufacturing (.9%) 218,600 Rolls-Royce PLC 343,770 Medical Products/Supplies (.7%) 34,850 Nycomed Amersham 298,615 Mining (1.2%) 100,220 BHP Billiton PLC 464,938 Oil & Gas (2.0%) 54,100 LLoyds TSB Group PLC 399,440 69,300 Shell Transportation & Trading Company PLC 413,039 Publishing (.3%) 33,415 United Business Media PLC 112,979 Retail (.9%) 75,544 Marks & Spencer Group 381,350 Telecommunication (.8%) 177,990 Cable & Wireless PLC 323,293 ------------- 4,337,422 ------------- Total common stock (cost: $28,474,681) 20,805,759 ------------- PREFERRED STOCK (.6%) GERMANY (.6%) Trucks and Parts (.6%) 9,430 Volkswagen 242,311 ------------- Total preferred stock (cost: $247,426) 242,311 -------------

See accompanying notes to investments in securities. 43

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- LONG-TERM DEBT SECURITIES (43.8%) (c) AUSTRALIA (1.2%) Government (1.2%) 550,000 New South Wales Treasury Corporation (Australian Dollar) 6.500% 05/01/06 $ 310,756 314,000 Queensland Treasury Corporation (Australian Dollar) 6.500% 06/14/05 176,398 ----------- 487,154 ----------- BELGIUM (2.8%) Government (2.8%) 100,000 Belgium Government (European Currency Unit) 4.750% 09/28/06 103,230 100,000 Belgium Government (European Currency Unit) 5.000% 09/28/12 102,714 775,000 Belgium Government (European Currency Unit) 7.500% 07/29/08 904,107 ----------- 1,110,051 ----------- CANADA (5.3%) Government (5.3%) 3,098,000 Canadian Government (Canadian Dollar) 6.000% 06/01/11 2,114,324 ----------- DENMARK (1.5%) Government (1.5%) 2,864,000 Kingdom of Denmark (Danish Kroner) 5.000% 08/15/05 394,640 1,400,000 Kingdom of Denmark (Danish Kroner) 5.000% 11/15/13 192,464 ----------- 587,104 ----------- FRANCE (5.1%) Government (5.1%) 297,000 Government of France (European Currency Unit) 4.000% 01/12/04 297,047 1,492,000 Government of France (European Currency Unit) 4.000% 10/25/09 1,468,351

See accompanying notes to investments in securities. 44

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- 299,000 Government of France (European Currency Unit) 6.750% 10/25/03 $ 306,674 ----------- 2,072,072 ----------- GERMANY (5.2%) Government (5.2%) 731,000 Bundesrepublic (European Currency Unit) 6.000% 07/04/07 795,704 1,230,000 Bundesrepublic (European Currency Unit) 5.000% 07/04/11 1,281,373 ----------- 2,077,077 ----------- ITALY (5.1%) Government (5.1%) 447,000 Buoni Poliennali del Tesoro (European Currency Unit) 5.500% 11/01/10 478,790 1,379,001 Buoni Poliennali del Tesoro (European Currency Unit) 7.750% 11/01/06 1,575,217 ----------- 2,054,007 ----------- JAPAN (2.6%) Government (2.6%) 125,800,000 International Bank of Reconstruction and Development (Japanese Yen) 4.500% 03/20/03 1,054,232 ----------- NETHERLANDS (2.5%) Government (2.5%) 930,000 Netherlands Government (European Currency Unit) 5.750% 02/15/07 999,173 ----------- NEW ZEALAND (1.6%) Government (1.6%) 1,310,000 Government of New Zealand (New Zealand Dollar) 7.000% 07/15/09 647,647 -----------

See accompanying notes to investments in securities. 45

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ----------- SPAIN (4.2%) Government (4.2%) 100,000 Government of Spain (European Currency Unit) 4.800% 10/31/06 $ 103,406 720,000 Government of Spain (European Currency Unit) 5.000% 07/30/12 739,942 350,000 Government of Spain (European Currency Unit) 6.000% 01/31/08 381,348 404,000 Government of Spain (European Currency Unit) 10.150% 01/31/06 480,767 ----------- 1,705,463 ----------- SWEDEN (2.6%) Government (2.6%) 1,000,000 Sweden Kingdom (Swedish Krona) 3.500% 04/20/06 104,868 4,880,000 Sweden Kingdom (Swedish Krona) 5.500% 10/08/12 550,620 3,650,000 Sweden Kingdom (Swedish Krona) 6.000% 02/09/05 408,319 ----------- 1,063,807 ----------- UNITED KINGDOM (4.1%) Government (4.1%) 923,000 United Kingdom (British Sterling Pound) 7.500% 12/07/06 1,638,662 ----------- Total long-term debt securities (cost: $16,598,713) 17,610,773 -----------

See accompanying notes to investments in securities. 46

MARKET SHARES/PAR RATE MATURITY VALUE(a) - ---------- ----- -------- ------------ SHORT-TERM SECURITIES (2.7%) 820,000 New Zealand Treasury Bill (New Zealand Dollar)(c) 4.780% 10/09/02 $ 384,082 693,032 Bankers Trust Institutional Liquid Assets, current rate 1.760 % 693,032 ------------ Total short-term securities (cost: $1,084,301) 1,077,114 ------------ Total investments in securities (cost: $46,405,121)(d) $ 39,735,957 ============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) Principal amounts for foreign debt securities are denominated in the currencies indicated parenthetically. (d) At September 30, 2002 the cost of securities for federal income tax purposes was $46,465,604. The aggregate unrealized appreciation and depreciation of investments in securities based on their cost were: Gross unrealized appreciation $ 2,468,143 Gross unrealized depreciation (9,197,790) ------------ Net unrealized depreciation $ (6,729,647) ============ See accompanying notes to financial statements. 47 ADVANTUS MONEY MARKET FUND INVESTMENTS IN SECURITIES SEPTEMBER 30, 2002 (Percentages of each investment category relate to total net assets.)

PRINCIPAL RATE MATURITY VALUE(a) - --------- ----- -------- ----------- COMMERCIAL PAPER (78.3%) BASIC MATERIALS (2.6%) Chemicals (2.6%) $1,099,000 EI Dupont De Nemours & Company 1.750% 12/04/02 $ 1,095,637 ----------- CAPITAL GOODS (2.4%) Electric Companies (2.4%) 1,000,000 Emerson Electric Company(c) 1.711% 11/22/02 997,569 ----------- COMMUNICATION SERVICES (2.4%) Technology (2.4%) 1,000,000 Verizon Net Fund 1.994% 11/15/02 997,548 ----------- CONSUMER CYCLICAL (4.8%) Manufacturing (2.4%) 1,000,000 The Stanley Works(c) 1.711% 11/07/02 998,269 ----------- Publishing (2.4%) 1,000,000 McGraw-Hill Companies, Inc. 1.782% 10/02/02 999,951 ----------- CONSUMER STAPLES (15.5%) Beverage (2.4%) 1,000,000 The Coca-Cola Company 1.670% 11/12/02 998,082 ----------- Food (10.7%) 1,000,000 Cargill, Inc. 1.782% 10/01/02 1,000,000 2,000,000 H.J. Heinz Company(c) 6.490% 11/15/02 2,007,781 1,500,000 Nestle SA(c) 1.692% 12/13/02 1,494,940 ----------- 4,502,721 ----------- Household Products (2.4%) 1,000,000 Gillette Company(c) 1.718% 02/14/03 993,641 ----------- FINANCIAL (36.4%) Banks (2.4%) 1,000,000 Wells Fargo & Company 1.710% 11/14/02 997,943 ----------- Commercial Finance (7.1%) 1,000,000 Ciesco Limited Partnership 1.769% 10/25/02 998,839 1,000,000 General Electric Capital Corporation 1.709% 10/18/02 999,205 1,000,000 Receivables Capital Corporation(c) 1.759% 11/07/02 998,220 ----------- 2,996,264 ----------- Commercial Mortgage-Backed Securities (2.4%) 1,000,000 Asset Securitization Corporation(c) 1.758% 11/08/02 998,173 ----------- Consumer Finance (22.1%) 1,000,000 AIG Sunamerica Global Financing II 1.719% 11/25/02 997,417 1,000,000 American General Finance Corporation 2.059% 01/06/03 994,557 1,000,000 American International Group 1.795% 10/30/02 998,576

See accompanying notes to investments in securities. 48

PRINCIPAL RATE MATURITY VALUE(a) - --------- ----- -------- ------------ $1,000,000 Atlantis One Funding(c) 1.930% 10/17/02 $ 999,155 1,000,000 Beethoven Funding Company(c) 1.814% 12/20/02 996,039 1,000,000 Corp Rec Corporation(c) 1.759% 11/21/02 997,548 1,200,000 CXC, Inc.(c) 1.731% 11/06/02 1,197,955 850,000 Edison International(c) 1.783% 12/13/02 846,980 1,250,000 Enterprise Fund(c) 1.803% 10/15/02 1,249,136 ------------ 9,277,363 ------------ Investment Bankers/Brokers (2.4%) 1,000,000 Merrill Lynch & Company, Inc. 1.740% 12/09/02 996,721 ------------ HEALTH CARE (14.2%) Drugs (9.5%) 1,000,000 Abbott Laboratories(c) 1.729% 11/12/02 998,014 1,000,000 Pfizer, Inc.(c) 1.727% 10/04/02 999,858 1,000,000 Pfizer, Inc.(c) 1.727% 10/09/02 999,622 1,000,000 Schering-Plough Corporation 1.741% 12/12/02 996,577 ------------ 3,994,071 ------------ Health Care- Diversified (4.7%) 1,000,000 Johnson & Johnson (c) 1.774% 10/28/02 998,690 1,000,000 Johnson & Johnson (c) 1.712% 01/10/03 995,285 ------------ 1,993,975 ------------ Total commercial paper (cost: $32,837,928) 32,837,928 ------------ U.S. GOVERNMENT OBLIGATIONS (13.1%) 2,000,000 Federal Home Loan Mortgage Corporation 1.709% 12/05/02 1,993,932 1,500,000 Federal National Mortgage Association 1.710% 12/18/02 1,494,540 1,000,000 Federal National Mortgage Association 1.778% 01/08/03 995,200 1,000,000 Federal National Mortgage Association 1.744% 01/29/03 994,300 ------------ Total U.S. government obligations (cost: $5,477,972) 5,477,972 ------------

See accompanying notes to investments in securities. 49

SHARES VALUE(a) - ------ ----------- MONEY MARKET FUNDS (8.4%) 1,812,610 Dreyfus Cash Management Plus Funds, current rate 1.780% $ 1,812,610 1,622,314 Federated Money Market Obligation Trust -- Prime Obligation Fund, current rate 1.720% 1,622,314 79,506 Wells Fargo & Company -- Cash Investment Fund, current rate 1.630% 79,506 ------------ Total short-term securities (cost: $3,514,430) 3,514,430 ------------ Total investments in securities (cost: $41,830,330)(b) $ 41,830,330 ============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Also represents the cost of securities for federal income tax purposes at September 30, 2002. (c) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Board of Directors. Such securities represent 43.6% of the Fund's net assets as of September 30, 2002. See accompanying notes to financial statements. 50 ADVANTUS MORTGAGE SECURITIES FUND INVESTMENTS IN SECURITIES SEPTEMBER 30, 2002 (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ LONG-TERM DEBT SECURITIES (98.3%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.8%) Federal Home Loan Mortgage Corporation (FHLMC) (6.1%) $ 2,070,000(g) 6.000% 09/01/32 $ 2,134,202 4,250,000 6.500% 09/01/32 4,411,525 ------------ 6,545,727 ------------ Federal National Mortgage Association (FNMA) (29.6%) 600,000 6.000% 09/01/32 617,192 5,405,000(g) 6.000% 10/01/32 5,554,313 503,024 6.500% 10/01/28 524,988 1,398,194 6.500% 12/01/31 1,450,005 1,836,992 6.500% 02/01/32 1,910,628 2,303,020 6.500% 03/01/32 2,388,390 316,666 6.500% 04/01/32 328,404 490,955 6.500% 05/01/32 511,606 2,218,507 6.500% 07/01/32 2,300,745 3,120,045 6.500% 08/01/32 3,235,702 3,187,522 6.500% 09/01/32 3,305,680 320,511 7.000% 02/01/29 336,685 966,938 7.000% 06/01/31 1,016,437 403,500 7.000% 09/01/31 424,164 458,295 7.000% 11/01/31 478,621 1,799,789 7.000% 02/01/32 1,882,904 1,606,682 7.000% 03/01/32 1,688,997 3,771,017 7.000% 06/01/32 3,938,398 ------------ 31,893,859 ------------ Government National Mortgage Association (GNMA) (4.0%) --(e) 7.700% 07/16/40 619,735 2,015,011 6.500% 06/15/32 2,103,400 638,719 6.500% 07/15/32 666,736 793,712 7.875% 05/15/17 917,307 ------------ 4,307,178 ------------ Other Agency Obligations (.9%) 138,652 Collateralized Mortgage Trust 5.000% 07/01/18 138,660 746,000 Pleasant Hill California 7.950% 09/20/15 815,117 ------------ 953,777 ------------

See accompanying notes to investments in securities. 51

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ Vendee Mortgage Trust (1.2%) $ 759,667 U.S. Department of Veteran Affairs(c) 7.210% 02/15/25 $ 842,029 372,419 U.S. Department of Veteran Affairs(c) 7.793% 02/15/25 416,059 ------------ 1,258,088 ------------ Total U.S. government and agencies obligations (cost: $44,150,130) 44,958,629 ------------ OTHER MORTGAGE-BACKED SECURITIES (56.5%) Non-Agency Commercial Mortgage-Backed Securities (22.9%) 65,707 Advanta Mortgage Loan Trust 7.750% 03/25/22 65,773 -- Asset Securitization Corporation(e) 7.500% 04/14/29 936,608 -- Asset Securitization Corporation(e) 7.500% 01/13/15 1,157,788 -- Asset Securitization Corporation -- 144A Issue(e)(f) 7.500% 10/13/26 853,906 325,000 BankAmerica Manufactured Housing Contract 7.015% 01/10/28 345,984 2,000,000 BankAmerica Manufactured Housing Contract 7.800% 10/10/26 2,161,824 500,000 Covenant Retirement Community 6.750% 06/01/04 525,118 750,000 Covenant Retirement Community 7.000% 06/01/06 818,341 1,000,000 CS Mortgage Securities Corporation 7.289% 07/13/30 1,109,806 1,350,000 Fortress CBO Investments I Limited -- 144A Issue(b)(d) 7.850% 07/25/09 1,497,973 1,250,000 Green Tree Financial Corporation 8.300% 05/15/19 1,343,582 600,000 Green Tree Financial Corporation 8.300% 11/15/19 645,204 463,112 Green Tree Financial Corporation 9.100% 04/15/25 466,213 1,100,000 Lehman ABS Manufactured Housing Contract 5.873% 05/15/22 1,147,985 524,929 Metropolitan Asset Funding, Inc. -- 144A Issue(f) 6.980% 05/20/12 540,924 1,284,640 Mid-State Trust 7.340% 07/01/35 1,418,172 360,011 Mid-State Trust 7.400% 07/01/35 394,317 1,035,032 Mid-State Trust 7.790% 07/01/35 1,107,200 1,000,000 Nomura Asset Securities Corporation 7.710% 04/13/36 1,129,083

See accompanying notes to investments in securities. 52

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ $ 203,572 Park Avenue Finance Corporation -- 144A Issue(f) 7.580% 05/12/07 $ 228,376 1,700,000 Park Avenue Finance Corporation -- 144A Issue(f) 7.680% 05/12/07 1,951,090 911,333 Securitized Asset Sales, Inc. -- 144A Issue(f) 6.783% 11/28/23 934,071 742,818 Structured Multiple Asset Receivable -- 144A Issue(f) 2.620% 01/18/05 721,064 545,464 Structured Multiple Asset Receivable -- 144A Issue(d) 7.800% 07/25/11 598,258 1,250,000 Structured Multiple Asset Receivable -- 144A Issue(f) 8.910% 06/25/14 1,446,561 1,000,000 Vanderbilt Mortgage and Finance, Inc 7.955% 12/07/24 1,125,338 ------------ 24,670,559 ------------ Non-Agency Prime Residential Mortgage-Backed Securities (33.2%) 1,800,000 Associates Manufactured Housing 7.900% 03/15/27 1,931,240 1,696,700 Bear Stearns Mortgage Securities, Inc. 6.750% 04/30/30 1,777,208 789,035 Bear Stearns Mortgage Securities, Inc. 6.750% 04/30/30 822,900 615,374 Bear Stearns Mortgage Securities, Inc. 8.000% 11/25/29 643,072 1,106,230 Chase Mortgage Finance Corporation 6.750% 11/25/24 1,130,678 1,148,901 Chase Mortgage Finance Corporation 6.750% 02/25/25 1,175,016 763,628 Chase Mortgage Finance Corporation -- 144A Issue(f) 6.641% 03/28/25 786,063 842,991 CitiCorporation Mortgage Securities, Inc. -- 144A Issue (f) 7.250% 08/25/27 865,642 588,490 Countrywide Funding Corporation 6.625% 02/25/24 605,645 2,025,000 Countrywide Funding Corporation 7.000% 06/25/24 2,079,472 1,204,988 Countrywide Home Loan 7.250% 02/25/28 1,227,233 343,697 Countrywide Mortgage Backed Securities, Inc. 6.500% 03/25/24 349,416 833,115 DLJ Mortgage Acceptance Corporation 6.750% 01/25/24 874,845

See accompanying notes to investments in securities. 53

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ $ 236,451 FBS Mortgage Corporation -- 144A Issue(f) 7.032% 08/25/24 $ 235,933 304,159 First Union Corporation 6.850% 09/25/26 321,268 291,089 GE Capital Mortgage Services, Inc. 6.000% 04/25/09 295,071 564,156 GE Capital Mortgage Services, Inc. 6.250% 04/25/14 591,472 878,423 GE Capital Mortgage Services, Inc. 7.000% 03/25/26 891,125 386,390 GE Capital Mortgage Services, Inc.-- 144A Issue(f) 6.000% 11/25/08 390,513 379,321 GE Capital Mortgage Services, Inc.-- 144A Issue(f) 6.500% 01/25/24 384,048 597,406 General Electric Capital Corporation 6.750% 09/25/12 609,796 734,566 GMAC Commercial Mortgage Securities(d) 5.940% 07/01/13 741,223 296,779 Housing Securities, Inc. 7.000% 06/25/23 305,508 630,749 Norwest Asset Securities Corporation 6.250% 04/25/14 637,366 1,013,032 Norwest Asset Securities Corporation 6.750% 08/25/29 1,042,693 467,721 Norwest Mortgage, Inc. 7.500% 12/25/26 466,374 548,205 Paine Webber Mortgage Acceptance Corporation 6.941% 02/25/24 553,555 2,450,000 Paine Webber Mortgage Acceptance Corporation(f) 7.655% 01/02/12 2,695,407 421,527 Paine Webber Mortgage Acceptance Corporation 8.125% 07/25/09 425,793 447,363 Paine Webber Mortgage Acceptance Corporation -- 144A Issue(f) 6.460% 04/29/24 472,496 858,115 Prudential Home Mortgage Securities 6.050% 04/25/24 875,887 972,917 Prudential Home Mortgage Securities 6.500% 04/25/26 992,735 479,586 Prudential Home Mortgage Securities -- 144A Issue(f) 6.755% 09/28/08 493,456 872,218 Prudential Home Mortgage Securities -- 144A Issue(d) 6.770% 04/28/24 897,250 797,903 Prudential Home Mortgage Securities -- 144A Issue(f) 7.335% 09/28/24 850,565 462,404 Residential Funding Mortgage Securities 6.500% 11/25/23 494,994

See accompanying notes to investments in securities. 54

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ $ 846,019 Residential Funding Mortgage Securities 6.500% 03/25/24 $ 869,335 559,926 Residential Funding Mortgage Securities 6.500% 12/25/28 581,203 580,134 Residential Funding Mortgage Securities 7.000% 05/25/12 596,018 1,631,352 Residential Funding Mortgage Securities 7.000% 10/25/27 1,657,911 627,234 Residential Funding Mortgage Securities 7.000% 08/25/29 656,821 344,119 Residential Funding Mortgage Securities 7.250% 07/25/11 358,310 1,141,041 Structured Asset Mortgage Investments 6.750% 05/02/30 1,146,381 ------------ 35,798,937 ------------ Non-Agency Sub-Prime Residential Mortgage-Backed Securities (.4%) 174,717 Banco Hipotecario Nacional -- 144A Issue(b)(d)(h) 3.265% 03/25/11 61,151 469,203 Banco Hipotecario Nacional -- 144A Issue(b)(d)(h) 7.540% 05/31/17 140,761 475,957 Banco Hipotecario Nacional -- 144A Issue(b)(d)(h) 7.916% 07/25/09 190,383 ------------ 392,295 ------------ Total other mortgage-backed securities (cost: $57,734,227) 60,861,791 ------------ Total long-term debt securities (cost: $101,884,357) 105,820,420 ------------

See accompanying notes to investments in securities. 55

MARKET SHARES VALUE(a) - ------ ------------- SHORT-TERM SECURITIES (7.5%) 5,147,903 Dreyfus Funds -- Cash Management Plus Fund, current rate 1.780% $ 5,147,903 2,884,321 Federated Money Market Obligations Trust -- Prime Obligation Fund, current rate 1.720% 2,884,321 ------------- Total short-term securities (cost: $8,032,224) 8,032,224 ------------- Total investments in securities (cost: $109,916,581)(i) $ 113,852,644 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) The Fund held 1.8% of net assets in foreign securities as of September 30, 2002. (c) Represents a debt security with a weighted average net pass-through rate which varies based on the interest rates of the securities in the pool of underlying collateral. The rate disclosed is the rate in effect at September 30, 2002. (d) Represents ownership in an illiquid security. (See note 7 to the financial statements.) Information concerning the illiquid securities held at September 30, 2002 which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY DATE COST -------- ----------- ----------- Banco Hipotecario Nacional 144A Issue* 5/18/2000 $ 437,399 Banco Hipotecario Nacional 144A Issue* various 459,629 Banco Hipotecario Nacional 144A Issue* 9/06/2002 12,976 Fortress CBO Investments I Limited 144A Issue* 7/26/2000 1,262,973 GMAC Commercial Mortgage Securities various 705,767 Prudential Home Mortgage Securities 144A Issue* 8/24/2000 811,794 Structured Multiple Asset Receivable 144A Issue* 9/7/2001 559,959 ----------- $ 4,250,497 ===========

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (e) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principal payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimated timing and amount of future cash flows. (f) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933 as amended, and may be sold only to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. See accompanying notes to financial statements. 56 (g) At September 30, 2002 the total cost of investments purchased on a when-issued or forward commitment basis is $7,668,587. (h) Income is not being accrued on these securities and any payments received are treated as a reduction of principal. (i) At September 30, 2002 the cost of securities for federal income tax purposes was $109,949,911. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 4,602,965 Gross unrealized depreciation (700,232) ------------- Net unrealized appreciation $ 3,902,733 ============= See accompanying notes to financial statements. 57 ADVANTUS SPECTRUM FUND INVESTMENTS IN SECURITIES SEPTEMBER 30, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ ------------ COMMON STOCK (60.6%) BASIC MATERIALS (1.9%) Aluminum (.1%) 3,500 Alcoa, Inc. $ 67,550 ------------ Chemicals (1.8%) 7,200 Air Products and Chemicals, Inc. 302,472 3,700 Dow Chemical Company 101,047 9,600 EI Dupont De Nemours & Company 346,272 15,400 Lyondell Petrochemical Company 183,876 ------------ 933,667 ------------ CAPITAL GOODS (3.3%) Aerospace/Defense (.3%) 2,600 Raytheon Company 76,180 1,400 United Technologies Corporation 79,086 ------------ 155,266 ------------ Electrical Equipment (1.4%) 23,556 General Electric Company 580,655 5,000 Honeywell International, Inc. 108,300 ------------ 688,955 ------------ Manufacturing (1.2%) 4,800 3M Company 527,856 5,400 Tyco International, Ltd. (c) 76,140 ------------ 603,996 ------------ Trucks and Parts (.4%) 10,400 Navistar International Corporation 225,472 ------------ COMMUNICATION SERVICES (1.6%) Telecommunication (.3%) 4,780 Qualcomm, Inc. (b) 132,024 ------------ Telephone (1.3%) 8,100 AT&T Corporation -- Libery Media Corporation 97,281 7,500 Bellsouth Corporation 137,700 7,800 SBC Communications, Inc. 156,780 9,800 Verizon Communications 268,912 ------------ 660,673 ------------

See accompanying notes to investments in securities. 58

MARKET SHARES VALUE(a) - ------ ------------ CONSUMER CYCLICAL (7.6%) Auto (1.5%) 5,400 Eaton Corporation $ 344,196 2,700 Harley-Davidson, Inc. 125,415 1,300 ITT Industries, Inc. 81,029 3,700 Magna International, Inc.(c) 208,606 ------------ 759,246 ------------ Leisure (1.4%) 34,400 Brunswick Corporation 723,776 ------------ Lodging-- Hotel (.6%) 28,200 Hilton Hotels 320,916 ------------ Retail (3.5%) 7,200 Bed Bath & Beyond, Inc.(b) 234,504 6,800 Family Dollar Stores 182,784 3,200 Kohls' Corporation(b) 194,592 5,300 Lowes Companies, Inc. 219,420 6,300 Michaels' Stores, Inc.(b) 287,910 12,800 Wal-Mart Stores, Inc. 630,272 ------------ 1,749,482 ------------ Textiles (.6%) 9,900 Jones Apparel Group, Inc.(b) 303,930 ------------ CONSUMER STAPLES (6.2%) Beverage (.5%) 3,180 Pepsico, Inc. 117,501 3,300 The Coca-Cola Company 158,268 ------------ 275,769 ------------ Broadcasting (1.1%) 13,200 Clear Channel Communications, Inc.(b) 458,700 5,600 Comcast Corporation 116,816 ------------ 575,516 ------------ Entertainment (.6%) 7,500 Viacom, Inc.(b) 304,125 ------------ Food (.4%) 5,900 Kraft Foods, Inc. 215,114 ------------ Household Products (2.0%) 7,800 Colgate-Palmolive Company 420,810 4,500 Gillette Compay 133,200 5,200 Procter & Gamble Company 464,776 ------------ 1,018,786 ------------

See accompanying notes to investments in securities. 59

MARKET SHARES VALUE(a) - ------ ------------ Personal Care (.5%) 5,900 Avon Products, Inc. $ 271,990 ------------ Retail (.4%) 8,900 CVS Corporation 225,615 ------------ Service (.3%) 5,600 Manpower, Inc. 164,304 ------------ Tobacco (.4%) 5,300 Philip Morris Companies, Inc. 205,640 ------------ ENERGY (5.1%) Oil (3.2%) 4,800 Chevron Corporation 332,400 35,200 Exxon Mobil Corporation 1,122,880 4,600 Royal Dutch Petroleum Company(c) 184,782 ------------ 1,640,062 ------------ Oil & Gas (1.9%) 6,300 Ensco International, Inc. 157,752 10,256 Nabors Industries, Ltd.(b)(c) 335,884 11,600 Noble Corporation(b) 359,600 3,100 Smith International, Inc.(b) 90,861 ------------ 944,097 ------------ FINANCIAL (14.3%) Auto Finance (.2%) 4,500 Fleet Boston Financial Corporation 91,485 ------------ Banks (6.2%) 11,800 Bank of America Corporation 752,840 26,900 U.S. Bancorp 499,802 33,400 Wachovia Corporation 1,091,846 12,600 Wells Fargo & Company 606,816 3,700 Zion BanCorporation 161,061 ------------ 3,112,365 ------------ Consumer Finance (.6%) 10,000 American Express Company 311,800 ------------ Finance -- Diversified (.6%) 2,900 Fannie Mae 172,666 2,000 Freddie Mac 111,800 ------------ 284,466 ------------

See accompanying notes to investments in securities. 60

MARKET SHARES VALUE(a) - ------ ------------ Insurance (2.3%) 11,700 Allstate Corporation $ 415,935 8,100 American International Group 443,070 1,900 Chubb Corporation 104,177 6,600 Expeditor Washington International, Inc. 184,404 ------------ 1,147,586 ------------ Investment Bankers/Brokers (2.5%) 23,000 CitiGroup, Inc. 681,950 2,600 Goldman Sachs Group, Inc. 171,678 7,100 Merrill Lynch & Company, Inc. 233,945 4,600 Morgan Stanley 155,848 ------------ 1,243,421 ------------ Real Estate (.4%) 11,100 Boardwalk Equities, Inc.(c) 104,340 4,406 Brookfield Properties Corporation(c) 84,815 ------------ 189,155 ------------ Real Estate Investment Trust (1.0%) 8,300 Developers Diversified Realty Corporation 182,683 10,900 Prologis 271,519 6,003 Winston Hotels, Inc. 43,462 ------------ 497,664 ------------ Savings and Loans (.5%) 8,400 Charter One Financial, Inc. 249,648 ------------ HEALTH CARE (9.5%) Biotechnology (.8%) 2,200 Amgen, Inc.(b) 91,740 6,500 Genentech, Inc.(b) 212,095 2,300 Idec Pharmaceuticals Corporation(b) 95,496 ------------ 399,331 ------------ Drugs (4.9%) 4,900 Eli Lilly & Company 271,166 7,500 Forest Laboratores, Inc.(b) 615,075 34,725 Pfizer, Inc. 1,007,720 3,400 Schering-Plough Corporation 72,488 16,400 Wyeth 521,520 ------------ 2,487,969 ------------

See accompanying notes to investments in securities. 61

MARKET SHARES VALUE(a) - ------ ------------ Health Care -- Diversified (1.4%) 12,700 Johnson & Johnson $ 686,816 ------------ Hospital Management (.7%) 7,300 The HCA -- Healthcare Company 347,553 ------------ Medical Products/Supplies (1.7%) 5,800 Becton Dickinson and Company 164,720 6,000 Boston Scientific Corporation 189,360 3,400 Guidant Corporation 109,854 6,800 St. Jude Medical, Inc. 242,760 4,300 Zimmer Holdings, Inc.(b) 164,862 ------------ 871,556 ------------ TECHNOLOGY (8.4%) Communications Equipment (.1%) 4,900 Brocade Communication Systems, Inc.(b) 36,897 ------------ Computer Hardware (2.2%) 15,460 Dell Computer Corporation(b) 363,619 6,900 International Business Machines Corporation 402,891 47,800 Symbol Technologies, Inc. 366,626 ------------ 1,133,136 ------------ Computer Networking (.9%) 36,985 Cisco Systems, Inc.(b) 387,603 2,700 SEI Investments Company 64,476 ------------ 452,079 ------------ Computer Peripherals (.3%) 29,200 EMC Corporation(b) 133,444 ------------ Computer Services & Software (2.0%) 10,400 BEA Systems, Inc.(b) 53,872 15,588 Microsoft Corporation(b) 681,040 22,300 Oracle Systems(b) 175,278 7,200 Peoplesoft, Inc. 89,064 ------------ 999,254 ------------ Electrical Semiconductor (1.2%) 6,904 Applied Materials, Inc.(b) 79,741 4,100 Intersil Corporation 53,136 34,827 LSI Logic Corporation(b) 221,151 12,686 Texas Instruments, Inc. 187,372 4,300 Xilinx, Inc.(b) 68,103 ------------ 609,503 ------------

See accompanying notes to investments in securities. 62

MARKET SHARES VALUE(a) - ------ ------------ Electronics -- Computer Distribution (1.0%) 9,100 Celestica, Inc.(b)(c) $ 119,210 7,500 Cree, Inc.(b) 93,750 7,300 WW Grainger, Inc. 310,615 ------------ 523,575 ------------ Service -- Data Processing (.7%) 14,600 Paychex, Inc. 355,072 ------------ TRANSPORTATION (1.0%) Air Freight (.3%) 6,200 CH Robinson Worldwide, Inc. 166,842 ------------ Railroads (.7%) 12,518 CSX Corporation 330,225 ------------ UTILITIES (1.7%) Electric Companies (1.7%) 2,900 Entergy Corporation 120,640 11,300 Firstenergy Corporation 337,757 7,000 Nisource, Inc. 120,610 14,200 Pacific Gas and Electric Company 159,892 3,100 Public Service Enterprise Group, Inc. 94,550 ------------ 833,449 ------------ Total common stock (cost: $34,024,335) 30,660,262 ------------

See accompanying notes to investments in securities. 63

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ LONG-TERM DEBT SECURITIES (35.4%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (14.4%) Federal Home Loan Mortgage Corporation (FHLMC) (1.7%) $ 850,000 6.500% 09/01/32 $ 882,305 ------------ Federal National Mortgage Association (FNMA) (9.9%) 1,070,000 6.000% 09/01/17 1,111,890 336,603 4.000% 04/25/22 338,860 40,180 6.000% 01/01/29 41,407 196,640 6.230% 01/01/08 218,998 306,338 6.500% 10/01/28 319,715 205,722 6.500% 02/01/29 214,705 387,204 6.500% 02/01/32 401,558 95,090 6.500% 03/01/32 98,615 194,792 6.500% 09/01/32 202,012 112,083 7.000% 09/01/31 117,823 504,124 7.000% 11/01/31 526,483 709,292 7.000% 02/01/32 744,005 223,414 7.000% 03/01/32 234,861 136,596 7.000% 06/01/32 142,659 293,969 7.000% 07/01/32 307,018 ------------ 5,020,609 ------------ Government National Mortgage Association (GNMA) (.8%) 312,098 7.375% 11/15/11 349,240 27,006 7.500% 10/15/28 28,684 ------------ 377,924 ------------ U.S. Treasury (2.0%) 113,627 Inflationary Index Bond(g) 3.375% 01/15/07 123,816 75,000 Bond 5.500% 08/15/28 82,389 550,000 Bond 6.000% 02/15/26 641,115 150,000 Bond 6.125% 08/15/29 179,525 ------------ 1,026,845 ------------ Total U.S. government and agencies obligations (cost: $7,024,981) 7,307,683 ------------

See accompanying notes to investments in securities. 64

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ CORPORATE OBLIGATIONS (21.0%) BASIC MATERIALS (2.7%) Agriculture Products (1.4%) $ 450,000 Archer-Daniels-Midland Company 7.000% 02/01/31 $ 520,444 150,000 Cargill, Inc.(f) 6.375% 06/01/12 169,190 ------------ 689,634 ------------ Construction (.8%) 350,000 Vulcan Materials, Inc. 6.400% 02/01/06 386,054 ------------ Paper and Forest (.5%) 250,000 Weyerhaeuser Company(f) 7.375% 03/15/32 269,183 ------------ CONSUMER CYCLICAL (1.2%) Auto (.4%) 200,000 Enterprise Rent-A-Car Company 7.500% 06/15/03 206,375 ------------ Publishing (.8%) 350,000 Gannett Company, Inc. 5.500% 04/01/07 381,919 ------------ CONSUMER STAPLES (1.2%) Broadcasting (.4%) 212,000 TCI Communications Inc 6.375% 05/01/03 209,076 ------------ Food (.4%) 200,000 General Mills, Inc. 6.000% 02/15/12 215,419 ------------ Retail (.4%) 200,000 American Stores Company 7.200% 06/09/03 206,266 ------------ FINANCIAL (14.7%) Asset-Backed Securities (1.4%) 250,000 Fortress CBO Investments I, Ltd. -- 144A Issue(d) 7.850% 07/25/09 277,402 250,000 Lehman ABS Manufactured Housing Contract 5.873% 05/15/22 260,906 156,894 Prudential Home Mortgage Security Company -- 144A Issue(f) 6.770% 04/28/24 159,910 ------------ 698,218 ------------ Banks (1.0%) 500,000 St. George Funding Company 144A Issue(c)(d) 8.485% 12/29/49 513,510 ------------

See accompanying notes to investments in securities. 65

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ Collateralized Mortgage Obligations/Mortgage Revenue Bonds (6.3%) $ 51,112 Banco Hipotecario Nacional 144A Issue(c)(d)(h) 7.916% 07/25/09 $ 20,445 294,212 Banco Hipotecario Nacional -- 144A Issue(c)(d)(h) 8.000% 03/31/11 88,264 410,249 Bear Stearns & Company, Inc. 8.000% 11/25/29 428,714 387,445 Chase Mortgage Finance Corporation -- 144A Issue(f) 6.641% 03/28/25 398,828 350,000 Nomura Asset Securites Corporation(c) 7.710% 04/13/36 395,179 238,645 Paine Webber Mortgage Acceptance Corporation 7.000% 10/25/23 240,731 500,000 Park Avenue Finance Corporation -- 144A Issue(f) 7.680% 05/12/07 573,850 235,490 Residential Funding Mortgage Securities 7.000% 10/25/23 241,707 760,547 Rosewood Care Centers Capital Funding 7.250% 11/01/13 781,363 ------------ 3,169,081 ------------ Commercial Finance (.7%) 350,000 General Electric Capital Corporation 6.750% 03/15/32 375,393 ------------ Commercial Mortgage-Backed Securities (.6%) -- Asset Securitization Corporation -- 144A Issue(e) 7.500% 01/13/15 301,276 ------------ Consumer Finance (.8%) 200,000 American Express Credit Corporation(i) 1.963% 03/15/10 199,988 200,000 Citibank Credit Card Issuance Trust(i) 1.856% 12/15/05 199,879 ------------ 399,867 ------------ Insurance (1.3%) 400,000 Prudential Insurance Company of America(f) 6.600% 05/15/08 439,111 200,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 203,385 ------------ 642,496 ------------ Investment Bankers/Brokers (.5%) 250,000 Morgan Stanley 6.750% 04/15/11 273,308 ------------

See accompanying notes to investments in securities. 66

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- ------------ Real Estate Investment Trust (2.1%) $ 250,000 Prologis 6.700% 04/15/04 $ 262,345 200,000 Reckson Operating Partnership LP 7.400% 03/15/04 210,662 200,000 Spieker Properties, Inc. 6.950% 12/15/02 201,550 350,000 Vornado Realty Trust 5.625% 06/15/07 362,574 ------------ 1,037,131 ------------ UTILITIES (1.2%) Electric Companies (1.2%) 250,000 Dominion Resources, Inc. 5.700% 09/17/12 257,515 200,000 Hydro-Quebec(c) 8.000% 02/01/13 258,316 100,000 South Carolina Electric & Gas 6.625% 02/01/32 113,668 ------------ 629,499 ------------ Total corporate obligations (cost: $10,142,920) 10,603,705 ------------ Total long-term debt securities (cost: $17,167,901) 17,911,388 ------------

SHARES - ------ SHORT-TERM SECURITIES (4.6%) 2,271,057 Dreyfus Funds -- Cash Management Plus Fund, current rate 1.780% 2,271,057 113 Federated Money Market Obligations Trust -- Prime Obligations Fund, current rate 1.720% 113 20,515 Wells Fargo & Company -- Cash Investment Fund, current rate 1.810% 20,515 ------------ Total short-term securities (cost: $2,291,685) 2,291,685 ------------ Total investments in securities (cost: $53,483,921)(j) $ 50,863,335 ============

See accompanying notes to investments in securities. 67 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 4.5% of net assets in foreign securities as of September 30, 2002. (d) Represents ownership in an illiquid security. (See note 7 to the financial statements.) Information concerning the illiquid securities held at September 30, 2002, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY DATE COST -------- ----------- ----------- Fortress CBO Investments I, Ltd.-- 144A Issue* 11/6/01 $ 247,534 Banco Hipotecario Nacional -- 144A Issue* 04/01/99 49,504 Banco Hipotecario Nacional -- 144A Issue* 03/07/00 281,150 St. George Funding Company -- 144A Issue* 06/12/97 500,169 ----------- $ 1,078,357 ===========

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (e) Interest-only security that entitles the holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principal payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimated timing and amount of future cash flows. (f) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other accredited investors. These securities have been determined to be liquid under guidelines established by the board of directors. (g) U.S. Treasury inflation protection securities (TIPS) are securities in which the principal amount is adjusted for inflation and the semi-annual interest payments equal a fixed percentage of the inflation-adjusted principal amount. (h) Income is not being accrued on these securities and any payments received are treated as a reduction of principal. (i) Floating rate bond (j) At September 30, 2002 the cost of securities for federal income tax purposes was $56,829,609. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 319,881 Gross unrealized depreciation (6,286,155) ------------- Net unrealized depreciation $ (5,966,274) ============= See accompanying notes to financial statements. 68 This Page Intentionally Left Blank 69 ADVANTUS FIXED INCOME AND BLENDED FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2002

BOND FUND ------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 25,409,539 Cash in bank on demand deposit - Receivable for Fund shares sold 71,831 Receivable for investment securities sold (including paydowns) 939,607 Dividends and accrued interest receivable 225,544 Receivable for refundable foreign income taxes withheld - Collateral for securities loaned (note 6) - Other receivables 1,207 ------------- Total assets 26,647,728 ------------- LIABILITIES Bank overdraft 86,542 Bank overdraft of foreign currency (identified cost: $2,306) - Payable for Fund shares repurchased 35,278 Dividends payable to shareholders 31,634 Payable for investment securities purchased 1,739,372 Payable to Adviser 27,578 Payable upon return of securities loaned (note 6) - ------------- Total liabilities 1,920,404 ------------- Net assets applicable to outstanding capital stock $ 24,727,324 ============= Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 23,386 Additional paid-in capital 24,790,552 Undistributed (distributions in excess of) net investment income (23,757) Accumulated net realized gains (losses) from investments and foreign currency transactions (1,111,100) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 1,048,243 ------------- Total - representing net assets applicable to outstanding capital stock $ 24,727,324 ============= Net assets applicable to outstanding Class A shares $ 17,313,342 ============= Net assets applicable to outstanding Class B shares $ 6,307,868 ============= Net assets applicable to outstanding Class C shares $ 1,106,114 ============= Shares outstanding and net asset value per share: Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032 $ 10.57 ============= Class B - Shares outstanding: 595,446; 327,158; --; 2,693,353; 1,071,480 $ 10.59 ============= Class C - Shares outstanding: 104,778; 104,167; --; 939,860; 229,104 $ 10.56 ============= * Identified cost $ 24,361,296 + Including securities on loan of $ -

See accompanying notes to financial statements. 70

INTERNATIONAL MONEY BALANCED MARKET FUND FUND ------------- ------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 39,735,957 $ 41,830,330 Cash in bank on demand deposit 8,300 - Receivable for Fund shares sold 2,918 66,573 Receivable for investment securities sold (including paydowns) 59,626 - Dividends and accrued interest receivable 474,931 114,021 Receivable for refundable foreign income taxes withheld 24,267 - Collateral for securities loaned (note 6) 2,420,920 - Other receivables - 1,536 ------------- ------------- Total assets 42,726,919 42,012,460 ------------- ------------- LIABILITIES Bank overdraft - - Bank overdraft of foreign currency (identified cost: $2,306) 2,308 - Payable for Fund shares repurchased 67,794 57,777 Dividends payable to shareholders - 435 Payable for investment securities purchased - - Payable to Adviser 58,502 26,426 Payable upon return of securities loaned (note 6) 2,420,920 - ------------- ------------- Total liabilities 2,549,524 84,638 ------------- ------------- Net assets applicable to outstanding capital stock $ 40,177,395 $ 41,927,822 ============= ============= Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 46,173 $ 419,278 Additional paid-in capital 49,551,336 41,508,544 Undistributed (distributions in excess of) net investment income (595,730) - Accumulated net realized gains (losses) from investments and foreign currency transactions (2,125,334) - Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (6,699,050) - ------------- ------------- Total - representing net assets applicable to outstanding capital stock $ 40,177,395 $ 41,927,822 ============= ============= Net assets applicable to outstanding Class A shares $ 36,487,887 $ 41,927,822 ============= ============= Net assets applicable to outstanding Class B shares $ 2,797,862 - ============= ============= Net assets applicable to outstanding Class C shares $ 891,646 - ============= ============= Shares outstanding and net asset value per share: Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032 $ 8.72 $ 1.00 ============= ============= Class B - Shares outstanding: 595,446; 327,158; --; 2,693,353; 1,071,480 $ 8.55 - ============= ============= Class C - Shares outstanding: 104,778; 104,167; --; 939,860; 229,104 $ 8.56 - ============= ============= * Identified cost $ 46,405,121 $ 41,830,330 + Including securities on loan of $ 2,141,563 $ -

MORTGAGE SECURITIES SPECTRUM FUND FUND ------------- ------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 113,852,644 $ 50,863,335 Cash in bank on demand deposit 215,312 375 Receivable for Fund shares sold 1,095,153 3,909 Receivable for investment securities sold (including paydowns) 1,150,588 167,455 Dividends and accrued interest receivable 615,000 184,589 Receivable for refundable foreign income taxes withheld - - Collateral for securities loaned (note 6) - 3,106,909 Other receivables 847 1,395 ------------- ------------- Total assets 116,929,544 54,327,967 ------------- ------------- LIABILITIES Bank overdraft - - Bank overdraft of foreign currency (identified cost: $2,306) - - Payable for Fund shares repurchased 145,010 25,516 Dividends payable to shareholders 118,532 - Payable for investment securities purchased 8,870,823 555,366 Payable to Adviser 109,171 69,384 Payable upon return of securities loaned (note 6) - 3,106,909 ------------- ------------- Total liabilities 9,243,536 3,757,175 ------------- ------------- Net assets applicable to outstanding capital stock $ 107,686,008 $ 50,570,792 ============= ============= Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 97,195 $ 48,096 Additional paid-in capital 103,804,611 67,966,195 Undistributed (distributions in excess of) net investment income (118,531) 5,170 Accumulated net realized gains (losses) from investments and foreign currency transactions (33,330) (14,828,083) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 3,936,063 (2,620,586) ------------- ------------- Total - representing net assets applicable to outstanding capital stock $ 107,686,008 $ 50,570,792 ============= ============= Net assets applicable to outstanding Class A shares $ 67,395,315 $ 36,973,789 ============= ============= Net assets applicable to outstanding Class B shares $ 29,879,468 $ 11,216,484 ============= ============= Net assets applicable to outstanding Class C shares $ 10,411,225 $ 2,380,519 ============= ============= Shares outstanding and net asset value per share: Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032 $ 11.07 $ 10.54 ============= ============= Class B - Shares outstanding: 595,446; 327,158;--; 2,693,353; 1,071,480 $ 11.09 $ 10.47 ============= ============= Class C - Shares outstanding: 104,778; 104,167;--; 939,860; 229,104 $ 11.08 $ 10.39 ============= ============= * Identified cost $ 109,916,581 $ 53,483,921 + Including securities on loan of $ - $ 3,029,396

71 ADVANTUS FIXED INCOME AND BLENDED FUNDS STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2002

BOND FUND ------------- Investment Income: Interest $ 1,453,554 Dividends (net of foreign withholding taxes of $72,357 for International Balanced Fund) - Income from securities lending activities 920 Commission reimbursment income (note 8) - ------------- Total investment income 1,454,474 ------------- Expenses (note 4): Investment advisory fee 140,385 Rule 12b-1 fees - Class A 40,081 Rule 12b-1 fees - Class B 63,340 Rule 12b-1 fees - Class C 10,310 Custodian fees 10,581 Transfer agent and shareholder services fee 87,639 Administrative services fee 74,400 Auditing and accounting services 8,667 Legal fees 5,574 Registration fees 35,821 Printing and shareholder reports 20,653 Directors' fees 899 Insurance 2,013 Other 5,096 ------------- Total expenses 505,459 Less fees and expenses waived or absorbed by Advisor and Distributor - Class A Rule 12b-1 fees (181,150) ------------- Other absorbed fees Total net expenses 324,309 ------------- Investment income - net 1,130,165 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) 293,831 Foreign currency transactions - Net change in unrealized appreciation or depreciation on: Investments 316,770 Translation of assets and liabilities in foreign currency - ------------- Net gains (losses) on investments 610,601 ------------- Net increase (decrease) in net assets resulting from operations $ 1,740,766 =============

See accompanying notes to financial statements. 72 YEAR ENDED SEPTEMBER 30, 2002

INTERNATIONAL MONEY BALANCED MARKET FUND FUND ------------- ------------- Investment Income: Interest $ 789,664 $ 865,090 Dividends (net of foreign withholding taxes of $72,357 for International Balanced Fund) 744,176 - Income from securities lending activities 31,956 - Commission reimbursment income (note 8) 8,234 - ------------- ------------- Total investment income 1,574,030 865,090 ------------- ------------- Expenses (note 4): Investment advisory fee 318,502 204,824 Rule 12b-1 fees - Class A 102,735 102,412 Rule 12b-1 fees - Class B 33,658 - Rule 12b-1 fees - Class C 10,315 - Custodian fees 29,620 6,675 Transfer agent and shareholder services fee 114,414 196,220 Administrative services fee 63,600 61,200 Auditing and accounting services 72,856 10,667 Legal fees 5,873 5,783 Registration fees 33,350 19,385 Printing and shareholder reports 24,566 27,467 Directors' fees 1,073 - Insurance 2,238 2,350 Other 6,284 2,957 ------------- ------------- Total expenses 819,084 639,940 Less fees and expenses waived or absorbed by Advisor and Distributor (20,547) (102,412) Class A Rule 12b-1 fees (21,524) (189,327) ------------- ------------- Other absorbed fees Total net expenses 777,013 348,201 ------------- ------------- Investment income - net 797,017 516,889 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) (2,685,017) - Foreign currency transactions 23,320 - Net change in unrealized appreciation or depreciation on: Investments (2,735) - Translation of assets and liabilities in foreign currency 6,326 - ------------- ------------- Net gains (losses) on investments (2,658,106) - ------------- ------------- Net increase (decrease) in net assets resulting from operations $ (1,861,089) $ 516,889 ============= =============

MORTGAGE SECURITIES SPECTRUM FUND FUND ------------- ------------- Investment Income: Interest $ 6,012,049 $ 1,357,354 Dividends (net of foreign withholding taxes of $72,357 for International Balanced Fund) - 526,641 Income from securities lending activities 397 5,787 Commission reimbursment income (note 8) - - ------------- ------------- Total investment income 6,012,446 1,889,782 ------------- ------------- Expenses (note 4): Investment advisory fee 397,173 309,933 Rule 12b-1 fees - Class A 130,726 111,517 Rule 12b-1 fees - Class B 243,286 143,002 Rule 12b-1 fees - Class C 69,964 30,797 Custodian fees 16,535 10,200 Transfer agent and shareholder services fee 200,859 271,995 Administrative services fee 74,400 74,400 Auditing and accounting services 14,167 31,617 Legal fees 6,223 6,077 Registration fees 51,892 36,051 Printing and shareholder reports 32,168 32,456 Directors' fees 1,738 1,526 Insurance 2,350 2,465 Other 4,143 11,598 ------------- ------------- Total expenses 1,245,624 1,073,634 Less fees and expenses waived or absorbed by Advisor and Distributor - - Class A Rule 12b-1 fees (216,342) (187,045) ------------- ------------- Other absorbed fees Total net expenses 1,029,282 886,589 ------------- ------------- Investment income - net 4,983,164 1,003,193 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) 2,061,759 795,011 Foreign currency transactions - - Net change in unrealized appreciation or depreciation on: Investments (946,746) (4,590,027) Translation of assets and liabilities in foreign currency - - ------------- ------------- Net gains (losses) on investments 1,115,013 (3,795,016) ------------- ------------- Net increase (decrease) in net assets resulting from operations $ 6,098,177 $ (2,791,823) ============= =============

73 ADVANTUS FIXED INCOME AND BLENDED FUNDS STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED SEPTEMBER 30, 2002 AND 2001

BOND FUND ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income - net $ 1,130,165 $ 1,239,980 Net realized gains (losses) on investments 293,831 667,303 Net change in unrealized appreciation or depreciation of investments 316,770 932,264 ------------- ------------- Net increase (decrease) in net assets resulting from operations 1,740,766 2,839,547 ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (807,857) (866,736) Class B (271,659) (324,599) Class C (44,247) (57,037) Net realized gains on investments: Class A - - Class B - - Class C - - Tax return of capital: Class A - - Class B - - Class C - - ------------- ------------- Total distributions (1,123,763) (1,248,372) ------------- ------------- Capital share transactions (note 6): Proceeds from sales: Class A 8,060,173 4,288,940 Class B 1,095,698 849,975 Class C 377,877 339,564 Shares issued as a result of reinvested distributions: Class A 482,580 537,883 Class B 232,831 274,868 Class C 38,135 52,255 Payments for redemption of shares: Class A (7,411,405) (5,151,285) Class B (1,753,551) (1,749,781) Class C (361,952) (552,024) ------------- ------------- Increase (decrease) in net assets from capital share transactions 760,386 (1,109,605) ------------- ------------- Total increase (decrease) in net assets 1,377,389 481,570 Net assets at beginning of year 23,349,935 22,868,365 ------------- ------------- Net assets at end of year* $ 24,727,324 $ 23,349,935 ============= ============= * including undistributed (distributions in excess of) net investment income $ (23,757) $ (30,159)

See accompanying notes to financial statements. 74

INTERNATIONAL BALANCED FUND ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income - net $ 797,017 $ 773,755 Net realized gains (losses) on investments (2,661,697) 585,025 Net change in unrealized appreciation or depreciation of investments 3,591 (6,706,060) ------------- ------------- Net increase (decrease) in net assets resulting from operations (1,861,089) (5,347,280) ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (13,409) (474,541) Class B - (20,756) Class C - (7,703) Net realized gains on investments: Class A (538,381) (4,464,596) Class B (46,854) (433,503) Class C (13,595) (160,088) Tax return of capital: Class A (58,591) - Class B - - Class C - - ------------- ------------- Total distributions (670,830) (5,561,187) ------------- ------------- Capital share transactions (note 6): Proceeds from sales: Class A 9,885,446 2,195,662 Class B 231,246 266,499 Class C 103,193 88,765 Shares issued as a result of reinvested distributions: Class A 547,656 4,562,906 Class B 45,527 444,191 Class C 13,545 167,374 Payments for redemption of shares: Class A (11,684,865) (4,761,221) Class B (820,242) (908,928) Class C (222,867) (603,327) ------------- ------------- Increase (decrease) in net assets from capital share transactions (1,901,361) 1,451,921 ------------- ------------- Total increase (decrease) in net assets (4,433,280) (9,456,546) Net assets at beginning of year 44,610,675 54,067,221 ------------- ------------- Net assets at end of year* $ 40,177,395 $ 44,610,675 ------------- ------------- * including undistributed (distributions in excess of) net investment income $ (595,730) $ (660,628)

MONEY MARKET FUND ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income - net $ 516,889 $ 1,904,964 Net realized gains (losses) on investments - - Net change in unrealized appreciation or depreciation of investments - - ------------- ------------- Net increase (decrease) in net assets resulting from operations 516,889 1,904,964 ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (516,889) (1,904,964) Class B - - Class C - - Net realized gains on investments: Class A - - Class B - - Class C - - Tax return of capital: Class A - - Class B - - Class C - - ------------- ------------- Total distributions (516,889) (1,904,964) ------------- ------------- Capital share transactions (note 6): Proceeds from sales: Class A 49,808,401 66,749,910 Class B - - Class C - - Shares issued as a result of reinvested distributions: Class A 514,260 1,869,131 Class B - - Class C - - Payments for redemption of shares: Class A (50,878,207) (68,323,524) Class B - - Class C - - ------------- ------------- Increase (decrease) in net assets from capital share transactions (555,546) 295,517 ------------- ------------- Total increase (decrease) in net assets (555,546) 295,517 Net assets at beginning of year 42,483,368 42,187,851 ------------- ------------- Net assets at end of year* $ 41,927,822 $ 42,483,368 ------------- ------------- * including undistributed (distributions in excess of) net investment income $ - $ -

75

MORTGAGE SECURITIES FUND ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income - net $ 4,983,164 $ 3,677,031 Net realized gains (losses) on investments 2,061,759 (2,360,079) Net change in unrealized appreciation or depreciation of investments (946,746) 5,867,873 ------------- ------------- Net increase (decrease) in net assets resulting from operations 6,098,177 7,184,825 ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (3,454,050) (2,406,221) Class B (1,427,914) (1,040,626) Class C (410,303) (238,882) Net realized gains Class A - - Class B - - Class C - - Tax return of capital Class A (50,986) (135,460) Class B (21,078) (58,582) Class C (6,056) (13,448) ------------- ------------- Total distributions (5,370,387) (3,893,219) ------------- ------------- Capital share transactions (note 6): Proceeds from sales: Class A 40,374,981 12,959,927 Class B 11,113,864 7,835,581 Class C 6,746,433 3,150,142 Shares issued as a result of reinvested distributions Class A 2,487,059 1,683,438 Class B 1,191,985 896,517 Class C 352,089 213,056 Payments for redemption of shares Class A (18,385,514) (6,077,614) Class B (3,844,743) (2,927,513) Class C (1,977,904) (1,634,811) ------------- ------------- Increase (decrease) in net assets from capital share transactions 38,058,250 16,098,723 ------------- ------------- Total increase (decrease) in net assets 38,786,040 19,390,329 Net assets at beginning of year 68,899,968 49,509,639 ------------- ------------- Net assets at end of year* $ 107,686,008 $ 68,899,968 ============= ============= * including undistributed (distributions in excess of) net investment income of $ (118,531) $ (88,086)

See accompanying notes to financial statements. 76

SPECTRUM FUND ------------------------------ 2002 2001 ------------- ------------- Operations: Investment income - net $ 1,003,193 $ 1,151,606 Net realized gains (losses) on investments 795,011 (13,849,891) Net change in unrealized appreciation or depreciation of investments (4,590,027) (21,515,051) ------------- ------------- Net increase (decrease) in net assets resulting from operations (2,791,823) (34,213,336) ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (931,366) (856,166) Class B (193,939) (137,409) Class C (41,695) (31,425) Net realized gains Class A (61,065) (8,664,445) Class B (20,461) (2,995,355) Class C (4,456) (676,021) Tax return of capital Class A - - Class B - - Class C - - ------------- ------------- Total distributions (1,252,982) (13,360,821) ------------- ------------- Capital share transactions (note 6): Proceeds from sales: Class A 3,242,717 4,884,713 Class B 732,968 2,045,874 Class C 265,270 468,737 Shares issued as a result of reinvested distributions Class A 915,287 9,170,037 Class B 203,782 3,055,969 Class C 42,941 681,146 Payments for redemption of shares Class A (9,234,283) (13,454,590) Class B (4,082,012) (5,199,830) Class C (955,048) (1,324,135) ------------- ------------- Increase (decrease) in net assets from capital share transactions (8,868,378) 327,921 ------------- ------------- Total increase (decrease) in net assets (12,913,183) (47,246,236) Net assets at beginning of year 63,483,975 110,730,211 ------------- ------------- Net assets at end of year* $ 50,570,792 $ 63,483,975 ============= ============= * including undistributed (distributions in excess of) net investment income of $ 5,170 $ 192,864

77 ADVANTUS FIXED INCOME AND BLENDED FUNDS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (1) ORGANIZATION Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., and Advantus Spectrum Fund, Inc. (the Funds) are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies. The Funds' prospectus provides a detailed description of each Fund's investment objective, policies and strategies. The Funds currently issue three classes of shares: Class A, Class B and Class C shares, except for the Money Market Fund which does not issue Class B or C shares. Class A shares are sold subject to a front-end sales charge except for the Money Market Fund which does not have any sales charges. Class B shares are sold subject to a contingent deferred sales charge payable upon redemption if redeemed within six years of purchase. Class C shares are sold without either a front-end sales charge or a contingent deferred sales charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both Class B and Class C shares automatically convert to Class A shares at net asset value after a specified holding period. Such holding periods decline as the amount of the purchase increases and range from 28 to 84 months after purchase for Class B shares and 40 to 96 months after purchase for Class C shares. All three classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of Rule 12b-1 fees charged differs among Class A, Class B and Class C shares. Income, expenses (other than Rule 12b-1 fees) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Funds are summarized as follows: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, as of the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 78 INVESTMENTS IN SECURITIES Each Fund's net asset value is generally calculated as of the close of normal trading on the New York Stock Exchange (typically 3:00 p.m. Central Time). Investments in securities traded on a national exchange are valued at the last sales price on that exchange prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued on the basis of the last current bid price, by an independent pricing service or at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities. The pricing service may use models that price securities based on current yields and relative security characteristics, such as coupon rate, maturity date, issuer credit quality and prepayment speeds, as applicable. When market quotations are not readily available, securities are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Short-term securities are valued at market. For the Money Market Fund, pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all securities are valued at amortized cost which approximates market value, in order to maintain a constant net asset value of $1. However, there is no assurance that the Fund will maintain a $1 NAV. Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Dividend income is recognized on the ex-dividend date, or upon dividend notification for certain foreign securities. Interest income, including amortization of bond premium and discount computed on a level yield basis, is accrued daily. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities, income and expenses are translated at the exchange rate on the transaction date. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains or losses from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar 79 equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. The International Balanced Fund also may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by International Balanced Fund and the resulting unrealized appreciation and depreciation are determined using foreign currency exchange rates from an independent pricing service. International Balanced Fund is subject to the credit risk that the other party will not complete the obligations of the contract. FEDERAL TAXES Each Fund's policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, each Fund's policy is to make required minimum distributions prior to December 31, in order to avoid federal excise tax. For federal income tax purposes, the following Funds had capital loss carryovers and/or post October losses at September 30, 2002 which, if not offset by subsequent capital gains, will expire September 30, 2010. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gains until available capital loss carryovers have been offset or expire: Bond Fund $ 1,043,533 International Balanced Fund 2,064,851 Spectrum Fund 11,482,396 Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of temporary book-to-tax differences. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Funds. The Funds may elect to utilize equalization debits by which a portion of the costs of redemptions, which occurred during the year ended September 30, 2002, would reduce net realized gain for tax purposes. 80 On the statement of assets and liabilities, as a result of permanent book-to-tax differences, reclassification adjustments were made as follows:

UNDISTRIBUTED ACCUMULATED ADDITIONAL NET INVESTMENT REALIZED PAID IN FUND INCOME GAIN/LOSS CAPITAL - ---- -------------- ----------- ---------- International Balanced $ (718,710) $ 695,891 22,819 Mortgage Securities 278,658 (278,658) -- Spectrum (23,887) (6,081) 29,968

The tax character of distributions paid for the years indicated are as follows:

YEARS ENDED SEPTEMBER 30, ------------------------------ FUND 2002 2001 - ---- ----------- ----------- BOND DISTRIBUTIONS PAID FROM: Ordinary income $ 1,123,763 $ 1,248,372 INTERNATIONAL BALANCED DISTRIBUTIONS PAID FROM: Ordinary income 13,409 503,000 Long-term capital gain 598,830 5,058,187 Return of capital 58,591 -- MONEY MARKET DISTRIBUTIONS PAID FROM: Ordinary income 516,889 1,904,964 MORTGAGE SECURITIES DISTRIBUTIONS PAID FROM: Ordinary income 5,013,609 3,685,729 Return of capital 78,120 207,490 Long-term capital gain 278,658 -- SPECTRUM DISTRIBUTIONS PAID FROM: Ordinary income 1,167,000 5,386,153 Long-term capital gain 85,982 7,974,668

81 As of September 30, 2002, the components of distributable earnings on a tax basis for each Fund are as follows:

ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION FUND ORDINARY INCOME GAIN (LOSS) (DEPRECIATION) - ---- --------------- ------------ -------------- Bond $ 7,878 $ (1,043,533) $ 980,675 International Balanced -- (2,064,851) (6,759,533) Money Market 435 -- -- Mortgage Securities -- -- 3,902,733 Spectrum 5,170 (11,482,396) (5,966,274)

DISTRIBUTIONS TO SHAREHOLDERS For the International Balanced Fund and the Spectrum Fund dividends from net investment income are declared and paid quarterly. Realized gains, if any, are paid annually. For the Bond Fund, Money Market Fund and Mortgage Securities Fund dividends from net investment income are declared daily and paid monthly in cash or reinvested in additional shares. Capital gains, if any, are paid annually. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities which have been purchased by a Fund on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuations. As of September 30, 2002, Bond Fund and Mortgage Securities Fund had entered into outstanding, when-issued or forward commitments of $983,576 and $7,668,587, respectively. Each Fund has segregated assets with the custodian to cover such when-issued and forward commitments. (3) INVESTMENT SECURITY TRANSACTIONS For the year ended September 30, 2002, the cost of purchases and proceeds from sales of investment securities aggregated $499,632,211 and $500,364,011, respectively for the Money Market Fund. For the other Funds, the cost of purchases and proceeds from sales of investment securities, other than temporary investments in short-term securities, for the year ended September 30, 2002 were as follows:

FUND PURCHASES SALES - ---- ------------- ------------ Bond $ 33,829,997 $ 33,366,135 International Balanced 20,338,954 22,072,649 Mortgage Securities 117,529,446 81,340,402 Spectrum 77,655,010 87,399,128

(4) EXPENSES AND RELATED PARTY TRANSACTIONS The Funds have an investment advisory agreement with Advantus Capital Management, Inc. (Advantus Capital or the Adviser), a wholly-owned 82 subsidiary of Securian Financial Group. Under the agreement, Advantus Capital manages the Funds' assets and provides research, statistical and advisory services and pays related office rental and executive expenses and salaries. Each Fund pays Advantus Capital Management an annual fee, based on its average daily net assets in the following amounts:

FUND ANNUAL FEE - -------------------------------------------------------------------------------- Bond .60% of assets to $250 million; and .55% of assets exceeding $250 million to $500 million; and .50% of assets exceeding $500 million to $1 billion; and .45% of assets exceeding $1 billion International Balanced .70% of assets to $250 million; and .65% of assets exceeding $250 million to $500 million; and .60% of assets exceeding $500 million to $1 billion; and .55% of assets exceeding $1 billion Money Market .50% of assets to $500 million; and .45% of assets exceeding $500 million to $1 billion; and .425% of assets exceeding $1 billion to $2 Billion; and .40% of assets exceeding $2 billion Mortgage Securities .475% of assets to $1 billion; and .46% of assets exceeding $1 billion to $2 billion; and .45% of assets exceeding $2 billion Spectrum .50% of assets to $1 billion; and .48% of assets exceeding $1 billion to $2 billion; and .46% of assets exceeding $2 billion.

Advantus Capital has a sub-advisory agreement with the following registered investment adviser. Under the sub-advisory agreement, Advantus Capital pays the sub-adviser an annual fee based on average daily net assets, in the following amounts:

FUND SUB-ADVISOR ANNUAL FEE - ------------- ------------------ ------------------------------------------------- International Templeton .70% of assets to $25 million; and .55% of assets Balanced Investment Counsel exceeding $25 million to $50 million; and .50% of assets exceeding $50 million to $100 million; and .40% of assets exceeding $100 million

The Funds have adopted separate Plans of Distribution applicable to Class A, Class B and Class C shares, respectively, relating to the payment of certain expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as amended). The Funds pay fees to Securian Financial Services, Inc. (Securian), the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial Group, to be used to pay certain expenses incurred in the distribution, promotion and servicing of the Funds' shares. The Class A Plan 83 provides for a service fee up to .25 percent of average daily net assets of Class A shares. The Class B and Class C Plans provide for a fee up to 1.00 percent of average daily net assets of Class B and Class C shares, respectively. The Class B and Class C 1.00 percent fee is comprised of a .75 percent distribution fee and a .25 percent service fee. Securian is currently waiving the portion of Class A Rule 12b-1 fees which exceeds, as a percentage of average daily net assets, .20 percent in International Balanced and the entire 12b-1 fee for Money Market Fund. Securian waived Class A 12b-1 fees in the amounts of $20,547 and $102,412, respectively, for the above Funds for the year ended September 30, 2002. The Funds have engaged PFPC Global Fund Services to act as their transfer agent, dividend disbursing agent and redemption agent and bear the expenses of such services. The Funds also bear certain other operating expenses including outside directors' fees, custodian fees, registration fees, printing and shareholder reporting fees, outside legal, auditing and accounting services, and other miscellaneous expenses. The Funds have entered in a shareholder and administrative services agreement with Securian Financial Group. Under this agreement, the Funds pay a shareholder services fee, equal to $7 per shareholder account annually, to Securian Financial Group for shareholder services which Securian Financial Group provides. Prior to December 1, 2001, the Funds paid a shareholder services fee equal to $5 per shareholder account annually. The Funds also pay Securian Financial Group an administrative services fee equal to $6,200 per month for Bond Fund, Mortgage Securities Fund and Spectrum Fund, $5,300 per month for International Balanced Fund and $5,100 per month for Money Market Fund for accounting, auditing, legal and other administrative services which Securian Financial Group provides. Advantus Capital directly incurs and pays the above operating expenses and the Funds in turn reimburse Advantus Capital. VOLUNTARY FEE ABSORPTION Advantus Capital has voluntarily agreed to absorb all Fund costs and expenses that exceed 1.15% of Class A average daily net assets and 1.90% of Class B and C average daily net assets for Bond Fund, all Fund costs and expenses that exceed 1.62% of Class A average daily net assets and 2.42% of Class B and C average daily net assets for International Balanced Fund, all Fund costs and expenses that exceed .85% of Class A average daily net for Money Market Fund, all Fund costs and expenses which exceed .95% of Class A average daily net assets and 1.70% of Class B and C average daily net assets for Mortgage Securities Fund and all Fund costs and expenses that 84 exceed 1.22% of Class A average daily net assets and 1.97% of Class B and C average daily net assets for Spectrum Fund. During the year ended September 30, 2002, Advantus Capital voluntarily agreed to absorb $181,150, $21,524, $189,327, $216,342 and $187,045, respectively, in expenses which were otherwise payable by the Funds. ACCOUNTING SERVICES The International Balanced Fund has an agreement with SEI Investments Mutual Fund Services (SEI) whereby SEI provides daily fund accounting services. Under this agreement, the annual fee for the Fund is equal to the greater of $45,000 or .06% of the first $150 million in net assets, .05% of net assets from $150 million to $850 million and .04% of net assets in excess of $1 billion. For the year ended September 30, 2002, sales charges retained by Securian for distributing the Funds' three classes of shares for Bond, International Balanced, Mortgage Securities and Spectrum were $12,282, $6,929, $9,278 and $32,299, respectively. As of September 30, 2002 the ownership of shares by Minnesota Life and subsidiaries and the directors and officers of the Funds as a whole was as follows:

PERCENTAGE NUMBER OF OWNED FUND SHARES OF CLASS - ---- --------- ---------- Bond Class A 341,589 20.8% International Balanced Class A 3,222,851 77.0% Money Market Class A 4,679,431 11.2% Mortgage Securities Class A 583,972 9.6% Spectrum Class A 981 0.0%

Legal fees were paid to a law firm with whom the Funds' secretary is a partner to Bond Fund, International Balanced Fund, Money Market Fund, Mortgage Securities Fund and Spectrum Fund in the amount of $5,307, $5,311, $5,304, $5,302, $5,305, respectively. 85 (5) CAPITAL SHARE TRANSACTIONS Transactions in shares for the years ended September 30, 2002 and 2001, were as follows:

BOND FUND ---------------------------------------------------------- CLASS A CLASS B CLASS C ------------------ ------------------ ----------------- 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- ------- ------- Sold 793,620 428,285 106,141 83,643 36,666 33,990 Issued for reinvested distributions 47,082 53,922 22,664 27,488 3,726 5,242 Redeemed (729,969) (517,080) (170,786) (175,538) (35,651) (55,127) -------- -------- -------- -------- ------- ------- 110,733 (34,873) (41,981) (64,407) 4,741 (15,895) ======== ======== ======== ======== ======= =======

INTERNATIONAL BALANCED FUND ------------------------------------------------------------ CLASS A CLASS B CLASS C -------------------- ----------------- ----------------- 2002 2001 2002 2001 2002 2001 ---------- -------- ------- ------- ------- ------- Sold 1,005,733 215,841 24,615 25,152 10,844 8,513 Issued for reinvested distributions 57,082 438,581 4,795 43,108 1,426 16,228 Redeemed (1,188,610) (458,489) (87,172) (87,802) (23,558) (59,525) ---------- -------- ------- ------- ------- ------- (125,795) 195,933 (57,762) (19,542) (11,288) (34,784) ========== ======== ======= ======= ======= =======

MONEY MARKET FUND ------------------------- CLASS A ------------------------- 2002 2001 ----------- ----------- Sold 49,808,396 66,749,910 Issued for reinvested distributions 514,265 1,869,131 Redeemed (50,878,207) (68,323,524) ----------- ----------- (555,546) 295,517 =========== ===========

86

MORTGAGE SECURITIES FUND -------------------------------------------------------------- CLASS A CLASS B CLASS C --------------------- ------------------- ------------------ 2002 2001 2002 2001 2002 2001 ---------- -------- -------- -------- -------- -------- Sold 3,700,516 1,210,033 1,016,397 728,922 617,004 293,663 Issued for reinvested distributions 228,004 157,266 109,077 83,586 32,255 19,865 Redeemed (1,707,279) (571,227) (360,354) (273,913) (183,912) (153,223) ---------- -------- -------- -------- -------- -------- 2,221,241 796,072 765,120 538,595 465,347 160,305 ========== ======== ======== ======== ======== ========

SPECTRUM FUND ---------------------------------------------------------- CLASS A CLASS B CLASS C ------------------ ------------------ ----------------- 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- ------- ------- Sold 270,707 324,750 61,696 137,812 23,078 31,646 Issued for reinvested distributions 77,674 618,986 17,367 206,448 3,684 46,289 Redeemed (775,059) (958,885) (344,138) (376,427) (81,875) (97,953) -------- -------- -------- -------- ------- ------- (426,678) 15,149 (265,075) (32,167) (55,113) (20,018) ======== ======== ======== ======== ======= =======

(6) SECURITIES LENDING CONTRACTS To enhance returns, the Funds loan securities to brokers in exchange for collateral. The Funds receive a fee from the brokers measured as a percent of the loaned securities. At September 30, 2002, the collateral is invested in cash equivalents and repurchase agreements and must be 102% of the value of securities loaned. The risk to the Funds is that the borrower may not provide additional collateral when required or return the securities when due. At September 30, 2002, International Balanced Fund and Spectrum Fund had securities valued at $2,141,563 and $3,029,396 that were on loan to brokers and the Funds had $2,420,920 and $3,106,909 in cash collateral, respectively. (7) ILLIQUID SECURITIES The Funds' investments in illiquid securities are limited to 10% of net assets at the time of purchase. At September 30, 2002 investments in securities of Bond Fund, Mortgage Securities Fund and Spectrum Fund include issues that are illiquid. The aggregate value of illiquid securities held by the Funds were $852,291, $4,126,999 and $899,621, respectively, which represents 3.4%, 3.8% and 1.8% of net assets, respectively. Pursuant to guidelines adopted by the Funds' Board of Directors, certain unregistered 87 securities are determined to be liquid and are not included within the percent limitation specified above. (8) COMMISSION RECAPTURE International Balanced Fund participates in commission recapture agreements with certain brokers whereby a portion of brokerage commissions on fund trades are refunded. The commission recapture is reported as commission reimbursment income on the statement of operations. For the year ended September 30, 2002, the International Balanced Fund had participated in such agreements and recaptured $8,234 in brokerage commissions. 88 (9) FINANCIAL HIGHLIGHTS ADVANTUS BOND FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 10.30 $ 9.60 $ 9.71 $ 10.69 $ 10.43 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .52 .58 .58 .54 .59 Net gains (losses) on securities (both realized and unrealized) .27 .70 (.11) (.79) .30 -------- -------- -------- -------- -------- Total from investment operations .79 1.28 .47 (.25) .89 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.52) (.58) (.58) (.54) (.60) Distributions from net realized gains - - - (.19) (.03) -------- -------- -------- -------- -------- Total distributions (.52) (.58) (.58) (.73) (.63) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.57 $ 10.30 $ 9.60 $ 9.71 $ 10.69 ======== ======== ======== ======== ======== Total return(a) 7.90% 13.68% 5.04% (2.36)% 8.75% Net assets, end of year (in thousands) $ 17,313 $ 15,737 $ 15,002 $ 17,846 $ 19,419 Ratios to average net assets: Expenses 1.15% 1.15% 1.15% 1.15% 1.10% Net investment income 5.07% 5.77% 6.08% 5.41% 5.55% Expenses without waiver 1.92% 1.99% 1.84% 1.55% 1.58% Net investment income without waiver 4.30% 4.93% 5.39% 5.01% 5.07% Portfolio turnover rate (excluding short-term securities) 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 89 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 10.33 $ 9.62 $ 9.74 $ 10.71 $ 10.43 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .44 .50 .51 .47 .51 Net gains (losses) on securities (both realized and unrealized) .26 .72 (.12) (.78) .31 -------- -------- -------- -------- -------- Total from investment operations .70 1.22 .39 (.31) .82 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.44) (.51) (.51) (.47) (.51) Distributions from net realized gains -- -- -- (.19) (.03) -------- -------- -------- -------- -------- Total distributions (.44) (.51) (.51) (.66) (.54) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.59 $ 10.33 $ 9.62 $ 9.74 $ 10.71 ======== ======== ======== ======== ======== Total return(a) 6.99% 12.93% 4.16% (2.98)% 8.09% Net assets, end of year (in thousands) $ 6,308 $ 6,582 $ 6,755 $ 8,171 $ 8,894 Ratios to average net assets: Expenses 1.90% 1.90% 1.90% 1.90% 1.90% Net investment income 4.32% 5.03% 5.33% 4.64% 4.78% Expenses without waiver 2.67% 2.74% 2.59% 2.28% 2.28% Net investment income without waiver 3.55% 4.19% 4.64% 4.26% 4.40% Portfolio turnover rate (excluding short-term securities) 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 90 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 10.29 $ 9.59 $ 9.70 $ 10.68 $ 10.42 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .44 .50 .51 .47 .51 Net gains (losses) on securities (both realized and unrealized) .27 .70 (.11) (.79) .29 -------- -------- -------- -------- -------- Total from investment operations .71 1.20 .40 (.32) .80 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.44) (.50) (.51) (.47) (.51) Distributions from net realized gains - - - (.19) (.03) -------- -------- -------- -------- -------- Total distributions (.44) (.50) (.51) (.66) (.54) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.56 $ 10.29 $ 9.59 $ 9.70 $ 10.68 ======== ======== ======== ======== ======== Total return(a) 7.11% 12.84% 4.26% (3.10)% 7.89% Net assets, end of year (in thousands) $ 1,106 $ 1,029 $ 1,112 $ 1,594 $ 2,089 Ratios to average net assets: Expenses 1.90% 1.90% 1.91% 1.90% 1.90% Net investment income 4.32% 5.03% 5.32% 4.64% 4.81% Expenses without waiver 2.67% 2.74% 2.59% 2.28% 2.28% Net investment income without waiver 3.55% 4.19% 4.68% 4.26% 4.43% Portfolio turnover rate (excluding short-term securities) 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 91 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 9.28 $ 11.59 $ 11.80 $ 10.56 $ 13.29 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .18 .18 .23 .21 .28 Net gains (losses) on securities (both realized and unrealized) (.59) (1.28) .50 1.52 (1.95) -------- -------- -------- -------- -------- Total from investment operations (.41) (1.10) .73 1.73 (1.67) -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income -- (.11) (.36) (.11) (.14) Distributions from net realized gains (.13) (1.10) (.58) (.38) (.92) Tax return of capital (.02) -- -- -- -- -------- -------- -------- -------- -------- Total distributions (.15) (1.21) (.94) (.49) (1.06) -------- -------- -------- -------- -------- Net asset value, end of year $ 8.72 $ 9.28 $ 11.59 $ 11.80 $ 10.56 ======== ======== ======== ======== ======== Total return(a) (4.62)% (10.57)% 6.26% 16.65% (13.02)% Net assets, end of year (in thousands) $ 36,488 $ 40,021 $ 47,693 $ 49,502 $ 46,025 Ratios to average net assets: Expenses 1.62% 1.62% 1.52% 1.63% 1.62% Net investment income 1.84% 1.60% 1.92% 1.77% 2.38% Expenses without waivers 1.72% 1.73% 1.65% 1.70% 1.91% Net investment income without waivers 1.74% 1.49% 1.79% 1.70% 2.09% Portfolio turnover rate (excluding short-term securities) 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 92 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 9.17 $ 11.49 $ 11.66 $ 10.47 $ 13.23 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .10 .11 .11 .12 .19 Net gains (losses) on securities (both realized and unrealized) (.59) (1.28) .51 1.51 (1.93) -------- -------- -------- -------- -------- Total from investment operations (.49) (1.17) .62 1.63 (1.74) -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income -- (.05) (.21) (.06) (.10) Distributions from net realized gains (.13) (1.10) (.58) (.38) (.92) -------- -------- -------- -------- -------- Total distributions (.13) (1.15) (.79) (.44) (1.02) -------- -------- -------- -------- -------- Net asset value, end of year $ 8.55 $ 9.17 $ 11.49 $ 11.66 $ 10.47 ======== ======== ======== ======== ======== Total return(a) (5.52)% (11.29)% 5.32% 15.84% (13.63)% Net assets, end of year (in thousands) $ 2,798 $ 3,530 $ 4,647 $ 5,293 $ 4,869 Ratios to average net assets: Expenses 2.42% 2.42% 2.32% 2.43% 2.29% Net investment income 1.04% .79% 1.12% .94% 1.77% Expenses without waivers 2.47% 2.48% 2.42% 2.43% 2.44% Net investment income without waivers .99% .74% 1.02% .94% 1.62% Portfolio turnover rate (excluding short-term securities) 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 93 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 9.18 $ 11.50 $ 11.66 $ 10.48 $ 13.24 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .08 .11 .11 .10 .18 Net gains (losses) on securities (both realized and unrealized) (.57) (1.28) .51 1.52 (1.92) -------- -------- -------- -------- -------- Total from investment operations (.49) (1.17) .62 1.62 (1.74) -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income -- (.05) (.20) (.06) (.10) Distributions from net realized gains (.13) (1.10) (.58) (.38) (.92) -------- -------- -------- -------- -------- Total distributions (.13) (1.15) (.78) (.44) (1.02) -------- -------- -------- -------- -------- Net asset value, end of year $ 8.56 $ 9.18 $ 11.50 $ 11.66 $ 10.48 ======== ======== ======== ======== ======== Total return(a) (5.52)% (11.27)% 5.36% 15.71% (13.67)% Net assets, end of year (in thousands) $ 892 $ 1,060 $ 1,728 $ 2,510 $ 3,074 Ratios to average net assets: Expenses 2.42% 2.42% 2.33% 2.44% 2.49% Net investment income 1.04% .78% 1.09% .94% 1.52% Expenses without waivers 2.47% 2.48% 2.43% 2.44% 2.64% Net investment income without waivers .99% .73% .99% .94% 1.37% Portfolio turnover rate (excluding short-term securities) 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 94 ADVANTUS MONEY MARKET FUND

YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .01 .04 .05 .04 .05 -------- -------- -------- -------- -------- Total from investment operations .01 .04 .05 .04 .05 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.01) (.04) (.05) (.04) (.05) -------- -------- -------- -------- -------- Total distributions (.01) (.04) (.05) (.04) (.05) -------- -------- -------- -------- -------- Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======== ======== ======== ======== Total return(a) 1.27% 4.56% 5.33% 4.24% 4.78% Net assets, end of year (in thousands) $ 41,928 $ 42,483 $ 42,188 $ 41,203 $ 60,901 Ratios to average net assets: Expenses .85% .85% .85% .85% .85% Net investment income 1.26% 4.45% 5.21% 4.17% 4.68% Expenses without waiver 1.56% 1.66% 1.78% 1.56% 1.41% Net investment income without waiver .55% 3.64% 4.28% 3.46% 4.12%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions. 95 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 10.99 $ 10.37 $ 10.30 $ 10.75 $ 10.54 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .70 .73 .69 .69 .64 Net gains (losses) on securities (both realized and unrealized) .11 .65 .09 (.45) .25 -------- -------- -------- -------- -------- Total from investment operations .81 1.38 .78 .24 .89 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.72) (.72) (.70) (.68) (.65) Tax return of capital (.01) (.04) (.01) (.01) (.03) -------- -------- -------- -------- -------- Total distributions (.73) (.76) (.71) (.69) (.68) -------- -------- -------- -------- -------- Net asset value, end of year $ 11.07 $ 10.99 $ 10.37 $ 10.30 $ 10.75 ======== ======== ======== ======== ======== Total return(a) 7.88% 13.90% 7.70% 2.26% 8.73% Net assets, end of year (in thousands) $ 67,395 $ 42,458 $ 31,814 $ 33,617 $ 32,268 Ratios to average net assets: Expenses .95% .95% .95% .95% .95% Net investment income 6.24% 6.75% 6.81% 6.29% 6.02% Expenses without waiver 1.21% 1.31% 1.32% 1.21% 1.29% Net investment income without waiver 5.98% 6.39% 6.44% 6.03% 5.68% Portfolio turnover rate (excluding short-term securities) 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 96 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 11.01 $ 10.39 $ 10.33 $ 10.77 $ 10.56 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .61 .65 .61 .61 .57 Net gains (losses) on securities (both realized and unrealized) .12 .65 .08 (.44) .24 -------- -------- -------- -------- -------- Total from investment operations .73 1.30 .69 .17 .81 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.64) (.64) (.62) (.60) (.57) Tax return of capital (.01) (.04) (.01) (.01) (.03) -------- -------- -------- -------- -------- Total distributions (.65) (.68) (.63) (.61) (.60) -------- -------- -------- -------- -------- Net asset value, end of year $ 11.09 $ 11.01 $ 10.39 $ 10.33 $ 10.77 ======== ======== ======== ======== ======== Total return(a) 6.99% 13.05% 6.90% 1.51% 7.92% Net assets, end of year (in thousands) $ 29,879 $ 21,227 $ 14,436 $ 14,057 $ 10,079 Ratios to average net assets: Expenses 1.70% 1.70% 1.70% 1.70% 1.70% Net investment income 5.49% 6.00% 6.06% 5.57% 5.33% Expenses without waiver 1.96% 2.06% 2.07% 1.94% 1.99% Net investment income without waiver 5.23% 5.64% 5.69% 5.33% 5.04% Portfolio turnover rate (excluding short-term securities) 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 97 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 10.99 $ 10.37 $ 10.31 $ 10.76 $ 10.55 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .62 .66 .61 .61 .57 Net gains (losses) on securities (both realized and unrealized) .12 .64 .08 (.45) .24 -------- -------- -------- -------- -------- Total from investment operations .74 1.30 .69 .16 .81 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.64) (.64) (.62) (.60) (.57) Tax return of capital (.01) (.04) (.01) (.01) (.03) -------- -------- -------- -------- -------- Total distributions (.65) (.68) (.63) (.61) (.60) -------- -------- -------- -------- -------- Net asset value, end of year $ 11.08 $ 10.99 $ 10.37 $ 10.31 $ 10.76 ======== ======== ======== ======== ======== Total return(a) 6.99% 13.05% 6.89% 1.50% 7.92% Net assets, end of year (in thousands) $ 10,411 $ 5,216 $ 3,259 $ 5,126 $ 4,343 Ratios to average net assets: Expenses 1.70% 1.70% 1.70% 1.70% 1.70% Net investment income 5.49% 6.00% 6.06% 5.58% 5.40% Expenses without waiver 1.96% 2.06% 2.07% 1.94% 1.99% Net investment income without waiver 5.23% 5.64% 5.69% 5.34% 5.11% Portfolio turnover rate (excluding short-term securities) 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 98 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 11.45 $ 19.73 $ 17.88 $ 16.50 $ 16.40 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .23 .22 .31 .31 .33 Net gains (losses) on securities (both realized and unrealized) (.89) (6.08) 2.55 2.30 1.40 -------- -------- -------- -------- -------- Total from investment operations (.66) (5.86) 2.86 2.61 1.73 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.25) (.20) (.30) (.31) (.33) Distributions from net realized gains - (2.22) (.71) (.92) (1.30) -------- -------- -------- -------- -------- Total distributions (.25) (2.42) (1.01) (1.23) (1.63) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.54 $ 11.45 $ 19.73 $ 17.88 $ 16.50 ======== ======== ======== ======== ======== Total return(a) (5.91)% (32.35)% 16.22% 16.08% 11.31% Net assets, end of year (in thousands) $ 36,974 $ 45,066 $ 77,964 $ 73,613 $ 68,157 Ratios to average net assets: Expenses 1.22% 1.12% 1.11% 1.10% 1.19% Net investment income 1.84% 1.57% 1.58% 1.77% 1.98% Expenses without waiver 1.52% 1.40% 1.20% 1.10% 1.19% Net investment income without waiver 1.54% 1.29% 1.49% 1.77% 1.98% Portfolio turnover rate (excluding short-term securities) 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods above assume reinvestment of distributions and do not include the effects of sales charges. 99 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 11.38 $ 19.61 $ 17.79 $ 16.43 $ 16.34 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .12 .11 .17 .19 .22 Net gains (losses) on securities (both realized and unrealized) (.87) (6.03) 2.53 2.28 1.39 -------- -------- -------- -------- -------- Total from investment operations (.75) (5.92) 2.70 2.47 1.61 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.16) (.09) (.17) (.19) (.22) Distributions from net realized gains - (2.22) (.71) (.92) (1.30) -------- -------- -------- -------- -------- Total distributions (.16) (2.31) (.88) (1.11) (1.52) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.47 $ 11.38 $ 19.61 $ 17.79 $ 16.43 ======== ======== ======== ======== ======== Total return(a) (6.56)% (32.82)% 15.51% 15.31% 10.55% Net assets, end of year (in thousands) $ 11,216 $ 15,207 $ 26,838 $ 24,420 $ 17,751 Ratios to average net assets: Expenses 1.97% 1.87% 1.86% 1.82% 1.84% Net investment income 1.09% .82% .83% 1.06% 1.32% Expenses without waiver 2.27% 2.15% 1.95% 1.82% 1.84% Net investment income without waiver .79% .54% .72% 1.06% 1.32% Portfolio turnover rate (excluding short-term securities) 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods above assume reinvestment of distributions and do not include the effects of sales charges. 100 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------ YEAR ENDED SEPTEMBER 30, ------------------------------------------------------ 2002 2001 2000 1999 1998 -------- -------- -------- -------- -------- Net asset value, beginning of year $ 11.29 $ 19.49 $ 17.69 $ 16.34 $ 16.27 -------- -------- -------- -------- -------- Income from investment operations: Net investment income .12 .11 .17 .19 .24 Net gains (losses) on securities (both realized and unrealized) (.86) (6.00) 2.51 2.27 1.36 -------- -------- -------- -------- -------- Total from investment operations (.74) (5.89) 2.68 2.46 1.60 -------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.16) (.09) (.17) (.19) (.23) Distributions from net realized gains - (2.22) (.71) (.92) (1.30) -------- -------- -------- -------- -------- Total distributions (.16) (2.31) (.88) (1.11) (1.53) -------- -------- -------- -------- -------- Net asset value, end of year $ 10.39 $ 11.29 $ 19.49 $ 17.69 $ 16.34 ======== ======== ======== ======== ======== Total return(a) (6.54)% (32.87)% 15.38% 15.29% 10.57% Net assets, end of year (in thousands) $ 2,381 $ 3,210 $ 5,928 $ 5,659 $ 4,062 Ratios to average net assets: Expenses 1.97% 1.87% 1.86% 1.82% 1.83% Net investment income 1.09% .82% .83% 1.07% 1.31% Expenses without waiver 2.27% 2.15% 1.95% 1.82% 1.83% Net investment income without waiver .79% .54% .72% 1.07% 1.31% Portfolio turnover rate (excluding short-term securities) 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods above assume reinvestment of distributions and do not include the effects of sales charges. 101 Independent Auditors' Report The Board of Directors and Shareholders Advantus Bond Fund, Inc. Advantus International Balanced Fund, Inc. Advantus Money Market Fund, Inc. Advantus Mortgage Securities Fund, Inc. Advantus Spectrum Fund, Inc.: We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., and Advantus Spectrum Fund, Inc. (the Funds) as of September 30, 2002, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30, 2002, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc. and Advantus Spectrum Fund, Inc. as of September 30, 2002, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, Minnesota November 8, 2002 102 FEDERAL INCOME TAX INFORMATION (UNAUDITED) The following information for federal income tax purposes is presented as an aid to shareholders in reporting the distributions paid by the Fund in the fiscal period ended September 30, 2002. Dividends for the 2002 calendar year will be reported to you on Form 1099-Div in late January 2003. Shareholders should consult a tax adviser on how to report these distributions for state and local purposes. ADVANTUS BOND FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS A PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0404 November 30, 2001 .0420 December 31, 2001 .0449 January 31, 2002 .0513 February 28, 2002 .0375 March 31, 2002 .0389 April 30, 2002 .0447 May 31, 2002 .0482 June 30, 2002 .0418 July 31, 2002 .0431 August 31, 2002 .0404 September 30, 2002 .0420 -------- $ .5152 ========

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS B PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0339 November 30, 2001 .0358 December 31, 2001 .0386 January 31, 2002 .0449 February 28, 2002 .0317 March 31, 2002 .0326 April 30, 2002 .0386 May 31, 2002 .0418 June 30, 2002 .0356 July 31, 2002 .0366 August 31, 2002 .0339 September 30, 2002 .0356 -------- $ .4396 ========

103 INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS C PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0338 November 30, 2001 .0357 December 31, 2001 .0384 January 31, 2002 .0447 February 28, 2002 .0316 March 31, 2002 .0325 April 30, 2002 .0385 May 31, 2002 .0417 June 30, 2002 .0355 July 31, 2002 .0365 August 31, 2002 .0338 September 30, 2002 .0355 -------- $ .4382 ========

ADVANTUS INTERNATIONAL BALANCED FUND

CLASS A PER PAYABLE DATE SHARE - ------------ -------- September 27, 2002 $ .0172* ======== Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001 $ .1261 ========

* The total distribution of $.0172 includes - tax return of capital of $.0140 INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS B PER PAYABLE DATE SHARE - ------------ -------- Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001 $ .1261 ========

CLASS C PER PAYABLE DATE SHARE - ------------ -------- Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001 $ .1261 ========

104 ADVANTUS MONEY MARKET FUND INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTIONS BY CORPORATIONS.

PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0018 November 30, 2001 .0014 December 31, 2001 .0013 January 31, 2002 .0011 February 28, 2002 .0009 March 31, 2002 .0010 April 30, 2002 .0009 May 31, 2002 .0009 June 30, 2002 .0008 July 31, 2002 .0009 August 31, 2002 .0008 September 30, 2002 .0008 -------- $ .0123 ========

105 ADVANTUS MORTGAGE SECURITIES FUND INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS A PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0620 November 30, 2001 .0581 December 31, 2001 .0602 January 31, 2002 .0637 February 28, 2002 .0627 March 31, 2002 .0403 April 30, 2002 .0724 May 31, 2002 .0653 June 30, 2002 .0607 July 31, 2002 .0692 August 31, 2002 .0649 September 30, 2002 .0509 -------- $ .7304* ========

* The total distribution of $.7304 includes a tax return of capital of $.0106. INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS B PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0551 November 30, 2001 .0514 December 31, 2001 .0534 January 31, 2002 .0569 February 28, 2002 .0566 March 31, 2002 .0336 April 30, 2002 .0659 May 31, 2002 .0585 June 30, 2002 .0541 July 31, 2002 .0624 August 31, 2002 .0580 September 30, 2002 .0441 -------- $ .6500* ========

* The total distribution of $.6500 includes a tax return of capital of $.0094. 106 INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION BY CORPORATIONS.

CLASS C PER PAYABLE DATE SHARE - ------------ -------- October 31, 2001 $ .0550 November 30, 2001 .0513 December 31, 2001 .0533 January 31, 2002 .0568 February 28, 2002 .0565 March 31, 2002 .0335 April 30, 2002 .0658 May 31, 2002 .0584 June 30, 2002 .0540 July 31, 2002 .0623 August 31, 2002 .0579 September 30, 2002 .0441 -------- $ .6489* ========

* The total distribution of $.6489 includes a tax return of capital of $.0094. ADVANTUS SPECTRUM FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 46.8% QUALIFYING FOR DEDUCTION BY CORPORATIONS

CLASS A PER PAYABLE DATE SHARE - ------------ -------- December 14, 2001 .0790 March 28, 2002 .0457 June 21, 2002 .0640 September 27, 2002 .0652 -------- $ .2539 ========

107

CLASS B PER PAYABLE DATE SHARE - ------------ -------- December 14, 2001 .0555 March 28, 2002 .0246 June 21, 2002 .0409 September 27, 2002 .0438 -------- $ .1648 ========

CLASS C PER PAYABLE DATE SHARE - ------------ -------- December 14, 2001 .0561 March 28, 2002 .0221 June 21, 2002 .0409 September 27, 2002 .0442 -------- $ .1633 ========

108 ADVANTUS INTERNATIONAL BALANCED FUND THE FUND HAS ELECTED TO PASS-THROUGH FOREIGN TAX CREDITS TO ITS SHAREHOLDERS. THE FOLLOWING INFORMATION WILL AID YOU IN FILING FOR YOUR FOREIGN TAX CREDIT.

CLASS A CLASS A FOREGIN TAX FOREIGN INCOME PAID PER COUNTRY PER SHARE SHARE - ------- -------------- ----------- Australia $ 0.009007 $ - Belgium 0.015464 - Canada 0.029844 0.001168 Denmark 0.004509 - Finland 0.007678 0.001147 France 0.043283 0.000584 Germany 0.040126 0.001526 Hong Kong 0.016344 - Italy 0.038488 0.000470 Japan 0.028356 0.001069 Netherlands 0.025102 0.001856 New Zealand 0.006816 0.000568 Norway 0.001242 - Spain 0.019268 0.001110 Sweden 0.017562 0.002269 Switzerland 0.002518 0.000280 United Kingdom 0.094151 0.005230 ---------- ---------- TOTAL FOREIGN 0.399760 0.017277 ---------- ---------- United States 0.043805 - ---------- ---------- TOTAL $ 0.443564 $ 0.017277 ========== ==========

109 ADVANTUS FUND DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other seven Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Funds are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(s) AND AGE TIME SERVED DURING PAST 5 YEARS - --------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS William N. Westhoff Director since Retired; prior to July 26, 2002, President, Treasurer Age: 55 July 23, 1998 and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary and Director, Age: 55 Director and Advantus Capital Management, Inc.; Vice Treasurer since President, Minnesota Life Insurance Company; July 13, 1994 Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company

110

INDEPENDENT DIRECTORS Ralph D. Ebbott Director since Retired, Vice President and Treasurer of Age: 75 October 22, 1985 Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Research Inc. Age: 54 April 25, 2002 since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology Age: 65 October 22, 1985 at the University of Minnesota OTHER EXECUTIVE OFFICERS Dianne M. Orbison President since President and Treasurer, Advantus Capital Age: 50 July 25, 2002 Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP April 16, 1998 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- ----------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Fund's Statement of Additional Information (SAI) includes additional information about Fund directors, and is available, without charge, upon request. You may request a copy of the current SAI by telephoning Advantus Shareholder Services, toll free, at (800) 665-6005. 111 SHAREHOLDER SERVICES The Advantus Family of Funds offers a variety of services that enhance your ability to manage your assets. Check each Fund's prospectus for the details of the services and any limitations that may apply. EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from one fund to any other Advantus Fund you own (for identical registrations within the same share class) at any time as your needs change. Exchanges are at the then current net asset value (exchanges from the Advantus Money Market Fund will incur the applicable sales charge, if not previously subjected to the charge). Shareholders may make twelve exchanges each calendar year without incurring a transaction charge. Thereafter, there will be a $7.50 transaction charge for each additional exchange within the calendar year. INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other distributions automatically reinvested with no sales charge, direct them from one Advantus Fund to any other you own within the Fund family or, if you desire, we'll pay you in cash. SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at specified intervals from your fund account subject to minimum guidelines. Depending upon the performance of the underlying investment options, the value may be worth more or less than the original amount invested when withdrawn. DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or systematic withdrawals directly into your checking or savings account instead of sending you a check. TELEPHONE EXCHANGE: You may move money from one Advantus account to any other Advantus account you own (with identical registrations within the same share class) just by calling our toll-free number. The Telephone Exchange privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Exchange may be changed (added/deleted) at any time by submitting a request in writing. SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly from one Advantus Fund to another Advantus Fund (with identical registrations within the same share class) to diversify your investment portfolio and take advantage of "dollar-cost averaging". AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your Minnesota Life insurance premiums from your Advantus Money Market account. REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse, children or single trust estates, and the Right of Accumulation make it possible for you to reduce the sales charge, if any. 112 AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an Advantus Fund account for as little as $500 when you agree to make investments of not less than $50 under the plan and lower your average share cost through "dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor does it prevent loss in declining markets.) The Automatic Investment Plan allows you to invest automatically monthly, semi-monthly or quarterly from your checking or savings account. IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your Traditional, Roth or Education Individual Retirement Account or other qualified plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase or Defined Benefit plans. TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The proceeds will be sent by check to the address of record for the account or wire transferred to your bank of record for the account. Wire transfers are for amounts over $500. The prevailing wire charge will be added to the withdrawal amount. The Telephone Redemption privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Redemption may be changed (added/deleted) at any time by submitting a request in writing. To have the redemption automatically deposited into your checking account, please send a voided check from your bank. Depending on the performance of the underlying investment options, the value may be worth more or less than the original amount invested upon redemption. Some limitations apply, please refer to the prospectus for details. ACCOUNT UPDATES: You'll receive written confirmation of every investment you initiate and quarterly statements to help you track all of your Advantus Fund investments and annual tax statements. Semi-annual and annual reports will provide you with portfolio information, fund performance data and the current investment outlook. TOLL-FREE SERVICE LINE: For your convenience in obtaining information and assistance directly from Advantus Shareholder Services, call 1-800-665-6005. Advantus Account Representatives are available Monday through Friday from 7:30 a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours, seven days a week. This system allows you to access current net asset values, account balances and recent account activity. INTERNET ADDRESS: www.AdvantusFunds.com HOW TO INVEST You can invest in one or more of the eleven Advantus Funds through a local Registered Representative of Securian Financial Services, Inc., distributor of the 113 Funds. Contact your representative for information and a prospectus containing more complete information including charges and expenses, for any of the Advantus Funds you are interested in. Read the prospectus carefully before investing. To find a Registered Representative near you, call the toll-free service line (1-800-665-6005) or visit www.AdvantusFunds.com. MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for qualified accounts and accounts covered by an automatic investment plan). Minimum subsequent investment is $50. THE FUND'S MANAGER Advantus Capital Management, Inc., investment adviser to the Fund, selects and reviews the Fund's investments and provides executive and other personnel for the Fund's management. (For the Advantus International Balanced Fund, Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management, LLC, and State Street Research & Management Company, respectively, selects the Fund's investments.) Advantus Capital Management, Inc. manages twelve mutual funds containing $2.2 billion in assets in addition to $11.6 billion in assets for other clients. Advantus Capital's seasoned portfolio managers average more than 15 years of investment experience. ADVANTUS FAMILY OF FUNDS Advantus Bond Fund Advantus Horizon Fund Advantus Spectrum Fund Advantus Enterprise Fund Advantus Cornerstone Fund Advantus Money Market Fund Advantus Mortgage Securities Fund Advantus International Balanced Fund Advantus Venture Fund Advantus Index 500 Fund Advantus Real Estate Securities Fund 114 THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT PROSPECTUS. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] Distributed by: SECURIAN FINANCIAL SERVICES, INC. Securities Dealer, Member NASD/SIPC. Registered Investment Advisor 400 Robert Street North, St. Paul, MN 55101-2098 1.888.237.1838 3010-2002-4838 SECURIAN FINANCIAL SERVICES, INC. 400 ROBERT STREET NORTH PRESORTED STANDARD ST. PAUL, MN 55101-2098 U.S. POSTAGE PAID ST. PAUL, MN PERMIT NO. 3547 ADDRESS SERVICE REQUESTED F. 58525 Rev. 11-2002 EX-99.(17)(X) 29 c78747exv99wx17yxxy.txt EX-(17)(X)ADVFIXEDINC&BLENDED FUNDS SAR-MARCH 2003 Exhibit (17)(x) [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] [GRAPHIC] ADVANTUS FIXED INCOME AND BLENDED FUNDS SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED MARCH 31, 2003 ADVANTUS BOND FUND, INC. AN AGGREGATE BOND FUND ADVANTUS INTERNATIONAL BALANCED FUND, INC. AN INTERNATIONAL STOCK AND BOND FUND ADVANTUS MONEY MARKET FUND, INC. A MONEY MARKET SECURITIES FUND ADVANTUS MORTGAGE SECURITIES FUND, INC. A MORTGAGE - RELATED SECURITIES FUND ADVANTUS SPECTRUM FUND, INC. AN ASSET ALLOCATION FUND CUT DOWN PAPERWORK, NOT TREES ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005. ADVANTUS FIXED INCOME AND BLENDED FUNDS TABLE OF CONTENTS PERFORMANCE UPDATES Bond Fund 3 International Balanced Fund 9 Money Market Fund 16 Mortgage Securities Fund 19 Spectrum Fund 26 INVESTMENTS IN SECURITIES Bond Fund 32 International Balanced Fund 39 Money Market Fund 48 Mortgage Securities Fund 52 Spectrum Fund 60 FINANCIAL STATEMENTS Statements of Assets and Liabilities 70 Statements of Operations 72 Statements of Changes in Net Assets 74 Notes to Financial Statements 78 DIRECTORS AND EXECUTIVE OFFICERS 101 SHAREHOLDER SERVICES 103 LETTER FROM THE PRESIDENT [PHOTO OF DIANNE ORBISON] Dear Shareholder: The military action in Iraq began on March 19, and it is no surprise that the war has dominated the news and impacted market sentiment. The stock market has been reacting to a number of macro factors, the largest of these being the Iraqi conflict. Other concerns include the economy and the direction of interest rates. Over the past two years, the federal government and the Federal Reserve have instituted the most stimulative fiscal and monetary policies in 50 years. Changes in Federal fiscal policy have helped reverse a $200 billion annualized surplus to a $375 billion deficit. Never have we experienced a turnaround of this magnitude in just two years. The Fed's cheap money policy put interest rates at 1950s levels. This combination has pumped significant liquidity into the economy, but the economic spark has been slow to ignite. Are economic and market conditions improving? We think so, albeit slowly. In the short term, we look for business conditions to steadily improve and stock prices to continue their slow upward trend. We feel that the long-awaited stock market "recovery" will come about gradually and lack the dramatic upswing that many investors wish for. We believe that the bond market will continue to be flat, yet we anticipate upward pressure on interest rates, especially at the short end of the yield curve (i.e., short-term rates). We expect to see a rise in interest rates later this year. Uncertainty and volatile markets are linked in a cause and effect relationship. This is NOT a contemporary phenomenon; it is as old as the markets. Past periods of uncertainty resulted in extreme market volatility. Those investors who focused on the long-term and avoided overacting to short-term developments will be -- in our opinion -- rewarded in the long run for their disciplined approach. Regardless of economic conditions and market certainty, we believe that proper asset allocation and strong diversification are critical to your successful investing. We encourage you to annually review your asset allocation with your financial representative, and, we thank you for investing with Advantus. IMPORTANT INVESTMENT MANAGEMENT CHANGES AFFECTING THE ADVANTUS FUNDS ARE ALSO OCCURRING: All shareholders have previously been sent a prospectus supplement, dated April 24, 2003, containing important information about a transaction affecting the management of the Advantus Funds. The Funds' investment adviser, Advantus Capital Management, Inc. (Advantus Capital), and certain of its affiliates, have announced an agreement with Waddell & Reed Financial, Inc. 1 (W&R), a large mutual fund and investment management firm with headquarters in Kansas City, under which Advantus Capital has agreed to sell its assets related to the Advantus Funds to a W&R affiliate, Waddell & Reed Ivy Investment Company (WRIICO). As part of the transaction, Advantus Capital will exit the retail mutual fund business. Advantus Capital has also recommended to the Board of Directors of each of the Advantus Funds that the Fund be merged into an existing or newly formed shell fund currently managed by WRIICO or another W&R affiliate. Each Fund's merger will be subject to the approval of the Board of Directors and the Fund's shareholders. In addition, because Advantus Capital does not actively manage equity funds (other than real estate equity funds) after May 1, 2003, the Boards of Directors of Advantus Cornerstone Fund, Inc. Advantus Horizon Fund, Inc. and Advantus Spectrum Fund, Inc. have approved interim investment advisory agreements under which WRIICO serves as the investment adviser to each of those Funds effective May 1, 2003. All of these matters are described in greater detail in the prospectus supplement. It is currently anticipated that shareholders of the Advantus Funds will be presented with additional information and specific merger proposals in September of 2003. Sincerely, /s/ Dianne Orbison Dianne Orbison President, Advantus Funds 2 ADVANTUS BOND FUND, INC. PERFORMANCE UPDATE WAYNE SCHMIDT, PORTFOLIO MANAGER, ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The Fund's performance for the six-month period ended March 31, 2003, for each class of shares offered was as follows: Class A 2.91 percent* Class B 2.63 percent* Class C 2.54 percent* The Fund's benchmark, the Lehman Brothers Aggregate Bond Index,** returned 2.98 percent for the same period. PERFORMANCE ANALYSIS The steady three year decline in interest rates may be coming to an end as intermediate and long U.S. Treasury interest rates actually moved higher during the past six months. The yield on the five-year U.S. Treasury Note rose 15 basis points (.15 percent) to yield 2.71 percent. The 30-year U.S. Treasury Bond yield also climbed 15 basis points (.15 percent) higher to finish the period with a 4.82 percent yield. The keys to an outstanding six month performance boiled down to owning the right securities in the right sectors. Corporate bonds were the best performing sector within the investment grade fixed income universe and they also represented the Fund's largest overweight. Adding BBB names like: Public Service Company of Colorado, Oncor Electric, Stancorp, USA Interactive and BF Goodrich, in the fourth quarter of 2002 paid handsome dividends in the first quarter of 2003 as their spreads to U.S. Treasuries tightened significantly. In the mortgage-backed securities sector, our broad use of pool-specific low loan balance pools of mortgages performed exceptionally well as their prepayment speeds were only a fraction of the overall mortgage market. The addition of callable Agency debentures added yield to the Fund and at the same time, provided a capital preservation base. OUTLOOK These are extraordinary times. The geopolitical uncertainties ahead will create significant short-term volatility, but we feel that the long-term direction leans toward higher interest rates. The road will be bumpy, but when the dust settles, we expect that the U.S. economy will improve as both the accommodative 3 monetary and fiscal policy begins to take hold. We believe that yield and principal preservation will be the key drivers to future fixed income performance. We will seek ways to maximize the opportunities in your Portfolio through superior security selection in the bond market. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 4.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Lehman Brothers Aggregate Bond Index is an unmanaged benchmark which includes all publicly issued fixed rate, nonconvertible domestic corporate debt. 4 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS BOND FUND, LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Bond Fund compared to the Lehman Brothers Aggregate Bond Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on March 31, 1993 through March 31, 2003. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Bond Fund (August 19, 1994 and March 1, 1995 for Class B and C, respectively) through March 31, 2003. [CHART] CLASS A AVERAGE ANNUAL TOTAL RETURN: One year 6.64% Five year 5.25% Ten year 5.89% (Thousands)

CLASS A LEHMAN AGGREGATE CPI 3/31/1993 $ 10,000 $ 10,000 $ 10,000 10/31/1993 $ 10,670 $ 10,572 $ 10,161 9/30/1994 $ 9,957 $ 10,193 $ 10,419 9/30/1995 $ 11,456 $ 11,627 $ 10,684 9/30/1996 $ 11,918 $ 12,196 $ 11,005 9/30/1997 $ 13,178 $ 13,381 $ 11,249 9/30/1998 $ 14,370 $ 14,921 $ 11,410 9/30/1999 $ 13,991 $ 14,867 $ 11,710 9/30/2000 $ 14,697 $ 15,906 $ 12,114 9/30/2001 $ 16,706 $ 17,966 $ 12,428 9/30/2002 $ 18,027 $ 19,411 $ 12,624 3/31/2003 $ 18,551 $ 20,094 $ 12,833

5 [CHART] CLASS B AVERAGE ANNUAL TOTAL RETURN: One year 5.93% Five year 5.27% Since inception (8/19/94) 6.67% (Thousands)

CLASS B LEHMAN AGGREGATE CPI 8/19/1994 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,876 $ 9,865 $ 10,027 9/30/1995 $ 11,251 $ 11,252 $ 10,282 9/30/1996 $ 11,602 $ 11,804 $ 10,591 9/30/1997 $ 12,730 $ 12,950 $ 10,826 9/30/1998 $ 13,810 $ 14,441 $ 10,981 9/30/1999 $ 13,349 $ 14,388 $ 11,269 9/30/2000 $ 13,904 $ 15,394 $ 11,659 9/30/2001 $ 15,706 $ 17,388 $ 11,961 9/30/2002 $ 16,947 $ 18,882 $ 12,149 3/31/2003 $ 17,439 $ 19,446 $ 12,351

6 [CHART] CLASS C AVERAGE ANNUAL TOTAL RETURN: One year 10.85% Five year 5.44% Since inception (3/1/95) 6.53% (Thousands)

CLASS C LEHMAN AGGREGATE CPI 3/1/1995 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 10,925 $ 10,884 $ 10,126 9/30/1996 $ 11,265 $ 11,417 $ 10,430 9/30/1997 $ 12,348 $ 12,526 $ 10,661 9/30/1998 $ 13,372 $ 13,968 $ 10,813 9/30/1999 $ 12,909 $ 13,917 $ 11,098 9/30/2000 $ 13,459 $ 14,890 $ 11,481 9/30/2001 $ 15,187 $ 16,819 $ 11,779 9/30/2002 $ 16,266 $ 18,264 $ 11,964 3/31/2003 $ 16,687 $ 18,810 $ 12,163

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 4.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 7 TEN LARGEST BOND HOLDING

MARKET % OF BOND SECURITY DESCRIPTION VALUE PORTFOLIO - -------------------- ----------- --------- Federal Home Loan Mortgage Association 6.500%, 09/01/32 $ 702,302 2.8% Federal National Mortgage Association 6.500%, 09/01/32 401,892 1.6% Federal National Mortgage Association 7.000%, 02/01/32 424,416 1.7% Federal National Mortgage Association 7.500%, 05/01/31 437,715 1.8% U.S. Treasury Bond 6.000%, 02/15/26 687,469 2.8% U.S. Treasury Bond 3.000%, 02/15/08 455,274 1.8% U.S. Treasury Bond 3.875%, 02/15/13 401,672 1.6% Anheuser-Busch Companies, Inc. 7.100%, 06/15/07 532,304 2.2% Metropolitan Asset Funding, Inc. 144A Issue 7.525%, 04/20/27 436,811 1.8% The National Collegiate Trust 1997-S2 7.240%, 09/20/14 405,221 1.6% ----------- ---- $ 4,885,076 19.7% =========== ====

[CHART] U.S. Treasury 7.1% U.S. Government Agencies 34.1% AAA Rated 11.7% AA Rated 9.3% A Rated 15.5% BBB Rated 20.2% D Rated 0.4% Cash and Other Assets/Liabilities 1.7% 8 ADVANTUS INTERNATIONAL BALANCED FUND PERFORMANCE UPDATE ALEXANDER CALVO AND TUCKER SCOTT III, CFA, PORTFOLIO MANAGERS TEMPLETON INVESTMENT COUNSEL, LLC. PERFORMANCE The Advantus International Balanced Fund's performance for the six-month period ended March 31, 2003 for each class of shares offered was as follows: Class A 2.64 percent* Class B 2.22 percent* Class C 2.22 percent* By comparison, an international equity index, the MSCI EAFE Index,** returned - 2.18 percent, and an international bond index, the J.P. Morgan Non-U.S. Government Bond Index+ returned 9.99 percent for the same period. The Fund's benchmark, a blended index comprised of 60% MSCI EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index, returned 2.74 percent for the same period. PERFORMANCE ANALYSIS The six-month period ended March 31, 2003, was a challenging period for equity markets and investors. Global equity markets experienced uncertainty, and the U.S. market in particular was the focus of worldwide attention. This was due initially to investor anxiety about the war in Iraq, particularly its potential destabilizing effect on the global economic recovery. An uncertain employment outlook and the rise in oil and gasoline prices complicated the situation. A drop in confidence led consumers and corporations to postpone major purchases. The onset of the war led to a strong rally across many markets, reflecting investor expectations for a short and decisive victory by the coalition forces. However, the rally stalled after investors realized that it would take longer than anticipated to win the war. On balance, a volatile quarter ended the semi-annual period with global markets returning below the level they were at the beginning of the year. By equity sector, the Fund's relative performance was strong among Information Technology, Energy, and Consumer-related holdings. In these sectors, Nortel, Check Point Software, Repsol, and Adidas-Salomon AG made strong contributions to Fund performance. However, Financials, Industrials, Health Care, and Telecommunications Services holdings lagged the benchmark in relative performance. In these sectors, BAE Systems, Aventis, and Cable & Wireless detracted from the Fund's relative performance. By country, the Fund's relative performance was strong in Japan (where the Fund remained underweight), Brazil, and Germany, but holdings in Denmark and the United Kingdom lagged the benchmark. 9 In emerging markets, the South Korean stock market, where we have roughly 4 percent of the Fund's portfolio, has been under pressure lately. This has been primarily for political reasons. Despite the Fund being overweight that market, the performance of our holdings held up comparatively well during the period. We believe the political strain should be temporary. Longer term, we expect that companies in the United States and in other developed markets will continue to face huge competitive threats from companies that are localized in emerging markets such as South Korea. Many of these companies, which a few years back did not even exist or were not publicly traded in a stock exchange, possess tremendous cost advantages. Moreover, while in South Korea, companies such as Samsung Electronics and LG Electronics have become global leaders in their niche businesses, they have continued to trade at discounts to their peers in the developed markets. We expect this valuation disparity to lessen over time. In the meantime, we continue to view periods of market weakness in the South Korean stock market as an opportunity to buy at a discount certain companies that we consider high quality holdings. In contrast to the challenges faced by equity investors, global fixed income markets posted strong returns over the six-month period ended March 31, 2003. Global bond markets benefited from the appreciation of most major currencies against the U.S. dollar, as well as continued easing of monetary policy at major central banks, particularly in Europe, to accommodate weak demand prospects and disinflationary pressures. The global fixed income portion of the Fund benefited from an overweight position in Australia, New Zealand and Euroland and the respective strong currency gains in each market. Additionally, the Fund benefited from an underweight exposure to Japan and United Kingdom, which significantly underperformed within the benchmark. The Federal Reserve Board reduced the Fed funds rate by 50 basis points (.50 percent) from 1.75% to 1.25% during the period. The U.S. Treasury curve steepened, as short-term interest rates declined following the rate cut while the long-end of the U.S. curve twisted upwards in response to relatively more positive economic data proceeding the onset of the Iraqi war and market expectations that the war will be shorter in duration. Meanwhile, the Euroland benchmark yield curve shifted down during the period as lower growth and inflations expectations prompted the European Central Bank lowered its reference interest rate by 75 basis points (.75 percent) from 3.25 percent to 2.50 percent. Euro Area bonds, including German, Italian, French and Spanish bonds, rose approximately 14.81 percent in U.S. dollar terms during the six-month period, supported by 10.63 percent appreciation of the Euro. The Dollar-bloc bond markets (represented by New Zealand, Australia and Canada) posted relatively strong performance, largely driven by strong currency gains. New Zealand and Australian bonds outperformed, returning 22.46 percent and 14.77 percent in U.S. dollar terms, respectively, while Canadian bonds slightly underperformed rising 9.04 percent. The New Zealand and Australian dollar were among the top performing currencies for the period, which appreciated 18.37 percent and 11.41 10 percent against the U.S. dollar. The Canadian dollar also performed well, returning 8.15 percent. The U.K. index, which returned 2.60 percent in U.S. dollar terms, underperformed the global markets, with the British Pound appreciating 0.91 percent against the U.S. dollar. Similarly, the Japanese Index underperformed the broader market returning 4.98 percent in U.S. dollar terms. During the period, the Japanese Yen appreciated 3.15 percent against the U.S. dollar. OUTLOOK Looking forward, our investment strategy from a fixed income perspective remains focused on global macroeconomic fundamentals, predominantly continued global interest rate convergence precipitated through weak demand, relative currency strength against the U.S. dollar and disinflation in many of the major world economies. More concisely, the Fund's positioning reflects two central points to in our global outlook. First, with regard to currencies, we hold a defensive view on U.S. dollar and the Japanese Yen, while a positive outlook on the Euro, peripheral Europe, Australia and New Zealand. Second, we maintain a positive long-term outlook for the prospects for yield curve compression to the U.S. Treasury curve within peripheral Europe, Australia and New Zealand. Given constrained economic conditions in core Europe, there is opportunity for continued monetary easing and hence positive bond market performance in the region. Furthermore, given globally benign and converging inflation rates, we feel that there are opportunities for international interest rates to converge closer to U.S. rates in regions such as Scandinavia, New Zealand and Australia, which would also be positive for the respective bond markets. Going forward from an equity perspective, we believe stock selection will remain crucial, especially if the stock markets continue to be as volatile as they have been over the past few quarters. However, we are convinced that heightened stock market volatility can offer opportunities for the disciplined, long-term investor, both to buy and to sell stocks. At Templeton, rather than speculating on short-term market trends, we will continue to focus our attention on identifying stocks that in our opinion are trading at a substantial discount to long-term value. Our approach is disciplined, and cash will be put to work slowly over time as we identify stocks that we believe offer the strongest long-term prospects. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The MSCI EAFE Index is an unmanaged index of common stocks from European, Australian, and Far Eastern markets. +The J.P. Morgan Non-U.S. Government Bond Index includes all liquid foreign government issues of Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden and United Kingdom. It is the income from sales of goods and services, minus the cost associated with things like returned or undeliverable merchandise. Also called "Sales", "Net Sales", "Net Revenue", and just plain "Revenue". 11 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN ADVANTUS INTERNATIONAL BALANCED FUND, MSCI EAFE INDEX, J.P. MORGAN NON-U.S. GOVERNMENT BOND INDEX, A BLENDED INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus International Balanced Fund compared to the MSCI EAFE Index, the J.P. Morgan Non-U.S. Government Bond Index, a blended index comprised of 60% MSCI EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index, and the Consumer Price Index. The five lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus International Balanced Fund (September 16, 1994 for Class A, January 31, 1997 for Class B, and March 1, 1995 for Class C) through March 31, 2003. [CHART] CLASS A AVERAGE ANNUAL TOTAL RETURN: One year -13.26% Five year -2.50% Since Inception (9/16/94) 2.95% (Thousands)

CLASS C EAFE J.P. MORGAN CPI BLENDED 9/16/1994 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,274 $ 9,845 $ 10,094 $ 10,054 $ 9,944 9/30/1995 $ 9,961 $ 10,460 $ 11,972 $ 10,275 $ 11,056 9/30/1996 $ 11,030 $ 11,399 $ 12,605 $ 10,584 $ 11,890 9/30/1997 $ 13,576 $ 12,819 $ 12,639 $ 10,818 $ 12,783 9/30/1998 $ 11,809 $ 11,782 $ 14,133 $ 10,973 $ 12,783 9/30/1999 $ 13,775 $ 15,472 $ 14,256 $ 11,261 $ 15,189 9/30/2000 $ 14,639 $ 16,466 $ 13,087 $ 11,643 $ 15,304 9/30/2001 $ 13,092 $ 11,477 $ 13,693 $ 11,952 $ 13,693 9/30/2002 $ 12,488 $ 9,739 $ 12,000 $ 12,126 $ 12,973 3/31/2003 $ 12,817 $ 9,175 $ 13,199 $ 12,334 $ 13,328

12 [CHART] CLASS B AVERAGE ANNUAL TOTAL RETURN: One year -13.50% Five year -2.45% Since inception (1/31/97) 0.25% (Thousands)

CLASS B EAFE J.P. MORGAN CPI BLENDED 1/31/1997 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1997 $ 10,730 $ 11,246 $ 10,027 $ 10,094 $ 10,751 9/30/1998 $ 9,264 $ 10,336 $ 11,212 $ 10,238 $ 10,752 9/30/1999 $ 10,887 $ 13,573 $ 11,310 $ 10,507 $ 12,775 9/30/2000 $ 11,589 $ 14,445 $ 10,382 $ 10,864 $ 12,872 9/30/2001 $ 10,347 $ 10,068 $ 10,862 $ 11,151 $ 10,862 9/30/2002 $ 9,884 $ 9,784 $ 12,000 $ 11,314 $ 10,291 3/31/2003 $ 10,155 $ 9,571 $ 13,199 $ 11,508 $ 10,292

13 [CHART] CLASS C AVERAGE ANNUAL TOTAL RETURN: One year -8.94% Five year -2.18% Since Inception (3/1/95) 3.63% (Thousands)

CLASS C EAFE J.P. MORGAN CPI BLENDED 3/1/1995 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 11,026 $ 11,175 $ 11,198 $ 10,146 $ 11,192 9/30/1996 $ 12,120 $ 12,179 $ 11,791 $ 10,450 $ 12,036 9/30/1997 $ 14,780 $ 13,696 $ 11,822 $ 10,682 $ 12,940 9/30/1998 $ 12,759 $ 12,588 $ 13,219 $ 10,834 $ 12,940 9/30/1999 $ 14,763 $ 16,530 $ 13,335 $ 11,119 $ 15,375 9/30/2000 $ 15,555 $ 17,592 $ 12,241 $ 11,497 $ 15,492 9/30/2001 $ 13,801 $ 12,262 $ 12,807 $ 11,801 $ 12,807 9/30/2002 $ 13,055 $ 10,406 $ 14,150 $ 11,974 $ 12,133 3/31/2003 $ 13,345 $ 10,179 $ 15,563 $ 12,179 $ 12,466

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 14 FIVE LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------- ----------- ---------- Vestas Wind Systems 74,810 $ 566,110 2.6% Nippon Telephone & Telegraph Corporation 158 536,971 2.5% BHP Billiton PLC 100,220 502,168 2.3% Nordic 113,190 496,522 2.3% Checkpoint Software 33,700 487,639 2.2% ----------- ---- $ 2,589,410 11.9% =========== ====

FIVE LARGEST BOND HOLDINGS

MARKET % OF BOND COMPANY VALUE PORTFOLIO - ------- ----------- --------- United Kingdom 7.50%, 12/07/06 $ 1,197,494 7.4% Netherlands Government 5.75%, 2/15/07 1,186,434 7.3% Government of New Zealand 7.00%, 7/15/09 1,147,143 7.1% Government of France 4.00%, 10/25/09 1,104,120 6.8% Bundesrepublic 5.00%, 7/04/11 1,020,545 6.3% ----------- ---- $ 5,655,736 34.9% =========== ====

[CHART] Financial 9.9% Energy 10.4% Communication Services 4.9% Technology 2.7% Capital Goods 8.3% Consumer Cyclical 3.1% Basic Materials 7.1% Utilities 3.1% Health Care 1.8% Consumer Staples 2.5% Foreign Government Bonds 40.2% Cash and Other Assets/Liabilities 6.0% 15 ADVANTUS MONEY MARKET FUND PERFORMANCE UPDATE STEVE NELSON, CFA, PORTFOLIO MANAGER, ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE For the six month period ended March 31, 2003, the Advantus Money Market Fund earned a total return of .33 percent.* This compares to the three-month U.S. Treasury Bill, which earned .74 percent for the same period. The seven-day compound yield of the Fund was .99 percent* for the same period PERFORMANCE ANALYSIS Over the past six months short-term interest rates continued to decline, reaching their lowest levels in decades. The Federal Reserve cut the Fed Funds rate by another 50 basis points (.50 percent) at their November meeting. The rate cut was the twelfth time over the past two years the Fed has eased monetary policy to ignite the sluggish U.S. economy. As a result, over the past half year the yield on the three month T-bill declined another .46 percent to .74 percent while the yield on the six month T-bill declined .39 percent to 1.11 percent. On an absolute basis, money market returns were quite low as a result of extremely low levels of short-term interest rates and a very steep yield curve. With rates so low, the yields offered in the commercial paper market have steadily declined, with most issuers now offering only around 1.25 percent yields. After cutting the Fed Funds rate in November the Federal Reserve changed its bias to "balanced" from "weakness" as it relates to the state of the economy and future rate moves. The Fed kept their bias balanced at the December and January meetings as well. Then, due to the significant uncertainties related to the impending war with Iraq, they refrained entirely at their March 18th meeting from characterizing the risks facing the economy (i.e., they had no bias). The prospect of war has been set aside and replaced with concerns about the duration of the U.S. occupation of Iraq and how the post-war geopolitical situation will unfold. This will continue to concern Americans and most citizens globally for some time. As such, another drop in rates by the Fed is possible. However, the potential for short-term rates to move still lower casts some doubt about the willingness of investors to continue to participate in money markets and thereby provide financing to corporations. Ultimately, the prognosis for the U.S. economy once the war-related uncertainties subside will determine whether another rate cut is necessary. 16 OUTLOOK We believe that high-quality U.S. corporate commercial paper remains a sound, albeit low-yielding alternative for investors seeking a high degree of safety and liquidity. We believe this is especially true given the current geopolitical backdrop and uncertainty about the strength of the U.S. economy. The Portfolio has over 95 percent of its assets invested in high quality corporate commercial paper (i.e., commercial paper that is rated A-1 or higher by Standard and Poor's and P-1 by Moody's). In addition, the Portfolio's holdings are well diversified over a variety of stable industries. While we expect that money market returns will stay low over the next several months, investors should consider the Portfolio's benefits of excellent liquidity and principal preservation as they make their asset allocation decisions. [CHART] AVERAGE DAYS TO MATURITY

NUMBER OF DAYS 10/1/2002 48 10/8/2002 44 10/15/2002 41 10/22/2002 39 10/29/2002 37 11/5/2002 32 11/12/2002 55 11/19/2002 60 11/26/2002 59 12/3/2002 52 12/10/2002 56 12/17/2002 56 12/24/2002 58 12/31/2002 52 1/7/2003 46 1/14/2003 46 1/21/2003 40 1/28/2003 42 2/4/2003 43 2/11/2003 41 2/18/2003 40 2/25/2003 39 3/4/2003 42 3/11/2003 39 3/18/2003 36 3/25/2003 40

*Historical performance is not an indication of future performance. Investment returns will fluctuate. Investments in the Money Market account are neither insured nor guaranteed by the federal deposit insurance corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 17 [CHART] SEVEN-DAY COMPOUND YIELD*

PERCENTAGE 10/1/2002 0.91% 10/8/2002 1.03% 10/15/2002 0.95% 10/22/2002 0.97% 10/29/2002 0.96% 11/5/2002 0.95% 11/12/2002 0.88% 11/19/2002 0.99% 11/26/2002 0.79% 12/3/2002 0.73% 12/10/2002 0.66% 12/17/2002 0.56% 12/24/2002 0.65% 12/31/2002 0.57% 1/7/2003 0.63% 1/14/2003 0.53% 1/21/2003 0.49% 1/28/2003 0.55% 2/4/2003 0.47% 2/11/2003 0.47% 2/18/2003 0.40% 2/25/2003 0.49% 3/4/2003 0.47% 3/11/2003 0.48% 3/18/2003 0.46% 3/25/2003 0.51%

18 ADVANTUS MORTGAGE SECURITIES FUND PERFORMANCE UPDATE KENT WEBER, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The performance of the Fund for the six-month period ended March 31, 2003 was as follows for the three classes of shares currently outstanding: Class A 2.25 percent* Class B 1.88 percent* Class C 1.97 percent* The Fund's benchmark, the Lehman Brothers Mortgage-Backed Securities Index**, returned 2.29 percent for the same period. PERFORMANCE ANALYSIS Over the last six months, the mortgage market, inclusive of asset backed and commercial backed securities, has delivered you competitive total returns. This solid performance is being propelled forward by both incremental income and moderate spread tightening as a result of strong investor demand, solid credit fundamentals, manageable prepayments and declining market volatility. Overall the mortgage market continues to attract a great deal of interest from income hungry investors looking for high quality fixed income opportunities without lots of interest rate risk. The commercial mortgage backed and asset backed securities markets actually delivered the best relative performance during this period as prepayment levels in those markets were modest and credit fundamentals either continued to improve or stabilized. Interest rates remained within an established trading range over the last two quarters. In turn, continued strong housing markets in combination with stubbornly low interest rates have helped maintain high levels of refinancing activity especially within the prime credit quality sectors of the residential mortgage markets. The mortgage index is, therefore, constantly being repopulated each month with lower coupon securities carrying less prepayment risk but moderately more duration. The duration of the mortgage index is still less than 2 years and the mortgage market remains a virtual smorgasbord of investment opportunities. INVESTMENT OVERVIEW The focus of our investment strategies remains on upside opportunities in security selection and the benefits of prudent, opportunistic diversification in this slow growth environment that has encountered periods of high credit volatility, historically fast prepayments and been periodically challenged by waves of limited liquidity. Some general themes employed throughout the 19 period that have contributed to the strong relative performance of your portfolio include: - - Movement to a duration neutral position as interest rates moved to new lows in the more recent quarter and the mortgage index continues to gradually extend each month as lower coupon securities replaced higher coupon securities at record pace. - - Remained fully invested as the opportunity cost of holding cash remains high. - - Agency mortgage securities: underweight high premium sectors and own only specified premium pools with favorable prepayment characteristic in combination with using dollar rolls with our current coupon new issue pools. Since the beginning of the year, it seems like every investor is getting involved in the specified pool market (we were an early sponsor of these agency markets moving actively into these securities in early 2000). The good prepayment stories are approaching full value, but still make excellent core holdings against the Index. - - Reduced our commercial mortgage-backed securities allocation as some securities are approaching full valuations. - - Selectively, increased our allocation to the asset backed market and non-agency residential sectors as risk adjusted returns look attractive. - - Preference for securities that benefit from this steep yield curve environment and roll down the curve gracefully. OUTLOOK We feel that the recovery so eagerly anticipated and actively pursued through the use of aggressive monetary and fiscal policies has merely been delayed and not repealed. Ultimately, we believe that the economy will heal as businesses and consumers continue to repair their balance sheets. While it may be closer to the end of the year before we see meaningful economic traction, in our opinion it's at this point that rates should start to move higher and return to more normalized levels. In this income-thirsty, steep-yield curve environment, we feel that mortgages should continue to perform well fundamentally and demand should stay robust. We are looking for the general level of total returns to normalize in the mid-single digits and be driven more by income and less by capital gains. Thank you for your business. We work hard to earn your trust and deliver our shareholders a unique, value-added mortgage portfolio. * Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 4.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ** The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark composite which includes all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). 20 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS MORTGAGE SECURITIES FUND, LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Mortgage Securities Fund compared to the Lehman Brothers Mortgage-Backed Securities Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on March 31, 1993 through March 31, 2003. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares (August 19, 1994 and March 1, 1995, respectively) through March 31, 2003. [CHART] CLASS A AVERAGE ANNUAL TOTAL RETURN: One year 4.81% Five year 6.68% Ten year 6.64% (Thousands)

LEHMAN BROTHERS MORTGAGE- CLASS A BACKED SECURITIES INDEX CPI 3/31/1993 $ 10,000 $ 10,000 $ 10,000 10/31/1993 $ 10,060 $ 10,314 $ 10,161 9/30/1994 $ 9,623 $ 10,166 $ 10,419 9/30/1995 $ 10,925 $ 11,542 $ 10,684 9/30/1996 $ 11,453 $ 12,212 $ 11,005 9/30/1997 $ 12,640 $ 13,438 $ 11,249 9/30/1998 $ 13,782 $ 14,597 $ 11,410 9/30/1999 $ 14,054 $ 14,929 $ 11,710 9/30/2000 $ 15,136 $ 16,037 $ 12,114 9/30/2001 $ 17,240 $ 18,016 $ 12,428 9/30/2002 $ 18,599 $ 19,343 $ 12,624 3/31/2003 $ 19,017 $ 19,787 $ 12,833

21 [CHART] CLASS B AVERAGE ANNUAL TOTAL RETURN: One year 3.94% Five year 6.64% Since inception (8/19/94) 7.53% (Thousands)

LEHMAN BROTHERS MORTGAGE- CLASS B BACKED SECURITIES INDEX CPI 8/19/1994 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,928 $ 9,889 $ 10,027 9/30/1995 $ 11,192 $ 11,227 $ 10,282 9/30/1996 $ 11,647 $ 11,878 $ 10,591 9/30/1997 $ 12,771 $ 13,071 $ 10,826 9/30/1998 $ 13,821 $ 14,198 $ 10,981 9/30/1999 $ 13,990 $ 14,521 $ 11,269 9/30/2000 $ 14,955 $ 15,599 $ 11,659 9/30/2001 $ 16,942 $ 17,524 $ 11,961 9/30/2002 $ 18,278 $ 18,815 $ 12,149 3/31/2003 $ 18,688 $ 19,246 $ 12,351

22 [CHART] CLASS C AVERAGE ANNUAL TOTAL RETURN: One year 8.94% Five year 6.87% Since inception (3/1/95) 7.38% (Thousands)

LEHMAN BROTHERS MORTGAGE- CLASS C BACKED SECURITIES INDEX CPI 3/1/1995 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 10,791 $ 10,793 $ 10,126 9/30/1996 $ 11,230 $ 11,419 $ 10,430 9/30/1997 $ 12,314 $ 12,566 $ 10,661 9/30/1998 $ 13,339 $ 13,649 $ 10,813 9/30/1999 $ 13,489 $ 13,959 $ 11,098 9/30/2000 $ 14,419 $ 14,995 $ 11,481 9/30/2001 $ 16,301 $ 16,846 $ 11,779 9/30/2002 $ 17,440 $ 18,087 $ 11,964 3/31/2003 $ 17,776 $ 18,502 $ 12,163

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 4.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 23 TEN LARGEST BOND HOLDING

MARKET % OF BOND SECURITY DESCRIPTION VALUE PORTFOLIO - -------------------- ------------ --------- Federal National Mortgage Association 6.000%, 10/01/32 $ 5,886,910 4.5% Federal National Mortgage Association 6.000%, 11/01/32 3,144,559 2.4% Federal National Mortgage Association 6.000%, 03/01/33 6,591,705 5.1% Federal National Mortgage Association 6.500%, 03/31/32 2,661,995 2.0% Federal National Mortgage Association 6.500%, 07/01/32 3,406,076 2.6% Federal National Mortgage Association 6.500%, 08/01/32 3,933,370 3.0% Federal National Mortgage Association 6.500%, 09/01/32 6,575,629 5.1% Federal National Mortgage Association 7.000%, 06/01/32 3,566,551 2.7% Federal Home Loan Mortgage Association 6.500%, 09/01/32 4,263,976 3.3% Paine Webber Mortgage Acceptance Corporation 144A Issue 7.655%, 01/02/12 2,693,571 2.1% ------------ ---- $ 42,724,342 32.9% ============ ====

[CHART] Cash and Other Assets/Liabilities 3.3% FHLMC 7.5% FNMA 39.9% GNMA 1.2% Asset Backed Securities 18.3% Collateralized Mtg. Obligation/Mtg Rev. Bonds 20.2% Non-Agency Commercial Mtg-Backed Securities 6.8% Other Agency Obligations 0.4% Vendee Mortgage Trust 0.8% State and Local Government Obligations 0.6% Health Care 1.0% 24 [CHART] Cash and Other Assets/Liabilities 3.3% Liquid 144A Issues 13.6% Illiquid 144A Issues and Other Private Placement Illiquid Issues 2.8% Public Issues 80.3% [CHART] Cash and Other Assets/Liabilities 3.3% AAA Rated 66.3% AA Rated 10.6% A Rated 5.3% BBB Rated 11.8% BB Rated 2.3% D Rated 0.4% 25 ADVANTUS SPECTRUM FUND, INC. PERFORMANCE UPDATE MATT FINN AND ALLEN STEINKOPF, EQUITY FUND MANAGERS, ADVANTUS CAPITAL MANAGEMENT, INC. WAYNE SCHMIDT, FIXED INCOME FUND MANAGER, ADVANTUS CAPITAL MANAGEMENT, INC. (Effective May 1, 2003, Spectrum Fund is managed by Waddell & Reed Ivy Investment Company. See the President's letter on page 1.) PERFORMANCE The Fund's performance for the six-month period ended March 31, 2003 for each class of shares offered was as follows: Class A 4.73 percent* Class B 4.27 percent* Class C 4.21 percent* This compares to the Fund's benchmark, a blend of 60 percent S&P 500 Index** and 40 percent Lehman Brothers Aggregate Bond Index+, which returned 4.04 percent over the same period. The S&P 500 Index and the Lehman Brothers Aggregate Bond Index returned 5.02 percent and 2.98 percent, respectively, for the same period. * Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. + The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities Index and the Lehman Brothers Asset-Backed Securities Index. 26 PERFORMANCE ANALYSIS The Fund beat its benchmark with strong security selection. The equity side was boosted by our exposure to stocks as the S&P was up 5.10 percent, while holdings in corporate bonds were the best performing sector within the investment grade fixed income universe and represented the fixed income side's largest overweight. The Health Care sector, aided by the performance of Amgen, Inc. and St. Jude Medical, Inc., was the best performing sector for the Fund. Both companies are in the midst of a ramp up of new products that are being met with consumer enthusiasm. The health care system in the U.S. has grown double digits in the last three years and this increase in funds has found its way into the companies that are offering differentiated products that are immune from generic competition. The Energy sector was also a positive performer as the U.S. natural gas market has become incredibly tight. With oil prices high because of the war, fuel switching is not economical for companies using natural gas. This has increased the price for natural gas and this increase is starting to find its way to the bottom line of companies in the Energy sector. 27 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS SPECTRUM FUND, RUSSELL 1000 GROWTH INDEX, LEHMAN BROTHERS AGGREGATE BOND INDEX, BLENDED INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Spectrum Fund compared to the Lehman Brothers Aggregate Bond Index, the S & P 500 Index, blended index of 60 percent S & P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index, and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on March 31, 1993 through March 31, 2003. The lines in the Class B and Class C graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Spectrum Fund (August 19, 1994 and March 1, 1995, respectively) through March 31, 2003. [CHART] CLASS A AVERAGE ANNUAL TOTAL RETURN: One year -16.12% Five year -3.41% Ten year 4.16% (Thousands)

CLASS A CPI BLENDED INDEX S&P 500 INDEX LEHMAN AGGREGATE 3/31/1993 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 10/31/1993 $ 9,749 $ 10,161 $ 10,552 $ 10,519 $ 10,572 9/30/1994 $ 9,562 $ 10,419 $ 10,497 $ 10,687 $ 10,193 9/30/1995 $ 11,320 $ 10,684 $ 12,944 $ 13,865 $ 11,627 9/30/1996 $ 12,872 $ 11,005 $ 14,753 $ 16,684 $ 12,196 9/30/1997 $ 15,016 $ 11,249 $ 18,815 $ 23,433 $ 13,381 9/30/1998 $ 16,715 $ 11,410 $ 20,804 $ 25,553 $ 14,921 9/30/1999 $ 19,402 $ 11,710 $ 24,131 $ 32,659 $ 14,867 9/30/2000 $ 22,547 $ 12,114 $ 26,803 $ 36,991 $ 15,906 9/30/2001 $ 15,254 $ 12,428 $ 23,512 $ 27,144 $ 17,966 9/30/2002 $ 14,353 $ 12,624 $ 21,315 $ 21,584 $ 19,411 3/31/2003 $ 15,032 $ 12,833 $ 22,264 $ 22,668 $ 20,094

28 [CHART] CLASS B AVERAGE ANNUAL TOTAL RETURN: One year -16.27% Five year -3.25% Since inception (8/19/94) 4.85% (Thousands)

CLASS B CPI BLENDED INDEX S&P 500 INDEX LEHMAN AGGREGATE 8/19/1994 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 10,005 $ 10,027 $ 9,793 $ 10,013 $ 9,865 9/30/1995 $ 11,768 $ 10,282 $ 12,076 $ 12,991 $ 11,252 9/30/1996 $ 13,306 $ 10,591 $ 13,764 $ 15,632 $ 11,804 9/30/1997 $ 15,437 $ 10,826 $ 17,553 $ 21,955 $ 12,950 9/30/1998 $ 17,066 $ 10,981 $ 19,409 $ 23,942 $ 14,441 9/30/1999 $ 19,678 $ 11,269 $ 22,513 $ 30,600 $ 14,388 9/30/2000 $ 22,693 $ 11,659 $ 25,006 $ 34,658 $ 15,394 9/30/2001 $ 15,262 $ 11,961 $ 21,929 $ 25,433 $ 17,388 9/30/2002 $ 14,361 $ 12,149 $ 19,880 $ 20,223 $ 18,882 3/31/2003 $ 15,040 $ 12,351 $ 20,764 $ 21,239 $ 19,446

29 [CHART] CLASS C AVERAGE ANNUAL TOTAL RETURN: One year -12.00% Five year -3.05% Since inception (3/1/95) 4.39% (Thousands)

CLASS C CPI BLENDED INDEX S&P 500 INDEX LEHMAN AGGREGATE 3/1/1995 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 11,263 $ 10,126 $ 11,648 $ 12,214 $ 10,884 9/30/1996 $ 12,713 $ 10,430 $ 13,275 $ 14,698 $ 11,417 9/30/1997 $ 14,731 $ 10,661 $ 16,930 $ 20,643 $ 12,526 9/30/1998 $ 16,288 $ 10,813 $ 18,720 $ 22,511 $ 13,968 9/30/1999 $ 18,778 $ 11,098 $ 21,714 $ 28,771 $ 13,917 9/30/2000 $ 21,649 $ 11,481 $ 24,118 $ 32,587 $ 14,890 9/30/2001 $ 14,534 $ 11,779 $ 21,150 $ 23,913 $ 16,819 9/30/2002 $ 13,583 $ 11,964 $ 19,174 $ 19,014 $ 18,264 3/31/2003 $ 14,167 $ 12,163 $ 20,028 $ 19,969 $ 18,810

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 30 FIVE LARGEST STOCK HOLDING

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ----------- ---------- Pfizer, Inc 34,725 1,082,031 3.6% Exxon Mobil Corporation 30,600 1,069,470 3.6% Microsoft Corporation 41,576 1,006,555 3.3% Citigroup, Inc 23,000 792,350 2.6% General Electric Company 31,056 791,928 2.6% ----------- ---- $ 4,742,334 15.8% =========== ====

[CHART] Bonds 34.8% S&P Depository Receipt 0.5% Common Stock 62.1% Cash & Other Assets/Liabilities 2.6% [CHART] BOND PORTFOLIO CHARACTERISTICS-QUALITY BREAKDOWN U.S. Treasury 12.9% U.S. Government Agencies 38.0% AAA Rated 9.8% AA Rated 10.1% A Rated 15.0% BBB Rated 13.3% CCC Rated 0.7% D Rated 0.2% 31 ADVANTUS BOND FUND INVESTMENTS IN SECURITIES MARCH 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- LONG-TERM DEBT SECURITIES (98.3%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.2%) Federal Home Loan Mortgage Corporation (FHLMC) (6.0%) $ 250,000 2.500% 04/22/05 $ 251,560 150,000 2.500% 07/28/05 151,080 250,000 2.750% 12/30/05 251,634 150,000 4.375% 02/04/10 152,340 669,576 6.500% 09/01/32 702,302 --------------- 1,508,916 --------------- Federal National Mortgage Association (FNMA) (25.0%) 250,000 2.650% 02/13/06 250,835 250,000 2.750% 05/04/05 252,206 250,000 3.100% 05/19/06 250,463 300,000 3.500% 01/28/08 305,186 299,826 6.000% 09/01/17 315,614 332,420 6.000% 10/01/32 346,735 280,930 6.000% 11/01/32 293,027 200,000 6.000% 03/01/33 207,613 146,629 6.230% 01/01/08 162,234 190,213 6.500% 12/01/31 199,632 84,085 6.500% 04/01/32 88,249 90,115 6.500% 05/01/32 94,578 195,794 6.500% 07/01/32 205,491 361,332 6.500% 08/01/32 379,226 382,929 6.500% 09/01/32 401,892 317,555 6.500% 10/01/32 333,281 152,917 7.000% 09/01/31 162,113 371,232 7.000% 11/01/31 393,547 400,098 7.000% 02/01/32 424,416 325,923 7.000% 03/01/32 345,736 200,077 7.000% 06/01/32 212,240 227,252 7.000% 07/01/32 241,068 408,084 7.500% 05/01/31 437,715 --------------- 6,303,097 --------------- Other Agency Obligations (1.2%) 300,000 Federal Home Loan Bank(c) 1.895% 09/11/06 299,916 --------------- State and Local Government Obligations (1.9%) 195,000 City of Eden Prairie, Minnesota 7.350% 02/20/09 228,653 250,000 Province of Manitoba(b) 2.750% 01/17/06 253,444 --------------- 482,097 --------------- U.S. Treasury (7.1%) 225,000 Bond 5.375% 02/15/31 243,387

See accompanying notes to investments in securities. 32

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED $ 600,000 Bond 6.000% 02/15/26 $ 687,469 450,000 Note 3.000% 02/15/08 455,274 400,000 Note 3.875% 02/15/13 401,672 --------------- 1,787,802 --------------- Total U.S. government and agencies obligations (cost: $10,091,631) 10,381,828 --------------- CORPORATE OBLIGATIONS (57.1%) BASIC MATERIALS (4.8%) Agriculture Products (2.1%) 250,000 Archer-Daniels-Midland Company 7.000% 02/01/31 288,478 200,000 Cargill, Inc. 144A Issue(e) 6.375% 06/01/12 224,373 --------------- 512,851 --------------- Aluminum (.6%) 150,000 Alcoa, Inc. 4.250% 08/15/07 155,808 --------------- Construction (2.1%) 200,000 Hanson Australia Funding(b) 5.250% 03/15/13 195,857 300,000 Vulcan Materials Company 6.400% 02/01/06 330,900 --------------- 526,757 --------------- CONSUMER CYCLICAL (2.6%) Publishing (.9%) 200,000 Gannett Company, Inc. 5.500% 04/01/07 219,163 --------------- Service (1.7%) 250,000 Hertz Corporation 7.625% 06/01/12 222,112 200,000 PHH Corporation 7.125% 03/01/13 200,997 --------------- 423,109 --------------- CONSUMER STAPLES (5.3%) Beverage (3.1%) 500,000 Anheuser-Busch Companies, Inc. 7.100% 06/15/07 532,304 250,000 Diageo Capital PLC(b) 3.500% 11/19/07 252,746 --------------- 785,050 --------------- Food (1.4%) 250,000 ConAgra Foods, Inc.(c) 2.018% 09/10/03 250,269 100,000 Unilever Capital Corporation 5.900% 11/15/32 103,012 --------------- 353,281 --------------- Household Products (.8%) 200,000 SC Johnson & Son, Inc. 144A Issue(e) 5.750% 02/15/33 195,243 ---------------

See accompanying notes to investments in securities. 33

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- ENERGY (2.8%) Electric Companies (.4%) $ 100,000 Centerpoint Energy Houston Notes 144A Issue(e) 6.950% 03/15/33 $ 104,273 --------------- Oil (1.6%) 250,000 Conoco, Inc.(c) 2.226% 04/15/03 250,061 150,000 Husky Energy, Inc.(b) 6.250% 06/15/12 161,694 --------------- 411,755 --------------- Oil & Gas (.8%) 200,000 Valero Logistics 144A Issue(e) 6.050% 03/15/13 201,967 --------------- FINANCIAL (34.3%) Asset-Backed Securities (8.0%) 250,000 AmeriCredit Corporation(c) 1.592% 03/06/07 249,905 250,000 Fortress CBO Investments I, Ltd.(b)(d) 7.850% 07/25/38 279,868 219,951 Green Tree Financial Corporation 6.400% 10/15/18 227,022 242,935 Green Tree Financial Corporation 8.300% 05/15/19 260,795 132,904 Green Tree Financial Corporation 8.900% 04/15/25 142,671 400,000 Metropolitan Asset Funding, Inc. 144A Issue(e) 7.525% 04/20/27 436,881 387,864 The National Collegiate Trust 1997-S2 7.240% 09/20/14 405,221 --------------- 2,002,363 --------------- Auto Finance (1.0%) 250,000 General Motors Acceptance Corporation 6.125% 08/28/07 256,377 --------------- Banks (1.8%) 200,000 St. George Funding Company LLC 144A Issue(b)(c)(d) 8.485% 12/29/49 210,108 200,000 Wells Fargo Bank NA 7.550% 06/21/10 240,496 --------------- 450,604 --------------- Collateralized Mortgage Obligations/Mortgage Revenue Bonds (5.5%) 85,793 Banco Hipotecario Nacional 144A Issue(b)(d)(g) 7.916% 07/25/09 27,454 218,262 Chase Mortgage Finance Corporation 6.500% 09/25/13 224,692 103,277 Countrywide Mortgage Backed Securities, Inc. 6.750% 03/25/24 104,544 379,165 GE Capital Mortgage Services, Inc. 6.750% 11/25/28 387,126

See accompanying notes to investments in securities. 34

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- FINANCIAL--CONTINUED $ 121,895 GE Capital Mortgage Services, Inc. 144A Issue(e) 6.500% 04/25/24 $ 123,532 277,587 Mellon Residential Funding Corporation 6.750% 06/26/28 284,674 172,280 Norwest Asset Securities Corporation 7.000% 06/25/12 171,996 68,220 Prudential Home Mortgage Securities 144A Issue(c)(e) 6.629% 04/28/24 69,297 --------------- 1,393,315 --------------- Commercial Mortgage-Backed Securities (6.8%) -- Asset Securitization Corporation(c)(f) 9.266% 04/14/29 160,961 -- Asset Securitization Corporation 144A Issue(c)(e)(f) 9.530% 10/13/26 165,822 244,389 GMAC Commercial Mortgage Securities, Inc. 144A Issue(e) 7.350% 10/15/06 271,409 250,000 GS Mortgage Securities Corporation II(c) 6.809% 07/13/07 277,888 250,000 Paine Webber Mortgage Acceptance Corporation 144A Issue(e) 7.655% 01/02/12 274,854 195,143 Park Avenue Finance Corporation 144A Issue(e) 7.580% 05/12/07 219,482 300,000 Park Avenue Finance Corporation 144A Issue(e) 7.680% 05/12/07 345,030 --------------- 1,715,446 --------------- Consumer Finance (.8%) 200,000 Household Finance Corporation(c) 2.759% 12/16/04 202,855 --------------- Finance Diversified (.4%) 100,000 Eastview Credit Corporation 144A Issue(e) 6.950% 06/15/04 102,666 --------------- Insurance (3.7%) 250,000 ASIF Global Financing 144A Issue(e) 3.850% 11/26/07 254,365 150,000 Principal Life Global Funding I 144A Issue(e) 6.250% 02/15/12 163,086 250,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 263,901 250,000 Travelers Property Casualty 144A Issue (e) 6.375% 03/15/33 247,184 --------------- 928,536 ---------------

See accompanying notes to investments in securities. 35

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- FINANCIAL--CONTINUED Investment Bankers/Brokers (1.7%) $ 250,000 Goldman Sachs Group, Inc. 6.125% 02/15/33 $ 250,830 150,000 Morgan Stanley 6.750% 04/15/11 167,882 --------------- 418,712 --------------- Real Estate Investment Trust (3.5%) 150,000 New Plan Excel Realty Trust 5.875% 06/15/07 158,220 200,000 Prologis 6.700% 04/15/04 208,979 200,000 Reckson Operating Partnership LP 7.400% 03/15/04 208,321 300,000 Vornado Realty Trust 5.625% 06/15/07 309,252 --------------- 884,772 --------------- Savings and Loans (1.1%) 250,000 Washington Mutual Financial Corporation 6.875% 05/15/11 284,832 --------------- RESIDENTIAL CMOS (2.1%) Collateralized Mortgage Obligations/Mortgage Revenue Bonds (2.1%) 251,848 BlackRock Capital Finance LP 144A Issue(e) 7.750% 09/25/26 269,817 247,582 Sequoia Mortgage Funding Company 144A Issue(e) 6.380% 08/28/31 250,043 --------------- 519,860 --------------- TECHNOLOGY (1.0%) Computer Hardware (1.0%) 250,000 International Business Machines Corporation 5.875% 11/29/32 255,479 --------------- TRANSPORTATION (1.0%) Railroads (1.0%) 250,000 CSX Corporation 7.250% 05/01/04 264,277 --------------- UTILITIES (3.2%) Electric Companies (3.2%) 200,000 Entergy Louisiana, Inc. 8.500% 06/01/03 202,263 250,000 Hydro-Quebec(b) 8.000% 02/01/13 321,091 250,000 Oncor Electric Delivery Company 144A Issue(e) 7.250% 01/15/33 282,067 --------------- 805,421 --------------- Total corporate obligations (cost: $13,832,795) 14,374,772 --------------- Total long-term debt securities (cost: $23,924,426) 24,756,600 ---------------

See accompanying notes to investments in securities. 36

MARKET SHARES VALUE(a) - ------ -------- SHORT-TERM SECURITIES (.6%) 846 BlackRock Provident Institutional TempFund, current rate 1.180% $ 846 150,395 Federated Prime Obligations Fund, current rate 1.270% 150,395 --------------- Total short-term securities (cost: $151,241) 151,241 --------------- Total investments in securities (cost: $24,075,667)(h) $ 24,907,841 ===============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) The Fund held 6.8% of net assets in foreign securities at March 31, 2003. (c) Variable rate security (d) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at March 31, 2003, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY: DATE COST --------- ----------- --------------- St. George Funding Company 144A Issue* 06/12/97 $ 200,068 Banco Hipotecario Nacional 144A Issue* 01/08/01 84,564 Fortress CBO Investments I, Limited 144A Issue* 01/16/01 247,534 --------------- $ 532,166 ===============

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (e) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". These securities have been determined to be liquid under guidelines established by the Board of Directors. (f) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principle payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimate timing and amount of future cash flows. (g) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. See accompanying notes to financial statements. 37 (h) At March 31, 2003 the cost of securities for federal income tax purposes was $24,075,668. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 1,049,048 Gross unrealized depreciation (216,875) --------------- Net unrealized appreciation $ 832,173 =============== See accompanying notes to financial statements. 38 ADVANTUS INTERNATIONAL BALANCED FUND INVESTMENTS IN SECURITIES MARCH 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (53.8%) AUSTRALIA (.8%) Mining (.8%) 140,520 Iluka Resources, Ltd. $ 340,514 --------------- BERMUDA (.8%) Insurance (.6%) 3,500 XL Capital, Ltd. Class A(c) 247,730 Service (.2%) 6,000 Accenture, Ltd.(b) 93,000 --------------- 340,730 --------------- CANADA (2.9%) Mining (.8%) 19,600 Barrick Gold Corporation 308,601 Oil & Gas (1.3%) 26,750 Husky Energy, Inc. 307,881 15,000 Transcanada Pipelines, Ltd. 219,756 Telecommunication (.8%) 17,000 BCE, Inc. 312,043 --------------- 1,148,281 --------------- DENMARK (2.0%) Power Products -- Industrial (1.4%) 74,810 Vestas Wind Systems 566,110 Telecommunication (.6%) 11,000 Tele Danmark 259,419 --------------- 825,529 --------------- FINLAND (1.4%) Insurance (.6%) 40,525 Sampo Insurance 247,637 Paper and Forest (.3%) 13,000 Stora Enso 119,868 Telecommunication (.5%) 21,000 Metso Corporation 214,257 --------------- 581,762 --------------- FRANCE (4.2%) Chemicals (.8%) 7,498 Aventis 329,155 Investment Bankers/Brokers (.7%) 24,000 AXA-UAP 283,363 Machinery (.1%) 21,534 Alstom 33,132

See accompanying notes to investments in securities. 39

MARKET SHARES VALUE(a) - ------ -------- FRANCE--CONTINUED Manufacturing (.5%) 7,400 Michelin $ 203,487 Mining (.8%) 13,320 Pechiney 324,707 Oil & Gas (1.0%) 3,110 Total Fina Elf 393,661 Water Utilities (.3%) 8,800 Lyonnaise Des Eaux 102,267 --------------- 1,669,772 --------------- GERMANY (4.1%) Banks (.7%) 7,000 Deutsche Bank AG 294,078 Chemicals (.5%) 15,000 Bayer 204,436 Electric Companies (.7%) 6,860 E.On Ag 282,807 Manufacturing (.8%) 3,600 Adidas-Salomon 317,408 Technology (.4%) 2,300 SAP 174,303 Transport Services (1.0%) 40,040 Deutsche Post AG 397,157 --------------- 1,670,189 --------------- HONG KONG (3.6%) Chemicals (--) 1,880 CK Life Sciences International(b) 294 Electric Companies (.7%) 72,500 CLP Holdings, Ltd. 300,246 Investment Bankers/Brokers (--) 28,000 Peregrine Investments Holdings 0 Oil & Gas (.6%) 1,095,345 Petrochina 230,320 Real Estate (1.3%) 47,000 Cheung Kong 260,326 46,000 Hutchison Whampoa 250,659 Telecommunication (1.0%) 26,210 China Mobile ADR(b) 259,479 205,900 Swire Pacific Class B 135,956 --------------- 1,437,280 ---------------

See accompanying notes to investments in securities. 40

MARKET SHARES VALUE(a) - ------ -------- INDIA (.3%) Office Equipment (.3%) 15,700 Satyam Computer ADR $ 129,996 --------------- ISRAEL (1.2%) Technology (1.2%) 33,700 Checkpoint Software(b) 487,639 --------------- ITALY (1.1%) Banks (.4%) 25,000 San Paolo-IMI 169,954 Oil & Gas (.7%) 20,500 ENI SPA 273,804 --------------- 443,758 --------------- JAPAN (4.8%) Drugs (1.1%) 14,000 Ono Pharmaceutical 435,655 Electrical Equipment (1.2%) 34,000 Hitachi 118,418 37,000 NEC 122,002 7,100 Sony Corporation 251,476 Investment Bankers/Brokers (.6%) 23,600 Nomura Securities 245,792 Machinery (.6%) 66,000 Komatsu 242,672 Telecommunication (1.3%) 158 Nippon Telegraph & Telephone Corporation 536,971 --------------- 1,952,986 --------------- MEXICO (.9%) Mining (.5%) 86,560 Grupo Carso S.A.(b) 207,411 Telecommunication (.4%) 5,700 Telefonos de Mexico ADR 169,404 --------------- 376,815 --------------- NETHERLANDS (2.2%) Chemicals (.6%) 12,180 Akzo Nobel 242,159 Electrical Equipment (.8%) 21,100 Philips Electronics 331,320 Insurance (.8%) 27,960 ING Group 323,100 --------------- 896,579 ---------------

See accompanying notes to investments in securities. 41

MARKET SHARES VALUE(a) - ------ -------- NEW ZEALAND (.5%) Telecommunication (.5%) 87,000 Telecom Corporation of New Zealand $ 217,914 --------------- SOUTH KOREA (2.4%) Electric Companies (.7%) 33,550 Korea Electric Power 267,729 Electrical Equipment (.8%) 3,000 Samsung Electronics GDR 339,000 Technology (.9%) 21,900 KT Corporation ADR 376,023 --------------- 982,752 --------------- SPAIN (1.8%) Electric Companies (1.1%) 26,772 Iberdrola SA 436,159 Oil & Gas (.7%) 20,550 Repsol 296,447 Telecommunication (--) 549 Telefonica SA(b) 5,099 --------------- 737,705 --------------- SWEDEN (4.8%) Banks (2.3%) 35,600 Foreningssparbanken 411,466 113,190 Nordic 496,522 Machinery (.7%) 14,600 Atlas Copco 288,420 Trucks and Parts (1.8%) 17,200 Autoliv 343,484 20,800 Volvo Free 'B' 369,197 --------------- 1,909,089 --------------- SWITZERLAND (2.9%) Banks (.6%) 6,000 UBS AG(b) 255,281 Food (1.2%) 2,400 Nestle SA 475,045 Human Resources (.4%) 5,600 Adecco 155,596 Insurance (.7%) 5,350 Swiss Reinsurance 262,463 --------------- 1,148,385 ---------------

See accompanying notes to investments in securities. 42

MARKET SHARES VALUE(a) - ------ -------- UNITED KINGDOM (11.1%) Chemicals (.9%) 76,909 Imperial Chemical Industries $ 111,841 44,000 Shire Pharmaceuticals 268,110 Electrical Equipment (1.4%) 126,910 BAE Systems PLC 224,672 206,000 Chubb PLC 190,484 137,200 Kidde PLC 144,215 37,000 WPP Group 199,431 Food (.8%) 90,400 J Sainsbury PLC 314,360 Investment Bankers/Brokers (.6%) 43,500 Abbey National 226,215 Manufacturing (1.1%) 80,000 Brambles Industries PLC 192,207 218,600 Rolls-Royce PLC 244,463 Medical Products/Supplies (.6%) 34,850 Nycomed Amersham 229,077 Mining (1.3%) 100,220 BHP Billiton PLC 502,168 Oil & Gas (2.0%) 74,800 LLoyds TSB Group PLC 380,709 69,300 Shell Transportation & Trading Company PLC 418,987 Publishing (.3%) 33,415 United Business Media PLC 114,614 Retail (.8%) 75,544 Marks & Spencer Group 336,732 Telecommunication (.8%) 287,990 Cable & Wireless PLC 314,096 --------------- 4,412,381 --------------- Total common stock (cost: $29,957,426) 21,710,056 --------------- PREFERRED STOCK (.6%) GERMANY (.6%) Trucks and Parts (.6%) 9,430 Volkswagen 225,763 --------------- Total preferred stock (cost: $247,427) 225,763 ---------------

See accompanying notes to investments in securities. 43

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- LONG-TERM DEBT SECURITIES (40.2%)(c) AUSTRALIA (1.4%) Government (1.4%) 550,000 New South Wales Treasury Corporation (Australian Dollar) 6.500% 05/01/06 $ 348,413 314,000 Queensland Treasury Corporation (Australian Dollar) 6.500% 06/14/05 196,911 --------------- 545,324 --------------- AUSTRIA (1.1%) Government (1.1%) 70,000 Republic of Austria (European Currency Unit) 4.000% 07/15/09 78,286 300,000 Republic of Austria (European Currency Unit) 5.000% 07/15/12 350,897 --------------- 429,183 --------------- BELGIUM (1.9%) Government (1.9%) 100,000 Belgium Government (European Currency Unit) 4.750% 09/28/06 115,674 100,000 Belgium Government (European Currency Unit) 5.000% 09/28/12 116,584 405,000 Belgium Government (European Currency Unit) 7.500% 07/29/08 528,997 --------------- 761,255 --------------- CANADA (1.3%) Government (1.3%) 748,000 Canadian Government (Canadian Dollar) 6.000% 06/01/11 541,889 --------------- DENMARK (1.6%) Government (1.6%) 2,864,000 Kingdom of Denmark (Danish Kroner) 5.000% 08/15/05 440,693 1,400,000 Kingdom of Denmark (Danish Kroner) 5.000% 11/15/13 217,480 --------------- 658,173 --------------- FINLAND (1.0%) Government (1.0%) 60,000 Finnish Government (European Currency Unit) 5.000% 04/25/09 70,737 280,000 Finnish Government (European Currency Unit) 5.750% 02/23/11 344,951 --------------- 415,688 ---------------

See accompanying notes to investments in securities. 44

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- FRANCE (3.6%) Government (3.6%) 297,000 Government of France (European Currency Unit) 4.000% 01/12/04 $ 328,110 992,000 Government of France (European Currency Unit) 4.000% 10/25/09 1,104,120 --------------- 1,432,230 --------------- GERMANY (4.1%) Government (4.1%) 870,000 Bundesrepublic (European Currency Unit) 5.000% 07/04/11 1,020,545 531,000 Bundesrepublic (European Currency Unit) 6.000% 07/04/07 644,439 --------------- 1,664,984 --------------- IRELAND (1.6%) Government (1.6%) 540,000 Irish Government (European Currency Unit) 5.000% 04/18/13 631,556 --------------- ITALY (2.8%) Government (2.8%) 447,000 Buoni Poliennali del Tesoro (European Currency Unit) 5.500% 11/01/10 538,854 479,001 Buoni Poliennali del Tesoro (European Currency Unit) 7.750% 11/01/06 607,623 --------------- 1,146,477 --------------- NETHERLANDS (2.9%) Government (2.9%) 990,000 Netherlands Government (European Currency Unit) 5.750% 02/15/07 1,186,434 --------------- NEW ZEALAND (4.1%) Government (4.1%) 900,000 Government of New Zealand (New Zealand Dollar) 6.000% 11/15/11 499,858 1,950,000 Government of New Zealand (New Zealand Dollar) 7.000% 07/15/09 1,147,143 --------------- 1,647,001 --------------- NORWAY (1.6%) Government (1.6%) 3,000,000 Kingdom of Norway (Norwegian Krone) 6.000% 05/16/11 433,668

See accompanying notes to investments in securities. 45

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- NORWAY--CONTINUED 1,500,000 Kingdom of Norway (Norwegian Krone) 6.750% 01/15/07 $ 218,219 --------------- 651,887 --------------- SPAIN (4.1%) Government (4.1%) 100,000 Government of Spain (European Currency Unit) 4.800% 10/31/06 116,043 630,000 Government of Spain (European Currency Unit) 5.000% 07/30/12 737,434 350,000 Government of Spain (European Currency Unit) 6.000% 01/31/08 427,232 294,000 Government of Spain (European Currency Unit) 10.150% 01/31/06 384,074 --------------- 1,664,783 --------------- SWEDEN (4.1%) Government (4.1%) 1,000,000 Sweden Kingdom (Swedish Krona) 3.500% 04/20/06 116,996 7,180,000 Sweden Kingdom (Swedish Krona) 5.500% 10/08/12 902,184 3,100,000 Sweden Kingdom (Swedish Krona) 6.000% 02/09/05 381,223 1,800,000 Sweden Kingdom (Swedish Krona) 6.500% 05/05/08 235,478 --------------- 1,635,881 --------------- UNITED KINGDOM (3.0%) Government (3.0%) 673,000 United Kingdom (British Sterling Pound) 7.500% 12/07/06 1,197,494 --------------- Total long-term debt securities (cost: $13,913,310) 16,210,239 ---------------

See accompanying notes to investments in securities. 46

MARKET PAR/SHARES COUPON MATURITY VALUE(a) - ---------- ------ -------- -------- SHORT-TERM SECURITIES (1.7%) 209,000 Government of France (European Currency Unit) 6.750% 10/25/03 $ 233,417 1,000,000 Norwegian Treasury Bill (Norwegian Krone) 4.250% 9/17/03 134,676 339,451 Bankers Trust Institutional Liquid Assets, current rate 1.760% 339,451 --------------- Total short-term securities (cost: $657,073) 707,544 --------------- Total investments in securities (cost: $44,775,236)(d) $ 38,853,602 ===============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) Principal amounts for foreign debt securities are denominated in the currencies indicated. (d) At March 31, 2003 the cost of securities for federal income tax purposes was $44,837,275. The aggregate unrealized appreciation and depreciation of investments in securities based on their cost were: Gross unrealized appreciation $ 2,466,587 Gross unrealized depreciation (8,450,260) --------------- Net unrealized depreciation $ (5,983,673) =============== See accompanying notes to financial statements. 47 ADVANTUS MONEY MARKET FUND INVESTMENTS IN SECURITIES MARCH 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

PRINCIPAL RATE MATURITY VALUE(a) - --------- ---- -------- -------- COMMERCIAL PAPER (63.3%) BASIC MATERIALS (5.3%) Agriculture Products (2.8%) $ 1,100,000 Archer-Daniels-Midland Company(b) 1.190% 05/13/03 $ 1,098,473 --------------- Chemicals (2.5%) 1,000,000 E I Du Pont De Nemours and Company 1.240% 04/23/03 999,273 --------------- CAPITAL GOODS (2.5%) Office Equipment (2.5%) 1,000,000 Pitney Bowes Credit Corporation 1.300% 04/01/03 1,000,000 --------------- COMMUNICATION SERVICES (2.8%) Telephone (2.8%) 500,000 BellSouth Corporation (b) 1.230% 04/04/03 499,949 600,000 BellSouth Corporation (b) 1.230% 04/08/03 599,856 --------------- 1,099,805 --------------- CONSUMER CYCLICAL (9.2%) Household Products (4.6%) 1,800,000 Procter & Gamble Company(b) 1.180% 04/25/03 1,798,584 --------------- Publishing (4.6%) 1,000,000 Gannett Company, Inc. 1.250% 04/10/03 999,695 800,000 McGraw-Hill, Inc. 1.240% 04/14/03 799,653 --------------- 1,799,348 --------------- CONSUMER STAPLES (13.1%) Beverage (5.6%) 1,000,000 Anheuser-Busch Companies, Inc.(b) 1.250% 04/24/03 999,221 1,200,000 The Coca-Cola Company 1.230% 05/16/03 1,198,155 --------------- 2,197,376 --------------- Food (2.5%) 1,000,000 Cargill, Inc.(b) 1.240% 04/21/03 999,311 --------------- Health Care -- Diversified (2.5%) 1,000,000 Gillette Company(b) 1.220% 04/11/03 999,661 --------------- Household Products (2.5%) 1,000,000 Colgate-Palmolive Company(b) 1.230% 05/01/03 999,000 ---------------

See accompanying notes to investments in securities. 48

PRINCIPAL RATE MATURITY VALUE(a) - --------- ---- -------- -------- FINANCIAL (16.9%) Banks (2.5%) $ 1,000,000 Wells Fargo & Company 1.240% 04/30/03 $ 999,001 --------------- Commercial Finance (2.6%) 1,000,000 General Electric Capital Corporation 1.260% 04/25/03 999,160 --------------- Consumer Finance (5.3%) 1,100,000 AIG Sunamerica Global Financing II 1.190% 04/14/03 1,099,527 1,000,000 American General Finance Corporation 1.270% 04/04/03 999,894 --------------- 2,099,421 --------------- Finance -- Diversified (3.9%) 1,000,000 Verizon Net Fund 1.250% 05/06/03 998,785 540,000 Verizon Net Fund 1.260% 04/07/03 539,883 --------------- 1,538,668 --------------- Investment Bankers/Brokers (2.6%) 500,000 Merrill Lynch & Company, Inc. 1.190% 04/09/03 499,868 500,000 Merrill Lynch & Company, Inc. 1.210% 05/01/03 499,508 --------------- 999,376 --------------- HEALTH CARE (10.9%) Drugs (8.1%) 1,200,000 Abbott Laboratories(b) 1.240% 04/02/03 1,199,959 1,000,000 Pfizer, Inc.(b) 1.220% 04/02/03 999,966 1,000,000 Schering-Plough Corporation 1.250% 04/02/03 999,965 --------------- 3,199,890 --------------- Health Care -- Diversified (2.8%) 1,100,000 Johnson & Johnson, Inc.(b) 1.130% 04/16/03 1,099,482 --------------- TRANSPORTATION (2.6%) Air Freight (2.6%) 1,000,000 United Parcel Service, Inc. 1.140% 04/17/03 999,493 --------------- Total commercial paper (cost: $24,925,322) 24,925,322 ---------------

See accompanying notes to investments in securities. 49

PRINCIPAL RATE MATURITY VALUE(a) - --------- ---- -------- -------- U.S. GOVERNMENT OBLIGATIONS (20.5%) $ 1,000,000 Federal Home Loan Bank 1.200% 04/30/03 $ 999,033 1,300,000 Federal Home Loan Mortgage Corporation 1.210% 05/01/03 1,298,689 1,000,000 Federal Home Loan Mortgage Corporation 1.210% 05/02/03 998,958 950,000 Federal National Mortgage Association 1.210% 04/09/03 949,745 823,000 Federal National Mortgage Association 1.220% 05/15/03 821,773 1,500,000 Federal National Mortgage Association 1.225% 04/11/03 1,499,490 1,500,000 Federal National Mortgage Association 1.230% 04/29/03 1,498,565 --------------- Total U.S. government obligations (cost: $8,066,253) 8,066,253 --------------- OTHER SHORT-TERM INVESTMENTS (9.1%) CONSUMER CYCLICAL (5.2%) Food (5.2%) 2,000,000 H.J. Heinz Company 144A Issue(c) 6.561% 11/15/03 2,053,707 --------------- FINANCIAL (3.9%) Finance -- Diversified (3.9%) 1,500,000 Associates Corporation of North America 5.750% 11/01/03 1,538,820 --------------- Total other short-term investments (cost: $3,592,527) 3,592,527 ---------------

SHARES - ------ MONEY MARKET FUNDS (7.0%) 821,406 Federated Prime Obligations Fund, current rate 1.270% 821,406 1,809,457 One Group Institutional Prime Money Market Fund, current rate 1.290% 1,809,457 107,910 Wells Fargo & Company, current rate 1.431% 107,910 --------------- Total short-term securities (cost: $2,738,773) 2,738,773 --------------- Total investments in securities (cost: $39,322,875)(d) $ 39,322,875 ===============

See accompanying notes to investments in securities. 50 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Commercial paper sold within terms of a private placement memorandum, exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." This security has been determined to be liquid under guidelines established by the Board of Directors. In the aggregate such securities represent 28.7% of the Fund's net assets at March 31, 2003. (c) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". These securities have been determined to be liquid under guidelines established by the Board of Directors. (d) Also represents the cost of securities for federal income tax purposes at March 31, 2003. See accompanying notes to financial statements. 51 ADVANTUS MORTGAGE SECURITIES FUND INVESTMENTS IN SECURITIES MARCH 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- LONG-TERM DEBT SECURITIES (96.7%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (50.4%) Federal Home Loan Mortgage Corporation (FHLMC) (7.5%) $ 1,952,661 5.500% 12/01/17 $ 2,037,176 2,232,916 6.000% 09/01/32 2,326,976 1,395,036 6.500% 03/01/32 1,455,369 4,065,286 6.500% 09/01/32 4,263,976 --------------- 10,083,497 --------------- Federal National Mortgage Association (FNMA) (39.9%) 1,091,068 5.500% 02/01/18 1,138,920 1,485,731 5.500% 02/01/18 1,543,414 421,017 6.000% 09/01/32 439,147 5,643,866 6.000% 10/01/32 5,886,910 3,014,737 6.000% 11/01/32 3,144,559 1,498,488 6.000% 02/01/33 1,555,530 6,350,000 6.000% 03/01/33 6,591,705 422,157 6.500% 11/01/28 444,243 1,237,157 6.500% 12/01/31 1,298,422 1,617,761 6.500% 02/01/32 1,697,880 2,550,041 6.500% 03/01/32 2,661,995 287,658 6.500% 04/01/32 301,904 540,689 6.500% 05/01/32 567,467 3,245,350 6.500% 07/01/32 3,406,076 3,747,767 6.500% 08/01/32 3,933,370 6,265,346 6.500% 09/01/32 6,575,629 192,457 6.500% 10/01/32 201,989 237,750 7.000% 02/01/29 252,570 800,985 7.000% 06/01/31 849,638 329,304 7.000% 09/01/31 349,314 928,080 7.000% 11/01/31 983,868 1,846,793 7.000% 02/01/32 1,959,054 1,394,453 7.000% 03/01/32 1,479,224 3,362,157 7.000% 06/01/32 3,566,551 1,500,000 (h) 5.000% 04/01/18 1,540,312 1,250,000 (h) 5.500% 04/01/18 1,296,485 --------------- 53,666,176 ---------------

See accompanying notes to investments in securities. 52

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED Government National Mortgage Association (GNMA) (1.2%) $ 779,476 7.875% 05/15/17 $ 888,309 -- (c)(g) 9.280% 07/16/40 654,280 --------------- 1,542,589 --------------- Other Agency Obligations (.4%) 116,316 Collateralized Mortgage Obligation Trust 5.000% 07/01/18 116,640 479,225 EF Hutton Trust II 9.950% 10/20/18 480,594 --------------- 597,234 --------------- Vendee Mortgage Trust (.8%) 295,135 U.S. Department of Veteran Affairs(k) 7.793% 02/15/25 319,233 664,996 U.S. Department of Veteran Affairs(k) 7.210% 02/15/25 720,351 --------------- 1,039,584 --------------- State and Local Government Obligations (.6%) 727,000 Pleasant Hill California 7.950% 09/20/15 785,291 --------------- 785,291 --------------- Total U.S. government and agencies obligations (cost: $66,651,315) 67,714,371 --------------- ASSET BACKED SECURITIES (18.3%) 1,800,000 Associates Manufactured Housing 7.900% 03/15/27 1,913,512 1,165,000 BankAmerica Manufactured Housing Contract Trust 7.015% 01/10/28 1,216,604 2,000,000 BankAmerica Manufactured Housing Contract Trust 7.800% 10/10/26 2,148,450 1,350,000 Fortress CBO Investments I, Ltd. 144A Issue(b)(d) 7.850% 07/25/38 1,511,284 1,891,582 Green Tree Financial Corporation 6.400% 10/15/18 1,952,392 927,789 Green Tree Financial Corporation 7.650% 04/15/19 983,748 1,943,477 Green Tree Financial Corporation 8.300% 05/15/19 2,086,361 573,821 Green Tree Financial Corporation 8.300% 11/15/19 615,604 705,303 Green Tree Financial Corporation 9.100% 04/15/25 713,114

See accompanying notes to investments in securities. 53

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- ASSET BACKED SECURITIES--CONTINUED $ 1,100,000 Lehman ABS Manufactured Housing Contract 5.873% 05/15/22 $ 1,122,049 423,497 Metropolitan Asset Funding, Inc. 144A Issue(e) 6.980% 05/20/12 433,728 2,044,353 Mid-State Trust 7.340% 07/01/35 2,219,372 2,305,661 Mid-State Trust 7.400% 07/01/35 2,469,943 982,041 Mid-State Trust 7.790% 07/01/35 1,036,472 1,152,598 Oakwood Mortgage Investors, Inc. 7.375% 08/15/27 1,182,787 1,300,015 Oakwood Mortgage Investors, Inc. 144A Issue(e)(i) 8.100% 10/15/21 1,377,203 531,127 Vanderbilt Mortgage and Finance, Inc. 7.530% 07/07/14 516,521 1,000,000 Vanderbilt Mortgage and Finance, Inc. 7.955% 12/07/24 1,117,400 --------------- Total asset backed securities (cost: $23,954,284) 24,616,544 --------------- OTHER MORTGAGE-BACKED SECURITIES (27.0%) Collateralized Mortgage Obligations/Mortgage Revenue Bonds (20.2%) 105,573 Banco Hipotecario Nacional 144A Issue(b)(c)(d)(j) 2.755% 03/25/11 28,505 460,008 Banco Hipotecario Nacional 144A Issue(b)(d)(j) 7.540% 05/31/17 124,202 270,998 Banco Hipotecario Nacional 144A Issue(b)(d)(j) 7.916% 07/25/09 86,719 1,437,634 Bear Stearns Mortgage Securities, Inc. 6.750% 04/30/30 1,495,410 26,755 Bear Stearns Mortgage Securities, Inc. 6.750% 05/02/30 26,692 579,330 Bear Stearns Mortgage Securities, Inc. 8.000% 11/25/29 607,033 1,343,187 BlackRock Capital Finance LP 144A Issue(e) 7.750% 09/25/26 1,439,024 637,531 Chase Mortgage Finance Corporation 6.750% 11/25/24 649,025 689,738 Chase Mortgage Finance Corporation 6.750% 02/25/25 704,234 442,049 Chase Mortgage Finance Corporation 144A Issue(c)(e) 6.634% 03/28/25 454,209 1,181,017 Chase Mortgage Finance Corporation 144A Issue(e) 6.750% 09/25/31 1,205,255

See accompanying notes to investments in securities. 54

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- OTHER MORTGAGE-BACKED SECURITIES--CONTINUED $ 520,043 Citicorp Mortgage Securities, Inc. 144A Issue(c)(e) 6.303% 09/25/14 $ 540,860 670,451 Citicorp Mortgage Securities, Inc. 144A Issue(e) 7.250% 08/25/27 681,782 326,953 Countrywide Funding Corporation 6.625% 02/25/24 333,504 1,266,505 Countrywide Funding Corporation 7.000% 06/25/24 1,283,299 230,673 Countrywide Mortgage Backed Securities, Inc. 6.500% 03/25/24 233,332 434,038 DLJ Mortgage Acceptance Corporation 6.750% 01/25/24 447,545 160,513 FBS Mortgage Corporation(c) 7.200% 08/25/24 160,012 300,145 First Union Residential Securitization Trans, Inc.(c) 6.804% 09/25/26 309,015 8,563 Franchise Finance Corporation of America 144A Issue(c)(e) 2.090% 01/18/05 8,544 476,446 Franchise Finance Corporation of America 144A Issue(d) 7.800% 07/25/11 511,984 1,250,000 Franchise Finance Corporation of America 144A Issue(e) 8.910% 06/25/14 1,342,552 211,799 GE Capital Mortgage Services, Inc. 6.000% 04/25/09 215,734 547,088 GE Capital Mortgage Services, Inc. 6.250% 04/25/14 569,415 266,549 GE Capital Mortgage Services, Inc. 144A Issue(e) 6.000% 11/25/08 268,269 212,963 GE Capital Mortgage Services, Inc. 144A Issue(e) 6.500% 01/25/24 215,254 169,851 Housing Securities, Inc. 7.000% 06/25/23 172,048 1,500,000 JP Morgan Residential Mortgage Acceptance Corporation 144A Issue(e)(i) 5.250% 08/28/30 1,479,375 612,283 Norwest Asset Securities Corporation 6.250% 04/25/14 627,223 1,006,730 Norwest Asset Securities Corporation 6.750% 08/25/29 1,032,103 299,087 Paine Webber Mortgage Acceptance Corporation(c) 6.928% 02/25/24 302,312 413,339 Paine Webber Mortgage Acceptance Corporation 8.125% 07/25/09 412,835

See accompanying notes to investments in securities. 55

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- OTHER MORTGAGE-BACKED SECURITIES--CONTINUED $ 266,435 Paine Webber Mortgage Acceptance Corporation 144A Issue(e) 6.460% 04/29/24 $ 276,978 611,169 Prudential Home Mortgage Securities 6.050% 04/25/24 621,540 693,391 Prudential Home Mortgage Securities 6.500% 04/25/26 692,629 312,284 Prudential Home Mortgage Securities 144A Issue(c)(e) 6.762% 09/28/08 320,143 497,594 Prudential Home Mortgage Securities 144A Issue(c)(d) 6.774% 04/28/24 508,024 471,214 Prudential Home Mortgage Securities 144A Issue(c)(e) 7.336% 09/28/24 488,908 253,613 Residential Funding Mortgage Securities 6.500% 11/25/23 264,734 570,653 Residential Funding Mortgage Securities 6.500% 03/25/24 584,051 556,126 Residential Funding Mortgage Securities 6.500% 12/25/28 573,165 479,045 Residential Funding Mortgage Securities 7.000% 05/25/12 478,493 1,382,937 Residential Funding Mortgage Securities 7.000% 10/25/27 1,381,609 622,615 Residential Funding Mortgage Securities 7.000% 08/25/29 638,834 297,194 Residential Funding Mortgage Securities 7.250% 07/25/11 304,660 357,653 Securitized Asset Sales, Inc. 144A Issue(c)(e) 6.661% 11/28/23 369,173 1,733,077 Sequoia Mortgage Funding Company 144A Issue(e) 6.380% 08/28/31 1,750,301 --------------- 27,220,547 --------------- Non-Agency Commercial Mortgage-Backed Securities (6.8%) -- Asset Securitization Corporation(c)(g) 8.520% 04/14/29 845,120 -- Asset Securitization Corporation 144A Issue(c)(e)(g) 9.000% 10/13/26 717,625 -- Asset Securitization Corporation(c)(g) 9.150% 01/13/15 1,073,291 958,118 Franchise Finance Corporation of America 144A Issue(d) 7.450% 02/18/22 1,012,967

See accompanying notes to investments in securities. 56

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- OTHER MORTGAGE-BACKED SECURITIES--CONTINUED $ 623,506 GMAC Commercial Mortgage Securities(f)(i) 5.940% 07/01/13 $ 625,455 2,450,000 Paine Webber Mortgage Acceptance Corporation 144A Issue(e) 7.655% 01/02/12 2,693,571 199,295 Park Avenue Finance Corporation 144A Issue(e) 7.580% 05/12/07 $ 224,152 1,700,000 Park Avenue Finance Corporation 144A Issue(e) 7.680% 05/12/07 1,955,171 --------------- 9,147,352 --------------- Total other mortgage-backed securities (cost: $35,183,158) 36,367,899 --------------- CORPORATE OBLIGATIONS (1.0%) HEALTH CARE (1.0%) Managed Care (1.0%) 500,000 Covenant Retirement Communities, Inc.(c) 6.750% 06/01/04 508,594 750,000 Covenant Retirement Communities, Inc.(c) 7.000% 06/01/06 803,609 --------------- Total corporate obligations (cost: $1,250,000) 1,312,203 --------------- Total long-term debt securities (cost: $127,038,757) 130,011,017 ---------------

SHARES - ------ SHORT-TERM SECURITIES (7.6%) 5,059,940 Federated Prime Obligations Fund, current rate 1.270% 5,059,940 5,116,785 One Group Institutional Prime Money Market, current rate 1.290% 5,116,785 --------------- Total short-term securities (cost: $10,176,725) 10,176,725 --------------- Total investments in securities (cost $137,215,482)(l) $ 140,187,742 ===============

See accompanying notes to investments in securities. 57 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements.. (b) The Fund held 1.3% of net assets in foreign securities at March 31, 2003. (c) Variable rate security (d) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at March 31, 2003, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY: DATE COST --------- ----------- ---- Banco Hipotecario Nacional 144A Issue* 05/18/00 $ 428,827 Banco Hipotecario Nacional 144A Issue* 09/06/02 7,841 Banco Hipotecario Nacional 144A Issue* various 261,701 Franchise Finance Corporation of America 144A Issue* 09/07/01 490,888 Franchise Finance Corporation of America 144A Issue* 11/26/02 974,886 Fortress CBO Investments I, Limited 144A Issue* 07/26/00 1,262,973 Prudential Home Mortgage Securities 144A Issue* 08/24/00 463,123 ----------- $ 3,890,239 ===========

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (e) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". These securities have been determined to be liquid under guidelines established by the Board of Directors. (f) Represents a private placement security. (g) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principle payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimate timing and amount of future cash flows. (h) At March 31, 2003 the total cost of investments issued on a when-issued or forward commitment basis is $2,828,066. (i) This security is being fair-valued according to procedures approved by the board of directors. (j) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. (k) Represents a debt security with a weighted average net pass-through rate which varies based on the interest rates of the securities in the pool of underlying collateral. The rate disclosed is the rate in effect at March 31, 2003. 58 (l) At March 31, 2003 the cost of securities for federal income tax purposes was $137,215,482. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 3,808,808 Gross unrealized depreciation (836,548) --------------- Net unrealized appreciation $ 2,972,260 =============== See accompanying notes to financial statements. 59 ADVANTUS SPECTRUM FUND INVESTMENTS IN SECURITIES MARCH 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (62.1%) BASIC MATERIALS (1.9%) Chemicals (1.5%) 4,600 Air Products and Chemicals, Inc. $ 190,578 9,600 E.I. DuPont de Nemours and Company 373,056 3,600 The Dow Chemical Company 99,396 3,100 The Sherwin-Williams Company 81,933 --------------- 744,963 --------------- Paper and Forest (.4%) 3,700 Weyerhaeuser Company 176,971 --------------- CAPITAL GOODS (3.2%) Aerospace/Defense (.3%) 2,700 United Technologies Corporation 156,006 --------------- Electrical Equipment (1.7%) 31,056 General Electric Company 791,928 --------------- Manufacturing (1.2%) 2,500 3M Company 325,075 20,600 Tyco International, Ltd.(c) 264,916 --------------- 589,991 --------------- COMMUNICATION SERVICES (2.1%) Cellular (.2%) 13,900 AT&T Wireless Services, Inc.(b) 91,740 --------------- Telecommunication (.2%) 2,580 Qualcomm, Inc. 93,035 --------------- Telephone (1.7%) 9,800 BellSouth Corporation 212,366 7,800 SBC Communications, Inc. 156,468 12,500 Verizon Communications, Inc. 441,875 --------------- 810,709 --------------- CONSUMER CYCLICAL (6.8%) Auto (.3%) 2,400 Eaton Corporation 167,880 --------------- Leisure (1.5%) 37,700 Brunswick Corporation 716,300 --------------- Lodging -- Hotel (.4%) 15,900 Hilton Hotels Corporation 184,599 ---------------

See accompanying notes to investments in securities. 60

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED Retail (4.6%) 2,800 Autozone, Inc.(b) $ 192,388 7,200 Bed Bath & Beyond, Inc.(b) 248,688 5,200 CVS Corporation 124,020 9,200 Darden Restaurants, Inc. 164,220 9,000 Family Dollar Stores 277,920 10,500 Home Depot, Inc. 255,780 5,600 JC Penney Company 109,984 5,300 Lowe's Companies, Inc. 216,346 12,800 Wal-Mart Stores, Inc. 665,984 --------------- 2,255,330 --------------- CONSUMER STAPLES (8.0%) Beverage (1.2%) 6,900 Constellation Brands, Inc.(b) 156,630 4,200 Pepsi Bottling Group, Inc. 75,306 2,900 Pepsico, Inc. 116,000 6,200 The Coca-Cola Company 250,976 --------------- 598,912 --------------- Broadcasting (1.5%) 13,200 Clear Channel Communications, Inc.(b) 447,744 5,467 Comcast Corporation Class A(b) 156,301 5,600 Comcast Corporation Special Class A(b) 153,944 --------------- 757,989 --------------- Entertainment (1.5%) 26,500 The Walt Disney Company 451,030 7,500 Viacom, Inc.(b) 273,900 --------------- 724,930 --------------- Household Products (2.2%) 9,700 Colgate-Palmolive Company 528,068 6,000 Procter & Gamble Company 534,300 --------------- 1,062,368 --------------- Personal Care (.6%) 4,700 Avon Products, Inc. 268,135 --------------- Service (1.0%) 11,800 Ceridian Corporation(b) 164,964 10,500 Manpower, Inc. 313,740 --------------- 478,704 ---------------

See accompanying notes to investments in securities. 61

MARKET SHARES VALUE(a) - ------ -------- ENERGY (4.7%) Oil (2.8%) 3,300 ConocoPhillips $ 176,880 1,800 Devon Energy Corporation 86,796 30,600 Exxon Mobil Corporation 1,069,470 --------------- 1,333,146 --------------- Oil & Gas (1.9%) 9,100 Ensco International, Inc. 232,141 10,256 Nabors Industries, Ltd.(b)(c) 408,907 8,200 Smith International, Inc.(b) 288,886 --------------- 929,934 --------------- FINANCIAL (13.4%) Banks (5.4%) 9,000 Bank of America Corporation 601,560 4,600 Charter One Financial, Inc. 127,236 4,500 FleetBoston Financial Corporation 107,460 2,500 Northern Trust Corporation 76,125 19,300 U.S. Bancorp 366,314 21,200 Wachovia Corporation 722,284 9,900 Wells Fargo & Company 445,401 3,700 Zions BanCorporation 158,286 --------------- 2,604,666 --------------- Consumer Finance (1.1%) 10,000 American Express Company 332,300 11,900 MBNA Corporation 179,095 --------------- 511,395 --------------- Finance -- Diversified (.6%) 2,900 Fannie Mae 189,515 2,000 Freddie Mac 106,200 --------------- 295,715 --------------- Insurance (1.5%) 11,400 American International Group 563,730 12,300 Travelers Property Casualty Corporation 173,307 --------------- 737,037 --------------- Investment Bankers/Brokers (3.2%) 23,000 Citigroup, Inc. 792,350 2,600 Goldman Sachs Group, Inc. 177,008 7,100 Merrill Lynch & Company, Inc. 251,340

See accompanying notes to investments in securities. 62

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED 4,600 Morgan Stanley $ 176,410 6,200 T Rowe Price Group, Inc. 168,138 --------------- 1,565,246 --------------- Real Estate (.6%) 11,100 Boardwalk Equities, Inc.(c) 110,112 8,606 Brookfield Properties Corporation(c) 169,108 --------------- 279,220 --------------- Real Estate Investment Trust -- Shopping Centers (.4%) 8,300 Developers Diversified Realty Corporation 200,445 --------------- Real Estate Investment Trust -- Warehouse/Industrial (.6%) 10,900 Prologis 275,988 --------------- HEALTH CARE (9.2%) Biotechnology (1.3%) 11,200 Amgen, Inc.(b) 644,560 --------------- Drugs (4.2%) 10,900 Bristol-Myers Squibb Company 230,317 3,300 Merck & Company, Inc. 180,774 34,725 Pfizer, Inc. 1,082,031 6,000 Schering-Plough Corporation 106,980 12,300 Wyeth 465,186 --------------- 2,065,288 --------------- Health Care -- Diversified (1.6%) 4,800 Abbott Laboratories 180,528 10,000 Johnson & Johnson 578,700 --------------- 759,228 --------------- Managed Care (.6%) 4,900 Express Scripts, Inc.(b) 272,832 --------------- Medical Products/Supplies (.9%) 3,700 Medtronic, Inc. 166,944 3,400 St Jude Medical, Inc.(b) 165,750 2,000 Zimmer Holdings, Inc.(b) 97,260 --------------- 429,954 --------------- Special Services (.6%) 10,500 Fisher Scientific International, Inc.(b) 293,580 --------------- TECHNOLOGY (10.9%) Communications Equipment (.1%) 3,300 Comverse Technology, Inc.(b) 37,323 ---------------

See accompanying notes to investments in securities. 63

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Computer Hardware (3.8%) 12,260 Dell Computer Corporation(b) $ 334,821 28,300 Hewlett-Packard Company 440,065 6,900 International Business Machines Corporation 541,167 17,000 Seagate Technology(b)(c) 175,440 44,000 Symbol Technologies, Inc. 378,840 --------------- 1,870,333 --------------- Computer Networking (.6%) 23,185 Cisco Systems, Inc.(b) 299,086 --------------- Computer Services & Software (2.9%) 41,576 Microsoft Corporation 1,006,555 17,200 Oracle Corporation(b) 186,603 11,400 Siebel Systems, Inc.(b) 91,314 5,800 Veritas Software Corporation(b) 101,964 --------------- 1,386,436 --------------- Electrical Instruments (.1%) 17,600 JDS Uniphase Corporation(b) 50,160 --------------- Electrical Semiconductor (2.0%) 5,700 Entegris, Inc.(b) 56,772 13,100 Intel Corporation 213,268 6,600 Intersil Corporation(b) 102,696 14,600 National Semiconductor Corporation(b) 248,784 2,100 Novellus Systems, Inc.(b) 57,267 18,286 Texas Instruments, Inc. 299,342 --------------- 978,129 --------------- Electronics -- Computer Distribution (.8%) 3,900 Cree, Inc.(b) 72,228 7,300 WW Grainger, Inc. 313,170 --------------- 385,398 --------------- Service -- Data Processing (.3%) 4,100 First Data Corporation 151,741 --------------- Telecommunication (.3%) 6,900 UTStarcom, Inc.(b) 137,931 --------------- TRANSPORTATION (.7%) Airlines (.2%) 13,300 Northwest Airlines Corporation(b) 91,770 --------------- Auto (.2%) 2,000 Polaris Industries, Inc. 99,440 ---------------

See accompanying notes to investments in securities. 64

MARKET SHARES VALUE(a) - ------ -------- TRANSPORTATION--CONTINUED Railroads (.3%) 3,200 Canadian National Railway Company(c) $ 136,960 --------------- UTILITIES (1.2%) Electric Companies (1.2%) 12,000 NiSource, Inc. 218,400 6,300 PG&E Corporation(b) 84,735 4,700 PPL Corporation 167,367 3,100 Public Service Enterprise Group, Inc. 113,739 --------------- 584,241 --------------- Total common stock (cost: $30,403,262) 30,077,672 --------------- S&P DEPOSITORY RECEIPT (.5%) 3,100 S&P Depository Receipt 263,097 --------------- Total S&P Depository Receipt (cost: $267,738) 263,097 ---------------

PRINCIPAL COUPON MATURITY - --------- ------ -------- LONG-TERM DEBT SECURITIES (34.8%) U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (17.7%) Federal Home Loan Mortgage Corporation (FHLMC) (2.8%) $ 488,165 5.500% 12/01/17 509,294 813,057 6.500% 09/01/32 852,795 --------------- 1,362,089 --------------- Federal National Mortgage Association (FNMA) (9.4%) 250,000 2.750% 06/09/05 252,437 172,636 4.000% 04/25/22 173,914 987,120 6.000% 09/01/17 1,039,098 195,505 6.230% 01/01/08 216,312 251,140 6.500% 10/01/28 264,279 170,360 6.500% 02/01/29 179,273 334,240 6.500% 02/01/32 350,794 83,011 6.500% 03/01/32 86,655 184,901 6.500% 09/01/32 194,058 91,473 7.000% 09/01/31 97,032 408,355 7.000% 11/01/31 432,902 400,098 7.000% 02/01/32 424,416 201,182 7.000% 02/01/32 213,412 193,903 7.000% 03/01/32 205,691 121,786 7.000% 06/01/32 129,189 272,703 7.000% 07/01/32 289,281 --------------- 4,548,743 ---------------

See accompanying notes to investments in securities. 65

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- Government National Mortgage Association (GNMA) (.7%) 300,167 7.375% 11/15/11 $ 332,348 --------------- Other Agency Obligations (.3%) 150,000 Federal Home Loan Bank(d) 1.895% 09/11/06 149,958 --------------- U.S. Treasury (4.5%) 375,000 Bond 5.375% 02/15/31 405,645 550,000 Bond 6.000% 02/15/26 630,180 150,000 Bond 6.125% 08/15/29 175,693 400,000 Note 3.875% 02/15/13 401,672 525,000 Note 4.625% 05/15/06 565,769 --------------- 2,178,959 --------------- Total U.S. government and agencies obligations (cost: $8,266,807) 8,572,097 --------------- CORPORATE OBLIGATIONS (17.1%) BASIC MATERIALS (2.6%) Agriculture Products (1.5%) $ 450,000 Archer-Daniels-Midland Company 7.000% 02/01/31 519,260 150,000 Cargill, Inc. 144A Issue(f) 6.375% 06/01/12 168,280 --------------- 687,540 --------------- Construction (1.1%) 150,000 Hanson Australia Funding(c) 5.250% 03/15/13 146,892 350,000 Vulcan Materials Company 6.400% 02/01/06 386,050 --------------- 532,942 --------------- CONSUMER CYCLICAL (1.5%) Auto (.4%) 200,000 ERAC USA Finance Company 144A Issue(f) 7.500% 06/15/03 202,081 --------------- Publishing (.8%) 350,000 Gannett Company, Inc. 5.500% 04/01/07 383,536 --------------- Service (.3%) 150,000 PHH Corporation 7.125% 03/01/13 150,747 --------------- CONSUMER STAPLES (1.4%) Beverage (.2%) 100,000 Diageo Capital PLC(c) 3.500% 11/19/07 101,098 --------------- Food (.8%) 250,000 ConAgra Foods, Inc.(d) 2.120% 09/10/03 250,269 100,000 Unilever Capital Corporation 5.900% 11/15/32 103,012 --------------- 353,281 ---------------

See accompanying notes to investments in securities. 66

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- CONSUMER STAPLES--CONTINUED Retail (.4%) 200,000 American Stores Company 7.200% 06/09/03 $ 201,797 --------------- ENERGY (.5%) Oil (.5%) 250,000 Conoco, Inc.(d) 2.226% 04/15/03 250,061 --------------- FINANCIAL (10.2%) Asset-Backed Securities (1.3%) $ 250,000 Fortress CBO Investments I, Ltd. 144A Issue(c)(e) 7.850% 07/25/38 279,868 250,000 Lehman ABS Manufactured Housing Contract 5.873% 05/15/22 255,011 99,627 Mid-State Trust 7.340% 07/01/35 108,157 --------------- 643,036 --------------- Auto Finance (.2%) 100,000 General Motors Acceptance Corporation 6.125% 08/28/07 102,551 --------------- Banks (.4%) 200,000 St. George Funding Company LLC 144A Issue(c)(d)(e) 8.485% 12/29/49 210,108 --------------- Collateralized Mortgage Obligations/Mortgage Revenue Bonds (2.0%) 29,102 Banco Hipotecario Nacional 144A Issue(c)(e)(h) 7.916% 07/25/09 9,313 309,357 Banco Hipotecario Nacional 144A Issue(c)(e)(h) 8.000% 03/31/11 83,526 386,220 Bear Stearns Mortgage Securities, Inc. 8.000% 11/25/29 404,689 224,284 Chase Mortgage Finance Corporation 144A Issue(d)(f) 6.634% 03/28/25 230,454 52,265 Paine Webber Mortgage Acceptance Corporation 7.000% 10/25/23 52,204 68,220 Prudential Home Mortgage Securities 144A Issue(d)(f) 6.613% 04/28/24 69,297 109,747 Residential Funding Mortgage Securities 7.000% 10/25/23 113,104 --------------- 962,587 --------------- Commercial Mortgage-Backed Securities (.6%) -- Asset Securitization Corporation(d)(g) 9.150% 08/13/29 279,288 ---------------

See accompanying notes to investments in securities. 67

MARKET PRINCIPAL COUPON MATURITY VALUE(a) - --------- ------ -------- -------- FINANCIAL--CONTINUED Insurance (1.8%) $ 200,000 ASIF Global Financing 144A Issue(f) 3.850% 11/26/07 $ 203,492 400,000 Prudential Funding LLC 144A Issue(f) 6.600% 05/15/08 444,711 200,000 Stancorp Financial Group, Inc. 6.875% 10/01/12 211,121 --------------- 859,324 --------------- Investment Bankers/Brokers (1.0%) 200,000 Goldman Sachs Group, Inc. 6.125% 02/15/33 200,664 250,000 Morgan Stanley 6.750% 04/15/11 279,804 --------------- 480,468 --------------- Non-Agency Commercial Mortgage-Backed Securities (1.2%) 500,000 Park Avenue Finance Corporation 144A Issue(f) 7.680% 05/12/12 575,050 --------------- Real Estate Investment Trust (1.7%) 250,000 Prologis 6.700% 04/15/04 261,224 200,000 Reckson Operating Partnership LP 7.400% 03/15/04 208,321 350,000 Vornado Realty Trust 5.625% 06/15/07 360,794 --------------- 830,339 --------------- TECHNOLOGY (.4%) Computer Hardware (.4%) 200,000 International Business Machines Corporation 5.875% 11/29/32 204,384 --------------- UTILITIES (.5%) Electric Companies (.5%) 200,000 Hydro-Quebec(c) 8.000% 02/01/13 256,873 --------------- Total corporate obligations (cost: $7,943,043) 8,267,091 --------------- Total long-term debt securities (cost: $16,209,850) 16,839,188 ---------------

SHARES - ------ SHORT-TERM SECURITIES (1.2%) 293 Federated Prime Obligations Fund, current rate 1.270% 293 375,544 One Group Institutional Prime Money Market, current rate 1.290% 375,544 185,921 Wells Fargo & Company, current rate 1.431% 185,921 --------------- Total short-term securities (cost: $561,758) 561,758 --------------- Total investments in securities (cost: $47,442,608)(i) $ 47,741,715 ===============

See accompanying notes to investments in securities. 68 NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 4.9% of net assets in foreign securities at March 31, 2003. (d) Variable rate security (e) Represents ownership in an illiquid security. (See note 9 to the financial statements.) Information concerning the illiquid securities held at March 31, 2003, which includes acquisition date and cost, is as follows:

ACQUISITION SECURITY: DATE COST --------- ----------- ---------- Banco Hipotecario Nacional 144A Issue* 04/01/99 28,186 Banco Hipotecario Nacional 144A Issue* 03/07/00 295,623 Fortress CBO Investments I, Limited 144A Issue* 01/16/01 247,534 St. George Funding Company LLC 144A Issue* 06/12/97 200,068 ---------- $ 771,411 ==========

* A 144A Issue represents a security which has not been registered with the Securities and Exchange Commission under the Securities Act of 1933. (f) Long-term debt security sold within terms of a private placement memorandum exempt from registration under Section 144A of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors". These securities have been determined to be liquid under guidelines established by the Board of Directors. (g) Interest-only security that entitles holders to receive only interest on the underlying mortgages. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The yield to maturity of an interest-only security is sensitive to the rate of principle payments on the underlying mortgage assets. The rate disclosed represents the market yield based upon the current cost basis and estimate timing and amount of future cash flows. (h) Security is in default with respect to interest payments. Income is not being accrued on this security and any payments received are treated as a reduction of principal. This security is being fair-valued according to procedures approved by the board of directors. (i) At March 31, 2003 the cost of securities for federal income tax purposes was $49,565,967. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 870,216 Gross unrealized depreciation (2,694,468) ------------- Net unrealized depreciation $ (1,824,252) ============= See accompanying notes to financial statements. 69 ADVANTUS FIXED INCOME AND BLENDED FUNDS Statements of Assets and Liabilities MARCH 31, 2003 (UNAUDITED)

INTERNATIONAL MONEY MORTGAGE BOND BALANCED MARKET SECURITIES SPECTRUM FUND FUND FUND FUND FUND ------------- ------------- ------------- ------------- ------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 24,907,841 $ 38,853,602 $ 39,322,875 $ 140,187,742 $ 47,741,715 Cash in bank on demand deposit 57,592 1,071,975 - 89,110 1,193 Receivable for Fund shares sold 114,101 4,251 158,283 1,129,619 7,055 Receivable for investment securities sold (including paydowns) 754 - - 1,472,228 789,990 Dividends and accrued interest receivable 224,549 484,136 89,013 796,986 186,700 Receivable for refundable foreign income taxes withheld - 20,127 - - - Receivable from advisor 18,508 - 19,937 15,152 15,122 Collateral for securities loaned (note 6) 955,410 1,167,860 - - 4,601,379 ------------- ------------- ------------- ------------- ------------- Total Assets 26,278,755 41,601,951 39,590,108 143,690,837 53,343,154 ------------- ------------- ------------- ------------- ------------- LIABILITIES Payable for Fund shares repurchased 41,225 15,914 139,383 524,524 112,770 Payable for investment securities purchased - - - 8,347,545 78,396 Dividends payable to shareholders 25,764 - 95 144,134 - Payable to Advisor 27,143 60,456 22,979 119,438 45,836 Accrued expenses 36,236 68,164 70,149 65,105 Other payables - - - 1,581 - Payable upon return of securities loaned (note 6) 955,410 1,167,860 - - 4,601,379 ------------- ------------- ------------- ------------- ------------- Total Liabilities 1,085,778 1,244,230 230,621 9,207,371 4,903,486 ------------- ------------- ------------- ------------- ------------- Net assets applicable to outstanding capital stock $ 25,192,977 $ 40,357,721 $ 39,359,487 $ 134,483,466 $ 48,439,668 ============= ============= ============= ============= ============= Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 23,666 $ 46,172 $ 393,595 $ 121,942 $ 44,455 Additional paid-in capital 25,081,801 48,657,382 38,965,892 131,075,648 64,000,527 Undistributed (distributions in excess of) net investment income (11,650) (365,174) - (6,642) (27,807) Accumulated net realized gain (losses) from investments and foreign currency transactions (733,014) (2,030,999) - 320,258 (15,876,614) Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies 832,174 (5,949,660) - 2,972,260 299,107 ------------- ------------- ------------- ------------- ------------- Total - representing net assets applicable to outstanding capital stock $ 25,192,977 $ 40,357,721 $ 39,359,487 $ 134,483,466 $ 48,439,668 ============= ============= ============= ============= ============= Net assets applicable to outstanding Class A shares $ 18,144,909 $ 37,018,518 $ 39,359,487 $ 84,127,665 $ 36,107,837 ============= ============= ============= ============= ============= Net assets applicable to outstanding Class B shares $ 5,923,280 $ 2,606,222 - $ 36,658,931 $ 10,080,161 ============= ============= ============= ============= ============= Net assets applicable to outstanding Class C shares $ 1,124,788 $ 732,981 - $ 13,696,870 $ 2,251,670 ============= ============= ============= ============= ============= Shares outstanding and net asset value per share: Class A - Shares outstanding: 1,705,449; 4,135,973; 39,359,487; 7,631,898; 3,307,199 $ 10.64 $ 8.95 $ 1.00 $ 11.02 $ 10.92 ============= ============= ============= ============= ============= Class B - Shares outstanding: 555,354; 297,586; -- ; 3,320,018; 929,085 $ 10.67 $ 8.76 - $ 11.04 $ 10.85 ============= ============= ============= ============= ============= Class C - Shares outstanding: 105,818; 83,774; -- ; 1,242,287; 209,192 $ 10.63 $ 8.75 - $ 11.03 $ 10.76 ============= ============= ============= ============= ============= * Identified cost $ 24,075,667 $ 44,775,236 $ 39,322,875 $ 137,215,482 $ 47,442,608 + Including securities on loan of $ 941,194 $ 1,117,277 $ - $ - $ 4,453,817

See accompanying notes to financial statements. 70/71 ADVANTUS FIXED INCOME AND BLENDED FUNDS Statements of Operations PERIOD FROM OCTOBER 1, 2002 TO MARCH 31, 2003 (UNAUDITED)

INTERNATIONAL MONEY MORTGAGE BOND BALANCED MARKET SECURITIES SPECTRUM FUND FUND FUND FUND FUND ------------- ------------- ------------- ------------- ------------- Investment Income: Interest $ 705,816 $ 411,524 $ 308,725 $ 3,987,875 $ 486,649 Dividends (net of foreign withholding taxes of $25,000 for International Balanced Fund) - 178,541 - - 270,586 Income from securities lending activities 183 5,224 - - 172 Commission reimbursement income (note 8) - 1,026 - - - ------------- ------------- ------------- ------------- ------------- Total investment income 705,999 596,315 308,725 3,987,875 757,407 ------------- ------------- ------------- ------------- ------------- Expenses (note 4): Investment advisory fee 74,365 147,511 102,561 280,245 127,079 Rule 12b-1 fees - Class A 22,095 48,074 51,280 91,788 46,857 Rule 12b-1 fees - Class B 30,134 14,116 - 163,319 54,919 Rule 12b-1 fees - Class C 5,427 4,317 - 59,516 11,811 Administrative services fee 34,300 31,800 28,800 34,300 34,300 Transfer agent and shareholder service fee 39,973 37,946 77,470 125,159 84,915 Custodian fees 3,998 14,697 2,811 3,921 4,144 Audit and accounting services 15,847 37,749 11,900 17,476 16,287 Legal fees 4,821 3,785 4,370 7,222 4,792 Registration fees 22,811 15,750 12,266 31,238 20,667 Printing and shareholder reports 9,227 11,269 11,850 19,806 14,713 Director's fees 312 545 582 1,409 674 Insurance 1,196 1,279 1,284 1,594 1,373 Other 3,219 2,186 2,190 8,293 4,119 ------------- ------------- ------------- ------------- ------------- Total expenses 267,725 371,024 307,364 845,286 426,650 Less fees and expenses waived or absorbed by Advisor and Distributor Class A Rule 12b-1 fees - - (51,280) - - Other absorbed fees (100,199) (5,265) (83,806) (113,808) (80,536) ------------- ------------- ------------- ------------- ------------- Total net expenses 167,526 365,759 172,278 731,478 346,114 ------------- ------------- ------------- ------------- ------------- Investment income - net 538,473 230,556 136,447 3,256,397 411,293 Realized and unrealized gains (losses) on investments and foreign currencies: Net realized gains (losses) from: Investments (note 3) 378,086 (26,509) - 353,588 (1,048,531) Foreign currency transactions - 120,844 - - - Net change in unrealized appreciation or depreciation on: Investments (216,069) 747,529 - (963,803) 2,919,693 Translation of assets and liabilities in foreign currency - 1,861 - - - ------------- ------------- ------------- ------------- ------------- Net gains (losses) on iInvestments 162,017 843,725 - (610,215) 1,871,162 ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations $ 700,490 $ 1,074,281 $ 136,447 $ 2,646,182 $ 2,282,455 ============= ============= ============= ============= =============

See accompanying notes to financial statements. 72/73 ADVANTUS FIXED INCOME AND BLENDED FUNDS Statements of Changes in Net Assets PERIOD FROM OCTOBER 1, 2002 TO MARCH 31, 2003 AND YEAR ENDED SEPTEMBER 30, 2002 (UNAUDITED)

INTERNATIONAL BALANCED BOND FUND FUND ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Operations: Investment income - net $ 538,473 $ 1,130,165 $ 230,556 $ 797,017 Net realized gains (losses) on investments 378,086 293,831 94,335 (2,661,697) Net change in unrealized appreciation or depreciation of investments (216,069) 316,770 749,390 3,591 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 700,490 1,740,766 1,074,281 (1,861,089) ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (394,047) (807,857) - (13,409) Class B (112,162) (271,659) - - Class C (20,157) (44,247) - - Net realized gains on investments: Class A - - - (538,381) Class B - - - (46,854) Class C - - - (13,595) Tax return of capital: Class A - - - (58,591) Class B - - - - Class C - - - - ------------- ------------- ------------- ------------- Total distributions (526,366) (1,123,763) - (670,830) ------------- ------------- ------------- ------------- Capital share transactions (note 5): Proceeds from sales: Class A 1,755,421 8,060,173 8,068,134 9,885,446 Class B 936,812 1,095,698 118,695 231,246 Class C 226,427 377,877 825,274 103,193 Shares issued as a result of reinvested distributions: Class A 245,090 482,580 - 547,656 Class B 97,230 232,831 - 45,527 Class C 16,954 38,135 - 13,545 Payments for redemptions of shares: Class A (1,298,402) (7,411,405) (8,511,421) (11,684,865) Class B (1,456,310) (1,753,551) (384,761) (820,242) Class C (231,693) (361,952) (1,009,876) (222,867) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 291,529 760,386 (893,955) (1,901,361) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 465,653 1,377,389 180,326 (4,433,280) Net assets at beginning of year 24,727,324 23,349,935 40,177,395 44,610,675 ------------- ------------- ------------- ------------- Net assets at end of period* $ 25,192,977 $ 24,727,324 $ 40,357,721 $ 40,177,395 ============= ============= ============= ============= * including undistributed (distributions in excess of) net investment income $ (11,650) $ (23,757) $ (365,174) $ (595,730)

MONEY MARKET FUND ------------------------------ 2003 2002 ------------- ------------- Operations: Investment income - net $ 136,447 $ 516,889 Net realized gains (losses) on investments - - Net change in unrealized appreciation or depreciation of investments - - ------------- ------------- Net increase (decrease) in net assets resulting from operations 136,447 516,889 ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (136,447) (516,889) Class B - - Class C - - Net realized gains on investments: Class A - - Class B - - Class C - - Tax return of capital: Class A - - Class B - - Class C - - ------------- ------------- Total distributions (136,447) (516,889) ------------- ------------- Capital share transactions (note 5): Proceeds from sales: Class A 18,565,689 49,808,401 Class B - - Class C - - Shares issued as a result of reinvested distributions: Class A 134,864 514,260 Class B - - Class C - - Payments for redemptions of shares: Class A (21,268,888) (50,878,207) Class B - - Class C - - ------------- ------------- Increase (decrease) in net assets from capital share transactions (2,568,335) (555,546) ------------- ------------- Total increase (decrease) in net assets (2,568,335) (555,546) Net assets at beginning of year 41,927,822 42,483,368 ------------- ------------- Net assets at end of period* $ 39,359,487 $ 41,927,822 ============= ============= * including undistributed (distributions in excess of) net investment income $ - $ -

See accompanying notes to financial statements. 74/75

MORTGAGE SECURITIES FUND SPECTRUM FUND ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Operations: Investment income - net $ 3,256,397 $ 4,983,164 $ 411,293 $ 1,003,193 Net realized gains (losses) on investments 353,588 2,061,759 (1,048,531) 795,011 Net change in unrealized appreciation or depreciation of investments (963,803) (946,746) 2,919,693 (4,590,027) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 2,646,182 6,098,177 2,282,455 (2,791,823) ------------- ------------- ------------- ------------- Distributions to shareholders from: Investment income - net: Class A (2,054,844) (3,454,050) (364,715) (931,366) Class B (798,353) (1,427,914) (64,987) (193,939) Class C (291,311) (410,303) (14,568) (41,695) Net realized gains on investments: Class A - - - (61,065) Class B - - - (20,461) Class C - - - (4,456) Tax return of capital: Class A - (50,986) - - Class B - (21,078) - - Class C - (6,056) - - ------------- ------------- ------------- ------------- Total distributions (3,144,508) (5,370,387) (444,270) (1,252,982) ------------- ------------- ------------- ------------- Capital share transactions (note 5): Proceeds from sales: Class A 29,658,490 40,374,981 2,436,047 3,242,717 Class B 9,206,910 11,113,864 294,189 732,968 Class C 5,028,634 6,746,433 41,171 265,270 Shares issued as a result of reinvested distributions: Class A 1,460,751 2,487,059 339,285 915,287 Class B 642,503 1,191,985 61,581 203,782 Class C 236,129 352,089 12,929 42,941 Payments for redemptions of shares: Class A (14,079,010) (18,385,514) (4,982,142) (9,234,283) Class B (2,929,625) (3,844,743) (1,904,586) (4,082,012) Class C (1,928,998) (1,977,904) (267,783) (955,048) ------------- ------------- ------------- ------------- Increase (decrease) in net assets from capital share transactions 27,295,784 38,058,250 (3,969,309) (8,868,378) ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 26,797,458 38,786,040 (2,131,124) (12,913,183) Net assets at beginning of year 107,686,008 68,899,968 50,570,792 63,483,975 ------------- ------------- ------------- ------------- Net assets at end of period* $ 134,483,466 $ 107,686,008 $ 48,439,668 $ 50,570,792 ============= ============= ============= ============= * including undistributed (distributions in excess of) net investment income $ (6,642) $ (118,531) $ (27,807) $ 5,170

See accompanying notes to financial statements. 76/77 ADVANTUS FIXED INCOME AND BLENDED FUNDS NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (UNAUDITED) (1) ORGANIZATION The Advantus Bond Fund, Inc., the Advantus International Balanced Fund, Inc., the Advantus Money Market Fund, Inc., the Advantus Mortgage Securities Fund, Inc., and the Advantus Spectrum Fund, Inc. (the Funds) are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies. The Funds' prospectus provides a detailed description of each Fund's investment objective, policies and strategies. The Funds currently issue three classes of shares: Class A, Class B and Class C shares, except for the Money Market Fund which does not issue Class B or C shares. Class A shares are sold subject to a front-end sales charge except for the Money Market Fund which does not have any sales charges. Class B shares are sold subject to a contingent deferred sales charge payable upon redemption if redeemed within six years of purchase. Class C shares are sold without either a front-end sales charge or a contingent deferred sales charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both Class B and Class C shares automatically convert to Class A shares at net asset value after a specified holding period. Such holding periods decline as the amount of the purchase increases and range from 28 to 84 months after purchase for Class B shares and 40 to 96 months after purchase for Class C shares. All three classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of Rule 12b-1 fees charged differs between Class A, Class B and Class C shares. Income, expenses (other than Rule 12b-1 fees) and realized and unrealized gains or losses are allocated to each class of shares based upon their relative net assets. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Funds are summarized as follows: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, as of the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 78 INVESTMENTS IN SECURITIES Each Fund's net asset value is generally calculated as of the close of normal trading on the New York Stock Exchange (typically 3:00 p.m. Central Time). Investments in securities traded on a national exchange are valued at the last sales price on that exchange prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued on the basis of the last current bid price, by an independent pricing service or at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities. The pricing service may use models that price securities based on current yields and relative security characteristics, such as coupon rate, maturity date, issuer credit quality and prepayment speeds, as applicable. When market quotations are not readily available, securities are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Short-term securities are valued at market. For the Money Market Fund, pursuant to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all securities are valued at amortized cost which approximates market value, in order to maintain a constant net asset value of $1. However, there is no assurance that the Fund will maintain a $1 NAV. Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Dividend income is recognized on the ex-dividend date, or upon dividend notification for certain foreign securities. Interest income, including amortization of bond premium and discount computed on a level yield basis, is accrued daily. FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS Securities and other assets and liabilities denominated in foreign currencies are translated daily into U.S. dollars at the closing rate of exchange. Foreign currency amounts related to the purchase or sale of securities, income and expenses are translated at the exchange rate on the transaction date. The Funds do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gains or losses from investments. Net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books and the U.S. dollar 79 equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rate. The International Balanced Fund also may enter into forward foreign currency exchange contracts for operational purposes and to protect against adverse exchange rate fluctuations. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the International Balanced Fund and the resulting unrealized appreciation and depreciation are determined using foreign currency exchange rates from an independent pricing service. The International Balanced Fund is subject to the credit risk that the other party will not complete the obligations of the contract. FEDERAL TAXES Each Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision is required. Also, each Funds' policy is to make required minimum distributions prior to December 31, in order to avoid federal excise tax. For federal income tax purposes, the following Funds had capital loss carryovers and/or post October losses at September 30, 2002 which, if not offset by subsequent capital gains, will expire September 30, 2010. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gains until available capital loss carryovers have been offset or expire: Bond Fund $ 1,043,533 International Balanced Fund 2,064,851 Spectrum Fund 11,482,396 Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of temporary book-to-tax differences. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Funds. The Funds may elect to utilize equalization debits by which a portion of the costs of redemptions, which occurred during the year ended September 30, 2002, would reduce net realized gain for tax purposes. 80 DISTRIBUTIONS TO SHAREHOLDERS For the International Balanced Fund and the Spectrum Fund dividends from net investment income are declared and paid quarterly. Realized gains, if any, are paid annually. For the Bond Fund, Money Market Fund and Mortgage Securities Fund dividends from net investment income are declared daily and paid monthly in cash or reinvested in additional shares. Capital gains, if any, are paid annually. SECURITIES PURCHASED ON A WHEN-ISSUED BASIS Delivery and payment for securities which have been purchased by a Fund on a forward commitment or when-issued basis can take place a month or more after the transaction date. During this period, such securities are subject to market fluctuations. As of March 31, 2003, the Mortgage Securities Fund had entered into outstanding, when-issued or forward commitments of $2,836,797. The Fund has segregated assets with the custodian to cover such when-issued and forward commitments. (3) INVESTMENT SECURITY TRANSACTIONS For the six-month period ended March 31, 2003, the cost of purchases and proceeds from sales of investment securities aggregated $218,987,189 and $221,675,305, respectively for the Money Market Fund. For the other Funds, the cost of purchases and proceeds from sales of investment securities, other than temporary investments in short-term securities, for the six-month period ended March 31, 2003 were as follows:

FUND PURCHASES SALES - ---- ------------ ------------ Bond $ 16,364,546 $ 15,658,383 International Balanced 8,236,806 9,260,125 Mortgage Securities 65,384,691 69,547,460 Spectrum 23,704,408 26,634,960

(4) EXPENSES AND RELATED PARTY TRANSACTIONS The Funds have an investment advisory agreement with Advantus Capital Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of Securian Financial Group. Under the agreement, Advantus Capital manages the Funds' assets and provides research, statistical and advisory services and pays related office rental and executive expenses and salaries. Effective May 1, 2003, however, Spectrum Fund has entered into an interim investment advisory agreement with Waddell & Reed Ivy Investment Company ("WRIICO") pursuant to which WRIICO provides similar services to Spectrum Fund. 81 Each of the Funds pays Advantus Capital Management an annual fee, based on average net assets in the following amounts (except that, effective May 1, 2003, Spectrum Fund pays WRIICO the same amount it formerly paid to Advantus Capital):

FUND ANNUAL FEE - -------------------------------------------------------------------------------- Bond .60% of assets to $250 million; and .55% of assets exceeding $250 million to $500 million; and .50% of assets exceeding $500 million to $1 billion; and .45% of assets exceeding $1 billion International Balanced .70% of assets to $250 million; and .65% of assets exceeding $250 million to $500 million; and .60% of assets exceeding $500 million to $1 billion; and .55% of assets exceeding $1 billion Money Market .50% of assets to $500 million; and .45% of assets exceeding $500 million to $1 billion; and .425% of assets exceeding $1 billion to $2 billion; and .40% of assets exceeding $2 billion Mortgage Securities .475% of assets to $1 billion; and .46% of assets exceeding $1 billion to $2 billion; and .45% of assets exceeding $2 billion Spectrum .50% of assets to $1 billion; and .48% of assets exceeding $1 billion to $2 billion; and .46% of assets exceeding $2 billion.

Advantus Capital has a sub-advisory agreement with the following registered investment adviser. Under the sub-advisory agreement, Advantus Capital pays the sub-adviser an annual fee based on average daily net assets, in the following amounts:

FUND SUB-ADVISOR ANNUAL FEE - ---------------- -------------------- --------------------------------------- International Templeton .70% of assets to $25 million; and .55% Balanced Investment Counsel of assets exceeding $25 million to $50 million; and .50% of assets exceeding $50 million to $100 million; and .40% of assets exceeding $100 million

The Funds have adopted separate Plans of Distribution applicable to Class A, Class B and Class C shares, respectively, relating to the payment of certain expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as amended). The Funds pay fees to Securian Financial Services, Inc. (Securian), the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial Group, to be used to pay certain expenses incurred in the distribution, promotion and servicing of the Funds shares. The Class A Plan provides for a service fee up to .25 percent of average daily net assets of Class A shares. The Class B and Class C Plans provide for a fee up to 1.00 percent 82 of average daily net assets of Class B and Class C shares, respectively. The Class B and Class C 1.00 percent fee is comprised of a .75 percent distribution fee and a .25 percent service fee. Securian is currently waiving the entire 12b-1 fee for the Money Market Fund. Securian waived Class A 12b-1 fees in the amount of $51,280 for the Money Market Fund for the six-month period ended March 31, 2003. The Funds have engaged PFPC Global Fund Services to act as their transfer agent, dividend disbursing agent and redemption agent and bear the expenses of such services. The Funds also bear certain other operating expenses including outside directors' fees, custodian fees, registration fees, printing and shareholder reporting fees, outside legal, auditing and accounting services, and other miscellaneous expenses. The Funds have entered into a shareholder and administrative services agreement with Minnesota Life. Under this agreement, the Funds pay a shareholder services fee, equal to $7 per shareholder account annually, to Minnesota Life for shareholder services which Minnesota Life provides. The Funds also pay Minnesota Life an administrative services fee. From October 1992 through February 2003 the fee was equal to $6,200 per month for the Bond Fund, the Mortgage Securities Fund and the Spectrum Fund, $5,300 per month for International Balanced Fund, and $5,100 per month for Money Market Fund; thereafter the administrative services fees for the above funds is $3,300 per month for accounting, auditing, legal and other administrative services which Minnesota Life provides. VOLUNTARY FEE ABSORPTION Advantus Capital has voluntarily agreed to absorb all Fund costs and expenses that exceed 1.15% of Class A average daily net assets and 1.90% of Class B and C average daily net assets for the Bond Fund, all Fund costs and expenses that exceed 1.67% of Class A average daily net assets and 2.42% of Class B and C average daily net assets for the International Balanced Fund, all Fund costs and expenses that exceed .85% of Class A average daily net for the Money Market Fund, all Fund costs and expenses which exceed .975% (.95% prior to December 2, 2002) of Class A average daily net assets and 1.725% (1.70% prior to December 2, 2002) of Class B and C average daily net assets for the Mortgage Securities Fund and all Fund costs and expenses that exceed 1.32% (1.22% prior to February 1, 2003) of Class A average daily net assets and 2.07% (1.97% prior to February 1, 2003) of Class B and C average daily net assets for the Spectrum Fund. During the six-month period ended March 31, 2003, Advantus Capital voluntarily 83 agreed to absorb $100,199, $5,265, $83,806, $113,808 and $80,536, respectively, in expenses which were otherwise payable by the Funds. ACCOUNTING SERVICES The International Balanced Fund has an agreement with SEI Investments Mutual Funds Services (SEI) whereby SEI provides daily fund accounting services. Under this agreement, the annual fee for the Fund is equal to the greater of $45,000 or .06% of the first $150 million in net assets, .05% of net assets from $150 million to $850 million and .04% of net assets in excess of $1 billion. As of March 3, 2003 the Bond Fund, Money Market Fund, Mortgage Securities Fund and the Spectrum Fund have an agreement with State Street whereby State Street provides daily fund accounting services. For the six month period ended March 31, 2003, sales charges received by Securian for distributing the Funds' three classes of shares for Bond, International Balanced, Mortgage Securities and Spectrum are $28,628, $6,114, $421,873 and $20,419 respectively. As of March 31, 2003 the ownership of shares by Minnesota Life and subsidiaries and the directors and officers of the Funds as a whole was as follows:

PERCENTAGE NUMBER OF OWNED FUND SHARES OF CLASS - ---- --------- ---------- Bond Class A 341,589 20.5% International Balanced Class A 3,222,851 77.9% Money Market Class A 4,900,919 12.5% Mortgage Securities Class A 660,182 9.1% Spectrum Class A 1,930 .1%

Legal fees were paid to a law firm of which the Funds' secretary is a partner to the Bond Fund, International Balanced Fund, Money Market Fund, Mortgage Securities Fund and the Spectrum Fund in the amount of $3,325, $3,550, $3,325, $2,900, $3,325, respectively. 84 (5) CAPITAL SHARE TRANSACTIONS Transactions in shares for the six month period ended March 31, 2003 and the year ended September 30, 2002, were as follows:

BOND FUND --------------------------------------------------------------------------- CLASS A CLASS B CLASS C ----------------------- ----------------------- ----------------------- 2003 2002 2003 2002 2003 2002 ---------- ---------- ---------- ---------- ---------- ---------- Sold 166,961 793,620 88,756 106,141 21,458 36,666 Issued for reinvested distributions 23,220 47,082 9,193 22,664 1,608 3,726 Redeemed (123,177) (729,969) (138,041) (170,786) (22,026) (35,651) ---------- ---------- ---------- ---------- ---------- ---------- 67,004 110,733 (40,092) (41,981) 1,131 4,741 ========== ========== ========== ========== ========== ==========

INTERNATIONAL BALANCED FUND --------------------------------------------------------------------------- CLASS A CLASS B CLASS C ----------------------- ----------------------- ----------------------- 2003 2002 2003 2002 2003 2002 ---------- ---------- ---------- ---------- ---------- ---------- Sold 875,794 1,005,733 13,400 24,615 91,554 10,844 Issued for reinvested distributions - 57,082 - 4,795 - 1,426 Redeemed (925,769) (1,188,610) (42,972) (87,172) (111,947) (23,558) ---------- ---------- ---------- ---------- ---------- ---------- (49,975) (125,795) (29,572) (57,762) (20,393) (11,288) ========== ========== ========== ========== ========== ==========

MONEY MARKET FUND -------------------------- CLASS A -------------------------- 2003 2002 ----------- ----------- Sold 18,565,677 49,808,396 Issued for reinvested distributions 134,876 514,265 Redeemed (21,268,888) (50,878,207) ----------- ----------- (2,568,335) (555,546) =========== ===========

85

MORTGAGE SECURITIES FUND --------------------------------------------------------------------------- CLASS A CLASS B CLASS C ----------------------- ----------------------- ----------------------- 2003 2002 2003 2002 2003 2002 ---------- ---------- ---------- ---------- ---------- ---------- Sold 2,690,424 3,700,516 834,092 1,016,397 456,142 617,004 Issued for reinvested distributions 132,561 228,004 58,185 109,077 21,418 32,255 Redeemed (1,277,325) (1,707,279) (265,612) (360,354) (175,133) (183,912) ---------- ---------- ---------- ---------- ---------- ---------- 1,545,660 2,221,241 626,665 765,120 302,427 465,347 ========== ========== ========== ========== ========== ==========

SPECTRUM FUND --------------------------------------------------------------------------- CLASS A CLASS B CLASS C ----------------------- ----------------------- ----------------------- 2003 2002 2003 2002 2003 2002 ---------- ---------- ---------- ---------- ---------- ---------- Sold 222,918 270,707 26,776 61,696 3,7923 23,078 Issued for reinvested distributions 30,769 77,674 5,621 17,367 1,189 3,684 Redeemed (455,520) (775,059) (174,792) (344,138) (24,894) (81,875) ---------- ---------- ---------- ---------- ---------- ---------- (201,833) (426,678) (142,395) (265,075) (19,912) (55,113) ========== ========== ========== ========== ========== ==========

(6) SECURITIES LENDING CONTRACTS To enhance returns, the Funds loan securities to brokers in exchange for collateral. The Funds receive a fee from the brokers measured as a percent of the loaned securities. At March 31, 2003, the collateral is invested in cash equivalents and repurchase agreements and must be 102% of the value of securities loaned. The risk to the Funds is that the borrower may not provide additional collateral when required or return the securities when due. At March 31, 2003, Bond, International Balanced and Spectrum had securities valued at $941,199, $1,117,277 and $4,467,358 that were on loan to brokers and the Funds had $955,410, $1,167,860 and $4,601,379 in cash collateral, respectively. (7) ILLIQUID SECURITIES The Funds' investments in illiquid securities are limited to 10% of net assets at the time of purchase. At March 31, 2003 investments in securities of the Bond Fund, the Mortgage Securities Fund and the Spectrum Fund include issues that are illiquid. The aggregate value of illiquid securities held by the Funds were $517,430, $3,783,685 and $582,815, respectively, which represents 2.1%, 2.8% and 1.2% of net assets, respectively. Pursuant to guidelines adopted by the Funds' Board of Directors, certain unregistered 86 securities are determined to be liquid and are not included within the percent limitations specified above. (8) COMMISSION RECAPTURE The International Balanced Fund participates in commission recapture agreements with certain brokers whereby a portion of brokerage commissions on fund trades are refunded. The commission recapture is reported as commission reimbursement income on the statement of operations. For the six-month period ended March 31, 2003, the International Balanced Fund had participated in such agreements and recaptured $1,026 in brokerage commissions. 87 (9) FINANCIAL HIGHLIGHTS ADVANTUS BOND FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.57 $ 10.30 $ 9.60 $ 9.71 $ 10.69 $ 10.43 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .24 .52 .58 .58 .54 .59 Net gains (losses) on securities (both realized and unrealized) .06 .27 .70 (.11) (.79) .30 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .30 .79 1.28 .47 (.25) .89 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.23) (.52) (.58) (.58) (.54) (.60) Distributions from net realized gains - - - - (.19) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.23) (.52) (.58) (.58) (.73) (.63) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.64 $ 10.57 $ 10.30 $ 9.60 $ 9.71 $ 10.69 ============== ========== ========== ========== ========== ========== Total return(a) 2.91% 7.90% 13.68% 5.04% (2.36)% 8.75% Net assets, end of period (in thousands) $ 18,145 $ 17,313 $ 15,737 $ 15,002 $ 17,846 $ 19,419 Ratios to average net assets: Expenses 1.15%(b) 1.15% 1.15% 1.15% 1.15% 1.10% Net investment income 4.56%(b) 5.07% 5.77% 6.08% 5.41% 5.55% Expenses without waiver 1.95%(b) 1.92% 1.99% 1.84% 1.55% 1.58% Net investment income without waiver 3.75%(b) 4.30% 4.93% 5.39% 5.01% 5.07% Portfolio turnover rate (excluding short-term securities) 66.0% 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 88 ADVANTUS BOND FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.59 $ 10.33 $ 9.62 $ 9.74 $ 10.71 $ 10.43 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .20 .44 .50 .51 .47 .51 Net gains (losses) on securities (both realized and unrealized) .08 .26 .72 (.12) (.78) .31 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .28 .70 1.22 .39 (.31) .82 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.20) (.44) (.51) (.51) (.47) (.51) Distributions from net realized gains - - - - (.19) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.20) (.44) (.51) (.51) (.66) (.54) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.67 $ 10.59 $ 10.33 $ 9.62 $ 9.74 $ 10.71 ============== ========== ========== ========== ========== ========== Total return(a) 2.63% 6.99% 12.93% 4.16% (2.98)% 8.09% Net assets, end of period (in thousands) $ 5,923 $ 6,308 $ 6,582 $ 6,755 $ 8,171 $ 8,894 Ratios to average net assets: Expenses 1.90%(b) 1.90% 1.90% 1.90% 1.90% 1.90% Net investment income 3.81%(b) 4.32% 5.03% 5.33% 4.64% 4.78% Expenses without waiver 2.70%(b) 2.67% 2.74% 2.59% 2.28% 2.28% Net investment income without waiver 3.00%(b) 3.55% 4.19% 4.64% 4.26% 4.40% Portfolio turnover rate (excluding short-term securities) 66.0% 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 89 ADVANTUS BOND FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.56 $ 10.29 $ 9.59 $ 9.70 $ 10.68 $ 10.42 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .20 .44 .50 .51 .47 .51 Net gains (losses) on securities (both realized and unrealized) .06 .27 .70 (.11) (.79) .29 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .26 .71 1.20 .40 (.32) .80 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.19) (.44) (.50) (.51) (.47) (.51) Distributions from net realized gains - - - - (.19) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.19) (.44) (.50) (.51) (.66) (.54) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.63 $ 10.56 $ 10.29 $ 9.59 $ 9.70 $ 10.68 ============== ========== ========== ========== ========== ========== Total return(a) 2.54% 7.11% 12.84% 4.26% (3.10)% 7.89% Net assets, end of period (in thousands) $ 1,125 $ 1,106 $ 1,029 $ 1,112 $ 1,594 $ 2,089 Ratios to average net assets: Expenses 1.90%(b) 1.90% 1.90% 1.91% 1.90% 1.90% Net investment income 3.82%(b) 4.32% 5.03% 5.32% 4.64% 4.81% Expenses without waiver 2.70%(b) 2.67% 2.74% 2.59% 2.28% 2.28% Net investment income without waiver 3.01%(b) 3.55% 4.19% 4.68% 4.26% 4.43% Portfolio turnover rate (excluding short-term securities) 66.0% 148.3% 251.9% 191.4% 211.9% 237.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 90 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 8.72 $ 9.28 $ 11.59 $ 11.80 $ 10.56 $ 13.29 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .06 .18 .18 .23 .21 .28 Net gains (losses) on securities (both realized and unrealized) .17 (.59) (1.28) .50 1.52 (1.95) -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .23 (.41) (1.10) .73 1.73 (1.67) -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income - - (.11) (.36) (.11) (.14) Distributions from net realized gains - (.13) (1.10) (.58) (.38) (.92) Tax return of capital - (.02) - - - - -------------- ---------- ---------- ---------- ---------- ---------- Total distributions - (.15) (1.21) (.94) (.49) (1.06) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 8.95 $ 8.72 $ 9.28 $ 11.59 $ 11.80 $ 10.56 ============== ========== ========== ========== ========== ========== Total return(a) 2.64% (4.62)% (10.57)% 6.26% 16.65% (13.02)% Net assets, end of period (in thousands) $ 37,019 $ 36,488 $ 40,021 $ 47,693 $ 49,502 $ 46,025 Ratios to average net assets: Expenses 1.67%(b) 1.62% 1.62% 1.52% 1.63% 1.62% Net investment income 1.14%(b) 1.84% 1.60% 1.92% 1.77% 2.38% Expenses without waiver 1.70%(b) 1.72% 1.73% 1.65% 1.70% 1.91% Net investment income without waiver 1.11%(b) 1.74% 1.49% 1.79% 1.70% 2.09% Portfolio turnover rate (excluding short-term securities) 20.6% 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 91 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 8.55 $ 9.17 $ 11.49 $ 11.66 $ 10.47 $ 13.23 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .04 .10 .11 .11 .12 .19 Net gains (losses) on securities (both realized and unrealized) .17 (.59) (1.28) .51 1.51 (1.93) -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .21 (.49) (1.17) .62 1.63 (1.74) -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income - - (.05) (.21) (.06) (.10) Distributions from net realized gains - (.13) (1.10) (.58) (.38) (.92) Tax return of capital - - - - - - -------------- ---------- ---------- ---------- ---------- ---------- Total distributions - (.13) (1.15) (.79) (.44) (1.02) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 8.76 $ 8.55 $ 9.17 $ 11.49 $ 11.66 $ 10.47 ============== ========== ========== ========== ========== ========== Total return(a) 2.22% (5.52)% (11.29)% 5.32% 15.84% (13.63)% Net assets, end of period (in thousands) $ 2,606 $ 2,798 $ 3,530 $ 4,647 $ 5,293 $ 4,869 Ratios to average net assets: Expenses 2.42%(b) 2.42% 2.42% 2.32% 2.43% 2.29% Net investment income .69%(b) 1.04% .79% 1.12% .94% 1.77% Expenses without waiver 2.45%(b) 2.47% 2.48% 2.42% 2.43% 2.44% Net investment income without waiver .69%(b) .99% .74% 1.02% .94% 1.62% Portfolio turnover rate (excluding short-term securities) 20.6% 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 92 ADVANTUS INTERNATIONAL BALANCED FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 8.56 $ 9.18 $ 11.50 $ 11.66 $ 10.48 $ 13.24 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .03 .08 .11 .11 .10 .18 Net gains (losses) on securities (both realized and unrealized) .16 (.57) (1.28) .51 1.52 (1.92) -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .19 (.49) (1.17) .62 1.62 (1.74) -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income - - (.05) (.20) (.06) (.10) Distributions from net realized gains - (.13) (1.10) (.58) (.38) (.92) Tax return of capital - - - - - - -------------- ---------- ---------- ---------- ---------- ---------- Total distributions - (.13) (1.15) (.78) (.44) (1.02) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 8.75 $ 8.56 $ 9.18 $ 11.50 $ 11.66 $ 10.48 ============== ========== ========== ========== ========== ========== Total return(a) 2.22% (5.52)% (11.27)% 5.36% 15.71% (13.67)% Net assets, end of period (in thousands) $ 733 $ 892 $ 1,060 $ 1,728 $ 2,510 $ 3,074 Ratios to average net assets: Expenses 2.42%(b) 2.42% 2.42% 2.33% 2.44% 2.49% Net investment income .73%(b) 1.04% .78% 1.09% .94% 1.52% Expenses without waiver 2.45%(b) 2.47% 2.48% 2.43% 2.44% 2.64% Net investment income without waiver .73%(b) .99% .73% .99% .94% 1.37% Portfolio turnover rate (excluding short-term securities) 20.6% 47.8% 35.6% 44.2% 73.8% 57.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 93 ADVANTUS MONEY MARKET FUND

PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income -(c) .01 .04 .05 .04 .05 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations - .01 .04 .05 .04 .05 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income -(c) (.01) (.04) (.05) (.04) (.05) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions - (.01) (.04) (.05) (.04) (.05) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============== ========== ========== ========== ========== ========== Total return(a) .33% 1.27% 4.56% 5.33% 4.24% 4.78% Net assets, end of period (in thousands) $ 39,359 $ 41,928 $ 42,483 $ 42,188 $ 41,203 $ 60,901 Ratios to average net assets: Expenses .73%(b) .85% .85% .85% .85% .85% Net investment income .67%(b) 1.26% 4.45% 5.21% 4.17% 4.68% Expenses without waiver 1.14%(b) 1.56% 1.66% 1.78% 1.56% 1.41% Net investment income without waiver .26%(b) .55% 3.64% 4.28% 3.46% 4.12%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) Amount is less than $.01. 94 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 11.07 $ 10.99 $ 10.37 $ 10.30 $ 10.75 $ 10.54 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .33 .70 .73 .69 .69 .64 Net gains (losses) on securities (both realized and unrealized) (.07) .11 .65 .09 (.45) .25 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .26 .81 1.38 .78 .24 .89 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.31) (.72) (.72) (.70) (.68) (.65) Distributions from net realized gains - - - - - - Tax return of capital - (.01) (.04) (.01) (.01) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.31) (.73) (.76) (.71) (.69) (.68) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.02 $ 11.07 $ 10.99 $ 10.37 $ 10.30 $ 10.75 ============== ========== ========== ========== ========== ========== Total return(a) 2.25% 7.88% 13.90% 7.70% 2.26% 8.73% Net assets, end of period (in thousands) $ 84,128 $ 67,395 $ 42,458 $ 31,814 $ 33,617 $ 32,268 Ratios to average net assets: Expenses .95%(b) .95% .95% .95% .95% .95% Net investment income 5.79%(b) 6.24% 6.75% 6.81% 6.29% 6.02% Expenses without waiver 1.14%(b) 1.21% 1.31% 1.32% 1.21% 1.29% Net investment income without waiver 5.60%(b) 5.98% 6.39% 6.44% 6.03% 5.68% Portfolio turnover rate (excluding short-term securities) 36.1% 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 95 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 11.09 $ 11.01 $ 10.39 $ 10.33 $ 10.77 $ 10.56 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .29 .61 .65 .61 .61 .57 Net gains (losses) on securities (both realized and unrealized) (.07) .12 .65 .08 (.44) .24 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .22 .73 1.30 .69 .17 .81 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.27) (.64) (.64) (.62) (.60) (.57) Distributions from net realized gains - - - - - - Tax return of capital - (.01) (.04) (.01) (.01) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.27) (.65) (.68) (.63) (.61) (.60) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.04 $ 11.09 $ 11.01 $ 10.39 $ 10.33 $ 10.77 ============== ========== ========== ========== ========== ========== Total return(a) 1.88% 6.99% 13.05% 6.90% 1.51% 7.92% Net assets, end of period (in thousands) $ 36,659 $ 29,879 $ 21,227 $ 14,436 $ 14,057 $ 10,079 Ratios to average net assets: Expenses 1.70%(b) 1.70% 1.70% 1.70% 1.70% 1.70% Net investment income 5.02%(b) 5.49% 6.00% 6.06% 5.57% 5.33% Expenses without waiver 1.89%(b) 1.96% 2.06% 2.07% 1.94% 1.99% Net investment income without waiver 4.83%(b) 5.23% 5.64% 5.69% 5.33% 5.04% Portfolio turnover rate (excluding short-term securities) 36.1% 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 96 ADVANTUS MORTGAGE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 11.08 $ 10.99 $ 10.37 $ 10.31 $ 10.76 $ 10.55 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .29 .62 .66 .61 .61 .57 Net gains (losses) on securities (both realized and unrealized) (.07) .12 .64 .08 (.45) .24 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .22 .74 1.30 .69 .16 .81 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.27) (.64) (.64) (.62) (.60) (.57) Distributions from net realized gains - - - - - - Tax return of capital - (.01) (.04) (.01) (.01) (.03) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.27) (.65) (.68) (.63) (.61) (.60) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 11.03 $ 11.08 $ 10.99 $ 10.37 $ 10.31 $ 10.76 ============== ========== ========== ========== ========== ========== Total return(a) 1.97% 6.99% 13.05% 6.89% 1.50% 7.92% Net assets, end of period (in thousands) $ 13,697 $ 10,411 $ 5,216 $ 3,259 $ 5,126 $ 4,343 Ratios to average net assets: Expenses 1.70%(b) 1.70% 1.70% 1.70% 1.70% 1.70% Net investment income 5.05%(b) 5.49% 6.00% 6.06% 5.58% 5.40% Expenses without waiver 1.89%(b) 1.96% 2.06% 2.07% 1.94% 1.99% Net investment income without waiver 4.86%(b) 5.23% 5.64% 5.69% 5.34% 5.11% Portfolio turnover rate (excluding short-term securities) 36.1% 98.5% 55.2% 64.7% 127.1% 152.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 97 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.54 $ 11.45 $ 19.73 $ 17.88 $ 16.50 $ 16.40 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .10 .23 .22 .31 .31 .33 Net gains (losses) on securities (both realized and unrealized) .39 (.89) (6.08) 2.55 2.30 1.40 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .49 (.66) (5.86) 2.86 2.61 1.73 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.11) (.25) (.20) (.30) (.31) (.33) Distributions from net realized gains - - (2.22) (.71) (.92) (1.30) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.11) (.25) (2.42) (1.01) (1.23) (1.63) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.92 $ 10.54 $ 11.45 $ 19.73 $ 17.88 $ 16.50 ============== ========== ========== ========== ========== ========== Total return(a) 4.73% (5.91)% (32.35)% 16.22% 16.08% 11.31% Net assets, end of period (in thousands) $ 36,108 $ 36,974 $ 45,066 $ 77,964 $ 73,613 $ 68,157 Ratios to average net assets: Expenses 1.17%(b) 1.22% 1.12% 1.11% 1.10% 1.19% Net investment income 1.67%(b) 1.84% 1.57% 1.58% 1.77% 1.98% Expenses without waiver 1.49%(b) 1.52% 1.40% 1.20% 1.10% 1.19% Net investment income without waiver 1.35%(b) 1.54% 1.29% 1.49% 1.77% 1.98% Portfolio turnover rate (excluding short-term securities) 47.1% 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 98 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.47 $ 11.38 $ 19.61 $ 17.79 $ 16.43 $ 16.34 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .08 .12 .11 .17 .19 .22 Net gains (losses) on securities (both realized and unrealized) .37 (.87) (6.03) 2.53 2.28 1.39 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .45 (.75) (5.92) 2.70 2.47 1.61 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.07) (.16) (.09) (.17) (.19) (.22) Distributions from net realized gains - - (2.22) (.71) (.92) (1.30) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.07) (.16) (2.31) (.88) (1.11) (1.52) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.85 $ 10.47 $ 11.38 $ 19.61 $ 17.79 $ 16.43 ============== ========== ========== ========== ========== ========== Total return(a) 4.27% (6.56)% (32.82)% 15.51% 15.31% 10.55% Net assets, end of period (in thousands) $ 10,080 $ 11,216 $ 15,207 $ 26,838 $ 24,420 $ 17,751 Ratios to average net assets: Expenses 1.92%(b) 1.97% 1.87% 1.86% 1.82% 1.84% Net investment income 1.47%(b) 1.09% .82% .83% 1.06% 1.32% Expenses without waiver 2.24%(b) 2.27% 2.15% 1.95% 1.82% 1.84% Net investment income without waiver 1.15%(b) .79% .54% .72% 1.06% 1.32% Portfolio turnover rate (excluding short-term securities) 47.1% 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 99 ADVANTUS SPECTRUM FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2002 TO YEAR ENDED SEPTEMBER 30, MARCH 31, 2003 --------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, beginning of period $ 10.39 $ 11.29 $ 19.49 $ 17.69 $ 16.34 $ 16.27 -------------- ---------- ---------- ---------- ---------- ---------- Income from investment operations: Net investment income .08 .12 .11 .17 .19 .24 Net gains (losses) on securities (both realized and unrealized) .36 (.86) (6.00) 2.51 2.27 1.36 -------------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .44 (.74) (5.89) 2.68 2.46 1.60 -------------- ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income (.07) (.16) (.09) (.17) (.19) (.23) Distributions from net realized gains - - (2.22) (.71) (.92) (1.30) -------------- ---------- ---------- ---------- ---------- ---------- Total distributions (.07) (.16) (2.31) (.88) (1.11) (1.53) -------------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period $ 10.76 $ 10.39 $ 11.29 $ 19.49 $ 17.69 $ 16.34 ============== ========== ========== ========== ========== ========== Total return(a) 4.21% (6.54)% (32.87)% 15.38% 15.29% 10.57% Net assets, end of period (in thousands) $ 2,252 $ 2,381 $ 3,210 $ 5,928 $ 5,659 $ 4,062 Ratios to average net assets: Expenses 1.92%(b) 1.97% 1.87% 1.86% 1.82% 1.83% Net investment income 1.47%(b) 1.09% .82% .83% 1.07% 1.31% Expenses without waiver 2.24%(b) 2.27% 2.15% 1.95% 1.82% 1.83% Net investment income without waiver 1.15%(b) .79% .54% .72% 1.07% 1.31% Portfolio turnover rate (excluding short-term securities) 47.1% 129.0% 158.4% 132.0% 100.8% 139.8%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods of less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 100 ADVANTUS FUNDS Directors and Executive Officers Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). Effective May 1, 2003, however, Waddell & Reed Ivy Investment Company ("WRIICO") serves as investment adviser for Advantus Spectrum Fund. The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life, WRIICO or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of the Fund, and also serve in the same capacity for each of the other eleven Advantus Funds (the Advantus Funds are comprised of twelve registered investment companies, consisting of 29 portfolios). Only executive officers and other officers who perform policy-making functions with the Fund are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - ---------------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS William N. Westhoff Director since Retired since July 2002, prior thereto President, Treasurer and Age: 55 July 23, 1998 Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company since April 1998; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 INDEPENDENT DIRECTORS Ralph D. Ebbott Director since Retired, Vice President and Treasurer of Minnesota Mining and Age: 75 February 25, 1985 Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Research Inc. since 1997; member of the Age: 55 April 25, 2002 Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors

101 Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology at the University of Minnesota Age: 66 October 22, 1985 OTHER EXECUTIVE OFFICERS Dianne M. Orbison President since President and Treasurer, Advantus Capital Management, Inc.; Vice Age: 50 July 25, 2002 President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Frederick P. Feuerherm Vice President, and Vice President, Assistant Secretary and Director, Advantus Capital Age: 56 Treasurer since Management, Inc.; Vice President, Minnesota Life Insurance Company; July 13, 1993 Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company; Director of each of the Advantus Funds, prior to April 23, 2003 Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP February 25, 1985 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57 - ---------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Fund's Statement of Additional Information (SAI) includes additional information about Fund directors, and is available, without charge, upon request. You may request a copy of the current SAI by telephoning Advantus Shareholder Services, toll free, at (800) 665-6005. 102 SHAREHOLDER SERVICES The Advantus Family of Funds offers a variety of services that enhance your ability to manage your assets. Check each Fund's prospectus for the details of the services and any limitations that may apply. EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from one fund to any other Advantus Fund you own (for identical registrations within the same share class) at any time as your needs change. Exchanges are at the then current net asset value (exchanges from the Advantus Money Market Fund will incur the applicable sales charge, if not previously subjected to the charge). Shareholders may make twelve exchanges each calendar year without incurring a transaction charge. Thereafter, there will be a $7.50 transaction charge for each additional exchange within the calendar year. INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other distributions automatically reinvested with no sales charge, direct them from one Advantus Fund to any other you own within the Fund family or, if you desire, we'll pay you in cash. SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at specified intervals from your fund account subject to minimum guidelines. Depending upon the performance of the underlying investment options, the value may be worth more or less than the original amount invested when withdrawn. DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or systematic withdrawals directly into your checking or savings account instead of sending you a check. TELEPHONE EXCHANGE: You may move money from one Advantus account to any other Advantus account you own (with identical registrations within the same share class) just by calling our toll-free number. The Telephone Exchange privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Exchange may be changed (added/deleted) at any time by submitting a request in writing. SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly from one Advantus Fund to another Advantus Fund (with identical registrations within the same share class) to diversify your investment portfolio and take advantage of "dollar-cost averaging". AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your Minnesota Life insurance premiums from your Advantus Money Market account. REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse, children or single trust estates, and the Right of Accumulation make it possible for you to reduce the sales charge, if any. 103 AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an Advantus Fund account for as little as $500 when you agree to make investments of not less than $50 under the plan and lower your average share cost through "dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor does it prevent loss in declining markets.) The Automatic Investment Plan allows you to invest automatically monthly, semi-monthly or quarterly from your checking or savings account. IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your Traditional, Roth or Education Individual Retirement Account or other qualified plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase or Defined Benefit plans. TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The proceeds will be sent by check to the address of record for the account or wire transferred to your bank of record for the account. Wire transfers are for amounts over $500. The prevailing wire charge will be added to the withdrawal amount. The Telephone Redemption privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Redemption may be changed (added/deleted) at any time by submitting a request in writing. To have the redemption automatically deposited into your checking account, please send a voided check from your bank. Depending on the performance of the underlying investment options, the value may be worth more or less than the original amount invested upon redemption. Some limitations apply, please refer to the prospectus for details. ACCOUNT UPDATES: You'll receive written confirmation of every investment you initiate and quarterly statements to help you track all of your Advantus Fund investments and annual tax statements. Semi-annual and annual reports will provide you with portfolio information, fund performance data and the current investment outlook. TOLL-FREE SERVICE LINE: For your convenience in obtaining information and assistance directly from Advantus Shareholder Services, call 1-800-665-6005. Advantus Account Representatives are available Monday through Friday from 7:30 a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours, seven days a week. This system allows you to access current net asset values, account balances and recent account activity. INTERNET ADDRESS: www.AdvantusFunds.com HOW TO INVEST You can invest in one or more of the eleven Advantus Funds through a local Registered Representative of Securian Financial Services, Inc., distributor of the Funds. Contact your representative for information and a prospectus containing 104 more complete information including charges and expenses, for any of the Advantus Funds you are interested in. Read the prospectus carefully before investing. To find a Registered Representative near you, call the toll-free service line (1-800-665-6005) or visit www.AdvantusFunds.com. MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for qualified accounts and accounts covered by an automatic investment plan). Minimum subsequent investment is $50. THE FUND'S MANAGER Advantus Capital Management, Inc., investment adviser to each of the Funds except Advantus Horizon Fund, Advantus Cornerstone Fund and Advantus Spectrum Fund, selects and reviews the Fund's investments and provides executive and other personnel for the Fund's management. (For the Advantus International Balanced Fund, Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management, LLC, and State Street Research & Management Company, respectively, selects the Fund's investments.) Effective May 1, 2003, Waddell & Reed Ivy Investment Company serves as the interim investment advisor to Advantus Horizon Fund, Advantus Cornerstone Fund and the Advantus Spectrum Fund. Advantus Capital Management, Inc. manages nine mutual funds containing $1.4 billion in assets in addition to $11.8 billion in assets for other clients. Advantus Capital's seasoned portfolio managers average more than 15 years of investment experience. ADVANTUS FAMILY OF FUNDS Advantus Bond Fund Advantus Horizon Fund Advantus Spectrum Fund Advantus Enterprise Fund Advantus Cornerstone Fund Advantus Money Market Fund Advantus Mortgage Securities Fund Advantus International Balanced Fund Advantus Venture Fund Advantus Index 500 Fund Advantus Real Estate Securities Fund 105 (This page has been left blank intentionally.) (This page has been left blank intentionally.) (This page has been left blank intentionally.) THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT PROSPECTUS. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] Distributed by: SECURIAN FINANCIAL SERVICES, INC. Securities Dealer, Member NASD/SIPC. Registered Investment Advisor 400 Robert Street North, St. Paul, MN 55101-2098 1.888.237.1838 3010-2003-7367 SECURIAN FINANCIAL SERVICES, INC. PRESORTED STANDARD 400 ROBERT STREET NORTH U.S. POSTAGE PAID ST. PAUL, MN 55101-2098 ST. PAUL, MN PERMIT NO. 3547 CHANGE SERVICE REQUESTED F.59170 Rev.5-2003 EX-99.(17)(Y) 30 c78747exv99wx17yxyy.txt EX-(17)(Y)ADVANTUS EQUITY FUNDS AR - JULY 2002 Exhibit (17)(y) ADVANTUS EQUITY FUNDS [LOGO] ANNUAL REPORT TO SHAREHOLDERS DATED JULY 31, 2002 ADVANTUS CORNERSTONE FUND, INC. A LARGE COMPANY VALUE FUND ADVANTUS ENTERPRISE FUND, INC. A SMALL COMPANY GROWTH FUND ADVANTUS HORIZON FUND, INC. A LARGE COMPANY GROWTH FUND ADVANTUS INDEX 500 FUND, INC. A LARGE COMPANY INDEX FUND ADVANTUS REAL ESTATE SECURITIES FUND, INC. A REAL ESTATE - RELATED SECURITIES FUND ADVANTUS VENTURE FUND, INC. A SMALL COMPANY VALUE FUND CUT DOWN PAPERWORK, NOT TREES Advantus now offers e-delivery of prospectuses, annual and semi-annual reports. To find out more, call Advantus Shareholder Services at (800) 665-6005. ADVANTUS EQUITY FUNDS TABLE OF CONTENTS PERFORMANCE UPDATES Cornerstone Fund 3 Enterprise Fund 7 Horizon Fund 12 Index 500 Fund 18 Real Estate Securities Fund 22 Venture Fund 27 INVESTMENTS IN SECURITIES Cornerstone Fund 31 Enterprise Fund 37 Horizon Fund 42 Index 500 Fund 48 Real Estate Securities Fund 65 Venture Fund 68 FINANCIAL STATEMENTS Statements of Assets and Liabilities 76 Statements of Operations 80 Statements of Changes in Net Assets 84 Notes to Financial Statements 90 INDEPENDENT AUDITORS' REPORT 117 FEDERAL INCOME TAX INFORMATION 118 DIRECTORS AND EXECUTIVE OFFICERS 120 SHAREHOLDER SERVICES 122 LETTER FROM THE PRESIDENT [PHOTO OF DIANNE ORBISON] Dear Shareholders: It's been a very eventful year in the economy and the markets. We've seen a major rally in the bond market, and a major sell off in stocks. Negative events, questionable earnings reports, and unscrupulous corporate leadership is a lot of weight for the stock market to carry. Investors are still not confident that the market can bear the load, which contributed to the stock sell off during the first half of the year. A flight to quality is still underway, and this is not unusual when political, social, and economic events hold uncertainty. In the period ended July 31, 2002, strong fixed income performance (Lehman Aggregate Bond Index* at 7.84%) and very weak equity performance (S&P 500 Index** at -23.63) was recorded. The difference in returns between stocks and bonds, as measured by these two benchmark indices, was near record levels. We believe the capital markets will continue to be volatile and suggest that investors adjust their expectations for a time-specific market recovery. Current market conditions didn't happen overnight, and it has taken longer than expected for a sustainable recovery to surface. Although most segments of the stock market were down at the end of our reporting period, we believe valuations are fair and better than they have been in six months. The economy is growing, albeit slowly. We expect that U.S. growth, as measured by GDP, will be a respectable 2.5 percent in 2002. Monetary policy is still easy, and we expect no changes from the Federal Reserve in the near term. Inflation is running less than two percent annually with little, if any, increase expected. Also, the underlying strength of the U.S. economy remains solid. The weakness of the dollar, however, may benefit investors considering a greater allocation to international investments. Consider having a periodic conversation with your financial advisor about your goals, risk tolerance, and allocation strategy. You will notice that all Advantus equity funds are included in this report. The remaining Advantus Funds (fixed income and balanced) will be published in an annual report to be dated September 30, 2002. We have combined the reports for the funds into two mailings to achieve economies of scale in report preparation and mailing. We are also moving forward with plans to combine Advantus Funds prospectuses in the same way and for the same reasons. This is my first letter to you as President of the Advantus Funds. Bill Westhoff, former President and investment management veteran, retired in late July, 2002 after 31 years of service to shareholders. I look forward to communicating with 1 you on a regular basis and bringing you news of the economy, markets, and Advantus. Sincerely, /s/ Dianne Orbison Dianne Orbison President, Advantus Funds *The LEHMAN BROTHERS AGGREGATE BOND INDEX is a market-weighted index that covers the U.S. investment grade fixed rate bond market. The index includes government and corporate securities, agency mortgage pass-through securities and asset backed securities. **The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. 2 ADVANTUS CORNERSTONE FUND PERFORMANCE UPDATE MATTHEW NORRIS, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The Fund's performance for the 10 month* period ended July 31, 2002 for each class of shares offered is as follows: Class A -5.72 percent** Class B -6.40 percent** Class C -6.42 percent** These returns were ahead of the Fund's primary benchmark--the Russell 1000 Value Index***--which lost 7.23 percent. PERFORMANCE ANALYSIS The Fund's performance is dependent on individual stock selection. During the period, our analysis of companies helped the Fund avoid many of the high-profile disappointments in the market. For example, the Fund did not hold Tyco or Enron during this period, and a small investment in WorldCom was sold in 2001. Investing in sound companies at low stock prices generally rewards the buyer over time. A number of our individual holdings had notable performance for the period, such as Anthem (health insurance), 3M Company (industrial), Wachovia Corporation (banking) and Prologis (real estate). On a sector level, the Fund's low weightings in Telecommunications and Utilities helped performance, while our Technology weight was a negative. *Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current fiscal year covers a ten-month period. **Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ***The Russell 1000 Value Index contains those stocks from the Russell 1000 with low book to price ratio. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market 3 OUTLOOK It appears the domestic economy is slowly recovering in a choppy manner, and these fits and starts have been reflected in the volatility of the equity markets. While we believe the economy is sound and will ultimately return to traditional long-term growth rates, it is impossible to predict the strength or timing of such a recovery. Thus we continue to select investments one at a time with a bottom-up, individual company focus. This approach should lead to consistent performance over time. TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ---------- ----------- Exxon Mobil Corporation 99,006 $3,639,458 5.7% CitiGroup, Inc. 71,113 2,385,130 3.7% Wachovia Corporation 59,300 2,122,940 3.3% Bank of America Corporation 31,800 2,114,700 3.3% Wells Fargo & Company 34,300 1,744,498 2.7% Chevron Corporation 22,713 1,703,475 2.7% SBC Communications, Inc. 56,142 1,552,888 2.4% U.S. Bancorp 72,158 1,543,460 2.4% 3M Company 11,900 1,497,377 2.4% Brunswick Corporation 65,000 1,487,200 2.3% ----------- ----- $19,791,126 30.9% =========== =====

[CHART] Cash and Other Assets/Liabilities (1.0%) Transportation (1.9%) Utilities (3.2%) Capital Goods (5.4%) Health Care (5.5%) Basic Materials (5.8%) Communication Services (6.1%) Technology (7.4%) Consumer Cyclical (10.0%) Consumer Staples (10.4%) Energy (10.9%) Financial (32.4%) 4 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS CORNERSTONE FUND, RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Cornerstone Fund compared to the Russell 1000 Value Index, and the Consumer Price Index. The lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Cornerstone Fund (September 16, 1994 for Class A and Class B and March 1, 1995 for Class C) through July 31, 2002. CLASS A AND B SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -22.22% Five year -6.54% Since inception (9/16/94) 5.05% Class B: One year -22.47% Five year -6.52% Since inception (9/16/94) 4.97% [CHART]

(THOUSANDS) RUSSELL 1000 CLASS A CLASS B VALUE INDEX CPI 9/16/94 $10,000 $10,000 $10,000 $10,000 9/30/94 $ 9,325 $ 9,870 $ 9,743 $10,054 9/30/95 $11,598 $11,708 $12,441 $10,275 9/30/96 $14,441 $14,649 $14,673 $10,570 9/30/97 $19,980 $20,400 $20,880 $10,818 9/30/98 $16,694 $16,947 $21,629 $10,973 9/30/99 $18,384 $18,531 $25,678 $11,261 9/30/00 $18,605 $18,764 $27,965 $11,643 9/30/01 $15,634 $15,648 $25,474 $11,952 7/31/02 $14,709 $14,647 $23,632 $12,066

5 CLASS C SEC AVERAGE ANNUAL TOTAL RETURN: One year -18.36% Five year -6.23% Since inception (3/1/95) 5.08% [CHART]

(THOUSANDS) RUSSELL 1000 CLASS C VALUE INDEX CPI 3/1/95 $10,000 $10,000 $10,000 9/30/95 $12,013 $12,107 $10,146 9/30/96 $14,846 $14,280 $10,437 9/30/97 $20,354 $20,320 $10,682 9/30/98 $16,838 $21,049 $10,834 9/30/99 $18,411 $24,989 $11,119 9/30/00 $18,493 $27,214 $11,497 9/30/01 $15,427 $24,790 $11,801 7/31/02 $14,438 $22,998 $11,914

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 6 ADVANTUS ENTERPRISE FUND PERFORMANCE UPDATE ELIZABETH B. DATER AND SAMMY OH, PORTFOLIO MANAGERS CREDIT SUISSE ASSET MANAGEMENT, LLC PERFORMANCE The performance of the Advantus Enterprise Fund for the 10-month period* ended July 31, 2002, was as follows for the three classes of shares currently outstanding: Class A -10.56 percent** Class B -11.22 percent** Class C -11.21 percent** The Fund's benchmark, the Russell 2000 Growth Index*** returned -12.09 percent for the same period. PERFORMANCE ANALYSIS Despite an ongoing economic recovery, beginning late in 2001, the period was a very difficult one for the U.S. stock market. Any grounds for optimism regarding the economy were overwhelmed by ethical and accounting irregularities, combined with heightened geopolitical risks and a clouded profit outlook. The Fund was hurt by the market's sharp selloff and by weakness in certain areas, notably in technology. On a positive note, stocks that helped the Fund included its health-care-services holdings. We made few noteworthy changes to the Fund in terms of sector emphasis. We maintained an overweighting in health care, favoring the group's services names (e.g., hospital and managed-care companies). We also continued to hold a number of small- and mid-cap pharmaceutical stocks that we believe have compelling product platforms. *Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current fiscal year covers a ten-month period. **Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ***The Russell 2000 Growth Index contains those securities in the Russell 2000 Index with a greater-than-average growth orientation. The Russell 2000 Index is the 2000 smallest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3000 common stocks, which represents approximately 98 percent of the U.S. market. Investments in smaller company micro-cap stocks generally carry a higher level of volatility and risk over the short-term. 7 Within the technology segment, we maintained a modestly underweighted/neutral position. We had a bias toward software companies that we believe might benefit from an eventual rise in corporate technology budgets. While there appears to be little on the horizon in terms of dramatic product or service breakthroughs (akin to the Internet phenomenon of the late 1990s), we believe that as corporate profits eventually strengthen, systems upgrades will probably be ongoing events. The rest of the Fund remained invested in a variety of sectors, including retail, energy, financial services, and the consumer area, broadly defined. OUTLOOK Looking ahead, we see risks as well as grounds for optimism. Regarding the former, there is the possibility that a hoped-for revival in corporate capital investment could be delayed for quite a spell. We also have some concerns that, given the recent exposure of corporate excesses, Congress may enact regulations that investors might perceive as being burdensome to reputable companies. On the positive side, we do believe the economy should continue to recover, at a slow-to-moderate pace, as opposed to the first quarter's robust annualized growth rate. In such an environment, we believe that the growth profile of smaller-cap companies could appeal to investors, once general risk concerns begin to ease. And we note that, historically, small-cap growth stocks often outperformed the larger-cap segment during periods when the economy was rebounding from recession. Whether they can again remains to be seen, but we see no fundamental reasons that they should lag. Regardless, we believe that stock selection will remain critical and we will remain focused on those companies we deem to be innovative and well managed and whose shares appear reasonably valued given their longer-term business prospects. 8 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ----- --------- Entercom Communications Corporation 16,600 $ 718,780 2.6% Province Healthcare Company 35,350 678,720 2.4% Pogo Producing Company 21,000 651,000 2.4% Medicis Pharmaceutical Corporation 15,267 639,993 2.3% Coventry Health Care, Inc. 20,500 618,075 2.2% Mid Atlantic Medical Services, Inc. 18,800 612,128 2.2% Lifepoint Hospitals, Inc. 17,600 599,280 2.2% CACI International, Inc. 17,200 589,616 2.1% Education Management Corporation 13,800 550,758 2.0% Affymetrix, Inc. 30,100 537,285 1.9% ---------- ----- $6,195,635 22.3% ========== ====

[CHART] Cash and Other Assets/Liabilities (10.9%) Transportation (1.0%) Basic Materials (1.5%) Capital Goods (2.2%) Financial (7.6%) Energy (9.4%) Consumer Staples (11.9%) Technology (14.7%) Consumer Cyclical (16.0%) Health Care (24.8%) 9 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS ENTERPRISE FUND, RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Enterprise Fund compared to the Russell 2000 Growth Index and the Consumer Price Index. The lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Enterprise Fund (September 16, 1994 for Class A and Class B and March 1, 1995 for Class C) through July 31, 2002. CLASS A AND B SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -33.82% Five year -7.74% Since inception (9/16/94) .39% Class B: One year -34.08% Five year -7.79% Since inception (9/16/94) .22% [CHART]

(THOUSANDS) RUSSELL 2000 CLASS A CLASS B GROWTH INDEX CPI 9/16/94 $10,000 $10,000 $10,000 $10,000 9/30/94 $ 9,371 $ 9,910 $10,042 $10,054 9/30/95 $11,983 $12,107 $12,616 $10,275 9/30/96 $13,979 $14,173 $14,391 $10,584 9/30/97 $15,780 $16,000 $17,737 $10,818 9/30/98 $11,235 $11,315 $13,331 $10,973 9/30/99 $14,450 $14,477 $17,683 $11,261 9/30/00 $20,613 $20,687 $22,928 $11,643 9/30/01 $11,525 $11,462 $13,161 $11,952 7/31/02 $10,310 $10,177 $11,569 $12,066

10 CLASS C SEC AVERAGE ANNUAL TOTAL RETURN: Class C: One year -30.53% Five year -7.49% Since inception (3/1/95) -.33% [CHART]

(THOUSANDS) RUSSELL 2000 CLASS C GROWTH INDEX CPI 3/1/95 $10,000 $10,000 $10,000 9/30/95 $12,038 $12,563 $10,146 9/30/96 $13,913 $14,331 $10,450 9/30/97 $15,568 $17,662 $10,682 9/30/98 $10,992 $13,276 $10,834 9/30/99 $14,012 $17,610 $11,119 9/30/00 $19,821 $22,832 $11,497 9/30/01 $10,993 $13,106 $11,801 7/31/02 $ 9,760 $11,521 $11,914

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 11 ADVANTUS HORIZON FUND PERFORMANCE UPDATE THOMAS A. GUNDERSON, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE The Advantus Horizon Fund's performance for the 10-month period* ended July 31, 2002, for each class of shares offered was as follows: Class A - 11.08 percent** Class B - 11.71 percent** Class C - 11.71 percent** Over the past six months the Advantus Horizon Fund declined along with the overall market, yet was able to post performance well ahead of its index benchmark. For the ten-month period* the portfolio declined 11.08 percent compared to a 13.80 percent decline in the Russell 1000 Growth Index***, as measured by Class A shares,--exceeding the benchmark by 272 basis points. Wide spread turmoil in the stock market occurred over the past ten months as a result of an uncertain economic recovery, numerous accounting issues, and a sharp deterioration in the credibility of corporate America. The market traded broadly lower, with growth stocks declining more than value stocks. The Fund was able to exceed its performance benchmark by superior stock selection combined with underweights in the hardest hit areas of the market. The two largest sectors for the growth index posted sharp declines, with Health Care down 17 percent and information technology down 11 percent for the ten-month period. Fortunately, good stock selection allowed the Fund to post performance that exceeded the index in these important sectors. Health Care was broadly lower due to slowing earnings growth rates in pharmaceuticals, biotech products and medical devices. The only strong areas in Health Care were the hospitals and managed care companies. The Advantus stock selection process kept the Fund underweighted by 131 basis points in *Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current fiscal year covers a ten-month period. **Historical results are not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's Maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ***The Russell 1000 Growth Index contains those stocks from the Russell 1000 with greater than average growth orientation. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market. 12 pharmaceuticals and biotech, keeping it out of the hardest hit areas. Looking ahead, a strong demographic tail wind, combined with lower valuation levels, make the Health Care sector one of increasing interest in the Fund. As of July 31, 24 percent of the Fund was invested in Health Care related companies. A continued lack of revenue or earnings growth led Technology stocks lower during the period. Corporations are not spending much on Technology investments in today's uncertain environment. Many companies in this sector are in the process of being "right sized" to meet the likely demand going forward. As a result of the poor fundamentals, the Fund had about a 300 basis point underweight in the Technology sector for the period versus the Index. As of July 31, 24.60 percent of the Portfolio was invested in Technology stocks. While the current environment is tough, history indicates that as corporate earnings growth improves Technology spending will accelerate along with a general pick up in capital spending. The strongest sector was Consumer Staples, posting a slightly positive return. The market favored stable stocks that are showing growth along with high quality earnings. As a result, stocks like Anheuser-Busch and Sysco Foods did well for the Fund as they continued to post solid growth along with high quality earnings numbers. Overall, a disciplined stock selection approach and focus on sustainable growth allowed the Fund to select attractive companies for investment and, importantly, to avoid or minimize the worst hit portions of the market. The Fund avoided the Telecom Service and growth Utility stocks that were the hardest hit sectors of the market. Additionally, underweights in Technology and Health Care, along with timely sales of stocks allowed the Fund to avoid further substantial losses and significantly outperform its benchmarks. OUTLOOK This is a "show me" market. Investors want to see high quality earnings, earning growth, and results now, not some time in the future. The willingness to look ahead and invest on a hoped for improvement in fundamentals is quickly fading along with the confidence in the U.S stock market. We feel that it will take time for the stock market to earn back the credibility and trust that is needed to attract future investors into the stock market. We continue to invest in companies that we believe can show real and sustainable growth resulting from high returns on company investments, not from financial maneuvering that boost short-term earnings per share. The Fund is also taking a diversified approach to managing risk in this market. We have a little over 100 names in the Fund to mitigate the effect of the next potential accounting or other issue that may arise. In addition, we feel that the Fund is positioned to excel regardless of the timing or strength of the economic recovery as it remains diversified across the major economic sectors. The Fund does not have big sector over/under weight; rather we seek to enhance performance from superior stock selection based on our disciplined stock selection process. 13 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ----- --------- General Electric Company 58,328 $1,878,162 6.5% Pfizer, Inc. 56,050 1,813,217 6.3% Microsoft Corporation 24,759 1,187,194 4.1% Cisco Systems, Inc. 56,785 748,994 2.6% Johnson & Johnson 14,000 742,000 2.6% Wal-Mart Stores, Inc. 13,900 683,602 2.3% Wyeth 15,900 634,410 2.2% The Coca-Cola Company 12,600 629,244 2.2% American International Group 9,400 600,848 2.1% Freddie Mac 9,300 576,135 2.0% ---------- ----- $9,493,806 32.9% ========== =====

[CHART] Cash and Other Assets/Liabilities (3.6%) Communication Services (0.5%) Basic Materials (1.9%) Transportation (2.1%) Energy (3.0%) Capital Goods (7.9%) Financial (12.9%) Consumer Cyclical (13.5%) Consumer Staples (14.2%) Health Care (18.6%) Technology (21.8%) 14 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS HORIZON FUND, RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Horizon Fund compared to the Russell 1000 Growth Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on July 31, 1992 through July 31, 2002. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Horizon Fund (August 19, 1994 and March 1, 1995, respectively) through July 31, 2002. CLASS A [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: One year -31.53% Five year -6.37% Ten year 4.13%

RUSSELL 1000 CLASS A GROWTH INDEX CPI ------- ------------ --- 7/31/92 $9,447 $10,000 $10,000 9/30/92 $9,449 $10,000 $10,000 9/30/93 $10,277 $10,596 $10,269 9/30/94 $10,478 $11,841 $10,624 9/30/95 $13,073 $15,653 $10,858 9/30/96 $15,325 $19,002 $11,184 9/30/97 $19,150 $25,898 $11,432 9/30/98 $22,286 $28,773 $11,595 9/30/99 $27,799 $38,801 $11,899 9/30/00 $33,152 $47,887 $12,292 9/30/01 $16,755 $26,032 $12,629 7/31/02 $14,962 $22,251 $12,750

15 CLASS B [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: One year -31.74% Five year -6.30% Since inception (8/19/94) 3.93%

RUSSELL 1000 CLASS B GROWTH INDEX CPI ------- ------------ --- 8/19/94 $10,000 $10,000 $10,000 9/30/94 $9,629 $10,125 $10,067 9/30/95 $12,074 $13,386 $10,289 9/30/96 $14,221 $16,249 $10,598 9/30/97 $17,855 $22,146 $10,833 9/30/98 $20,757 $24,605 $10,987 9/30/99 $25,759 $33,181 $11,276 9/30/00 $30,517 $40,950 $11,659 9/30/01 $15,385 $22,261 $11,968 7/31/02 $13,584 $19,203 $12,082

CLASS C [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: One year -28.15% Five year -6.02% Since inception (3/1/95) 3.41%

RUSSELL 1000 CLASS C GROWTH INDEX CPI ------- ------------ --- 3/1/95 $10,000 $10,000 $10,000 9/30/95 $11,844 $12,331 $10,146 9/30/96 $12,668 $14,969 $10,450 9/30/97 $17,084 $20,402 $10,682 9/30/98 $19,863 $22,667 $10,834 9/30/99 $24,595 $30,567 $11,119 9/30/00 $28,945 $37,724 $11,497 9/30/01 $14,519 $20,508 $11,801 7/31/02 $12,820 $17,690 $11,914

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. 16 Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 17 ADVANTUS INDEX 500 FUND PERFORMANCE UPDATE JAMES SEIFERT, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE For the year ended July 31, 2002, the Advantus Index 500 Fund returned the following for each class of shares currently offered: Class A - 24.14 percent* Class B - 24.80 percent* Class C - 24.80 percent* The Fund's benchmark, the S&P 500 Index,** returned -23.63 percent for the same period. PERFORMANCE ANALYSIS Eight of the eleven sectors in the S&P 500 Index** posted negative returns for the period. Basic materials led the positive performing sectors with a 8.43 percent return while contributing only .21 percent to the Index return. Communication Services led the sectors that detracted from the index return with a -3.30 percent contribution and a -49.10 percent return. Surprisingly enough, more than half of the securities in the index (257) ended the period with positive returns. The top five positive contributing stocks included Procter & Gamble, Dell Computer Corporation, Bank of America Corporation, Wells Fargo & Company, Inc. and Minnesota Mining and Manufacturing Company. The five worst contributing stocks included AOL Time Warner, Inc., Tyco International, Ltd., SBC Communications, Inc., Bristol Myers Squibb and Verizon Communications. OUTLOOK The economy is growing, albeit slowly. We expect that U.S. growth, as measured by GDP, will be a respectable 2.5 percent both for the quarter and full year, 2002. Monetary policy is still easy, and we expect no changes in the near * Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. **The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. The Advantus Index 500 Fund is a mutual fund whose performance reflects the deduction of an investment advisory fee and other expenses. 18 term. Inflation is running less than two percent annually with little if any increase expected. Our economy relies on three sectors: business, federal and municipal government, and consumers. - - Businesses are still wary of capital spending, so they're holding on to their money, which doesn't help the overall economy. It seems unlikely that businesses will significantly increase capital spending soon. - - The war on terrorism will be long and expensive. We believe that federal tax stimulus packages are done. State and municipal governments are starting to run deficits, which may lead to tax increases. - - The American consumer has supported our sagging economy for nearly two years. Housing starts, auto sales and other goods are still relatively strong. We believe consumer spending will continue to shore up this economy, albeit at a slower rate. We believe the capital markets will continue to be volatile and investors may see lower rates of return across all asset classes. Diversification and discipline are mainstays for serious investors and of paramount importance to all investors, and the current investment environment drives that point home. We also strongly urge you to stay in the markets for the long term. Study after study shows that investors who consistently stay in the market are eventually rewarded for their discipline. Markets go up and markets go down; it's their nature. We feel that by focusing on your strategy and resolve, you're much more likely to reach your financial goals. 19 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ----- --------- General Electric Company 39,494 $1,271,707 3.8% Microsoft Corporation 21,522 1,031,980 3.1% Exxon Mobil Corporation 26,953 990,792 3.0% Wal-Mart Stores, Inc. 17,677 869,355 2.6% Pfizer, Inc. 24,818 802,862 2.4% CitiGroup, Inc. 20,455 686,061 2.0% American International Group 10,384 663,745 2.0% Johnson & Johnson 11,967 634,251 1.9% Intel Corporation 26,571 499,269 1.5% The Coca-Cola Company 9,871 492,958 1.5% ---------- ----- $7,942,980 23.8% ========== =====

[CHART] Cash and Other Assets/Liabilities (3.5%) Transportation (1.7%) Utilities (2.8%) Basic Materials (3.2%) Communication Services (3.9%) Energy (5.9%) Capital Goods (8.6%) Consumer Cyclical (10.2%) Consumer Staples (12.4%) Health Care (13.1%) Technology (14.2%) Financial (20.5%) 20 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS INDEX 500 FUND, S&P 500 INDEX AND CONSUMER PRICE INDEX On the following chart you can see how the total return for each of the three classes of shares of the Advantus Index 500 Fund compared to the S&P 500 Index and the Consumer Price Index. The lines represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Index 500 Fund (January 31, 1997) through July 31, 2002. [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -28.31% Five year -1.60% Since inception (1/31/97) 2.06% Class B: One year -28.56% Five year -1.63% Since inception (1/31/97) 1.99% Class C: One year -24.80% Five year -1.36% Since inception (1/31/97) 2.16%

CLASS A CLASS B CLASS C S&P 500 Index CPI ------- ------- ------- ------------- --- 1/31/97 $10,000 $10,000 $10,000 $10,000 $10,000 7/31/97 $11,464 $11,577 $12,043 $12,244 $10,075 7/31/98 $13,549 $13,701 $14,101 $14,607 $10,245 7/31/99 $16,141 $16,362 $16,644 $17,557 $10,458 7/31/00 $17,379 $17,584 $17,763 $19,129 $10,834 7/31/01 $14,751 $14,871 $14,940 $16,390 $11,129 7/31/02 $11,156 $11,146 $11,235 $12,517 $11,286

The preceding chart is useful because it provides you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 21 ADVANTUS REAL ESTATE SECURITIES FUND PERFORMANCE UPDATE JOSEPH BETLEJ, CFA, PORTFOLIO MANAGER ADVANTUS CAPITAL MANAGEMENT, INC. PERFORMANCE OVERVIEW For the year ended July 31, 2002, the Advantus Real Estate Securities Fund returned 12.31 percent* for Class A shares. For the same period, the Wilshire Associates Real Estate Securities Index (WARESI)** provided a total return of 8.92 percent. For the period from November 28, 2001, inception date of class B shares, to July 31, 2002, the Advantus Real Estate Securities Fund returned 11.56 percent* for Class B shares. PERFORMANCE ANALYSIS Real estate stocks were recognized within the turbulent stock market and economy as a defensive place to seek shelter. In these uncertain times, investors sought the stability provided by real assets, solid dividend yields, and cashflow visibility provided by long term leases which are typical of certain real estate companies. Last August, we began the year in a weakening economic environment, but were hopeful of a rebound beginning in 2002. Such hopes were dashed after the events of September 11, and the economy deteriorated further as both businesses and the consumer attempted to determine the effects of the terrorist acts. The consumer rebounded better than most had expected, but businesses felt the brunt of the softer economy, combined with their later deterioration of credibility due to many accounting scandals. During the last three months of the fiscal year 2002, we added to hotel, retail and homebuilding stocks in the Fund as we determined that the weakness generated by the economy and the events of September 11 were overdone in *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Wilshire Associates Real Estate Securities Index is a market capitalization-weighted index of equity securities whose primary business is equity ownership of commercial real estate (REITS). Investment risks associated with investing in the Real Estate Securities Fund, in addition to other risks, include rental fluctuation, depreciation, property tax value changes and differences in real estate market values. 22 the stock price. The Fed became more accommodating by lowering rates, easing the cost of credit for both consumers and businesses. The low valuations generated generous opportunities to build positions in quality companies in these groups. The strength of the consumer was evidenced by sales during the holiday season and new home orders, propelling retail and homebuilder stocks. While these cyclical stocks added strength to performance, we also became defensive, favoring stocks trading at high (but safe) dividend yields and those trading at large discounts to the underlying value of company assets. We also favored stocks that had solid growth prospects, regardless of the tone of the economy. Smaller capitalization real estate stocks also provided value relative to their big-cap counterparts. These strategies helped the Advantus Real Estate Securities Fund deliver strong performance due to superior stock selection. More important to our performance is the areas where we were underweight. We limited our exposure to apartment companies because we saw weakening property fundamentals with valuations of the stocks that did not leave room for mistakes. As investors began to understand the sensitivity of apartment stocks to a drop in job formation and rising homeownership rates, the apartment companies generated poor performance. Office companies also suffered from the weak job creation. Over the course of the year we have increased the underweight in these property types due to increased concessions in the office market and continued new development in the apartment group. OUTLOOK While the economy is beginning to find strength, we anticipate that it will stumble along for the near future. Confidence by corporate decision makers is at a low. Long term decisions about commitments to hiring people and leasing space are being postponed. Fortunately, most real estate companies have balance sheet quality that allows them to withstand the negative effects of job losses and the weak economy on their properties. However, we expect that the longer the duration of economic doldrums continues, the larger the impact on real estate companies. Therefore, we seek to avoid companies with large development pipelines, weak balance sheets, and those exposed to weak tenant credit. We seek companies trading at discounted valuations, solid dividends, and stable rent rolls, as each provides downside protection in weaker stock markets. Growth stories that are not as dependent on the strength in the macro economy still exist, and we will be exposed to these companies that can create value in their real estate through all parts of the cycle. We thank you for your confidence in the Advantus Real Estate Securities Team. 23 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ ---------- Prologis 80,962 $ 2,064,531 6.4% Equity Office Properties Trust 52,100 1,374,398 4.3% Simon Property Group, Inc. 28,900 1,040,111 3.2% Vornado Realty Trust 23,800 1,036,490 3.2% Starwood Hotels & Resorts Worldwide, Inc. 40,200 1,033,140 3.2% Apartment Investment & Management Company 22,920 1,030,483 3.2% P.S. Business Parks, Inc. 26,900 946,880 2.9% Carramerica Realty Corporation 31,700 871,750 2.7% Kimco Realty Corporation 26,350 846,889 2.6% Brookfield Properties Corporation 41,100 819,945 2.6% ----------- ---- $11,064,617 34.3% =========== ====

[CHART] Consumer Cyclical (5.1%) Real Estate (8.0%) Real Estate Investment Trust-Apartments (12.4%) Real Estate Investment Trust-Diversified (11.3%) Real Estate Investment Trust-Hotels (7.2%) Insurance (0.6%) Real Estate Investment Trust-Office Property (15.8%) Real Estate Investment Trust-Shopping Centers (24.0%) Real Estate Investment Trust-Warehouse/Industrial (12.1%) Cash and Other Assets/Liabilities (3.5%) 24 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND, WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX On the following two charts you can see how the total return for each of the two classes of shares of the Advantus Real Estate Securities Fund compared to the Wilshire Associates Real Estate Securities Index and the Consumer Price Index. The lines in the Class A and Class B graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class A and Class B shares of the Advantus Real Estate Securities Fund (February 25, 1999 and November 30, 2001, respectively) through July 31, 2002. CLASS A [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year 6.13% Since inception (2/25/99) 10.16%

WILSHIRE ASSOCIATES REAL CLASS A ESTATE SECURITIES INDEX CPI 2/25/1999 $10,000 $10,000 $10,000 7/31/1999 $9,904 $10,574 $10,121 7/31/2000 $11,379 $12,524 $10,486 7/31/2001 $12,393 $14,032 $10,771 7/31/2002 $13,942 $15,263 $10,923

25 CLASS B [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: Class B: Since inception (11/30/01) 6.56%

(Thousands) [CHART]

WILSHIRE ASSOCIATES REAL CLASS B ESTATE SECURITIES INDEX CPI 11/28/2001 $10,000 $10,000 $10,000 12/31/2001 $10,354 $10,290 $9,983 7/31/2002 $10,656 $10,892 $10,130

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 26 ADVANTUS VENTURE FUND PERFORMANCE UPDATE JOHN BURBANK, PORTFOLIO MANAGER STATE STREET RESEARCH AND MANAGEMENT COMPANY PERFORMANCE For the year ended July 31, 2002, the Advantus Venture Fund returned the following for each class of shares currently offered: Class A -13.27 percent* Class B -14.02 percent* Class C -13.96 percent* By comparison, the Fund's benchmark, the Russell 2000 Value Index** returned - -5.51 percent for the same period. PERFORMANCE ANALYSIS In the last year, an economic downturn, the September 11th terrorist attacks, and corporate reporting scandals have resulted in equity markets losing significant value as the DJIA fell 15.5 percent and the NASDAQ composite has fallen 34.5 percent during this time. Despite evidence of an economic recovery, equity markets continue to languish, as investor confidence remains low as investors continue to remain weary following the recent corporate scandals. During this time smaller- and mid-cap stocks have been favored over larger-cap stocks. The Russell 2000 Index has declined 18.0 percent, followed by the Russell 1000 Index (-22.9 percent). Additionally, Value disciplines have been favored over Growth; the Russell 1000 Value Index return has exceeded the Russell 1000 Growth Index return by 11.5 percent and the Russell 2000 Value Index has outperformed the Russell 2000 Growth Index return by 25.1 percent. In this environment, the Venture Fund's portfolio lagged the Russell 2000 Value Index. Index returns were driven by Financial Services, which constitutes about 30 percent of the index, as it was the only sector to post a positive return for the year. The portfolio's significant underweight in this sector, a result of our bottom up selection process, significantly hurt relative performance. While our exposure to insurers were additive, our lack of exposure REITs, S&L's, and banks was detrimental to return comparisons. Additionally, our overweight in *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. **The Russell 2000 Value Index contains those stocks from the Russell 2000 with low price to book ratios. The Russell 2000 are the 2,000 smallest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks which represents approximately 98 percent of the U.S. market. Investments in smaller company and micro-cap stocks generally carry a higher level of volatility and risk over the short-term. 27 Other Energy, one of the worst performing sectors in the index, negatively impacted portfolio performance. Stock performance results were mixed in this turbulent market environment as strong performance in Other Energy, Consumer Discretionary, Health Care, and Financial Services was offset by weaker performance within the Producer Durables and Technology sectors. Exposure to semiconductors, and semiconductor-related holdings, during this time was the primary driver of poor performance in these sectors. OUTLOOK State Street Research's top-down forecast is that U.S. economic growth will muddle along at a modestly below trend pace (trend defined as 3.0%) during the remainder of 2002 and into 2003. We expect the Federal Reserve will remain accommodative through 2003. Near term, the U.S. is likely to remain in a low-inflation, high-productivity environment. However, longer-term, inflation is expected to edge up, fueled by an accommodative Fed, re-regulation and trade protectionism, rising service sector costs, and a weaker dollar. That being said, top-down forecasts of the economy are not central to our investment process. Our approach is to seek superior investment returns through bottom-up fundamental stock research, by operating with a long-term outlook and a clear value orientation, and by taking a very patient and disciplined approach to buying and selling securities. We focus on stocks whose market capitalizations are in the range of the Russell 2000 Value Index and have quality franchises, inexpensive valuations, and multiple price appreciation drivers. We construct broadly diversified portfolios, but with significant positions in our favorite companies, and will sell when price targets are met, if companies are taken over, or if price appreciation drivers do not work. We have been looking to add in areas where valuations are low, such as energy, producer durables, telecom equipment, software, and mid-cycle recovery plays such as heavy machinery and related components. We have been looking to sell investments in insurance, defense, gaming, and lodging on strength. At the end of the fiscal year, we remain significantly less concentrated in Financial Services and Health Care than the Russell 2000 Value Index and are moderately underweighted in Consumer Staples and Utilities. Conversely, we remain heavily weighted in the Materials, Producer Durables, Transportation, and Energy sectors. Because of our value approach, the Fund has tended to have a modest cyclical bias, and our perception of individual stock values is leading us to add cyclical names and trim positions in defensive stocks in our trading. Consequently, we feel that the Fund is well positioned for the market to reflect increased confidence in an economic recovery. 28 TEN LARGEST STOCK HOLDINGS

MARKET %OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ------ ------------ --------- Mandalay Resort Group 46,000 $ 1,304,560 2.2% International Game Technology 21,900 1,275,675 2.2% Varian Semiconductor Equipment 46,300 1,216,764 2.1% Phelps Dodge Corporation 35,000 1,196,300 2.1% Wabtec Corporation 89,700 1,122,147 1.9% EGL, Inc. 88,300 1,034,876 1.8% Readers Digest Association 61,700 1,030,390 1.8% American Axle & Manufacturing Holdings 37,900 966,450 1.7% Agrium, Inc. 108,900 936,540 1.6% Methanex Corporation 113,800 910,400 1.6% ------- ----------- ---- $10,994,102 19.0% =========== ====

[CHART] Cash and Other Assets/Liabilities (2.3%) Utilities (0.4%) Health Care (2.6%) Consumer Staples (3.2%) Financial (4.5%) Transportation (7.0%) Energy (7.7%) Capital Goods (16.4%) Basic Materials (16.8%) Consumer Cyclical (17.9%) Technology (21.2%) 29 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS VENTURE FUND, RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX On the following chart you can see how the total return for each of the three classes of shares of the Advantus Venture Fund compared to the Russell 2000 Value Index and the Consumer Price Index. The lines represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Venture Fund (January 31, 1997) through July 31, 2002. [CHART]

SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -18.04% Five year 3.77% Since inception (1/31/97) 6.22% Class B: One year -18.32% Five year 3.72% Since inception (1/31/97) 6.13% Class C: One year -13.96% Five year 4.04% Since inception (1/31/97) 6.40%

(Thousands) [CHART]

RUSSELL 2000 CLASS A CLASS B CLASS C VALUE INDEX CPI 1/31/1997 $10,000 $10,000 $10,000 $10,000 $10,000 7/31/1997 $10,944 $11,033 $11,533 $11,790 $10,075 7/31/1998 $11,919 $11,965 $12,449 $12,503 $10,245 7/31/1999 $11,456 $11,474 $11,850 $12,487 $10,458 7/31/2000 $11,884 $11,916 $12,199 $13,090 $10,834 7/31/2001 $16,065 $16,153 $16,340 $16,198 $11,129 7/31/2002 $13,934 $13,867 $14,059 $15,306 $11,286

The preceding chart is useful because it provides you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the perfomance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 30 ADVANTUS CORNERSTONE FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ --------- COMMON STOCK (99.0%) BASIC MATERIALS (5.8%) Aluminum (.5%) 10,900 Alcoa, Inc. $ 294,845 ------------- Chemicals (4.7%) 15,900 Air Products and Chemicals, Inc. 703,575 18,600 Dow Chemical Company 536,982 23,200 EI Dupont De Nemours & Company 972,312 48,000 Lyondell Petrochemical Company 633,600 5,700 Rohm & Haas Company 213,750 ------------- 3,060,219 ------------- Paper and Forest (.6%) 7,900 Bowater, Inc. 360,161 ------------- CAPITAL GOODS (5.4%) Aerospace/Defense (1.2%) 4,600 General Dynamics Corporation 372,232 6,300 United Technologies Corporation 437,850 ------------- 810,082 ------------- Electrical Equipment (1.3%) 7,500 Emerson Electric Company 382,125 14,500 Honeywell International, Inc. 469,220 ------------- 851,345 ------------- Engineering/Construction (.3%) 4,800 Caterpillar, Inc. 214,560 ------------- Manufacturing (2.3%) 11,900 3M Company 1,497,377 ------------- Trucks and Parts (.3%) 8,900 Navistar International Corporation 229,531 ------------- COMMUNICATION SERVICES (6.1%) Telephone (6.1%) 33,900 Bellsouth Corporation 910,215 56,142 SBC Communications, Inc. 1,552,888 45,057 Verizon Communications 1,486,881 ------------- 3,949,984 -------------

See accompanying notes to investments in securities. 31

MARKET SHARES VALUE(a) - ------ --------- CONSUMER CYCLICAL (10.0%) Auto (2.1%) 5,000 Eaton Corporation $349,100 7,400 Lear Corporation (b) 318,940 11,800 Magna International, Inc. (c) 694,076 ------------- 1,362,116 ------------- Leisure (2.3%) 65,000 Brunswick Corporation 1,487,200 ------------- Lodging-- Hotel (1.0%) 52,200 Hilton Hotels 637,884 ------------- Publishing (1.0%) 4,500 Gannett Company, Inc. 323,595 8,200 Tribune Company 327,180 ------------- 650,775 ------------- Retail (.7%) 11,600 Michaels Stores, Inc. (b) 429,548 ------------- Service (1.4%) 8,000 Harrahs Entertainment, Inc. (b) 378,560 24,100 Interpublic Group Companies, Inc. 503,931 ------------- 882,491 ------------- Textiles (1.5%) 28,000 Jones Apparel Group, Inc. (b) 952,840 ------------- CONSUMER STAPLES (10.4%) Beverage (.6%) 7,300 The Coca-Cola Company 364,562 ------------- Broadcasting (.7%) 16,500 Clear Channel Communications, Inc. (b) 429,825 ------------- Entertainment (1.7%) 39,200 The Walt Disney Company 695,016 10,000 Viacom, Inc. (b) 389,200 ------------- 1,084,216 ------------- Food (1.1%) 19,800 Kraft Foods, Inc. 732,600 ------------- Household Products (2.0%) 14,600 Procter & Gamble Company 1,299,254 -------------

See accompanying notes to investments in securities. 32

MARKET SHARES VALUE(a) - ------ --------- CONSUMER STAPLES--CONTINUED Personal Care (1.1%) 14,800 Avon Products, Inc. $ 684,648 ------------- Restaurants (.9%) 10,200 Brinker International, Inc. (b) 332,520 11,400 McDonalds Corporation 282,150 ------------- 614,670 ------------- Retail (.5%) 11,100 CVS Corporation 317,460 ------------- Service (.8%) 13,600 Manpower, Inc. 512,176 ------------- Tobacco (1.0%) 14,800 Philip Morris Companies, Inc. 681,540 ------------- ENERGY (10.9%) Oil (8.8%) 22,713 Chevron Corporation 1,703,475 99,006 Exxon Mobil Corporation 3,639,458 7,800 Royal Dutch Petroleum Company (c) 356,460 ------------- 5,699,393 ------------- Oil & Gas (2.1%) 13,700 EOG Resources, Inc. 469,773 16,400 Nabors Industries, Ltd. (b)(c) 500,528 13,000 Noble Corporation (b) 421,200 ------------- 1,391,501 ------------- FINANCIAL (32.4%) Banks (16.1%) 31,800 Bank of America Corporation 2,114,700 15,200 Bank One Corporation 591,432 27,935 JP Morgan Chase and Company 697,257 12,000 National City BanCorporation 370,800 7,700 PNC Financial Services Group 324,555 72,158 U.S. Bancorp 1,543,460 59,300 Wachovia Corporation 2,122,940 34,300 Wells Fargo & Company 1,744,498 18,800 Zion BanCorporation 949,588 ------------- 10,459,230 -------------

See accompanying notes to investments in securities. 33

MARKET SHARES VALUE(a) - ------ --------- FINANCIAL--CONTINUED Consumer Finance (1.0%) 18,100 American Express Company $ 638,206 ------------- Finance-- Diversified (1.7%) 17,400 Federal Home Loan Mortgage Corpration 1,077,930 ------------- Insurance (5.3%) 27,300 Allstate Corporation 1,037,673 16,027 American International Group 1,024,446 5,500 Chubb Corporation 356,895 5,600 Hartford Financial Services Group, Inc. 283,360 6,200 Marsh and McLennan Companies, Inc. 296,980 15,600 MetLife, Inc. 439,764 ------------- 3,439,118 ------------- Investment Bankers/Brokers (5.6%) 71,113 CitiGroup, Inc. 2,385,130 9,000 Goldman Sachs Group, Inc. 658,350 14,840 Morgan Stanley 598,794 ------------- 3,642,274 ------------- Real Estate Investment Trust (1.8%) 16,400 Developers Diversified Realty Corporation 377,200 30,900 Prologis 787,950 ------------- 1,165,150 ------------- Savings and Loans (.9%) 18,200 Charter One Financial, Inc. 617,344 ------------- HEALTH CARE (5.5%) Drugs (2.8%) 5,100 Eli Lilly & Company 297,942 21,500 Pfizer, Inc. 695,525 20,200 Schering-Plough Corporation 515,100 7,700 Wyeth 307,230 ------------- 1,815,797 ------------- Hospital Management (.8%) 10,800 The HCA-- Healthcare Company 507,600 ------------- Medical Products/Supplies (1.0%) 22,000 Becton Dickinson and Company 639,320 ------------- Special Services (.9%) 8,300 Anthem, Inc. (b) 563,404 -------------

See accompanying notes to investments in securities. 34

MARKET SHARES VALUE(a) - ------ --------- TECHNOLOGY (7.4%) Communications Equipment (.4%) 24,700 Motorola, Inc. $ 286,520 ------------- Computer Hardware (2.7%) 19,200 International Business Machines Corporation 1,351,680 41,800 Symbol Technologies, Inc. 382,052 ------------- 1,733,732 ------------- Computer Services & Software (1.0%) 44,100 Oracle Systems 441,397 11,600 Peoplesoft, Inc. 208,568 ------------- 649,965 ------------- Electrical Semiconductor (1.8%) 84,300 LSI Logic Corporation (b) 657,540 6,450 Microchip Technology, Inc. (b) 142,029 16,200 Texas Instruments, Inc. 375,030 ------------- 1,174,599 ------------- Electronics-- Computer Distribution (1.1%) 14,300 WW Grainger, Inc. 701,272 ------------- Equipment Semiconductor (.4%) 17,300 Teradyne, Inc. (b) 259,500 ------------- TRANSPORTATION (1.9%) Airlines (.4%) 27,800 Northwest Airlines, Inc. (b) 257,984 ------------- Railroads (1.5%) 27,300 CSX Corporation 943,761 ------------- UTILITIES (3.2%) Electric Companies (3.2%) 8,900 American Electric Power Company, Inc. 292,899 10,400 Duke Energy Corporation 265,096 4,000 Entergy Corporation 162,120 15,300 Exelon Corporation 750,465 16,200 Nisource, Inc. 320,760 8,700 Public Service Enterprise Group, Inc. 300,586 ------------- 2,091,926 ------------- Total common stock (cost: $65,902,530) 64,147,435 -------------

See accompanying notes to investments in securities. 35

MARKET SHARES VALUE(a) - ------ --------- SHORT-TERM SECURITIES (2.3%) 1,452,238 Dreyfus Cash Management Plus Funds, current rate 1.820 % $ 1,452,238 2 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.760% 2 29,190 Wells Fargo & Company-- Cash Investment Fund, current rate 1.717% 29,190 ------------- Total short-term securities (cost: $1,481,430) 1,481,430 ------------- Total investments in securities (cost: $67,383,960) (d) $ 65,628,865 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 2.4% of net assets in foreign securities as of July 31, 2002. (d) At July 31, 2002 the cost of securities for federal income tax purposes was $68,680,771. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were:

Gross unrealized appreciation $ 3,736,343 Gross unrealized depreciation (6,788,249) ------------- Net unrealized depreciation $(3,051,906) =============

See accompanying notes to financial statements. 36 ADVANTUS ENTERPRISE FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ --------- COMMON STOCK (89.1%) BASIC MATERIALS (1.5%) Chemicals (1.5%) 2,100 Albemarle Corporation $62,076 10,500 Cambrex Corporation 402,150 ------------- 464,226 ------------- CAPITAL GOODS (2.2%) Containers-- Metal/Glass (.8%) 67,500 Crown Cork & Seal Company, Inc. (b) 232,875 ------------- Engineering/Construction (.9%) 16,300 Granite Construction, Inc. 294,541 ------------- Office Equipment (.5%) 15,400 Moore Corporation, Ltd. (b) (c) 159,698 ------------- CONSUMER CYCLICAL (16.0%) Auto (1.2%) 7,200 Borg-Warner Automotive, Inc. 386,496 ------------- Distribution Durables (.2%) 4,200 MSC Industrial Direct Company, Inc. (b) 67,721 ------------- Leisure (1.5%) 30,900 Six Flags, Inc. (b) 464,118 ------------- Publishing (1.2%) 9,900 Scholastic Corporation (b) 386,001 ------------- Retail (6.6%) 6,000 Barnes & Noble, Inc. (b) 129,240 12,800 Cost Plus, Inc. (b) 313,216 32,200 Gymboree Corporation (b) 434,700 16,050 Hot Topic, Inc. (b) 249,577 6,800 Pacific Sunwear of California, Inc. (b) 125,664 28,290 Valuevision Media, Inc. (b) 426,047 17,000 Yankee Candle Company (b) 372,810 ------------- 2,051,254 ------------- Service (2.9%) 42,700 Doubleclick, Inc. (b) 203,252 17,759 Getty Images, Inc. (b) 292,526 25,400 Penn National Gaming, Inc. (b) 396,240 ------------- 892,018 -------------

See accompanying notes to investments in securities. 37

MARKET SHARES VALUE(a) - ------ --------- CONSUMER CYCLICAL--CONTINUED Textiles (2.4%) 16,700 Linens n Things, Inc. (b) $ 406,645 26,700 Tommy Hilfiger Corporation (b) (c) 348,168 ------------- 754,813 ------------- CONSUMER STAPLES (11.9%) Broadcasting (5.7%) 26,300 Cumulus Media, Inc. (b) 350,842 32,300 Emmis Communications (b) 512,278 16,600 Entercom Communications Corporation (b) 718,780 21,200 Insight Communications (b) 192,072 ------------- 1,773,972 ------------- Food (2.4%) 17,400 Pathmark Stores, Inc. (b) 286,056 14,000 Performance Food Group Company (b) 462,280 ------------- 748,336 ------------- Food & Health (.7%) 15,400 Hain Celestial Group, Inc. (b) 229,306 ------------- Retail (1.3%) 32,200 CKE Restaurants, Inc. (b) 206,724 14,200 Duane Reade, Inc. (b) 210,160 ------------- 416,884 ------------- Service (1.8%) 13,800 Education Management Corporation (b) 550,758 ------------- ENERGY (9.4%) Oil (.7%) 41,500 Newpark Resources, Inc. (b) 203,350 ------------- Oil & Gas (8.7%) 19,600 FMC Technologies, Inc. (b) 362,600 12,400 Newfield Exploration Company (b) 391,096 21,000 Pogo Producing Company 651,000 24,700 Remington Oil & Gas Corporation (b) 385,320 15,500 Spinnaker Exploration Company (b) 436,170 13,989 Stone Energy Corporation (b) 475,346 ------------- 2,701,532 -------------

See accompanying notes to investments in securities. 38

MARKET SHARES VALUE(a) - ------ --------- FINANCIAL (7.6%) Banks (1.1%) 8,600 Westamerica BanCorporation $ 335,916 ------------- Finance-- Diversified (1.2%) 13,600 Raymond James Financial, Inc. 369,920 ------------- Insurance (3.3%) 18,300 HCC Insurance Holdings, Inc. 412,665 18,800 Mid Atlantic Medical Services, Inc. (b) 612,128 ------------- 1,024,793 ------------- Investment Bankers/Brokers (.9%) 6,100 Affiliated Managers Group (b) 288,042 ------------- Savings and Loans (1.1%) 15,000 IndyMac Bancorp, Inc. (b) 330,750 ------------- HEALTH CARE (24.8%) Biotechnology (3.0%) 30,100 Affymetrix, Inc. (b) 537,285 14,800 Lynx Therapeutics, Inc. (b) 14,652 11,800 Scios, Inc. (b) 370,048 ------------- 921,985 ------------- Drugs (4.9%) 12,600 Cubist Pharmaceuticals, Inc. (b) 113,652 16,200 K-V Pharmaceutical Company (b) 340,200 15,267 Medicis Pharmaceutical Corporation (b) 639,993 6,900 OSI Pharmaceuticals, Inc. (b) 206,724 31,200 Sepracor, Inc. (b) 210,600 ------------- 1,511,169 ------------- Hospital Management (5.7%) 20,400 Community Health Systems (b) 504,900 17,600 Lifepoint Hospitals, Inc. (b) 599,280 35,350 Province Healthcare Company (b) 678,720 ------------- 1,782,900 ------------- Managed Care (3.3%) 16,200 Advance Paradigm, Inc. (b) 363,204 18,700 Beverly Enterprises (b) 59,279 20,500 Coventry Health Care, Inc. (b) 618,075 ------------- 1,040,558 -------------

See accompanying notes to investments in securities. 39

MARKET SHARES VALUE(a) - ------ --------- HEALTH CARE--CONTINUED Medical Products/Supplies (1.9%) 16,400 Alliance Imaging, Inc. (b) $ 208,116 12,500 SonoSite, Inc. (b) 162,625 16,800 Therasense, Inc. (b) 235,032 ------------- 605,773 ------------- Special Services (6.0%) 16,700 Apria Healthcare Group, Inc. (b) 391,114 9,646 DaVita, Inc. (b) 227,646 16,200 Fisher Scientific International, Inc. (b) 441,450 9,600 Henry Schein, Inc. (b) 412,416 12,500 Renal Care Group, Inc. (b) 405,000 ------------- 1,877,626 ------------- TECHNOLOGY (14.7%) Communications Equipment (.3%) 89,100 Openwave Systems, Inc. (b) 89,100 ------------- Computer Networking (2.1%) 39,100 Adaptec, Inc. (b) 230,690 42,500 Legato Systems, Inc. (b) 114,750 40,250 Radiant Systems, Inc. (b) 313,950 ------------- 659,390 ------------- Computer Services & Software (7.0%) 30,600 Agile Software Corporation (b) 182,376 17,200 CACI International, Inc. (b) 589,616 24,600 Caminus Corporation (b) 50,430 71,400 Chordiant Software, Inc. (b) 57,120 34,500 Informatica Corporation (b) 240,120 63,242 Manugistics Group, Inc. (b) 254,233 36,300 MatrixOne, Inc. (b) 243,210 20,000 NetIQ Corporation (b) 396,200 12,500 Precise Software Solutions, Ltd. (b)(c) 157,000 ------------- 2,170,305 ------------- Data Processing (1.6%) 30,304 Documentum, Inc. (b) 490,828 ------------- Electrical Defense (1.0%) 40,300 Aeroflex, Inc. (b) 306,280 -------------

See accompanying notes to investments in securities. 40

MARKET SHARES VALUE(a) - ------ --------- TECHNOLOGY--CONTINUED Electrical Instruments (--) 51,700 APW, Ltd. (b) $ 517 ------------- Electrical Semiconductor (1.4%) 8,900 Anadigics, Inc. (b) 23,140 26,700 Cirrus Logic, Inc. (b) 158,598 9,600 Varian Semiconductor Equipment (b) 252,288 ------------- 434,026 ------------- Equipment Semiconductor (1.3%) 15,440 Brooks-PRI Automation, Inc. (b) 293,669 4,204 Cymer, Inc. (b) 117,670 ------------- 411,339 ------------- TRANSPORTATION (1.0%) Trucking (1.0%) 11,300 JB Hunt Transport Services, Inc. (b) 297,416 ------------- Total common stock (cost: $37,538,785) 27,726,532 ------------- SHORT-TERM SECURITIES (9.3%) 1,700,498 Wells Fargo & Company-- Cash Investment Fund I, current rate 1.717% $ 1,700,498 1,207,241 Wells Fargo & Company-- Treasury Plus Fund, current rate 1.631% $ 1,207,241 ------------- Total short-term securities (cost: $2,907,739) 2,907,739 ------------- Total investments in securities (cost: $40,446,524) (d) $30,634,271 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 2.1% of net assets in foreign securities as of July 31, 2002. (d) At July 31, 2002 the cost of securities for federal income tax purposes was $40,546,223. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were:

Gross unrealized appreciation $2,516,635 Gross unrealized depreciation (12,428,587) ------------- Net unrealized depreciation $(9,911,952) =============

See accompanying notes to financial statements. 41 ADVANTUS HORIZON FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (96.4%) BASIC MATERIALS (1.9%) Chemicals (1.9%) 4,200 Air Products and Chemicals, Inc. $ 185,850 8,900 Pharmacia Corporation 398,186 ---------- 584,036 CAPITAL GOODS (7.9%) Electrical Equipment (6.3%) 58,328 General Electric Company 1,878,162 ---------- Manufacturing (1.6%) 3,700 3M Company 465,571 ---------- COMMUNICATION SERVICES (.5%) Telecommunication (.5%) 5,074 Qualcomm, Inc. (b) 139,434 ---------- CONSUMER CYCLICAL (13.5%) Auto (1.5%) 2,900 Danaher Corporation 179,945 5,700 Harley-Davidson, Inc. 269,952 ---------- 449,897 ---------- Leisure (1.3%) 16,500 Brunswick Corporation 377,520 ---------- Lodging-- Hotel (1.0%) 24,500 Hilton Hotels 299,390 ---------- Retail (8.2%) 6,800 Bed Bath & Beyond, Inc. (b) 210,800 1,523 eBay, Inc. (b) 86,948 6,200 Family Dollar Stores 187,798 3,100 Fastenal Company 118,017 9,150 Home Depot, Inc. 282,552 6,800 Kohls Corporation (b) 448,800 7,800 Lowes Companies, Inc. 295,230 4,100 Michaels Stores, Inc. (b) 151,823 13,900 Wal-Mart Stores, Inc. 683,602 ---------- 2,465,570 ---------- Service (1.0%) 6,500 Harrahs Entertainment, Inc. (b) 307,580 ---------- Textiles (.5%) 4,400 Jones Apparel Group, Inc. (b) 149,732 ----------

See accompanying notes to investments in securities. 42

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES (14.2%) Beverage (4.1%) 1,800 Anheuser-Busch Companies, Inc. $ 93,078 11,710 Pepsico, Inc. 502,827 12,600 The Coca-Cola Company 629,244 ---------- 1,225,149 ---------- Broadcasting (.5%) 5,400 Clear Channel Communications, Inc. (b) 140,670 ---------- Entertainment (.6%) 4,300 Viacom, Inc. (b) 167,356 ---------- Food & Health (1.1%) 12,500 Sysco Corporation 325,625 ---------- Household Products (2.8%) 7,300 Colgate-Palmolive Company 374,855 5,400 Procter & Gamble Company 480,546 ---------- 855,401 ---------- Personal Care (.5%) 3,100 Avon Products, Inc. 143,406 ---------- Restaurants (.7%) 6,200 Brinker International, Inc. (b) 202,120 ---------- Retail (1.5%) 12,900 Walgreen Company 455,757 ---------- Service (1.5%) 7,800 Automatic Data Processing, Inc. 290,862 8,100 Concord EFS, Inc. (b) 157,950 ---------- 448,812 ---------- Tobacco (.9%) 5,800 Philip Morris Companies, Inc. 267,090 ---------- ENERGY (3.0%) Oil & Gas (3.0%) 5,600 Ensco International, Inc. 144,760 6,100 EOG Resources, Inc. 209,169 9,800 Nabors Industries, Ltd. (b)(c) 299,096 8,000 Noble Corporation (b) 259,200 ---------- 912,225 ----------

See accompanying notes to investments in securities. 43

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL (12.9%) Banks (3.6%) 4,500 Bank of America Corporation $ 299,250 3,700 Fifth Third BanCorporation 244,459 2,000 State Street Corporation 85,000 5,400 Wells Fargo & Company 274,644 3,700 Zion BanCorporation 186,887 ---------- 1,090,240 ---------- Consumer Finance (1.6%) 5,100 American Express Company 179,826 8,450 MBNA Corporation 163,845 1,400 SLM Corporation 127,400 ---------- 471,071 ---------- Finance-- Diversified (2.5%) 2,300 Fannie Mae 172,247 9,300 Freddie Mac 576,135 ---------- 748,382 ---------- Insurance (3.4%) 9,400 American International Group 600,848 7,300 Expeditor Washington International, Inc. 215,350 4,200 Marsh and McLennan Companies, Inc . 201,180 ---------- 1,017,378 ---------- Investment Bankers/Brokers (1.8%) 10,700 CitiGroup, Inc. 358,878 2,600 Goldman Sachs Group, Inc. 190,190 ---------- 549,068 ---------- HEALTH CARE (18.6%) Biotechnology (1.6%) 3,900 Amgen, Inc. (b) 177,996 4,400 Genentech, Inc. (b) 152,900 3,500 Idec Pharmaceuticals Corporation (b) 156,065 ---------- 486,961 ---------- Drugs (10.8%) 5,900 Eli Lilly & Company 344,678 5,800 Forest Laboratories, Inc. (b) 449,326 56,050 Pfizer, Inc. 1,813,217 15,900 Wyeth 634,410 ---------- 3,241,631 ----------

See accompanying notes to investments in securities. 44

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED Health Care-- Diversified (2.7%) 14,000 Johnson & Johnson $ 742,000 1,650 Tenet Healthcare Corporation (b) 78,623 ---------- 820,623 ---------- Hospital Management (.7%) 4,400 The HCA-- Healthcare Company 206,800 ---------- Managed Care (.7%) 2,400 Unitedhealth Group, Inc. 210,384 ---------- Medical Products/Supplies (2.1%) 5,600 Laboratory Corporation of America Holdings 192,080 11,600 Zimmer Holdings, Inc. (b) 431,868 ---------- 623,948 ---------- TECHNOLOGY (21.8%) Communications Equipment (.7%) 5,500 Brocade Communication Systems, Inc. (b) 103,125 9,100 Motorola, Inc. 105,560 ---------- 208,685 ---------- Computer Hardware (3.6%) 20,030 Dell Computer Corporation (b) 499,348 5,600 International Business Machines Corporation 394,240 20,300 Symbol Technologies, Inc. 185,542 ---------- 1,079,130 ---------- Computer Networking (3.5%) 1,126 Affiliated Computer Services, Inc. (b) 52,899 56,785 Cisco Systems, Inc. (b) 748,994 9,400 SEI Investments Company 247,314 ---------- 1,049,207 ---------- Computer Peripherals (.4%) 15,400 EMC Corporation (b) 115,500 ---------- Computer Services & Software (5.6%) 5,300 BEA Systems, Inc. (b) 29,415 2,385 Cadence Design Systems, Inc. (b) 29,693 946 Electronic Arts, Inc. (b) 56,930 24,759 Microsoft Corporation (b) 1,187,194 22,200 Oracle Systems (b) 222,200 5,200 Peoplesoft, Inc. 93,496 2,006 Sungard Data Systems, Inc. (b) 47,041 ---------- 1,665,969 ----------

See accompanying notes to investments in securities. 45

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Electrical Instruments (.1%) 2,142 Agilent Technologies, Inc. (b) $ 40,441 ---------- Electrical Semiconductor (4.5%) 3,400 Altera Corporation (b) 40,222 2,466 Analog Devices, Inc. (b) 59,431 13,252 Applied Materials, Inc. (b) 197,057 26,331 Intel Corporation 494,759 2,288 Linear Technology Corporation 61,959 10,441 LSI Logic Corporation (b) 81,440 2,298 Microchip Technology, Inc. (b) 50,602 1,381 Novellus Systems, Inc. (b) 37,273 2,018 RF Micro Devices, Inc. (b) 13,440 12,087 Texas Instruments, Inc. 279,814 2,279 Xilinx, Inc. (b) 43,734 ---------- 1,359,731 ---------- Electronics-- Computer Distribution (1.0%) 2,222 Maxim Integrated Products (b) 78,170 4,800 WW Grainger, Inc. 235,392 ---------- 313,562 ---------- Equipment Semiconductor (.4%) 1,335 KLA-Tencor Corporation (b) 52,586 4,298 Teradyne, Inc. (b) 64,470 ---------- 117,056 ---------- Service-- Data Processing (2.0%) 11,000 First Data Corporation 384,450 1,364 Intuit, Inc. (b) 59,989 6,500 Paychex, Inc. 171,015 ---------- 615,454 ---------- TRANSPORTATION (2.1%) Air Freight (1.5%) 7,400 CH Robinson Worldwide, Inc. 222,000 3,300 United Parcel Service, Inc. 215,622 ---------- 437,622 ---------- Railroads (.6%) 5,200 CSX Corporation 179,764 ---------- Total common stock (cost: $27,211,471) 28,909,110 ----------

See accompanying notes to investments in securities. 46

MARKET SHARES VALUE(a) - ------ -------- S&P DEPOSITORY RECEIPT (1.0%) 3,300 S & P Depository Receipt $ 301,950 ---------- Total S&P Depository Receipt (cost: $269,297) 301,950 ---------- SHORT-TERM SECURITIES (2.8%) 800,923 Dreyfus Funds-- Cash Management Plus Fund, current rate 1.820% 800,923 1,150 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.900% 1,150 49,222 Wells Fargo & Company-- Cash Investment Fund, current rate 1.698% 49,222 ---------- Total short-term securities (cost: $851,295) 851,295 ---------- Total investments in securities (cost: $28,332,063) (d) $30,062,355 ===========

Notes to Investments in Securities - ---------------------------------- (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 1.0% of net assets in foreign securities as of July 31, 2002. (d) At July 31, 2002, the cost of securities for federal income tax purposes was $31,134,263. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were:

Gross unrealized appreciation $ 3,472,046 Gross unrealized depreciation (4,543,954) ---------- Net unrealized depreciation $(1,071,908) ===========

See accompanying notes to financial statements. 47 ADVANTUS INDEX 500 FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (96.5%) BASIC MATERIALS (3.2%) Agriculture Products (.1%) 2,589 Archer-Daniels-Midland Company $ 30,291 ---------- Aluminum (.3%) 3,365 Alcoa, Inc. 91,023 ---------- Chemicals (1.5%) 877 Air Products and Chemicals, Inc. 38,807 3,607 Dow Chemical Company 104,134 3,947 E.I. du Pont de Nemours & Company 165,419 348 Eastman Chemical Company 15,423 556 Ecolab, Inc. 25,548 450 Engelhard Corporation 11,250 155 Great Lakes Chemical Corporation 3,895 380 Hercules, Inc. (b) 4,028 367 International Flavors and Fragrances, Inc. 11,227 5,139 Pharmacia Corporation 229,919 668 PPG Industries, Inc. 38,343 686 Praxair, Inc. 35,878 871 Rohm & Haas Company 32,662 340 Sigma-Aldrich Corporation 16,293 ---------- 732,826 ---------- Construction ( ) 445 Vulcan Materials, Inc. 17,996 ---------- Iron and Steel (.1%) 315 Allegheny Technologies, Inc. 3,015 293 Nucor Corporation 16,358 309 United States Steel Corporation 5,145 296 Worthington Industries, Inc. 5,195 ---------- 29,713 ---------- Mining (.2%) 532 Freeport-McMoran, Inc. (b) 8,124 1,582 Newmont Mining 38,601 340 Phelps Dodge Corporation 11,621 ---------- 58,346 ---------- Paper and Forest (1.0%) 232 Bemis Company, Inc. 11,150 256 Boise Cascade Corporation 7,421 895 Georgia-Pacific Corporation 19,600 1,960 International Paper Company 78,047 2,062 Kimberly-Clark Corporation 125,885 372 Louisiana-Pacific Corporation 2,946 777 MeadWestvaco Corporation 20,660

See accompanying notes to investments in securities. 48

MARKET SHARES VALUE(a) - ------ -------- BASIC MATERIALS--CONTINUED 670 Plum Creek Timber Company, Inc. $ 19,095 248 Temple Inland, Inc. 13,318 927 Weyerhaeuser Company 54,461 ---------- 352,583 ---------- CAPITAL GOODS (8.6%) Aerospace/Defense (1.7%) 871 General Dynamics Corporation 70,481 389 Goodrich Corporation 8,679 1,860 Lockheed Martin Corporation 119,245 467 Northrop Grumman Corporation 51,697 1,575 Raytheon Company 51,313 700 Rockwell Collins 17,990 701 Rockwell International Corporation 12,968 3,334 The Boeing Company 138,428 1,878 United Technologies Corporation 130,521 ---------- 601,322 ---------- Containers-Metal/Glass ( ) 250 Ball Corporation 10,755 ---------- Electrical Equipment (4.5%) 750 American Power Conversion Corporation (b) 8,212 418 Cooper Industries, Inc. 13,017 1,732 Emerson Electric Company 88,245 39,494 General Electric Company (e) 1,271,707 3,249 Honeywell International, Inc. 105,138 777 Molex, Inc. 22,673 3,270 Solectron Corporation (b) 13,080 603 Thermo Electron Corporation (b) 10,239 ---------- 1,532,311 ---------- Engineering/Construction (.2%) 1,349 Caterpillar, Inc. 60,300 ---------- Machinery (.3%) 904 Deere & Company 37,986 805 Dover Corporation 23,627 709 Ingersoll Rand Company 27,219 ---------- 88,832 ---------- Manufacturing (1.4%) 1,548 3M Company 194,785 481 Avery Dennison Corporation 29,923 1,187 Illinois Tool Works, Inc. 78,330 380 Johnson Controls, Inc. 30,788 200 Millipore Corporation 6,620 500 Parker Hannifin Corporation 20,130

See accompanying notes to investments in securities. 49

MARKET SHARES VALUE(a) - ------ -------- CAPITAL GOODS--CONTINUED 371 Sealed Air Corporation (b) $ 5,383 555 Textron, Inc. 21,867 7,935 Tyco International, Ltd. (c) 101,568 ---------- 489,394 ---------- Office Equipment (.2%) 568 Lexmark International Group, Inc. (b) 27,764 929 Pitney Bowes, Inc. 36,231 ---------- 63,995 ---------- Trucks and Parts (.1%) 175 Cummins Engine Company, Inc. 5,652 255 Navistar International Corporation 6,576 422 Paccar, Inc. 16,184 ---------- 28,412 ---------- Waste Management (.2%) 756 Allied Waste Industries (b) 4,990 2,456 Waste Management, Inc. 58,134 ---------- 63,124 ---------- COMMUNICATION SERVICES (3.9%) Cellular (.2%) 10,755 AT&T Wireless Services, Inc. (b) 50,441 1,107 Citizens Communications Company (b) 6,066 3,195 Nextel Communications, Inc. (b) 18,307 ---------- 74,814 ---------- Telecommunication (.4%) 3,053 Qualcomm, Inc. (b) 83,896 6,664 Qwest Communications International, Inc . 8,530 3,541 Sprint Corporation-- Fon Group 33,108 3,944 Sprint Corporation-- PCS Group (b) 16,170 ---------- 141,704 ---------- Telephone (3.3%) 1,211 Alltel Corporation 49,070 15,096 AT&T Corporation 153,677 7,449 Bellsouth Corporation 200,006 508 Centurytel, Inc. 13,513 13,274 SBC Communications, Inc. 367,159 10,822 Verizon Communications 357,126 ---------- 1,140,551 ----------

See accompanying notes to investments in securities. 50

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL (10.2%) Auto (1.3%) 237 Cooper Tire and Rubber Company $ 4,742 567 Dana Corporation 9,117 614 Danaher Corporation 38,099 2,190 Delphi Corporation 21,812 327 Eaton Corporation 22,831 7,204 Ford Motor Company 97,038 2,271 General Motors Corporation 105,715 613 Goodyear Tire & Rubber Company 10,691 1,252 Harley-Davidson, Inc. 59,295 375 ITT Industries, Inc. 23,955 244 Snap-On, Inc. 6,629 533 TRW, Inc. 28,755 497 Visteon Corporation 5,537 ---------- 434,216 ---------- Building Materials (.2%) 297 American Standard Companies, Inc. (b) 21,238 250 Centex Corporation 11,987 250 Crane Company 5,745 200 Kaufman and Broad Home Corporation 9,242 1,862 Masco Corporation 45,060 284 Pulte Corporation 13,609 ---------- 106,881 ---------- Distribution Durables (.1%) 690 Genuine Parts Company 21,190 ---------- Hardware and Tools (.1%) 361 Black & Decker Corporation 16,425 380 The Stanley Works 13,714 ---------- 30,139 ---------- Houseware (.1%) 3,776 Corning, Inc. 6,042 778 Leggett & Platt, Inc. 17,497 350 Maytag Corporation 11,595 256 Whirlpool Corporation 14,687 ---------- 49,821 ---------- Leisure (.2%) 300 Brunswick Corporation 6,864 669 Hasbro, Inc. 8,195 368 International Game Technology (b) 21,436 1,647 Mattel, Inc. 30,980 ---------- 67,475 ----------

See accompanying notes to investments in securities. 51

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED Lodging-- Hotel (.1%) 1,384 Hilton Hotels $ 16,912 964 Marriott International, Inc. 32,294 ---------- 49,206 ---------- Photography/Imagery (.1%) 1,128 Eastman Kodak Company 34,720 ---------- Publishing (.7%) 324 Dow Jones and Company, Inc. 13,349 1,121 Gannett Company, Inc. 80,611 355 Knight-Ridder, Inc. 21,495 748 McGraw-Hill Companies, Inc. 46,787 228 Meredith Corporation 8,315 461 RR Donnelly & Sons Company 12,811 661 The New York Times Company 29,910 1,158 Tribune Company 46,204 ---------- 259,482 ---------- Retail (6.5%) 193 American Greetings Corporation 3,102 429 Autozone, Inc. (b) 31,639 1,149 Bed Bath & Beyond, Inc. (b) 35,619 1,256 Best Buy Company, Inc. (b) 41,322 405 Big Lots, Inc. (b) 6,723 817 Circuit City Stores, Inc. 13,930 1,834 Costco Wholesale Corporation (b) 63,952 278 Dillards, Inc. 6,533 1,320 Dollar General Corporation 22,651 1,110 eBay, Inc. (b) 63,370 628 Family Dollar Stores 19,022 813 Federated Department Stores (b) 30,577 3,444 Gap, Inc. 41,845 9,359 Home Depot, Inc. 289,006 1,038 JC Penney Company 18,269 1,314 Kohls Corporation (b) 86,724 2,039 Limited Brands, Inc. 36,641 3,087 Lowes Companies, Inc. 116,843 1,088 May Department Stores Company 33,423 1,047 Nike, Inc. 51,607 498 Nordstrom, Inc. 9,412 1,221 Office Depot, Inc. (b) 15,849 684 Radioshack Corporation 17,510 248 Reebok International, Ltd. (b) 6,674 1,253 Sears Roebuck Company 59,104 1,774 Staples, Inc. (b) 29,608 3,604 Target Corporation 120,193 637 The Sherwin-Williams Company 18,301

See accompanying notes to investments in securities. 52

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED 568 Tiffany & Company $ 13,996 2,106 TJX Companies, Inc. 37,339 768 Toys `R' Us, Inc. (b) 10,353 17,677 Wal-Mart Stores, Inc. (e) 869,355 ---------- 2,220,492 ---------- Service (.7%) 715 Apollo Group, Inc. (b) 28,064 4,145 Cendant Corporation (b) 57,284 669 Convergys Corporation (b) 10,115 338 Fluor Corporation 10,850 471 Harrahs Entertainment, Inc. (b) 22,288 1,519 Interpublic Group Companies, Inc. 31,762 794 Omnicom Group 42,328 430 Quintiles Transnational Corporation (b) 4,270 704 Robert Half International, Inc. (b) 14,045 589 Sabre Holdings Corporation(b) 15,620 367 TMP Worldwide, Inc. (b) 5,666 ---------- 242,292 ---------- Textiles (.1%) 475 Jones Apparel Group, Inc. (b) 16,164 441 Liz Clairborne, Inc. 12,723 425 VF Corporation 16,397 ---------- 45,284 ---------- CONSUMER STAPLES (12.4%) Beverage (3.1%) 3,483 Anheuser-Busch Companies, Inc. 180,106 300 Brown-Forman Corporation 20,334 1,702 Coca-Cola Enterprises 31,691 164 Coors Company 9,907 1,123 Pepsi Bottling Group 27,761 7,027 Pepsico, Inc. 301,739 9,871 The Coca-Cola Company 492,958 ---------- 1,064,496 ---------- Broadcasting (.5%) 2,448 Clear Channel Communications, Inc. (b) 63,770 3,758 Comcast Corporation (b) 78,542 846 Univision Communications, Inc. (b) 24,187 ---------- 166,499 ----------

See accompanying notes to investments in securities. 53

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--CONTINUED Entertainment (1.4%) 2,300 Carnival Corporation $ 60,950 8,109 The Walt Disney Company 143,773 7,025 Viacom, Inc. (b) 273,413 ---------- 478,136 ---------- Food (1.2%) 1,654 Campbell Soup Company 38,538 2,093 Conagra, Inc. 52,555 1,438 General Mills, Inc. 59,605 1,378 H.J. Heinz Company 52,984 595 Hershey Foods Corporation 46,684 1,641 Kellogg Company 56,516 3,117 Sara Lee Corporation 58,413 930 William Wrigley Jr. Company 47,570 ---------- 412,865 ---------- Food & Health (.2%) 2,636 Sysco Corporation 68,668 ---------- Household Products (2.3%) 931 Clorox Company 35,844 2,155 Colgate-Palmolive Company 110,659 4,200 Gillette Compay 138,096 1,026 Newell Rubbermaid, Inc. 30,862 597 Pactiv Corporation (b) 10,847 5,165 Procter & Gamble Company 459,633 170 Tupperware Corporation 2,950 ---------- 788,891 ---------- Personal Care (.2%) 249 Alberto-Culver Company 11,830 975 Avon Products, Inc. 45,104 ---------- 56,934 ---------- Restaurants (.6%) 703 Darden Restaurants, Inc. 16,324 5,055 McDonalds Corporation 125,111 1,534 Starbucks Corporation (b) 30,112 431 Wendys International, Inc. 15,856 1,152 Yum! Brands, Inc. 35,597 ---------- 223,000 ---------- Retail (1.1%) 1,639 Albertsons, Inc. 46,187 1,575 CVS Corporation 45,045 3,155 Kroger Company (b) 61,459

See accompanying notes to investments in securities. 54

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--CONTINUED 1,921 Safeway, Inc. (b) $ 53,442 520 Supervalu, Inc. 10,837 4,067 Walgreen Company 143,687 549 Winn-Dixie Stores, Inc. 8,647 ---------- 369,304 ---------- Service (.5%) 2,465 Automatic Data Processing, Inc. 91,920 705 Cintas Corporation 30,942 2,052 Concord EFS, Inc. (b) 40,014 206 Deluxe Corporation 8,011 ---------- 170,887 ---------- Tobacco (1.3%) 629 Fortune Brands, Inc. 32,897 8,503 Philip Morris Companies, Inc. 391,563 705 UST, Inc. 20,748 ---------- 445,208 ---------- ENERGY (5.9%) Oil (4.6%) 403 Amerada Hess 27,565 4,243 Chevron Corporation 318,225 2,466 Conoco, Inc. 59,480 655 Devon Energy Corporation 27,300 26,953 Exxon Mobil Corporation 990,792 1,231 Marathon Oil Corporation 29,839 1,502 Occidental Petroleum Corporation 40,689 1,510 Phillips Petroleum Company 78,143 ---------- 1,572,033 ---------- Oil & Gas (1.3%) 966 Anadarko Petroleum Corporation 42,021 557 Apache Finance Property 28,686 315 Ashland, Inc. 11,236 1,318 Baker Hughes, Inc. 35,322 648 BJ Services Company (b) 20,665 791 Burlington Resources, Inc. 28,911 465 EOG Resources, Inc. 15,945 1,637 Halliburton Company 21,608 425 Kerr-McGee Corporation 19,877 185 McDermott International, Inc. (b) 868 578 Nabors Industries, Ltd. (b) 17,641 572 Noble Corporation (b) 18,533 320 Rowan Companies, Inc. (b) 6,262 2,256 Schlumberger, Ltd. 96,828 300 Sunoco, Inc. 10,662

See accompanying notes to investments in securities. 55

MARKET SHARES VALUE(a) - ------ -------- ENERGY--CONTINUED 1,271 Transocean Sedco Forex, Inc. $ 32,411 938 Unocal Corporation 30,635 1,618 Veritas DGC, Inc. (b) 27,231 ---------- 465,342 ---------- FINANCIAL (20.5%) Auto Finance (.3%) 4,161 Fleet Boston Financial Corporation 96,535 ---------- Banks (7.0%) 1,363 AmSouth Bancorporation 30,422 6,117 Bank of America Corporation 406,812 4,665 Bank One Corporation 181,515 1,913 BB&T Corporation 70,819 759 Comerica Bank 44,143 2,340 Fifth Third BanCorporation 154,604 524 First Tennessee National Corporation 19,613 885 Huntington Bancshares, Inc. 17,470 7,912 JP Morgan Chase and Company 197,484 1,713 KeyCorporation 44,983 790 Marshal & Ilsley Corporation 23,771 1,730 Mellon Financial Corporation 45,983 2,383 National City BanCorporation 73,635 856 Northern Trust Corporation 34,094 860 Regions Financial Corporation 30,298 1,371 SouthTrust Corporation 34,604 1,274 State Street Corporation 54,145 1,120 Suntrust Banks, Inc. 73,696 1,154 Synovus Financial Corporation 27,696 2,893 The Bank of New York Company, Inc. 92,634 7,597 U.S. Bancorp 162,500 805 Union Planters Corporation 24,665 5,439 Wachovia Corporation 194,716 6,799 Wells Fargo & Company 345,797 397 Zion BanCorporation 20,052 ---------- 2,406,151 ---------- Commercial Finance (.1%) 650 North Fork BanCorporation 26,397 ---------- Consumer Finance (1.3%) 5,285 American Express Company 186,349 877 Capital One Financial Corporation 27,801 1,814 Household International, Inc. 77,404 5,077 MBNA Corporation 98,443 632 SLM Corporation 57,512 ---------- 447,509 ----------

See accompanying notes to investments in securities. 56

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL --CONTINUED Public Finance (.2%) 510 Countrywide Credit Industries, Inc. $ 25,913 1,117 PNC Financial Services Group 47,082 ---------- 72,995 ---------- Finance--Diversified (1.8%) 471 Ambac Financial Group, Inc. 29,687 3,963 Fannie Mae 296,789 2,760 Freddie Mac 170,982 1,112 John Hancock Financial Services, Inc. 36,807 470 MGIC Investment Corporation 29,610 624 Moodys Corporation 30,950 1,123 Providian Financial Corporation 5,637 859 Stilwell Financial, Inc. 11,639 ---------- 612,101 ---------- Insurance (5.0%) 995 ACE, Ltd. (c) 31,512 615 Aetna, Inc. 26,863 2,029 Aflac, Inc. 63,731 2,819 Allstate Corporation 107,150 10,384 American International Group 663,745 1,037 AON Corporation 24,629 687 Chubb Corporation 44,579 543 Cigna Corporation 48,870 629 Cincinnati Financial Corporation 25,217 1,035 Hartford Financial Services Group, Inc. 52,371 597 Jefferson-Pilot Corporation 25,940 768 Lincoln National Corporation 28,178 722 Loews Corporation 34,252 2,330 Marsh and McLennan Companies, Inc. 111,607 644 MBIA, Inc. 31,936 2,803 MetLife, Inc. 79,017 874 Progressive Corporation 44,705 2,330 Prudential Insurance Company of America 76,867 452 Safeco Corporation 14,346 1,425 The Principal Financial Group (b) 40,912 789 The St. Paul Companies, Inc. 24,625 484 Torchmark Corporation 17,540 947 Unumprovident Corporation 19,376 610 Wellpoint Health Networks, Inc. (b) 43,615 540 XL Capital, Ltd. (c) 40,014 ---------- 1,721,597 ---------- Investment Bankers/Brokers (3.9%) 404 Bear Stearns & Company, Inc. 24,329 724 Block Financial Corporation 34,955

See accompanying notes to investments in securities. 57

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED 5,449 Charles Schwab Corporation $ 48,769 20,455 CitiGroup, Inc. 686,061 1,046 Franklin Resources, Inc. 35,909 1,880 Goldman Sachs Group, Inc. 137,522 939 Lehman Brothers Holdings, Inc. 53,251 3,383 Merrill Lynch & Company, Inc. 120,604 4,378 Morgan Stanley 176,652 521 T. Rowe Price Associates, Inc. 14,083 ---------- 1,332,135 ---------- Real Estate Investment Trust (.3%) 1,674 Equity Office Properties Trust 44,160 1,068 Equity Residential 28,569 735 Simon Property Group, Inc. 26,453 772 Starwood Hotels & Resorts Worldwide, Inc. 19,840 ---------- 119,022 ---------- Savings and Loans (.6%) 882 Charter One Financial, Inc. 29,917 598 Golden West Financial Corporation 39,319 3,872 Washington Mutual, Inc. 144,852 ---------- 214,088 ---------- HEALTH CARE (13.1%) Biotechnology (.8%) 5,063 Amgen, Inc. (b) 231,075 548 Biogen, Inc. (b) 19,712 799 Genzyme Corporation (b) 18,201 ---------- 268,988 ---------- Drugs (6.7%) 7,703 Bristol-Myers Squibb Company 180,481 1,795 Cardinal Health, Inc. 103,392 712 Chiron Corporation (b) 24,023 4,468 Eli Lilly & Company 261,021 760 Forest Laboratories, Inc. (b) 58,877 970 King Pharmaceuticals, Inc. (b) 20,574 944 Medimmune, Inc. (b) 28,075 9,002 Merck & Company, Inc. 446,499 24,818 Pfizer, Inc. 802,862 5,826 Schering-Plough Corporation 148,563

See accompanying notes to investments in securities. 58

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED 425 Watson Pharmaceuticals, Inc. (b) $ 8,955 5,271 Wyeth 210,313 ---------- 2,293,635 ---------- Health Care-- Diversified (3.0%) 6,202 Abbott Laboratories 256,825 484 Allergan, Inc. 29,277 1,481 Healthsouth Corporation (b) 15,180 11,967 Johnson & Johnson 634,251 1,911 Tenet Healthcare Corporation (b) 91,059 ---------- 1,026,592 ---------- Hospital Management (.3%) 2,020 HCA, Inc. 94,940 865 Health Management Associates, Inc. (b) 17,499 ---------- 112,439 ---------- Managed Care (.6%) 648 Humana, Inc. (b) 7,977 357 Manor Care, Inc. (b) 7,850 1,169 McKesson HBOC, Inc. 38,483 532 Trigon Healthcare, Inc. (b) 54,110 1,224 Unitedhealth Group, Inc. 107,296 ---------- 215,716 ---------- Medical Products/Supplies (1.7%) 442 AmerisourceBergen Corporation 29,610 237 Bausch & Lomb, Inc. 7,840 2,418 Baxter International, Inc. 96,502 994 Becton Dickinson and Company 28,886 063 Biomet, Inc. 27,564 1,628 Boston Scientific Corporation (b) 48,824 227 C.R. Bard, Inc. 12,274 1,187 Guidant Corporation (b) 41,308 4,825 Medtronic, Inc. 194,930 451 Pall Corporation 7,929 748 St. Jude Medical, Inc. (b) 28,424 752 Stryker Corporation (b) 38,066 718 Zimmer Holdings, Inc. (b) 26,731 ---------- 588,888 ---------- TECHNOLOGY (14.2%) Communications Equipment (.5%) 3,156 ADC Telecommunications, Inc. (b) 5,681 303 Andrew Corporation (b) 3,409 1,391 Avaya, Inc. (b) 2,073

See accompanying notes to investments in securities. 59

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED 1,723 Ciena Corporation (b) $ 6,944 708 Comverse Technology, Inc. (b) 5,636 13,617 Lucent Technologies, Inc. 23,830 9,024 Motorola, Inc. 104,678 600 Scientific-Atlanta, Inc. 7,590 1,556 Tellabs, Inc. (b) 8,916 ---------- 168,757 ---------- Computer Hardware (3.1%) 1,406 Apple Computer, Inc. (b) 21,456 2,257 Computer Associates International, Inc. 21,080 10,315 Dell Computer Corporation (b) 257,153 1,192 Gateway, Inc. (b) 4,053 11,998 Hewlett-Packard Company 169,772 6,804 International Business Machines Corporation 479,002 410 NCR Coporation (b) 10,787 511 Nvidia Corporation (b) 5,657 2,223 Palm, Inc. (b) 2,423 12,901 Sun Microsystems, Inc. (b) 50,572 889 Symbol Technologies, Inc. 8,125 2,861 Xerox Corporation (b) 19,884 ---------- 1,049,964 ---------- Computer Networking (1.2%) 29,096 Cisco Systems, Inc. (b) 383,776 2,305 Yahoo!, Inc. (b) 30,357 ---------- 414,133 ---------- Computer Peripherals (.3%) 8,836 EMC Corporation (b) 66,270 1,323 Network Appliance, Inc. (b) 11,193 402 Qlogic Corporation (b) 16,382 ---------- 93,845 ---------- Computer Services & Software (4.9%) 941 Adobe Systems, Inc. 22,546 17,695 AOL Time Warner, Inc. (b) 203,493 408 Autodesk, Inc. 5,259 956 BMC Software, Inc. (b) 12,858 629 Citrix Systems, Inc. (b) 3,466 731 Computer Sciences Corporation (b) 27,047 1,395 Compuware Corporation (b) 5,175 549 Electronic Arts, Inc. (b) 33,039 1,072 IMS Health, Inc. 16,959 349 Mercury Interactive Corporation (b) 8,941 21,522 Microsoft Corporation (b)(e) 1,031,980 1,354 Novell, Inc. (b) 3,019

See accompanying notes to investments in securities. 60

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED 21,823 Oracle Systems (b) $ 218,426 1,033 Parametric Technology Corporation (b) 3,223 1,179 Peoplesoft, Inc. (b) 21,198 745 Rational Software Corporation (b) 5,006 1,877 Siebel Systems, Inc. (b) 17,644 1,122 Sungard Data Systems, Inc. (b) 26,311 1,272 Unisys Corporation (b) 9,565 ---------- 1,675,155 ---------- Electrical Instruments (.2%) 1,770 Agilent Technologies, Inc. (b) 33,418 836 Applied Biosystems Group - Applera Corporation 15,600 5,411 JDS Uniphase Corporation (b) 13,690 470 Perkin Elmer, Inc. 3,581 350 Tektronix, Inc. (b) 6,524 453 Waters Corporation (b) 10,288 ---------- 83,101 ---------- Electrical Semiconductor (2.9%) 1,259 Advanced Micro Devices (b) 10,110 1,451 Altera Corporation (b) 17,165 1,427 Analog Devices, Inc. (b) 34,391 ,509 Applied Materials, Inc. (b) 96,789 1,184 Applied Micro Circuits Corporation (b) 5,458 1,059 Broadcom Corporation (b) 19,867 26,571 Intel Corporation 499,269 1,237 Linear Technology Corporation 33,498 1,374 LSI Logic Corporation (b) 10,717 2,355 Micron Technology, Inc. (b) 45,899 693 National Semiconductor Corporation (b) 12,550 605 Novellus Systems, Inc. (b) 16,329 622 PMC-Sierra, Inc. (b) 5,940 295 Power-One, Inc. (b) 1,345 6,892 Texas Instruments, Inc. 159,550 704 Vitesse Semiconductor Corporation (b) 1,704 1,310 Xilinx, Inc. (b) 25,139 ---------- 995,720 ---------- Electronics-- Computer Distribution (.2%) 1,272 Maxim Integrated Products (b) 44,749 2,024 Sanmina Corporation (b) 8,238 170 Thomas and Betts Corporation 2,502 419 W.W. Grainger, Inc. 20,548 ---------- 76,037 ----------

See accompanying notes to investments in securities. 61

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Equipment Semiconductor (.1%) 757 Jabil Circuit, Inc. (b) $ 13,467 710 KLA-Tencor Corporation (b) 27,967 663 Teradyne, Inc. (b) 9,945 ---------- 51,379 ---------- Service-- Data Processing (.8%) 1,902 Electronic Data Systems Corporation 69,937 511 Equifax, Inc. 10,833 3,039 First Data Corporation 106,213 797 Fiserv, Inc. (b) 27,425 895 Intuit, Inc. (b) 39,362 1,480 Paychex, Inc. 38,939 ---------- 292,709 ---------- TRANSPORTATION (1.7%) Air Freight (1.0%) 1,159 FedEx Corporation (b) 59,051 4,440 United Parcel Service, Inc. 290,110 ---------- 349,161 ---------- Airlines (.2%) 577 AMR Corporation (b) 6,451 474 Delta Air Lines, Inc. 7,385 3,056 Southwest Airlines Company 42,203 ---------- 56,039 ---------- Railroads (.5%) 1,457 Burlington Northern Santa Fe Corporation 42,865 877 CSX Corporation 30,318 1,452 Norfolk Southern Railway Company 29,403 1,056 Union Pacific Corporation 61,956 ---------- 164,542 ---------- Trucking (--) 256 Ryder System, Inc. 6,700 ---------- UTILITIES (2.8%) Electric Companies (2.4%) 2,075 AES Corporation (b) 4,254 528 Allegheny Energy, Inc. 11,114 593 Ameren Corporation 25,914 1,361 American Electric Power Company, Inc. 44,791 688 Cinergy Corporation 23,323 484 CMS Energy Corporation 3,930

See accompanying notes to investments in securities. 62

MARKET SHARES VALUE(a) - ------ -------- UTILITIES--CONTINUED 882 Consolidated Edison Company of New York, Inc. $ 37,794 594 Constellation Energy Group 16,555 1,141 Dominion Resources, Inc. 67,821 668 DTE Energy Company 27,361 3,298 Duke Energy Corporation 84,066 1,200 Edison International (b) 15,720 896 Entergy Corporation 36,315 1,255 Exelon Corporation 61,558 1,204 Firstenergy Corporation 37,023 672 FPL Group, Inc. 38,069 803 Nisource, Inc. 15,899 1,460 Pacific Gas and Electric Company (b) 20,294 375 Pinnacle West Capital Corporation 12,750 526 PPL Corporation 17,384 924 Progress Energy, Inc. 43,197 771 Public Service Enterprise Group, Inc. 26,638 1,183 Reliant Energy, Inc. 11,901 2,760 Southern Company 79,433 534 Teco Energy, Inc. 12,335 1,019 TXU Electric & Gas 43,949 ---------- 819,388 ---------- Natural Gas (.3%) 1,406 Dynegy, Inc. 3,374 2,266 El Paso Energy Corporation 32,744 587 Keyspan Corporation 20,486 512 Kinder Morgan Energy Partners 21,304 209 Nicor, Inc. 5,643 158 Peoples Energy Corporation 5,547 12 Sempra Energy 17,214 2,001 Williams Companies, Inc. 5,903 ---------- 112,215 ---------- Power Products-- Industrial (.1%) 1,434 Calpine Corporation (b) 7,127 1,516 Mirant Corporation (b) 5,458 1,531 Xcel Energy, Inc. 10,656 ---------- 23,241 ---------- Total common stock (cost: $34,138,210) 33,438,627 ----------

See accompanying notes to investments in securities. 63

MARKET SHARES VALUE(a) - ------ -------- SHORT-TERM SECURITIES (2.3%) 723,619 Dreyfus Funds-- Cash Management Plus Fund, current rate 1.820% $ 723,619 52,407 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.760% 52,407 16,019 Wells Fargo & Company-- Cash Investment Fund I, current rate 1.717% 16,019 ---------- Total short-term securities (cost: $792,045) 792,045 ---------- Total investments in securities (cost: $34,930,255) (d) $34,230,672 ==========

Notes to Investments in Securities (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held .5% of net assets in foreign securities as of July 31, 2002. (d) At July 31, 2002, the cost of securities for federal income tax purposes was $35,632,872. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were:

Gross unrealized appreciation $ 6,097,748 Gross unrealized depreciation (7,499,948) ---------- Net unrealized depreciation $(1,402,200) ==========

(e) Partially pledged as initial margin deposit on open stock index futures purchase contracts (see note 8 to the financial statements). See accompanying notes to investments in securities. 64 ADVANTUS REAL ESTATE SECURITIES FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)

MARKET SHARES VALUE(a) - ------ ---------- COMMON STOCK (96.5%) CONSUMER CYCLICAL (5.1%) Building Materials (1.7%) 3,500 Centex Corporation $ 167,825 3,600 Kaufman and Broad Home Corporation 166,356 2,300 Pulte Corporation 110,216 4,900 Standard Pacific Corporation 128,625 ---------- 573,022 ---------- Lodging -- Hotel (3.4%) 26,600 Extended Stay America, Inc. (b) 372,400 56,800 Hilton Hotels 694,096 7,600 Prime Hospitality Corporation (b) 74,860 ---------- 1,141,356 ---------- FINANCIAL (91.4%) Insurance (.6%) 3,100 Expeditor Washington International, Inc. 193,316 ---------- Real Estate (8.0%) 77,840 Boardwalk Equities, Inc. (c) 720,798 41,100 Brookfield Properties Corporation (c) 819,945 22,600 Catellus Development Corporation (b) 438,440 8,600 Forest City Enterprises (b) 295,840 14,600 St. Joe Company 416,100 ---------- 2,691,123 ---------- Real Estate Investment Trust -- Apartments (12.4%) 14,100 AMLI Residential Properties 321,480 22,920 Apartment Investment & Management Company 1,030,483 17,500 Archstone Communities Trust 444,500 10,800 Avalonbay Communities, Inc. 485,460 17,800 Camden Property Trust 658,600 30,500 Equity Residential 815,875 7,600 Essex Property Trust, Inc. 387,600 ---------- 4,143,998 ---------- Real Estate Investment Trust -- Diversified (11.3%) 12,100 American Mortgage Acceptance Corporation 154,275 9,800 Capital Automotive REIT 221,088 10,600 Duke Realty Corporation 272,950 14,700 Entertainment Properties Trust 339,570 12,300 Istar Financial, Inc. 363,465 30,200 Keystone Property Trust 468,100 8,000 Liberty Property Trust 257,200 23,800 Vornado Realty Trust 1,036,490

See accompanying notes to investments in securities. 65

MARKET SHARES VALUE(a) - ------ ---------- FINANCIAL -- CONTINUED 75,100 Winston Hotels, Inc. $ 651,868 ---------- 3,765,006 ---------- Real Estate Investment Trust -- Hotels (7.2%) 24,300 Felcor Suite Hotels, Inc. 365,715 59,900 Host Marriott Corporation 673,875 10,100 Innkeepers USA Trust 86,079 18,700 Meristar Hospitality Corporation 257,125 40,200 Starwood Hotels & Resorts Worldwide, Inc. 1,033,140 ---------- 2,415,934 ---------- Real Estate Investment Trust -- Office Property (15.8%) 19,900 Boston Properties, Inc. 742,270 17,900 Brandywine Realty Trust 411,700 31,700 Carramerica Realty Corporation 871,750 52,100 Equity Office Properties Trust 1,374,398 17,400 Great Lakes REIT, Inc. 294,930 11,900 Highwoods Properties, Inc. 317,135 11,000 Prentiss Properties Trust 312,180 11,100 Reckson Associates Realty Corporation 253,746 4,126 Reckson Associates Realty Corporation B 100,221 4,200 SL Green Realty Corporation 135,450 32,600 Trizec Properties, Inc. 454,770 ---------- 5,268,550 ---------- Real Estate Investment Trust -- Shopping Centers (24.0%) 15,300 CBL & Associates Properties, Inc. 561,663 14,600 Chelsea Property Group, Inc. 493,772 32,100 Developers Diversified Realty Corporation 738,300 34,400 Equity One, Inc. 452,016 14,000 General Growth Properties, Inc. 678,720 14,500 Glimcher Realty Trust 275,210 26,350 Kimco Realty Corporation 846,889 2,900 Lennar Corporation 147,175 22,000 Mid-Atlantic Realty Trust 351,560 16,800 Mills Corporation 495,600 10,800 Pan Pacific Retail Properties, Inc. 373,140 26,200 Ramco Gershenson 534,480 28,900 Simon Property Group, Inc. 1,040,111 25,400 The Rouse Company 800,100 19,700 Urstadt Biddle Properties 236,400 ---------- 8,025,136 ---------- Real Estate Investment Trust -- Warehouse/Industrial (12.1%) 13,800 First Industrial Realty Trust 446,430 26,900 P.S. Business Parks, Inc. 946,880

See accompanying notes to investments in securities. 66

MARKET SHARES VALUE(a) - ------ ----------- FINANCIAL -- CONTINUED 80,962 Prologis $ 2,064,531 15,100 Public Storage, Inc. 570,025 ----------- 4,027,866 ----------- Total common stock (cost: $29,952,748) 32,245,307 ----------- SHORT-TERM SECURITIES (3.1%) 1,457 Blackrock Provident Institutional TempFund, current rate 1.746% $ 1,457 84,709 Federated Prime Obligation Fund, current rate 1.760% 84,709 947,984 Wells Fargo & Company-- Cash Investment Fund I, current rate 1.717% 947,984 ----------- Total short-term securities (cost: $1,034,150) 1,034,150 ----------- Total investments in securities (cost: $30,986,898) (d) $33,279,457 ===========

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 4.6% of net assets in foreign securities as of July 31, 2002. (d) At July 31, 2002 the cost of securities for federal income tax purposes was $31,643,891. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,480,777 Gross unrealized depreciation (845,211) ----------- Net unrealized appreciation $ 1,635,566 =========== See accompanying notes to financial statements. 67 ADVANTUS VENTURE FUND INVESTMENTS IN SECURITIES JULY 31, 2002 (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)

MARKET SHARES VALUE(a) - ------ ---------- COMMON STOCK (97.7%) BASIC MATERIALS (16.8%) Agriculture Products (1.2%) 11,100 Bunge, Ltd. $ 226,995 23,100 Cadiz, Inc. (b) 98,175 10,600 Corn Products International, Inc. 290,970 7,100 NCO Group, Inc. (b) 105,350 ---------- 721,490 ---------- Chemicals (6.9%) 108,900 Agrium, Inc. (c) 936,540 44,155 American Pacific Corporation (b) 397,395 6,000 Cabot Microcelectronics Corporation (b) 254,040 3,500 Cambrex Corporation 134,050 6,900 IMC Global, Inc. 74,865 113,800 Methanex Corporation (c) 910,400 7,800 Minerals Technologies, Inc. 291,330 18,400 PolyOne Corporation 182,712 30,632 Stepan Company 879,139 ---------- 4,060,471 ---------- Construction (1.2%) 17,800 Martin Marietta Materials, Inc. 682,274 ---------- Iron and Steel (2.9%) 23,000 Ak Steel Corporation (b) 215,740 20,700 Allegheny Technologies, Inc. 198,099 15,064 Belden, Inc. 246,296 7,000 Cleveland-Cliffs, Inc. 170,800 6,100 GrafTech International, Ltd. (b) 48,495 25,100 NS Group, Inc. (b) 181,975 17,600 United States Steel Corporation 293,040 15,500 Valmont Industries, Inc. 337,125 ---------- 1,691,570 ---------- Mining (3.2%) 35,000 Phelps Dodge Corporation 1,196,300 56,700 Stillwater Mining Company (b) 538,650 48,600 Titanium Metals Corporation (b) 185,652 ---------- 1,920,602 ---------- Paper and Forest (1.4%) 40,600 Graphic Packaging International Corporation (b) 328,860 25,200 Packaging Corporation of America (b) 478,800 ---------- 807,660 ----------

See accompanying notes to investments in securities. 68

MARKET SHARES VALUE(a) - ------ ---------- CAPITAL GOODS (16.4%) Aerospace/Defense (3.5%) 56,100 AAR Corporation $ 490,314 57,500 BE Aerospace, Inc. (b) 603,750 995 Curtiss Wright Corporation 66,466 26,200 Orbital Science (b) 101,918 4,700 Precision Castparts Corporation 123,140 14,500 Teledyne Technologies, Inc. (b) 225,475 11,100 Triumph Group, Inc. (b) 439,005 1,800 United Dominion Industries, Ltd. (b) 39,186 ---------- 2,089,254 ---------- Electrical Equipment (1.5%) 40,500 Technitrol, Inc. 759,375 12,000 Trimble Navigation, Ltd. (b) 157,080 ---------- 916,455 ---------- Engineering/Construction (.8%) 12,900 Dycom Industries, Inc. (b) 124,485 17,100 Elcor Corporation 354,825 ---------- 479,310 ---------- Machinery (6.0%) 6,800 Agco Corporation (b) 121,924 24,000 Asyst Technologies, Inc. (b) 286,800 24,831 CTB International Corporation (b) 366,257 24,600 Denison International PLC (b)(c) 393,600 19,500 Hanover Compressor Company (b) 171,795 54,600 JLG Industries, Inc. 491,400 20,800 Kadant, Inc. (b) 296,400 20,100 Kulicke and Soffa Industries, Inc. (b) 132,258 6,500 Lindsay Manufacturing Company 140,400 89,700 Wabtec Corporation 1,122,147 ---------- 3,522,981 ---------- Manufacturing (1.8%) 4,600 Flowserve Corporation (b) 79,350 4,100 GSI Group, Inc. (b)(c) 27,552 10,200 Maverick Tube Corporation (b) 106,284 16,900 Steelcase, Inc. 227,981 8,200 Stewart & Stevenson Services, Inc. 115,866 300 Tredegar Corporation 5,250 28,300 Trinity Industries, Inc. 513,079 ---------- 1,075,362 ---------- Metal Fabrication (1.3%) 43,300 ABC-NACO, Inc. (b) 43 48,201 Ladish Company, Inc. (b) 442,485

See accompanying notes to investments in securities. 69

MARKET SHARES VALUE(a) - ------ ---------- CAPITAL GOODS -- CONTINUED 23,904 Penn Engineering & Manufacturing Corporation $ 319,118 ---------- 761,646 ---------- Trucks and Parts (1.5%) 34,900 Navistar International Corporation 900,071 ---------- COMMUNICATION SERVICES (--) Telecommunication (--) 6,360 Channel Commercial Corporation (b) 27,030 ---------- CONSUMER CYCLICAL (17.9%) Auto (4.0%) 37,900 American Axle & Manufacturing Holdings (b) 966,450 6,100 Borg-Warner Automotive, Inc. 327,448 5,100 Cooper Tire and Rubber Company 102,051 6,100 Dura Automotive Systems, Inc. (b) 84,973 15,200 Lear Corporation (b) 655,120 59,293 Titan International, Inc. (b) 203,968 ---------- 2,340,010 ---------- Building Materials (.6%) 7,495 Nortek, Inc. (b) 329,480 ---------- Leisure (3.9%) 21,900 International Game Technology (b) 1,275,675 27,100 Six Flags, Inc. (b) 407,042 33,220 Steinway Musical Instruments, Inc. (b) 651,112 ---------- 2,333,829 ---------- Lodging -- Hotel (.5%) 22,800 Station Casinos, Inc. (b) 300,960 ---------- Publishing (3.8%) 16,700 Belo Corporation 364,895 53,200 Hollinger International, Inc. 532,000 18,000 Journal Register Company (b) 327,960 61,700 Readers Digest Association 1,030,390 ---------- 2,255,245 ---------- Retail (.6%) 5,675 Big Lots, Inc. 94,205 2,294 OshKosh B'Gosh, Inc. 69,049 9,540 Whitehall Jewellers, Inc. (b) 104,177 7,700 Wilsons The Leather Experts, Inc. (b) 67,544 ---------- 334,975 ---------- Service (4.5%) 26,800 Argosy Gaming Company (b) 660,620 9,500 Harrah's Entertainment, Inc. (b) 449,540

See accompanying notes to investments in securities. 70

MARKET SHARES VALUE(a) - ------ ---------- CONSUMER CYCLICAL -- CONTINUED 44,400 Integrated Electrical Services, Inc. (b) $ 237,540 46,000 Mandalay Resort Group (b) 1,304,560 ---------- 2,652,260 ---------- CONSUMER STAPLES (3.2%) Broadcasting (.7%) 4,700 Cox Enterprises (b) 109,275 21,100 Interep National Radio Sales, Inc. (b) 74,694 6,800 Westwood One, Inc. (b) 215,900 ---------- 399,869 ---------- Personal Care (.7%) 18,500 Bally Total Fitness (b) 273,245 11,800 Steiner Leisure, Ltd. (b) 128,620 ---------- 401,865 ---------- Restaurants (.3%) 6,510 Zapata Corporation (b) 178,374 ---------- Service (1.5%) 9,900 Arbitron, Inc. (b) 330,165 26,700 Heidrick & Struggles International (b) 415,185 13,800 Tetra Tech, Inc. (b) 120,198 ---------- 865,548 ---------- ENERGY (7.7%) Mining (.7%) 17,800 Peabody Holding Company 398,720 ---------- Oil (.3%) 33,600 Newpark Resources, Inc. (b) 164,640 ---------- Oil & Gas (6.7%) 27,600 Cabot Oil & Gas Corporation 576,840 164,100 Canadian 88 Energy Corporation (b)(c) 244,509 2,669 Canadian Natural Resources, Ltd. (c) 86,422 5,300 Clayton Williams Energy, Inc. (b) 49,025 9,500 Core Laboratories NV (b)(c) 90,440 18,800 Global Industries, Ltd. (b) 90,428 38,000 Ocean Energy, Inc. 756,200 2,750 Patina Oil & Gas 64,488 7,494 Plains Resources, Inc. (b) 179,481 17,627 Pure Resources, Inc. (b) 318,344 3,400 Stone Energy Corporation (b) 115,532 12,700 Vintage Petroleum, Inc. 111,506 16,900 W-H Energy Services, Inc. (b) 285,779 20,300 Western Gas Resources, Inc. 634,781 21,350 XTO Energy Company 383,233 ---------- 3,987,008 ----------

See accompanying notes to investments in securities. 71

MARKET SHARES VALUE(a) - ------ ---------- FINANCIAL (4.5%) Banks (1.1%) 14,600 Silicon Valley Bancshares (b) $ 315,944 17,866 Staten Island BanCorporation, Inc. 352,318 ---------- 668,262 ---------- Commercial Finance (.2%) 3,900 Dun & Bradstreet Corporation (b) 126,165 ---------- Finance -- Diversified (1.1%) 8,000 Dollar Thrifty Auto Group, Inc. (b) 155,200 9,800 Moodys Corporation 486,080 ---------- 641,280 ---------- Insurance (1.1%) 11,500 ACE, Ltd. (c) 364,205 5,203 Fidelity National Finance 153,957 3,700 Hub International, Ltd. (c) 51,874 6,100 Odyssey Reinsurance Holdings Corporation 89,792 ---------- 659,828 ---------- Real Estate Investment Trust (.8%) 9,100 Entertainment Properties Trust 210,210 10,300 Heritage Property Investment Trust 250,496 ---------- 460,706 ---------- Savings and Loans (.2%) 3,672 New York Community Bancorp, Inc. 105,754 ---------- HEALTH CARE (2.6%) Biotechnology (.2%) 10,688 Invivo Corporation (b) 140,547 ---------- Drugs (.9%) 26,200 Sangstat Medical Corporation (b) 508,804 ---------- Hospital Management (.2%) 4,200 Community Health Systems (b) 103,950 ---------- Medical Products/Supplies (.4%) 33,600 Aradigm Corporation (b) 100,800 8,100 ArthoCare Corporation (b) 104,085 10,400 Aspect Medical Systems, Inc. (b) 26,624 ---------- 231,509 ---------- Special Services (.9%) 22,700 DaVita, Inc. (b) 535,720 ---------- TECHNOLOGY (21.2%) Computer Systems (.3%) 16,300 Carreker Corporation (b) 150,775

See accompanying notes to investments in securities. 72

MARKET SHARES VALUE(a) - ------ ---------- TECHNOLOGY -- CONTINUED 1,000 SRA International, Inc. (b) $ 24,800 ---------- 175,575 ---------- Communications Equipment (1.5%) 23,800 Anaren Microwave, Inc. (b) 185,640 9,100 Commscope, Inc. (b) 68,250 32,700 Inet Technologies, Inc. (b) 137,340 28,500 Plantronics, Inc. (b) 522,690 ---------- 913,920 ---------- Computer Hardware (1.4%) 37,400 Natural Microsystems Corporation (b) 80,036 9,200 Optimal Robotics Corporation (b)(c) 81,972 30,600 SanDisk Corporation (b) 440,640 10,600 SBS Technologies, Inc. (b) 84,800 44,300 Simple Technology (b) 125,369 ---------- 812,817 ---------- Computer Peripherals (1.5%) 29,600 Electronics For Imaging, Inc. 459,688 24,000 Hutchinson Technology, Inc. (b) 410,880 ---------- 870,568 ---------- Computer Services & Software (3.6%) 49,700 Earthlink, Inc. (b) 227,626 10,000 Hall Kinion & Associates, Inc. (b) 66,500 9,300 iManage, Inc. (b) 24,645 39,500 McData Corporation (b) 423,440 20,400 Micros Systems, Inc. (b) 516,120 31,800 Numerical Technologies, Inc. 120,204 26,100 Proquest Company (b) 769,950 ---------- 2,148,485 ---------- Electrical Instruments (2.9%) 40,000 BEI Technologies, Inc. 440,000 12,300 Benchmark Electronics, Inc. (b) 322,998 23,600 Cognex Corporation (b) 362,732 14,800 Coherent, Inc. (b) 340,844 11,000 Credence Systems Corporation (b) 150,700 10,600 LeCroy Corporation (b) 98,262 7,800 Opticnet, Inc. (b)(d) 624 ---------- 1,716,160 ---------- Electrical Semiconductor (4.8%) 20,500 Actel Corporation (b) 299,710 14,600 Chippac, Inc. (b) 57,962 23,900 Entegris, Inc. (b) 239,000 28,850 GlobeSpan Virata, Inc. (b) 102,129

See accompanying notes to investments in securities. 73

MARKET SHARES VALUE(a) - ------ ---------- TECHNOLOGY -- CONTINUED 11,800 Helix Technology Corporation $ 149,978 14,900 SIPEX Corporation (b) 55,428 35,500 Triquint Semiconductor, Inc. (b) 235,010 46,300 Varian Semiconductor Equipment (b) 1,216,764 35,700 Veeco Instruments, Inc. (b) 485,520 ---------- 2,841,501 ---------- Electronics -- Computer Distribution (1.6%) 6,500 AVX Corporation 85,280 49,300 DDi Corporation (b) 31,552 44,400 Kemet Corporation (b) 574,092 16,000 Thomas and Betts Corporation 235,520 ---------- 926,444 ---------- Equipment Semiconductor (3.2%) 33,600 Advanced Technology Materials, Inc. (b) 607,152 43,600 Brooks-PRI Automation, Inc. (b) 829,272 12,300 Electroglas, Inc. (b) 46,617 19,000 MKS Instruments, Inc. (b) 323,000 38,000 Therma-Wave, Inc. (b) 97,280 ---------- 1,903,321 ---------- Service -- Data Processing (.4%) 41,400 Ciber, Inc. (b) 238,050 ---------- TRANSPORTATION (7.0%) Air Freight (2.1%) 31,516 AirNet Systems, Inc. (b) 198,551 88,300 EGL, Inc. (b) 1,034,876 ---------- 1,233,427 ---------- Airlines (2.7%) 9,400 Alaska Airgroup, Inc. (b) 220,900 29,000 ExpressJet Holdings, Inc. (b) 352,350 26,100 Frontier Airlines, Inc. (b) 152,163 95,000 Mesa Air Group, Inc. (b) 667,850 26,300 Midwest Express Holdings, Inc. (b) 217,501 ---------- 1,610,764 ---------- Railroads (.9%) 21,200 GATX Corporation 536,572 ---------- Shipping (.7%) 8,100 General Maritime Corporation (b) 79,380 9,400 Teekay Shipping Corporation (c) 322,232 ---------- 401,612 ----------

See accompanying notes to investments in securities. 74

MARKET SHARES VALUE(a) - ------ ---------- TRANSPORTATION -- CONTINUED Transport Services (.6%) 100,700 OMI Corporation (b) $ 377,625 ----------- UTILITIES (.4%) Electric Companies (.4%) 1,500 Black Hills Corporation 38,205 19,000 Westar Energy, Inc. 222,680 ----------- 260,885 ----------- Total common stock (cost: $60,869,500) 57,749,210 ----------- WARRANTS - -------- 14,300 Dime Bancorp, Inc. (b) 1,144 ----------- Total warrants (cost: $2,175) 1,144 ----------- SHORT-TERM SECURITIES (1.8%) 1,034,413 Wells Fargo & Company -- Cash Investment Fund I, current rate 1.717% $ 1,034,413 ----------- Total short-term securities (cost: $1,034,413) 1,034,413 ----------- Total investments in securities (cost: $61,906,088) (e) $58,784,767 ===========

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 5.9% of net assets in foreign securities as of July 31, 2002. (d) Represents ownership in an illiquid security. (See note 9 to the financial statements) Information concerning the illiquid security held at July 31, 2002, which includes acquisition date and cost is as follows:

ACQUISITION SECURITY DATE COST -------- ----------- ---- Opticnet, Inc. 10/30/00 $624

(e) At July 31, 2002 the cost of securities for federal income tax purposes was $62,074,319. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 9,028,840 Gross unrealized depreciation (12,318,392) ------------- Net unrealized depreciation $ (3,289,552) ============ See accompanying notes to financial statements. 75 ADVANTUS EQUITY FUNDS STATEMENTS OF ASSETS AND LIABILITIES JULY 31, 2002

CORNERSTONE ENTERPRISE HORIZON FUND FUND FUND ------------ ------------ ------------ 2002 2002 2002 ------------ ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 65,628,865 $ 30,634,271 $ 30,062,355 Receivable for Fund shares sold 8,666 1,219 1,529 Receivable for investment securities sold 1,280,298 665,282 31,673 Accrued interest receivable 360 5,290 269 Dividends receivable 73,817 3,602 11,059 Collateral for securities loaned (note 7) 2,555,915 8,390,692 1,162,779 Other receivables 9,231 110 4,278 ------------ ------------ ------------ Total assets 69,557,152 39,700,466 31,273,942 ------------ ------------ ------------ LIABILITIES Payable for investment securities purchased 2,094,541 143,576 75,641 Payable for Fund shares redeemed 16,167 1,529 4,765 Payable to Adviser 72,955 40,870 35,785 Payable upon return of securities loaned (note 7) 2,555,915 8,390,692 1,162,779 ------------ ------------ ------------ Total liabilities 4,739,578 8,576,667 1,278,970 ------------ ------------ ------------ Net assets applicable to outstanding capital stock $ 64,817,574 $ 31,123,799 $ 29,994,972 ============ ============ ============ Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 55,003 $ 48,964 $ 27,391 Additional paid-in capital 77,235,986 58,134,547 45,310,309 Undistributed (distributions in excess of) net investment income 4,818 -- -- Accumulated net realized gains (losses) from investments (10,723,138) (17,247,459) (17,073,020) Unrealized appreciation (depreciation) on investments (1,755,095) (9,812,253) 1,730,292 ------------ ------------ ------------ Total - representing net assets applicable to outstanding capital stock $ 64,817,574 $ 31,123,799 $ 29,994,972 ============ ============ ============ Net asset applicable to outstanding Class A Shares $ 57,947,279 $ 27,357,239 $ 21,830,076 ============ ============ ============ Net asset applicable to outstanding Class B Shares $ 6,190,135 $ 3,345,090 $ 7,507,340 ============ ============ ============ Net asset applicable to outstanding Class C Shares $ 680,160 $ 421,470 $ 657,556 ============ ============ ============ Shares outstanding and net asset value per share: Class A - Shares outstanding: 4,907,681, 4,244,859 and 1,944,245 $ 11.81 $ 6.44 $ 11.23 ============ ============ ============ Class B - Shares outstanding: 533,841, 578,574 and 731,303 $ 11.60 $ 5.78 $ 10.27 ============ ============ ============ Class C - Shares outstanding: 58,812, 72,959 and 63,563 $ 11.57 $ 5.78 $ 10.34 ============ ============ ============ * Identified cost $ 67,383,960 $ 40,446,524 $ 28,332,063 + Including securities on loan of $ 2,492,550 $ 7,916,003 $ 1,136,445

See accompanying notes to financial statements 76 77

INDEX 500 REAL ESTATE VENTURE FUND SECURITIES FUND FUND ------------ ------------ ------------ 2002 2002 2002 ------------ ------------ ------------ ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 34,230,672 $ 33,279,457 $ 58,784,767 Receivable for Fund shares sold 145,053 158,506 171,872 Receivable for investment securities sold 3,395 399,328 672,379 Accrued interest receivable 275 2,132 2,883 Dividends receivable 31,964 14,776 9,163 Variation margin receivable (note 2) 5,100 -- -- Collateral for securities loaned (note 7) 1,655,148 3,349,586 10,151,588 Other receivables 17,163 -- 655 ------------ ------------ ------------ Total assets 36,088,769 37,203,785 69,793,307 ------------ ------------ ------------ LIABILITIES Payable for investment securities purchased 14,951 398,982 401,928 Payable for Fund shares redeemed 25,424 14,704 146,408 Payable to Adviser 33,700 40,386 14,112 Payable upon return of securities loaned (note 7) 1,655,148 3,349,586 10,151,588 ------------ ------------ ------------ Total liabilities 1,729,223 3,803,658 10,714,036 ------------ ------------ ------------ Net assets applicable to outstanding capital stock $ 34,359,546 $ 33,400,127 $ 59,079,271 ============ ============ ============ Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 28,896 $ 28,000 $ 48,376 Additional paid-in capital 40,495,407 30,873,931 57,928,365 Undistributed (distributions in excess of) net investment income 15,318 92,822 -- Accumulated net realized gains (losses) from investments (5,422,697) 112,815 4,223,851 Unrealized appreciation (depreciation) on investments (757,378) 2,292,559 (3,121,321) ------------ ------------ ------------ Total - representing net assets applicable to outstanding capital stock $ 34,359,546 $ 33,400,127 $ 59,079,271 ============ ============ ============ Net asset applicable to outstanding Class A Shares $ 18,196,010 $ 32,268,948 $ 53,071,152 ============ ============ ============ Net asset applicable to outstanding Class B Shares $ 14,558,915 $ 1,131,179 $ 4,531,306 ============ ============ ============ Net asset applicable to outstanding Class C Shares $ 1,604,621 -- $ 1,476,813 ============ ============ ============ Shares outstanding and net asset value per share: Class A - Shares outstanding: 1,516,679, 2,704,869 and 4,333,250 $ 12.00 $ 11.93 $ 12.25 ============ ============ ============ Class B - Shares outstanding: 1,236,348, 95,132 and 380,789 $ 11.78 $ 11.89 $ 11.90 ============ ============ ============ Class C - Shares outstanding: 136,573,-- and 123,524 $ 11.75 -- $ 11.96 ============ ============ ============ * Identified cost $ 34,930,255 $ 30,986,898 $ 61,906,088 + Including securities on loan of $ 1,554,806 $ 3,239,099 $ 9,300,613

See accompanying notes to financial statements 78 79 ADVANTUS EQUITY FUNDS STATEMENTS OF OPERATIONS JULY 31, 2002

CORNERSTONE ENTERPRISE FUND FUND ----------------------------- ------------------------------ PERIOD FROM PERIOD FROM OCTOBER 1, 2001 YEAR ENDED OCTOBER 1, 2001 YEAR ENDED TO JULY 31, SEPTEMBER 30, TO JULY 31, SEPTEMBER 30, 2002 2001 2002 2001 --------------- ------------- --------------- -------------- Investment income: Interest $ 32,455 $ 310,943 $ 44,238 $ 150,200 Dividends 1,190,174 1,306,973 24,359 30,755 Income from securities lending activities 6,336 5,601 14,569 9,876 ------------- ------------ ------------- ------------- Total investment income 1,228,965 1,623,517 83,166 190,831 ------------- ------------ ------------- ------------- Expenses (note 4): Investment advisory fee 443,621 623,266 245,166 349,882 Rule 12b-1 fees - Class A 140,042 192,549 75,907 106,338 Rule 12b-1 fees - Class B 66,388 108,962 41,469 66,383 Rule 12b-1 fees - Class C 7,188 11,223 5,141 8,095 Administrative services fee 62,000 74,400 62,000 74,400 Transfer agent and shareholder services fees 140,533 193,737 103,827 134,897 Custodian fees 4,490 10,933 6,892 14,668 Auditing and accounting services 13,213 22,007 13,113 24,203 Legal fees 5,455 10,575 5,133 8,996 Directors' fees 1,777 -- 604 -- Registration fees 25,475 33,165 34,266 31,728 Printing and shareholder reports 24,948 34,411 23,740 30,264 Insurance 2,463 1,756 2,350 1,365 Other 8,487 8,756 6,386 4,291 ------------- ------------ ------------- ------------- Total expenses 946,080 1,325,740 625,994 855,510 ------------- ------------ ------------- ------------- Less fees and expenses waived or absorbed by Adviser and Distributor: Class A Rule 12b-1 fees -- -- (30,363) (42,535) Other waived fees (105,055) (131,531) (72,685) (60,437) ------------- ------------ ------------- ------------- Total fees and expenses waived or absorbed (105,055) (131,531) (103,048) (102,972) ------------- ------------ ------------- ------------- Total net expenses 841,025 1,194,209 522,946 752,538 ------------- ------------ ------------- ------------- Investment income (loss) - net 387,940 429,308 (439,780) (561,707) ------------- ------------ ------------- ------------- Realized and unrealized gains (losses) on investments: Net realized gains (losses) on investments (note 3) (5,242,003) (3,427,029) (6,244,790) (10,661,326) ------------- ------------ ------------- ------------- Net change in unrealized appreciation or depreciation on investments 1,253,980 (11,683,754) 3,142,493 (17,527,880) ------------- ------------ ------------- ------------- Net losses on investments (3,988,023) (15,110,783) (3,102,297) (28,189,206) ------------- ------------ ------------- ------------- Net increase (decrease) in net assets resulting from operations $ (3,600,083) $(14,681,475) $ (3,542,077) $(28,750,913) ============= ============ ============= =============

See accompanying notes to financial statements 80 81

HORIZON INDEX 500 FUND FUND ----------------------------- ------------ PERIOD FROM OCTOBER 1, 2001 YEAR ENDED YEAR ENDED TO JULY 31, SEPTEMBER 30, JULY 31, 2002 2001 2002 --------------- ------------- ------------ Investment income: Interest $ 14,804 $ 75,369 $ 55,232 Dividends 238,178 225,685 604,087 Income from securities lending activities 2,414 1,867 3,929 ------------ ------------ ------------ Total investment income 255,396 302,921 663,248 ------------ ------------ ------------ Expenses (note 4): Investment advisory fee 231,587 427,000 148,568 Rule 12b-1 fees - Class A 58,966 105,267 56,862 Rule 12b-1 fees - Class B 87,139 173,285 189,402 Rule 12b-1 fees - Class C 7,835 15,646 20,114 Administrative services fee 62,000 74,400 74,400 Amortization of organizational costs (note 5) -- -- 8,883 Transfer agent and shareholder services fees 241,582 314,627 206,835 Custodian fees 3,859 11,848 9,311 Auditing and accounting services 16,013 29,114 25,632 Legal fees 5,107 9,546 6,666 Directors' fees 952 1,128 1,210 Registration fees 32,520 37,489 36,396 Printing and shareholder reports 29,132 38,822 31,325 Insurance 2,350 2,011 2,350 Licensing fee -- -- 3,500 Other 9,869 9,150 5,076 ------------ ------------ ------------ Total expenses 788,911 1,249,333 826,530 ------------ ------------ ------------ Less fees and expenses waived or absorbed by Adviser or Distributor: Class A Rule 12b-1 fees -- -- (22,745) Other waived fees (271,049) (284,604) (297,973) ------------ ------------ ------------ Total fees and expenses waived or absorbed (271,049) (284,604) (320,718) ------------ ------------ ------------ Total net expenses 517,862 964,729 505,812 ------------ ------------ ------------ Investment income (loss) - net (262,466) (661,808) 157,436 ------------ ------------ ------------ Net realized gains (losses) on (note 3): Security transactions (1,803,623) (13,832,622) (2,949,300) Futures contracts (note 2) -- -- (269,879) ------------ ------------ ------------ (1,803,623) (13,832,622) (3,219,179) ------------ ------------ ------------ Net change in unrealized appreciation or depreciation on investments (1,437,501) (28,342,114) (8,585,433) ------------ ------------ ------------ (1,437,501) (28,342,114) (8,585,433) ------------ ------------ ------------ Net gains (losses) on investments (3,241,124) (42,174,736) (11,804,612) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations $ (3,503,590) $(42,836,544) $(11,647,176) ============ ============ ============

REAL ESTATE SECURITIES VENTURE FUND FUND ------------ ------------ YEAR ENDED YEAR ENDED JULY 31, JULY 31, 2002 2002 ------------ ------------ Investment income: Interest $ 16,039 $ 93,160 Dividends 909,273 340,445 Income from securities lending activities 2,869 18,433 ------------ ------------ Total investment income 928,181 452,038 ------------ ------------ Expenses (note 4): Investment advisory fee 163,110 444,881 Rule 12b-1 fees - Class A 53,635 143,955 Rule 12b-1 fees - Class B 2,939 46,950 Rule 12b-1 fees - Class C -- 12,773 Administrative services fee 61,200 74,400 Amortization of organizational costs (note 5) -- 8,872 Transfer agent and shareholder services fees 11,167 87,232 Custodian fees 8,350 4,372 Auditing and accounting services 13,982 22,782 Legal fees 6,203 6,922 Directors' fees 553 1,702 Registration fees 28,995 39,064 Printing and shareholder reports 17,797 21,389 Insurance 1,950 2,350 Licensing fee -- -- Other 1,728 -- ------------ ------------ Total expenses 371,609 917,644 ------------ ------------ Less fees and expenses waived or absorbed by Adviser or Distributor: Class A Rule 12b-1 fees (32,181) (57,582) Other waived fees (10,569) -- ------------ ------------ Total fees and expenses waived or absorbed (42,750) (57,582) ------------ ------------ Total net expenses 328,859 860,062 ------------ ------------ Investment income (loss) - net 599,322 (408,024) ------------ ------------ Net realized gains (losses) on (note 3): Security transactions 324,588 6,024,204 Futures contracts (note 2) -- -- ------------ ------------ 324,588 6,024,204 ------------ ------------ Net change in unrealized appreciation or depreciation on investments 1,180,088 (15,478,121) ------------ ------------ 1,180,088 (15,478,121) ------------ ------------ Net gains (losses) on investments 1,504,676 (9,453,917) ------------ ------------ Net increase (decrease) in net assets resulting from operations $ 2,103,998 $ (9,861,941) ============ ============

See accompanying notes to financial statements 82 83 ADVANTUS EQUITY FUNDS STATEMENTS OF CHANGES IN NET ASSETS

CORNERSTONE FUND ----------------------------------------------- PERIOD FROM OCTOBER 1, YEARS ENDED SEPTEMBER 30, 2001 TO JULY 31, ----------------------------- 2002 2001 2000 ---------------- -------------- -------------- Operations: Investment income (loss) - net $ 387,940 $ 429,308 $ 322,259 Net realized gains (losses) on investments (5,242,003) (3,427,029) (1,634,621) Net change in unrealized appreciation or depreciation on investments 1,253,980 (11,683,754) 2,471,025 ---------------- -------------- -------------- Increase (decrease) in net assets resulting from operations (3,600,083) (14,681,475) 1,158,663 ---------------- -------------- -------------- Distributions to shareholders from: Investment income - net: Class A (377,849) (408,866) (332,612) Class B (5,558) (1,880) - Class C (594) (254) - Net realized gains on investments: Class A - - (760,784) Class B - - (151,807) Class C - - (15,257) Tax return of capital: Class A - - (40,388) Class B - - - Class C - - - Excess distribution of net realized gain: Class A - - (354,581) Class B - - (70,753) Class C - - (7,111) ---------------- -------------- -------------- Total distributions (384,001) (411,000) (1,733,293) ---------------- -------------- -------------- Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 7,910,021 5,289,579 5,178,041 Class B 357,179 611,558 854,661 Class C 37,054 64,321 111,411 Proceeds from issuance of shares as a result of reinvested dividends: Class A 207,753 228,567 1,330,582 Class B 5,340 1,823 216,243 Class C 591 251 22,191 Payments for redemption of shares: Class A (12,312,791) (8,002,033) (17,321,930) Class B (2,231,688) (3,076,130) (6,953,574) Class C (192,680) (289,292) (860,962) ---------------- -------------- -------------- Increase (decrease) in net assets from capital share transactions (6,219,221) (5,171,356) (17,423,337) ---------------- -------------- -------------- Total decrease in net assets (10,203,305) (20,263,831) (17,997,967) Net assets at beginning of period 75,020,879 95,284,710 113,282,677 ---------------- -------------- -------------- Net assets at end of period* $ 64,817,574 $ 75,020,879 $ 95,284,710 ================ ============== ============== * Including undistributed (distributions in excess) net investment income 4,818 18,308 -

ENTERPRISE FUND ----------------------------------------------- PERIOD FROM OCTOBER 1, YEARS ENDED SEPTEMBER 30, 2001 TO JULY 31 ------------------------------ 2002 2001 2000 ---------------- -------------- ------------- Operations: Investment income (loss) - net $ (439,780) $ (561,707) $ (692,833) Net realized gains (losses) on investments (6,244,790) (10,661,326) 27,497,733 Net change in unrealized appreciation or depreciation on investments 3,142,493 (17,527,880) (6,379,250) ---------------- -------------- ------------- Increase (decrease) in net assets resulting from operations (3,542,077) (28,750,913) 20,425,650 ---------------- -------------- ------------- Distributions to shareholders from: Investment income - net: Class A - - - Class B - - - Class C - - - Net realized gains on investments: Class A - (17,270,178) - Class B - (2,987,176) - Class C - (359,988) - Tax return of capital: Class A - - - Class B - - - Class C - - - Excess distribution of net realized gain: Class A - - - Class B - - - Class C - - - ---------------- -------------- ------------- Total distributions - (20,617,342) - ---------------- -------------- ------------- Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 7,486,324 3,423,922 42,808,703 Class B 300,215 701,160 2,184,969 Class C 61,967 159,604 416,929 Proceeds from issuance of shares as a result of reinvested dividends: Class A - 17,184,998 - Class B - 2,913,962 - Class C - 351,595 - Payments for redemption of shares: Class A (7,690,490) (4,242,274) (44,233,607) Class B (1,080,529) (1,427,099) (2,173,566) Class C (137,446) (224,061) (488,009) ---------------- -------------- ------------- Increase (decrease) in net assets from capital share transactions (1,059,959) 18,841,807 (1,484,581) ---------------- -------------- ------------- Total decrease in net assets (4,602,036) (30,526,448) 18,941,069 Net assets at beginning of period 35,725,835 66,252,283 47,311,214 ---------------- -------------- ------------- Net assets at end of period* $31,123,799 $ 35,725,835 $ 66,252,283 ================ ============== ============= * Including undistributed (distributions in excess) net investment income - - -

See accompanying notes to financial statements. 84 85

HORIZON FUND ------------------------------------------------ PERIOD FROM OCTOBER 1, YEARS ENDED SEPTEMBER 30, 2001 TO JULY 31, ------------------------------ 2002 2001 2000 ---------------- -------------- ------------- Operations: Investment income (loss) - net $ (262,466) $ (661,808) $ (1,067,867) Net realized gains (losses) on investments (1,803,623) (13,832,622) 15,798,951 Net change in unrealized appreciation or depreciation on investments (1,437,501) (28,342,114) 986,530 ---------------- -------------- ------------- Increase (decrease) in net assets resulting from operations (3,503,590) (42,836,544) 15,717,614 ---------------- -------------- ------------- Distributions to shareholders from: Investment income - net: Class A - - - Class B - - - Class C - - - Net realized gains on investments: Class A - (9,628,296) (1,947,401) Class B - (4,375,595) (839,265) Class C - (390,723) (79,353) ---------------- -------------- ------------- Total distributions - (14,394,614) (2,866,019) ---------------- -------------- ------------- Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 1,969,386 6,031,604 12,781,313 Class B 539,921 1,569,835 5,858,583 Class C 46,322 270,628 480,940 Proceeds from issuance of shares as a result of reinvested dividends: Class A - 9,409,680 1,920,111 Class B - 4,048,610 812,787 Class C - 374,664 78,055 Payments for redemption of shares: Class A (5,178,717) (12,322,741) (16,846,488) Class B (2,842,922) (5,184,908) (6,731,920) Class C (306,392) (537,056) (1,044,844) ---------------- -------------- ------------- Increase (decrease) in net assets from capital share transactions (5,772,402) 3,660,316 (2,691,463) ---------------- -------------- ------------- Total decrease in net assets (9,275,992) (53,570,842) 10,160,132 Net assets at beginning of period 39,270,964 92,841,806 82,681,674 ---------------- -------------- ------------- Net assets at end of period* $29,994,972 $ 39,270,964 $ 92,841,806 ================ ============== ============= * Including undistributed (distributions in excess) net investment income - - -

INDEX 500 FUND --------------------------------- YEARS ENDED JULY 31, --------------------------------- 2002 2001 -------------- ------------- Operations: Investment income (loss) - net $ 157,436 $ 150,862 Net realized gains (losses) on investments (3,219,179) (1,245,076) Net change in unrealized appreciation or depreciation on investments (8,585,433) (7,773,551) -------------- ------------- Increase (decrease) in net assets resulting from operations (11,647,176) (8,867,765) -------------- ------------- Distributions to shareholders from: Investment income - net: Class A (143,635) (156,156) Class B (6,716) (26,452) Class C (649) (3,392) Net realized gains on investments: Class A - (79,075) Class B - (75,120) Class C - (8,718) -------------- ------------- Total distributions (151,000) (348,913) -------------- ------------- Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 4,652,626 6,914,160 Class B 1,997,234 2,880,975 Class C 362,915 832,407 Proceeds from issuance of shares as a result of reinvested dividends: Class A 93,414 157,009 Class B 6,471 104,295 Class C 623 12,614 Payments for redemption of shares: Class A (5,370,976) (2,658,123) Class B (4,188,695) (4,703,171) Class C (487,518) (1,200,111) -------------- ------------- Increase (decrease) in net assets from capital share transactions (2,933,906) 2,340,055 -------------- ------------- Total decrease in net assets (14,732,082) (6,876,623) Net assets at beginning of period 49,091,628 55,968,251 -------------- ------------- Net assets at end of period* $ 34,359,546 $49,091,628 ============== ============= * Including undistributed (distributions in excess) net investment income 15,318 -

See accompanying notes to financial statements. 86 87

REAL ESTATE SECURITIES FUND ------------------------- YEAR ENDED JULY 31, ------------------------- 2002 2001 ----------- ------------- Operations: Investment income (loss) - net $ 599,322 $ 591,346 Net realized gains (losses) on investments 324,588 1,369,807 Net change in unrealized appreciation or depreciation on investments 1,180,088 (615,603) ----------- ------------- Increase (decrease) in net assets resulting from operations 2,103,998 1,345,550 ----------- ------------- Distributions to shareholders from: Investment income - net: Class A (502,926) (630,000) Class B (3,574) - Class C - - Net realized gains on investments: Class A (1,186,943) - Class B (753) - Class C - - ----------- ------------- Total distributions (1,694,196) (630,000) ----------- ------------- Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 16,920,073 6,869,380 Class B 1,266,380 - Class C - - Proceeds from issuance of shares as a result of reinvested dividends: Class A 1,132,267 351,840 Class B 4,086 - Class C - - Payments for redemption of shares: Class A (3,548,144) (2,304,948) Class B (120,245) - Class C - - ----------- ------------- Increase (decrease) in net assets from capital share transactions 15,654,417 4,916,272 ----------- ------------- Total decrease in net assets 16,064,219 5,631,822 Net assets at beginning of period 17,335,908 11,704,086 ----------- ------------- Net assets at end of period* $33,400,127 $ 17,335,908 =========== ============= * Including undistributed (distributions in excess) net investment income 92,822 -

VENTURE FUND ------------------------- YEAR ENDED JULY 31, ------------------------- 2002 2001 ------------- ------------ Operations: Investment income (loss) - net $ (408,024) $ (289,097) Net realized gains (losses) on investments 6,024,204 3,528,586 Net change in unrealized appreciation or depreciation on investments (15,478,121) 10,099,522 ------------- ------------ Increase (decrease) in net assets resulting from operations (9,861,941) 13,339,011 ------------- ------------ Distributions to shareholders from: Investment income - net: Class A - - Class B - - Class C - - Net realized gains on investments: Class A (3,292,173) (1,209,518) Class B (271,697) (91,557) Class C (72,757) (9,739) ------------- ------------ Total distributions (3,636,627) (1,310,814) ------------- ------------ Capital share transactions (notes 4 and 6): Proceeds from sales: Class A 23,934,179 14,129,639 Class B 2,199,878 1,147,269 Class C 1,327,144 182,197 Proceeds from issuance of shares as a result of reinvested dividends: Class A 1,073,557 198,759 Class B 259,096 90,161 Class C 69,520 9,462 Payments for redemption of shares: Class A (14,413,881) (2,096,012) Class B (1,024,908) (428,829) Class C (175,731) (74,966) ------------- ------------ Increase (decrease) in net assets from capital share transactions 13,248,854 13,157,680 ------------- ------------ Total decrease in net assets (249,714) 25,185,877 Net assets at beginning of period 59,328,985 34,143,108 ------------- ------------ Net assets at end of period* $ 59,079,271 $59,328,985 ============= ============ * Including undistributed (distributions in excess) net investment income - -

See accompanying notes to financial statements. 88 89 ADVANTUS EQUITY FUNDS NOTES TO FINANCIAL STATEMENTS JULY 31, 2002 (1) ORGANIZATION The Advantus Horizon Fund, Inc., the Advantus Enterprise Fund, Inc., the Advantus Cornerstone Fund, Inc., the Advantus Venture Fund, Inc., the Advantus Index 500 Fund, Inc., and the Advantus Real Estate Securities Fund, Inc. (the Funds) are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies. The Funds' prospectus' provides a detailed description of each Funds' investment objective, policies and strategies. The Funds currently issue three classes of shares: Class A, Class B and Class C shares, except for the Real Estate Securities Fund which does not issue Class C shares. Class A shares are sold subject to a front-end sales charge. Class B shares are sold subject to a contingent deferred sales charge payable upon redemption if redeemed within six years of purchase. Class C shares are sold without either a front-end sales charge or a contingent deferred sales charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both Class B and Class C shares automatically convert to Class A shares at net asset value after a specified holding period. Such holding periods decline as the amount of the purchase increases and range from 28 to 84 months after purchase for Class B shares and 40 to 96 months after purchase for Class C shares. All three classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of Rule 12b-1 fees charged differs between Class A, Class B and Class C shares. Income, expenses (other than Rule 12b-1 fees) and realized and unrealized gains or losses are allocated to each class of shares based upon its relative net assets. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Funds are summarized as follows: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, as of the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 90 INVESTMENTS IN SECURITIES Each Funds' net asset value is generally calculated as of the close of normal trading on the New York Stock Exchange (typically 3:00 p.m. Central Time). Investments in securities traded on a national exchange are valued at the last sales price on that exchange prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued on the basis of the last current bid price, by an independent pricing service or at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities. The pricing service may use models that price securities based on current yields and relative security characteristics, such as coupon rate, maturity date, issuer credit quality and prepayment speeds, as applicable. When market quotations are not readily available, securities are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Short-term securities are valued at market. Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Dividend income is recognized on the ex-dividend date and interest income, including amortization of bond premium and discount computed on a level yield basis, is accrued daily. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Funds also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision 91 is required. The Funds' policy is to make required minimum distributions prior to December 31, in order to avoid federal excise tax. For federal income tax purposes, the following Funds had capital loss carryovers and/or post October losses at July 31, 2002 which, if not offset by subsequent capital gains, will expire July 31, 2010 through July 31, 2011. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gains until available capital loss carryovers have been offset or expire:

Cornerstone Fund $ 9,426,327 Enterprise Fund 17,147,760 Horizon Fund 14,270,820 Index 500 Fund 4,777,874

Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of temporary book-to-tax differences. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Funds. The Funds may elect to utilize equalization debits by which a portion of the costs of redemptions, which occurred during the year ended July 31, 2002, would reduce net realized gain for tax purposes. On the statement of assets and liabilities, as a result of permanent book-to-tax differences, reclassification adjustments were made as follows:

UNDISTRIBUTED ACCUMULATED ADDITIONAL NET INVESTMENT REALIZED PAID IN FUND INCOME GAIN/LOSS CAPITAL - ---- -------------- ----------- --------- Cornerstone $ (17,429) $ 12,960 $ 4,469 Enterprise 439,780 - (439,780) Horizon 262,466 - (262,466) Index 500 8,882 - (8,882) Real Estate Securities - (138,693) 138,693 Venture 408,024 (963,560) 555,536

92 The tax character of distributions paid for the periods indicated is as follows:

PERIOD FROM YEARS ENDED SEPTEMBER 30, OCTOBER 1, 2001 ------------------------------ FUND TO JULY 31, 2002 2001 2000 - ---- ---------------- ------------ ----------- CORNERSTONE DISTRIBUTIONS PAID FROM: Ordinary income $384,001 $ 411,000 $ 332,612 Long-term capital gain - - 1,360,293 Tax return of capital 40,388 ENTERPRISE DISTRIBUTIONS PAID FROM: Ordinary income - 9,729,068 - Long-term capital gain - 10,888,274 - HORIZON DISTRIBUTIONS PAID FROM: Ordinary income - 4,147,789 - Long-term capital gain - 10,246,825 2,866,019

YEARS ENDED JULY 31, ----------------------- FUND 2002 2001 - ---- ----------- -------- INDEX 500 DISTRIBUTIONS PAID FROM: Ordinary income $ 151,000 $348,913 Long-term capital gain - - REAL ESTATE SECURITIES DISTRIBUTIONS PAID FROM: Ordinary income 1,127,977 630,000 Long-term capital gain 566,219 - VENTURE DISTRIBUTIONS PAID FROM: Ordinary income 2,204,481 476,034 Long-term capital gain 1,432,146 834,780

As of July 31, 2002, the components of distributable earnings on a tax basis for each Fund are as follows:

ACCUMULATED UNREALIZED UNDISTRIBUTED LONG-TERM APPRECIATION FUND ORDINARY INCOME GAIN (LOSS) (DEPRECIATION) - ---- --------------- ------------- -------------- Cornerstone $ 4,818 $ (9,426,327) $(3,051,906) Enterprise - (17,147,760) (9,911,952) Horizon - (14,270,820) (1,071,908) Index 500 15,318 (4,777,874) (1,402,200) Real Estate Securities 466,065 396,565 1,635,566 Venture 10,968 4,381,114 (3,289,552)

93 DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared and paid quarterly. Realized gains, if any, are paid annually. (3) INVESTMENT SECURITY TRANSACTIONS For the period ended July 31, 2002, purchases of securities and proceeds from sales, other than temporary investments in short-term securities, were as follows:

FUND PURCHASES SALES - ---- ----------- ----------- Cornerstone $71,009,443 $73,165,958 Enterprise 25,095,866 28,584,386 Horizon 25,871,871 31,477,087 Index 500 5,612,652 7,690,132 Real Estate Securities 35,957,393 21,872,959 Venture 34,625,342 21,548,692

(4) EXPENSES AND RELATED PARTY TRANSACTIONS The Funds have an investment advisory agreement with Advantus Capital Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of Securian Financial Group. Under the agreement, Advantus Capital manages the Funds' assets and provides research, statistical and advisory services and pays related office rental and executive expenses and salaries. Each of the Funds pays Advantus Capital Management an annual fee, based on average net assets in the following amounts:

FUND ANNUAL FEE - ------------------------------------------------------------------------------------------------ Cornerstone .70% of assets to $500 million; and .65% of assets exceeding $500 million to $1 billion; and .60% of assets exceeding $1 billion to $2 billion; and .55% of assets exceeding $2 billion Enterprise .70% of assets to $1 billion; and .68% of assets exceeding $1 billion to $2 billion; and .66% of assets exceeding $2 billion Horizon .70% of assets to $1 billion; and .65% of assets exceeding $1 billion to $2 billion; and .60% of assets exceeding $2 billion Index 500 .34% of assets to $500 million; and .30% of assets exceeding $500 million to $1 billion; and .25% of assets exceeding $1 billion to $2 billion; and .20% of assets exceeding $2 billion. Real Estate Securities .75% of assets to $1 billion; and .725% of assets exceeding $1 billion to $2 billion; and .70% of assets exceeding $2 billion. Venture .70% of assets to $1 billion; and .68% of assets exceeding $1 billion to $2 billion; and .66% of assets exceeding $2 billion

94 Advantus Capital has a sub-advisory agreement with the following registered investment advisers. Under the sub-advisory agreements, Advantus Capital pays the sub-advisers an annual fee based on average daily net assets, in the following amounts:

FUND SUB-ADVISOR ANNUAL FEE - ---- ----------- ---------- Enterprise Credit Suisse Asset .65% of assets to $425 million; and .60% Management of assets exceeding $425 million to $850 million; and .55% of assets exceeding $850 million to $1.150 billion; and .50% of assets exceeding $1.150 billion to $2 billion and .45 of assets exceeding $2 billion Venture State Street Research .65% of assets to $500 million; and and Management .60 of assets exceeding $500 million to $1 billion; and .50% of assets Exceeding $1 billion

The Funds have adopted separate Plans of Distribution applicable to Class A, Class B and Class C shares, respectively, relating to the payment of certain expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as amended). The Funds pay fees to Securian Financial Services, Inc. (Securian), the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial Group, to be used to pay certain expenses incurred in the distribution, promotion and servicing of the Funds shares. The Class A Plan provides for a service fee up to .25 percent of average daily net assets of Class A shares. The Class B and Class C Plans provide for a fee up to 1.00 percent of average daily net assets of Class B and Class C shares, respectively. The Class B and Class C 1.00 percent fee is comprised of a .75 percent distribution fee and a .25 percent service fee. Securian is currently waiving the portion of Class A Rule 12b-1 fees which exceeds, as a percentage of average daily net assets, .15 percent in Enterprise, Index 500 and Venture, and .10 percent in the Real Estate Securities Fund. Securian waived Class A 12b-1 fees in the amounts of $30,363, $22,745, $57,582, and $32,181, respectively, for the above Funds for the period ended July 31, 2002. The Funds have engaged PFPC Global Fund Services to act as their transfer agent, dividend disbursing agent and redemption agent and bear the expenses of such services. The Funds also bear certain other operating expenses including outside directors' fees, custodian fees, registration fees, printing and shareholder reporting fees, outside legal, auditing and accounting services, and other miscellaneous expenses. 95 The Funds have entered in a shareholder and administrative services agreement with Securian Financial Group. Under this agreement, the Funds pay a shareholder services fee, equal to $7 per shareholder account annually, to Securian Financial Group for shareholder services which Securian Financial Group provides. Prior to December 1, 2001, the Funds paid a shareholder services fee equal to $5 per shareholder account annually. The Funds also pay Securian Financial Group an administrative services fee equal to $5,100 per month for the Real Estate Securities Fund and $6,200 per month in all the remaining Funds for accounting, auditing, legal and other administrative services which Securian Financial Group provides. Advantus Capital directly incurs and pays the above operating expenses and the Fund's in turn reimburses Advantus Capital. VOLUNTARY FEE ABSORPTION Advantus Capital has voluntarily agreed to absorb all Fund costs and expenses that exceed 1.24% of Class A average daily net assets and 1.99% of Class B and C average daily net assets for the Cornerstone Fund, all Fund costs and expenses that exceed 1.38% of Class A average daily net assets and 2.23% of Class B and C average daily net assets for the Enterprise Fund, all Fund costs and expenses that exceed 1.35% of Class A average daily net assets and 2.10% of Class B and C average daily net assets for the Horizon Fund, all Fund costs and expenses which exceed .75% of Class A average daily net assets and 1.60% of Class B and C average daily net assets for the Index 500 Fund, all Fund costs and expenses that exceed 1.65% of Class A average daily net assets effective August 1, 2002 (previously it was 1.50%) and 2.40% of Class B average daily net assets for Real Estate Securities Fund, and all Fund costs and expenses that exceed 1.40% of Class A average daily net assets and 2.25% of Class B and C average daily net assets for the Venture Fund. During the period ended July 31, 2002, Advantus Capital voluntarily agreed to absorb $105,055, $72,685, $271,049, $297,973, $10,569, and $--, respectively, in expenses which were otherwise payable by the Funds. For the period ended July 31, 2002, sales charges received by Securian for distributing the Funds' three classes of shares for Cornerstone, Enterprise, Horizon, Index 500, Real Estate Securities, and Venture are $144,268, $51,925, $118,958, $194,688, $42,568, and $77,840 respectively. 96 As of July 31, 2002 the ownership of shares by Minnesota Life and subsidiaries and the directors and officers of the Funds as a whole was as follows:

PERCENTAGE NUMBER OF OWNED FUND SHARES OF CLASS - ---- ---------- ---------- Cornerstone Class A 4,055,814 82.6% Enterprise Class A 3,564,971 84.0% Horizon Class A 13,098 0.7% Index 500 Class A 707,403 46.6% Class B 763 --% Class C 10,992 8.0% Real Estate Class A 2,454,169 90.7% Venture Class A 3,898,399 89.9%

Legal fees were paid to a law firm of which the Funds' secretary is a partner to the Cornerstone Fund, the Enterprise Fund, the Horizon Fund, the Index 500 Fund, the Real Estate Securities Fund, and the Venture Fund in the amount of $5,865 for each of the Funds. (5) ORGANIZATIONAL COSTS The Index 500 Fund and Venture Fund incurred organizational expenses in connection with the start-up and initial registration. These costs were amortized over 60 months on a straight-line basis beginning with the commencement of operations and were fully amortized at July 31, 2002. 97 (6) CAPITAL SHARE TRANSACTIONS Transactions in shares for the period ended July 31, 2002, and the years ended September 30, 2001 and 2000, were as follows:

CORNERSTONE FUND ----------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C -------------------------------- ------------------------------- ---------------------------- 2002 2001 2000 2002 2001 2000 2002 2001 2000 --------- --------- ----------- --------- --------- --------- -------- -------- -------- Sold 590,303 361,247 342,146 27,171 42,405 57,188 2,846 4,525 7,551 Issued for reinvested distributions 15,571 16,815 84,952 409 128 13,914 45 17 1,429 Redeemed (921,372) (551,305) (1,150,121) (170,656) (214,538) (465,471) (14,734) (20,295) (57,511) --------- --------- ----------- --------- --------- --------- -------- -------- -------- (315,498) (173,243) (723,023) (143,076) (172,005) (394,369) (11,843) (15,753) (48,531) ========= ========= =========== ========= ========= ========= ======== ======== ========

ENTERPRISE FUND ----------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------------- ------------------------------- ----------------------------- 2002 2001 2000 2002 2001 2000 2002 2001 2000 --------- ---------- ----------- --------- --------- --------- -------- -------- -------- Sold 892,251 374,323 2,133,665 38,348 67,534 104,910 7,676 14,611 20,405 Issued for reinvested distributions - 1,621,745 - - 302,899 - - 37,153 - Redeemed (914,738) (429,560) (2,180,851) (141,912) (151,151) (109,705) (17,929) (23,563) (23,890) --------- ---------- ----------- --------- --------- --------- -------- -------- -------- (22,487) 1,566,508 (47,186) (103,564) 219,282 (4,795) (10,253) 28,201 (3,485) ========= ========== =========== ========= ========= ========= ======== ======== ========

HORIZON FUND ----------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C -------------------------------- ------------------------------- ---------------------------- 2002 2001 2000 2002 2001 2000 2002 2001 2000 --------- ---------- ----------- --------- --------- --------- -------- -------- -------- Sold 144,293 359,055 416,222 42,647 92,722 194,436 3,696 14,967 16,377 Issued for reinvested distributions - 466,476 64,614 - 216,815 28,830 - 20,334 2,752 Redeemed (386,031) (685,126) (540,501) (230,525) (308,878) 227,243 (24,538) (32,274) (36,606) --------- ---------- ----------- --------- --------- --------- -------- -------- -------- (241,738) 140,405 (59,665) (187,878) 659 (3,977) (20,842) 3,027 (17,477) ========= ========== =========== ========= ========= ========= ======== ======== ========

98

INDEX 500 FUND ---------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C -------------------------- ------------------------- ------------------------------ 2002 2001 2002 2001 2002 2001 ----------- ---------- ---------- --------- --------- --------- Sold 321,990 399,791 140,642 169,289 25,624 48,578 Issued for reinvested distributions 6,645 9,492 439 6,151 42 747 Redeemed (374,275) (153,203) (304,910) (277,977) (35,675) (72,679) ----------- ---------- ---------- --------- --------- --------- (45,640) 256,080 (163,829) (102,537) (10,009) (23,354) =========== ========== ========== ========= ========= =========

REAL ESTATE SECURITIES FUND ----------------------------------------- CLASS A CLASS B ------------------------- --------- 2002 2001 2002 --------- --------- --------- Sold 1,428,832 621,574 104,942 Issued for reinvested distributions 101,578 32,451 342 Redeemed (311,365) (210,066) (10,152) --------- --------- --------- 1,219,045 443,959 95,132 ========= ========= =========

VENTURE FUND ---------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ---------------------------- ------------------------- ----------------------------- 2002 2001 2002 2001 2002 2001 ------------ ---------- --------- -------- --------- ------ Sold 1,639,269 1,044,828 154,746 83,650 98,695 13,032 Issued for reinvested distributions 79,848 16,689 19,807 7,731 5,281 801 Redeemed (1,023,466) (158,483) (72,399) (32,805) (12,771) (5,435) ------------ ---------- --------- -------- --------- ------ 695,651 903,034 102,154 58,576 91,205 8,398 ============ ========== ========= ======== ========= ======

(7) SECURITIES LENDING CONTRACTS To enhance returns, the Funds loan securities to brokers in exchange for collateral. The Funds receive a fee from the brokers measured as a percent of the loaned securities. At July 31, 2002, the collateral is invested in cash equivalents and repurchase agreements and must be 102% of the value of securities loaned. The risk to the Funds is that the borrower may not provide additional collateral when required or return the securities when due. At July 31, 2002, Cornerstone, Enterprise, Horizon, Index 500, Real Estate, and Venture had securities valued at $2,492,550, $7,916,003, $1,136,445, $1554,806, $3,239,099 and $9,300,613 that were on loan to brokers and the 99 Funds had $2,555,915, $8,390,692, $1,162,779, $1,655,148, $3,349,586 and $10,151,588 in cash collateral, respectively. (8) STOCK INDEX FUTURES CONTRACTS Investments in securities as of July 31, 2002, included securities valued at $2,826,920 in the Advantus Index 500 Fund that were used as collateral to cover initial margin deposits on three open September S&P 500 and two open September S&P 500 EMINI Futures purchase contacts. The market value of the open purchase contracts as of July 31, 2002, was $774,775 with an unrealized loss of $57,795. (9) ILLIQUID SECURITIES At July 31, 2002, each of the Funds' investments in illiquid securities are limited to 10% of net assets at the time of purchase. At July 31, 2002 investments in securities of the Venture Fund include issues that are illiquid. The aggregate value of illiquid securities held by the Venture Fund was $624 which represents 0.0% of net assets. 100 (10) FINANCIAL HIGHLIGHTS ADVANTUS CORNERSTONE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A -------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SPETEMBER 30, JULY 31, ------------------------------------------------------ 2002 2001 2000 1999 1998 1997 ---------- --------- --------- -------- -------- --------- Net asset value, beginning of period $ 12.59 $ 15.08 $ 15.14 $ 13.88 $ 18.68 $ 15.06 ---------- --------- --------- -------- -------- --------- Income from investment operations: Net investment income (loss) .08 .09 .06 .15 .16 .14 Net gains (losses) (both realized and unrealized) (.78) (2.50) .13 1.24 (3.04) 5.19 ---------- --------- --------- -------- -------- --------- Total from investment operations (.70) (2.41) .19 1.41 (2.88) 5.33 ---------- --------- --------- -------- -------- --------- Less distributions: Dividends from net investment income (.08) (.08) (.05) (.15) (.16) (.14) Distributions from net realized gains - - (.13) - (1.76) (1.57) Excess distributions of net realized gain - - (.06) - - - Tax return of capital - - (.01) - - - ---------- --------- --------- -------- -------- --------- Total distributions (.08) (.08) (.25) (.15) (1.92) (1.71) ---------- --------- --------- -------- -------- --------- Net asset value, end of period $ 11.81 $ 12.59 $ 15.08 $ 15.14 $ 13.88 $ 18.68 ========== ========= ========= ======== ======== ========= Total return (a) (5.72)% (15.97)% 1.26% 10.13% (16.45)% 38.35% Net assets, end of period (in thousands) $ 57,947 $ 65,766 $ 81,389 $ 92,657 $ 93,833 $ 107,322 Ratios to average net assets: Expenses 1.24%(b) 1.24% 1.24% 1.21% 1.16% 1.08% Net investment income (loss) .70%(b) .61% .43% .94% .98% .85% Expenses without waivers 1.41%(b) 1.39% 1.34% 1.23% 1.25% 1.28% Net investment income (loss) without waivers .53%(b) .46% .33% .92% .89% .65% Portfolio turnover rate (excluding short-term securities) 95.3% 147.9% 180.1% 78.7% 114.4% 87.7%

- -------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 101 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B --------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, ------------------------------------------------------ 2002 2001 2000 1999 1998 1997 ------------- ------- -------- -------- -------- -------- Net asset value, beginning of period $ 12.38 $ 14.86 $ 14.97 $ 13.73 $ 18.52 $ 14.92 ------------- ------- -------- -------- -------- -------- Income from investment operations: Net investment income (loss) - (.02) (.02) .03 .03 - Net gains (losses) (both realized and unrealized) (.77) (2.46) .10 1.24 (3.02) 5.18 ------------- ------- -------- -------- -------- -------- Total from investment operations (.77) (2.48) .08 1.27 (2.99) 5.18 ------------- ------- -------- -------- -------- -------- Less distributions: Dividends from net investment income (.01) - - (.03) (.04) (.01) Distributions from net realized gains - - (.13) - (1.76) (1.57) Excess distributions of net realized gain - - (.06) - - - ------------- ------- -------- -------- -------- -------- Total distributions (.01) - (.19) (.03) (1.80) (1.58) ------------- ------- -------- -------- -------- -------- Net asset value, end of period $ 11.60 $ 12.38 $ 14.86 $ 14.97 $ 13.73 $ 18.52 ============= ======= ======== ======== ======== ======== Total return (a) (6.40)% (16.61)% .54% 9.26% (17.21)% 37.68% Net assets, end of period (in thousands) $ 6,190 $ 8,382 $ 12,615 $ 18,611 $ 21,176 $ 21,405 Ratios to average net assets: Expenses 1.99%(b) 1.99% 1.99% 1.96% 1.95% 1.98% Net investment income (loss) (.05)%(b) (.14)% (.29)% .20% .18% (.05)% Expenses without waivers 2.16%(b) 2.14% 2.09% 1.96% 1.95% 1.98% Net investment income (loss) without waivers (.22)%(b) (.29)% (.39)% .20% .18% (.05)% Portfolio turnover rate (excluding short-term securities) 95.3% 147.9% 180.1% 78.7% 114.4% 87.7%

- ----------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 102 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C -------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, -------------------------------------------- 2002 2001 2000 1999 1998 1997 ----------- ------- ------ ------ ------- ------- Net asset value, beginning of period $12.35 $ 14.82 $14.93 $13.68 $ 18.48 $14.94 ----------- ------- ------ ------ ------- ------- Income from investment operations: Net investment income (loss) - (.02) (.02) .03 .03 - Net gains (losses) (both realized and unrealized) (.78) (2.45) .10 1.25 (3.04) 5.12 ----------- ------- ------ ------ ------- ------- Total from investment operations (.78) (2.47) .08 1.28 (3.01) 5.12 ----------- ------- ------ ------ ------- ------- Less distributions: Dividends from net investment income (.01) - - (.03) (.03) (.01) Distributions from net realized gains - - (.13) - (1.76) (1.57) Excess distributions of net realized gain - - (.06) - - - Tax return of capital - - - - - - ----------- ------- ------ ------ ------- ------- Total distributions (.01) - (.19) (.03) (1.79) (1.58) ----------- ------- ------ ------ ------- ------- Net asset value, end of period $11.56 $ 12.35 $14.82 $14.93 $ 13.68 $18.48 =========== ======= ====== ====== ======= ======= Total return (a) (6.42)% (16.58)% .54% 9.35% (17.28)% 37.10% Net assets, end of period (in thousands) $ 680 $ 873 $1,281 $2,015 $ 3,094 $3,399 Ratios to average net assets: Expenses 1.99%(b) 1.99% 1.99% 1.96% 1.95% 1.98% Net investment income (loss) (.05)%(b) (.14)% (.29)% .21% .18% (.05)% Expenses without waivers 2.16%(b) 2.14% 2.09% 1.96% 1.95% 1.98% Net investment income (loss) without waivers (.22)%(b) (.29)% (.39)% .21% .18% (.05)% Portfolio turnover rate (excluding short-term securities) 95.3% 147.9% 180.1% 78.7% 114.4% 87.7%

- ----------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 103 ADVANTUS ENTERPRISE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A --------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, ------------------------------------------------- 2002 2001 2000 1999 1998 1997 ----------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 7.20 $ 20.77 $ 14.56 $ 11.32 $ 15.90 $ 15.94 ----------- ------- ------- ------- ------- ------- Income from investment operations: Net investment loss (.08) (.03) (.19) (.14) (.13) (.04) Net gains (losses) (both realized and unrealized) (.68) (7.07) 6.40 3.38 (4.45) 1.74 ----------- ------- ------- ------- ------- ------- Total from investment operations (.76) (7.10) 6.21 3.24 (4.58) 1.70 ----------- ------- ------- ------- ------- ------- Less distributions: Distributions from net realized gains - (6.47) - - - (1.74) ----------- ------- ------- ------- ------- ------- Total distributions - (6.47) - - - (1.74) ----------- ------- ------- ------- ------- ------- Net asset value, end of period $ 6.44 $ 7.20 $ 20.77 $ 14.56 $ 11.32 $ 15.90 ========== ======= ======= ======= ======= ======= Total return (a) (10.56)% (44.09)% 42.65% 28.62% (28.81)% 12.88% Net assets, end of period (in thousands) $27,357 $30,744 $56,087 $40,009 $31,844 $44,102 Ratios to average net assets: Expenses 1.38%(b) 1.38% 1.25% 1.33% 1.27% 1.28% Net investment income (loss) (1.14)%(b) (1.00)% (.92)% (.97)% (.91)% (.32)% Expenses without waivers 1.69%(b) 1.60% 1.43% 1.45% 1.44% 1.48% Net investment income (loss) without waivers (1.45)%(b) (1.22)% (1.10)% (1.09)% (1.08)% (.52)% Portfolio turnover rate (excluding short-term securities) 62.2% 105.4% 181.5% 99.3% 71.1% 65.8%

- --------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. (b) Adjusted to an annual basis. 104 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ---------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, ------------------------------------------------- 2002 2001 2000 1999 1998 1997 ----------- ------- ------- ------ ------- ------ Net asset value, beginning of period $ 6.51 $ 19.63 $ 13.88 $10.88 $ 15.42 $ 15.64 ----------- ------- ------- ------ ------- ------ Income from investment operations: Net investment loss (.16) (.07) (.35) (.26) (.24) (.18) Net gains (losses) (both realized and unrealized) (.57) (6.58) 6.10 3.26 (4.30) 1.70 ----------- ------- ------- ------ ------- ------ Total from investment operations (.73) (6.65) 5.75 3.00 (4.54) 1.52 ----------- ------- ------- ------ ------- ------ Less distributions: Distributions from net realized gains - (6.47) - - - (1.74) ----------- ------- ------- ------ ------- ------ Total distributions - (6.47) - - - (1.74) ----------- ------- ------- ------ ------- ------ Net asset value, end of period $ 5.78 $ 6.51 $ 19.63 $13.88 $ 10.88 $ 15.42 =========== ======= ======= ====== ======= ======= Total return (a) (11.22)% (44.59)% 41.43% 27.57% (29.44)% 11.89% Net assets, end of period (in thousands) $ 3,345 $ 4,440 $ 9,086 $6,491 $ 5,903 $ 7,683 Ratios to average net assets: Expenses 2.23%(b) 2.23% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) (1.99)%(b) (1.85)% (1.77)% (1.82)% (1.77)% (1.60)% Expenses without waivers 2.44%(b) 2.35% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) without waivers (2.20)%(b) (1.97)% (1.77)% (1.82)% (1.77)% (1.60)% Portfolio turnover rate (excluding short-term securities) 62.2% 105.4% 181.5% 99.3% 71.1% 65.8%

- ------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 105 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, ------------------------------------------------------ 2002 2001 2000 1999 1998 1997 ----------- ------- ------ ------ ------- ------ Net asset value, beginning of period $ 6.50 $ 19.62 $13.87 $10.87 $ 15.41 $15.63 ----------- ------- ------ ------ ------- ------ Income from investment operations: Net investment loss (.15) (.05) (.36) (.27) (.26) (.23) Net gains (losses) (both realized and unrealized) (.57) (6.60) 6.11 3.27 (4.28) 1.75 ----------- ------- ------ ------ ------- ------ Total from investment operations (.72) (6.65) 5.75 3.00 (4.54) 1.52 ----------- ------- ------ ------ ------- ------ Less distributions: Distributions from net realized gains - (6.47) - - - (1.74) ----------- ------- ------ ------ ------- ------ Total distributions - (6.47) - - - (1.74) ----------- ------- ------ ------ ------- ------ Net asset value, end of period $ 5.78 $ 6.50 $19.62 $13.87 $ 10.87 $15.41 =========== ======= ====== ====== ======= ====== Total return (a) (11.21)% (44.54)% 41.46% 27.48% (29.40)% 11.89% Net assets, end of period (in thousands) $ 421 $ 541 $1,079 $ 812 $ 780 $1,133 Ratios to average net assets: Expenses 2.23%(b) 2.23% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) (1.99)%(b) (1.85)% (1.77)% (1.82)% (1.78)% (1.75)% Expenses without waivers 2.44%(b) 2.35% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) without waivers (2.20)%(b) (1.97)% (1.77)% (1.82)% (1.78)% (1.75)% Portfolio turnover rate (excluding short-term securities) 62.2% 105.4% 181.5% 99.3% 71.1% 65.8%

- ----------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return has not been annualized. (b) Adjusted to an annual basis. 106 ADVANTUS HORIZON FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, ------------------------------------------------------ 2002 2001 2000 1999 1998 1997 ----------- ------- -------- ------- ------- ------- Net asset value, beginning of year $ 12.63 $ 31.08 $ 26.88 $ 23.59 $ 23.06 $ 23.07 ----------- ------- -------- ------- ------- ------- Income from investment operations: Net investment loss (.07) (.16) (.28) (.16) (.09) (.08) Net gains (losses) (both realized and unrealized) (1.33) (13.38) 5.41 5.77 3.48 4.89 ----------- ------- -------- ------- ------- ------- Total from investment operations (1.40) (13.54) 5.13 5.61 3.39 4.81 ----------- ------- -------- ------- ------- ------- Less distributions: Distributions from net realized gains - (4.91) (.93) (2.32) (2.86) (4.82) ----------- ------- -------- ------- ------- ------- Total distributions - (4.91) (.93) (2.32) (2.86) (4.82) ----------- ------- -------- ------- ------- ------- Net asset value, end of year $ 11.23 $ 12.63 $ 31.08 $ 26.88 $ 23.59 $ 23.06 =========== ======= ======== ======= ======= ======= Total return (a) (11.08)% (49.46)% 19.26% 24.74% 16.38% 24.96% Net assets, end of year (in thousands) $21,830 $27,603 $63,568 $56,581 $47,183 $40,192 Ratios to average net assets: Expenses 1.35%(b) 1.35% 1.33% 1.30% 1.36% 1.43% Net investment income (loss) (.58)%(b) (.85)% (.89)% (.61)% (.39)% (.39)% Expenses without waivers 2.17%(b) 1.81% 1.42% 1.30% 1.37% 1.48% Net investment income (loss) without waivers (1.40)%(b) (1.32)% (.97)% (.61)% (.40)% (.44)% Portfolio turnover rate (excluding short-term securities) 67.6% 129.6% 109.3% 60.1% 72.6% 71.5%

- -------------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 107 ADVANTUS HORIZON FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------ PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, --------------------------------------------------------- 2002 2001 2000 1999 1998 1997 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of year $ 11.62 $ 29.26 $ 25.54 $ 22.65 $ 22.41 $ 22.65 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment loss (.16) (.30) (.49) (.32) (.22) (.19) Net gains (losses) (both realized and unrealized) (1.19) (12.43) 5.14 5.53 3.32 4.77 ------- ------- ------- ------- ------- ------- Total from investment operations (1.35) (12.73) 4.65 5.21 3.10 4.58 ------- ------- ------- ------- ------- ------- Less distributions: Distributions from net realized gains -- (4.91) (.93) (2.32) (2.86) (4.82) ------- ------- ------- ------- ------- ------- Total distributions -- (4.91) (.93) (2.32) (2.86) (4.82) ------- ------- ------- ------- ------- ------- Net asset value, end of year $ 10.27 $ 11.62 $ 29.26 $ 25.54 $ 22.65 $ 22.41 ======= ======= ======= ======= ======= ======= Total return (a) (11.71)% (49.85)% 18.40% 23.93% 15.48% 24.25% Net assets, end of year (in thousands) $ 7,507 $10,679 $26,878 $23,561 $17,100 $11,684 Ratios to average net assets: Expenses 2.10%(b) 2.10% 2.08% 2.04% 2.07% 2.18% Net investment income (loss) (1.33)%(b) (1.60)% (1.63)% (1.34)% (1.11)% (1.13)% Expenses without waivers 2.92%(b) 2.56% 2.17% 2.04% 2.07% 2.18% Net investment income (loss) without waivers (2.15)%(b) (2.07)% (1.72)% (1.34)% (1.11)% (1.13)% Portfolio turnover rate (excluding short-term securities) 67.6% 129.6% 109.3% 60.1% 72.6% 71.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 108 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ----------------------------------------------------------------------- PERIOD FROM OCTOBER 1, 2001 TO YEAR ENDED SEPTEMBER 30, JULY 31, -------------------------------------------------------- 2002 2001 2000 1999 1998 1997 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of year $ 11.71 $ 29.44 $ 25.69 $22.79 $22.38 $22.67 ------- ------- ------- ------ ------ ------ Income from investment operations: Net investment loss (.16) (.30) (.51) (.36) (.24) (.20) Net gains (losses) (both realized and unrealized) (1.21) (12.52) 5.19 5.58 3.51 4.73 ------- ------- ------- ------ ------ ------ Total from investment operations (1.37) (12.82) 4.68 5.22 3.27 4.53 ------- ------- ------- ------ ------ ------ Less distributions: Distributions from net realized gains -- (4.91) (.93) (2.32) (2.86) (4.82) ------- ------- ------- ------ ------ ------ Total distributions -- (4.91) (.93) (2.32) (2.86) (4.82) ------- ------- ------- ------ ------ ------ Net asset value, end of year $ 10.34 $ 11.71 $ 29.44 $25.69 $22.79 $22.38 ======= ======= ======= ====== ====== ====== Total return (a) (11.71)% (49.84)% 18.37% 23.82% 15.74% 24.03% Net assets, end of year (in thousands) $ 658 $ 988 $ 2,396 $2,540 $2,299 $1,754 Ratios to average net assets: Expenses 2.10%(b) 2.10% 2.08% 2.04% 2.07% 2.18% Net investment income (loss) (1.33)%(b) (1.60)% (1.63)% (1.34)% (1.10) (1.14)% Expenses without waivers 2.92%(b) 2.56% 2.17% 2.04% 2.07% 2.18% Net investment income (loss) without waivers (2.15)%(b) (2.07)% (1.72)% (1.34) (1.10)% (1.14)% Portfolio turnover rate (excluding short-term securities) 67.6% 129.6% 109.3% 60.1% 72.6% 71.5%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total returns presented has not been annualized. (b) Adjusted to an annual basis. 109 ADVANTUS INDEX 500 FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------- YEAR ENDED JULY 31, ------------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- ------- Net asset value, beginning of year $ 15.92 $ 18.93 $ 17.74 $ 15.06 $ 12.89 ------- ------- ------- ------- ------- Income from investment operations: Net investment income (loss) .11 .12 .10 .11 .10 Net gains (losses) (both realized and unrealized) (3.94) (2.98) 1.27 2.74 2.21 ------- ------- ------- ------- ------- Total from investment operations (3.83) (2.86) 1.37 2.85 2.31 ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income (.09) (.10) (.03) (.10) (.12) Distributions from net realized gains -- (.05) (.15) (.07) (.02) ------- ------- ------- ------- ------- Total distributions (.09) (.15) (.18) (.17) (.14) ------- ------- ------- ------- ------- Net asset value, end of year $ 12.00 $ 15.92 $ 18.93 $ 17.74 $ 15.06 ======= ======= ======= ======= ======= Total return (a) (24.14)% (15.12)% 7.67% 19.13% 18.19% Net assets, end of year (in thousands) $18,196 $24,870 $24,723 $25,498 $15,711 Ratios to average net assets: Expenses .75% .75% .75% .75% .74% Net investment income (loss) .77% .72% .52% .64% .83% Expenses without waivers 1.53% 1.43% 1.38% 1.43% 1.81% Net investment income (loss) without waivers (.01)% .04% (.11)% (.04)% (.24)% Portfolio turnover rate (excluding short-term securities) 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 110 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------- YEAR ENDED JULY 31, ------------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- ------- Net asset value, beginning of year $ 15.66 $ 18.68 $ 17.64 $15.01 $ 12.87 ------- ------- ------- ------ ------- Income from investment operations: Net investment income (loss) (.01) (.02) (.06) (.03) .02 Net gains (losses) (both realized and unrealized) (3.86) (2.93) 1.25 2.73 2.17 ------- ------- ------- ------ ------- Total from investment operations (3.87) (2.95) 1.19 2.70 2.19 ------- ------- ------- ------ ------- Less distribution: Dividends from net investment income (.01) (.02) -- -- (.03) Distributions from net realized gains -- (.05) (.15) (.07) (.02) ------- ------- ------- ------ ------- Total distributions (.01) (.07) (.15) (.07) (.05) ------- ------- ------- ------ ------- Net asset value, end of year $ 11.78 $ 15.66 $ 18.68 $17.64 $ 15.01 ======= ======= ======= ====== ======= Total return (a) (24.80)% (15.77)% 6.71% 18.10% 17.17% Net assets, end of year (in thousands) $14,559 $21,931 $28,077 $24,202 $11,832 Ratios to average net assets: Expenses 1.60% 1.60% 1.60% 1.60% 1.60% Net investment income (loss) (.08)% (.11)% (.33)% (.21)% (.06)% Expenses without waivers 2.28% 2.18% 2.13% 2.16% 2.51% Net investment income (loss) without waivers (.76)% (.69)% (.86)% (.77)% (.97)% Portfolio turnover rate (excluding short-term securities) 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 111 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------- YEAR ENDED JULY 31, ------------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- ------- Net asset value, beginning of year $ 15.63 $ 18.64 $17.60 $14.97 $12.85 ------- ------- ------ ------ ------ Income from investment operations: Net investment income (loss) (.01) (.03) (.06) (.03) .01 Net gains (losses) (both realized and unrealized) (3.86) (2.91) 1.25 2.73 2.16 ------- ------- ------ ------ ------ Total from investment operations (3.87) (2.94) 1.19 2.70 2.17 ------- ------- ------ ------ ------ Less distributions: Dividends from net investment income (.01) (.02) -- -- (.03) Distributions from net realized gains -- (.05) (.15) (.07) (.02) ------- ------- ------ ------ ------ Total distributions (.01) (.07) (.15) (.07) (.05) ------- ------- ------ ------ ------ Net asset value, end of year $ 11.75 $ 15.63 $18.64 $17.60 $14.97 ======= ======= ====== ====== ====== Total return (a) (24.80)% (15.80)% 6.73% 18.03% 17.09% Net assets, end of year (in thousands) $ 1,605 $ 2,291 $3,168 $2,910 $1,508 Ratios to average net assets: Expenses 1.60% 1.60% 1.60% 1.60% 1.60% Net investment income (loss) (.08)% (.11)% (.33)% (.21)% (.06)% Expenses without expense waivers 2.28% 2.18% 2.13% 2.16% 2.51% Net investment income (loss) without waivers (.76)% (.69)% (.86)% (.77)% (.97)% Portfolio turnover rate (excluding short-term securities) 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 112 ADVANTUS REAL ESTATE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A CLASS B ------------------------------------------------------ ------------- PERIOD FROM PERIOD FROM FEBRUARY 25, NOVEMBER 28, YEAR ENDED JULY 31, 1999(d) TO 2001(e) TO 2002 2001 2000 JULY 31, 1999 JULY 31, 2002 -------- -------- -------- ------------- ------------- Net asset value, beginning of year $ 11.67 $ 11.23 $ 10.25 $10.02 $11.56 ------- ------- ------- ------ ------ Income from investment operations: Net investment income .32 .51 .43 .18 .11 Net gains (both realized and unrealized) 1.01 .47 1.00 .31 1.23 ------- ------- ------- ------ ------ Total from investment operations 1.33 .98 1.43 .49 1.34 ------- ------- ------- ------ ------ Less distributions: Distributions from net investment income (.28) (.54) (.41) (.18) (.22) Distributions from net realized gains (.79) -- (.04) -- (.79) Excess distributions of net investment income -- -- -- (.08) -- ------- ------- ------- ------ ------ Total distributions (1.07) (.54) (.45) (.26) (1.01) ------- ------- ------- ------ ------ Net asset value, end of year $ 11.93 $ 11.67 $ 11.23 $10.25 $11.89 ======= ======= ======= ====== ====== Total return (a) 12.31% 9.10% 14.89% 4.78% 7.75% Net assets, end of year (in thousands) $32,269 $17,336 $11,704 $6,113 $1,131 Ratios to average net assets: Expenses 1.50% 1.50% 1.50% 1.50%(b) 2.40%(b) Net investment income (loss) 2.83% 4.29% 4.26% 4.09%(b) 1.29%(b) Expenses without waivers 1.69% 1.99% 2.72% 3.49%(b) 2.44%(b) Net investment income (loss) without waivers 2.64% 3.81% 3.04% 2.10%(b) 1.25%(b) Portfolio turnover rate (excluding short-term securities) 101.2% 173.1% 116.8% 51.5% 101.2%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (d) Date shares became effectively registered. (e) Inception date of the Class B shares 113 ADVANTUS VENTURE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------- YEAR ENDED JULY 31, ------------------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- ------- Net asset value, beginning of year $ 15.05 $ 11.47 $ 11.20 $ 12.03 $ 11.73 ------- ------- ------- ------ ------ Income from investment operations: Net investment income (loss) (.08) (.06) .05 .10 .06 Net gains (losses) (both realized and unrealized) (1.84) 4.04 .32 (.59) .98 ------- ------- ------- ------ ------ Total from investment operations (1.92) 3.98 .37 (.49) 1.04 ------- ------- ------- ------ ------ Less distributions: Dividends from net investment income -- -- (.06) (.09) (.08) Dividends in excess of net investment income -- -- (.04) -- -- Distributions from net realized gains (.88) (.40) -- (.23) (.66) Tax return of capital -- -- -- (.02) -- ------- ------- ------- ------ ------ Total distributions (.88) (.40) (.10) (.34) (.74) ------- ------- ------- ------ ------ Net asset value, end of year $ 12.25 $ 15.05 $ 11.47 $ 11.20 $ 12.03 ======= ======= ======= ====== ====== Total return (a) (13.27)% 35.18% 3.74% (3.89)% 8.92% Net assets, end of year (in thousands) $53,071 $54,735 $31,371 $31,683 $34,630 Ratios to average net assets: Expenses 1.27% 1.40% 1.40% 1.40% 1.38% Net investment income (loss) (.57)% (.56)% .63% .81% .55% Expenses without waivers 1.37% 1.51% 1.71% 1.64% 1.55% Net investment income (loss) without waivers (.67)% (.67)% .32% .57% .38% Portfolio turnover rate (excluding short-term securities) 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 114 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B --------------------------------------------------------------- YEAR ENDED JULY 31, --------------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- ------- Net asset value, beginning of year $ 14.77 $11.36 $11.11 $11.94 $11.71 ------- ------- ------- ------ ------ Income from investment operations: Net investment income (loss) (.17) (.16) (.04) -- (.02) Net gains (losses) (both realized and unrealized) (1.82) 3.97 .32 (.58) .92 ------- ------- ------- ------ ------ Total from investment operations (1.99) 3.81 .28 (.58) .90 ------- ------- ------- ------ ------ Less distributions: Dividends from net investment income -- -- (.02) (.02) (.01) Distributions from net realized gains (.88) (.40) -- (.23) (.66) Dividends in excess of net investment income -- -- (.01) -- -- ------- ------- ------- ------ ------ Total distributions (.88) (.40) (.03) (.25) (.67) ------- ------- ------- ------ ------ Net asset value, end of year $ 11.90 $14.77 $11.36 $11.11 $11.94 ======= ======= ======= ====== ====== Total return (a) (14.02)% 34.01% 2.89% (4.77)% 7.65% Net assets, end of year (in thousands) $ 4,531 $4,114 $2,500 $3,115 $3,529 Ratios to average net assets: Expenses 2.12% 2.25% 2.24% 2.25% 2.25% Net investment income (loss) (1.42)% (1.41)% (.24)% (.04)% (.26)% Expenses without waivers 2.12% 2.26% 2.45% 2.36% 2.25% Net investment income (loss) without waivers (1.42)% (1.42)% (.45)% (.15)% (.26)% Portfolio turnover rate (excluding short-term securities) 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 115 Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C --------------------------------------------------------------- YEAR ENDED JULY 31, --------------------------------------------------------------- 2002 2001 2000 1999 1998 -------- -------- -------- -------- ------- Net asset value, beginning of year $ 14.83 $11.41 $11.15 $11.98 $11.71 ------- ------- ------- ------ ------ Income from investment operations: Net investment income (loss) (.14) (.15) (.03) (.01) (.03) Net gains (losses) (both realized and unrealized) (1.85) 3.98 .32 (.57) .97 ------- ------- ------- ------ ------ Total from investment operations (1.99) 3.83 .29 (.58) .94 ------- ------- ------- ------ ------ Less distributions: Dividends from net investment income -- -- (.02) (.02) (.01) Distributions from net realized gains (.88) (.40) -- (.23) (.66) Distributions in excess of net investment income -- -- (.01) -- -- ------- ------- ------- ------ ------ Total distributions (.88) (.40) (.03) (.25) (.67) ------- ------- ------- ------ ------ Net asset value, end of year $ 11.96 $14.83 $11.41 $11.15 $11.98 ======= ======= ======= ====== ====== Total return (a) (13.96)% 33.94% 2.95% (4.81)% 7.90% Net assets, end of year (in thousands) $ 1,477 $ 479 $ 273 $ 467 $ 702 Ratios to average net assets: Expenses 2.12% 2.25% 2.24% 2.25% 2.25% Net investment income (loss) (1.42)% (1.41)% (.24)% (.04)% (.26)% Expenses without waivers 2.12% 2.26% 2.45% 2.36% 2.25% Net investment income (loss) without waivers (1.42)% (1.42)% (.45)% (.15)% (.26)% Portfolio turnover rate (excluding short-term securities) 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures presented for the periods stated above assume reinvestment of distributions and do not include the effects of sales charges. 116 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Advantus Cornerstone Fund, Inc. Advantus Enterprise Fund, Inc. Advantus Horizon Fund, Inc. Advantus Index 500 Fund, Inc. Advantus Real Estate Securities Fund, Inc. Advantus Venture Fund, Inc. We have audited the accompanying statements of assets and liabilities, including the schedules of investments in securities, of Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate Securities Fund, Inc., and Advantus Venture Fund, Inc. as of July 31, 2002, and the related statements of operations and statements of changes in net assets and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2002, by correspondence with the custodian or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real Estate Securities Fund, Inc., and Advantus Venture Fund, Inc. as of July 31, 2002, and the results of their operations, changes in their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Minneapolis, MN September 6, 2002 117 FEDERAL INCOME TAX INFORMATION (UNAUDITED) The following information for federal income tax purposes is presented as an aid to shareholders in reporting the distributions paid by the Fund in the fiscal period ended July 31, 2002. Dividends for the 2001 calendar year will be reported to you on Form 1099-Div in late January 2003. Shareholders should consult a tax adviser on how to report these distributions for state and local purposes. ADVANTUS CORNERSTONE FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS CLASS A

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 .0350 March 28, 2002 .0161 June 21, 2002 .0243 ------ $.0754 ======

CLASS B

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 $.0086 ======

CLASS C

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 $.0088 ======

ADVANTUS INDEX 500 FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR DEDUCTION BY CORPORATIONS CLASS A

PER PAYABLE DATE SHARE - ------------ ------- September 20, 2001 $.0127 December 20, 2001 .0359 March 28, 2002 .0147 June 21, 2002 .0274 ------ $.0907 ======

CLASS B

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 $.0050 ======

CLASS C

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 $.0047 ======

118 ADVANTUS REAL ESTATE SECURITIES FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 1.3% QUALIFYING FOR DEDUCTION BY CORPORATIONS. CLASS A

PER PAYABLE DATE SHARE - ------------ ------- September 20, 2001 $.0196 December 20, 2001 .1667 March 29, 2002 .0369 June 21, 2002 .0581 ------ $.2813 ====== Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001* $.7906 ======

* Represents $.4137 of short-term capital gains (taxable as dividend income). CLASS B

PER PAYABLE DATE SHARE - ------------ ------- December 20, 2001 $.1603 April 3, 2002 .0229 June 21, 2002 .0390 ------ $.2222 ====== Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001* $.7906 ======

* Represents $.4137 of short-term capital gains (taxable as dividend income). ADVANTUS VENTURE FUND INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 17.4% QUALIFYING FOR DEDUCTION BY CORPORATIONS. CLASS A, CLASS B AND CLASS C

PER PAYABLE DATE SHARE - ------------ ------- Capital gains distributions-taxable as long-term capital gains, 20% rate. December 14, 2001* $.8831 ======

* Represents $.5353 of short-term capital gains (taxable as dividend income). 119 ADVANTUS FUNDS DIRECTORS AND EXECUTIVE OFFICERS Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other six Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 30 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Funds are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(S) AND AGE TIME SERVED DURING PAST 5 YEARS - -------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS - -------------------------------------------------------------------------------------------------------------------------- William N. Westhoff Director since Retired; prior to July 26, 2002, President, Treasurer Age: 55 July 23, 1998 and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary and Director, Age: 55 Director and Advantus Capital Management, Inc.; Vice Treasurer since President, Minnesota Life Insurance Company; July 13, 1993 Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company

120

- -------------------------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - -------------------------------------------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Treasurer of Age: 75 February 25, 1985 Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Research Inc. Age: 54 April 25, 2002 since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology Age: 65 October 22, 1985 at the University of Minnesota - -------------------------------------------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Capital Age: 50 July 25, 2002 Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Whitney LLP February 25, 1998 Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- ------------------ (1) Unless otherwise noted, the address of each director and officer is the address of the Funds: 400 Robert Street North, St. Paul, Minnesota 55101. The Funds Statement of Additional Information (SAI) includes additional information about Fund directors, and is available, without charge, upon request. You may request a copy of the current SAI by telephoning Advantus Shareholder Services, toll free, at (800) 665-6005. 121 SHAREHOLDER SERVICES The Advantus Family of Funds offers a variety of services that enhance your ability to manage your assets. Check each Fund's prospectus for the details of the services and any limitations that may apply. EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from one fund to any other Advantus Fund you own (for identical registrations within the same share class) at any time as your needs change. Exchanges are at the then current net asset value (exchanges from the Advantus Money Market Fund will incur the applicable sales charge, if not previously subjected to the charge). Shareholders may make twelve exchanges each calendar year without incurring a transaction charge. Thereafter, there will be a $7.50 transaction charge for each additional exchange within the calendar year. INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other distributions automatically reinvested with no sales charge, direct them from one Advantus Fund to any other you own within the Fund family or, if you desire, we'll pay you in cash. SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at specified intervals from your fund account subject to minimum guidelines. Depending upon the performance of the underlying investment options, the value may be worth more or less than the original amount invested when withdrawn. DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or systematic withdrawals directly into your checking or savings account instead of sending you a check. TELEPHONE EXCHANGE: You may move money from one Advantus account to any other Advantus account you own (with identical registrations within the same share class) just by calling our toll-free number. The Telephone Exchange privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Exchange may be changed (added/deleted) at any time by submitting a request in writing. SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly from one Advantus Fund to another Advantus Fund (with identical registrations within the same share class) to diversify your investment portfolio and take advantage of "dollar-cost averaging". AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your Minnesota Life insurance premiums from your Advantus Money Market account. REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse, children or single trust estates, and the Right of Accumulation make it possible for you to reduce the sales charge, if any. 122 AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an Advantus Fund account for as little as $25 and lower your average share cost through "dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor does it prevent loss in declining markets.) The Automatic Investment Plan allows you to invest automatically monthly, semi-monthly or quarterly from your checking or savings account. IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your Traditional, Roth or Education Individual Retirement Account or other qualified plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase or Defined Benefit plans. TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The proceeds will be sent by check to the address of record for the account or wire transferred to your bank of record for the account. Wire transfers are for amounts over $500. The prevailing wire charge will be added to the withdrawal amount. The Telephone Redemption privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Redemption may be changed (added/deleted) at any time by submitting a request in writing. To have the redemption automatically deposited into your checking account, please send a voided check from your bank. Depending on the performance of the underlying investment options, the value may be worth more or less than the original amount invested upon redemption. Some limitations apply, please refer to the prospectus for details. ACCOUNT UPDATES: You'll receive written confirmation of every investment you initiate and quarterly statements to help you track all of your Advantus Fund investments and annual tax statements. Semi-annual and annual reports will provide you with portfolio information, fund performance data and the current investment outlook. TOLL-FREE SERVICE LINE: For your convenience in obtaining information and assistance directly from Advantus Shareholder Services, call 1-800-665-6005. Advantus Account Representatives are available Monday through Friday from 7:30 a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours, seven days a week. This system allows you to access current net asset values, account balances and recent account activity. INTERNET ADDRESS: www.AdvantusFunds.com HOW TO INVEST You can invest in one or more of the eleven Advantus Funds through a local Registered Representative of Securian Financial Services, Inc., distributor of the 123 Funds. Contact your representative for information and a prospectus containing more complete information including charges and expenses, for any of the Advantus Funds you are interested in. Read the prospectus carefully before investing. To find a Registered Representative near you, call the toll-free service line (1-800-665-6005) or visit www.AdvantusFunds.com. MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can be as small as $25 when you use our Automatic Investment Plan. Minimum lump-sum initial investment is $250. Minimum subsequent investment is $25. THE FUND'S MANAGER Advantus Capital Management, Inc., investment adviser to the Fund, selects and reviews the Fund's investments and provides executive and other personnel for the Fund's management. (For the Advantus International Balanced Fund, Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management, LLC, and State Street Research & Management Company, respectively, selects the Fund's investments.) Advantus Capital Management, Inc. manages twelve mutual funds containing $2.3 billion in assets in addition to $13.3 billion in assets for other clients. Advantus Capital's seasoned portfolio managers average more than 15 years of investment experience. ADVANTUS FAMILY OF FUNDS Advantus Bond Fund Advantus Horizon Fund Advantus Spectrum Fund Advantus Enterprise Fund Advantus Cornerstone Fund Advantus Money Market Fund Advantus Mortgage Securities Fund Advantus International Balanced Fund Advantus Venture Fund Advantus Index 500 Fund Advantus Real Estate Securities Fund 124 THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT APPLICABLE MUTUAL FUND PROSPECTUS. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. [ADVANTUS LOGO] ADVANTUS(TM) CAPITAL MANAGEMENT Distributed by: SECURIAN FINANCIAL SERVICES, INC. Securities Dealer, Member NASD/SIPC. Registered Investment Advisor 400 Robert Street North, St. Paul, MN 55101-2098 1.888.237.1838 3010-2002-3864 SECURIAN FINANCIAL SERVICES, INC. 400 ROBERT STREET NORTH ST. PAUL, MN 55101-2098 PRESORTED STANDARD U.S. POSTAGE PAID ST. PAUL, MN PERMIT NO. 3547 ADDRESS SERVICE REQUESTED F. 58297 Rev. 9-2002 EX-99.(17)(Z) 31 c78747exv99wx17yxzy.txt EX-(17)(Z)ADVANTUS EQUITY FUNDS SAR - JANUARY 2003 Exhibit (17)(z) ADVANTUS EQUITY FUNDS [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED JANUARY 31, 2003 ADVANTUS CORNERSTONE FUND, INC. A LARGE COMPANY VALUE FUND ADVANTUS ENTERPRISE FUND, INC. A SMALL COMPANY GROWTH FUND ADVANTUS HORIZON FUND, INC. A LARGE COMPANY GROWTH FUND ADVANTUS INDEX 500 FUND, INC. A LARGE COMPANY INDEX FUND ADVANTUS REAL ESTATE SECURITIES FUND, INC. A REAL ESTATE - RELATED SECURITIES FUND ADVANTUS VENTURE FUND, INC. A SMALL COMPANY VALUE FUND CUT DOWN PAPERWORK, NOT TREES ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005. SUPPLEMENT DATED FEBRUARY 3, 2003 TO THE PROSPECTUS DATED NOVEMBER 29, 2002 ADVANTUS CORNERSTONE FUND, INC. ADVANTUS ENTERPRISE FUND, INC. ADVANTUS HORIZON FUND, INC. ADVANTUS INDEX 500 FUND, INC. ADVANTUS REAL ESTATE SECURITIES FUND, INC. ADVANTUS VENTURE FUND, INC. I. In connection with Advantus Cornerstone Fund, Inc., footnote (c) to the table of fees and expenses on page 5 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .39% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.34% for Class A shares and 2.09% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. II. In connection with Advantus Enterprise Fund, Inc., footnote (c) to the table of fees and expenses on page 10 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .58% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.53% for Class A shares and 2.28% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. III. In connection with Advantus Horizon Fund, Inc., footnote (c) to the table of fees and expenses on page 15 of the prospectus is amended to read as follows: (c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment adviser, has voluntarily agreed to absorb "other expenses", excluding advisory fees and Rule 12b-1 fees, in excess of .45% of average net assets of the Fund. After such absorption, the ratio of total fund operating expenses to average net assets will be 1.40% for Class A shares and 2.15% for Class B and Class C shares. Advantus Capital reserves the right to discontinue such absorption at any time at its sole discretion. Investors should retain this supplement for future reference. F.58814 2-2003 ADVANTUS Equity Funds TABLE OF CONTENTS PERFORMANCE UPDATES Cornerstone Fund 3 Enterprise Fund 8 Horizon Fund 13 Index 500 Fund 19 Real Estate Securities Fund 23 Venture Fund 28 INVESTMENTS IN SECURITIES Cornerstone Fund 32 Enterprise Fund 37 Horizon Fund 42 Index 500 Fund 48 Real Estate Securities Fund 65 Venture Fund 68 FINANCIAL STATEMENTS Statements of Assets and Liabilities 78 Statements of Operations 80 Statements of Changes in Net Assets 82 Notes to Financial Statements 88 DIRECTORS AND EXECUTIVE OFFICERS 114 SHAREHOLDER SERVICES 116 Letter from the President [PHOTO] Dear Shareholders: Although economic growth has slowed dramatically, it has not stopped, and I believe that is reason for optimism. Growth drives our economy and markets. In the first six months of 2002, growth, as measured by the gross national product, dropped from 5 percent to 1.3 percent, with a similar up and down pattern in the second half of the year, as well. Over the past two years, we've had unprecedented levels of fiscal and monetary stimuli that simply have not taken hold. Stimulative fiscal and monetary policies -- together with low inflation -- are in place. I feel these are powerful tools to help mend an ailing economy, but these policies have generated a limited economic rebound so far. Staying optimistic has been a daunting task for equity investors. The S&P 500* ended the year at -22.10 percent. This was the third consecutive year of negative returns in this broad market index, which hasn't occurred since the period from 1939 through 1941. Missed or reduced earnings, accounting fraud, and no distinct catalyst for an equity market recovery impacted investor sentiment. Market upswings came in short limited spurts in the second half of the year, but nothing that resembled a dramatic recovery. As sentiment sank lower, more uncertainty was unleashed in the market. Fallout from corporate scandals and accounting problems was not limited to the stock market. The corporate bond sector of the fixed income market was also adversely affected by numerous defaults and bankruptcies. In 2002, slowing U.S. and global economies, continued equity market volatility, and growing global tensions have all contributed to an environment of extreme uncertainty. In periods of uncertainty, investors become defensive. On the domestic front, Treasuries were the year's strongest performers. Under our forecasted scenario for 2003, we expect that the capital markets should perform marginally better than they did in 2002. We believe that in 2003: - - Corporate profits will improve, however, investors will not be convinced until they are both reported and CONFIRMED. It will be important that perception of corporate governance and fiduciary integrity improve before the main street investor feels comfortable reentering the market en masse. 1 - - The Federal Reserve has aggressively eased monetary policy over the past two years, and we expect the highly stimulative policy to remain in place until a "confirmed" pattern of historic trend growth is evident. Under this circumstance, we believe bonds will remain in a trading range with only moderate upward pressure on the front end of the yield curve as the Fed gradually puts the brakes to its policy of easing. We expect this to happen late in the year. The Fed will probably not complete the process of restoring the fed funds rate to neutral until 2004 or later. - - Corporate credits will very slowly improve as debt is reduced and profits begin to improve. We believe this will result in narrowing yield spreads which consequently will result in corporate bonds outperforming U.S. Treasury bonds. Overall, in 2003, we believe investors will begin to recapture some of the equity losses incurred over the past three painful years. Sincerely, /s/ Dianne Orbison Dianne Orbison President, Advantus Funds Past performance is not necessarily indicative of future results. *The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. 2 Advantus Cornerstone Fund MATTHEW D. FINN AND MATT NORRIS, PORTFOLIO MANAGERS, ADVANTUS CAPITAL MANAGEMENT PERFORMANCE The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - 6.17 percent* Class B - 6.42 percent* Class C - 6.43 percent* This compares to the Fund's benchmark , the Russell 1000 Value Index**, which lost -4.56 percent for the same period. PERFORMANCE ANALYSIS Equity returns were quite volatile for the six month period ending January 31, 2003. The market rose in August, fell in the first week of October to lows not seen since 1997, rallied sharply into January, then retracted most of its gains by the end of the month. Each of these moves was greater than 20 percent. Investors were focused on changing expectations for the economy and a possible war in the Middle East. The better performing market sectors included Technology-Software, Communication Equipment, Communication Service providers and Advertising, Broadcasting and Publishing. These sectors were characterized by two things: First, they are sectors that were extremely oversold and inexpensive, and second, they are sectors that we feel will benefit from a strengthening economy. Other economically-sensitive sectors were some of the worst, including Consumer Cyclical sectors such as automotive, retail, and leisure. These sectors had experienced better performance earlier in the year, and did not do well when investors started looking in other investment areas. The Fund added performance with investments in the Utility sector, where a number of names were oversold in October and bounced back nicely. Good stock selection helped the Fund avoid the weak automotive names, while investing in a number that did well. Consumer Staples also added to performance. The Fund was hurt by our holdings in the semiconductor area. Weak operating metrics have led to a number of individual semiconductor names falling within value parameters. We bought these names at that time, however our investments were made too early as operations have yet to improve. We anticipate better operating metrics will soon appear, and continue to hold the same investments. 3 OUTLOOK The domestic economy continues to move in fits and starts, leading to the choppy performance of the equity markets. While we believe the long term economy is sound, we cannot predict the timing or strength of recovery. Therefore, we continue to focus on fundamental analysis of individual stocks due to our belief that we can identify investments that meet our criteria. The stock price must be trading below what we feel it should be worth, operating metrics must be stable or improving, and a near term catalyst must exist that will move the stock price up to its fair value. Our bottom up research focuses on our comprehensive study of a firm's financial statements, tying the balance sheet, income statement and cash flow statement together, and combining that with an understanding of what company management is trying to accomplish. Understanding these issues on a company-by-company basis will help us take advantage of market movements and select individual stocks that offer opportunities for purchase and sale. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Russell 1000 Value Index contains those stocks from the Russell 1000 with low book to price ratio. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market 4 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Exxon Mobil Corporation 105,306 $ 3,596,198 5.8% Bank of America Corporation 33,600 2,353,680 3.8% Citigroup, Inc. 64,613 2,221,395 3.6% U.S. Bancorp 92,658 1,955,084 3.1% Wachovia Corporation 52,700 1,895,619 3.0% Verizon Communications 45,557 1,743,922 2.8% Wells Fargo & Company 36,700 1,738,479 2.8% Brunswick Corporation 81,300 1,582,911 2.5% International Business Machines Corporation 18,800 1,470,724 2.4% SBC Communications, Inc. 56,442 1,379,443 2.2% ------------- ---- $ 19,937,455 32.0% ============= ====

[CHART] Cash and Other Assets/Liabilities 0.10% Transportation 0.70% Basic Materials 4.20% Capital Goods 4.70% Health Care 5.80% Utilities 6.20% Communication Services 6.70% Consumer Cyclical 7.00% Consumer Staples 9.60% Technology 9.80% Energy 11.90% Financial 33.30% 5 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS CORNERSTONE FUND, RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Cornerstone Fund compared to the Russell 1000 Value Index, and the Consumer Price Index. The lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Cornerstone Fund (September 16, 1994 for Class A and Class B and March 1, 1995 for Class C) through January 31, 2003. [CHART] CLASS A AND B SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -21.44% Five year -6.75% Since inception (9/16/94) 3.95% Class B: One year -21.58% Five year -6.66% Since inception (9/16/94) 3.84% (Thousands)

RUSSELL 1000 CLASS A CLASS B VALUE INDEX CPI 9/16/1994 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,325 $ 9,870 $ 9,743 $ 10,054 9/30/1995 $ 11,598 $ 11,708 $ 12,441 $ 10,275 9/30/1996 $ 14,441 $ 14,649 $ 14,673 $ 10,570 9/30/1997 $ 19,980 $ 20,400 $ 20,880 $ 10,818 9/30/1998 $ 16,694 $ 16,947 $ 21,629 $ 10,973 9/30/1999 $ 18,384 $ 18,531 $ 25,678 $ 11,261 9/30/2000 $ 18,605 $ 18,764 $ 27,965 $ 11,643 9/30/2001 $ 15,634 $ 15,648 $ 25,474 $ 11,952 7/31/2002 $ 14,435 $ 14,647 $ 24,463 $ 12,066 1/31/2003 $ 13,802 $ 13,707 $ 23,348 $ 12,220

6 [CHART] CLASS C SEC AVERAGE ANNUAL TOTAL RETURN: One year -17.43% Five year -6.38% Since inception (3/1/95) 3.87% (Thousands)

RUSSELL 1000 CLASS C VALUE INDEX CPI 3/1/1995 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 12,013 $ 12,107 $ 10,146 9/30/1996 $ 14,846 $ 14,280 $ 10,437 9/30/1997 $ 20,354 $ 20,320 $ 10,682 9/30/1998 $ 16,838 $ 21,049 $ 10,834 9/30/1999 $ 18,411 $ 24,989 $ 11,119 9/30/2000 $ 18,493 $ 27,214 $ 11,497 9/30/2001 $ 15,427 $ 24,790 $ 11,801 7/31/2002 $ 14,438 $ 23,807 $ 11,914 1/31/2003 $ 13,510 $ 22,721 $ 12,066

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 7 Advantus Enterprise Fund SAMMY OH AND ELIZABETH DATER, PORTFOLIO MANAGERS, CREDIT SUISSE ASSET MANAGEMENT, LLC PERFORMANCE OVERVIEW The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - .31 percent* Class B - .69 percent* Class C - .69 percent* The Fund's benchmark, the Russell 2000 Growth Index** returned -3.01 percent for the same period. PERFORMANCE ANALYSIS The period was a volatile and ultimately negative one for the U.S. stock market. The period began on a strong note, with equities rising in August after falling sharply over the May-through-July span. Stocks fell again in September, however, and, despite some supportive trends that aided the market in October and November -- another interest-rate cut from the Federal Reserve, the Republican's sweep of Congress, a temporary easing of war worries -- most prominent equity indexes had losses in the 3% to 7% range for the six months. In the small-cap area, growth stocks outperformed value stocks, having entered the period with larger year-to-date declines. The Fund's performance reflected the difficult investment environment in the period. However, the Fund outperformed its benchmark, aided by good stock selection in the consumer discretionary sector. The Fund's technology holdings also helped its return. On the negative side, stocks that hindered the Fund's relative return included its consumer staples and energy stocks. OUTLOOK As we look ahead, our view is that the economy should remain on a growth path, though the recovery might be a sluggish one for a few months at least. The Federal Reserve's aggressive reduction of interest rates over the past year has appeared to be less and less stimulative and we feel it may take time for other stimulative catalysts (e.g., tax cuts--now on the table in Washington--or an increase in corporate investment spending) to support investor confidence. Of course, the threat of war remains a wild card and could continue to unsettle markets on an ongoing basis. 8 For our part, we will remain focused on what we believe are well-managed companies that we believe can successfully execute their business models. Companies we favor at present include media names, especially radio companies that are picking up market share from newspapers. We believe that advertising revenues will remain supportive as 2003 progresses. Elsewhere of note, we intend to remain overweight in Health Care, at least over the near-to-intermediate term. Our holdings continue to include medical-devices and services companies that we feel are delivering good earnings results. Regarding the consumer area, we have some concerns over retailers in general, and have trimmed certain positions. We continue to view technology cautiously, and do not plan to have an aggressive weighting anytime soon. However, we are identifying companies trading at what we consider to be compelling valuations, and will look for opportunities to selectively increase our exposure going forward. Investments in smaller company and micro-cap stocks generally carry a higher level of volatility and risk over the short term. * Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Russell 2000 Growth Index is an unmanaged index (with no defined investment objective) of those securities in the Russell 2000 Index with a greater-than-average growth orientation. The Russell 2000 Growth Index includes reinvestment of dividends, and is compiled by Frank Russell Company. Investors cannot invest directly in an index. 9 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Affymetrix, Inc. 27,300 $ 740,922 2.7% Medicis Pharmaceutical Corporation 13,467 695,571 2.5% Community Health Systems 32,100 610,542 2.2% Coventry Health Care, Inc. 21,000 582,750 2.1% Lifepoint Hospitals, Inc. 20,600 529,420 1.9% Education Management Corporation 14,100 514,185 1.9% Emmis Communications 22,900 502,426 1.8% Mid Atlantic Medical Services, Inc. 14,400 495,648 1.8% Stone Energy Corporation 14,289 485,969 1.7% Advance Paradigm, Inc. 16,600 482,396 1.7% ------------- ---- $ 5,639,829 20.3% ============= ====

[CHART] Cash and Other Assets/Liabilities 8.70% Communication Services 1.20% Transportation 1.90% Capital Goods 3.50% Basic Materials 4.90% Energy 6.30% Financial 8.60% Consumer Staples 9.70% Consumer Cyclical 14.10% Technology 18.30% Health Care 22.80% 10 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS ENTERPRISE FUND, RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX On the following charts you can see how the total return for each of the three classes of shares of the Advantus Enterprise Fund compared to the Russell 2000 Growth Index and the Consumer Price Index. The lines in each graph represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Enterprise Fund (September 16, 1994 for Class A and Class B and March 1, 1995 for Class C) through January 31, 2003. [CHART] CLASS A AND B SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -34.45% Five year -7.20% Since inception (9/16/94) 0.33% Class B: One year -34.69% Five year -7.25% Since inception (9/16/94) 0.13% (Thousands)

RUSSELL 2000 CLASS A CLASS B GROWTH INDEX CPI 9/16/1994 $ 10,000 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,371 $ 9,910 $ 10,042 $ 10,054 9/30/1995 $ 11,983 $ 12,107 $ 12,616 $ 10,275 9/30/1996 $ 13,979 $ 14,173 $ 14,391 $ 10,584 9/30/1997 $ 15,780 $ 16,000 $ 17,737 $ 10,818 9/30/1998 $ 11,235 $ 11,315 $ 13,331 $ 10,973 9/30/1999 $ 14,450 $ 14,477 $ 17,683 $ 11,261 9/30/2000 $ 20,613 $ 20,687 $ 22,928 $ 11,643 9/30/2001 $ 11,525 $ 11,462 $ 13,161 $ 11,952 7/31/2002 $ 10,310 $ 10,177 $ 11,808 $ 12,066 1/31/2003 $ 10,278 $ 10,106 $ 11,453 $ 12,220

11 [CHART] CLASS C SEC AVERAGE ANNUAL TOTAL RETURN: One year -31.18% Five year -6.94% Since inception (3/1/95) -0.39% (Thousands)

RUSSELL 2000 CLASS C GROWTH INDEX CPI 3/1/1995 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 12,038 $ 12,563 $ 10,146 9/30/1996 $ 13,913 $ 14,331 $ 10,450 9/30/1997 $ 15,568 $ 17,662 $ 10,682 9/30/1998 $ 10,992 $ 13,276 $ 10,834 9/30/1999 $ 14,012 $ 17,610 $ 11,119 9/30/2000 $ 19,821 $ 22,832 $ 11,497 9/30/2001 $ 10,993 $ 13,106 $ 11,801 7/31/2002 $ 9,760 $ 11,759 $ 11,914 1/31/2003 $ 9,693 $ 11,405 $ 12,066

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 12 Advantus Horizon Fund THOMAS A. GUNDERSON, PORTFOLIO MANAGER, ADVANTUS CAPITAL MANAGEMENT PERFORMANCE The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - 5.88 percent* Class B - 6.14 percent* Class C - 6.19 percent* This compares to the Fund's benchmark, the Russell 1000 Growth Index***, which returned -3.01 percent for the same period. PERFORMANCE ANALYSIS Wide spread turmoil in the stock market occurred over the past 6 months as a result of an uncertain economic recovery, a sharp deterioration in the credibility of corporate America and fears about the results of a possible war with Iraq. The market traded broadly lower, with growth stocks declining slightly more than value stocks. The Fund was able to exceed its performance benchmark by superior stock selection. During the period the market was broadly lower, with no major sectors significantly deviating from the Russell 1000 Growth Index. The best performing sector was Energy driven by tight inventory levels, higher prices and fears about Middle East supply. Due to these factors, our investment in Nabors Industries, a North American land drilling company, gained 20 percent for the period. For a change, the Technology sector's performance exceeded the average by about 2 percent as fundamentals appear to be finding a bottom. Investments in Citigroup and Bank of America gained 11 percent and 8 percent for the period and contributed to performance in the Financial sector. Also contributing to performance was Avon Products as they continue to produce steady earnings growth in a tough environment. Finally, the stock selection process led to a meaningfully smaller position in General Electric than the Index, which further contributed to performance as the stock fell 27 percent during the period. Overall, a disciplined stock selection approach and a focus on sustainable growth allowed the Fund to select attractive companies for investment and minimize, or avoid altogether, the worst hit portions of the market. 13 During the period several changes were made. Net purchases were made in the Technology sector; especially in software companies like SAP, Peoplesoft, and Veritas, as these companies show strong earnings gains on lower levels of sales growth and are showing improved trends. For the first time in many years, the Horizon Fund has a modest overweight vs. the Index in the Technology sector. Health Care purchases were also made in growth companies such as Medtronic (medical devices), and Express Scripts (pharmacy benefits manager). Sales were made in our logistics companies as they hit our price targets. Additional sales were made in the Financial and Energy sectors as some of these companies approached our target prices, or are less likely to show good relative earnings growth in the future. OUTLOOK The winds of war are blowing an icy chill across the economy, financial markets, and corporate capital spending budgets. Our stock selection process is identifying companies that we believe are well positioned to experience a positive impact when the level of fear and uncertainty subside. Examples of this include our recent purchase of software stocks. At the same time we feel our risk management process is at work to enable competitive portfolio performance regardless of the eventual economic scenario that plays out over the next year. The Fund continues to be fully invested, as it has all year, with cash remaining in the 1-3 percent range. We continue to invest in companies that can show real and sustainable growth that result from high returns on company investments. The Fund is also taking a diversified approach to managing risk in this market, having a little over 100 names currently held in the portfolio. **Historical results are not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. ***The Russell 1000 Growth Index contains those stocks from the Russell 1000 with greater than average growth orientation. The Russell 1000 is the 1,000 largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks, which represents approximately 98 percent of the U.S. market. 14 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Pfizer, Inc. 53,350 $ 1,619,706 6.3% Microsoft Corporation 28,459 1,350,664 5.3% General Electric Company 46,128 1,067,402 4.2% Johnson & Johnson 18,900 1,013,229 4.0% Wal-Mart Stores, Inc. 16,200 774,360 3.0% Amgen, Inc. 13,200 672,672 2.6% Cisco Systems, Inc. 49,785 665,626 2.6% Procter & Gamble Company 7,000 598,990 2.3% Freddie Mac 9,900 554,202 2.2% Intel Corporation 29,831 467,154 1.8% ------------- ---- $ 8,784,005 34.3% ============= ====

[CHART] Cash and Other Assets/Liabilities 1.30% Utilities 0.40% Basic Materials 0.70% Communication Services 0.70% Energy 2.90% Capital Goods 7.40% Financial 10.90% Consumer Cyclical 12.20% Consumer Staples 13.70% Technology 24.20% Health Care 25.60% 15 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS HORIZON FUND, RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX On the following three charts you can see how the total return for each of the three classes of shares of the Advantus Horizon Fund compared to the Russell 1000 Growth Index and the Consumer Price Index. The lines in the Class A graph represent the cumulative total return of a hypothetical $10,000 investment made on January 31, 1993 through January 31, 2003. The lines in the Class B and Class C graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class B and Class C shares of the Advantus Horizon Fund (August 19, 1994 and March 1, 1995, respectively) through January 31, 2003. [CHART] CLASS A SEC AVERAGE ANNUAL TOTAL RETURN: One year -30.44% Five year -8.15% Ten year 2.87% (Thousands)

RUSSELL 1000 CLASS A CPI GROWTH INDEX 1/31/1993 $ 10,000 $ 10,000 $ 10,000 9/30/1993 $ 10,325 $ 10,269 $ 10,020 9/30/1994 $ 10,526 $ 10,624 $ 11,197 9/30/1995 $ 13,133 $ 10,858 $ 14,803 9/30/1996 $ 15,396 $ 11,184 $ 17,970 9/30/1997 $ 19,238 $ 11,432 $ 24,491 9/30/1998 $ 22,389 $ 11,595 $ 27,210 9/30/1999 $ 27,927 $ 11,899 $ 36,693 9/30/2000 $ 33,305 $ 12,292 $ 45,285 9/30/2001 $ 16,832 $ 12,629 $ 24,618 7/31/2002 $ 14,966 $ 12,750 $ 21,043 1/31/2003 $ 14,087 $ 12,913 $ 19,778

16 [CHART] CLASS B SEC AVERAGE ANNUAL TOTAL RETURN: One year -30.59% Five year -8.05% Since inception (8/19/94) 2.92% (Thousands)

RUSSELL 1000 CLASS B CPI GROWTH INDEX 8/19/1994 $ 10,000 $ 10,000 $ 10,000 9/30/1994 $ 9,629 $ 10,067 $ 10,125 9/30/1995 $ 12,074 $ 10,289 $ 13,386 9/30/1996 $ 14,221 $ 10,598 $ 16,249 9/30/1997 $ 17,855 $ 10,833 $ 22,146 9/30/1998 $ 20,757 $ 10,987 $ 24,605 9/30/1999 $ 25,759 $ 11,276 $ 33,181 9/30/2000 $ 30,517 $ 11,659 $ 40,950 9/30/2001 $ 15,385 $ 11,968 $ 22,261 7/31/2002 $ 13,584 $ 12,082 $ 19,028 1/31/2003 $ 12,750 $ 12,236 $ 17,885

17 [CHART] CLASS C SEC AVERAGE ANNUAL TOTAL RETURN: One year -26.96% Five year -7.78% Since inception (3/1/95) 2.44% (Thousands)

RUSSELL 1000 CLASS C CPI GROWTH INDEX 3/1/1995 $ 10,000 $ 10,000 $ 10,000 9/30/1995 $ 11,844 $ 10,146 $ 12,331 9/30/1996 $ 12,668 $ 10,450 $ 14,969 9/30/1997 $ 17,084 $ 10,682 $ 20,402 9/30/1998 $ 19,863 $ 10,834 $ 22,667 9/30/1999 $ 24,595 $ 11,119 $ 30,567 9/30/2000 $ 28,945 $ 11,497 $ 37,724 9/30/2001 $ 14,519 $ 11,801 $ 20,508 7/31/2002 $ 12,820 $ 11,914 $ 17,529 1/31/2003 $ 12,027 $ 12,066 $ 16,476

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 18 Advantus Index 500 Fund PERFORMANCE UPDATE JAMES SEIFERT PORTFOLIO MANAGER PERFORMANCE The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - 5.56 percent* Class B - 5.97 percent* Class C - 5.90 percent* The Fund's benchmark, the S&P 500 Index**, returned -5.26 percent for the same period. PERFORMANCE ANALYSIS The broader market continues to be held back on fears of an Iraq conflict, a sharp decline in household net worth and slow economic growth. Communication services was the only sector to post positive returns for the period ending up 9.10 percent. Capital goods led the sectors that detracted from the index return with a -1.35 percent contribution on a return of -14.90 percent. OUTLOOK Looking ahead, we see a moderate acceleration in U.S. economic growth. We expect the pace for growth, however, to remain well below potential as the result of weak business capital spending, a crisis of confidence associated with corporate accounting scandals, and uncertainties associated with global war and the threat of terrorism. In addition, we foresee little help will be forth coming from both Europe and Japan as the result of their long-standing anti-growth tax and regulatory policies. We believe that inflation in most industrial nations to be well below the long-term trend as the result of the overhang of excess global investment in both labor and productive capacity. We expect that currency volatility will also continue as countries seek to increase their competitive advantage by weakening their currencies. Weaker currency, although attractive in the short run, we believe will ultimately reduce a country's standard of living by increasing their domestic prices. The strong U.S. dollar has kept inflation at bay for more than 10 years. However, we feel that current fiscal policies may result in a weaker U.S. dollar in the near term. Stimulative monetary and fiscal policies have generated a limited economic rebound. We anticipate the pace of the rebound will remain subdued by the 19 continued adjustments to the 1990's excess, the substantial declines in the stock market, and the rise in risk premium. As we move through 2003, we expect some of these restraints to dissipate and economic growth to reaccelerate and provide the base for the expansion. Under our forecasted scenario for 2003, we expect that the capital markets should perform marginally better than they did in 2002. We believe that in the upcoming year: - - Corporate profits will improve, however, investors will not be convinced until they are both reported and CONFIRMED. It will be important that perception of corporate governance and fiduciary integrity improve before the main street investor feels comfortable reentering the market enmasse. - - The Federal Reserve has aggressively eased monetary policy over the past two years, and we expect the highly stimulative policy to remain in place until a "confirmed" pattern of historic trend growth is evident. Under this circumstance, we believe bonds will remain in a trading range with only moderate upward pressure on the front end of the yield curve as the Fed gradually puts the brakes to its policy of easing. We expect this to happen late in the year. The Fed will probably not complete the process of restoring the funds rate to neutral until 2004 or later. - - Corporate credits will very slowly improve as debt is reduced and profits begin to improve. We believe this will result in narrowing yield spreads which consequently will result in corporate bonds outperforming U.S. Treasury bonds. Founding father, Benjamin Franklin once said, "THERE ARE NO GAINS WITHOUT PAINS." All in all, we believe investors will begin to recapture some of the losses incurred over the past three painful years. "Standard & Poor's(R)," "S&P(R)," "S&P500(R)," and "Standard & Poor's 500(R)," are registered trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Advantus Capital Management, Inc. The Fund is not sponsored, endorsed, sold, or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Fund. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. **The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are representative of the U.S. stock market overall. The Advantus Index 500 Fund is a mutual fund whose performance reflects the deduction of an investment advisory fee and other expenses. Investors cannot invest directly in the index. 20 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Microsoft Corporation 20,172 $ 957,363 3.2% General Electric Company 37,545 868,791 2.9% Exxon Mobil Corporation 25,388 867,000 2.9% Wal-Mart Stores, Inc. 16,654 796,061 2.7% Pfizer, Inc. 23,249 705,840 2.4% Citigroup, Inc. 19,379 666,250 2.2% Johnson & Johnson 11,201 600,486 2.0% American International Group 9,878 534,597 1.8% International Business Machines Corporation 6,379 499,029 1.7% Merck & Company, Inc. 8,469 469,098 1.6% ------------- ---- $ 6,964,515 23.4% ============= ====

[CHART] Cash and Other Assets/Liabilities 5.50% Transportation 1.60% Utilities 2.70% Basic Materials 3.60% Communication Services 4.10% Energy 5.80% Capital Goods 7.50% Consumer Cyclical 9.60% Consumer Staples 11.50% Health Care 13.20% Technology 14.30% Financial 20.60% 21 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS INDEX 500 FUND, S&P 500 INDEX AND CONSUMER PRICE INDEX On the following chart you can see how the total return for each of the three classes of shares of the Advantus Index 500 Fund compared to the S&P 500 Index and the Consumer Price Index. The lines represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Index 500 Fund (January 31, 1997) through January 31, 2003. [CHART] SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -27.71% Five year -3.38% Since inception (1/31/97) 0.92% Class B: One year -27.98% Five year -3.41% Since inception (1/31/97) 1.01% Class C: One year -24.12% Five year -3.13% Since inception (1/31/97) 0.95% (Thousands)

S&P 500 CLASS A CLASS B CLASS C INDEX CPI 1/31/1997 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 7/31/1997 $ 11,464 $ 11,577 $ 12,043 $ 12,244 $ 10,075 7/31/1998 $ 13,549 $ 13,701 $ 14,101 $ 14,607 $ 10,245 7/31/1999 $ 16,141 $ 16,362 $ 16,644 $ 17,557 $ 10,458 7/31/2000 $ 17,379 $ 17,584 $ 17,763 $ 19,129 $ 10,834 7/31/2001 $ 14,751 $ 14,871 $ 14,940 $ 16,390 $ 11,129 7/31/2002 $ 11,191 $ 11,146 $ 11,235 $ 12,336 $ 11,286 1/31/2003 $ 10,568 $ 10,621 $ 10,556 $ 11,687 $ 11,430

The preceding chart is useful because it provides you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 22 Advantus Real Estate Securities Fund JOE BETLEJ, PORTFOLIO MANAGER, ADVANTUS CAPITAL MANAGEMENT PERFORMANCE The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - 4.40 percent* Class B - 4.74 percent* For the same period the Fund's benchmark, the Wilshire Associates Real Estate Securities Index (WARESI)**, provided a total return of -6.07 percent. PERFORMANCE ANALYSIS Returns on real estate stocks had been well ahead of the broader market from 2000 through the first half of 2002. Since then, these stocks have delivered negative returns on par with the broader market, largely due to the downturn in fundamentals for a number of real estate property types. Cyclical lows are being approached in occupancy rates for apartments and office properties in the United States. This is due to continued delivery of new construction projects and a true lack of demand created by an economy that is not generating jobs. This decline is reflected in lower rental rates and increased inducements for tenants to sign leases. While it is tough times to be a landlord for these property types, reasonable fundamentals still exist in retail property types. We feel retailers have the strength of the consumer behind them and better-positioned balance sheets and business plans to withstand economic weakness. These retailers continue to generate profit and seek new locations in highly productive malls and other retail centers. Additionally, Industrial properties have found a bottoming in occupancy and rental rates as demand has returned, although at a modest pace. The Fund performed well by avoiding weaker performing sectors and overweighting property types with solid fundamentals, or those we expect to rebound at a more rapid pace. We were significantly underweight versus our benchmark index in Apartment, Office and Self-storage companies due to our concerns that occupancies and rental rates will continue to decline for these properties through the first half of 2003. Our overweight in Regional Mall, Outlet Mall, and Grocery-Anchored Retail stocks resulted in strong performance in this part of the Fund. Our uncertainty regarding the economy directed us to increase our emphasis on high dividend yield stocks. Most high dividend yield stocks did not do well during the reporting period, however, because some of these companies were forced to cut their dividend. We avoided these weaker companies and invested in companies generating reliable dividends due to our investment process that emphasizes credit analysis and balance sheet review. 23 OUTLOOK Across most property types, we feel that the underlying fundamentals are priced into the stocks. Therefore, we continue our focus on fundamental analysis of individual stocks due to our belief that we can identify real estate stocks that can generate value for the Fund even while recognizing a weak operating environment. In a year where occupancies and rental rates will be challenged for many property types, we endeavor to find opportunities in companies with business plans that can deliver growth, irrespective of the rebounding strength of the economy. We continue our focus on high-quality dividend names which are favored in times of economic uncertainty. Our Fund positioning reflects the anticipated effects of a war in Iraq, specifically its effect on geographic regions whose economy is dependent on domestic military operations and travel. We favor companies with better balance sheets due to their ability to withstand the effects of weaker occupancies and rental rates. Investment risks associated with investing in the real estate fund, in addition to other risks, include rental income fluctuations, depreciation, property tax value changes, and differences in real estate market values. *Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. **The Wilshire Associates Real Estate Securities Index is a market capitalization-weighted index of equity securities whose primary business is equity ownership of commercial real estate (REITS). 24 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Prologis 104,062 $ 2,585,941 6.7% General Growth Properties, Inc. 30,300 1,499,850 3.9% EOP Operation LP 60,100 1,438,794 3.7% Simon Property Group, Inc. 40,900 1,337,430 3.5% The Rouse Company 41,600 1,319,968 3.4% Brookfield Properties Corporation 71,700 1,305,657 3.4% Carramerica Realty Corporation 52,900 1,270,129 3.3% Apartment Investment & Management Company 33,920 1,232,992 3.2% Developers Diversified Realty Corporation 54,800 1,228,616 3.2% P.S. Business Parks, Inc. 33,800 1,059,630 2.8% ------------- ---- $ 14,279,007 37.1% ============= ====

[CHART] Cash and Other Assets/Liabilities 7.00% Health Care 0.60% Consumer Cyclical 2.50% Financial 89.90% 25 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND, WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX On the following two charts you can see how the total return for each of the two classes of shares of the Advantus Real Estate Securities Fund compared to the Wilshire Associates Real Estate Securities Index and the Consumer Price Index. The lines in the Class A and Class B graphs represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of Class A and Class B shares of the Advantus Real Estate Securities Fund (February 25, 1999 and November 30, 2001, respectively) through January 31, 2003. [CHART] CLASS A SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -2.42% Since inception (2/25/99) 7.57% (Thousands)

WILSHIRE ASSOCIATES REAL CLASS A ESTATE SECURITIES INDEX CPI 2/25/1999 $ 10,000 $ 10,000 $ 10,000 7/31/1999 $ 9,904 $ 10,574 $ 10,121 7/31/2000 $ 11,379 $ 12,524 $ 10,486 7/31/2001 $ 12,393 $ 14,032 $ 10,771 7/31/2002 $ 13,836 $ 15,263 $ 10,923 1/31/2003 $ 13,228 $ 14,336 $ 11,063

26 CLASS B SEC AVERAGE ANNUAL TOTAL RETURN: Class B: One year -2.55% Since inception (11/30/01) 1.51% (Thousands)

WILSHIRE ASSOCIATES REAL CLASS B ESTATE SECURITIES INDEX CPI 11/30/2001 $ 10,000 $ 10,000 $ 10,000 12/31/2001 $ 10,354 $ 10,290 $ 9,983 7/31/2002 $ 11,181 $ 10,916 $ 10,130 1/31/2003 $ 10,651 $ 10,253 $ 10,259

The preceding charts are useful because they provide you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the performance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 27 Advantus Venture Fund JOHN BURBANK AND PAUL HAAGENSEN, PORTFOLIO MANAGERS, STATE STREET RESEARCH PERFORMANCE The Fund's performance for the six-months ended January 31, 2003 for each class of shares offered is as follows: Class A - 9.01 percent* Class B - 9.37 percent* Class C - 9.31 percent* This compares to the Fund's benchmark, the Russell 2000 Value Index**, which returned -5.73 percent for the same period. PERFORMANCE ANALYSIS The equity market posted its third consecutive year of losses as economic uncertainty and geopolitical risks continued to undermine investor confidence. A brief rally in the fourth quarter gave investors hope that the market had bottomed and the market nearly offset its third-quarter losses. The Russell 2000(R) Value Index posted overall negative returns for the six-month period ending January 31, 2003, despite strong performance in the Technology and Energy-related sectors. The Transportation, Health Care and Consumer-related sectors all posted losses, dragging the index down. Many of the investments in the Fund were based on the valuations of companies positioned to benefit from an economic turnaround and increased business spending. This opportunity, however, never came to fruition in 2002. While stock selection was additive to performance in the Materials and Energy sectors, weaker stock selection in Producer Durables, Technology, Consumer Discretionary and Financial Services contributed to Fund underperformance over the six-month period. Throughout the year, the valuations of cyclical names that had been hurt in the economic downtown appeared to offer potential. As a result, we invested heavily in many production technology equipment positions that turned in disappointing results during the period. Within the industry, Kulicke & Soffa Industries, Therma-Wave and Brooks-PRI Automation all posted double-digit losses. Returns in the Technology sector were negatively impacted by the poor performance of semiconductor manufacturers Triquint Semiconductor, ChipPAC and Cypress Semiconductor. In the Consumer Discretionary sector, gains by International Game Technology helped to offset the losses incurred from Six Flags, Steinway Musical Instruments and Reader's Digest. 28 In contrast, strong stock selection in the Materials and Energy-related sectors lessened the impact of losses in the Technology-related and Consumer Discretionary sectors. Fertilizer manufacturer Agrium and Cabot Oil & Gas, an oil and gas operations company, both benefited from the favorable pricing environment for natural gas. Chemical manufacturer Methanex also posted gains, contributing to the Fund's returns. OUTLOOK While smaller-cap and value have outperformed the general market over the last several years, we would not expect that kind of significant outperformance to persist going forward. We believe our investment approach has tended to perform well regardless of whether the asset class is "in" or "out" of favor. In fact, we are finding many more value candidates for investment today than we did a year ago. We continue to focus our efforts on buying good companies with compelling valuations and are optimistic that an adherence to this strategy will continue to produce favorable long-term results. We remain committed to our bottom-up investment approach, in which stocks are selected on a stock-by-stock basis. While the market favored more defensive names this year, we remained committed to buying fundamentally attractive stocks. We are neither chasing past winners, nor eliminating positions in solid companies solely on the basis of price declines resulting from economic weakness. Instead, we are carefully rechecking our fundamental research. We will use price weakness as an opportunity to build positions in quality companies exhibiting strong free cash flow at lower levels. Many of the more attractive opportunities, based on valuations, have come in cyclically oriented industries, resulting in the cyclical bias in the Fund. As a result of our bottom-up stock selection process, we believe many of the most attractive opportunities lie within cyclically oriented industries. The Fund remains overweight in Transportation, Materials, Producer Durables and Technology. In contrast, we are underweight in more defensive sectors, including Utilities, Consumer Staples and Health Care. Investments in smaller company and micro-cap stocks generally carry a higher level of volatility and risk over the short term. * Historical performance is not an indication of future performance. These performance results do not reflect the impact of Class A's maximum 5.5 percent front-end sales charge or Class B's maximum 5 percent contingent deferred sales charge. ** The Russell 2000 Value Index contains those stocks from the Russell 2000 with low price to book ratios. The Russell 2000 are the 2,000 smallest companies in the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks which represents approximately 98 percent of the U.S. market. 29 TEN LARGEST STOCK HOLDINGS

MARKET % OF STOCK COMPANY SHARES VALUE PORTFOLIO - ------- ---------- ------------- ---------- Varian Semiconductor Equipment Associates, Inc. 53,800 $ 1,395,572 2.7% Agrium, Inc. 113,800 1,233,592 2.4% Phelps Dodge Corporation 34,800 1,202,340 2.3% Navistar International Corporation 47,200 1,136,104 2.2% Technitrol, Inc. 61,800 983,238 1.9% Wabtec Corporation 81,200 974,400 1.9% American Axle & Manufacturing Holdings 38,600 971,562 1.8% Readers Digest Association 74,900 964,712 1.8% EGL, Inc. 70,000 916,300 1.7% Veeco Instruments, Inc. 50,100 701,400 1.3% ------------- ---- $ 10,479,220 20.0% ============= ====

[CHART] Cash and Other Assets/Liabilities 0.20% Communication Services 0.50% Health Care 1.50% Financial 3.30% Consumer Staples 5.20% Energy 6.80% Transportation 7.10% Consumer Cyclical 13.60% Basic Materials 16.70% Capital Goods 21.80% Technology 23.30% 30 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS VENTURE FUND, RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX On the following chart you can see how the total return for each of the three classes of shares of the Advantus Venture Fund compared to the Russell 2000 Value Index and the Consumer Price Index. The lines represent the cumulative total return of a hypothetical $10,000 investment made on the inception date of each class of shares of the Advantus Venture Fund (January 31, 1997) through January 31, 2003. [CHART] SEC AVERAGE ANNUAL TOTAL RETURN: Class A: One year -25.98% Five year 0.14% Since inception (1/31/97) 4.03% Class B: One year -26.23% Five year 0.08% Since inception (1/31/97) 4.07% Class C: One year -22.25% Five year 0.43% Since inception (1/31/97) 4.14% (Thousands)

RUSSELL 2000 CLASS A CLASS B CLASS C VALUE INDEX CPI 1/31/1997 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 7/31/1997 $ 10,944 $ 11,033 $ 11,533 $ 11,790 $ 10,075 7/31/1998 $ 11,919 $ 11,965 $ 12,449 $ 12,503 $ 10,245 7/31/1999 $ 11,456 $ 11,474 $ 11,850 $ 12,487 $ 10,458 7/31/2000 $ 11,884 $ 11,916 $ 12,199 $ 13,090 $ 10,834 7/31/2001 $ 16,065 $ 16,153 $ 16,340 $ 16,198 $ 11,129 7/31/2002 $ 13,934 $ 13,867 $ 14,059 $ 15,306 $ 11,286 1/31/2003 $ 12,679 $ 12,704 $ 12,750 $ 14,429 $ 11,430

The preceding chart is useful because it provides you with more information about your investments. There are limitations, however. An index may reflect the performance of securities that the Fund may not hold. Also, the index does not deduct sales charges, investment advisory fees and other fund expenses, whereas your Fund does. Performance presented for the Fund reflects the deduction of the maximum 5.5 percent front-end sales charge for Class A and the maximum applicable contingent deferred sales charge for Class B shares. Sales charges pay for your financial professional's investment advice. Individuals cannot invest in the index itself, nor can they invest in any fund which seeks to track the perfomance of the index without incurring some charges and expenses. Historical performance is not an indication of future performance. Investment returns and principal values will fluctuate so that shares upon redemption may be worth more or less than their original cost. 31 Advantus Cornerstone Fund Investments in Securities JANUARY 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (99.9%) BASIC MATERIALS (4.2%) Chemicals (4.2%) 15,800 Air Products and Chemicals, Inc. $ 654,910 25,400 Dow Chemical Company 738,124 32,800 EI Dupont De Nemours & Company 1,242,136 ---------- 2,635,170 ---------- CAPITAL GOODS (4.7%) Aerospace/Defense (.7%) 6,700 United Technologies Corporation 425,986 ---------- Engineering/Construction (.4%) 5,100 Caterpillar, Inc. 224,298 ---------- Manufacturing (3.6%) 6,900 3M Company 859,395 18,100 Timken Company 313,311 68,700 Tyco International, Ltd. (c) 1,099,887 ---------- 2,272,593 ---------- COMMUNICATION SERVICES (6.7%) Telephone (6.7%) 11,620 AT&T Corporation 226,358 36,000 Bellsouth Corporation 820,080 56,442 SBC Communications, Inc. 1,379,443 45,557 Verizon Communications 1,743,922 ---------- 4,169,803 ---------- CONSUMER CYCLICAL (7.0%) Auto (1.7%) 6,800 Borg-Warner Automotive, Inc. 364,140 5,300 Eaton Corporation 376,724 17,800 Ford Motor Company 162,158 4,500 General Motors Corporation 163,485 ---------- 1,066,507 ---------- Leisure (2.5%) 81,300 Brunswick Corporation 1,582,911 ---------- Lodging -- Hotel (.6%) 31,400 Hilton Hotels 367,694 ---------- Publishing (1.2%) 4,800 Gannett Company, Inc. 348,768 8,600 Tribune Company 416,240 ---------- 765,008 ----------

See accompanying notes to investments in securities. 32

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED Retail (1.0%) 15,000 JC Penney Company $ 290,850 11,600 The Sherwin-Williams Company 309,024 ---------- 599,874 ---------- CONSUMER STAPLES (9.6%) Beverage (.6%) 14,000 Constellation Brands, Inc. (b) 350,980 ---------- Broadcasting (2.2%) 17,500 Clear Channel Communications, Inc. (b) 701,400 13,800 Comcast Corporation (b) 353,004 33,000 Liberty Media Corporation (b) 329,010 ---------- 1,383,414 ---------- Entertainment (1.8%) 41,200 The Walt Disney Company 721,000 10,400 Viacom, Inc. (b) 400,920 ---------- 1,121,920 ---------- Food (1.0%) 10,100 H.J. Heinz Company 326,331 9,700 Kraft Foods, Inc. 308,945 ---------- 635,276 ---------- Household Products (1.5%) 11,200 Procter & Gamble Company 958,384 ---------- Personal Care (.9%) 11,400 Avon Products, Inc. 570,000 ---------- Retail (.4%) 17,500 Winn-Dixie Stores, Inc. 245,000 ---------- Service (.8%) 15,000 Manpower, Inc. 520,200 ---------- Tobacco (.4%) 6,700 Altria Group, Inc. 253,729 ---------- ENERGY (11.9%) Oil (8.6%) 16,613 Chevron Corporation 1,069,877 6,600 ConocoPhillips 318,054 7,700 Devon Energy Corporation 348,810 105,306 Exxon Mobil Corporation 3,596,198 ---------- 5,332,939 ----------

See accompanying notes to investments in securities. 33

MARKET SHARES VALUE(a) - ------ -------- ENERGY--CONTINUED Oil & Gas (3.3%) 14,600 EOG Resources, Inc. $ 565,896 17,900 Nabors Industries, Ltd. (b) (c) 659,615 15,100 Smith International, Inc. (b) 480,784 20,500 Veritas DGC, Inc. (b) 374,166 ---------- 2,080,461 ---------- FINANCIAL (33.3%) Auto Finance (.7%) 16,800 Fleet Boston Financial Corporation 438,648 ---------- Banks (15.3%) 33,600 Bank of America Corporation 2,353,680 15,900 Bank One Corporation 580,509 14,100 J.P. Morgan Chase & Company 329,094 14,900 The Bank of New York Company, Inc. 376,970 92,658 U.S. Bancorp 1,955,084 52,700 Wachovia Corporation 1,895,619 36,700 Wells Fargo & Company 1,738,479 6,700 Zion Bancorp 277,514 ---------- 9,506,949 ---------- Consumer Finance (2.0%) 19,600 American Express Company 696,388 31,800 MBNA Corporation 535,194 ---------- 1,231,582 ---------- Finance -- Diversified (.5%) 5,500 Federal Home Loan Mortgage Corpration 307,890 ---------- Insurance (5.5%) 28,000 Allstate Corporation 985,320 20,127 American International Group 1,089,273 5,800 Chubb Corporation 311,576 7,000 Marsh & McLennan Companies, Inc. 298,410 16,300 MetLife, Inc. 436,351 19,800 Travelers Property Casualty Corporation 320,958 ---------- 3,441,888 ---------- Investment Bankers/Brokers (7.5%) 64,613 Citigroup, Inc. 2,221,395 17,634 Comcast Corporation (b) 469,593 7,200 Goldman Sachs Group, Inc. 490,320 8,100 Merrill Lynch & Company, Inc. 283,662 15,540 Morgan Stanley 588,966 23,500 T. Rowe Price Associates, Inc. 628,390 ---------- 4,682,326 ----------

See accompanying notes to investments in securities. 34

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED Real Estate Investment Trust (1.3%) 17,000 Developers Diversified Realty Corporation $ 381,140 16,600 Prologis 412,510 ---------- 793,650 ---------- Savings and Loans (.5%) 10,485 Charter One Financial, Inc. 303,121 ---------- HEALTH CARE (5.8%) Drugs (3.2%) 10,300 Bristol-Myers Squibb Company 242,977 8,400 Merck & Company, Inc. 465,276 21,900 Pfizer, Inc. 664,884 16,600 Wyeth 647,898 ---------- 2,021,035 ---------- Health Care- Diversified (.8%) 13,200 Abbott Laboratories 503,184 ---------- Managed Care (.5%) 6,000 Express Scripts, Inc. (b) 333,300 ---------- Medical Products/Supplies (.6%) 10,800 Becton Dickinson and Company 354,240 ---------- Special Services (.7%) 15,800 Fisher Scientific International, Inc. (b) 456,620 ---------- TECHNOLOGY (9.8%) Computer Hardware (5.3%) 45,100 Hewlett-Packard Company 785,191 18,800 International Business Machines Corporation 1,470,724 27,300 Seagate Technology 250,614 92,100 Symbol Technologies, Inc. 776,403 ---------- 3,282,932 ---------- Computer Services & Software (1.4%) 33,600 AOL Time Warner, Inc. (b) 391,776 16,200 Peoplesoft, Inc. (b) 314,118 17,300 Siebel Systems, Inc. (b) 144,628 ---------- 850,522 ---------- Electrical Semiconductor (2.0%) 11,400 Analog Devices, Inc. (b) 272,802 21,700 National Semiconductor Corporation (b) 286,440 42,900 Texas Instruments, Inc. 682,110 ---------- 1,241,352 ----------

See accompanying notes to investments in securities. 35

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Electronics-- Computer Distribution (1.1%) 14,800 WW Grainger, Inc. $ 700,040 ------------ TRANSPORTATION (.7%) Airlines (.7%) 65,600 Northwest Airlines, Inc. (b) 411,312 ------------ UTILITIES (6.2%) Electric Companies (6.2%) 4,700 Dominion Resources, Inc. 254,693 13,200 Exelon Corporation 672,276 11,000 Firstenergy Corporation 343,200 60,400 Nisource, Inc. 1,073,308 41,000 Pacific Gas & Electric Company (b) 565,800 18,100 PPL Corporation 633,500 9,000 Public Service Enterprise Group, Inc. 317,520 ------------ 3,860,297 ------------ Total common stock (cost: $63,827,702) 62,283,035 ------------ SHORT-TERM SECURITIES (.8%) 454,676 Dreyfus Cash Management Plus Funds, current rate 1.310% 454,676 2 Federated Money Market Obligations Trust -- Prime Obligation Fund, current rate 1.280% 2 2,763 Wells Fargo & Company -- Cash Investment Fund, current rate 1.280% 2,763 ------------ Total short-term securities (cost: $457,441) 457,441 ------------ Total investments in securities (cost: $64,285,143) (d) $ 62,740,476 ============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 2.8% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003 the cost of securities for federal income tax purposes was $66,056,349. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,525,369 Gross unrealized depreciation (5,841,242) ------------ Net unrealized depreciation $ (3,315,873) ============ See accompanying notes to financial statements. 36 Advantus Enterprise Fund Investments in Securities JANUARY 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (91.3%) BASIC MATERIALS (4.9%) Chemicals (3.1%) 15,800 Airgas, Inc. (b) $ 272,550 5,400 Albemarle Corporation 141,750 10,800 Cambrex Corporation 277,560 6,100 Minerals Technologies, Inc. 241,865 ---------- 933,725 ---------- Paper and Forest (1.8%) 24,900 Constar International, Inc. (b) 202,437 16,600 Delta & Pine Land Company 334,490 ---------- 536,927 ---------- CAPITAL GOODS (3.5%) Containers -- Metal/Glass (1.1%) 48,700 Crown Cork & Seal Company, Inc. (b) 337,491 ---------- Engineering/Construction (.8%) 16,700 Granite Construction, Inc. 253,840 ---------- Office Equipment (.8%) 20,000 Moore Corporation, Ltd. (b) (c) 244,200 ---------- Trucks and Parts (.8%) 4,100 Oshkosh Truck Corporation (b) 257,357 ---------- COMMUNICATION SERVICES (1.2%) Telecommunication (1.2%) 33,600 Polycom, Inc. (b) 379,008 ---------- CONSUMER CYCLICAL (14.1%) Auto (1.3%) 7,400 Borg-Warner Automotive, Inc. 396,270 ---------- Distribution Durables (1.0%) 17,100 MSC Industrial Direct Company, Inc. (b) 302,670 ---------- Publishing (1.2%) 10,100 Scholastic Corporation (b) 359,752 ---------- Retail (4.4%) 13,100 Cost Plus, Inc. (b) 309,160 24,000 Gymboree Corporation (b) 342,240 12,850 Hot Topic, Inc. (b) 304,545 28,990 Valuevision Media, Inc. (b) 382,378 ---------- 1,338,323 ---------- Service (4.3%) 43,700 Doubleclick, Inc. (b) 275,747 ----------

See accompanying notes to investments in securities. 37

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED 15,359 Getty Images, Inc. (b) $ 449,251 16,100 Kroll, Inc. (b) 306,383 17,600 Penn National Gaming, Inc. (b) 286,880 ---------- 1,318,261 ---------- Textiles (1.9%) 17,100 Linens n Things, Inc. (b) 398,601 27,400 Tommy Hilfiger Corporation (b) (c) 178,100 ---------- 576,701 ---------- CONSUMER STAPLES (9.7%) Broadcasting (4.6%) 26,900 Cumulus Media, Inc. (b) 402,962 22,900 Emmis Communications (b) 502,426 9,400 Entercom Communications Corporation (b) 459,096 2,500 Insight Communications (b) 27,747 ---------- 1,392,231 ---------- Entertainment (.8%) 17,300 Movie Gallery, Inc. (b) 243,065 ---------- Food (1.4%) 14,300 Performance Food Group Company (b) 441,155 ---------- Food & Health (.6%) 15,800 Hain Celestial Group, Inc. (b) 187,546 ---------- Retail (.6%) 14,500 Duane Reade, Inc. (b) 195,460 ---------- Service (1.7%) 14,100 Education Management Corporation (b) 514,185 ---------- ENERGY (6.3%) Oil (.8%) 61,300 Newpark Resources, Inc. (b) 245,200 ---------- Oil & Gas (5.5%) 15,300 FMC Technologies, Inc. (b) 296,973 8,600 Newfield Exploration Company (b) 284,402 18,700 Remington Oil & Gas Corporation (b) 342,210 13,400 Spinnaker Exploration Company (b) 266,258 14,289 Stone Energy Corporation (b) 485,969 ---------- 1,675,812 ---------- FINANCIAL (8.6%) Banks (1.2%) 8,800 Westamerica Bancorporation 359,216 ----------

See accompanying notes to investments in securities. 38

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED Finance-- Diversified (1.2%) 13,900 Raymond James Financial, Inc. $ 354,450 ---------- Insurance (3.9%) 18,700 HCC Insurance Holdings, Inc. 450,670 14,400 Mid Atlantic Medical Services, Inc. (b) 495,648 23,500 USI Holdings Corporation (b) 241,110 ---------- 1,187,428 ---------- Investment Bankers/Brokers (1.3%) 6,800 Affiliated Managers Group, Inc. (b) 315,792 1,700 Jefferies Group, Inc. 66,010 ---------- 381,802 ---------- Savings and Loans (1.0%) 15,400 IndyMac Bancorp, Inc. 301,378 ---------- HEALTH CARE (22.8%) Biotechnology (3.3%) 27,300 Affymetrix, Inc. (b) 740,922 8,000 Scios, Inc. (b) 262,400 ---------- 1,003,322 ---------- Drugs (6.3%) 11,400 Biomar Pharmaceutical, Inc. (b) 121,980 23,600 Cubist Pharmaceuticals, Inc. (b) 155,052 6,800 Inspire Pharmaceuticals, Inc. (b) 87,108 16,600 K-V Pharmaceutical Company (b) 303,780 13,467 Medicis Pharmaceutical Corporation (b) 695,571 9,500 OSI Pharmaceuticals, Inc. (b) 144,675 36,900 Sepracor, Inc. (b) 415,863 ---------- 1,924,029 ---------- Hospital Management (3.7%) 32,100 Community Health Systems (b) 610,542 20,600 Lifepoint Hospitals, Inc. (b) 529,420 ---------- 1,139,962 ---------- Managed Care (3.5%) 16,600 Advance Paradigm, Inc. (b) 482,396 21,000 Coventry Health Care, Inc. (b) 582,750 ---------- 1,065,146 ---------- Medical Products/Supplies (2.0%) 16,800 Alliance Imaging, Inc. (b) 83,832 12,500 SonoSite, Inc. (b) 144,375

See accompanying notes to investments in securities. 39

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED 23,900 Therasense, Inc. (b) $ 170,885 7,900 Wilson Greatbatch Technologies, Inc. (b) 201,292 ---------- 600,384 ---------- Special Services (4.0%) 17,100 Apria Healthcare Group, Inc. (b) 394,155 2,246 DaVita, Inc. (b) 54,129 9,400 Fisher Scientific International, Inc. (b) 271,660 10,200 Henry Schein, Inc. (b) 413,406 2,800 Renal Care Group, Inc. (b) 80,920 ---------- 1,214,270 ---------- TECHNOLOGY (18.3%) Communications Equipment (1.4%) 26,900 InterDigital Communications Corporation (b) 326,028 89,100 Openwave Systems, Inc. (b) 109,593 ---------- 435,621 ---------- Computer Networking (3.0%) 40,100 Adaptec, Inc. (b) 237,392 60,400 Legato Systems, Inc. (b) 303,812 41,250 Radiant Systems, Inc. (b) 384,037 ---------- 925,241 ---------- Computer Services & Software (7.1%) 34,500 Agile Software Corporation (b) 240,810 18,800 Avid Technology, Inc. (b) 399,500 12,200 CACI International, Inc. (b) 458,476 80,800 Chordiant Software, Inc. (b) 133,320 44,600 Informatica Corporation (b) 311,308 23,900 JD Edwards & Company (b) 299,467 64,842 Manugistics Group, Inc. (b) 149,137 37,200 MatrixOne, Inc. (b) 181,164 ---------- 2,173,182 ---------- Data Processing (1.4%) 29,004 Documentum, Inc. (b) 428,389 ---------- Electrical Instruments ( -- ) 51,700 APW, Ltd. (b) 1,034 ---------- Electrical Semiconductor (3.0%) 14,100 Integrated Circuit Systems (b) 296,100 22,600 Semtech Corporation (b) 301,032 11,900 Varian Semiconductor Equipment Associates, Inc. (b) 308,686 ---------- 905,818 ----------

See accompanying notes to investments in securities. 40

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Equipment Semiconductor (2.4%) 18,440 Brooks-PRI Automation, Inc. (b) $ 193,620 9,404 Cymer, Inc. (b) 290,678 20,800 Lam Research Corporation (b) 243,152 ------------ 727,450 ------------ TRANSPORTATION (1.9%) Trucking (1.9%) 11,600 JB Hunt Transport Services, Inc. (b) 320,508 15,900 Swift Transportation Company, Inc. (b) 254,400 ------------ 574,908 ------------ Total common stock (cost: $35,159,003) 27,832,209 ------------ SHORT-TERM SECURITIES (7.9%) 1,599,078 Wells Fargo & Company -- Cash Investment Fund I, current rate 1.280% 1,599,078 819,388 Wells Fargo & Company -- Treasury Plus Fund, current rate 1.172% 819,388 ------------ Total short-term securities (cost: $2,418,466) 2,418,466 ------------ Total investments in securities (cost: $37,577,469) (d) $ 30,250,675 ============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 1.4% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003 the cost of securities for federal income tax purposes was $37,719,793. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,776,111 Gross unrealized depreciation (10,245,229) ------------- Net unrealized depreciation $ (7,469,118) ============= See accompanying notes to financial statements. 41 Advantus Horizon Fund Investments in Securities January 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (98.7%) BASIC MATERIALS (.7%) Chemicals (.7%) 4,200 Air Products and Chemicals, Inc. $ 174,090 ------------ CAPITAL GOODS (7.4%) Aerospace/Defense (.9%) 1,600 Lockheed Martin Corporation 81,680 2,600 United Technologies Corporation 165,308 ------------ 246,988 ------------ Electrical Equipment (4.1%) 46,128 General Electric Company 1,067,402 ------------ Manufacturing (2.4%) 3,400 3M Company 423,470 12,100 Tyco International, Ltd. (c) 193,721 ------------ 617,191 ------------ COMMUNICATION SERVICES (.7%) Telecommunication (.7%) 4,774 Qualcomm, Inc. (b) 179,789 ------------ CONSUMER CYCLICAL (12.2%) Auto (1.7%) 1,800 Danaher Corporation 110,538 2,100 Eaton Corporation 149,268 4,200 Harley-Davidson, Inc. 175,476 ------------ 435,282 ------------ Leisure (1.2%) 16,500 Brunswick Corporation 321,255 ------------ Retail (9.3%) 3,900 Autozone, Inc. (b) 256,269 5,200 Bed Bath & Beyond, Inc. (b) 174,356 2,023 eBay, Inc. (b) 152,049 10,500 Family Dollar Stores 316,260 4,300 Fastenal Company 142,416 3,900 Kohls Corporation (b) 204,243 11,800 Lowes Companies, Inc. 403,324 16,200 Wal-Mart Stores, Inc. 774,360 ------------ 2,423,277 ------------ CONSUMER STAPLES (13.7%) Beverage (3.9%) 1,700 Anheuser-Busch Companies, Inc. 80,699 5,600 Constellation Brands, Inc. (b) 140,392

See accompanying notes to investments in securities. 42

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--CONTINUED 9,910 Pepsico, Inc. $ 401,157 10,000 The Coca-Cola Company 404,600 ------------ 1,026,848 ------------ Broadcasting (1.3%) 8,300 Clear Channel Communications, Inc. (b) 332,664 ------------ Entertainment (.9%) 5,900 Viacom, Inc. (b) 227,445 ------------ Food (.2%) 1,500 Kraft Foods, Inc. 47,775 ------------ Food & Health (.5%) 4,700 Sysco Corporation 138,039 ------------ Household Products (4.0%) 8,700 Colgate-Palmolive Company 442,917 7,000 Procter & Gamble Company 598,990 ------------ 1,041,907 ------------ Personal Care (.5%) 2,500 Avon Products, Inc. 125,000 ------------ Restaurants (.8%) 10,000 Darden Restaurants, Inc. 217,000 ------------ Retail (.7%) 6,600 Walgreen Company 191,400 ------------ Service (.5%) 3,900 Automatic Data Processing, Inc. 135,213 ------------ Tobacco (.4%) 2,700 Altria Group, Inc. 102,249 ------------ ENERGY (2.9%) Oil (.3%) 1,500 Devon Energy Corporation 67,950 ------------ Oil & Gas (2.6%) 1,900 EOG Resources, Inc. 73,644 4,080 Nabors Industries, Ltd. (b)(c) 150,348 3,900 Noble Corporation (b) 133,692 4,200 Smith International, Inc. (b) 133,728 10,600 Veritas DGC, Inc. (b) 193,471 ------------ 684,883 ------------

See accompanying notes to investments in securities. 43

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL (10.9%) Banks (2.4%) 2,000 Bank of America Corporation $ 140,100 1,800 Fifth Third Bancorp 96,030 2,000 State Street Corporation 79,180 4,400 Wells Fargo & Company 208,428 2,300 Zion Bancorp 95,266 ------------ 619,004 ------------ Consumer Finance (2.2%) 5,100 American Express Company 181,203 14,250 MBNA Corporation 239,828 1,400 SLM Corporation 148,722 ------------ 569,753 ------------ Finance -- Diversified (2.1%) 9,900 Freddie Mac 554,202 ------------ Insurance (1.9%) 6,400 American International Group 346,368 3,300 Marsh & McLennan Companies, Inc. 140,679 ------------ 487,047 ------------ Investment Bankers/Brokers (2.3%) 7,600 Citigroup, Inc. (b) 261,288 2,000 Goldman Sachs Group, Inc. 136,200 7,700 T. Rowe Price Associates, Inc. 205,898 ------------ 603,386 ------------ HEALTH CARE (25.6%) Biotechnology (2.8%) 13,200 Amgen, Inc. (b) 672,672 1,300 Genentech, Inc. (b) 47,762 ------------ 720,434 ------------ Drugs (10.0%) 5,500 Eli Lilly & Company 331,320 4,800 Forest Laboratores, Inc. (b) 248,400 1,500 Merck & Company, Inc. 83,085 53,350 Pfizer, Inc. 1,619,706 8,400 Wyeth 327,852 ------------ 2,610,363 ------------ Health Care -- Diversified (5.3%) 9,800 Abbott Laboratories 373,576

See accompanying notes to investments in securities. 44

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED 18,900 Johnson & Johnson $ 1,013,229 ------------- 1,386,805 ------------- Hospital Management (.4%) 2,500 The HCA - Healthcare Company 106,850 ------------- Managed Care (1.9%) 6,000 Caremark RX, Inc. 117,600 5,800 Express Scripts, Inc. (b) 322,190 700 UnitedHealth Group, Inc. 61,530 ------------- 501,320 ------------- Medical Products/Supplies (4.5%) 2,100 AmeriSourceBergen Corporation 122,220 1,900 Boston Scientific Corporation (b) 76,855 7,900 Medtronic, Inc. 354,868 7,600 St Jude Medical, Inc. (b) 331,132 7,000 Zimmer Holdings, Inc. (b) 287,000 ------------- 1,172,075 ------------- Special Services (.7%) 6,600 Fisher Scientific International, Inc. 190,740 ------------- TECHNOLOGY (24.2%) Communications Equipment (1.1%) 5,500 Brocade Communication Systems, Inc. (b) 24,585 2,700 Comverse Technology, Inc. (b) 25,704 15,900 Nokia Oyj (c) 228,801 ------------- 279,090 ------------- Computer Hardware (3.9%) 15,330 Dell Computer Corporation (b) 365,774 4,200 Hewlett-Packard Company 73,122 5,600 International Business Machines Corporation 438,088 15,300 Symbol Technologies, Inc. 128,979 ------------- 1,005,963 ------------- Computer Networking (2.9%) 1,126 Affiliated Computer Services, Inc. (b) 61,052 49,785 Cisco Systems, Inc. (b) 665,626 3,300 Juniper Networks, Inc. (b) 28,941 ------------- 755,619 -------------

See accompanying notes to investments in securities. 45

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED Computer Peripherals (.2%) 7,900 EMC Corporation (b) $ 60,830 ------------- Computer Services & Software (8.5%) 8,700 AOL Time Warner, Inc. (b) 101,442 5,300 BEA Systems, Inc. (b) 60,738 746 Electronic Arts, Inc. (b) 38,650 28,459 Microsoft Corporation (b) 1,350,664 15,100 Oracle Systems (b) 181,653 8,500 Peoplesoft, Inc. (b) 164,815 3,100 SAP AG (c) 72,850 12,200 Siebel Systems, Inc. (b) 101,992 2,006 Sungard Data Systems, Inc. (b) 38,997 2,500 Symantec Corporation (b) 116,700 ------------- 2,228,501 ------------- Electrical Instruments (.1%) 9,400 JDS Uniphase Corporation (b) 25,474 ------------- Electrical Semiconductor (5.2%) 3,400 Altera Corporation (b) 37,332 2,466 Analog Devices, Inc. (b) 59,011 15,052 Applied Materials, Inc. (b) 180,172 4,200 Entegris, Inc. (b) 44,902 29,831 Intel Corporation 467,154 3,600 Intersil Corporation (b) 52,200 2,288 Linear Technology Corporation 59,785 2,498 Microchip Technology, Inc. 55,181 1,800 Novellus Systems, Inc. (b) 53,010 18,587 Texas Instruments, Inc. 295,533 2,279 Xilinx, Inc. (b) 45,101 ------------- 1,349,381 ------------- Electronics -- Computer Distribution (1.1%) 2,222 Maxim Integrated Products (b) 69,215 4,800 WW Grainger, Inc. 227,040 ------------- 296,255 ------------- Equipment Semiconductor (.3%) 2,435 KLA-Tencor Corporation (b) 79,478 ------------- Service -- Data Processing (.9%) 4,800 First Data Corporation 165,120 3,100 Paychex, Inc. 78,058 ------------- 243,178 -------------

See accompanying notes to investments in securities. 46

MARKET SHARES VALUE(a) - ------ -------- UTILITIES (.4%) Electric Companies (.4%) 3,000 PPL Corporation $ 105,000 ------------- Total common stock (cost: $24,847,580) 25,754,393 ------------- S & P DEPOSITORY RECEIPT (--) 100 S & P Depository Receipt 8,598 ------------- Total S & P Depository Receipt (cost: $8,161) 8,598 ------------- SHORT-TERM SECURITIES (.5%) 100,534 Dreyfus Cash Management Plus Fund, current rate 1.224% 100,534 1,159 Federated Money Market Obligations Trust -- Prime Obligation Fund, current rate 1.280% 1,160 16,296 Wells Fargo & Company-- Cash Investment Fund, current rate 1.280% 16,296 ------------- Total short-term securities (cost: $117,990) 117,990 ------------- Total investments in securities (cost: $24,973,731) (d) $ 25,880,983 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 1.3% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003, the cost of securities for federal income tax purposes was $28,677,400. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 2,292,000 Gross unrealized depreciation (5,088,417) ------------- Net unrealized depreciation $ (2,796,417) ============= See accompanying notes to financial statements. 47 Advantus Index 500 Fund Investments in Securities JANUARY 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (94.5%) BASIC MATERIALS (3.6%) Agriculture Products (.1%) 2,402 Archer-Daniels-Midland Company $28,944 961 Monsanto Company 16,962 ------------- 45,906 ------------- Aluminum (.2%) 3,178 Alcoa, Inc. 62,829 ------------- Chemicals (2.1%) 877 Air Products and Chemicals, Inc. 36,352 3,428 Dow Chemical Company 99,618 3,739 E.I. du Pont de Nemours & Company 141,596 273 Eastman Chemical Company 9,345 481 Ecolab, Inc. 23,713 450 Engelhard Corporation 9,319 205 Great Lakes Chemical Corporation 4,557 380 Hercules, Inc. (b) 3,150 367 International Flavors and Fragrances, Inc. 11,660 4,907 Pharmacia Corporation 204,965 668 PPG Industries, Inc. 32,618 608 Praxair, Inc. 33,160 365 Quest Diagnostics, Inc. (b) 19,630 846 Rohm & Haas Company 26,099 265 Sigma-Aldrich Corporation 11,891 ------------- 667,673 ------------- Construction (--) 370 Vulcan Materials, Inc. 12,598 ------------- Iron and Steel (.1%) 304 Allegheny Technologies, Inc. 1,389 293 Nucor Corporation 11,694 385 United States Steel Corporation 5,525 296 Worthington Industries, Inc. 4,490 ------------- 23,098 ------------- Mining (.2%) 532 Freeport-McMoran, Inc. (b) 9,986 1,507 Newmont Mining 43,628 340 Phelps Dodge Corporation (b) 11,747 ------------- 65,361 ------------- Paper and Forest (.9%) 232 Bemis Company, Inc. 10,120 231 Boise Cascade Corporation 5,523

See accompanying notes to investments in securities. 48

MARKET SHARES VALUE(a) - ------ -------- BASIC MATERIALS--CONTINUED 943 Georgia-Pacific Corporation $ 14,503 1,814 International Paper Company 64,760 1,946 Kimberly-Clark Corporation 90,139 372 Louisiana-Pacific Corporation (b) 2,716 755 MeadWestvaco Corporation 18,158 670 Plum Creek Timber Company, Inc. 14,619 223 Temple Inland, Inc. 9,638 824 Weyerhaeuser Company 39,593 ------------- 269,769 ------------- CAPITAL GOODS (7.5%) Aerospace/Defense (1.6%) 761 General Dynamics Corporation 50,333 434 Goodrich Corporation 7,465 1,713 Lockheed Martin Corporation 87,449 687 Northrop Grumman Corporation 62,799 1,550 Raytheon Company 46,639 700 Rockwell Collins 14,441 701 Rockwell International Corporation 16,158 3,159 The Boeing Company 99,793 1,776 United Technologies Corporation 112,918 ------------- 497,995 ------------- Containers -- Metal/Glass (--) 200 Ball Corporation 10,500 ------------- Electrical Equipment (3.4%) 739 American Power Conversion Corporation (b) 11,499 343 Cooper Industries, Inc. 12,152 1,585 Emerson Electric Company 74,384 37,545 General Electric Company (e) 868,791 3,084 Honeywell International, Inc. 75,373 702 Molex, Inc. 14,735 3,101 Solectron Corporation (b) 11,133 603 Thermo Electron Corporation (b) 10,956 ------------- 1,079,023 ------------- Engineering/Construction (.2%) 1,324 Caterpillar, Inc. 58,229 ------------- Machinery (.3%) 904 Deere & Company 38,149 780 Dover Corporation 20,413 634 Ingersoll Rand Company (c) 24,891 ------------- 83,453 -------------

See accompanying notes to investments in securities. 49

MARKET SHARES VALUE(a) - ------ -------- CAPITAL GOODS--CONTINUED Manufacturing (1.5%) 1,469 3M Company $ 182,964 406 Avery Dennison Corporation 24,194 1,187 Illinois Tool Works, Inc. 72,193 330 Johnson Controls, Inc. 26,654 200 Millipore Corporation (b) 6,462 475 Parker Hannifin Corporation 19,147 296 Sealed Air Corporation (b) 11,165 505 Textron, Inc. 19,473 7,510 Tyco International, Ltd. (c) 120,235 ------------- 482,487 ------------- Office Equipment (.2%) 475 Lexmark International Group, Inc. (b) 28,756 879 Pitney Bowes, Inc. 28,603 ------------- 57,359 ------------- Trucks and Parts (.1%) 175 Cummins Engine Company, Inc. 4,322 255 Navistar International Corporation (b) 6,138 422 PACCAR, Inc. 18,281 ------------- 28,741 ------------- Waste Management (.2%) 743 Allied Waste Industries (b) 7,267 2,302 Waste Management, Inc. 52,923 ------------- 60,190 ------------- COMMUNICATION SERVICES (4.1%) Cellular (.4%) 10,192 AT&T Wireless Services, Inc. (b) 61,865 1,032 Citizens Communications Company (b) 10,103 3,633 Nextel Communications, Inc. (b) 45,848 ------------- 117,816 ------------- Telecommunication (.6%) 2,975 Qualcomm, Inc. 112,038 6,396 Qwest Communications International, Inc. (b) 28,910 3,360 Sprint Corporation - Fon Group 40,790 3,753 Sprint Corporation - PCS Group (b) 14,111 ------------- 195,849 ------------- Telephone (3.1%) 1,161 Alltel Corporation 54,416 2,894 AT&T Corporation 56,375

See accompanying notes to investments in securities. 50

MARKET SHARES VALUE(a) - ------ -------- COMMUNICATION SERVICES--CONTINUED 6,996 Bellsouth Corporation $ 159,369 558 Centurytel, Inc. 16,924 12,517 SBC Communications, Inc. 305,915 10,322 Verizon Communications 395,126 ------------- 988,125 ------------- CONSUMER CYCLICAL (9.6%) Auto (1.0%) 237 Cooper Tire and Rubber Company 3,389 560 Dana Corporation 6,031 564 Danaher Corporation 34,635 2,106 Delphi Corporation 17,943 302 Eaton Corporation 21,466 6,923 Ford Motor Company 63,069 2,109 General Motors Corporation 76,620 613 Goodyear Tire & Rubber Company (b) 3,249 1,138 Harley-Davidson, Inc. 47,546 375 ITT Industries, Inc. 21,060 220 Snap-On, Inc. 5,610 490 Visteon Corporation 3,366 ------------- 303,984 ------------- Building Materials (.3%) 297 American Standard Companies, Inc. (b) 19,798 250 Centex Corporation 13,230 225 Crane Company 3,627 200 KB Home Corporation 8,942 1,862 Masco Corporation 33,870 259 Pulte Corporation 12,945 ------------- 92,412 ------------- Distribution Durables (.1%) 640 Genuine Parts Company 18,880 ------------- Hardware and Tools (.1%) 286 Black & Decker Corporation 10,479 355 The Stanley Works 9,450 ------------- 19,929 ------------- Houseware (.2%) 4,327 Corning, Inc. (b) 17,654 703 Leggett & Platt, Inc. 14,201 275 Maytag Corporation 6,949 256 Whirlpool Corporation 13,304 ------------- 52,108 -------------

See accompanying notes to investments in securities. 51

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED Leisure (.2%) 350 Brunswick Corporation $ 6,814 653 Hasbro, Inc. 7,836 318 International Game Technology (b) 25,081 1,647 Mattel, Inc. 32,940 ------------- 72,671 ------------- Lodging-- Hotel (.1%) 1,384 Hilton Hotels 16,207 889 Marriott International, Inc. 27,737 ------------- 43,944 ------------- Photography/Imagery (.1%) 1,128 Eastman Kodak Company 34,178 ------------- Publishing (.8%) 324 Dow Jones & Company, Inc. 13,077 1,005 Gannett Company, Inc. 73,023 305 Knight-Ridder, Inc. 20,655 748 McGraw-Hill Companies, Inc. 44,297 178 Meredith Corporation 7,510 436 RR Donnelly & Sons Company 9,396 571 The New York Times Company 27,888 1,158 Tribune Company 56,047 ------------- 251,893 ------------- Retail (6.0%) 248 American Greetings Corporation (b) 3,447 379 Autozone, Inc. (b) 24,904 1,124 Bed Bath & Beyond, Inc. (b) 37,688 1,181 Best Buy Company, Inc. (b) 30,812 405 Big Lots, Inc. (b) 5,062 792 Circuit City Stores, Inc. 4,744 1,712 Costco Wholesale Corporation (b) 49,425 278 Dillards, Inc. 4,170 1,245 Dollar General Corporation 14,019 1,155 eBay, Inc. (b) 86,810 628 Family Dollar Stores 18,915 738 Federated Department Stores (b) 19,203 3,334 Gap, Inc. 48,776 8,775 Home Depot, Inc. 183,397 1,013 JC Penney Company 19,642 1,264 Kohls Corporation (b) 66,196 1,962 Limited Brands, Inc. 24,702 2,930 Lowes Companies, Inc. 100,147 1,088 May Department Stores Company 22,304

See accompanying notes to investments in securities. 52

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--CONTINUED 997 Nike, Inc. $ 44,406 498 Nordstrom, Inc. 8,984 1,146 Office Depot, Inc. (b) 15,299 609 Radioshack Corporation 12,150 198 Reebok International, Ltd. (b) 5,988 1,178 Sears Roebuck Company 31,158 1,775 Staples, Inc. (b) 30,477 3,415 Target Corporation 96,337 562 The Sherwin-Williams Company 14,972 518 Tiffany & Company 12,043 1,981 TJX Companies, Inc. 36,371 768 Toys `R' Us, Inc. (b) 6,943 16,654 Wal-Mart Stores, Inc. (e) 796,061 ------------- 1,875,552 ------------- Service (.6%) 690 Apollo Group, Inc. (b) 30,677 3,865 Cendant Corporation (b) 42,824 653 Convergys Corporation (b) 8,326 313 Fluor Corporation 9,309 446 Harrahs Entertainment, Inc. (b) 16,181 1,444 Interpublic Group Companies, Inc. (b) 18,584 708 Omnicom Group 42,692 430 Quintiles Transnational Corporation (b) 5,465 629 Robert Half International, Inc. (b) 9,536 514 Sabre Holdings Corporation (b) 9,221 419 TMP Worldwide, Inc. (b) 4,630 ------------- 197,445 ------------- Textiles (.1%) 475 Jones Apparel Group, Inc. (b) 15,523 416 Liz Clairborne, Inc. 11,948 425 VF Corporation 14,973 ------------- 42,444 ------------- CONSUMER STAPLES (11.5%) Beverage (2.8%) 164 Adolph Coors Company 9,873 3,220 Anheuser-Busch Companies, Inc. 152,853 250 Brown-Forman Corporation 15,535 1,695 Coca-Cola Enterprises 37,341 1,048 Pepsi Bottling Group 26,567 6,516 Pepsico, Inc. 263,768

See accompanying notes to investments in securities. 53

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--CONTINUED 9,345 The Coca-Cola Company $ 378,099 ------------- 884,036 ------------- Broadcasting (.4%) 2,306 Clear Channel Communications, Inc. (b) 92,424 846 Univision Communications, Inc. (b) 22,301 ------------- 114,725 ------------- Entertainment (1.4%) 2,208 Carnival Corporation 53,213 7,683 The Walt Disney Company 134,452 6,643 Viacom, Inc. (b) 256,088 ------------- 443,753 ------------- Food (1.2%) 1,544 Campbell Soup Company 37,010 2,018 Conagra, Inc. 49,502 1,413 General Mills, Inc. 63,486 1,303 H.J. Heinz Company 42,100 515 Hershey Foods Corporation 33,217 1,544 Kellogg Company 51,570 2,953 Sara Lee Corporation 58,883 849 William Wrigley Jr. Company 47,136 ------------- 382,904 ------------- Food & Health (.2%) 2,497 Sysco Corporation 73,337 ------------- Household Products (2.3%) 856 Clorox Company 32,716 2,043 Colgate-Palmolive Company 104,009 3,982 Gillette Compay 119,062 1,026 Newell Rubbermaid, Inc. 28,574 597 Pactiv Corporation (b) 12,185 4,943 Procter & Gamble Company 422,972 220 Tupperware Corporation 3,401 ------------- 722,919 ------------- Personal Care (.2%) 249 Alberto-Culver Company 12,632 889 Avon Products, Inc. 44,450 ------------- 57,082 ------------- Restaurants (.5%) 628 Darden Restaurants, Inc. 13,628 4,750 McDonalds Corporation 67,640

See accompanying notes to investments in securities. 54

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--CONTINUED 1,459 Starbucks Corporation (b) $ 33,148 431 Wendy's International, Inc. 11,702 1,127 Yum! Brands, Inc. (b) 26,124 ------------- 152,242 ------------- Retail (.9%) 1,430 Albertsons, Inc. 30,745 1,478 CVS Corporation 33,432 2,917 Kroger Company (b) 44,018 1,661 Safeway, Inc. (b) 39,366 504 Supervalu, Inc. 7,500 3,856 Walgreen Company 111,824 531 Winn-Dixie Stores, Inc. 7,434 ------------- 274,319 ------------- Service (.5%) 2,260 Automatic Data Processing, Inc. 78,354 630 Cintas Corporation 26,019 1,881 Concord EFS, Inc. (b) 27,575 231 Deluxe Corporation 9,295 ------------- 141,243 ------------- Tobacco (1.1%) 7,805 Altria Group, Inc. 295,575 554 Fortune Brands, Inc. 24,415 315 R.J. Reynolds Tobacco Holdings, Inc. 13,343 630 UST, Inc. 19,467 ------------- 352,800 ------------- ENERGY (5.8%) Oil (4.3%) 328 Amerada Hess 15,482 4,021 Chevron Corporation 258,952 2,547 ConocoPhillips 122,740 580 Devon Energy Corporation 26,274 25,388 Exxon Mobil Corporation 867,000 1,156 Marathon Oil Corporation 24,160 1,417 Occidental Petroleum Corporation 41,391 ------------- 1,355,999 ------------- Oil & Gas (1.5%) 966 Anadarko Petroleum Corporation 44,542 572 Apache Finance Property 35,698 240 Ashland, Inc. 6,658 1,243 Baker Hughes, Inc. 37,613

See accompanying notes to investments in securities. 55

MARKET SHARES VALUE(a) - ------ -------- ENERGY--CONTINUED 573 BJ Services Company (b) $17,517 791 Burlington Resources, Inc. 34,883 465 EOG Resources, Inc. 18,023 1,637 Halliburton Company 30,710 400 Kerr-McGee Corporation 16,708 240 McDermott International, Inc. (b) 970 528 Nabors Industries, Ltd. (b)(c) 19,457 497 Noble Corporation (b) 17,037 320 Rowan Companies, Inc. 6,602 2,174 Schlumberger, Ltd. 81,960 300 Sunoco, Inc. 9,396 1,196 Transocean Sedco Forex, Inc. (b) 27,233 973 Unocal Corporation 27,098 1,543 Veritas DGC, Inc. (b) 28,163 ------------- 460,268 ------------- FINANCIAL (20.7%) Auto Finance (.3%) 3,944 Fleet Boston Financial Corporation 102,978 ------------- Banks (6.8%) 1,341 AmSouth Bancorporation 27,477 5,656 Bank of America Corporation 396,236 4,418 Bank One Corporation 161,301 1,820 BB&T Corporation 61,079 658 Comerica Bank 26,649 2,185 Fifth Third Bancorp 116,570 499 First Tennessee National Corporation 18,712 885 Huntington Bancshares, Inc. 16,788 7,505 J.P. Morgan Chase & Company 175,167 1,605 KeyCorp 38,600 840 Marshal & Ilsley Corporation 22,764 1,638 Mellon Financial Corporation 37,461 2,300 National City Bancorp 63,940 600 North Fork BanCorporation 19,458 856 Northern Trust Corporation 29,275 860 Regions Financial Corporation 28,191 1,296 SouthTrust Corporation 33,774 1,249 State Street Corporation 49,448 1,070 Suntrust Banks, Inc. 60,615 1,131 Synovus Financial Corporation 21,862 2,894 The Bank of New York Company, Inc. 73,218 7,206 U.S. Bancorp 152,047 730 Union Planters Corporation 20,601 5,112 Wachovia Corporation 183,879

See accompanying notes to investments in securities. 56

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED 6,395 Wells Fargo & Company $ 302,931 372 Zion Bancorp 15,408 ------------- 2,153,451 ------------- Consumer Finance (1.3%) 4,953 American Express Company 175,980 852 Capital One Financial Corporation 26,455 1,787 Household International, Inc. 48,804 4,809 MBNA Corporation 80,935 580 SLM Corporation 61,613 ------------- 393,787 ------------- Finance -- Diversified (1.6%) 396 Ambac Financial Group, Inc. 21,214 3,746 Fannie Mae 242,366 2,619 Freddie Mac 146,612 839 Janus Capital Group, Inc. 10,647 1,062 John Hancock Financial Services, Inc. 29,003 387 MGIC Investment Corporation 16,691 570 Moodys Corporation 23,872 1,048 Providian Financial Corporation (b) 6,697 ------------- 497,102 ------------- Insurance (4.8%) 995 ACE, Ltd. (c) 29,303 590 Aetna, Inc. 25,659 1,947 AFLAC, Inc. 63,063 2,656 Allstate Corporation 93,465 9,878 American International Group 534,597 1,147 AON Corporation 21,713 637 Chubb Corporation 34,220 543 Cigna Corporation 23,713 629 Cincinnati Financial Corporation 22,512 982 Hartford Financial Services Group, Inc. 40,930 541 Jefferson-Pilot Corporation 20,828 643 Lincoln National Corporation 20,737 722 Loews Corporation 31,782 2,017 Marsh & McLennan Companies, Inc. 85,985 554 MBIA, Inc. 22,703 2,642 MetLife, Inc. 70,726 849 Progressive Corporation 41,041 2,134 Prudential Financial, Inc. 67,797 522 Safeco Corporation 18,714 1,256 The Principal Financial Group 35,922 864 The St. Paul Companies, Inc. 28,201

See accompanying notes to investments in securities. 57

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--CONTINUED 434 Torchmark Corporation $ 15,581 3,764 Travelers Property Casualty Corporation 61,203 872 Unumprovident Corporation 15,234 585 Wellpoint Health Networks, Inc. (b) 42,518 540 XL Capital, Ltd. (c) 40,532 ------------- 1,508,679 ------------- Investment Bankers/Brokers (4.7%) 354 Bear Stearns & Companies, Inc. 21,966 674 Block Financial Corporation 25,538 19,379 Citigroup, Inc. 666,250 8,708 Comcast Corporation (b) 231,894 971 Franklin Resources, Inc. 32,373 1,805 Goldman Sachs Group, Inc. 122,920 889 Lehman Brothers Holdings, Inc. 48,477 3,258 Merrill Lynch & Company, Inc. 114,095 4,126 Morgan Stanley 156,375 446 T. Rowe Price Associates, Inc. 11,926 5,069 The Charles Schwab Corporation 46,736 ------------- 1,478,550 ------------- Public Finance (.2%) 510 Countrywide Financial Corporation 28,132 1,092 PNC Financial Services Group 48,092 ------------- 76,224 ------------- Real Estate Investment Trust (.3%) 1,526 EOP Operation LP 36,532 993 Equity Residential 24,269 685 Simon Property Group, Inc. 22,399 752 Starwood Hotels & Resorts Worldwide, Inc. 17,634 ------------- 100,834 ------------- Savings and Loans (.6%) 851 Charter One Financial, Inc. 24,602 598 Golden West Financial Corporation 43,971 3,572 Washington Mutual, Inc. 123,055 ------------- 191,628 ------------- HEALTH CARE (13.2%) Biotechnology (.9%) 4,862 Amgen, Inc. (b) 247,767 548 Biogen, Inc. (b) 20,961 799 Genzyme Corporation (b) 25,848 ------------- 294,576 -------------

See accompanying notes to investments in securities. 58

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED Drugs (6.8%) 7,292 Bristol-Myers Squibb Company $ 172,018 1,701 Cardinal Health, Inc. 99,219 712 Chiron Corporation (b) 26,714 4,230 Eli Lilly & Company 254,815 1,354 Forest Laboratories, Inc. (b) 70,069 895 King Pharmaceuticals, Inc. (b) 13,139 944 Medimmune, Inc. (b) 28,122 8,469 Merck & Company, Inc. 469,098 23,249 Pfizer, Inc. 705,840 5,520 Schering-Plough Corporation 99,967 375 Watson Pharmaceuticals, Inc. (b) 11,355 4,988 Wyeth 194,682 ------------- 2,145,038 ------------- Health Care-- Diversified (2.8%) 5,881 Abbott Laboratories 224,184 484 Allergan, Inc. 29,364 1,481 Healthsouth Corporation (b) 5,672 11,201 Johnson & Johnson 600,486 1,836 Tenet Healthcare Corporation (b) 33,030 ------------- 892,736 ------------- Hospital Management (.3%) 1,945 HCA, Inc. 83,129 865 Health Management Associates, Inc. 16,020 ------------- 99,149 ------------- Managed Care (.5%) 573 Humana, Inc. (b) 5,696 357 Manor Care, Inc. (b) 6,862 1,092 McKesson HBOC, Inc. 31,046 1,143 UnitedHealth Group, Inc. 100,470 ------------- 144,074 ------------- Medical Products/Supplies (1.8%) 392 AmeriSourceBergen Corporation 22,814 187 Bausch & Lomb, Inc. 6,218 2,220 Baxter International, Inc. 62,560 944 Becton Dickinson and Company 30,963 988 Biomet, Inc. 27,606 1,532 Boston Scientific Corporation (b) 61,969 227 C.R. Bard, Inc. 12,866 1,137 Guidant Corporation 38,226 4,618 Medtronic, Inc. 207,441

See accompanying notes to investments in securities. 59

MARKET SHARES VALUE(a) - ------ -------- HEALTH CARE--CONTINUED 451 Pall Corporation $ 6,995 666 St. Jude Medical, Inc. (b) 29,018 752 Stryker Corporation 45,300 718 Zimmer Holdings, Inc. (b) 29,438 ------------- 581,414 ------------- Special Services (.1%) 564 Anthem, Inc. (b) 35,013 ------------- TECHNOLOGY (14.2%) Communications Equipment (.5%) 2,998 ADC Telecommunications, Inc. (b) 6,895 370 Andrew Corporation (b) 3,419 1,316 Avaya, Inc. (b) 3,316 1,624 Ciena Corporation (b) 9,419 707 Comverse Technology, Inc. (b) 6,731 12,922 Lucent Technologies, Inc. (b) 24,035 8,654 Motorola, Inc. 69,059 582 Scientific-Atlanta, Inc. 6,460 1,554 Tellabs, Inc. (b) 12,106 ------------- 141,440 ------------- Computer Hardware (3.4%) 1,331 Apple Computer, Inc. (b) 19,113 2,124 Computer Associates International, Inc. 28,398 9,766 Dell Computer Corporation (b) 233,017 1,192 Gateway, Inc. (b) 3,123 11,487 Hewlett-Packard Company 199,989 6,379 International Business Machines Corporation 499,029 335 NCR Corporation (b) 6,462 577 Nvidia Corporation (b) 5,955 11,751 Sun Microsystems, Inc. (b) 36,311 869 Symbol Technologies, Inc. 7,326 2,748 Xerox Corporation (b) 24,320 ------------- 1,063,043 ------------- Computer Networking (1.3%) 27,259 Cisco Systems, Inc. (b) 364,453 2,230 Yahoo!, Inc. (b) 40,586 ------------- 405,039 ------------- Computer Peripherals (.3%) 8,295 EMC Corporation (b) 63,871 1,248 Network Appliance, Inc. (b) 13,491

See accompanying notes to investments in securities. 60

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED 377 QLogic Corporation (b) $ 12,547 ------------- 89,909 ------------- Computer Services & Software (5.1%) 866 Adobe Systems, Inc. 22,880 16,865 AOL Time Warner, Inc. (b) 196,646 408 Autodesk, Inc. 6,096 881 BMC Software, Inc. (b) 15,532 629 Citrix Systems, Inc. (b) 8,680 646 Computer Sciences Corporation (b) 19,768 1,395 Compuware Corporation (b) 4,882 549 Electronic Arts, Inc. (b) 28,444 1,059 IMS Health, Inc. 17,844 324 Mercury Interactive Corporation (b) 11,492 20,172 Microsoft Corporation (e) 957,363 1,354 Novell, Inc. (b) 4,387 20,207 Oracle Systems (b) 243,090 958 Parametric Technology Corporation (b) 2,299 1,181 Peoplesoft, Inc. (b) 22,900 736 Rational Software Corporation (b) 7,654 1,799 Siebel Systems, Inc. (b) 15,040 1,047 Sungard Data Systems, Inc. (b) 20,354 1,197 Unisys Corporation (b) 11,156 ------------- 1,616,507 ------------- Electrical Instruments (.2%) 1,760 Agilent Technologies, Inc. (b) 29,005 761 Applied Biosystems Group - Applera Corporation 13,356 5,337 JDS Uniphase Corporation (b) 14,463 470 Perkin Elmer, Inc. 3,666 328 Tektronix, Inc. (b) 5,412 453 Waters Corporation (b) 10,442 ------------- 76,344 ------------- Electrical Semiconductor (2.4%) 1,259 Advanced Micro Devices (b) 6,597 1,443 Altera Corporation (b) 15,844 1,352 Analog Devices, Inc. (b) 32,353 6,193 Applied Materials, Inc. (b) 74,130 1,109 Applied Micro Circuits Corporation (b) 4,015 1,040 Broadcom Corporation (b) 14,082 24,995 Intel Corporation 391,422 1,162 Linear Technology Corporation 30,363 1,374 LSI Logic Corporation (b) 6,059 2,272 Micron Technology, Inc. (b) 18,653

See accompanying notes to investments in securities. 61

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--CONTINUED 682 National Semiconductor Corporation (b) $ 9,002 580 Novellus Systems, Inc. (b) 17,081 622 PMC-Sierra, Inc. (b) 3,421 295 Power-One, Inc. (b) 1,451 6,526 Texas Instruments, Inc. 103,763 1,235 Xilinx, Inc. (b) 24,441 ------------- 752,677 ------------- Electronics -- Computer Distribution (.2%) 1,197 Maxim Integrated Products 37,287 1,949 Sanmina Corporation (b) 7,133 220 Thomas & Betts Corporation (b) 3,714 344 W.W. Grainger, Inc. 16,271 ------------- 64,405 ------------- Equipment Semiconductor (.1%) 747 Jabil Circuit, Inc. (b) 11,661 710 KLA-Tencor Corporation (b) 23,174 663 Teradyne, Inc. (b) 6,889 ------------- 41,724 ------------- Service -- Data Processing (.7%) 1,758 Electronic Data Systems Corporation 29,798 511 Equifax, Inc. 10,940 2,850 First Data Corporation 98,040 722 Fiserv, Inc. (b) 22,505 797 Intuit, Inc. (b) 35,148 1,405 Paychex, Inc. 35,378 ------------- 231,809 ------------- TRANSPORTATION (1.6%) Air Freight (1.0%) 1,159 FedEx Corporation 60,963 4,203 United Parcel Service, Inc. 253,567 ------------- 314,530 ------------- Airlines (.1%) 577 AMR Corporation (b) 1,673 465 Delta Air Lines, Inc. 4,250 2,909 Southwest Airlines Company 37,962 ------------- 43,885 ------------- Railroads (.5%) 1,407 Burlington Northern Santa Fe Corporation 36,540 801 CSX Corporation 22,452

See accompanying notes to investments in securities. 62

MARKET SHARES VALUE(a) - ------ -------- TRANSPORTATION--CONTINUED 1,452 Norfolk Southern Railway Company $ 28,604 952 Union Pacific Corporation 54,321 ------------- 141,917 ------------- Trucking (--) 206 Ryder System, Inc. 4,641 ------------- UTILITIES (2.7%) Electric Companies (2.3%) 2,051 AES Corporation (b) 7,117 453 Allegheny Energy, Inc. (b) 3,805 580 Ameren Corporation 22,811 1,275 American Electric Power Company, Inc. 30,115 1,108 Centerpoint Energy, Inc. 7,723 613 Cinergy Corporation 19,432 543 CMS Energy Corporation (b) 3,079 802 Consolidated Edison Company of New York, Inc. 32,016 594 Constellation Energy Group 16,424 1,147 Dominion Resources, Inc. 62,156 618 DTE Energy Company 25,907 3,336 Duke Energy Corporation 56,812 1,200 Edison International (b) 14,796 821 Entergy Corporation 36,493 1,205 Exelon Corporation 61,371 1,120 Firstenergy Corporation 34,944 722 FPL Group, Inc. 42,158 918 Nisource, Inc. 16,313 1,526 Pacific Gas & Electric Company (b) 21,059 350 Pinnacle West Capital Corporation 10,902 641 PPL Corporation 22,435 893 Progress Energy, Inc. 36,086 836 Public Service Enterprise Group, Inc. 29,494 2,668 Southern Company 75,158 654 Teco Energy, Inc. 9,045 1,215 TXU Corp 22,295 ------------- 719,946 ------------- Natural Gas (.3%) 1,401 Dynegy, Inc. (b) 2,620 2,259 El Paso Energy Corporation 19,066 587 Keyspan Corporation 19,958 487 Kinder Morgan Energy Partners 21,969 184 Nicor, Inc. 5,787 158 Peoples Energy Corporation 5,816 787 Sempra Energy 18,967

See accompanying notes to investments in securities. 63

MARKET SHARES VALUE(a) - ------ -------- UTILITIES--CONTINUED 1,926 Williams Companies, Inc. $ 6,240 ------------- 100,423 ------------- Power Products -- Industrial (.1%) 1,426 Calpine Corporation (b) 4,649 1,520 Mirant Corporation (b) 2,675 1,456 Xcel Energy, Inc. 16,045 ------------- 23,369 ------------- Total common stock (cost: $31,653,449) 29,754,909 ------------- SHORT-TERM SECURITIES (5.8%) 1,307,771 Dreyfus Cash Management Plus Funds, current rate 1.224% 1,307,771 526,724 Federated Money Market Obligations Trust-- Prime Obligation Fund, current rate 1.280% 526,724 10,563 Wells Fargo & Company Cash Fund I, current rate .944% 10,563 ------------- Total short-term securities (cost: $1,845,058) 1,845,058 ------------- Total investments in securities (cost: $33,498,507) (d) $ 31,599,967 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held .75% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003 the cost of securities for federal income tax purposes was $34,191,629. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 4,741,510 Gross unrealized depreciation (7,333,172) ------------- Net unrealized depreciation $ (2,591,662) ============= (e) Partially pledged as initial margin deposit on open stock index Futures purchase contracts (see note 6 to the financial statements). See accompanying notes to financial statements. 64 Advantus Real Estate Securities Fund Investments in Securities JANUARY 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (93.0%) CONSUMER CYCLICAL (2.5%) Building Materials (.7%) 13,580 Brookfield Homes Corporation $ 142,861 2,100 Ryland Group, Inc. 83,244 3,200 Standard Pacific Corporation 80,800 ------------- 306,905 ------------- Lodging -- Hotel (1.8%) 21,900 Extended Stay America, Inc. (b) 257,325 24,600 Hilton Hotels 288,066 29,300 Prime Hospitality Corporation (b) 222,387 ------------- 767,778 ------------- FINANCIAL (89.9%) Real Estate (10.6%) 101,140 Boardwalk Equities, Inc. (c) 950,716 71,700 Brookfield Properties Corporation (c) 1,305,657 51,200 Catellus Development Corporation (b) 1,012,224 22,200 Forest City Enterprises 735,930 14,900 St. Joe Company 425,246 ------------- 4,429,773 ------------- Real Estate Investment Trust -- Apartments (10.1%) 33,920 Apartment Investment & Management Company 1,232,992 23,200 Archstone-Smith Trust 515,040 7,300 Avalonbay Communities, Inc. 268,640 10,500 Camden Property Trust 330,750 33,100 Equity Residential 808,964 10,900 Essex Property Trust, Inc. 550,232 7,700 Gables Residential Trust 192,731 7,800 Summit Properties, Inc. 140,790 4,900 Sun Communities, Inc. 170,275 ------------- 4,210,414 ------------- Real Estate Investment Trust -- Diversified (9.6%) 12,700 American Mortgage Acceptance Corporation 179,705 12,100 Capital Automotive Reit 282,051 28,400 Entertainment Properties Trust 667,400 19,700 iStar Financial, Inc. 551,403 7,100 Liberty Property Trust 212,929 26,400 Newcastle Investment Corporation 422,664 26,500 Vornado Realty Trust 914,250 7,800 WCI Communities, Inc. 69,576 97,700 Winston Hotels, Inc. 762,060 ------------- 4,062,038 -------------

See accompanying notes to investments in securities. 65

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--(CONTINUED) Real Estate Investment Trust-- Hotels (2.7%) 45,000 Host Marriott Corporation (b) $ 366,750 40,100 Innkeepers USA Trust 293,131 11,400 Meristar Hospitality Corporation 64,980 16,400 Starwood Hotels & Resorts Worldwide, Inc. 384,580 ------------- 1,109,441 ------------- Real Estate Investment Trust-- Office Property (17.0%) 3,400 Alexandria Real Estate Equities 140,590 30,000 Arden Realty, Inc. 631,800 22,700 Boston Properties, Inc. 814,930 23,500 Brandywine Realty Trust 470,000 52,900 Carramerica Realty Corporation 1,270,129 60,100 EOP Operation LP 1,438,794 7,200 Great Lakes REIT, Inc. 116,280 37,700 Highwoods Properties, Inc. 836,186 14,100 Mission West Properties, Inc. 131,835 15,200 Prentiss Properties Trust 404,776 10,700 Reckson Associates Realty Corporation 218,280 9,126 Reckson Associates Realty Corporation B 189,456 7,900 SL Green Realty Corporation 238,738 25,800 Trizec Properties, Inc. 235,038 ------------- 7,136,832 ------------- Real Estate Investment Trust-- Shopping Centers (27.0%) 26,100 CBL & Associates Properties, Inc. 1,003,545 10,500 Chelsea Property Group, Inc. 357,315 54,800 Developers Diversified Realty Corporation 1,228,616 49,100 Equity One, Inc. 641,737 30,300 General Growth Properties, Inc. 1,499,850 32,100 Glimcher Realty Trust 562,713 22,450 Kimco Realty Corporation 704,930 36,100 Mid-Atlantic Realty Trust 612,617 37,800 Mills Corporation 1,058,400 8,400 Pan Pacific Retail Properties, Inc. 307,440 19,400 Ramco Gershenson 387,612 40,900 Simon Property Group, Inc. 1,337,430 41,600 The Rouse Company 1,319,968 25,500 Urstadt Biddle Properties 284,325 ------------- 11,306,498 -------------

See accompanying notes to investments in securities. 66

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--(CONTINUED) Real Estate Investment Trust-- Warehouse/Industrial (12.9%) 19,700 First Industrial Realty Trust $ 534,855 14,500 Mack-Cali Realty Corporation 413,250 33,800 P.S. Business Parks, Inc. 1,059,630 104,062 Prologis 2,585,941 25,400 Public Storage, Inc. 786,130 ------------- 5,379,806 ------------- HEALTH CARE (.6%) Managed Care (.6%) 20,300 Vencor, Inc. 230,405 ------------- Total common stock (cost: $37,994,078) 38,939,890 ------------- SHORT-TERM SECURITIES (3.5%) 1,469 Blackrock Provident Institutional TempFund, current rate 1.204% 1,469 1,425,042 Dreyfus Cash Management Plus Funds, current rate 1.224% 1,425,042 163 Federated Prime Obligation Fund, current rate 1.280% 163 27,923 Wells Fargo & Company-- Cash Investment Fund I, current rate 1.280% 27,924 ------------- Total short-term securities (cost: $1,454,598) 1,454,598 ------------- Total investments in securities (cost: $39,448,676) (d) $ 40,394,488 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 5.4% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003 the cost of securities for federal income tax purposes was $40,469,665. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 1,010,737 Gross unrealized depreciation (1,085,914) ------------- Net unrealized depreciation $ (75,177) ============= See accompanying notes to financial statements. 67 Advantus Venture FundInvestments in Securities JANUARY 31, 2003 (UNAUDITED) (Percentages of each investment category relate to total net assets.)

MARKET SHARES VALUE(a) - ------ -------- COMMON STOCK (99.8%) BASIC MATERIALS (16.7%) Agriculture Products (1.6%) 10,400 Bunge, Ltd. $ 270,400 11,300 Corn Products International, Inc. 338,435 14,800 NCO Group, Inc. (b) 211,640 ------------- 820,475 ------------- Chemicals (6.7%) 113,800 Agrium, Inc. (c) 1,233,592 42,055 American Pacific Corporation (b) 396,158 2,600 Cabot Microcelectronics Corporation (b) 114,140 3,700 Cambrex Corporation 95,090 29,400 IMC Global, Inc. 287,238 40,900 Methanex Corporation (c) 374,235 12,900 Minerals Technologies, Inc. 511,485 39,300 Omnova Solutions, Inc. 137,550 18,400 PolyOne Corporation 64,768 7,200 Spartech Corporation 140,400 6,032 Stepan Company 141,631 ------------- 3,496,287 ------------- Construction (1.1%) 18,900 Martin Marietta Materials, Inc. 551,880 ------------- Iron and Steel (2.7%) 24,500 AK Steel Corporation (b) 155,575 41,900 Allegheny Technologies, Inc. 191,483 5,500 Cleveland-Cliffs, Inc. 112,695 6,500 GrafTech International, Ltd. (b) 25,025 25,100 NS Group, Inc. (b) 168,672 30,400 United States Steel Corporation 436,240 16,500 Valmont Industries, Inc. (b) 347,325 ------------- 1,437,015 ------------- Mining (2.7%) 34,800 Phelps Dodge Corporation (b) 1,202,340 33,000 Stillwater Mining Company (b) 141,240 51,700 Titanium Metals Corporation (b) 96,162 ------------- 1,439,742 -------------

See accompanying notes to investments in securities. 68

MARKET SHARES VALUE(a) - ------ -------- BASIC MATERIALS--(CONTINUED)) Paper and Forest (1.9%) 13,000 Caraustar Industries, Inc. $ 98,670 40,600 Graphic Packaging International Corporation (b) 234,262 23,000 Louisiana-Pacific Corporation (b) 167,900 22,300 Packaging Corporation of America (b) 373,971 3,300 Rayonier, Inc. 139,854 ------------- 1,014,657 ------------- CAPITAL GOODS (21.8%) Aerospace/Defense (3.0%) 59,700 AAR Corporation 284,172 13,000 Esterline Technologies Corporation 206,700 27,900 Orbital Science (b) 152,055 7,000 Precision Castparts Corporation 177,310 18,800 Teledyne Technologies, Inc. (b) 235,940 11,800 Triumph Group, Inc. (b) 297,360 9,000 United Dominion Industries, Ltd. (b) 213,750 ------------- 1,567,287 ------------- Electrical Equipment (2.5%) 61,800 Technitrol, Inc. 983,238 21,400 Trimble Navigation, Ltd. (b) 349,462 ------------- 1,332,700 ------------- Engineering/Construction (2.3%) 13,700 Dycom Industries, Inc. (b) 176,045 25,100 ElkCorp 436,740 20,700 Granite Construction, Inc. 314,640 23,200 Joy Global, Inc. (b) 257,288 ------------- 1,184,713 ------------- Machinery (5.2%) 7,200 Agco Corporation (b) 128,880 25,500 Asyst Technologies, Inc. (b) 175,950 3,600 Denison International PLC (b) (c) 54,720 36,600 Hanover Compressor Company (b) 341,478 68,600 JLG Industries, Inc. 428,750 29,100 Kadant, Inc. (b) 481,023 6,800 Regal Beloit Corporation 130,560 81,200 Wabtec Corporation 974,400 ------------- 2,715,761 -------------

See accompanying notes to investments in securities. 69

MARKET SHARES VALUE(a) - ------ -------- CAPITAL GOODS--(CONTINUED) Manufacturing (5.3%) 5,900 Acuity Brands, Inc. $ 78,175 8,800 Excel Technology, Inc. (b) 158,488 17,300 Flowserve Corporation (b) 202,756 3,100 GSI Group, Inc. (b) (c) 15,965 29,800 Maverick Tube Corporation (b) 457,132 7,100 Pentair, Inc. 260,783 5,200 Roper Industries, Inc. 181,012 12,200 RTI International Metals, Inc. 125,782 20,300 Steelcase, Inc. 213,759 21,000 Stewart & Stevenson Services, Inc. (b) 302,610 10,600 Tredegar Corporation 134,620 30,100 Trinity Industries, Inc. 523,439 6,200 York International Corporation 147,312 ------------- 2,801,833 ------------- Metal Fabrication (.9%) 48,201 Ladish Company, Inc. (b) 291,616 17,204 Penn Engineering & Manufacturing Corporation 197,330 ------------- 488,946 ------------- Trucks and Parts (2.6%) 8,600 Cummins Engine Company, Inc. 212,420 47,200 Navistar International Corporation (b) 1,136,104 ------------- 1,348,524 ------------- COMMUNICATION SERVICES (.5%) Telephone (.5%) 63,700 PTEK Holdings, Inc. (b) 244,608 ------------- CONSUMER CYCLICAL (13.6%) Auto (3.7%) 38,600 American Axle & Manufacturing Holdings (b) 971,562 6,500 Borg-Warner Automotive, Inc. 348,075 15,200 Cooper Tire and Rubber Company 217,360 8,500 Lear Corporation (b) 342,550 63,093 Titan International, Inc. 68,141 ------------- 1,947,688 ------------- Leisure (2.5%) 16,300 Callaway Golf Company 195,274 3,900 International Game Technology (b) 307,593 45,600 Six Flags, Inc. (b) 245,784 35,420 Steinway Musical Instruments, Inc. (b) 544,760 ------------- 1,293,411 -------------

See accompanying notes to investments in securities. 70

MARKET SHARES VALUE(a) - ------ -------- CONSUMER CYCLICAL--(CONTINUED) Publishing (4.2%) 11,500 Belo Corporation $ 246,100 5,600 Bowne & Company, Inc. 61,152 56,600 Hollinger International, Inc. 550,152 22,300 Journal Register Company (b) 379,769 74,900 Readers Digest Association 964,712 ------------- 2,201,885 ------------- Retail (.7%) 6,000 Barnes & Noble, Inc. (b) 104,400 1,200 Brookstone, Inc. 17,604 8,500 Dillards, Inc. 127,500 10,140 Whitehall Jewellers, Inc. (b) 102,110 ------------- 351,614 ------------- Service (2.2%) 35,300 Argosy Gaming Company (b) 612,455 47,200 Integrated Electrical Services, Inc. (b) 205,320 6,300 Mandalay Resort Group (b) 161,847 30,100 Stewart Enterprises, Inc. 159,229 ------------- 1,138,851 ------------- Textiles (.3%) 6,100 Kellwood Company 144,753 ------------- CONSUMER STAPLES (5.2%) Broadcasting (.7%) 4,400 Cox Enterprises (b) 106,788 11,700 Entravision Communication Corporation (b) 118,170 12,500 Gray Television, Inc. 125,625 ------------- 350,583 ------------- Food (.8%) 6,800 Del Monte Foods Company (b) 56,916 9,500 Interstate Bakeries Corporation 138,700 25,900 Wild Oats Markets, Inc. 214,711 ------------- 410,327 ------------- Household Products (.3%) 9,400 Tupperware Corporation 145,324 ------------- Personal Care (.7%) 19,700 Bally Total Fitness (b) 164,298 19,500 Steiner Leisure, Ltd. (b) 228,735 ------------- 393,033 -------------

See accompanying notes to investments in securities. 71

MARKET SHARES VALUE(a) - ------ -------- CONSUMER STAPLES--(CONTINUED) Restaurants (.2%) 10,000 Ryan's Family Steak House, Inc. (b) $ 106,000 ------------- Retail (.7%) 11,600 Duane Reade, Inc. (b) 156,368 9,700 Longs Drug Stores Corporation 206,901 ------------- 363,269 ------------- Service (1.8%) 29,300 Heidrick & Struggles International (b) 378,849 1,300 John H. Harland Company 28,665 31,400 Tetra Tech, Inc. (b) 403,490 5,400 Valassis Communications, Inc. 125,604 ------------- 936,608 ------------- ENERGY (6.8%) Mining (1.3%) 27,000 Peabody Holding Company 689,850 ------------- Oil (.9%) 46,900 Newpark Resources, Inc. (b) 187,600 16,600 NUI Corporation 264,770 ------------- 452,370 ------------- Oil & Gas (4.6%) 21,700 Cabot Oil & Gas Corporation 510,167 50,700 Canadian 88 Energy Corporation (b) (c) 78,585 20,200 Core Laboratories NV (b) (c) 248,460 44,900 Global Industries, Ltd. (b) 166,130 10,000 Nuevo Energy Company (b) 114,300 27,100 Ocean Energy, Inc. 507,583 4,500 Stone Energy Corporation (b) 153,045 19,600 Vintage Petroleum, Inc. 212,268 28,100 W-H Energy Services, Inc. (b) 435,550 ------------- 2,426,088 ------------- FINANCIAL (3.3%) Banks (.4%) 12,266 Staten Island Bancorp, Inc. 225,449 ------------- Consumer Finance (.5%) 11,700 American Capital Strategies Ltd. 271,908 ------------- Finance-- Diversified (.3%) 8,500 Dollar Thrifty Auto Group, Inc. (b) 169,830 -------------

See accompanying notes to investments in securities. 72

MARKET SHARES VALUE(a) - ------ -------- FINANCIAL--(CONTINUED) Insurance (1.3%) 5,503 Fidelity National Finance $ 185,561 15,500 Hub International, Ltd. (c) 228,625 6,500 Odyssey Reinsurance Holdings Corporation 110,695 3,600 Platinum Underwriters Holdings 88,740 2,300 RLI Corporation 63,526 ------------- 677,147 ------------- Real Estate Investment Trust (.5%) 11,000 Heritage Property Investment Trust 268,950 ------------- Savings and Loans (.3%) 4,100 First Niagra Financial Group (b) 47,560 3,872 New York Community Bancorp, Inc. 114,301 ------------- 161,861 ------------- HEALTH CARE (1.5%) Biotechnology (.3%) 10,688 Invivo Corporation (b) 157,434 ------------- Drugs (.3%) 15,000 Sangstat Medical Corporation (b) 160,650 ------------- Hospital Management (.7%) 6,500 Community Health Systems (b) 123,630 4,300 Lifepoint Hospitals, Inc. (b) 110,510 21,100 Province Healthcare Company (b) 139,260 ------------- 373,400 ------------- Medical Products/Supplies (.2%) 35,700 Aradigm Corporation (b) 41,055 8,600 ArthoCare Corporation (b) 88,494 ------------- 129,549 ------------- TECHNOLOGY (23.3%) (.2%) 35,900 Carreker Corporation (b) 102,674 ------------- Communications Equipment (2.4%) 25,300 Anaren Microwave, Inc. (b) 196,075 6,500 Anixter International, Inc. (b) 146,250 21,600 Commscope, Inc. (b) 182,952 32,700 Inet Technologies, Inc. (b) 253,719 33,100 Plantronics, Inc. (b) 471,013 ------------- 1,250,009 -------------

See accompanying notes to investments in securities. 73

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--(CONTINUED) Computer Hardware (.5%) 37,400 Natural Microsystems Corporation (b) $ 56,474 4,600 SanDisk Corporation (b) 70,159 47,100 Simple Technology (b) 117,750 ------------- 244,383 ------------- Computer Peripherals (1.9%) 31,500 Electronics For Imaging, Inc. (b) 548,100 18,600 Hutchinson Technology, Inc. (b) 424,266 ------------- 972,366 ------------- Computer Services & Software (2.5%) 41,600 Earthlink, Inc. (b) 220,896 10,600 Hall Kinion & Associates, Inc. (b) 26,182 47,100 McData Corporation (b) 371,619 24,800 Micros Systems, Inc. (b) 544,112 8,400 Proquest Company (b) 133,644 ------------- 1,296,453 ------------- Electrical Instruments (4.3%) 40,000 BEI Technologies, Inc. (b) 402,480 13,300 Benchmark Electronics, Inc. (b) 432,250 28,400 Cognex Corporation (b) 604,068 22,800 Coherent, Inc. (b) 450,528 11,000 Credence Systems Corporation (b) 86,130 16,600 LeCroy Corporation (b) 181,936 6,900 Littelfuse, Inc. (b) 122,130 7,800 Opticnet, Inc. (b) 624 ------------- 2,280,146 ------------- Electrical Semiconductor (6.0%) 21,800 Actel Corporation (b) 325,910 51,800 Chippac, Inc. (b) 134,680 32,300 Cypress Semiconductor Corporation (b) 169,575 19,600 Entegris, Inc. (b) 209,544 12,600 Helix Technology Corporation 108,360 37,800 Triquint Semiconductor, Inc. (b) 123,228 53,800 Varian Semiconductor Equipment Associates, Inc. (b) 1,395,572 50,100 Veeco Instruments, Inc. (b) 701,400 ------------- 3,168,269 -------------

See accompanying notes to investments in securities. 74

MARKET SHARES VALUE(a) - ------ -------- TECHNOLOGY--(CONTINUED) Electronics-- Computer Distribution (2.2%) 600 Avnet, Inc. $ 6,234 14,200 AVX Corporation 124,960 11,100 CoorsTek, Inc. 285,714 62,000 Kemet Corporation (b) 471,200 17,000 Thomas & Betts Corporation (b) 286,960 ------------- 1,175,068 ------------- Equipment Semiconductor (2.9%) 35,700 Advanced Technology Materials, Inc. (b) 634,389 4,800 August Technology Corporation (b) 18,288 55,900 Brooks-PRI Automation, Inc. (b) 586,950 20,200 MKS Instruments, Inc. (b) 273,508 ------------- 1,513,135 ------------- Service-- Data Processing (.4%) 44,000 Ciber, Inc. (b) 221,760 ------------- TRANSPORTATION (7.1%) Air Freight (1.7%) 70,000 EGL, Inc. (b) 916,300 ------------- Airlines (2.8%) 16,700 Alaska Airgroup, Inc. (b) 330,159 30,900 ExpressJet Holdings, Inc. (b) 330,630 34,500 Frontier Airlines, Inc. (b) 156,975 129,000 Mesa Air Group, Inc. (b) 565,020 27,500 Midwest Express Holdings, Inc. (b) 104,775 ------------- 1,487,559 ------------- Railroads (1.1%) 23,700 GATX Corporation 451,959 21,400 Railamerica, Inc. (b) 132,680 ------------- 584,639 ------------- Shipping (.6%) 7,600 Teekay Shipping Corporation (c) 296,476 ------------- Transport Services (.9%) 100,700 OMI Corporation (b) 456,171 ------------- Total common stock (cost: $61,400,611) $ 52,357,668 -------------

See accompanying notes to investments in securities. 75

MARKET SHARES VALUE(a) - ------ -------- SHORT-TERM SECURITIES (.5%) 289,650 Wells Fargo & Company-- Cash Investment Fund I, current rate 1.280% $ 289,650 ------------- Total short-term securities (cost: $289,650) 289,650 ------------- Total investments in securities (cost: $61,690,261) (d) $ 52,647,318 =============

NOTES TO INVESTMENTS IN SECURITIES (a) Securities are valued by procedures described in note 2 to the financial statements. (b) Presently non-income producing. (c) The Fund held 4.8% of net assets in foreign securities as of January 31, 2003. (d) At January 31, 2003 the cost of securities for federal income tax purposes was $62,183,134. The aggregate unrealized appreciation and depreciation of investments in securities based on this cost were: Gross unrealized appreciation $ 4,857,057 Gross unrealized depreciation (14,392,873) ------------- Net unrealized depreciation $ (9,535,816) ============= See accompanying notes to financial statements. 76 (This page has been left blank intentionally.) 77 Advantus Equity Funds Statement of Assets and Liabilities JANUARY 31, 2003 (UNAUDITED)

CORNERSTONE ENTERPRISE HORIZON FUND FUND FUND -------------- ------------- -------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 62,740,476 $ 30,250,675 $ 25,880,983 Receivable for Fund shares sold 1,575 1,508 2,436 Receivable for investment securities sold 561,898 774,194 593,972 Accrued interest receivable 257 3,380 178 Dividends receivable 117,023 3,444 29,443 Variation margin receivable (note 2) - - - Collateral for securities loaned (note 7) 1,311,278 4,595,168 886,441 Other receivables 3,327 - 310 -------------- ------------- --------------- Total assets 64,735,834 35,628,369 27,393,763 -------------- ------------- --------------- LIABILITIES Payable for investment securities purchased 984,088 468,799 343,518 Payable for Fund shares redeemed 36,310 21,713 50,433 Payable to Adviser 72,771 41,842 31,981 Other payable - 72 - Payable upon return of securities loaned (note 7) 1,311,278 4,595,168 886,441 -------------- ------------- -------------- Total liabilities 2,404,447 5,127,593 1,312,373 -------------- ------------- -------------- Net assets applicable to outstanding capital stock $ 62,331,387 $ 30,500,777 $ 26,081,390 ============== ============= ============== Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 56,645 $ 48,055 $ 25,285 Additional paid-in capital 79,134,161 57,599,950 43,104,958 Undistributed (distributions in excess of) net investment income 48,605 (202,850) (50,460) Accumulated net realized gains (losses) from investments 15,363,357 (19,617,584) (17,905,645) Unrealized appreciation (depreciation) on investments (1,544,667 (7,326,794) 907,252 -------------- ------------- -------------- Total - representing net assets applicable to outstanding capital stock $ 62,331,387 $ 30,500,777 $ 26,081,390 ============== ============= ============== Net asset applicable to outstanding Class A Shares $ 56,613,704 $ 27,226,762 $ 19,431,534 ============== ============= ============== Net asset applicable to outstanding Class B Shares $ 5,135,231 $ 2,909,575 $ 6,116,557 ============== ============= ============== Net asset applicable to outstanding Class C Shares $ 582,452 $ 364,440 $ 533,299 ============== ============= ============== Net asset value per share: Class A $ 11.02 $ 6.43 $ 10.57 ============== ============= ============== Class B $ 10.83 $ 5.75 $ 9.63 ============== ============= ============== Class C $ 10.80 $ 5.74 $ 9.70 ============== ============= ============== Shares outstanding: Class A 5,136,332 4,235,464 1,838,247 ============== ============= ============== Class B 474,280 506,452 635,288 ============== ============= ============== Class C 53,940 63,489 54,966 ============== ============= ============== * Identified cost $ 64,285,143 $ 37,577,469 $ 24,973,731 + Including securities on loan of $ 1,281,474 $ 4,348,047 $ 849,936

78

REAL ESTATE INDEX 500 SECURITES VENTURE FUND FUND FUND ---------------- ------------- -------------- ASSETS Investments in securities, at market value - see accompanying schedule for detailed listing*+ $ 31,599,967 $ 40,394,488 $ 52,647,318 Receivable for Fund shares sold 33,899 1,724,457 13,837 Receivable for investment securities sold 1,963 245,771 400,592 Accrued interest receivable 57 534 2,673 Dividends receivable 47,079 51,227 11,617 Variation margin receivable (note 2) 31,605 - - Collateral for securities loaned (note 7) 990,363 2,777,920 7,017,993 Other receivables 15,836 3,433 2,219 -------------- ------------- -------------- Total assets 32,720,769 45,197,830 60,096,249 -------------- ------------- -------------- LIABILITIES Payable for investment securities purchased - 509,477 314,970 Payable for Fund shares redeemed 199,147 681 226,337 Payable to Adviser 33,528 51,179 72,604 Other payable - 811 - Payable upon return of securities loaned (note 7) 990,363 2,777,920 7,017,993 -------------- ------------- -------------- Total liabilities 1,223,038 3,340,068 7,631,904 -------------- ------------- -------------- Net assets applicable to outstanding capital stock $ 31,497,731 $ 41,857,762 $ 52,464,345 ============== ============= ============== Represented by: Capital stock - authorized 10 billion shares (Class A - 2 billion shares, Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares unallocated) of $.01 par value $ 28,190 $ 38,188 $ 51,060 Additional paid-in capital 39,717,606 42,335,974 61,500,778 Undistributed (distributions in excess of) net investment income 17,216 169,076 (240,939) Accumulated net realized gains (losses) from investments (6,269,079) (1,631,288) 196,389 Unrealized appreciation (depreciation) on investments (1,996,202) 945,812 (9,042,943) -------------- ------------- -------------- Total - representing net assets applicable to outstanding capital stock $ 31,497,731 $ 41,857,762 $ 52,464,345 ============== ============= ============== Net asset applicable to outstanding Class A Shares $ 17,296,639 $ 40,318,078 $ 47,214,570 ============== ============= ============== Net asset applicable to outstanding Class B Shares $ 12,715,367 $ 1,539,684 $ 4,259,417 ============== ============= ============== Net asset applicable to outstanding Class C Shares $ 1,485,725 $ - $ 990,358 ============== ============= ============== Net asset value per share: Class A $ 11.27 $ 10.96 $ 10.31 ============== ============= ============== Class B $ 11.06 $ 10.92 $ 9.95 ============== ============= ============== Class C $ 11.04 $ - $ 10.01 ============== ============= ============== Shares outstanding: Class A 1,535,040 3,677,849 4,579,202 ============== ============= ============== Class B 1,149,368 140,992 427,885 ============== ============= ============== Class C 134,603 - 98,944 ============== ============= ============== * Identified cost $ 33,498,507 $ 39,448,676 $ 61,690,261 + Including securities on loan of $ 942,641 $ 2,660,063 $ 6,587,023

See accompanying notes to financial statements. 79 Advantus Equity Funds Statement of Operations PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003 (UNAUDITED)

CORNERSTONE ENTERPRISE HORIZON FUND FUND FUND -------------- -------------- -------------- Investment income: Interest $ 7,640 $ 18,029 $ 3,813 Dividends 766,301 19,562 167,470 Income from securities lending activities 1,729 4,610 629 -------------- -------------- -------------- Total investment income 775,670 42,201 171,924 -------------- -------------- -------------- Expenses (note 4): Investment advisory fee 221,879 109,711 100,536 Rule 12b-1 fees - Class A 71,382 34,770 26,492 Rule 12b-1 fees - Class B 28,262 15,630 34,618 Rule 12b-1 fees - Class C 3,179 2,021 3,038 Administrative services fee 37,200 37,200 37,200 Transfer agent and shareholder services fees 78,609 57,882 125,357 Custodian fees 2,888 5,094 3,211 Auditing and accounting services 9,795 9,795 8,997 Legal fees 4,908 5,129 5,326 Directors' fees 841 424 378 Registration fees 20,000 22,500 21,000 Printing and shareholder reports 10,278 8,455 14,391 Insurance 1,367 1,191 1,191 Other 4,389 4,830 1,887 -------------- -------------- -------------- Total expenses 494,977 312,831 386,565 Less fees and expenses waived or absorbed by Adviser and Distributor: Class A Rule 12b-1 fees - (148) - Other waived fees (78,354) (67,632) (164,181) -------------- -------------- -------------- Total fees and expenses waived or absorbed (78,354) (67,780) (164,181) -------------- -------------- -------------- Total net expenses 416,623 245,051 222,384 -------------- -------------- -------------- Investment income (loss) - net 359,047 (202,850) (50,460) -------------- -------------- -------------- Realized and unrealized gains (losses) on investments (note 3): Net realized gains (losses) on: Security transactions (4,640,219) (2,370,125) (832,625) Futures contracts (note 2) - - - -------------- -------------- -------------- (4,640,219) (2,370,125) (832,625) Net change in unrealized appreciation or depreciation on investments 210,428 2,485,459 (823,040) -------------- -------------- -------------- Net gains (losses) on investments (4,429,791) 115,334 (1,655,665) -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations (4,070,744) (87,516) (1,706,126) ============== ============== ==============

See accompanying notes to financial statements. 80

REAL ESTATE INDEX 500 SECURITIES VENTURE FUND FUND FUND -------------- -------------- -------------- Investment income: Interest $ 10,062 $ 10,532 $ 16,891 Dividends 305,956 1,083,448 160,746 Income from securities lending activities 325 2,206 10,146 -------------- -------------- -------------- Total investment income 316,343 1,096,186 187,783 -------------- -------------- -------------- Expenses (note 4): Investment advisory fee 56,589 138,126 196,286 Rule 12b-1 fees - Class A 22,524 44,265 62,777 Rule 12b-1 fees - Class B 68,548 7,108 22,083 Rule 12b-1 fees - Class C 7,793 - 7,222 Administrative services fee 37,200 30,600 37,200 Transfer agent and shareholder services fees 91,033 18,157 52,511 Custodian fees 3,577 6,202 7,611 Auditing and accounting services 11,495 9,747 11,083 Legal fees 5,356 4,726 5,295 Directors' fees 438 508 748 Registration fees 19,000 16,600 20,000 Printing and shareholder reports 9,483 5,388 4,832 Insurance 1,191 1,279 1,367 Other 7,490 - -------------- -------------- -------------- Total expenses 336,114 290,196 429,010 Less fees and expenses waived or absorbed by Adviser and Distributor: Class A Rule 12b-1 fees (98) (264) (288) Other waived fees (137,386) - - -------------- -------------- -------------- Total fees and expenses waived or absorbed (137,484) (264) (288) -------------- -------------- -------------- Total net expenses 198,630 289,932 428,722 -------------- -------------- -------------- Investment income (loss) - net 117,713 806,254 (240,939) -------------- -------------- -------------- Realized and unrealized gains (losses) on investments (note 3): Net realized gains (losses) on: Security transactions (876,190) (974,296) 718,828 Futures contracts (note 2) 29,808 - - -------------- -------------- -------------- (846,382) (974,296) 718,828 Net change in unrealized appreciation or depreciation on investments (1,238,825) (1,346,747) (5,921,623) -------------- -------------- -------------- Net gains (losses) on investments (2,085,207) (2,321,043) (5,202,795) -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations (1,967,494) (1,514,789) (5,443,734) ============== ============== ==============

81 Advantus Equity Funds Statement of Changes in Net Assets PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003, PERIOD FROM OCTOBER 1, 2001 TO JULY 31, 2002 AND YEAR ENDED SEPTEMBER 30, 2001 (UNAUDITED)

CORNERSTONE FUND ------------------------------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, 2002 OCTOBER 1, YEAR ENDED TO JANUARY 31, 2001 TO JULY 31, SEPTEMBER 30, 2003 2002 2001 ---------------- ---------------- ---------------- Operations: Investment income (loss) - net $ 359,047 $ 387,940 $ 429,308 Net realized gains (losses) on investments (4,640,219) (5,242,003) (3,427,029) Net change in unrealized appreciation or depreciation on investments 210,428 1,253,980 (11,683,754) ---------------- ---------------- ---------------- Increase (decrease) in net assets resulting from operations (4,070,744) (3,600,083) (14,681,475) ---------------- ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A (306,307) (377,849) (408,866) Class B (8,000) (5,558) (1,880) Class C (953) (594) (254) Net realized gains on investments: Class A - - - Class B - - - Class C - - - ---------------- ---------------- ---------------- Total distributions (315,260) (384,001) (411,000) ---------------- ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 4,906,652 7,910,021 5,289,579 Class B 226,958 357,179 611,558 Class C 20,753 37,054 64,321 Proceeds from issuance of shares as a result of reinvested dividends: Class A 164,902 207,753 228,567 Class B 7,763 5,340 1,823 Class C 919 591 251 Payments for redemption of shares: Class A (2,446,335) (12,312,791) (8,002,033) Class B (906,300) (2,231,688) (3,076,130) Class C (75,495) (192,680) (289,292) ---------------- ---------------- ---------------- Increase (decrease) in net assets from capital share transactions 1,899,817 (6,219,221) (5,171,356) ---------------- ---------------- ---------------- Total increase (decrease) in net assets (2,486,187) (10,203,305) (20,263,831) Net assets at beginning of period 64,817,574 75,020,879 95,284,710 ---------------- ---------------- ---------------- Net assets at end of period* $ 62,331,387 $ 64,817,574 $ 75,020,879 ================ ================ ================ * including undistributed (distributions in excess) net investment income 48,605 4,818 18,308

See accompanying notes to financial statements. 82

ENTERPRISE FUND ------------------------------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, 2002 OCTOBER 1, YEAR ENDED TO JANUARY 31, 2001 TO JULY 31, SEPTEMBER 30, 2003 2002 2001 ---------------- ---------------- ---------------- Operations: Investment income (loss) - net $ (202,850) $ (439,780) $ (561,707) Net realized gains (losses) on investments (2,370,125) (6,244,790) Net change in unrealized appreciation or depreciation on investments 2,485,458 3,142,493 (17,527,880) ---------------- ---------------- ---------------- Increase (decrease) in net assets resulting from operations (87,516) (3,542,077) ---------------- ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A - - - Class B - - - Class C - - - Net realized gains on investments: Class A - - (17,270,178) Class B - - (2,987,176) Class C - - (359,988) ---------------- ---------------- ---------------- Total distributions - - (20,617,342) ---------------- ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 1,556,420 7,486,324 3,423,922 Class B 134,430 300,215 701,160 Class C 11,952 61,967 159,604 Proceeds from issuance of shares as a result of reinvested dividends: Class A - - 17,184,998 Class B - - 2,913,962 Class C - - 351,595 Payments for redemption of shares: Class A (1,617,381) (7,690,490) (4,242,274) Class B (553,207) (1,080,529) (1,427,099) Class C (67,720) (137,446) (224,061) ---------------- ---------------- ---------------- Increase (decrease) in net assets from capital share transactions (535,506) (1,059,959) 18,841,807 ---------------- ---------------- ---------------- Total increase (decrease) in net assets (623,023) (4,602,036) Net assets at beginning of period 31,123,799 35,725,835 66,252,283 ---------------- ---------------- ---------------- Net assets at end of period* $ 30,500,777 $ 31,123,799 $ 35,725,835 ================ ================ ================ * including undistributed (distributions in excess) net investment income (202,850) - -

83

HORIZON FUND -------------------------------------------------------- PERIOD FROM PERIOD FROM AUGUST 1, 2002 OCTOBER 1, YEAR ENDED TO JANUARY 31, 2001 TO JULY 31, SEPTEMBER 30, 2003 2002 2001 ---------------- ---------------- ---------------- Operations: Investment income (loss) - net $ (50,460) $ (262,466) $ (661,808) Net realized gains (losses) on investments (832,625) (1,803,623) (13,832,622) Net change in unrealized appreciation or depreciation on investments (823,040) (1,437,501) (28,342,114) ---------------- ---------------- ---------------- Increase (decrease) in net assets resulting from operations (1,706,126) (3,503,590) (42,836,544) ---------------- ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A - - - Class B - - - Class C - - - Net realized gains on investments: Class A - - (9,628,296) Class B - - (4,375,595) Class C - - (390,723) ---------------- ---------------- ---------------- Total distributions - - (14,394,614) ---------------- ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 1,002,754 1,969,386 6,031,604 Class B 258,102 539,921 1,569,835 Class C 15,372 46,322 270,628 Proceeds from issuance of shares as a result of reinvested dividends: Class A - - 9,409,680 Class B - - 4,048,610 Class C - - 374,664 Payments for redemption of shares: Class A (2,145,768) (5,178,717) (12,322,741) Class B (1,234,666) (2,842,922) (5,184,908) Class C (103,252) (306,392) (537,056) ---------------- ---------------- ---------------- Increase (decrease) in net assets from capital share transactions (2,207,458) (5,772,402) 3,660,316 ---------------- ---------------- ---------------- Total increase (decrease) in net assets (3,913,582) (9,275,992) (53,570,842) Net assets at beginning of period 29,994,972 39,270,964 92,841,806 ---------------- ---------------- ---------------- Net assets at end of period* $ 26,081,390 $ 29,994,972 $ 39,270,964 ================ ================ ================ * including undistributed (distributions in excess) net investment income (50,460) - -

See accompanying notes to financial statements. 84

INDEX 500 FUND ------------------------------------ PERIOD FROM AUGUST 1, 2002 YEAR ENDED TO JANUARY 31, JULY 31, 2003 2002 ---------------- ---------------- Operations: Investment income (loss) - net $ 117,713 $ 157,436 Net realized gains (losses) on investments (846,382) (3,219,179) Net change in unrealized appreciation or depreciation on investments (1,238,825) (8,585,433) ---------------- ---------------- Increase (decrease) in net assets resulting from operations (1,967,494) (11,647,176) ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A (94,650) (143,635) Class B (19,021) (6,716) Class C (2,144) (649) Net realized gains on investments: Class A - - Class B - - Class C - - ---------------- ---------------- Total distributions (115,815) (151,000) ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 1,296,885 4,652,626 Class B 812,483 1,997,234 Class C 157,303 362,915 Proceeds from issuance of shares as a result of reinvested dividends: Class A 59,734 93,414 Class B 18,285 6,471 Class C 2,013 623 Payments for redemption of shares: Class A (1,123,704) (5,370,976) Class B (1,821,395) (4,188,695) Class C (180,110) (487,518) ---------------- ---------------- Increase (decrease) in net assets from capital share transactions (778,506) (2,933,906) ---------------- ---------------- Total increase (decrease) in net assets (2,861,815) (14,732,082) Net assets at beginning of period 34,359,546 49,091,628 ---------------- ---------------- Net assets at end of period* $ 31,497,731 $ 34,359,546 ================ ================ * including undistributed (distributions in excess) net investment income 17,216 15,318

85 PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003 AND YEAR ENDED JULY 31, 2002 (UNAUDITED)

REAL ESTATE SECURITIES FUND ------------------------------------ PERIOD FROM AUGUST 1, 2002 YEAR ENDED TO JANUARY 31, JULY 31, 2003 2002 ---------------- ---------------- Operations: Investment income (loss) - net $ 806,254 $ 599,322 Net realized gains (losses) on investments (974,296) 324,588 Net change in unrealized appreciation or depreciation on investments (1,346,747) 1,180,088 ---------------- ---------------- Increase (decrease) in net assets resulting from operations (1,514,789) 2,103,998 ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A (706,012) (502,926) Class B (23,988) (3,574) Class C - - Net realized gains on investments: Class A (739,608) (1,186,943) Class B (30,199) (753) Class C - - ---------------- ---------------- Total distributions (1,499,807) (1,694,196) ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 13,557,586 16,920,073 Class B 537,715 1,266,380 Class C - - Proceeds from issuance of shares as a result of reinvested dividends: Class A 1,190,975 1,132,267 Class B 49,128 4,086 Class C - - Payments for redemption of shares: Class A (3,797,646) (3,548,144) Class B (65,527) (120,245) Class C - - ---------------- ---------------- Increase (decrease) in net assets from capital share transactions 11,472,231 15,654,417 ---------------- ---------------- Total increase (decrease) in net assets 8,457,635 16,064,219 Net assets at beginning of period 33,400,127 17,335,908 ---------------- ---------------- Net assets at end of period* $ 41,857,762 $ 33,400,127 ================ ================ * including undistributed (distributions in excess) net investment income 169,076 92,822

See accompanying notes to financial statements. 86

VENTURE FUND ------------------------------------ PERIOD FROM AUGUST 1, 2002 YEAR ENDED TO JANUARY 31, JULY 31, 2003 2002 ---------------- ---------------- Operations: Investment income (loss) - net $ (240,939) $ (408,024) Net realized gains (losses) on investments 718,828 6,024,204 Net change in unrealized appreciation or depreciation on investments (5,921,623) (15,478,121) ---------------- ---------------- Increase (decrease) in net assets resulting from operations (5,443,734) (9,861,941) ---------------- ---------------- Distributions to shareholders from: Investment income - net: Class A - - Class B - - Class C - - Net realized gains on investments: Class A (3,999,581) (3,292,173) Class B (345,411) (271,697) Class C (401,298) (72,757) ---------------- ---------------- Total distributions (4,746,290) (3,636,627) ---------------- ---------------- Capital share transactions: Proceeds from sales: Class A 11,695,514 23,934,179 Class B 564,202 2,199,878 Class C 4,203,605 1,327,144 Proceeds from issuance of shares as a result of reinvested dividends: Class A 1,571,837 1,073,557 Class B 336,501 259,096 Class C 96,611 69,520 Payments for redemption of shares: Class A (10,297,721) (14,413,881) Class B (380,293) (1,024,908) Class C (4,215,158) (175,731) ---------------- ---------------- Increase (decrease) in net assets from capital share transactions 3,575,098 13,248,854 ---------------- ---------------- Total increase (decrease) in net assets (6,614,926) (249,714) Net assets at beginning of period 59,079,271 59,328,985 ---------------- ---------------- Net assets at end of period* $ 52,464,345 $ 59,079,271 ================ ================ * including undistributed (distributions in excess) net investment income (240,939) -

87 Advantus Equity Funds Notes to Financial Statements JANUARY 31, 2003 (UNAUDITED) (1) ORGANIZATION The Advantus Horizon Fund, Inc., the Advantus Enterprise Fund, Inc., the Advantus Cornerstone Fund, Inc., the Advantus Venture Fund, Inc., the Advantus Index 500 Fund, Inc., and the Advantus Real Estate Securities Fund, Inc. (the Funds) are registered under the Investment Company Act of 1940 (as amended) as diversified, open-end management investment companies. The Funds' prospectus' provides a detailed description of each Funds' investment objective, policies and strategies. The Funds currently issue three classes of shares: Class A, Class B and Class C shares, except for the Real Estate Securities Fund which does not issue Class C shares. Class A shares are sold subject to a front-end sales charge. Class B shares are sold subject to a contingent deferred sales charge payable upon redemption if redeemed within six years of purchase. Class C shares are sold without either a front-end sales charge or a contingent deferred sales charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both Class B and Class C shares automatically convert to Class A shares at net asset value after a specified holding period. Such holding periods decline as the amount of the purchase increases and range from 28 to 84 months after purchase for Class B shares and 40 to 96 months after purchase for Class C shares. All three classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that the level of Rule 12b-1 fees charged differs between Class A, Class B and Class C shares. Income, expenses (other than Rule 12b-1 fees) and realized and unrealized gains or losses are allocated to each class of shares based upon its relative net assets. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Funds are summarized as follows: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, as of the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 88 INVESTMENTS IN SECURITIES Each Funds' net asset value is generally calculated as of the close of normal trading on the New York Stock Exchange (typically 3:00 p.m. Central Time). Investments in securities traded on a national exchange are valued at the last sales price on that exchange prior to the time when assets are valued; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued on the basis of the last current bid price, by an independent pricing service or at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities. The pricing service may use models that price securities based on current yields and relative security characteristics, such as coupon rate, maturity date, issuer credit quality and prepayment speeds, as applicable. When market quotations are not readily available, securities are valued at fair value as determined in good faith under procedures adopted by the Board of Directors. Short-term securities are valued at market. Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses are calculated on the identified-cost basis. Dividend income is recognized on the ex-dividend date and interest income, including amortization of bond premium and discount computed on a level yield basis, is accrued daily. FUTURES TRANSACTIONS To gain exposure to or protect itself from market changes, the Funds may buy and sell financial futures contracts traded on any U.S. or foreign exchange. The Funds also may buy and write put and call options on these futures contracts. Risks of entering into futures contracts and related options include the possibility of an illiquid market and that a change in the value of the contract or option may correlate with changes in the value of the underlying securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. FEDERAL TAXES The Funds' policy is to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no income tax provision 89 is required. The Funds' policy is to make required minimum distributions prior to December 31, in order to avoid federal excise tax. For federal income tax purposes, the following Funds had capital loss carryovers and/or post October losses at July 31, 2002 which, if not offset by subsequent capital gains, will expire July 31, 2010 through July 31, 2011. It is unlikely the Board of Directors will authorize a distribution of any net realized capital gains until available capital loss carryovers have been offset or expire: Cornerstone Fund $ 9,426,327 Enterprise Fund 17,147,760 Horizon Fund 14,270,820 Index 500 Fund 4,777,874 Net investment income (loss) and net realized gains (losses) may differ for financial statement and tax purposes primarily because of temporary book-to-tax differences. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to the timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gains were recorded by the Funds. The tax character of distributions paid for the periods indicated is as follows:

PERIOD FROM PERIOD FROM YEAR ENDED AUGUST 1, 2002 OCTOBER 1, 2001 SEPTEMBER 30, FUND TO JANUARY 31, 2003 TO JULY 31, 2002 2001 - ---- ------------------- ---------------- ------------- CORNERSTONE DISTRIBUTIONS PAID FROM: Ordinary income $ 315,260 $ 384,001 $ 411,000 Long-term capital gain - - - ENTERPRISE DISTRIBUTIONS PAID FROM: Ordinary income - - 9,729,068 Long-term capital gain - - 10,888,274 HORIZON DISTRIBUTIONS PAID FROM: Ordinary income - - 4,147,789 Long-term capital gain - - 10,246,825

90

PERIOD FROM YEARS ENDED AUGUST 1, 2002 JULY 31, FUND TO JANUARY 31, 2003 2002 - ---- ------------------- ---------------- INDEX 500 DISTRIBUTIONS PAID FROM: Ordinary income $ 115,815 $ 151,000 Long-term capital gain - - REAL ESTATE SECURITIES DISTRIBUTIONS PAID FROM: Ordinary income 1,103,242 1,127,977 Long-term capital gain 396,565 566,219 VENTURE DISTRIBUTIONS PAID FROM: Ordinary income 10,967 2,204,481 Long-term capital gain 4,735,323 1,432,146

DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income are declared and paid quarterly. Realized gains, if any, are paid annually. (3) INVESTMENT SECURITY TRANSACTIONS For the period ended January 31, 2003, purchases of securities and proceeds from sales, other than temporary investments in short-term securities, were as follows:

FUND PURCHASES SALES - ---- --------------- ------------- Cornerstone $ 35,895,301 $ 33,329,908 Enterprise 8,253,619 8,263,278 Horizon 13,834,015 15,626,417 Index 500 769,111 2,377,404 Real Estate Securities 19,021,201 10,005,575 Venture 16,923,017 17,113,000

(4) EXPENSES AND RELATED PARTY TRANSACTIONS The Funds have an investment advisory agreement with Advantus Capital Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of Securian Financial Group. Under the agreement, Advantus Capital manages the Funds' assets and provides research, statistical and advisory services and pays related office rental and executive expenses and salaries. 91 Each of the Funds pays Advantus Capital Management an annual fee, based on average net assets in the following amounts:

FUND ANNUAL FEE - -------------------------------------------------------------------------------- Cornerstone .70% of assets to $500 million; and .65% of assets exceeding $500 million to $1 billion; and .60% of assets exceeding $1 billion to $2 billion; and .55% of assets exceeding $2 billion Enterprise .70% of assets to $1 billion; and .68% of assets exceeding $1 billion to $2 billion; and .66% of assets exceeding $2 billion Horizon .70% of assets to $1 billion; and .65% of assets exceeding $1 billion to $2 billion; and .60% of assets exceeding $2 billion Index 500 .34% of assets to $500 million; and .30% of assets exceeding $500 million to $1 billion; and .25% of assets exceeding $1 billion to $2 billion; and .20% of assets exceeding $2 billion. Real Estate Securities .75% of assets to $1 billion; and .725% of assets exceeding $1 billion to $2 billion; and .70% of assets exceeding $2 billion. Venture .70% of assets to $1 billion; and .68% of assets exceeding $1 billion to $2 billion; and .66% of assets exceeding $2 billion

Advantus Capital has a sub-advisory agreement with the following registered investment advisers. Under the sub-advisory agreements, Advantus Capital pays the sub-advisers an annual fee based on average daily net assets, in the following amounts:

FUND SUB-ADVISOR ANNUAL FEE - ------------ ----------------------- --------------------------------------- Enterprise Credit Suisse Asset .65% of assets to $425 million; and Management .60% of assets exceeding $425 million to $850 million; and .55% of assets exceeding $850 million to $1.150 billion; and .50% of assets exceeding $1.150 billion to $2 billion and .45 of assets exceeding $2 billion Venture State Street Research .65% of assets to $500 million; and .60 and Management of assets exceeding $500 million to $1 billion; and .50% of assets Exceeding $1 billion

The Funds have adopted separate Plans of Distribution applicable to Class A, Class B and Class C shares, respectively, relating to the payment of certain expenses pursuant to Rule 12b-1 under the Investment Company Act 92 of 1940 (as amended). The Funds pay fees to Securian Financial Services, Inc. (Securian), the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial Group, to be used to pay certain expenses incurred in the distribution, promotion and servicing of the Funds shares. The Class A Plan provides for a service fee up to .25 percent of average daily net assets of Class A shares. The Class B and Class C Plans provide for a fee up to 1.00 percent of average daily net assets of Class B and Class C shares, respectively. The Class B and Class C 1.00 percent fee is comprised of a .75 percent distribution fee and a .25 percent service fee. Prior to August 5, 2002, Securian was waiving the portion of Class A Rule 12b-1 fees which exceeded, as a percentage of average daily net assets, .15 percent in Enterprise, Index 500 and Venture, and .10 percent in the Real Estate Securities Fund. Currently Securian is not waiving any 12b-1 fees. Securian waived Class A 12b-1 fees in the amounts of $148, $98, $288, and $264, respectively, for the above Funds for the period ended January 31, 2003. The Funds have engaged PFPC Global Fund Services to act as their transfer agent, dividend disbursing agent and redemption agent and bear the expenses of such services. The Funds also bear certain other operating expenses including outside directors' fees, custodian fees, registration fees, printing and shareholder reporting fees, outside legal, auditing and accounting services, and other miscellaneous expenses. The Funds have entered in a shareholder and administrative services agreement with Securian Financial Group. Under this agreement, the Funds pay a shareholder services fee, equal to $7 per shareholder account annually, to Securian Financial Group for shareholder services which Securian Financial Group provides. The Funds also pay Securian Financial Group an administrative services fee equal to $5,100 per month for the Real Estate Securities Fund and $6,200 per month in all the remaining Funds for accounting, auditing, legal and other administrative services which Securian Financial Group provides. Advantus Capital directly incurs and pays the above operating expenses and the Fund's in turn reimburses Advantus Capital. VOLUNTARY FEE ABSORPTION Advantus Capital has voluntarily agreed to absorb all Fund costs and expenses that exceed 1.24% of Class A average daily net assets and 1.99% of Class B and C average daily net assets for the Cornerstone Fund, all Fund costs and expenses that exceed 1.38% of Class A average daily net assets and 2.23% of Class B and C average daily net assets for the Enterprise Fund, all Fund costs and expenses that exceed 1.35% of Class A average daily net 93 assets and 2.10% of Class B and C average daily net assets for the Horizon Fund, all Fund costs and expenses which exceed .75% of Class A average daily net assets and 1.60% of Class B and C average daily net assets for the Index 500 Fund, and all Fund costs and expenses that exceed 1.65% of Class A average daily net assets effective August 1, 2002 (previously it was 1.50%) and 2.40% of Class B average daily net assets for Real Estate Securities Fund. During the period ended January 31, 2003, Advantus Capital voluntarily agreed to absorb $78,354, $67,632, $164,181, $137,386, and $0, respectively, in expenses which were otherwise payable by the Funds. For the period ended January 31, 2003, sales charges received by Securian for distributing the Funds' three classes of shares for Cornerstone, Enterprise, Horizon, Index 500, Real Estate Securities, and Venture are $12,338, $6,210, $16,412, $33,902, $62,179, and $27,430 respectively. As of January 31, 2003 the ownership of shares by Minnesota Life and subsidiaries and the directors and officers of the Funds as a whole was as follows:

PERCENTAGE NUMBER OF OWNED FUND SHARES OF CLASS - ---- --------- ---------- Cornerstone Class A 4,287,464 83.3% Enterprise Class A 3,565,465 84.2% Horizon Class A 479 0.0% Index 500 Class A 708,553 46.2% Class B 764 0.1% Class C 11,008 8.2% Real Estate Class A 3,111,902 84.6% Venture Class A 4,094,711 89.4%

Legal fees were paid to a law firm of which the Funds' secretary is a partner to the Cornerstone Fund, the Enterprise Fund, the Horizon Fund, the Index 500 Fund, the Real Estate Securities Fund, and the Venture Fund in the amount of $5,865 for each of the Funds. 94 (6) CAPITAL SHARE TRANSACTIONS Transactions in shares for the period ended January 31, 2003, the period ended July 31, 2002 and the year ended September 30, 2001, were as follows:

CORNERSTONE FUND --------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------------ ------------------------------ --------------------------- 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------- -------- --------- -------- -------- -------- ------- ------- ------- Sold 428,988 590,303 361,247 20,414 27,171 42,405 1,859 2,846 4,525 Issued for reinvested distributions 15,132 15,571 16,815 722 409 128 86 45 17 Redeemed (215,469) (921,372) (551,305) (80,697) (170,656) (214,538) (6,817) (14,734) (20,295) -------- -------- --------- -------- -------- -------- ------- ------- ------- 228,650 (315,498) (173,243) (59,561) (143,076) (172,005) (4,872) (11,843) (15,753) ======== ======== ========= ======== ======== ======== ======= ======= =======

ENTERPRISE FUND --------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------------ ------------------------------ --------------------------- 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------- -------- --------- -------- -------- -------- ------- ------- ------- Sold 238,272 892,251 374,323 23,382 38,348 67,534 2,053 7,676 14,611 Issued for reinvested distributions - - 1,621,745 - - 302,899 - - 37,153 Redeemed (247,667) (914,738) (429,560) (95,504) (141,912) (151,151) (11,523) (17,929) (23,563) -------- -------- --------- -------- -------- -------- ------- ------- ------- (9,395) (22,487) 1,566,508 (72,122) (103,564) 219,282 (9,470) (10,253) 28,201 ======== ======== ========= ======== ======== ======== ======= ======= =======

HORIZON FUND --------------------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------------ ------------------------------ --------------------------- 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------- -------- --------- -------- -------- -------- ------- ------- ------- Sold 89,760 144,293 359,055 25,670 42,647 92,722 1,513 3,696 14,967 Issued for reinvested distributions - - 466,476 - - 216,815 - - 20,334 Redeemed (195,759) (386,031) (685,126) (121,685) (230,525) (308,878) (10,110) (24,538) (32,274) -------- -------- --------- -------- -------- -------- ------- ------- ------- (105,998) (241,738) 140,405 (96,015) (187,878) 659 (8,597) (20,842) 3,027 ======== ======== ========= ======== ======== ======== ======= ======= =======

95 Transactions in shares for the period ended January 31, 2003, and the year ended July 31, 2002, were as follows:

INDEX 500 FUND --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------- ------------------------- ------------------------- 2003 2002 2003 2002 2003 2002 ----------- ----------- ----------- ----------- ----------- ----------- Sold 109,652 321,990 70,174 140,642 13,596 25,624 Issued for reinvested distributions 5,371 6,645 1,662 439 183 42 Redeemed (96,662) (374,275) (158,816) (304,910) (15,749) (35,675) ----------- ----------- ----------- ----------- ----------- ----------- 18,361 (45,640) (86,980) (163,829) (1,970) (10,009) =========== =========== =========== =========== =========== ===========

REAL ESTATE SECURITIES FUND ----------------------------------------------------- CLASS A CLASS B ------------------------- ------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Sold 1,207,762 1,428,832 47,346 104,942 Issued for reinvested distributions 106,325 101,578 4,421 342 Redeemed (341,107) (311,365) (5,907) (10,152) ----------- ----------- ----------- ----------- 972,980 1,219,045 45,860 95,132 =========== =========== =========== ===========

VENTURE FUND --------------------------------------------------------------------------------- CLASS A CLASS B CLASS C ------------------------- ------------------------- ------------------------- 2003 2002 2003 2002 2003 2002 ----------- ----------- ----------- ----------- ----------- ----------- Sold 1,306,388 1,639,269 50,689 154,746 366,123 98,695 Issued for reinvested distributions 145,410 79,848 32,270 19,807 15,801 5,281 Redeemed (935,846) (1,023,466) (35,863) (72,399) (406,504) (12,771) ----------- ----------- ----------- ----------- ----------- ----------- 245,952 695,651 47,096 102,154 (24,580) 91,205 =========== =========== =========== =========== =========== ===========

(7) SECURITIES LENDING CONTRACTS To enhance returns, the Funds loan securities to brokers in exchange for collateral. The Funds receive a fee from the brokers measured as a percent of the loaned securities. At January 31, 2003, the collateral is invested in cash equivalents and repurchase agreements and must be 102% of the value of securities loaned. The risk to the Funds is that the borrower may not provide additional collateral when required or return the securities when due. At 96 January 31, 2003, Cornerstone, Enterprise, Horizon, Index 500, Real Estate, and Venture had securities valued at $1,281,474, $4,348,047, $849,936, $942,641, $2,660,063 and $6,587,023 that were on loan to brokers and the Funds had $1,311,277, $4,595,047, $886,441, $990,363, $2,777,920 and $7,017,993 in cash collateral, respectively. (8) STOCK INDEX FUTURES CONTRACTS Investments in securities as of January 31, 2003, included securities valued at $2,826,920 in the Advantus Index 500 Fund that were used as collateral to cover initial margin deposits on seven open March S&P 500 and eight open March S&P 500 EMINI Futures purchase contacts. The market value of the open purchase contracts as of January 31, 2003, was $774,775 with an unrealized loss of $97,663. 97 (10) FINANCIAL HIGHLIGHTS ADVANTUS CORNERSTONE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 11.81 $ 12.59 ----------- ----------- Income from investment operations: Net investment income (loss) .07 .08 Net gains (losses) on securities (both realized and unrealized) (.80) (.78) ----------- ----------- Total from investment operations (.73) (.70) ----------- ----------- Less distributions: Dividends from net investment income (.06) (.08) Distributions from net realized gains - - Excess distributions of net investment income - - Tax return of capital - - ----------- ----------- Total distributions (.06) (.08) ----------- ----------- Net asset value, end of period $ 11.02 $ 11.81 =========== =========== Total return (a) (6.17)% (5.72)% Net assets, end of period (in thousands) $ 56,614 $ 57,947 Ratios to average net assets: Expenses 1.24%(b) 1.24%(b) Net investment income (loss) 1.21%(b) .70%(b) Expenses without waivers 1.49%(b) 1.41%(b) Net investment income (loss) without waivers .96%(b) .53%(b) Portfolio turnover rate (excluding short-term securities) 54.0% 95.3%

CLASS A ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 15.08 $ 15.14 $ 13.88 $ 18.68 $ 15.06 --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) .09 .06 .15 .16 .14 Net gains (losses) on securities (both realized and unrealized) (2.50) .13 1.24 (3.04) 5.19 --------- --------- --------- --------- --------- Total from investment operations (2.41) .19 1.41 (2.88) 5.33 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (.08) (.05) (.15) (.16) (.14) Distributions from net realized gains - (.13) - (1.76) (1.57) Excess distributions of net investment income - (.06) - - - Tax return of capital - (.01) - - - --------- --------- --------- --------- --------- Total distributions (.08) (.25) (.15) (1.92) (1.71) --------- --------- --------- --------- --------- Net asset value, end of period $ 12.59 $ 15.08 $ 15.14 $ 13.88 $ 18.68 ========= ========= ========= ========= ========= Total return (a) (15.97)% 1.26% 10.13% (16.45)% 38.35% Net assets, end of period (in thousands) $ 65,766 $ 81,389 $ 92,657 $ 93,833 $ 107,322 Ratios to average net assets: Expenses 1.24% 1.24% 1.21% 1.16% 1.08% Net investment income (loss) .61% .43% .94% .98% .85% Expenses without waivers 1.39% 1.34% 1.23% 1.25% 1.28% Net investment income (loss) without waivers .46% .33% .92% .89% .65% Portfolio turnover rate (excluding short-term securities) 147.9% 180.1% 78.7% 114.4% 87.7%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end and contingent deferred sales charges. (b) Adjusted to an annual basis. 98 ADVANTUS CORNERSTONE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 11.60 $ 12.38 ----------- ----------- Income from investment operations: Net investment income (loss) .03 - Net gains (losses) on securities (both realized and unrealized) (.78) (.77) ----------- ----------- Total from investment operations (.75) (.77) ----------- ----------- Less distributions: Dividends from net investment income (.02) (.01) Distributions from net realized gains - - Excess distributions of net investment income - - ----------- ----------- Total distributions (.02) (.01) ----------- ----------- Net asset value, end of period $ 10.83 $ 11.60 =========== =========== Total return (a) (6.42)% (6.40)% Net assets, end of period (in thousands) $ 5,135 $ 6,190 Ratios to average net assets: Expenses 1.99%(b) 1.99%(b) Net investment income (loss) .04%(b) (.05)%(b) Expenses without waiver 2.24%(b) 2.16%(b) Net investment income (loss) without waiver .22%(b) (.22)%(b) Portfolio turnover rate (excluding short-term securities) 54.0% 95.3%

CLASS B ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 14.86 $ 14.97 $ 13.73 $ 18.52 $ 14.97 --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (.02) (.02) .03 .03 - Net gains (losses) on securities (both realized and unrealized) (2.46) .10 1.24 (3.02) 5.18 --------- --------- --------- --------- --------- Total from investment operations (2.48) .08 1.27 (2.99) 5.18 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - (.03) (.04) (.01) Distributions from net realized gains - (.13) - (1.76) (1.57) Excess distributions of net investment income - (.06) - - - --------- --------- --------- --------- --------- Total distributions - (.19) (.03) (1.80) (1.58) --------- --------- --------- --------- --------- Net asset value, end of period $ 12.38 $ 14.86 $ 14.97 $ 13.73 $ 18.52 ========= ========= ========= ========= ========= Total return (a) (16.61)% .54% 9.26% (17.21)% 37.68% Net assets, end of period (in thousands) $ 8,382 $ 12,615 $ 18,611 $ 21,176 $ 21,405 Ratios to average net assets: Expenses 1.99% 1.99% 1.96% 1.95% 1.98% Net investment income (loss) (.14)% (.29)% .20% .18% (.05)% Expenses without waiver 2.14% 2.09% 1.96% 1.95% 1.98% Net investment income (loss) without waiver (.29)% (.39)% .21% .18% (.05)% Portfolio turnover rate (excluding short-term securities) 147.9% 180.1% 78.7% 114.4% 87.7%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end and contingent deferred sales charges. (b) Adjusted to an annual basis. 99 ADVANTUS CORNERSTONE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 11.56 $ 12.35 ----------- ----------- Income from investment operations: Net investment income (loss) .02 - Net gains (losses) on securities (both realized and unrealized) (.78) (.78) ----------- ----------- Total from investment operations (.75) (.78) ----------- ----------- Less distributions: Dividends from net investment income (.02) (.01) Distributions from net realized gains - - Excess distributions of net investment income - - ----------- ----------- Total distributions (.02) (.01) ----------- ----------- Net asset value, end of period $ 10.80 $ 11.56 =========== =========== Total return (a) (6.43)% (6.42)% Net assets, end of period (in thousands) $ 582 $ 680 Ratios to average net assets: Expenses 1.99%(b) 1.99%(b) Net investment income (loss) .46%(b) (.05)%(b) Expenses without waiver 2.24%(b) 2.16%(b) Net investment income (loss) without waiver .22%(b) (.22)(b) Portfolio turnover rate (excluding short-term securities) 54.0% 95.3%

CLASS C ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 14.82 $ 14.93 $ 13.68 $ 18.48 $ 14.92 --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (.02) (.02) .03 .03 - Net gains (losses) on securities (both realized and unrealized) (2.45) .10 1.25 (3.04) 5.12 --------- --------- --------- --------- --------- Total from investment operations (2.47) .08 1.28 (3.01) 5.12 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - (.03) (.03) (.01) Distributions from net realized gains - (.13) - (1.76) (1.57) Excess distributions of net investment income - (.06) - - - --------- --------- --------- --------- --------- Total distributions - (.19) (.03) (1.79) (1.58) --------- --------- --------- --------- --------- Net asset value, end of period $ 12.35 $ 14.82 $ 14.93 $ 13.68 $ 18.48 ========= ========= ========= ========= ========= Total return (a) (16.58)% .54% 9.35% (17.28)% 37.10% Net assets, end of period (in thousands) $ 873 $ 1,281 $ 2,015 $ 3,094 $ 3,399 Ratios to average net assets: Expenses 1.99% 1.99% 1.96% 1.95% 1.98% Net investment income (loss) (.14)% (.29)% .21% .18% (.05)% Expenses without waiver 2.14% 2.09% 1.96% 1.95% 1.98% Net investment income (loss) without waiver (.29)% (.39)% .21% .18% (.05)% Portfolio turnover rate (excluding short-term securities) 147.9% 180.1% 78.7% 114.4% 87.7%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end and contingent deferred sales charges. (b) Adjusted to an annual basis. 100 ADVANTUS ENTERPRISE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 6.44 $ 7.20 ----------- ----------- Income from investment operations: Net investment loss (.04) (.08) Net gains (losses) on securities (both realized and unrealized) .03 (.68) ----------- ----------- Total from investment operations (.01) (.76) ----------- ----------- Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of period $ 6.43 $ 6.44 =========== =========== Total return (a) (.31)% (10.56)% Net assets, end of period (in thousands) $ 27,227 $ 27,357 Ratios to average net assets: Expenses 1.48%(b) 1.38%(b) Net investment income (loss) (1.21)%(b) (1.14)%(b) Expenses without waiver 1.91%(b) 1.69%(b) Net investment income (loss) without waiver (1.64)%(b) (1.45)%(b) Portfolio turnover rate (excluding short-term securities) 39.7% 62.2%

CLASS A ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 20.77 $ 14.56 $ 11.32 $ 15.90 $ 15.94 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.03) (.19) (.14) (.13) (.04) Net gains (losses) on securities (both realized and unrealized) (7.07) 6.40 3.38 (4.45) 1.74 --------- --------- --------- --------- --------- Total from investment operations (7.10) 6.21 3.24 (4.58) 1.70 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains (6.47) - - - (1.74) --------- --------- --------- --------- --------- Total distributions (6.47) - - - (1.74) --------- --------- --------- --------- --------- Net asset value, end of period $ 7.20 $ 20.77 $ 14.56 $ 11.32 $ 15.90 ========= ========= ========= ========= ========= Total return (a) (44.09)% 42.75% 28.53% (28.81)% 12.88% Net assets, end of period (in thousands) $ 30,744 $ 56,087 $ 40,009 $ 31,844 $ 44,102 Ratios to average net assets: Expenses 1.38% 1.24% 1.33% 1.27% 1.28% Net investment income (loss) (1.00)% (.91)% (.97)% (.91)% (.32)% Expenses without waiver 1.60% 1.43% 1.45% 1.44% 1.48% Net investment income (loss) without waiver (1.22)% (1.10)% (1.09)% (1.08)% (.52)% Portfolio turnover rate (excluding short-term securities) 105.4% 181.5% 99.3% 71.1% 65.8%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 101 ADVANTUS ENTERPRISE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 5.78 $ 6.51 ----------- ----------- Income from investment operations: Net investment loss (.08) (.16) Net gains (losses) on securities (both realized and unrealized) .05 (.57) ----------- ----------- Total from investment operations (.03) (.73) ----------- ----------- Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of period $ 5.75 $ 5.78 =========== =========== Total return (a) (.69)% (11.22)% Net assets, end of period (in thousands) $ 2,910 $ 3,345 Ratios to average net assets: Expenses 2.23%(b) 2.23%(b) Net investment income (loss) (1.96)%(b) (1.99)%(b) Expenses without waiver 2.66%(b) 2.44%(b) Net investment income (loss) without waiver (2.39)%(b) (2.20)%(b) Portfolio turnover rate (excluding short-term securities) 39.7% 62.2%

CLASS B ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 19.63 $ 13.88 $ 10.88 $ 15.42 $ 15.64 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.07) (.35) (.26) (.24) (.18) Net gains (losses) on securities (both realized and unrealized) (6.58) 6.10 3.26 (4.30) 1.70 --------- --------- --------- --------- --------- Total from investment operations (6.65) 5.75 3.00 (4.54) 1.52 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains (6.47) - - - (1.74) --------- --------- --------- --------- --------- Total distributions (6.47) - - - (1.74) --------- --------- --------- --------- --------- Net asset value, end of period $ 6.51 $ 19.63 $ 13.88 $ 10.88 $ 15.42 ========= ========= ========= ========= ========= Total return (a) (44.59)% 41.43% 27.57% (29.44)% 11.89% Net assets, end of period (in thousands) $ 4,440 $ 9,086 $ 6,491 $ 5,903 $ 7,683 Ratios to average net assets: Expenses 2.23% 2.09% 2.18% 2.14% 2.18% Net investment income (loss) (1.85)% (1.76)% (1.82)% (1.77)% (1.60)% Expenses without waiver 2.35% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) without waiver (1.97)% (1.77)% (1.82)% (1.77)% (1.60)% Portfolio turnover rate (excluding short-term securities) 105.4% 181.5% 99.3% 71.1% 65.8%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annualized basis. 102 ADVANTUS ENTERPRISE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of period $ 5.78 $ 6.50 ----------- ----------- Income from investment operations: Net investment loss (.08) (.15) Net gains (losses) on securities (both realized and unrealized) .04 (.57) ----------- ----------- Total from investment operations (.04) (.72) ----------- ----------- Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of period $ 5.74 $ 5.78 =========== =========== Total return (a) (.69)% (11.21)% Net assets, end of period (in thousands) $ 364 $ 421 Ratios to average net assets: Expenses 2.23%(b) 2.23%(b) Net investment income (loss) (1.96)%(b) (1.99)%(b) Expenses without waiver 2.66%(b) 2.44%(b) Net investment income (loss) without waiver (2.39)%(b) (2.20)%(b) Portfolio turnover rate (excluding short-term securities) 39.7% 62.2%

CLASS C ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 19.62 $ 13.87 $ 10.87 $ 15.41 $ 15.63 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.05) (.36) (.27) (.26) (.23) Net gains (losses) on securities (both realized and unrealized) (6.60) 6.11 3.27 (4.28) 1.75 --------- --------- --------- --------- --------- Total from investment operations (6.65) 5.75 3.00 (4.54) 1.52 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains (6.47) - - - (1.74) --------- --------- --------- --------- --------- Total distributions (6.47) - - - (1.74) --------- --------- --------- --------- --------- Net asset value, end of period $ 6.50 $ 19.62 $ 13.87 $ 10.87 $ 15.41 ========= ========= ========= ========= ========= Total return (a) (44.54)% 41.46% 27.48% (29.40)% 11.89% Net assets, end of period (in thousands) $ 541 $ 1,079 $ 812 $ 780 $ 1,133 Ratios to average net assets: Expenses 2.23% 2.28% 2.18% 2.14% 2.18% Net investment income (loss) (1.85)% (1.92)% (1.82)% (1.78)% (1.75)% Expenses without waiver 2.35% 2.10% 2.18% 2.14% 2.18% Net investment income (loss) without waiver (1.97)% (1.77)% (1.82)% (1.78)% (1.75)% Portfolio turnover rate (excluding short-term securities) 105.4% 181.5% 99.3% 71.1% 65.8%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 103 ADVANTUS HORIZON FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of year $ 11.23 $ 12.63 ----------- ----------- Income from investment operations: Net investment loss (.01) (.07) Net gains (losses) on securities (both realized and unrealized) (.65) (1.33) ----------- ----------- Total from investment operations (.66) (1.40) ----------- ----------- Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of year $ 10.57 $ 11.23 =========== =========== Total return (a) (5.88)% (11.08)% Net assets, end of year (in thousands) $ 19,431 $ 21,830 Ratio to average net assets: Expenses 1.35%(b) 1.35%(b) Net investment income (loss) (.15)%(b) (.58)%(b) Expenses without waiver 2.50%(b) 2.17%(b) Net investment income (loss) without waiver (1.30)%(b) (1.40)%(b) Portfolio turnover rate (excluding short-term securities) 49.6% 67.6%

CLASS A ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year $ 31.08 $ 26.88 $ 23.59 $ 23.06 $ 23.07 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.16) (.28) (.16) (.09) (.08) Net gains (losses) on securities (both realized and unrealized) (13.37) 5.41 5.77 3.48 4.89 --------- --------- --------- --------- --------- Total from investment operations (13.54) 5.13 5.61 3.39 4.81 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains (4.91) (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Total distributions - (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Net asset value, end of year $ 12.63 $ 31.08 $ 26.88 $ 23.59 $ 23.06 ========= ========= ========= ========= ========= Total return (a) (49.46)% 19.26% 24.74% 16.38% 24.96% Net assets, end of year (in thousands) $ 27,603 $ 63,568 $ 56,581 $ 47,183 $ 40,192 Ratio to average net assets: Expenses 1.35% 1.33% 1.30% 1.36% 1.43% Net investment income (loss) (.85)% (.89)% (.61)% (.39)% (.39)% Expenses without waiver 1.81% 1.42% 1.30% 1.37% 1.48% Net investment income (loss) without waiver (1.32)% (.97)% (.61)% (.40)% (.44)% Portfolio turnover rate (excluding short-term securities) 129.6% 109.3% 60.1% 72.6% 71.5%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For period less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 104 ADVANTUS HORIZON FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of year $ 10.27 $ 11.62 ----------- ----------- Income from investment operations: Net investment loss (.05) (.16) Net gains (losses) on securities (both realized and unrealized) (.59) (1.19) ----------- ----------- Total from investment operations (.64) (1.35) Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of year $ 9.63 $ 10.27 =========== =========== Total return (a) (6.14)% (11.71)% Net assets, end of year (in thousands) $ 6,117 $ 7,507 Ratios to average net assets: Expenses 2.10%(b) 2.10%(b) Net investment income (loss) (.90)%(b) (1.33)%(b) Expenses without waiver 3.24%(b) 2.92%(b) Net investment income (loss) without waiver (2.05)%(b) (2.15)(b) Portfolio turnover rate (excluding short-term securities) 49.6% 67.6%

CLASS B ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year $ 29.26 $ 25.51 $ 22.65 $ 22.41 $ 22.65 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.30) (.49) (.32) (.22) (.19) Net gains (losses) on securities (both realized and unrealized) (12.43) 5.14 5.53 3.32 4.77 --------- --------- --------- --------- --------- Total from investment operations (12.73) 4.65 5.21 3.10 4.58 Less distributions: Distributions from net realized gains (4.91) (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Total distributions - (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.62 $ 29.26 $ 25.54 $ 22.65 $ 22.41 --------- --------- --------- --------- --------- Total return (a) (49.85)% 18.40% 23.93% 15.48% 24.25% Net assets, end of year (in thousands) $ 10,679 $ 26,878 $ 23,561 $ 17,100 $ 11,684 Ratios to average net assets: Expenses 2.10% 2.08% 2.04% 2.07% 2.18% Net investment income (loss) (1.60)% (1.63)% (1.34)% (1.11)% 1.13% Expenses without waiver 2.36% 2.17% 2.04% 2.07% 2.18% Net investment income (loss) without waiver (2.07)% (1.72)% (1.34)% (1.11)% (1.13)% Portfolio turnover rate (excluding short-term securities) 129.6% 109.3% 60.1% 72.6% 71.5%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For period less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 105 ADVANTUS HORIZON FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------ PERIOD FROM PERIOD FROM AUGUST 1, OCTOBER 1, 2002 TO 2001 TO JANUARY 31, JULY 31, 2003 2002 ----------- ----------- Net asset value, beginning of year $ 10.34 $ 11.71 ----------- ----------- Income from investment operations: Net investment loss (.05) (.16) Net gains (losses) on securities (both realized and unrealized) (.59) (1.21) ----------- ----------- Total from investment operations (.64) (1.37) ----------- ----------- Less distributions: Distributions from net realized gains - - ----------- ----------- Total distributions - - ----------- ----------- Net asset value, end of year $ 9.70 $ 10.34 =========== =========== Total return (a) (6.19)% (11.71)% Net assets, end of year (in thousands) $ 533 $ 658 Ratio to average net assets: Expenses 2.10%(b) 2.10%(b) Net investment income (loss) (.90)%(b) (1.33)%(b) Expenses without waiver 3.24%(b) 2.92%(b) Net investment income without waiver (2.05)%(b) (2.15)%(b) Portfolio turnover rate (excluding short-term securities) 49.6% 67.6%

CLASS C ----------------------------------------------------------------- YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- Net asset value, beginning of year $ 29.44 $ 25.69 $ 22.79 $ 22.38 $ 22.67 --------- --------- --------- --------- --------- Income from investment operations: Net investment loss (.30) (.51) (.36) (.24) (.20) Net gains (losses) on securities (both realized and unrealized) (12.53) 5.19 5.58 3.51 4.73 --------- --------- --------- --------- --------- Total from investment operations (12.83) 4.68 5.22 3.27 4.53 --------- --------- --------- --------- --------- Less distributions: Distributions from net realized gains (4.91) (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Total distributions - (.93) (2.32) (2.86) (4.82) --------- --------- --------- --------- --------- Net asset value, end of year $ 11.71 $ 29.44 $ 25.69 $ 22.79 $ 22.38 ========= ========= ========= ========= ========= Total return (a) (49.84)% 18.37% 23.82% 15.74% 24.03% Net assets, end of year (in thousands) $ 988 $ 2,396 $ 2,540 $ 2,299 $ 1,754 Ratio to average net assets: Expenses 2.10% 2.08% 2.04% 2.07% 2.18% Net investment income (loss) (1.60)% 1.63% (1.34)% (1.10)% 1.14% Expenses without waiver 2.56% 2.17% 2.04% 2.07% 2.18% Net investment income without waiver (2.07)% (1.72)% (1.34)% (1.10)% (1.14)% Portfolio turnover rate (excluding short-term securities) 129.6% 109.3% 60.1% 72.6% 71.5%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For period less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 106 ADVANTUS INDEX 500 FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ----------- PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003 ----------- Net asset value, beginning of period $ 12.00 ----------- Income from investment operations: Net investment income (loss) .04 Net gains (losses) on securities (both realized and unrealized) (.73) ----------- Total from investment operations (.69) ----------- Less distributions: Dividends from net investment income (.04) Distributions from net realized gains - ----------- Total distributions (.04) ----------- Net asset value, end of period $ 11.27 =========== Total return (a) (5.56)% Net assets, end of period (in thousands) $ 17,296 Ratios to average net assets: Expenses .85%(b) Net investment income (loss) 1.03%(b) Expenses without waiver 1.68%(b) Net investment income (loss) without waiver .22%(b) Portfolio turnover rate (excluding short-term securities) 2.6%

CLASS A ------------------------------------------------------------- YEAR ENDED JULY 31, ------------------------------------------------------------- 2002 2001 2000 1999 1998 --------- --------- --------- --------- --------- Net asset value, beginning of period $ 15.92 $ 18.93 $ 17.74 $ 15.06 $ 12.89 --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) .11 .12 .10 .11 .10 Net gains (losses) on securities (both realized and unrealized) (3.94) (2.98) 1.27 2.74 2.21 --------- --------- --------- --------- --------- Total from investment operations (3.83) (2.86) 1.37 2.85 2.31 --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (.09) (.10) (.03) (.10) (.12) Distributions from net realized gains - (.05) (.15) (.07) (.02) --------- --------- --------- --------- --------- Total distributions (.09) (.15) (.18) (.17) (.14) --------- --------- --------- --------- --------- Net asset value, end of period $ 12.00 $ 15.92 $ 18.93 $ 17.74 $ 15.06 ========= ========= ========= ========= ========= Total return (a) (24.14)% (15.12)% 7.67% 19.13% 18.19% Net assets, end of period (in thousands) $ 18,196 $ 24,870 $ 24,723 $ 25,498 $ 15,711 Ratios to average net assets: Expenses .75% .75% .75% .75% .74% Net investment income (loss) .77% .72% .52% .64% .83% Expenses without waiver 1.53% 1.43% 1.38% 1.43% 1.81% Net investment income (loss) without waiver (.01)% .04% (.11)% (.04)% (.24)% Portfolio turnover rate (excluding short-term securities) 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 107 ADVANTUS INDEX 500 FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------- PERIOD FROM AUGUST 1, 2002 TO YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.78 $ 15.66 $ 18.68 $ 17.64 $ 15.01 $ 12.87 ------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) .01 (.01) .02 (.06) (.03) .02 Net gains (losses) on securities (both realized and unrealized) (.72) (3.86) (2.93) 1.25 2.73 2.17 ------------ --------- --------- --------- --------- --------- Total from investment operations (.70) (3.87) (2.95) 1.19 2.70 2.19 ------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (.02) (.01) (.02) - - (.03) Distributions from net realized gains - - (.05) .15 (.07) (.02) ------------ --------- --------- --------- --------- --------- Total distributions (.02) (.01) (.07) .15 (.07) (.05) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 11.06 $ 11.78 $ 15.66 $ 18.68 $ 17.64 $ 15.01 ============ ========= ========= ========= ========= ========= Total return (a) (5.97)% (24.80)% (15.77)% 6.71% 18.10% 17.17% Net assets, end of period (in thousands) $ 12,715 $ 14,559 $ 21,931 $ 28,077 $ 24,202 $ 11,832 Ratios to average net assets: Expenses 1.60%(b) 1.60% 1.60% 1.60% 1.60% 1.60% Net investment income (loss) (.28)%(b) (.08)% (.11)% (.33)% (.21)% (.06)% Expenses without waiver 2.43%(b) 2.28% 2.18% 2.13% 2.16% 2.51% Net investment income (loss) without waiver (.49)%(b) (.76)% (.69)% (.86)% (.77)% (.97)% Portfolio turnover rate (excluding short-term securities) 2.6% 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 108 ADVANTUS INDEX 500 FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------- PERIOD FROM AUGUST 1, 2002 TO YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.75 $ 15.63 $ 18.64 $ 17.60 $ 14.97 $ 12.85 ------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) .02 (.01) (.03) (.06) (.03) .01 Net gains (losses) on securities (both realized and unrealized) (.71) (3.86) (2.91) 1.25 2.73 2.16 ------------ --------- --------- --------- --------- --------- Total from investment operations .69 (3.87) (2.94) 1.19 2.70 2.17 ------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income (.02) (.01) (.02) - - (.03) Distributions from net realized gains - - (.05) (.15) (.07) (.02) ------------ --------- --------- --------- --------- --------- Total distributions (.02) (.01) (.07) (.15) (.07) (.05) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 11.04 $ 11.75 $ 15.63 $ 18.64 $ 17.60 $ 14.97 ============ ========= ========= ========= ========= ========= Total return (a) (5.90)% (24.80)% (15.80)% 6.73% 18.03% 17.09% Net assets, end of period (in thousands) $ 1,485 $ 1,605 $ 2,291 $ 3,168 $ 2,910 $ 1,508 Ratios to average net assets: Expenses 1.60%(b) 1.60% 1.60% 1.60% 1.60% 1.60% Net investment income (loss) .29%(b) (.08)% (.11)% (.33)% (.21)% (.06)% Expenses without waiver 2.43%(b) 2.28% 2.18% 2.13% 2.16% 2.51% Net investment income (loss) without waiver (.51)%(b) (.76)% (.69)% (.86)% (.77)% (.97)% Portfolio turnover rate (excluding short-term securities) 2.6% 13.6% 17.2% 42.6% 25.3% 59.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 109 ADVANTUS REAL ESTATE SECURITIES FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A -------------------------------------------------------------------------- PERIOD FROM PERIOD FROM AUGUST 1, FEBRUARY 25, 2002 TO YEAR ENDED JULY 31, 1999 (c) TO JANUARY 31, ------------------------------------- JULY 31, 2003 2002 2001 2000 1999 ------------ --------- --------- --------- ------------ Net asset value, beginning of year $ 11.93 $ 11.67 $ 11.23 $ 10.25 $ 10.02 ------------ --------- --------- --------- ------------ Income from investment operations: Net investment income .24 .32 .51 .43 .18 Net gains (losses) on securities (both realized and unrealized) (.76) 1.01 .47 1.00 .31 ------------ --------- --------- --------- ------------ Total from investment operations (.52) 1.33 .98 1.43 .49 ------------ --------- --------- --------- ------------ Less distributions: Dividends from net investment income (.23) (.28) (.54) (.42) (.18) Distributions from net realized gains (.22) (.79) - (.03) - Excess distributions of net investment income - - - - (.08) ------------ --------- --------- --------- ------------ Total distributions (.45) (1.07) (.54) (.45) (.26) ------------ --------- --------- --------- ------------ Net asset value, end of year $ 10.96 $ 11.93 $ 11.67 $ 11.23 $ 10.25 ============ ========= ========= ========= ============ Total return (a) (4.40)% 12.31% 8.92% 14.89% 4.78% Net assets, end of year (in thousands) $ 40,318 $ 32,269 $ 17,336 $ 11,704 $ 6,113 Ratios to average net assets: Expenses 1.55%(b) 1.50% 1.50% 1.50% 1.50%(b) Net investment income (loss) 4.41%(b) 2.83% 4.30% 4.25% 4.09%(b) Expenses without waivers 1.55%(b) 1.69% 1.99% 2.72% 3.49%(b) Net investment income without waivers 4.40%(b) 2.64% 3.81% 3.04% 2.10%(b) Portfolio turnover rate (excluding short-term securities) 52.6% 101.2% 173.1% 116.8% 51.5%

CLASS B -------------------------------- PERIOD FROM PERIOD FROM AUGUST 1, NOVEMBER 28, 2002 TO 2002 (d) TO JANUARY 31, JULY 31, 2003 2002 ------------ ------------ Net asset value, beginning of year $ 11.89 $ 11.56 ------------ ------------ Income from investment operations: Net investment income .20 .11 Net gains (losses) on securities (both realized and unrealized) (.76) 1.23 ------------ ------------ Total from investment operations (.56) 1.34 ------------ ------------ Less distributions: Dividends from net investment income (.19) (.22) Distributions from net realized gains (.22) (.79) Excess distributions of net investment income - - ------------ ------------ Total distributions (.97) (1.01) ------------ ------------ Net asset value, end of year $ 10.92 $ 11.89 ============ ============ Total return (a) (4.74)% 7.75% Net assets, end of year (in thousands) $ 1,540 $ 1,131 Ratios to average net assets: Expenses 2.30%(b) 2.40 Net investment income (loss) 3.69%(b) 1.29 Expenses without waivers 2.30%(b) 2.44 Net investment income without waivers 3.69%(b) 1.25 Portfolio turnover rate (excluding short-term securities) 52.6% 101.2%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end contingent deferred sales charges. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. (c) Date shares became effectively registered. (d) Inception date of the Class B shares. 110 ADVANTUS VENTURE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS A ------------------------------------------------------------------------------------- PERIOD FROM AUGUST 1, 2002 TO YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 12.25 $ 15.05 $ 11.47 $ 11.20 $ 12.03 $ 11.73 ------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (.04) (.08) (.06) .05 .10 .06 Net gains (losses) on securities (both realized and unrealized) (1.02) (1.84) 4.04 .32 (.59) .98 ------------ --------- --------- --------- --------- --------- Total from investment operations (1.06) (1.92) 3.98 .37 (.49) 1.04 ------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.06) (.09) (.08) Dividends in excess of net investment income - - - (.04) - - Distributions from net realized gains (.88) (.88) (.40) - (.23) (.66) Tax return of capital - - - - (.02) - ------------ --------- --------- --------- --------- --------- Total distributions (1.94) (.88) (.40) (.10) (.34) (.74) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 10.31 $ 12.25 $ 15.05 $ 11.47 $ 11.20 $ 12.03 ============ ========= ========= ========= ========= ========= Total return (a) (9.01)% (13.27)% 35.18% 3.74% (3.89)% 8.92% Net assets, end of period (in thousands) $ 47,215 $ 53,071 $ 54,735 $ 31,371 $ 31,683 $ 34,630 Ratios to average net assets: Expenses 1.45%(b) 1.27% 1.40% 1.40% 1.40% 1.38% Net investment income (loss) (.80)%(b) (.57)% (.56)% .63% .81% .55% Expenses without waiver 1.45%(b) 1.37% 1.51% 1.71% 1.64% 1.55% Net investment income (loss) without waive (.80)%(b) (.67)% (.67)% .32% .57% .38% Portfolio turnover rate (excluding short-term securities) 31.4% 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charge. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 111 ADVANTUS VENTURE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS B ------------------------------------------------------------------------------------- PERIOD FROM AUGUST 1, 2002 TO YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.90 $ 14.77 $ 11.36 $ 11.11 $ 11.94 $ 11.71 ------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (.71) (.17) (.16) (.04) - (.02) Net gains (losses) on securities (both realized and unrealized) (1.00) (1.82) 3.97 .32 (.58) .92 ------------ --------- --------- --------- --------- --------- Total from investment operations (1.07) (1.99) 3.81 .28 (.58) .90 ------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.02) (.02) (.01) Distributions from net realized gains (.88) (.88) (.40) - (.23) (.66) Dividends in excess of net investment income - - - (.01) - - ------------ --------- --------- --------- --------- --------- Total distributions (.88) (.88) (.40) (.03) (.25) (.67) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 9.95 $ 11.90 $ 14.77 $ 11.36 $ 11.11 $ 11.94 ============ ========= ========= ========= ========= ========= Total return (a) (9.37)% (14.02)% 34.01% 2.89% (4.77)% 7.65% Net assets, end of period (in thousands) $ 4,259 $ 4,531 $ 4,114 $ 2,500 $ 3,115 $ 3,529 Ratios to average net assets: Expenses 2.20% 2.12% 2.25% 2.24% 2.25% 2.25% Net investment income (loss) (1.57)%(b) (1.42)% (1.41)% (.24)% (.04)% (.26)% Expenses without waiver 2.20%(b) 2.12% 2.26% 2.45% 2.36% 2.25% Net investment income (loss) without waiver (1.57)%(b) (1.42)% (.42)% (.85)% (.15)% (.26)% Portfolio turnover rate (excluding short-term securities) (31.4)%(b) 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charge. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 112 ADVANTUS VENTURE FUND Per share data for a share of capital stock and selected information for each period are as follows:

CLASS C ------------------------------------------------------------------------------------- PERIOD FROM AUGUST 1, 2002 TO YEAR ENDED JULY 31, JANUARY 31, ----------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------ --------- --------- --------- --------- --------- Net asset value, beginning of period $ 11.96 $ 14.83 $ 11.41 $ 11.15 $ 11.98 $ 11.71 ------------ --------- --------- --------- --------- --------- Income from investment operations: Net investment income (loss) (.08) (.14) (.15) (.03) (.01) (.03) Net gains (losses) on securities (both realized and unrealized) (1.00) (1.85) 3.98 .32 (.57) .97 ------------ --------- --------- --------- --------- --------- Total from investment operations (1.07) (1.99) 3.83 .29 (.58) .94 ------------ --------- --------- --------- --------- --------- Less distributions: Dividends from net investment income - - - (.02) (.02) (.01) Distributions from net realized gains (.88) (.88) (.40) - (.23) (.66) Distributions in excess of net investment income - - - (.01) - - ------------ --------- --------- --------- --------- --------- Total distributions (.88) (.88) (.40) (.03) (.25) (.67) ------------ --------- --------- --------- --------- --------- Net asset value, end of period $ 10.01 $ 11.96 $ 14.83 $ 11.41 $ 11.15 $ 11.98 ============ ========= ========= ========= ========= ========= Total return (a) (9.31)% (13.96)% 33.94% 2.95% (4.81)% 7.90% Net assets, end of period (in thousands) $ 990 $ 1,477 $ 479 $ 273 $ 467 $ 702 Ratios to average net assets: Expenses 2.20%(b) 2.12% 2.25% 2.24% 2.25% 2.25% Net investment income (loss) (.76)%(b) (1.42)% (1.41)% (.24)% (.04)% (.26)% Expenses without waiver 2.20%(b) 2.12% 2.26% 2.45% 2.36% 2.25% Net investment income (loss) without waiver (1.57)%(b) (1.42) (1.42)% (.45)% (.15)% (.26)% Portfolio turnover rate (excluding short-term securities) 31.4% 37.3% 37.8% 169.0% 103.9% 45.0%

- ---------- (a) Total return figures are based on a share outstanding throughout the period and assume reinvestment of distributions at net asset value. Total return figures do not reflect the impact of front-end or contingent deferred sales charge. For periods less than one year, total return presented has not been annualized. (b) Adjusted to an annual basis. 113 Advantus Funds Directors and Executive Officers Under Minnesota law, the Board of Directors of each Fund has overall responsibility for managing the Fund in good faith and in a manner reasonably believed to be in the best interests of the Fund. The directors meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with companies that provide services to the Fund, and review the performance of the Fund. Certain of the directors are considered "interested persons" (as defined in the Investment Company Act of 1940) of the Fund primarily by reason of their engagement as officers of the Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or as officers of companies affiliated with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota Life"). The remaining directors, because they are not interested persons of the Fund, are considered independent ("Independent Directors") and are not employees or officers of, and have no financial interest in, Advantus Capital, Minnesota Life or their other affiliates. A majority of the Board of Directors is comprised of Independent Directors. The individuals listed in the table below serve as directors and officers of each Fund, and also serve in the same capacity for each of the other six Advantus Funds (the Advantus Funds are the twelve registered investment companies, consisting of 29 portfolios, for which Advantus Capital serves as the investment adviser). Only executive officers and other officers who perform policy-making functions with the Fund are listed. None of the directors is a director of any public company (a company required to file reports under the Securities Exchange Act of 1934) or of any registered investment companies other than the Advantus Funds. Each director serves for an indefinite term, until his or her resignation, death or removal.

POSITION WITH FUND NAME, ADDRESS(1) AND LENGTH OF PRINCIPAL OCCUPATION(s) AND AGE TIME SERVED DURING PAST 5 YEARS - ----------------------------------------------------------------------------------------- INTERESTED DIRECTORS - ----------------------------------------------------------------------------------------- William N. Westhoff Director since Retired since July 2002, prior thereto Age: 55 July 23, 1998 President, Treasurer and Director, Advantus Capital Management, Inc.; Senior Vice President and Treasurer, Minnesota Life Insurance Company since April 1998; Senior Vice President, Global Investments, American Express Financial Corporation, Minneapolis, Minnesota, from August 1994 to October 1997 Frederick P. Feuerherm Vice President, Vice President, Assistant Secretary and Age: 56 Director and Director, Advantus Capital Management, Treasurer since Inc.; Vice President, Minnesota Life July 13, 1993 Insurance Company; Vice President, Minnesota Mutual Companies, Inc.; Vice President, Securian Financial Group, Inc.; Vice President, Securian Holding Company; Vice President and Director, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); Vice President and Assistant Secretary, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The Ministers Life Insurance Company

114

- ----------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - ----------------------------------------------------------------------------------------- Ralph D. Ebbott Director since Retired, Vice President and Treasurer of Age: 75 October 22, 1985 Minnesota Mining and Manufacturing Company (industrial and consumer products) through June 1989 William C. Melton Director since Founder and President of Melton Research Age: 55 April 25, 2002 Inc. since 1997; member of the Advisory Board of Macroeconomic Advisors LLC since 1998; member, Minneapolis StarTribune Board of Economists since 1986; member, State of Minnesota Council of Economic Advisors from 1988 to 1994; various senior positions at American Express Financial Advisors (formerly Investors Diversified Services and, thereafter, IDS/American Express) from 1982 through 1997, including Chief Economist and, thereafter, Chief International Economist Ellen S. Berscheid Director since Regents' Professor of Psychology at the Age: 66 October 22, 1985 University of Minnesota

- ----------------------------------------------------------------------------------------- OTHER EXECUTIVE OFFICERS - ----------------------------------------------------------------------------------------- Dianne M. Orbison President since President and Treasurer, Advantus Age: 50 July 25, 2002 Capital Management, Inc.; Vice President and Treasurer, Minnesota Life Insurance Company; Vice President and Treasurer, Minnesota Mutual Companies, Inc.; Vice President and Treasurer, Securian Financial Group, Inc.; Vice President and Treasurer, Securian Holding Company; President and Treasurer, MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially owned by certain clients of Advantus Capital); President and Treasurer, MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title to mortgages beneficially owned by certain clients of Advantus Capital) Michael J. Radmer Secretary since Partner with the law firm of Dorsey & Dorsey & Whitney LLP February 25, 1985 Whitney LLP 50 South Sixth Street Minneapolis, Minnesota 55402 Age: 57

- ---------- (1) Unless otherwise noted, the address of each director and officer is the address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101. The Fund's Statement of Additional Information (SAI) includes additional information about Fund directors, and is available, without charge, upon request. You may request a copy of the current SAI by telephoning Advantus Shareholder Services, toll free, at (800) 665-6005. 115 Shareholder Services The Advantus Family of Funds offers a variety of services that enhance your ability to manage your assets. Check each Fund's prospectus for the details of the services and any limitations that may apply. EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from one fund to any other Advantus Fund you own (for identical registrations within the same share class) at any time as your needs change. Exchanges are at the then current net asset value (exchanges from the Advantus Money Market Fund will incur the applicable sales charge, if not previously subjected to the charge). Shareholders may make twelve exchanges each calendar year without incurring a transaction charge. Thereafter, there will be a $7.50 transaction charge for each additional exchange within the calendar year. INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other distributions automatically reinvested with no sales charge, direct them from one Advantus Fund to any other you own within the Fund family or, if you desire, we'll pay you in cash. SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at specified intervals from your fund account subject to minimum guidelines. Depending upon the performance of the underlying investment options, the value may be worth more or less than the original amount invested when withdrawn. DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or systematic withdrawals directly into your checking or savings account instead of sending you a check. TELEPHONE EXCHANGE: You may move money from one Advantus account to any other Advantus account you own (with identical registrations within the same share class) just by calling our toll-free number. The Telephone Exchange privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Exchange may be changed (added/deleted) at any time by submitting a request in writing. SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly from one Advantus Fund to another Advantus Fund (with identical registrations within the same share class) to diversify your investment portfolio and take advantage of "dollar-cost averaging". AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your Minnesota Life insurance premiums from your Advantus Money Market account. REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse, children or single trust estates, and the Right of Accumulation make it possible for you to reduce the sales charge, if any. 116 AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an Advantus Fund account for as little as $500 when you agree to make investments of not less than $50 under the plan and lower your average share cost through "dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor does it prevent loss in declining markets.) The Automatic Investment Plan allows you to invest automatically monthly, semi-monthly or quarterly from your checking or savings account. IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your Traditional, Roth or Education Individual Retirement Account or other qualified plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase or Defined Benefit plans. TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The proceeds will be sent by check to the address of record for the account or wire transferred to your bank of record for the account. Wire transfers are for amounts over $500. The prevailing wire charge will be added to the withdrawal amount. The Telephone Redemption privilege will automatically be established unless otherwise indicated on the Account Application. Telephone Redemption may be changed (added/deleted) at any time by submitting a request in writing. To have the redemption automatically deposited into your checking account, please send a voided check from your bank. Depending on the performance of the underlying investment options, the value may be worth more or less than the original amount invested upon redemption. Some limitations apply, please refer to the prospectus for details. ACCOUNT UPDATES: You'll receive written confirmation of every investment you initiate and quarterly statements to help you track all of your Advantus Fund investments and annual tax statements. Semi-annual and annual reports will provide you with portfolio information, fund performance data and the current investment outlook. TOLL-FREE SERVICE LINE: For your convenience in obtaining information and assistance directly from Advantus Shareholder Services, call 1-800-665-6005. Advantus Account Representatives are available Monday through Friday from 7:30 a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours, seven days a week. This system allows you to access current net asset values, account balances and recent account activity. INTERNET ADDRESS: www.AdvantusFunds.com 117 HOW TO INVEST You can invest in one or more of the eleven Advantus Funds through a local Registered Representative of Securian Financial Services, Inc., distributor of the Funds. Contact your representative for information and a prospectus containing more complete information including charges and expenses, for any of the Advantus Funds you are interested in. Read the prospectus carefully before investing. To find a Registered Representative near you, call the toll-free service line (1-800-665-6005) or visit www.AdvantusFunds.com. MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for qualified accounts and accounts covered by an automatic investment plan). Minimum subsequent investment is $50. THE FUND'S MANAGER Advantus Capital Management, Inc., investment adviser to the Fund, selects and reviews the Fund's investments and provides executive and other personnel for the Fund's management. (For the Advantus International Balanced Fund, Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management, LLC, and State Street Research & Management Company, respectively, selects the Fund's investments.) Advantus Capital Management, Inc. manages twelve mutual funds containing $2.3 billion in assets in addition to $13.5 billion in assets for other clients. Advantus Capital's seasoned portfolio managers average more than 15 years of investment experience. ADVANTUS FAMILY OF FUNDS Advantus Bond Fund Advantus Horizon Fund Advantus Spectrum Fund Advantus Enterprise Fund Advantus Cornerstone Fund Advantus Money Market Fund Advantus Mortgage Securities Fund Advantus International Balanced Fund Advantus Venture Fund Advantus Index 500 Fund Advantus Real Estate Securities Fund 118 THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT APPLICABLE MUTUAL FUND PROSPECTUS. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO] Distributed by: SECURIAN FINANCIAL SERVICES, INC. Securities Dealer, Member NASD/SIPC. Registered Investment Advisor 400 Robert Street North, St. Paul, MN 55101-2098 1.888.237.1838 3010-2003-6429 SECURIAN FINANCIAL SERVICES, INC. 400 ROBERT STREET NORTH PRESORTED STANDARD ST. PAUL, MN 55101-2098 U.S. POSTAGE PAID ST. 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EX-99.(17)(E)

exv99wx17yxey

EX-99.(17)(F)

exv99wx17yxfy

EX-99.(17)(G)

exv99wx17yxgy

EX-99.(17)(H)

exv99wx17yxhy

EX-99.(17)(J)

exv99wx17yxjy

EX-99.(17)(K)

                                                                 Exhibit (17)(k)


ADVANTUS FIXED INCOME AND BLENDED FUNDS

[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

PROSPECTUS DATED JANUARY 31, 2003


AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE,
NOR HAS IT APPROVED THE FUND'S SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE
OTHERWISE.

ADVANTUS BOND FUND, INC.
AN AGGREGATE BOND FUND

ADVANTUS INTERNATIONAL BALANCED FUND, INC.
AN INTERNATIONAL STOCK AND BOND FUND

ADVANTUS MONEY MARKET FUND, INC.
A MONEY MARKET SECURITIES FUND

ADVANTUS MORTGAGE SECURITIES FUND, INC.
A MORTGAGE - RELATED SECURITIES FUND

ADVANTUS SPECTRUM FUND, INC.
AN ASSET ALLOCATION FUND

CUT DOWN PAPERWORK, NOT TREES

ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL
REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800)
665-6005.



ADVANTUS FIXED INCOME AND BLENDED FUNDS

This prospectus provides you with information about the five Advantus fixed
income and blended funds (Fund or Funds). The Funds are all members of the
Advantus family of funds (Advantus Funds), a mutual fund complex comprised of
eleven different funds. The Advantus Funds other than Advantus Money Market
Fund, Inc. are referred to as "Advantus Multiple Class Funds."

TABLE OF CONTENTS



                                                      Page No.
                                                  
THE FUNDS IN SUMMARY ..............................           3
        Bond Fund .................................           3
        International Balanced Fund ...............           8
        Money Market Fund .........................          12
        Mortgage Securities Fund ..................          15
        Spectrum Fund .............................          19

INVESTING IN THE FUNDS ............................          23
        Managing the Funds ........................          23
        Advisory Fees .............................          25
        Investment Objective, Policies and
        Practices .................................          25
          Bond Fund ...............................          25
          International Balanced Fund .............          28
          Money Market Fund .......................          30
          Mortgage Securities Fund ................          31
          Spectrum Fund ...........................          34
        Defining Risks ............................          37

BUYING AND SELLING SHARES .........................          41
        Choosing a Share Class ....................          41
        International Balanced Fund Redemption
        Fee .......................................          41
        Sales and Distribution Charges ............          42
        Reducing Sales Charges ....................          45
        Buying Shares .............................          47
        Selling Shares ............................          49
        Exchanging Shares .........................          51
        Telephone Transactions ....................          51
        Internet Transactions .....................          52
        Account Requirements ......................          52

DISTRIBUTIONS AND TAXES ...........................          53
        Dividends and Capital Gains
        Distributions .............................          53
        Taxes .....................................          53

FINANCIAL HIGHLIGHTS ..............................          55
        Bond Fund .................................          55
        International Balanced Fund ...............          58
        Money Market Fund .........................          61
        Mortgage Securities Fund ..................          62
        Spectrum Fund .............................          65

OTHER INFORMATION .................................          68
        Service Providers .........................          68
        Advantus Family of Funds ..................          69
        Additional Information About the Funds ....  Back Cover
        How to Obtain Additional Information ......  Back Cover


                                                                       [GRAPHIC]

                                                            THE FUNDS IN SUMMARY

- --------------------
FOR YOUR INFORMATION
- --------------------
A mutual fund is an investment company that invests the money of many people in
a variety of securities to seek a specific objective over time. An open-end
mutual fund buys back an investor's shares at the fund's current net asset
value.
- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

Advantus Bond Fund, Inc. (Bond Fund), Advantus International Balanced Fund, Inc.
(International Balanced Fund), Advantus Money Market Fund, Inc. (Money Market
Fund), Advantus Mortgage Securities Fund, Inc. (Mortgage Securities Fund) and
Advantus Spectrum Fund, Inc. (Spectrum Fund) are all open-end, diversified
investment companies, commonly called mutual funds. Each of the Funds, except
Money Market Fund, lets you choose among three classes of shares that offer
different sales charges and bear different expenses. Money Market Fund offers
one class of shares. These alternatives allow you to choose the share class that
you believe is most beneficial given the amount of your purchase, the length of
time you expect to hold onto the shares and whether you plan to make additional
investments.

This section gives you a brief summary of each Fund's investment policies,
practices and main risks, as well as performance and fee information. More
detailed information about the Funds follows this summary.

Keep in mind that, in addition to the main risks summarized for each Fund below,
an investment in a Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency and that it is possible to lose money by investing in any
Fund. Although Money Market Fund seeks to preserve the value of your investment
at $1.00 per share, it is also possible to lose money by investing in the Money
Market Fund. You should also note that since a Fund may make frequent changes in
its portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return.

BOND FUND

INVESTMENT OBJECTIVE AND POLICIES. Bond Fund seeks a high level of current
income consistent with prudent investment risk.

The Fund invests in a variety of investment-grade debt securities. These debt
securities include, among other things, corporate and mortgage-backed
securities, debt securities issued or guaranteed by the U.S. government or any
of its agencies or instrumentalities, asset-backed securities and other debt
obligations of U.S. banks or savings and loan associations. In selecting
securities, the Fund's investment adviser considers factors such as industry
outlook, current and anticipated market and economic conditions, general levels
of debt prices and issuer operations.

MAIN RISKS. An investment in Bond Fund may be subject to various risks including
the following types of main risk:

    - CALL RISK - the risk that securities with high interest rates will be
      prepaid by the issuer prior to maturity, particularly during periods of
      falling interest rates, causing the Fund to reinvest the proceeds in other
      securities with generally lower interest rates

                                                  THE FUNDS IN SUMMARY         3


    - CREDIT RISK - the risk that an issuer of a debt security or fixed income
      obligation will not make payments on the security or obligation when due

    - EXTENSION RISK - the risk that rising interest rates could cause property
      owners to prepay their mortgages more slowly than expected, resulting in
      slower prepayments of mortgage-backed securities

    - INCOME RISK - the risk that the Fund's income may decrease due to falling
      interest rates

    - INTEREST RATE RISK - the risk that the value of a debt security or fixed
      income obligation will decline due to changes in market interest rates
      (note: one measure of interest rate risk is effective duration, explained
      under "Investing in the Funds - Investment Objective, Policies and
      Practices")

    - PREPAYMENT RISK - the risk that falling interest rates could cause
      prepayments of securities to occur more quickly than expected, causing the
      Fund to reinvest the proceeds in other securities with generally lower
      interest rates

4             THE FUNDS IN SUMMARY



- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Bond Fund's annual
returns and long-term performance. The chart shows how the Fund's performance
has varied from year to year, and provides some indication of the risks in
investing in the Fund. The table shows how the Fund's average annual return over
a one, five and ten year period compare to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions, and the
table reflects applicable initial and contingent deferred sales charges. Like
other mutual funds, the past performance of the Fund does not necessarily
indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'93  11.34%
'94  -5.75%
'95  20.63%
'96   2.48%
'97  10.05%
'98   5.31%
'99  -2.57%
'00  10.64%
'01   8.00%
'02   9.78%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                 
Best Quarter:                (Q2'95)      7.20%

Worst Quarter:               (Q1'94)     -4.78%





      AVERAGE ANNUAL TOTAL RETURN
      (FOR THE PERIODS ENDING DECEMBER 31, 2002)
                                                                                            From       From
                                                                                          Inception  Inception
                                                               1 Year  5 Years  10 Years  (Class B)  (Class C)
                                                                                   
      Class A Before Taxes(1)
       (inception 8/14/87)                                %     4.84     5.15      6.26       --         --
      Class A After Taxes on Distributions                      2.86     2.76      3.64       --         --
      Class A After Taxes on Distributions and
       Redemptions                                              2.89     2.89      3.66       --         --
      Class B Before Taxes
       (inception 8/19/94)                                      3.95     5.14        --     6.52         --
      Class C Before Taxes
       (inception 3/1/95)                                       8.97     5.33        --       --       6.53
      Lehman Brothers Aggregate Bond Index                     10.27     7.54      7.51     8.21(a)    8.30(b)


 (a)  Measurement period started 8/19/94.
 (b)  Measurement period started 3/1/95.
 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 4.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      was 5.0% prior to February 1, 1999.

                                                  THE FUNDS IN SUMMARY         5

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Bond Fund. This table describes the fees and expenses that you may pay if you
buy and hold shares of the Fund.



                                                CLASS A     CLASS B   CLASS C
                                                          
      SHAREHOLDER FEES
       (fees paid directly from your investment)
      Maximum Sales Charge on
       Purchases
       (as a percentage of offering
       price)                            %        4.50        none      none
      Maximum Deferred Sales Charge
       (as a percentage of sales
       proceeds)                         %        1.00(a)     5.00      none
      Exchange Fees
      -On First Twelve Exchanges
       Each Year                                  none        none      none
      -On Each Additional Exchange       $        7.50        7.50      7.50
      Low Balance Fee (b)                $       10.00       10.00     10.00

      ANNUAL FUND OPERATING EXPENSES
       (expenses that are deducted from Fund assets)
      Management Fees                    %        0.60        0.60      0.60
      Rule 12b-1 Fees                    %        0.25        1.00      1.00
      Other Expenses                     %        1.07        1.07      1.07

      TOTAL ANNUAL FUND OPERATING
       EXPENSES (c)                      %        1.92        2.67      2.67


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .30% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.15% for Class A shares and 1.90% for Class B and
      Class C shares. Advantus Capital reserves the right to discontinue
      such waiver or absorption at any time at its sole discretion.

6             THE FUNDS IN SUMMARY



EXAMPLE. This example is intended to help you compare the costs of investing in
Bond Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                                      1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                                 
      Class A                    $     636     1,026    1,440     2,592
      Class B                          770     1,179    1,565     2,737
      Class C                          270       829    1,415     2,822


You would pay the following expenses if you did not redeem your shares:



                                      1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                                 
      Class A                    $     636     1,026    1,440     2,592
      Class B                          270       829    1,415     2,737
      Class C                          270       829    1,415     2,822


                                                  THE FUNDS IN SUMMARY         7


- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

INTERNATIONAL BALANCED FUND

INVESTMENT OBJECTIVE AND POLICIES. International Balanced Fund seeks a high
level of total return.

The Fund invests in equity and debt securities issued by large and small
international companies and governmental agencies. Normally, the Fund invests
approximately 50% to 70% of its assets in international equity securities. In
addition, the Fund invests approximately 30% to 50% of its assets in
international investment-grade debt securities.

In selecting equity securities the Fund's investment sub-adviser relies
primarily on its analysis of the current market price of a company's securities
relative to the company's long-term earnings potential. Debt securities are
selected, after an analysis of trends in interest rates and economic conditions,
based on the sub-adviser's judgment as to which securities are more likely to
perform well under those conditions.

MAIN RISKS. An investment in International Balanced Fund may be subject to
various risks including the following types of main risk:

    - CREDIT RISK - the risk that an issuer of a debt security or fixed income
      obligation will not make payments on the security when due

    - CURRENCY RISK - the risk that changes in foreign currency exchange rates
      will increase or decrease the value of foreign securities or the amount of
      income or gain received on such securities

    - FOREIGN SECURITIES RISK - the risk that the value of foreign companies or
      foreign government securities may be subject to greater volatility than
      domestic securities due to additional factors related to investing in
      foreign securities

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - INCOME RISK - the risk that the Fund's income may decrease due to falling
      interest rates

    - INTEREST RATE RISK - the risk that the value of a debt security or fixed
      income obligation will decline due to changes in market interest rates
      (note: one measure of interest rate risk is effective duration, explained
      under "Investing in the Funds - Investment Objective, Policies and
      Practices")

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

8             THE FUNDS IN SUMMARY



- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show International Balanced
Fund's annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows how the Fund's average annual
return over a one, five and ten year period compare to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions, and the table reflects applicable initial and contingent deferred
sales charges. Like other mutual funds, the past performance of the Fund does
not necessarily indicate how the Fund will perform in the future.

     CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'95  12.63%
'96  17.41%
'97   5.12%
'98   3.55%
'99  15.66%
'00   1.27%
'01  -8.74%
'02  -3.73%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                 
     Best Quarter:                (Q4'98)       9.83%
     Worst Quarter:               (Q3'02)     -12.45%

     



      AVERAGE ANNUAL TOTAL RETURN
      (FOR THE PERIODS ENDING DECEMBER 31, 2002)
                                                                     From            From            From
                                                                   Inception       Inception       Inception
                                       1 Year        5 Years       (Class A)       (Class B)       (Class C)
                                                                                
      Class A Before Taxes(1)
       (inception 9/16/94)       %          -9.02          .14           3.54              --              --
      Class A After Taxes on
       Distributions                        -9.09        -1.25           1.76              --              --
      Class A After Taxes on
       Distributions and
       Redemptions                          -5.50         -.23           2.23              --              --
      Class B Before Taxes
       (inception 1/31/97)                  -9.27          .20             --             .74              --
      Class C Before Taxes
       (inception 3/1/95)                   -4.49          .45             --              --            4.31
      MSCI EAFE Index                      -15.65        -2.61          -1.37(a)        -2.82(b)         -.52(c)
      J.P. Morgan Non-U.S.
       Government Bond Index                22.09         4.97           5.67(a)         4.28(b)         5.18(c)
      Blended Index(2)                      -1.57          .76           1.71(a)          .26(b)         1.94(c)


 (a)  Measurement period started 9/16/94.
 (b)  Measurement period started 1/31/97.
 (c)  Measurement period started 3/1/95.
 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      was 5.0% prior to February 1, 1999.
 (2)  The Blended Index is comprised of 60% MSCI EAFE Index and 40% J.P.
      Morgan Non-U.S. Government Bond Index.

                                                  THE FUNDS IN SUMMARY         9



FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in International Balanced Fund. This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.



                                                                      CLASS A         CLASS B         CLASS C
                                                                                        
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)                        %             5.50            none             none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)                        %             1.00(a)         5.00             none
 Redemption Fees (b)                                         %             2.00            2.00             2.00
 Exchange Fees
 -On First Twelve Exchanges Each Year                                      none            none             none
 -On Each Additional Exchange                                $             7.50            7.50             7.50
 Low Balance Fee (c)                                         $            10.00           10.00            10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                                             %             0.70            0.70             0.70
 Rule 12b-1 Fees                                             %             0.25            1.00             1.00
 Other Expenses                                              %             0.77            0.77             0.77

 TOTAL ANNUAL FUND OPERATING EXPENSES (d)                    %             1.72            2.47             2.47


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Redemptions of shares purchased after January 31, 2003, including
      exchange redemptions, within 60 days of purchase will be subject
      to a short-term redemption fee equal to 2.00% of redemption
      proceeds, which will be retained by the Fund.
 (c)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (d)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .72% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.67% for Class A shares and 2.42% for Class B and Class C
      shares. Advantus Capital reserves the right to discontinue such
      absorption at any time at its sole discretion.

10             THE FUNDS IN SUMMARY



EXAMPLE. This example is intended to help you compare the costs of investing in
International Balanced Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    715    1,062    1,432     2,469
      Class B                         750    1,120    1,466     2,535
      Class C                         250      770    1,316     2,621


You would pay the following expenses if you did not redeem your shares.



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    715    1,062    1,432     2,469
      Class B                         250      770    1,316     2,535
      Class C                         250      770    1,316     2,621


                                                 THE FUNDS IN SUMMARY         11




- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

MONEY MARKET FUND

INVESTMENT OBJECTIVE AND POLICIES. Money Market Fund seeks a high level of
current income to the extent consistent with the preservation of capital and
maintenance of liquidity.

The Fund invests in a variety of U.S. dollar denominated money market
securities.

MAIN RISKS. An investment in Money Market Fund may be subject to various risks
including the following types of main risk:

    - CREDIT RISK - the risk that an issuer of debt securities or other fixed
      income obligations will not make payments on the securities when due

    - INCOME RISK - the risk that the Fund's income may decrease due to falling
      interest rates

    - INFLATION RISK - the risk that inflation will erode the purchasing power
      of the value of securities held by the Fund or the Fund's dividends

    - INTEREST RATE RISK - the risk that the value of a fixed income obligation
      will decline due to changes in market interest rates

12             THE FUNDS IN SUMMARY

FUND PERFORMANCE. The following bar chart and table show Money Market Fund's
annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows the Fund's average annual return
over a one, five and ten year period. The chart and table assume reinvestment of
dividends. Like other mutual funds, the past performance of the Fund does not
necessarily indicate how the Fund will perform in the future.

     YEAR TO YEAR TOTAL RETURN (AS OF DECEMBER 31)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'93  2.45%
'94  3.44%
'95  5.17%
'96  4.63%
'97  4.76%
'98  4.70%
'99  4.32%
'00  5.60%
'01  3.54%
'02  1.03%



                                 
Best Quarter:                (Q3'00)      1.45%

Worst Quarter:               (Q4'02)       .21%



You may obtain up-to-date information about the Fund's seven-day current yield
and seven-day effective yield by calling Advantus Shareholder Services at
(800) 665-6005.



      AVERAGE ANNUAL TOTAL RETURN
      (FOR THE PERIODS ENDING DECEMBER 31, 2002)
                                           1 Year   5 Years  10 Years
                                                 
      Money Market Fund                %     1.03     3.82      3.95


                                                 THE FUNDS IN SUMMARY         13

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Money Market Fund. This table describes the fees and expenses that you may
pay if you buy and hold shares of the Fund.




                                                                 
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)                          %          none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)                          %          none
 Exchange Fees
 -On First Twelve Exchanges Each Year                                     none
 -On Each Additional Exchange                                  $          7.50
 Low Balance Fee (a)                                           $         10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                                               %          0.50
 Rule 12b-1 Fees                                               %          0.25
 Other Expenses                                                %          0.81

 TOTAL ANNUAL FUND OPERATING EXPENSES (b)                      %          1.56


 (a)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (b)  Securian Financial Services, Inc. (Securian Financial), the Fund's
      underwriter, has voluntarily agreed to waive all of the
      Rule 12b-1 fees. Advantus Capital Management, Inc. (Advantus
      Capital), the Fund's investment adviser, has voluntarily agreed to
      absorb "other expenses", excluding advisory fees and Rule 12b-1
      fees, in excess of .35% of average net assets of the Fund. After
      such waiver and absorption, the ratio of total fund operating
      expenses to average net assets will be .85%. Securian Financial
      and Advantus Capital reserve the right to discontinue such waiver
      or absorption, respectively, at any time at their sole discretion.

EXAMPLE. This example is intended to help you compare the costs of investing in
Money Market Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Money Market Fund          $    159      493      850     1,856


14             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

MORTGAGE SECURITIES FUND

INVESTMENT OBJECTIVE AND POLICIES. Mortgage Securities Fund seeks a high level
of current income consistent with prudent investment risk.

The Fund invests primarily in mortgage-related securities, including
investment-grade securities representing interests in pools of mortgage loans.
In addition, the Fund may invest in a variety of other mortgage-related
securities including collateralized mortgage obligations (CMOs) and stripped
mortgage-backed securities. In selecting securities the Fund's investment
adviser considers factor such as prepayment risk, liquidity, credit quality and
the type of loan and collateral underlying the security, as well as trends in
economic conditions and interest rates.

MAIN RISKS. An investment in Mortgage Securities Fund may be subject to various
risks including the following types of main risk:

    - CALL RISK - the risk that callable securities with high interest rates
      will be prepaid by the issuer prior to maturity, particularly during
      periods of falling interest rates, causing the Fund to reinvest the
      proceeds in other securities with generally lower interest rates

    - CONCENTRATION RISK - the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than an investment portfolio that does not concentrate its investments in
      a single industry. The Fund concentrates its investments in the mortgage
      and mortgage-finance industry.

    - CREDIT RISK - the risk that an issuer of a mortgage-backed security or
      fixed income obligation will not make payments on the security when due

    - EXTENSION RISK - the risk that rising interest rates could cause property
      owners to prepay their mortgages more slowly than expected, resulting in
      slower prepayments of mortgage-backed securities

    - INCOME RISK - the risk that the Fund's income may decrease due to falling
      interest rates

    - INTEREST RATE RISK - the risk that the value of a mortgage-backed security
      or fixed income obligation will decline due to changes in market interest
      rates (note: one measure of interest rate risk is effective duration,
      explained under "Investing in the Funds - Investment Objectives, Policies
      and Practices")

    - LIQUIDITY RISK - the risk that mortgage-related securities purchased by
      the Fund, including restricted securities determined by the Fund's
      investment adviser to be liquid at the time of purchase, may prove to be
      illiquid or otherwise subject to reduced liquidity due to changes in
      market conditions or quality ratings, or to errors in judgment by the
      investment adviser.

    - PREPAYMENT RISK - the risk that falling interest rates could cause
      prepayments of securities to occur more quickly than expected, causing the
      Fund to reinvest the proceeds in other securities with generally lower
      interest rates

                                                 THE FUNDS IN SUMMARY         15

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Mortgage Securities
Fund's annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows how the Fund's average annual
return over a one, five and ten year period compare to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions, and the table reflects applicable initial and contingent deferred
sales charges. Like other mutual funds, the past performance of the Fund does
not necessarily indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'93   8.44%
'94  -3.59%
'95  17.28%
'96   4.49%
'97   9.42%
'98   6.94%
'99   1.52%
'00  12.12%
'01   8.85%
'02   9.15%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                 
Best Quarter:                (Q2'95)      5.72%

Worst Quarter:               (Q1'94)     -3.78%





 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2002)
                                                                                                     From         From
                                                                                                   Inception    Inception
                                                              1 Year        5 Years    10 Years    (Class B)    (Class C)
                                                                                              
 Class A Before Taxes(1)
  (inception 8/3/85)                                  %            4.24      6.67        6.83           --           --
 Class A After Taxes on Distributions                              1.72      3.91        4.06           --           --
 Class A After Taxes on Distributions and
  Redemptions                                                      2.53      3.92        4.04           --           --
 Class B Before Taxes
  (inception 8/19/94)                                              3.34      6.63          --         7.39           --
 Class C Before Taxes
  (inception 3/1/95)                                               8.44      6.86          --           --         7.41
 Lehman Brothers Mortgage-Backed Securities Index                  8.75      7.34        7.28         8.12(a)      8.13(b)


 (a)  Measurement period started 8/19/94.
 (b)  Measurement period started 3/1/95.
 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 4.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      was 5.0% prior to February 1, 1999.

16             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Mortgage Securities Fund. This table describes the fees and expenses that you
may pay if you buy and hold shares of the Fund.



                                                CLASS A     CLASS B     CLASS C
                                                            
      SHAREHOLDER FEES
       (fees paid directly from your investment)
      Maximum Sales Charge on
       Purchases
       (as a percentage of offering
       price)                            %        4.50        none        none
      Maximum Deferred Sales Charge
       (as a percentage of sales
       proceeds)                         %        1.00(a)     5.00        none
      Exchange Fees
      -On First Twelve Exchanges
       Each Year                                  none        none        none
      -On Each Additional Exchange       $        7.50        7.50        7.50
      Low Balance Fee (b)                $       10.00       10.00       10.00

      ANNUAL FUND OPERATING EXPENSES
       (expenses that are deducted from Fund assets)
      Management Fees                    %       0.475       0.475       0.475
      Rule 12b-1 Fees                    %        0.25        1.00        1.00
      Other Expenses                     %       0.485       0.485       0.485

      TOTAL ANNUAL FUND OPERATING
       EXPENSES (c)                      %        1.21        1.96        1.96


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .25% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be .975% for Class A shares and 1.725% for Class B and
      Class C shares. Advantus Capital reserves the right to discontinue
      such absorption at any time at its sole discretion.

                                                 THE FUNDS IN SUMMARY         17

EXAMPLE. This example is intended to help you compare the costs of investing in
Mortgage Securities Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    568      817    1,085     1,850
      Class B                         699      965    1,207     2,000
      Class C                         199      615    1,057     2,091


You would pay the following expenses if you did not redeem your shares.



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    568      817    1,085     1,850
      Class B                         199      615    1,057     2,000
      Class C                         199      615    1,057     2,091


18             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

SPECTRUM FUND

INVESTMENT OBJECTIVE AND POLICIES. Spectrum Fund seeks the most favorable total
return - from capital appreciation, interest and dividends - consistent with
preservation of capital.

The composition of the Fund's investment portfolio will vary with prevailing
economic conditions. As a result, the Fund may invest in various types and
classes of securities including equity securities, investment-grade debt
securities, money market securities and mortgage-related securities. The Fund's
portfolio is allocated among these asset classes based on a risk/return analysis
by the Fund's investment adviser as to current economic and market conditions,
trends in investment yields and interest rates, changes in fiscal or monetary
policies and other relevant factors.

MAIN RISKS. An investment in Spectrum Fund may be subject to various risks
including the following types of main risk:

    - CREDIT RISK - the risk that an issuer of debt securities or other fixed
      income obligations will not make payments on the securities when due

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - INCOME RISK - the risk that the Fund's income may decrease due to falling
      interest rates

    - INTEREST RATE RISK - the risk that the value of a debt security or other
      fixed income obligation will increase or decrease due to changes in market
      interest rates (note: one measure of interest rate risk is effective
      duration, explained under "Investing in the Funds - Investment Objective,
      Policies and Practices")

    - MARKET RISK - the risk that equity and debt securities are subject to
      adverse trends in equity and debt markets

                                                 THE FUNDS IN SUMMARY         19

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Spectrum Fund's annual
returns and long-term performance. The chart shows how the Fund's performance
has varied from year to year, and provides some indication of the risks in
investing in the Fund. The table shows how the Fund's average annual return over
a one, five and ten year period compare to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions, and the
table reflects applicable initial and contingent deferred sales charges. Like
other mutual funds, the past performance of the Fund does not necessarily
indicate how the Fund will perform in the future.

     CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'93    5.51%
'94   -2.14%
'95   24.12%
'96   11.58%
'97   18.18%
'98   22.60%
'99   14.64%
'00  -10.33%
'01  -15.27%
'02   -9.30%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                 
Best Quarter:                (Q4'98)      14.70%
Worst Quarter:               (Q1'01)     -17.38%





 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2002)
                                                                                                          From         From
                                                                                                        Inception    Inception
                                                              1 Year          5 Years       10 Years    (Class B)    (Class C)
                                                                                                   
 Class A Before Taxes(1)
  (inception 11/16/87)                                %           -14.29          -1.75       4.46           --           --
 Class A After Taxes on Distributions                             -14.95          -3.50       2.27           --           --
 Class A After Taxes on Distributions and
  Redemptions                                                      -8.69          -1.70       2.91           --           --
 Class B Before Taxes
  (inception 8/19/94)                                             -14.55          -1.66         --         4.95           --
 Class C Before Taxes
  (inception 3/1/95)                                              -10.05          -1.37         --           --         4.66
 S&P 500 Index                                                    -22.11           -.59         --         9.73(a)      9.74(b)
 Lehman Brothers Aggregate Bond Index                              10.27           7.54       7.51         8.45(a)      8.23(b)
 Blended Index(2)                                                  -9.80           3.10       8.93         9.55(a)      9.57(b)


 (a)  Measurement period started 8/19/94.
 (b)  Measurement period started 3/1/95.
 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      for Class A shares was 5.0% prior to February 1, 1999.
 (2)  The blended index is comprised of 60% S&P 500 Index and 40% Lehman
      Brothers Aggregate Bond Index.

20             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Spectrum Fund. This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.



                                                                    CLASS A     CLASS B     CLASS C
                                                                                
      SHAREHOLDER FEES
       (fees paid directly from your investment)
      Maximum Sales Charge on Purchases
       (as a percentage of offering price)                   %        5.50        none        none
      Maximum Deferred Sales Charge
       (as a percentage of sales proceeds)                   %        1.00(a)     5.00        none
      Exchange Fees
      -On First Twelve Exchanges Each Year                            none        none        none
      -On Each Additional Exchange                           $        7.50        7.50        7.50
      Low Balance Fee (b)                                    $       10.00       10.00       10.00

      ANNUAL FUND OPERATING EXPENSES
       (expenses that are deducted from Fund assets)
      Management Fees                                        %        0.50        0.50        0.50
      Rule 12b-1 Fees                                        %        0.25        1.00        1.00
      Other Expenses                                         %        0.77        0.77        0.77

      TOTAL ANNUAL FUND OPERATING EXPENSES (c)               %        1.52        2.27        2.27


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .57% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.32% for Class A shares and 2.07% for Class B and
      Class C shares. Advantus Capital reserves the right to discontinue
      such absorption at any time at its sole discretion.

                                                 THE FUNDS IN SUMMARY         21

EXAMPLE. This example is intended to help you compare the costs of investing in
Spectrum Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    696    1,004    1,333     2,263
      Class B                         730    1,059    1,365     2,329
      Class C                         230      709    1,215     2,417


You would pay the following expenses if you did not redeem your shares:



                                    1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                               
      Class A                    $    696    1,004    1,333     2,263
      Class B                         230      709    1,215     2,329
      Class C                         230      709    1,215     2,417


22             THE FUNDS IN SUMMARY

                                                                       [GRAPHIC]

                                                          INVESTING IN THE FUNDS

- --------------------
FOR YOUR INFORMATION
- --------------------
One of the advantages of investing in mutual funds is continuous professional
management of your investment. Skilled, experienced professionals manage the
Funds' assets.

MANAGING THE FUNDS

The investment adviser of each of the Funds is Advantus Capital
Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul,
Minnesota 55101. Since its inception in 1994, Advantus Capital has provided
investment advisory services for the Funds and other Advantus Funds, and has
managed investment portfolios for various private accounts, including its
affiliate, Minnesota Life Insurance Company (Minnesota Life). Advantus Capital
manages each Fund's investments and furnishes all necessary office facilities,
equipment and personnel for servicing the Fund's investments. Both Advantus
Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial
Group, Inc., which is a second-tier subsidiary of a mutual insurance holding
company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital
also manage Minnesota Life's investment portfolio. In addition, Minnesota Life,
through its Advantus Shareholder Services division, serves as shareholder and
administrative services agent to the Fund.

The investment sub-adviser of International Balanced Fund is Templeton
Investment Counsel, LLC (Templeton Counsel), 500 East Broward Boulevard, Fort
Lauderdale, Florida 33394. Templeton Counsel provides investment advice, and
generally conducts the investment management program for the equity investments
of the Fund. Templeton Counsel has entered into an agreement with its affiliate,
Franklin Advisers, Inc. (FAV), One Franklin Parkway, San Mateo, California
94403, pursuant to which FAV provides investment advice, and generally conducts
the investment management program for the fixed income investments of the Fund.

                                               INVESTING IN THE FUNDS         23

The following persons serve as the primary portfolio managers for the Funds:



                      PORTFOLIO MANAGER       PRIMARY PORTFOLIO      BUSINESS EXPERIENCE
      FUND                AND TITLE             MANAGER SINCE       DURING PAST FIVE YEARS
                                                          
 BOND             Wayne R. Schmidt           May 1991              Vice President and
                  Portfolio Manager                                Portfolio Manager of
                                                                   Advantus Capital
 INTERNATIONAL    Edgerton Tucker Scott III  June 2000             Vice President and
  BALANCED        Co-Portfolio Manager                             Research Analyst,
                  (equity portfolio)                               Templeton Investment
                                                                   Counsel, LLC
                  Alexander C. Calvo         December 2001         Senior Vice President
                  Co-Portfolio Manager                             and Director of the
                  (fixed income portfolio)                         International Bond
                                                                   Department, Franklin
                                                                   Advisers, Inc.;
                                                                   Portfolio Manager and
                                                                   Director of Research of
                                                                   the International Bond
                                                                   Department, Franklin
                                                                   Templeton Investments
 MONEY MARKET     Steven S. Nelson           October, 1998         Vice President of
                  Portfolio Manager                                Advantus Capital since
                                                                   February 1999, Portfolio
                                                                   Manager of Advantus
                                                                   Capital since September
                                                                   1998
 MORTGAGE         Kent R. Weber              January 1990          Vice President of
  SECURITIES      Portfolio Manager                                Advantus Capital
 SPECTRUM         Matthew D. Finn            November 2001         Vice President and Head
                  Lead Portfolio Manager                           of Equities, Advantus
                                                                   Capital, since July
                                                                   2001; Senior Vice
                                                                   President and Chief
                                                                   Investment Officer -
                                                                   Growth and Income Group,
                                                                   Evergreen Investment
                                                                   Management, Inc., from
                                                                   March 1998 to June 2001
                  Allen D. Steinkopf         January 2002          Portfolio Manager of
                  Co-Portfolio Manager                             Advantus Capital since
                  (equities)                                       May 2000; Assistant
                                                                   Portfolio Manager,
                                                                   Advantus Capital, from
                                                                   June 1998 to April 2000
                  Wayne R. Schmidt           February 1999         Vice President of
                  Co-Portfolio Manager                             Advantus Capital
                  (fixed income)


24             INVESTING IN THE FUNDS

ADVISORY FEES

The Funds pay Advantus Capital advisory fees calculated on an annual basis for
each Fund. Advantus Capital uses a portion of the applicable fee to pay a Fund's
sub-adviser, if any. The advisory fee paid to Advantus Capital for each Fund
during the most recent fiscal year, as a percentage of average daily net assets,
was as follows:



                                      AGGREGATE FEE PAID DURING FISCAL
              FUND                     YEAR ENDED SEPTEMBER 30, 2002
                                
 Bond                             %                       0.60
 International Balanced                                   0.70
 Money Market                                             0.50
 Mortgage Securities                                      0.475
 Spectrum                                                 0.50


INVESTMENT OBJECTIVE, POLICIES AND PRACTICES

BOND FUND

Bond Fund seeks a high level of current income consistent with prudent
investment risk.

It is the Fund's policy to invest, under normal circumstances, at least 80% of
the value of its net assets in bonds (for this purpose, "bonds" includes any
debt security). The 80% investment policy is not fundamental, which means it may
be changed without the vote of a majority of the Fund's outstanding shares, but
shareholders will be notified in writing at least 60 days prior to any change of
this policy. The Fund invests primarily in a variety of investment-grade debt
securities which include:

     -  investment-grade corporate debt obligations and mortgage-backed
        securities

     -  debt securities issued or guaranteed by the U.S. government or any of
        its agencies or instrumentalities (including U.S. Treasury bills, notes
        and bonds)

     -  investment-grade mortgage-backed securities issued by governmental
        agencies and financial institutions

     -  investment grade asset-backed securities

     -  U.S. dollar denominated investment-grade debt securities issued by
        foreign governments and companies and publicly traded in the United
        States

     -  debt obligations of U.S. banks, savings and loan associations and
        savings banks

The Fund will invest a portion of its assets in investment-grade debt
obligations issued by domestic companies in a variety of industries. The Fund
may invest in long-term debt securities (i.e., maturities of more than 10
years), intermediate debt securities (i.e., maturities from 3 to 10 years) and
short-term debt securities (i.e., maturities of less than 3 years). In selecting
corporate debt securities and their maturities, Advantus Capital seeks to
maximize current income by engaging in a risk/return analysis that focuses on
various factors such as industry outlook, current and anticipated market and
economic conditions, general levels of debt prices and issuer operations.

                                               INVESTING IN THE FUNDS         25

- --------------------
FOR YOUR INFORMATION
- --------------------
The market prices of bonds are generally less volatile than stocks, although the
market prices of bonds may be adversely affected during periods of rising
interest rates. The values of fixed income securities generally rise and fall
inversely with changes in prevailing interest rates. Duration is the most
meaningful indicator of a fixed income security's sensitivity to interest rate
changes.

The Fund may also invest a portion of its assets in government and
non-governmental mortgage-related securities, including CMOs, and in stripped
mortgage-backed securities and asset-backed securities. CMOs are debt
obligations typically issued by either a government agency or a private
special-purpose entity that are collateralized by residential or commercial
mortgage loans or pools of residential mortgage loans. CMOs allocate the
priority of the distribution of principal and interest from the underlying
mortgage loans among various series. Each series differs from the other in terms
of the priority right to receive cash payments from the underlying mortgage
loans.

Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
interest holder to receive the interest portion of cash payments, while the
principal component only allows the interest holder to receive the principal
portion of cash payments.

Asset-backed securities represent interest in pools of consumer loans (such as
credit card, trade or automobile loans). Investors in asset-backed securities
are entitled to receive payments of principal and interest received by the pool
entity from the underlying consumer loans net of any costs and expenses incurred
by the entity.

As a rule of thumb, a portfolio of debt, mortgage-related and asset-backed
securities experiences a decrease in principal value with an increase in
interest rates. The extent of the decrease in principal value may be affected by
the Fund's duration of its portfolio of debt, mortgage-related and asset-backed
securities. Duration measures the relative price sensitivity of a security to
changes in interest rates. "Effective" duration takes into consideration the
likelihood that a security will be called, or prepaid, prior to maturity given
current market interest rates. Typically, a security with a longer duration is
more price sensitive than a security with a shorter duration. In general, a
portfolio of debt, mortgage-related and asset-backed securities experiences a
percentage decrease in principal value equal to its effective duration for each
1% increase in interest rates. For example, if the Fund holds a portfolio of
securities with an effective duration of five years and interest rates rise 1%,
the principal value of such securities could be expected to decrease by
approximately 5%. The Fund expects that under normal circumstances the effective
duration of its portfolio will range from four to seven years.

In addition, the Fund may invest lesser portions of its assets in interest rate
and other bond futures contracts, convertible and non-convertible
investment-grade and non-investment grade debt securities issued by domestic
governments and companies, restricted and illiquid securities, options (the Fund
may purchase, sell and write put and call options), stripped asset-backed
securities, securities purchased on a when-issued or forward commitment basis,
mortgage dollar roll transactions, direct mortgage investments, securities of
other mutual funds, warrants, repurchase agreement transactions, and money
market securities. To generate additional income, the Fund may lend securities
representing up to one-third of the value of its total assets to broker-dealers,
banks and other institutions.

Although the Fund does not pursue an investment strategy of active and frequent
trading of portfolio securities, the Fund makes changes in its portfolio
securities which are considered advisable in light of market conditions.
Portfolio turnover rates may therefore vary greatly from year to year. To the
extent the Fund experiences high rates of portfolio turnover, it will incur
correspondingly greater brokerage commission expenses, which may reduce
investment returns. Higher rates of portfolio turnover may also result in larger
capital gains distributions, which are taxable to Fund shareholders.

26             INVESTING IN THE FUNDS

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes, and without
limit, in various short-term cash and cash equivalent items. When investing for
temporary defensive purposes, the Fund may not always achieve its investment
objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Bond Fund is subject to the following risks:

                         
- - Call Risk                 - Income Risk
- - Credit Risk               - Inflation Risk
- - Diversification Risk      - Interest Rate Risk
- - Emerging Markets Risk     - Market Risk
- - Extension Risk            - Prepayment Risk
- - Foreign Securities Risk   - Securities Lending Risk
- - Fund Risk                 - Short-Term Trading Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         27

- --------------------
FOR YOUR INFORMATION
- --------------------
The market prices of bonds are generally less volatile than stocks, although the
market price of bonds may be adversely affected during periods of rising
interest rates. The value of fixed income securities generally rise and fall
inversely with changes in prevailing interest rates. Duration is the most
meaningful indicator of a fixed income security's sensitivity to interest rate
changes.

INTERNATIONAL BALANCED FUND

International Balanced Fund seeks a high level of total return.

The Fund may invest in equity and debt securities issued by large and small
international companies and governmental agencies. Normally, the Fund invests
approximately 50% to 70% of its assets in international equity securities. In
addition, the Fund invests approximately 30% to 50% of its assets in
international investment-grade debt securities. The Fund invests primarily in
securities of companies or governments in developed foreign markets. However,
the Fund may also invest up to 20% of its total assets in equity securities of
companies located in developing or emerging markets. In addition, the Fund may
invest up to 10% of its total assets in debt securities of companies or
governments located in developing or emerging markets. (For purposes of the
investment percentages described in the preceding sentences, collateral received
in connection with securities lending shall not be considered Fund assets.)
Under normal circumstances, the Fund will maintain investments in at least three
foreign countries.

The Fund invests in equity securities. Equity securities generally entitle the
holder to participate in a company's general operating results. These include
common stock, preferred stock, warrants or rights to purchase such securities.
In selecting these equity securities, Templeton Counsel does a
company-by-company analysis, rather than focusing on a specific industry or
economic sector. Templeton Counsel concentrates primarily on the market price of
a company's securities relative to its view regarding the company's long-term
earnings potential. A company's historical value measures, including
price/earnings ratios, profit margins and liquidation value, will also be
considered.

In addition, the Fund invests in investment-grade debt securities. Debt
securities represent an obligation of the issuer to repay a loan of money to it,
and generally, provide for the payment of interest. These include bonds, notes
and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments which are more fully described in the Statement of
Additional Information. In selecting debt securities FAV, pursuant to its
agreement with Templeton Counsel, evaluates current, as well as expected future
trends in, interest rates and general economic conditions. FAV then attempts to
identify those securities and issuers which, in its judgment, are likely to
perform well in such circumstances.

As a rule of thumb, a portfolio of debt securities experiences a decrease in
principal value with an increase in interest rates. The extent of the decrease
in principal value may be affected by the Fund's duration of its portfolio of
debt securities. Duration measures the relative price sensitivity of a security
to changes in interest rates. "Effective" duration takes into consideration the
likelihood that a security will be called, or prepaid, prior to maturity given
current market interest rates. Typically, a security with a longer duration is
more price sensitive than a security with a shorter duration. In general, a
portfolio of debt securities experiences a percentage decrease in principal
value equal to its effective duration for each 1% increase in interest rates.
For example, if the Fund holds a portfolio of securities with an effective
duration of five years and interest rates rise 1%, the principal value of such
securities could be expected to decrease by approximately 5%. The Fund expects
that under normal circumstances the effective duration of its debt securities
portfolio will range from three to six years.

The Fund may also invest a lesser portion of its assets in closed-end investment
companies, restricted and illiquid securities, U.S. government and domestic
investment-grade debt securities, American Depositary Receipts, European
Depositary Receipts, securities and index

28             INVESTING IN THE FUNDS

futures contracts, forward foreign currency exchange contracts, exchange-traded
foreign currency futures contracts, securities of other mutual funds, options
(the Fund may purchase, sell and write put and call options), repurchase
agreement transactions, securities purchased on a when-issued or forward
commitment basis and money market securities. To generate additional income, the
Fund may lend securities representing up to one-third of the value of its total
assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes, and without
limit, in various short-term cash and cash equivalent items. When investing for
temporary defensive purposes, the Fund may not always achieve its investment
objective.

You will find more information about these securities in the Statement of
Additional Information.

RISKS. An investment in International Balanced Fund is subject to the following
risks:

                         
- - Call Risk                 - Income Risk
- - Company Risk              - Inflation Risk
- - Credit Risk               - Interest Rate Risk
- - Currency Risk             - Large Company Risk
- - Diversification Risk      - Market Risk
- - Emerging Markets Risk     - Mid Size Company Risk
- - Euro Conversion Risk      - Sector Risk
- - Foreign Securities Risk   - Securities Lending
- - Fund Risk                   Risk
                            - Small Company Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         29

MONEY MARKET FUND

Money Market Fund seeks a high level of current income to the extent consistent
with the preservation of capital and maintenance of liquidity.

The Fund invests in a variety of U.S. dollar denominated money market
securities, including:

    - securities issued or guaranteed by the U.S. government or one of its
      agencies or instrumentalities (including bills, notes, bonds and
      certificates of indebtedness)

    - obligations of domestic banks, savings and loan associations, savings
      banks with total assets of at least $2 billion (including certificates of
      deposit, bank notes, commercial paper, time deposits and bankers'
      acceptances)

    - U.S. dollar denominated obligations of U.S. branches or agencies of
      foreign banks with total assets of at least $2 billion

    - U.S. dollar denominated obligations of Canadian chartered banks and London
      branches of U.S. banks with total assets of at least $2 billion

    - U.S. dollar denominated securities issued by foreign governments and
      companies and publicly traded in the United States

    - obligations of supranational entities such as the International Bank for
      Reconstruction and Development

    - domestic corporate, domestic limited partnership and affiliated foreign
      corporate obligations (including commercial paper, notes and bonds)

In addition, the Fund may invest lesser portions of its assets in securities of
other mutual funds, restricted and illiquid securities, and other securities
permitted as investments for money market funds by Rule 2a-7 under the
Investment Company Act of 1940.

You can find descriptions of these securities in the Statement of Additional
Information.

Generally, the Fund may purchase only securities rated within the two highest
short-term rating categories of one or more national rating agencies. The Fund
only invests in securities that mature in 397 calendar days or less from the
date of purchase. The Fund maintains an average weighted maturity of 90 days or
less.

RISKS. An investment in Money Market Fund is subject to the following risks:

                         
- - Credit Risk               - Inflation Risk
- - Foreign Securities Risk   - Interest Rate Risk
- - Fund Risk                 - Market Risk
- - Income Risk               - Stable Price Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

30             INVESTING IN THE FUNDS

MORTGAGE SECURITIES FUND

Mortgage Securities Fund seeks a high level of current income consistent with
prudent investment risk.

Under normal circumstances, the Fund invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in
mortgage-related securities. The 80% investment policy is not fundamental, which
means it may be changed without the vote of a majority of the Fund's outstanding
shares, but shareholders will be notified in writing at least 60 days prior to
any change of this policy. Under this 80% investment policy the Fund invests a
major portion of its assets in investment-grade securities representing
interests in pools of mortgage loans, and in a variety of other mortgage-related
securities including collateralized mortgage obligations (CMOs) and stripped
mortgage-backed securities.

In selecting mortgage-related securities Advantus Capital considers a variety of
factors, including prepayment risk, credit quality, liquidity, the collateral
securing the underlying loan (for example, residential versus commercial real
estate) and the type of underlying mortgage loan (for example, a 30 year
fully-amortized loan versus a 15 year fully-amortized loan). Advantus Capital
also takes into consideration current and expected trends in economic
conditions, interest rates and the mortgage market and selects securities which,
in its judgment, are likely to perform well in those circumstances.

The market for mortgage-related securities is generally liquid, but individual
mortgage-related securities purchased by the Fund may be subject to the risk of
reduced liability due to changes in quality ratings or changes in general market
conditions which adversely affect particular mortgage-related securities or the
broader mortgage securities market as a whole. In addition, the Fund may, at the
time of purchase, invest up to 15% of its net assets in illiquid securities, and
may also invest without limit in securities whose disposition is restricted
under the federal securities laws but which have been determined by Advantus
Capital to be liquid under liquidity guidelines adopted by the Fund's Board of
Directors. Investments in illiquid and restricted securities present greater
risks inasmuch as such securities may only be resold subject to statutory or
regulatory restrictions, or if the Fund bears the costs of registering such
securities. The Fund may, therefore, be unable to dispose of such securities as
quickly as, or at prices as favorable as those for, comparable but liquid or
unrestricted securities. As of September 30, 2002, the Fund had 3.8% of its net
assets invested in illiquid securities, and 12.9% of its net assets invested in
restricted securities deemed liquid pursuant to the liquidity guidelines.
Advantus Capital continuously monitors the liquidity of portfolio securities and
may determine that, because of a reduction in liquidity subsequent to purchase,
securities which originally were determined to be liquid have become illiquid.
This could result in more than 15% of the Fund's net assets being invested in
illiquid securities.

Interests in pools of mortgage loans provide the security holder the right to
receive out of the underlying mortgage loans periodic interest payments at a
fixed rate and a full principal payment at a designated maturity or call date.
Scheduled principal, interest and other payments on the underlying mortgage
loans received by the sponsoring or guarantor entity are then distributed or
"passed through" to security holders net of any service fees retained by the
sponsor or guarantor. Additional payments passed through to security holders
could arise from the prepayment of principal resulting from the sale of
residential property, the refinancing of underlying mortgages, or the
foreclosure of residential property. In "pass through" mortgage loan pools,
payments to security holders will depend on whether

                                               INVESTING IN THE FUNDS         31

- --------------------
FOR YOUR INFORMATION
- --------------------
The market prices of bonds are generally less volatile than stocks, although the
market prices of bonds may be adversely affected during periods of rising
interest rates. The values of fixed income securities generally rise and fall
inversely with changes in prevailing interest rates. Duration is the most
meaningful indicator of a fixed income security's sensitivity to interest rate
changes.

mortgagors make payments to the pooling entity on the underlying mortgage loans.
To avoid this non-payment risk, the Fund may also invest in "modified pass
through" mortgage loan pools which provide that the security holder will receive
interest and principal payments regardless of whether mortgagors make payments
on the underlying mortgage loans.

The Fund may invest in government or government-related mortgage loan pools or
private mortgage loan pools. In government or government-related mortgage loan
pools, the U.S. government or certain agencies guarantee to mortgage pool
security holders the payment of principal and interest. The principal
governmental guarantors of mortgage-related securities are the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). FNMA and FHLMC generally guarantee payment of principal and interest on
mortgage loan pool securities issued by certain pre-approved institutions (i.e.,
savings and loan institutions, commercial banks and mortgage bankers).

The Fund may also invest in private mortgage loan pools sponsored by commercial
banks, insurance companies, mortgage bankers and other private financial
institutions. Mortgage pools created by these non-governmental entities offer a
higher rate of interest than government or government related securities. Unlike
government agency sponsored mortgage loan pools, payment of interest and payment
to investors is not guaranteed.

The Fund may also invest a major portion of its assets in CMOs and stripped
mortgage-backed securities. CMOs are debt obligations issued by both government
agencies and private special-purpose entities that are collateralized by
residential or commercial mortgage loans. Unlike traditional mortgage loan
pools, CMOs allocate the priority of the distribution of principal and level of
interest from the underlying mortgage loans among various series. Each series
differs from another in terms of the priority right to receive cash payments
from the underlying mortgage loans. Each series may be further divided into
classes in which the principal and interest payments payable to classes in the
same series may be allocated. For instance, a certain class in a series may have
right of priority over another class to receive principal and interest payments.
Moreover, a certain class in a series may be entitled to receive only interest
payments while another class in the same series may be only entitled to receive
principal payments. As a result, the timing and the type of payments received by
a CMO security holder may differ from the payments received by a security holder
in a traditional mortgage loan pool.

Stripped mortgage-backed securities also represent ownership interests in a pool
of mortgages. However, the stripped mortgage-backed securities are separated
into interest and principal components. The interest component only allows the
security holder to receive the interest portion of cash payments, while the
principal component only allows the security holder to receive the principal
portion of cash payments.

As a rule of thumb, a portfolio of fixed income securities (including mortgage
related securities) experiences a decrease in principal value with an increase
in interest rates. The extent of the decrease in principal value may be affected
by the Fund's duration of its portfolio. Duration measures the relative price
sensitivity of a security to changes in interest rates. "Effective" duration
takes into consideration the likelihood that a security will be called, or
prepaid, prior to maturity given current market interest rates. Typically, a
security with a longer duration is more price sensitive than a security with a
shorter duration. In general, a portfolio of fixed income securities experiences
a percentage decrease in principal value equal to its effective duration for
each 1% increase in interest rates. For example, if the Fund holds a portfolio
of securities with an effective duration of five years and interest rates rise

32             INVESTING IN THE FUNDS

1%, the principal value of such securities could be expected to decrease by
approximately 5%. The Fund expects that under normal circumstances the effective
duration of its portfolio will range from one to seven years.

In addition, the Fund may invest lesser portions of its assets in non-investment
grade mortgage-related securities, securities issued or guaranteed by the U.S.
government or its agencies and instrumentalities, certificates of deposits,
bankers' acceptances, investment-grade commercial paper, convertible and
non-convertible investment-grade and non-investment grade corporate debt
securities, securities of other mutual funds, restricted and illiquid
securities, direct mortgage investments, interest rate and other bond futures
contracts, asset-backed securities, stripped asset-backed securities,
when-issued or forward commitment transactions and mortgage dollar rolls. To
generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes, and without
limit, in various short-term cash and cash equivalent items. When investing for
temporary defensive purposes, the Fund may not always achieve its investment
objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Mortgage Securities Fund is subject to the following
risks:

                        
- - Call Risk                - Fund Risk
- - Concentration Risk       - Income Risk
- - Credit Risk              - Inflation Risk
- - Diversification Risk     - Interest Rate Risk
- - Emerging Markets Risk    - Market Risk
- - Extension Risk           - Prepayment Risk
- - Foreign Securities Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         33

SPECTRUM FUND

Spectrum Fund seeks the most favorable total return - from capital appreciation,
interest and dividends - consistent with preservation of capital.

The Fund's portfolio may, at any time, consist of equity securities,
investment-grade debt securities, mortgage-related securities, money market
securities or any combination of these securities. The Fund's portfolio will be
allocated among these asset classes based on Advantus Capital's risk/return
analysis as to current economic or market conditions, trends in investment
yields and investment rates, changes in fiscal or monetary policies and other
relevant factors. If Advantus Capital believes total return from debt securities
will exceed total return from equity securities, the Fund will overweight its
investment in debt securities relative to the target portfolio weight of 40%
fixed income securities. On the other hand, if Advantus Capital believes total
return from equity securities will exceed total return from long or short-term
debt securities, the Fund will overweight its investment in equity securities
relative to the target portfolio weight of 60% equity securities. As a result,
Advantus Capital has more discretion to invest in a variety of securities than
most mutual funds. Under most circumstances, the Fund anticipates investing
approximately 50% to 70% of its total assets in equity securities, approximately
30% to 50% of its total assets in long-term and short-term debt securities and
mortgage-related securities, and approximately 0% to 10% of its total assets in
money market securities. (For purposes of the investment percentages described
in the preceding sentence, collateral received in connection with securities
lending shall not be considered Fund assets.) However, Advantus Capital may
allocate assets beyond these ranges in order to attempt to increase return or
reduce risk.

              THE ADVANTUS SPECTRUM FUND
                                                                         [CHART]

            Typical ranges for equity, fixed income and money market
            investments.

The Fund invests primarily in common stocks but may also invest in preferred
stocks and securities convertible into equity securities. In selecting equity
securities, Advantus Capital looks first to an investment's potential for
capital appreciation and then to its income potential. The Fund generally
invests in equity securities of companies which either have strong long-term
growth potential, or are believed by Advantus Capital to be temporarily
undervalued or to show promise of improved results due to new management,
products, markets or other factors.

34             INVESTING IN THE FUNDS

- --------------------
FOR YOUR INFORMATION
- --------------------
The market prices of bonds are generally less volatile than stocks, although the
market prices of bonds may be adversely affected during periods of rising
interest rates. The values of fixed income securities generally rise and fall
inversely with changes in prevailing interest rates. Duration is the most
meaningful indicator of a fixed income security's sensitivity to interest rate
changes.

The Fund also may invest in long, intermediate and short-term investment-grade
debt securities. These debt securities include U.S. Government and agency debt
securities and investment-grade debt obligations of U.S. banks, savings and loan
associations, savings banks with total assets of at least $2 billion, corporate
debt obligations, notes and other investment-grade debt securities of any
maturity and investment-grade commercial paper issued by U.S. corporations or
affiliated foreign corporations.

The Fund may invest in government and non-governmental mortgage-related
securities, including collateralized mortgage obligations (CMOs) and stripped
mortgage-backed securities, and may purchase securities on a when-issued or
forward commitment basis. CMOs are debt obligations typically issued by either a
government agency or a private special-purpose entity that are collateralized by
residential or commercial mortgage loans or pools of residential mortgage loans.
Stripped mortgage-backed securities represent ownership interests in a pool of
mortgages. Securities purchased on a when-issued or delayed delivery basis
require the Fund to purchase securities on a later date with the price fixed at
the time of the purchase commitment.

In addition, the Fund may invest in money market securities that mature within
one year from the date of purchase.

As a rule of thumb, a portfolio of debt and mortgage-related securities
generally experiences a decrease in principal value with an increase in interest
rates. The extent of the decrease in principal value may be affected by the
Fund's duration of its portfolio of debt and mortgage-related securities.
Duration measures the relative price sensitivity of a security to changes in
interest rates. "Effective" duration takes into consideration the likelihood
that a security will be called, or prepaid, prior to maturity given current
market interest rates. Typically, a security with a longer duration is more
price sensitive than a security with a shorter duration. In general, a portfolio
of debt and mortgage-related securities experiences a percentage decrease in
principal value equal to its effective duration for each 1% increase in interest
rates. For example, if the Fund holds a portfolio of securities with an
effective duration of five years and interest rates rise 1%, the principal value
of such securities could be expected to decrease by approximately 5%. The Fund
expects that under normal circumstances the effective duration of its debt and
mortgage-related securities portfolio will range from one to seven years.

In addition, the Fund may invest lesser portions of its assets in convertible
and non-convertible investment-grade and non-investment grade corporate debt
obligations and mortgage-related securities, real estate investment trusts,
securities of other mutual funds, restricted and illiquid securities, foreign
securities, warrants, stock index futures contracts, options (the Fund may
purchase, sell and write put and call options), interest rate and other bond
futures contracts, asset-backed securities, stripped asset-backed securities,
when-issued or forward commitment transactions and mortgage dollar rolls, direct
mortgage investments, index depositary receipts and repurchase and reverse
repurchase agreement transactions. To generate additional income, the Fund may
lend securities representing one-third of the value of its total assets to
broker-dealers, banks and other institutions.

Although the Fund does not pursue an investment strategy of active and frequent
trading of portfolio securities, the Fund makes changes in its portfolio
securities which are considered advisable in light of market conditions.
Portfolio turnover rates may therefore vary greatly from year to year. To the
extent the Fund experiences high rates of portfolio turnover, it will

                                               INVESTING IN THE FUNDS         35

incur correspondingly greater brokerage commission expenses, which may reduce
investment returns. Higher rates of portfolio turnover may also result in larger
capital gains distributions, which are taxable to Fund shareholders.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes, and without
limit, in various short-term cash and cash equivalent items. When investing for
temporary defensive purposes, the Fund may not always achieve its investment
objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Spectrum Fund is subject to the following risks:

                       
- - Call Risk               - Interest Rate Risk
- - Company Risk            - Large Company Risk
- - Credit Risk             - Market Risk
- - Diversification Risk    - Mid Size Company Risk
- - Emerging Markets Risk   - Prepayment Risk
- - Extension Risk          - Sector Risk
- - Foreign Securities      - Securities Lending Risk
  Risk                    - Short-Term Trading Risk
- - Fund Risk               - Small Company Risk
- - Income Risk
- - Inflation Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

36             INVESTING IN THE FUNDS

- --------------------
FOR YOUR INFORMATION
- --------------------
In order to make informed decisions, investors must be aware of both the risks
and rewards associated with investing. Not only should you understand the risks
associated with your investments, but you must be comfortable with them as well.
Risks are an inherent part of investing, and your investment in the Fund is
subject to different types and varying degrees of risk.

DEFINING RISKS

Investment in each Fund involves risks. A Fund's yield and price are not
guaranteed, and the value of an investment in a Fund will go up or down. The
value of an investment in a particular Fund may be affected by the risks of
investing in that Fund as identified for each Fund in "Investment Objective,
Policies and Practices" above. The following glossary describes those identified
risks associated with investing in the Funds.

    - CALL RISK - is the risk that securities with high interest rates (or other
      attributes that increase debt cost) will be prepaid by the issuer prior to
      maturity, particularly during periods of falling interest rates. In
      general, an issuer will call its debt securities if they can be refinanced
      by issuing new securities with a lower interest rate. The Fund is subject
      to the possibility that during periods of falling interest rates, an
      issuer will call its securities. As a result, the Fund would have to
      reinvest the proceeds in other securities with generally lower interest
      rates, resulting in a decline of the Fund's income.

    - COMPANY RISK - is the risk that individual securities may perform
      differently than the overall market. This may be a result of specific
      factors such as changes in corporate profitability due to the success or
      failure of specific products or management strategies, or it may be due to
      changes in investor perceptions regarding a company.

    - CONCENTRATION RISK - is the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than an investment portfolio that does not concentrate its investments in
      a single industry. The Fund is subject to concentration risk if the Fund
      invests more than 25% of its total assets in a particular industry.

    - CREDIT RISK - is the risk that an issuer of a REIT or debt security
      (including mortgage-backed securities) will not make payments on the
      security when due, or that the other party to a contract will default on
      its obligation. There is also the risk that an issuer could suffer adverse
      changes in financial condition that could lower the credit quality of a
      security. This could lead to greater volatility in the price of the
      security and in shares of the Fund. Also, a change in the quality rating
      of a REIT security or a debt security can affect the security's liquidity
      and make it more difficult to sell. The Fund may attempt to minimize
      credit risk by investing in debt securities and other fixed income
      obligations considered at least investment grade at the time of purchase.
      However, all of these securities and obligations, especially those in the
      lower investment grade rating categories, have credit risk. In adverse
      economic or other circumstances, issuers of these lower rated securities
      and obligations are more likely to have difficulty making principal and
      interest payments than issuers of higher rated securities and obligations.
      If the Fund purchases unrated securities and obligations, it will depend
      on its investment adviser's or sub-adviser's analysis of credit risk more
      heavily than usual.

    - CURRENCY RISK - is the risk that changes in foreign currency exchange
      rates will increase or decrease the value of foreign securities or the
      amount of income or gain received on such securities. A strong U.S. dollar
      relative to these other currencies will adversely affect the value of the
      Fund. Attempts by the Fund to minimize the effects of currency
      fluctuations through the use of foreign currency hedging transactions may
      not be successful or the Fund's hedging transactions may cause the Fund to
      be unable to take advantage of a favorable change in the value of foreign
      currencies.

    - DIVERSIFICATION RISK - is the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than a more diversified

                                               INVESTING IN THE FUNDS         37

      investment portfolio. The Fund is subject to diversification risk if the
      Fund may invest more than 5% of its total assets in the securities of a
      single issuer with respect to 25% of its total investment portfolio (a
      Fund is considered diversified, as defined in the Investment Company Act
      of 1940, if it does not invest more than 5% of its total assets in the
      securities of a single issuer with respect to 75% of its total investment
      portfolio).

    - EMERGING MARKETS RISK - is the risk that the value of securities issued by
      companies located in emerging market countries may be subject to greater
      volatility than foreign securities issued by companies in developed
      markets. Risks of investing in foreign securities issued by companies in
      emerging market countries include, among other things, greater social,
      political and economic instability, lack of liquidity and greater price
      volatility due to small market size and low trading volume, certain
      national policies that restrict investment opportunities and the lack of
      legal structures governing private and foreign investment and private
      property.

    - EURO CONVERSION RISK - is the risk that the value of foreign securities of
      companies located in European Monetary Union (EMU) countries may decrease
      due to market volatility resulting from the conversion of certain EMU
      country currencies to the Euro. It is not possible to predict the impact
      of the Euro on the business or financial condition of European issues or
      on the Fund. The transition and the elimination of currency risks amount
      EMU countries may change the economic environment and behavior of
      investors, particularly in European markets. To the extent the Fund holds
      non-U.S. dollar (Euro or other) denominated securities, it will still be
      exposed to currency risk due to fluctuations in those currencies versus
      the U.S. dollar.

    - EXTENSION RISK - is the risk that rising interest rates could cause
      property owners to prepay their mortgages more slowly than expected,
      resulting in slower prepayments of mortgage-backed securities and real
      estate debt securities. This would, in effect, convert a short or
      medium-duration security into a longer-duration security, increasing its
      sensitivity to interest rate changes and causing its price to decline.
      Duration measures the expected price sensitivity of a fixed income
      security or portfolio for a given change in interest rates. For example,
      if interest rates rise by one percent, the value of a security or
      portfolio having a duration of two years generally will fall by
      approximately two percent.

    - FOREIGN SECURITIES RISK - is the risk that the value of foreign companies
      or foreign government securities held by the Fund may be subject to
      greater volatility than domestic securities. Risks of foreign securities
      include, among other things:

       
          POLITICAL AND ECONOMIC RISKS. Investing in foreign
          securities is subject to the risk of political, social or
          economic instability in the country of the issuer of the
          security, the difficulty of predicting international trade
          patterns, the possibility of exchange controls,
          expropriation, limits on currency removal or nationalization
          of assets.

          FOREIGN TAX RISK. The Fund's income from foreign issuers may
          be subject to non-U.S. withholding taxes. In some countries,
          the Fund may be subject to taxes on trading profits and, on
          certain securities transactions, transfer or stamp duties.
          To the extent foreign income taxes are paid by the Fund,
          U.S. shareholders may be entitled to a credit or deduction
          for U.S. tax purposes.



38             INVESTING IN THE FUNDS

       
          FOREIGN INVESTMENT RESTRICTION RISK. Some countries,
          particularly emerging market countries, restrict to varying
          degrees foreign investment in their securities markets. In
          some circumstances, these restrictions may limit or preclude
          investment in certain countries or may increase the cost of
          investing in securities of particular companies.

          FOREIGN SECURITIES MARKET RISK. Securities of many foreign
          companies may be less liquid and their prices more volatile
          than securities of domestic companies. Securities of
          companies traded outside the U.S. may be subject to further
          risks due to the inexperience of local brokers and financial
          institutions, the possibility of permanent or temporary
          termination of trading, and greater spreads between bid and
          asked prices for securities. Moreover, foreign stock
          exchanges and brokers are subject to less governmental
          regulation, and commissions may be higher than in the U.S.
          In addition, there may be delays in the settlement of
          foreign stock exchange transactions.

          INFORMATION AND REMEDIES RISK. Foreign companies generally
          are not subject to uniform accounting, auditing and
          financial reporting standards or to other regulatory
          requirements that apply to domestic companies. As a result,
          less information may be available to investors concerning
          foreign issuers. In addition, the Fund may have greater
          difficulty voting proxies, exercising shareholder rights,
          pursuing legal remedies and obtaining judgments with respect
          to foreign investments in foreign courts than with domestic
          companies in domestic courts.



    - FUND RISK - is the risk that Fund performance may not meet or exceed that
      of the market as a whole. The performance of the Fund will depend on the
      Fund's investment adviser's or sub-adviser's judgment of economic and
      market policies, trends in investment yields and monetary policy. Due to
      its active management, the Fund could underperform other mutual funds with
      similar investment objectives or the market generally.

    - INCOME RISK - is the risk that the Fund may experience a decline in its
      income due to falling interest rates.

    - INFLATION RISK - is the risk that even if the principal value of an
      investment in the Fund remains constant or increases, or the income from
      the investment remains constant or increases, their real value may be less
      in the future because of inflation. Thus, as inflation occurs, the
      purchasing power of an investor's Fund shares may decline, even if their
      value in dollars increases.

    - INTEREST RATE RISK - is the risk that the value of a debt security,
      mortgage-backed security or fixed income obligation (including mortgage
      REITs) will decline due to changes in market interest rates. Generally,
      when interest rates rise, the value of such a security or obligation
      decreases. Conversely, when interest rates decline, the value of a debt
      security, mortgage-backed security or fixed income obligation (including
      mortgage REITs) generally increases. Long-term debt securities,
      mortgage-backed securities and fixed income obligations are generally more
      sensitive to interest rate changes.

    - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization
      company securities may underperform the market as a whole.

    - MARKET RISK - is the risk that equity securities are subject to adverse
      trends in equity markets. Securities are subject to price movements due to
      changes in general economic conditions, the level of prevailing interest
      rates or investor perceptions of the market. In

                                               INVESTING IN THE FUNDS         39

      addition, prices are affected by the outlook for overall corporate
      profitability. Market prices of equity securities are generally more
      volatile than debt securities. This may cause a security to be worth less
      than the price originally paid for it, or less than it was worth an
      earlier time. Market risk may affect a single issuer or the market as a
      whole. As a result, a portfolio of such equity securities may underperform
      the market as a whole.

    - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization
      companies may be more vulnerable to adverse developments than those of
      large companies due to such companies' limited product lines, limited
      markets and financial resources and dependence upon a relatively small
      management group.

    - PREPAYMENT RISK - is the risk that falling interest rates could cause
      prepayments of mortgage loans to occur more quickly than expected. This
      occurs because, as interest rates fall, more property owners refinance the
      mortgages underlying mortgage-backed securities (including mortgage
      REITs). The Fund must reinvest the prepayments at a time when interest
      rates of new mortgage investments are falling, reducing the income of the
      Fund. In addition, when interest rates fall, prices of mortgage-backed
      securities may not rise as much as for other types of comparable
      securities because investors may anticipate an increase in mortgage
      prepayments.

    - SECTOR RISK - is the risk that the securities of companies within specific
      industries or sectors of the economy can periodically perform differently
      than the overall market. This may be due to changes in such things as the
      regulatory or competitive environment or to changes in investor
      perceptions regarding a company.

    - SECURITIES LENDING RISK - is the risk that the Fund may experience a delay
      in the recovery of loaned securities, or even the loss of rights in the
      collateral deposited by the borrower if the borrower should fail
      financially. To reduce these risks, the Fund enters into loan arrangements
      only with institutions that the Fund's investment adviser or sub-adviser
      has determined are creditworthy.

    - SHORT-TERM TRADING RISK - is the risk that a Fund may trade securities
      frequently and hold securities in its portfolio for one year or less.
      Frequent purchases and sales of securities will increase the Fund's
      transaction costs. Factors that can lead to short-term trading include
      market volatility, a significant positive or negative development
      concerning a security, an attempt to maintain a Fund's market
      capitalization target, and the need to sell a security to meet redemption
      activity.

    - SMALL COMPANY RISK - is the risk that equity securities of small
      capitalization companies (including small capitalization REIT's) are
      subject to greater price volatility due to, among other things, such
      companies' small size, limited product lines, limited access to financing
      sources and limited management depth. In addition, the frequency and
      volume of trading of such securities may be less than is typical of larger
      companies, making them subject to wider price fluctuations. In some cases,
      there could be difficulties in selling securities of small capitalization
      companies at the desired time.

    - STABLE PRICE RISK - is the risk that the Money Market Fund will not be
      able to maintain a stable share price of $1.00. There may be situations
      where the Fund's share price could fall below $1.00, which would reduce
      the value of an investor's account.

40             INVESTING IN THE FUNDS

                                                                       [GRAPHIC]

                                                       BUYING AND SELLING SHARES

- ---------------
REFERENCE POINT
- ---------------
All Advantus Funds offer Class A, Class B and Class C shares, except for Money
Market Fund (a single class of shares) and Advantus Real Estate Securities Fund,
Inc. (Class A and Class B shares only).

CHOOSING A SHARE CLASS

You may purchase Class A, Class B or Class C shares of each of the Funds, except
Money Market Fund. Money Market Fund offers only a single class of shares. Your
decision to purchase a particular class will depend on a number of factors such
as the amount you wish to invest, the amount of time you wish to hold on to your
investment and whether you intend to make additional investments.

    CLASS A SHARES. If you invest in Class A shares, you will generally pay an
    initial sales charge. However, you will not be assessed an initial sales
    charge for purchases of Class A shares of $1 million or more, but a deferred
    sales charge will be imposed if you sell such shares within one year after
    the date of purchase. There are several ways to reduce or waive these sales
    charges that are described in "Reducing Sales Charges" below. Class A shares
    generally have lower annual operating expenses than Class B and Class C
    shares.

    CLASS B SHARES. If you invest in Class B shares, you will not pay an initial
    sales charge. However, if you wish to sell your shares within six years from
    the date of your purchase, you will pay a deferred sales charge. If you
    maintain your Class B shares for a certain period of time, your Class B
    shares will automatically convert to Class A shares in the manner described
    in "Sales and Distribution Charges" below. Class B shares generally have
    higher annual operating expenses than Class A shares.

    CLASS C SHARES. If you invest in Class C shares, you will not pay an initial
    sales charge. Unlike Class B shares, you will not pay a deferred sales
    charge if you wish to sell your shares. Class C shares generally have higher
    annual operating expenses than Class A shares. Class C shares will
    automatically convert to Class A shares in the manner described in "Sales
    and Distribution Charges" below, but you must hold on to such shares for a
    longer period of time than Class B shares prior to conversion.

If you qualify for a reduction or waiver of the sales charge you should purchase
Class A shares. If you expect to hold shares for a short period of time you may
prefer to purchase Class C shares since these shares may be purchased and sold
without any initial or deferred sales charge. If you expect to hold shares
longer you may prefer to purchase Class B shares since these shares convert to
Class A shares sooner than Class C shares.

INTERNATIONAL BALANCED FUND REDEMPTION FEE

The International Balanced Fund will impose a short-term redemption fee on
shares of all classes purchased and held for less than 60 days. The fee is 2% of
the redemption value and is deducted from the redemption proceeds. The fee is
retained by the Fund for the benefit of its long-term shareholders. It is
intended to discourage short-term trading of the Fund by

                                            BUYING AND SELLING SHARES         41

market timers or other investors who do not share the long-term strategy of the
Fund, and to reduce the expenses of long-term shareholders for the trading and
other costs associated with short-term investments in the Fund.

A redemption fee will not be charged on shares acquired by reinvestment of
dividends or capital gains distributions. If you own shares purchased on
different days, shares with the longest holding period will be redeemed first
for purposes of determining whether the redemption fee applies.

SALES AND DISTRIBUTION CHARGES

As an investor, you pay certain fees and expenses in connection with each Fund.
Sales charges, whether initial or contingent deferred, are paid from your
account, except in the case of Money Market Fund. Annual fund operating expenses
(including distribution and shareholder servicing fees) are paid out of Fund
assets, which affects the Fund's share price.

MONEY MARKET FUND SHARES. Shares of Money Market Fund are sold without an
initial sales charge or contingent deferred sales charge. Fund shares are
subject to a shareholder servicing fee (Rule 12b-1 fee) that is payable at an
annual rate of 0.25% of average daily net assets attributable to the Fund's
shares. The Fund has adopted a shareholder servicing plan that allows the Fund
to pay fees for services provided to shareholders. Because these fees are paid
out of the Fund's assets continuously, over time the fees will increase the cost
of your investment.

CLASS A SHARES. If you purchase Class A shares of the Advantus Multiple Class
Funds, you will generally pay an initial sales charge. The amount of the initial
sales charge will vary, depending on the Fund you select. Class A sales charges
are calculated as follows:

                     INITIAL SALES CHARGES APPLICABLE TO BOND FUND
                              AND MORTGAGE SECURITIES FUND



                                                              SALES CHARGE AS A PERCENTAGE OF:
    Value of Your Total Investment                           Net Offering Price  Amount Invested
                                                                        
    Less than $100,000                                  %           4.5                  4.71
    At least $100,000 but less than $250,000                        3.5                  3.63
    At least $250,000 but less than $500,000                        2.5                  2.56
    At least $500,000 but less than $1,000,000                      2.0                  2.04
    At least $1,000,000 and over(1)                                   0                     0


42             BUYING AND SELLING SHARES

               INITIAL SALES CHARGES APPLICABLE TO INTERNATIONAL
                        BALANCED FUND AND SPECTRUM FUND



                                                 SALES CHARGE AS A PERCENTAGE OF:
 Value of Your Total Investment                 Net Offering Price  Amount Invested
                                                           
 Less than $50,000                          %              5.5              5.82
 At least $50,000 but less than $100,000                   4.5              4.71
 At least $100,000 but less than $250,000                  3.5              3.63
 At least $250,000 but less than $500,000                  2.5              2.56
 At least $500,000 but less than
  $1,000,000                                               2.0              2.04
 At least $1,000,000 and over(1)                             0                 0


 (1)  You will not be assessed an initial sales charge for purchases of
      Class A shares of at least $1 million, but a contingent deferred
      sales charge of 1.00% will be imposed if you sell such shares
      within one year after the date of purchase.

The sales charge applicable to your initial investment in the Fund depends on
the offering price of your investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of your previous investments in the Fund. For example,
if you make an initial investment in Bond Fund with an offering price of $90,000
you will pay a sales charge equal to 4.5% of your $90,000 investment, but if you
already own shares of Bond Fund with a current net asset value of $90,000 and
you invest in additional shares of Bond Fund with an offering price of $10,000
you will pay a sales charge equal to 3.5% of the additional $10,000 since your
total investment in the Fund would then be $100,000.

Class A shares are also subject to a shareholder servicing fee (Rule 12b-1 fee).
The Fund has adopted a shareholder servicing plan that allows the Fund to pay
fees for services provided to shareholders. Because these fees are paid out of
the Fund's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
As a percentage of average daily net assets attributable to Class A shares of
the Fund, the maximum Rule 12b-1 fee is 0.25%.

CLASS B SHARES. If you wish to sell your Class B shares within six years from
the date of your purchase, you will pay a contingent deferred sales charge
(CDSC). The amount of the CDSC on Class B shares depends on the number of years
since your purchase was made, the amount of shares originally purchased and the
dollar amount being sold. The CDSC is based on the net asset value (NAV) of the
shares being sold at the time of your purchase or your sale of such shares,
whichever is lower. No CDSC is charged on shares acquired

                                            BUYING AND SELLING SHARES         43

through reinvestment of dividends or capital gains distributions, or on shares
held longer than the applicable CDSC period. Class B CDSC is calculated as
follows:



                                                                       CDSC APPLICABLE IN
                                                                     YEAR FOLLOWING DATE OF
                                                                            PURCHASE
      AMOUNT OF SHARES PURCHASED                                1     2     3     4     5     6
                                                                        
      Less than $50,000                                    %   5.0   4.5   3.5   2.5   1.5   1.5
      At least $50,000 but less than $100,000                  4.5   3.5   2.5   1.5   1.5     0
      At least $100,000 but less than $250,000                 3.5   2.5   1.5   1.5     0     0
      At least $250,000 but less than $500,000                 2.5   1.5   1.5     0     0     0
      At least $500,000 but less than $1,000,000               1.5   1.5     0     0     0     0


Purchase orders for Class B shares of $1 million or more will be treated as
orders for Class A shares or declined.

To determine if a CDSC is payable for any redemption of Class B shares, CDSC
calculation will be determined in a manner that results in the lowest CDSC
charged.

Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual
rate of 1.00% of average daily net assets attributable to Class B shares of the
Fund.

The Fund uses the proceeds from the CDSC to pay underwriting fees and expenses.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. As a result, the combination
of the CDSC and Rule 12b-1 fees allows the Fund to sell Class B shares without
any initial sales charge. Because these fees are paid out of the Fund's assets
continuously, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.

Class B shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class B shares. The conversion will be based on the relative NAVs of the two
classes. For a description of NAV, see "Buying Shares" below. The date of
conversion is based on the amount of shares purchased and is determined as
described in the following table:



                                                          CONVERSION DATE FOLLOWING EXPIRATION
      AMOUNT OF SHARES PURCHASED                           OF PERIOD AFTER DATE OF PURCHASE*
                                                       
      Less than $50,000                                                       84 months
      At least $50,000 but less than $100,000                                 76 months
      At least $100,000 but less than $250,000                                60 months
      At least $250,000 but less than $500,000                                44 months
      At least $500,000 but less than $1,000,000                              28 months


   *  Conversion will occur on the fifteenth day of the month
      immediately following the termination of the applicable period. If
      the fifteenth day falls on a Saturday, Sunday or a national
      holiday, then conversion will occur on the most recent business
      day.

44             BUYING AND SELLING SHARES

CLASS C SHARES. Class C shares are sold without an initial sales charge or CDSC.

Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate
of 1.00% of average daily net assets attributable to Class C shares of the Fund.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. Because these fees are paid
out of the Fund's assets continuously, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.

Purchase orders for Class C shares of $1 million or more will be treated as
orders for Class A shares or declined.

Class C shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class C shares. The conversion will be based on the relative NAVs of the two
classes. Generally, Class C shares must be held longer than Class B shares
before such shares automatically convert to Class A shares. Like Class B shares,
the date of conversion is based on the amount of shares purchased and is
determined as described in the following table:



                                                          CONVERSION DATE FOLLOWING EXPIRATION
      AMOUNT OF SHARES PURCHASED                           OF PERIOD AFTER DATE OF PURCHASE*
                                                       
      Less than $50,000                                                       96 months
      At least $50,000 but less than $100,000                                 88 months
      At least $100,000 but less than $250,000                                72 months
      At least $250,000 but less than $500,000                                56 months
      At least $500,000 but less than $1,000,000                              40 months


   *  Conversion will occur on the fifteenth day of the month
      immediately following the termination of the applicable period. If
      the fifteenth day falls on a Saturday, Sunday or a national
      holiday, then conversion will occur on the most recent business
      day.

Since the longer holding period for Class C shares enables the Fund to charge
the higher Rule 12b-1 fee for a longer period, the Fund is able to offer
Class C shares without an initial sales charge or CDSC.

REDUCING SALES CHARGES

PURCHASES OF SHARES. There are several ways you may reduce sales charges on your
purchase of a Fund's shares.

    - AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified
      amount in a Fund each month, which may result in a lower average cost per
      share through the principle of "dollar cost averaging." The automatic
      investment plan will not always result in a lower cost per share, nor will
      it alone reduce your sales charge.

    - COMBINATION PRIVILEGE. Lets you add the value of all shares you already
      own (Class A, Class B or Class C) in a Fund for purposes of calculating
      the sales charge.

                                            BUYING AND SELLING SHARES         45

    - FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any
      class of a Fund made by your spouse, children and/or family trust for
      purposes of calculating the sales charge. If you wish to use this
      privilege, you must indicate on your account application that you are
      entitled to the reduced sales charge.

    - GROUP PURCHASES. Lets you purchase shares of a Fund with others as a group
      at a reduced sales charge applicable to the group as a whole. A purchase
      group must meet criteria established by Securian Financial Services, Inc.
      (Securian Financial), the Funds' underwriter.

    - LETTER OF INTENT. Lets you purchase Class A shares of a Fund over a 13
      month period and receive the same sales charge as if all shares had been
      purchased at once.

For more information on any of these plans, please contact Advantus Shareholder
Services by telephone at: (800) 665-6005.

WAIVER OF SALES CHARGE ON CLASS A SHARE PURCHASES. Class A shares may be offered
without any sales charge to the following individuals and institutions:

    - officers, directors, employees, sales representatives and retirees of the
      Fund, Advantus Capital, Templeton Counsel and FAV (with respect to
      International Balanced Fund only), Securian Financial, Minnesota Life and
      affiliated companies of Minnesota Life, and their respective spouses,
      siblings, direct ancestors or direct descendants

    - independent legal counsel to the Funds' independent directors

    - Minnesota Life and its affiliated companies

    - trusts, pension or benefit plans sponsored by or on behalf of Advantus
      Capital, Securian Financial, Minnesota Life and affiliated companies of
      Minnesota Life

    - advisory clients of Advantus Capital or other affiliated companies of
      Minnesota Life

    - employees of sales representatives of Advantus Capital, Minnesota Life or
      affiliated companies of Minnesota Life

    - certain accounts as to which a bank or broker-dealer charges an account
      management fee, provided that the bank or broker-dealer has an agreement
      with Securian Financial

    - certain accounts sold by registered investment advisers

    - investors who, within sixty (60) days after redeeming shares of a class of
      shares generally subject to either an initial or deferred sales charge
      issued by a non-Advantus fund, purchase Class A shares with those
      redemption proceeds from Securian Financial or from a broker-dealer that
      has entered into an agreement with Securian Financial specifically
      providing for such net asset value purchase

    - employer-sponsored retirement plans described in Sections 401 or 403, or
      governmental retirement plans described in Section 457, of the Internal
      Revenue Code with total plan assets of not less than $500,000

WAIVER OF SALES CHARGES ON CLASS B SHARES. The CDSC for Class B shares will
generally be waived in the following cases:

    - upon the automatic conversion of Class B shares to Class A shares;

46             BUYING AND SELLING SHARES

    - upon the Fund's decision to liquidate accounts with less than the minimum
      account size;

    - upon a shareholder's death or disability; and

    - in connection with Class B shares redeemed pursuant to a Systematic
      Withdrawal Plan, limited annually to Class B shares equal in amount to 12%
      of the value of a shareholder's account in a Fund at the time the
      Systematic Withdrawal Plan is established

For more information on these waivers, please see the Statement of Additional
Information or contact Advantus Shareholder Services or Securian Financial.

BUYING SHARES

You may purchase shares of the Funds on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the
particular Fund's NAV plus any applicable sales charge. In the case of Money
Market Fund, the NAV will normally be $1.00 per share. However, there is no
assurance that Money Market Fund will maintain the $1.00 NAV. NAV is generally
calculated as of the close of normal trading on the NYSE (typically 3:00 p.m.
Central time). However, NAV is not calculated for a Fund on: (a) days in which
changes in the Fund's portfolio do not materially change the Fund's NAV,
(b) days on which no Fund shares are purchased or sold, and (c) customary
national business holidays on which the NYSE is closed for trading.

A Fund's NAV for each class is equal to the Fund's total investments
attributable to such class less liabilities attributable to such class divided
by the number of shares of such class. To determine NAV, a Fund other than Money
Market Fund generally values the Fund's investments based on market quotations.
If market quotations are not available for certain Fund investments, the
investments are valued based on the fair value of the investments as determined
in good faith by the Fund's board of directors. Debt securities may be valued
based on calculations furnished to the Fund by a pricing service or by brokers
who make a market in such securities. Securities in the Money Market Fund's
portfolio are valued on an amortized cost basis. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization of any
discount or premium until the instrument's maturity, rather than looking at
actual changes in the market value of the instrument.

You may purchase shares through Securian Financial or another authorized
broker-dealer or financial services firm (which may independently establish and
charge you transaction or other fees for its services). Your purchase order will
be priced at the next NAV (plus the applicable initial sales charge for Class A
shares) determined after your purchase order is received by the Funds' transfer
agent. An order received by the Funds' transfer agent from a financial services
firm after NAV is determined that day will nonetheless be processed at that
day's NAV if the order was received by the firm from its customer prior to such
determination and transmitted to and received by the transfer agent prior to its
close of business that day. Other orders received after the close of normal
trading on the NYSE will be priced at the NAV calculated on the next day the
NYSE is open for trading.

A Fund may reject any purchase order when the Fund determines it would not be in
the best interests of the Fund or its shareholders.

                                            BUYING AND SELLING SHARES         47

You may purchase shares of the Funds in any of the following ways:

BY CHECK.

    - New investors may purchase shares of the Funds by completing an account
      application and a check payable to "Advantus".

    - All checks must be in U.S. dollars. Cash, money orders, travelers checks,
      credit card and third-party checks are not accepted. If a check does not
      clear your bank, the Fund will cancel the purchase. If you purchase shares
      by check or bank draft and then redeem those shares, redemption proceeds
      are not available until your check or draft clears, which may be up to
      15 days after the date of purchase.

    - Send the completed application and a check payable to "Advantus" to your
      registered representative's authorized broker-dealer or other financial
      services firm. If you do not have a registered representative, send the
      completed account application and check to:

    Advantus Funds Group
    P.O. Box 9767
    Providence, Rhode Island 02940-9767

    - If you wish to purchase additional shares, please send a check payable to
      "Advantus" to the above address (referencing your Advantus Fund
      selection). When purchasing additional shares, certain third-party checks
      are acceptable. Please contact Advantus Shareholder Services at:
      (800) 665-6005 for more information.

BY WIRE.

    - New investors may also purchase shares of the Funds by Federal Reserve or
      bank wire through a domestic bank.

    - You should first complete an account application and send it to your
      registered representative's authorized broker-dealer or other financial
      services firm. If you do not have a registered representative, send the
      completed account application to the address referenced above.

    - Prior to wiring any funds, you must contact Advantus Shareholder Services
      at: (800) 665-6005 for wire instructions. Wire purchases normally take two
      or more hours to complete. To be accepted the same day, wire purchases
      must be received by the close of normal trading on the NYSE.

BY INTERNET.

    - Existing Advantus shareholders may also purchase shares via the internet
      once they have established on-line authorization. Please contact Advantus
      Shareholder Services at: (800) 665-6005 for more information.

48             BUYING AND SELLING SHARES

- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to sell shares by telephone or Internet.
See "Selling Shares - Signature Guarantee" below to determine whether your sale
will require a signature guarantee.

SELLING SHARES

GENERAL. You may sell your shares at any time. You may make such requests by
contacting the Fund directly by mail or by telephone or by Internet. Requests by
mail should be sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode
Island 02940-9767. You may also sell your shares by sending a facsimile request
to Advantus Funds Group at: (508) 871-9960 if no signature guarantee is
required.

Shares will be sold at the NAV next calculated after your sale order is received
by the Funds' transfer agent less any applicable CDSC (for Class A shares
subject to a CDSC and for Class B shares) or redemption fee (for shares of
International Balanced Fund subject to a redemption fee). A sale order received
by the Funds' transfer agent from a financial services firm after NAV is
calculated that day will nonetheless be processed at that day's NAV if the order
was received by the firm from its customer prior to such calculation and
transmitted to and received by the transfer agent prior to its close of business
that day. Class A shares not otherwise subject to a CDSC and Class C shares may
generally be sold without any charge (Class A, Class B and Class C shares of
International Balanced Fund may be subject to a 2% redemption fee if redeemed
within 60 days of purchase).

The Fund will forward the sales proceeds to you as soon as possible, but
generally no later than seven days after the Fund has received an order. If you
designate a bank account with the Fund and wish to sell shares with a value of
at least $500, then the proceeds can be wired directly to your bank account. If
you elect to have proceeds sent by wire transfer, the current $15.00 wire charge
will be deducted from your Fund account.

The amount you receive may be more or less than the original purchase price for
your shares.

DELAY ON PURCHASES BY CHECK. Sales proceeds from shares purchased by check or
bank draft, other than checks from government agencies, will not be available
until your check or draft clears, which may take up to fifteen days after your
purchase.

SYSTEMATIC WITHDRAWAL PLAN. If you have an account in a Fund with a value of at
least $5,000, you may establish a Systematic Withdrawal Plan which allows you to
sell a portion of your shares of such Fund for a fixed or variable amount over a
period of time. Withdrawal payments for Class A shares purchased in amounts of
$1 million or more and for Class B shares may also be subject to a CDSC. As a
result, you should carefully consider whether a Systematic Withdrawal Plan is
appropriate. More information about the Systematic Withdrawal Plan is provided
in the Statement of Additional Information.

MEDALLION SIGNATURE GUARANTEE. In order to protect the Funds and shareholders
against fraudulent requests, a medallion signature guarantee may be required in
certain cases. No signature guarantee is required if the sale proceeds are less
than $50,000 and are to be paid to the registered holder of the account at the
address of record for that account. A medallion signature guarantee is required
if:

    - sale proceeds are $50,000 or more

    - sale proceeds will be paid to someone other than the registered
      shareholder

    - sale proceeds will be mailed to an address other than the registered
      shareholder's address of record

                                            BUYING AND SELLING SHARES         49

    - instructions were received by the Fund within 30 days before the sale
      order to change the registered shareholder's address or bank wire
      instructions

    - shares are to be transferred to another Fund account holder

    - the request is not made by a pre-authorized trustee for a plan, trust or
      other tax-exempt organization

The Funds reserve the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and must be a medallion signature guarantee provided by
a domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which participates in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are:

    - Securities Transfer Agents Medallion Program (STAMP)

    - Stock Exchanges Medallion Program (SEMP)

    - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP)

Signature guarantees from financial institutions which are not participants in a
recognized medallion program will not be accepted.

MONEY MARKET FUND CHECKWRITING. You may elect to write checks against your Money
Market Fund shares for amounts ranging from $250 to $100,000. Checks may not be
written against your Fund shares that you purchased within the last 15 days
unless you purchased such shares by wire transfer or a check from a government
agency. There is no charge for your initial supply of checks, but a $7 fee will
be charged for each subsequent order of additional checks. Please note that
checkwriting is not an appropriate manner to close your account. More
information about checkwriting is provided in the Statement of Additional
Information.

AUTOMATIC PREMIUM PAYMENTS FROM MONEY MARKET FUND. You may authorize Minnesota
Life to withdraw shares from your Money Market Fund account in amounts equal to
premiums due on your Minnesota Life insurance policies. Payments may only be
made when premiums are due on these insurance policies. For more information
please contact Advantus Shareholder Services at: (800) 665-6005.

REINSTATEMENT PRIVILEGE. If you sell shares of a Fund other than Money Market
Fund, you have a one-time privilege within 90 days after the sale to use some or
all of the sale proceeds to purchase shares of any of the Advantus Multiple
Class Funds at no sales charge. Following your sale of Class A or Class B
shares, you will be entitled to purchase only Class A shares under this
reinstatement privilege. Any CDSC incurred in connection with the prior sale of
Class A or B shares within a 90 day period will not be refunded to a
shareholder's account. Following your sale of Class C shares, you will be
entitled to purchase only Class C shares under this reinstatement privilege.

50             BUYING AND SELLING SHARES

- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to exchange shares by telephone or Internet.
- ---------------
REFERENCE POINT
- ---------------
Please see "Selling Shares" and "Exchanging Shares" for sale and exchange
details.

EXCHANGING SHARES

You may exchange some or all of your shares of a Fund for shares of the same
class of any other Advantus Multiple Class Fund or for shares of Money Market
Fund provided the other Advantus Fund is available in your state. If you are
considering an exchange into another Advantus Fund you should obtain the
prospectus for that fund and read it carefully. Exchanges may only be made
between Advantus Fund accounts with identical registrations. You may make
exchanges by contacting the Fund by mail or by telephone or by Internet.
Purchases by exchange are subject to the minimum investment requirements for the
Advantus Funds. You may exchange your shares up to twelve times a year without
restriction or charge. A $7.50 service fee will then be imposed on subsequent
exchanges. The Fund reserves the right to change the terms of and impose
additional limitations and charges on exchanges after giving 60 days' prior
notice to shareholders.

Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund is not designed for market timers, or for large or frequent
transfers. To protect shareholders, the Fund may restrict or refuse purchases or
exchanges by market timers. You will be considered to be a market timer if you
have: (i) requested an exchange out of any Advantus Fund within two weeks of an
earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more
than three times in a calendar quarter, or (iii) exchanged shares equal to at
least $1 million, or more than 1% of the net assets of any class of shares of
any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern
in the exercise of exchange or transfer rights. Accounts under common control or
ownership are combined for the purpose of determining these limitations.

Exchanges will be made based on the NAVs of the shares. No additional purchase
or sales charges will generally be imposed on exchanges for shares. However,
exchanges of shares from Money Market Fund are subject to applicable sales
charges of the Advantus Fund being purchased, unless the Money Market Fund
shares were previously acquired by an exchange from Class A or Class B shares of
another Advantus Fund or by reinvestment or cross-reinvestment of dividends or
capital gain distributions. If Class B shares are acquired by exchange of
Class B shares of another Advantus Fund and later sold, any CDSC on such sale
will be calculated as if no previous exchange occurred. However, shares of the
Money Market Fund acquired by exchange from Class B shares will still be subject
to the CDSC. The CDSC will be calculated without including the period that
shares of the Money Market Fund are held. In addition, shares of International
Balanced Fund exchanged within 60 days of purchase may be subject to a 2%
redemption fee.

You may also elect to systematically exchange Fund shares for shares of other
Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange
amount of at least $50.

More information about exchanging shares is provided in the Statement of
Additional Information.

TELEPHONE TRANSACTIONS

You may sell or exchange Fund shares by telephone. You will automatically have
the right to initiate such telephone transactions unless you elect not to do so
on your account application. You may initiate telephone transactions by calling
Advantus Shareholder Services at: (800) 665-6005. Automated service is available
24 hours a day or you may speak to a service representative Monday through
Friday, from 7:30 a.m. to 5:15 p.m. (Central time). The maximum amount of shares
you may sell by telephone is $50,000.

                                            BUYING AND SELLING SHARES         51

During periods of economic or market changes, you may experience difficulty in
selling or exchanging shares due to a heavy volume of telephone calls. In such a
case, you should consider submitting a written request as an alternative to a
telephone sale or exchange. The Fund reserves the right to change, terminate or
impose a fee on, telephone sale and exchange privileges after giving 60 days'
prior notice to shareholders.

Unless you decline telephone privileges on your account application, you may be
responsible for any fraudulent telephone order as long as the Fund takes
reasonable measures to verify the order.

INTERNET TRANSACTIONS

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. The Advantus Funds maintain a web
site located at www.advantusfunds.com. Existing Advantus Funds shareholders may
purchase, exchange and redeem shares, and access account information such as
account balance and the Fund's NAVs. In order to engage in transactions on our
web site, you must first authorize us to transmit account information on-line
and accept our policies and procedures. Please contact Advantus Shareholder
Services at: (800) 665-6005. You may need to have bank account information or
other information to complete the authorization process.

You may be responsible for any fraudulent Internet transactions as long as the
Fund takes reasonable measures to verify the order.

ELECTRONIC DELIVERY OF DOCUMENTS. If you would like to have annual and
semi-annual shareholder reports and updated prospectuses delivered to you
electronically, rather than on paper, please visit our web site at
www.advantusfunds.com.

ACCOUNT REQUIREMENTS

MINIMUM INVESTMENT AMOUNTS. A minimum initial investment of $1,000 is required
to open your account in a Fund, except that $500 is the minimum initial
investment required to open a qualified account or an account in which you have
agreed to make investments of not less than $50 under an automatic investment
plan ($25 for an automatic investment plan established prior to December 2,
2002). The minimum amount required for a subsequent investment in all types of
accounts is $50.

MINIMUM ACCOUNT BALANCE. If for any reason the shares in your account have a
value of less than $500 the Fund has the right to close your account. The Fund
usually makes this determination in December of each year. You will be given at
least 60 days' written notice to add funds to your account and reestablish the
minimum balance.

LOW BALANCE FEE. The Fund will deduct a $10 annual fee from your account in
December of each year if your account balance at that time is below $2,000. The
low balance fee is waived for qualified accounts and for investors who have
aggregate Advantus Fund account assets of $25,000 or more (only shares held
directly in the investor's name, rather than in a broker's name, are aggregated
for this purpose).

52             BUYING AND SELLING SHARES

                                                                       [GRAPHIC]

                                                         DISTRIBUTIONS AND TAXES

- --------------------
FOR YOUR INFORMATION
- --------------------
The redemption or exchange of Fund shares may generate a taxable event for you.
Depending on the purchase price and the sale price of the shares you redeem or
exchange, you may incur a gain or loss.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends, if any, in
Bond Fund, Money Market Fund and Mortgage Securities Fund are declared daily,
except that dividends for Saturdays, Sundays and holidays are declared on the
next business day, and paid monthly. Dividends, if any, in International
Balanced Fund and Spectrum Fund are paid quarterly. Net capital gains
distributions are generally paid once a year. Distributions on Class A shares
will generally be higher than Class B and Class C share distributions due to
higher Rule 12b-1 fees applicable to Class B and Class C shares. Your
distributions will be reinvested in additional shares of the Fund unless you
instruct the Fund otherwise. Distributions of these additional shares are made
at the NAV of the payment date. There are no fees or sales charges on
reinvestments. If you wish to receive cash distributions, you may authorize the
Fund to do so in your account application or by writing to Advantus Shareholder
Services. If your cash distribution checks cannot be delivered by the postal or
other delivery service to your address of record, all distributions will
automatically be reinvested in additional shares of the Fund. No interest will
be paid on amounts represented by uncashed distribution checks.

You may elect to have dividends invested in shares of the Money Market Fund or
in shares of the same class of another Advantus Multiple Class Fund described in
"Advantus Family of Funds" below. Dividends are valued at the NAV of such other
Advantus Fund on the dividend payment date. To qualify for this privilege, you
must maintain a minimum account balance of $500 in the Fund and the other
applicable Advantus Fund. You must request this privilege by writing to Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767.

TAXES

You will be taxed on both dividends and capital gains distributions paid by a
Fund (unless you hold your shares through an IRA or other tax-deferred
retirement account). Dividends and distributions are subject to tax regardless
of whether they are automatically invested or are received in cash. Dividends
paid from the Fund's investment income will be taxed as ordinary income. Capital
gains distributions will be taxed as long-term capital gains, regardless of the
length of time for which you have held your shares. Long-term capital gains are
currently taxable to individuals at a maximum federal tax rate of 20%. If you
purchase shares of the Fund before dividends or capital gains distributions,
such dividends and distributions will reduce the NAV per share by the amount of
such dividends and distributions. Furthermore, you will be subject to taxation
on such dividends and distributions.

If you sell your shares, you will generally realize a capital gain or loss. Any
gain will be treated as short-term if you have held the shares for one year or
less, and long-term if you

                                              DISTRIBUTIONS AND TAXES         53

have held the shares more than one year. Short-term capital gains are taxed as
ordinary income, while long-term capital gains are subject to a maximum federal
tax rate of 20%. If you exchange your shares in a Fund for shares of another
Advantus Fund, the exchange will be treated as a sale for federal tax purposes,
and you will be taxed on any capital gain you realize on the sale.

A Fund makes changes in its portfolio that Advantus Capital or the Fund's
investment sub-adviser, if any, deems advisable. The Fund's investment policies
may cause the Fund's annual portfolio turnover rate (i.e., the ratio of sales
and purchases of investments to the value of the Fund's entire portfolio) to be
higher than that of most mutual funds. High portfolio turnover rates may cause
the Fund to realize substantial capital gains which, when distributed to
shareholders, will be taxable to them.

You will receive an annual statement from the Fund providing detailed
information concerning the federal tax status of distributions you have received
during the year.

The above is only a general discussion of the federal income tax consequences of
an investment in a Fund. For more information, see the Statement of Additional
Information. You should consult your own tax adviser for the specific federal,
state or local tax consequences to you of an investment in a Fund.

54             DISTRIBUTIONS AND TAXES

                                                                       [GRAPHIC]

                                                            FINANCIAL HIGHLIGHTS

The following table describes each Fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the Fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been audited by KPMG LLP, the
Funds' independent auditor, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.

Per share data for a share of capital stock and selected information for each
period are as follows for each Fund:

BOND FUND


 
 Financial Highlights                                                              CLASS A
                                                                          Year Ended September 30,
                                                                     '02     '01     '00     '99     '98
                                                                                  
 Net Asset Value, Beginning of Period                          $     10.30    9.60    9.71   10.69   10.43
                                                               -------------------------------------------
 Income from Investment Operations:
    Net Investment Income                                              .52     .58     .58     .54     .59
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                    .27     .70    (.11)   (.79)    .30
                                                               -------------------------------------------
       Total from Investment Operations                                .79    1.28     .47    (.25)    .89
                                                               -------------------------------------------
 Less Distributions:
    Dividends from Net Investment Income                              (.52)   (.58)   (.58)   (.54)   (.60)
    Distributions from Net Realized Gains                               --      --      --    (.19)   (.03)
                                                               -------------------------------------------
       Total Distributions                                            (.52)   (.58)   (.58)   (.73)   (.63)
                                                               -------------------------------------------
 Net Asset Value, End of Period                                $     10.57   10.30    9.60    9.71   10.69
                                                               ===========================================
 Total Return (a)                                              %      7.90   13.68    5.04   (2.36)   8.75
 Net Assets, End of Period (in thousands)                      $    17,313  15,737  15,002  17,846  19,419
 Ratios to Average Net Assets:
    Expenses                                                   %      1.15    1.15    1.15    1.15    1.10
    Net Investment Income                                      %      5.07    5.77    6.08    5.41    5.55
    Expenses Without Waivers                                   %      1.92    1.99    1.84    1.55    1.58
    Net Investment Income Without Waivers                      %      4.30    4.93    5.39    5.01    5.07
 Portfolio Turnover Rate (excluding short-term securities)     %     148.3   251.9   191.4   211.9   237.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         55

BOND FUND


 
 Financial Highlights                                                              CLASS B
                                                                          Year Ended September 30,
                                                                     '02     '01     '00     '99     '98
                                                                                  
 Net Asset Value, Beginning of Period                          $     10.33    9.62    9.74   10.71   10.43
                                                               -------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                              .44     .50     .51     .47     .51
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                    .26     .72    (.12)   (.78)    .31
                                                               -------------------------------------------

       Total from Investment Operations                                .70    1.22     .39    (.31)    .82
                                                               -------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                              (.44)   (.51)   (.51)   (.47)   (.51)

    Distributions from Net Realized Gains                               --      --      --    (.19)   (.03)
                                                               -------------------------------------------

       Total Distributions                                            (.44)   (.51)   (.51)   (.66)   (.54)
                                                               -------------------------------------------

 Net Asset Value, End of Period                                $     10.59   10.33    9.62    9.74   10.71
                                                               ===========================================

 Total Return (a)                                              %      6.99   12.93    4.16   (2.98)   8.09

 Net Assets, End of Period (in thousands)                      $     6,308   6,582   6,755   8,171   8,894
 Ratios to Average Net Assets:

    Expenses                                                   %      1.90    1.90    1.90    1.90    1.90

    Net Investment Income                                      %      4.32    5.03    5.33    4.64    4.78

    Expenses Without Waivers                                   %      2.67    2.74    2.59    2.28    2.28

    Net Investment Income Without Waivers                      %      3.55    4.19    4.64    4.26    4.40

 Portfolio Turnover Rate (excluding short-term securities)     %     148.3   251.9   191.4   211.9   237.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

56             FINANCIAL HIGHLIGHTS

BOND FUND


 
 Financial Highlights                                                           CLASS C
                                                                          Year Ended September 30,
                                                                     '02     '01     '00     '99     '98
                                                                                  
 Net Asset Value, Beginning of Period                          $     10.29    9.59    9.70   10.68   10.42
                                                               -------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                              .44     .50     .51     .47     .51
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                    .27     .70    (.11)   (.79)    .29
                                                               -------------------------------------------

       Total from Investment Operations                                .71    1.20     .40    (.32)    .80
                                                               -------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                              (.44)   (.50)   (.51)   (.47)   (.51)

    Distributions from Net Realized Gains                               --      --      --    (.19)   (.03)
                                                               -------------------------------------------

       Total Distributions                                            (.44)   (.50)   (.51)   (.66)   (.54)
                                                               -------------------------------------------

 Net Asset Value, End of Period                                $     10.56   10.29    9.59    9.70   10.68
                                                               ===========================================

 Total Return (a)                                              %      7.11   12.84    4.26   (3.10)   7.89

 Net Assets, End of Period (in thousands)                      $     1,106   1,029   1,112   1,594   2,089
 Ratios to Average Net Assets:

    Expenses                                                   %      1.90    1.90    1.91    1.90    1.90

    Net Investment Income                                      %      4.32    5.03    5.32    4.64    4.81

    Expenses Without Waivers                                   %      2.67    2.74    2.59    2.28    2.28

    Net Investment Income Without Waivers                      %      3.55    4.19    4.68    4.26    4.43

 Portfolio Turnover Rate (excluding short-term securities)     %     148.3   251.9   191.4   211.9   237.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         57

INTERNATIONAL BALANCED FUND


 
 Financial Highlights                                                            CLASS A
                                                                        Year Ended September 30,
                                                                   '02     '01     '00     '99     '98
                                                                                
 Net Asset Value, Beginning of Period                          $    9.28   11.59   11.80   10.56   13.29
                                                               -----------------------------------------

 Income from Investment Operations:

    Net Investment Income                                            .18     .18     .23     .21     .28
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                 (.59)  (1.28)    .50    1.52   (1.95)
                                                               -----------------------------------------

       Total from Investment Operations                             (.41)  (1.10)    .73    1.73   (1.67)
                                                               -----------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                              --    (.11)   (.36)   (.11)   (.14)

    Distributions from Net Realized Gains                           (.13)  (1.10)   (.58)   (.38)   (.92)

    Tax Return of Capital                                           (.02)     --      --      --      --
                                                               -----------------------------------------

       Total Distributions                                          (.15)  (1.21)   (.94)   (.49)  (1.06)
                                                               -----------------------------------------

 Net Asset Value, End of Period                                $    8.72    9.28   11.59   11.80   10.56
                                                               =========================================

 Total Return (a)                                              %   (4.62) (10.57)   6.26   16.65  (13.02)

 Net Assets, End of Period (in thousands)                      $  36,488  40,021  47,693  49,502  46,025
 Ratios to Average Net Assets:

    Expenses                                                   %    1.62    1.62    1.52    1.63    1.62

    Net Investment Income                                      %    1.84    1.60    1.92    1.77    2.38

    Expenses Without Waivers                                   %    1.72    1.73    1.65    1.70    1.91

    Net Investment Income Without Waivers                      %    1.74    1.49    1.79    1.70    2.09

 Portfolio Turnover Rate (excluding short-term securities)     %    47.8    35.6    44.2    73.8    57.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

58             FINANCIAL HIGHLIGHTS

INTERNATIONAL BALANCED FUND


 
 Financial Highlights                                                           CLASS B
                                                                       Year ended September 30,
                                                                   '02     '01     '00    '99    '98
                                                                              
 Net Asset Value, Beginning of Period                          $    9.17   11.49  11.66  10.47   13.23
                                                               ---------------------------------------

 Income from Investment Operations:

    Net Investment Income                                            .10     .11    .11    .12     .19
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                 (.59)  (1.28)   .51   1.51   (1.93)
                                                               ---------------------------------------

       Total from Investment Operations                             (.49)  (1.17)   .62   1.63   (1.74)
                                                               ---------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                              --    (.05)  (.21)  (.06)   (.10)

    Distributions from Net Realized Gains                           (.13)  (1.10)  (.58)  (.38)   (.92)
                                                               ---------------------------------------

       Total Distributions                                          (.13)  (1.15)  (.79)  (.44)  (1.02)
                                                               ---------------------------------------

 Net Asset Value, End of Period                                $    8.55    9.17  11.49  11.66   10.47
                                                               =======================================

 Total Return (a)                                              %   (5.52) (11.29)  5.32  15.84  (13.63)

 Net Assets, End of Period (in thousands)                      $   2,798   3,530  4,647  5,293   4,869
 Ratios to Average Net Assets:

    Expenses                                                   %    2.42    2.42   2.32   2.43    2.29

    Net Investment Income                                      %    1.04     .79   1.12    .94    1.77

    Expenses Without Waivers                                   %    2.47    2.48   2.42   2.43    2.44

    Net Investment Income Without Waivers                      %     .99     .74   1.02    .94    1.62

 Portfolio Turnover Rate (excluding short-term securities)     %    47.8    35.6   44.2   73.8    57.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         59

INTERNATIONAL BALANCED FUND


 
 Financial Highlights                                                            CLASS C
                                                                        Year Ended September 30,
                                                                   '02     '01     '00     '99     '98
                                                                                
 Net Asset Value, Beginning of Period                          $    9.18   11.50  11.66    10.48   13.24
                                                               -----------------------------------------

 Income from Investment Operations:

    Net Investment Income                                            .08     .11    .11      .10     .18
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                 (.57)  (1.28)   .51     1.52   (1.92)
                                                               -----------------------------------------

       Total from Investment Operations                             (.49)  (1.17)   .62     1.62   (1.74)
                                                               -----------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                              --    (.05)  (.20)    (.06)   (.10)

    Distributions from Net Realized Gains                           (.13)  (1.10)  (.58)    (.38)   (.92)
                                                               -----------------------------------------

       Total Distributions                                          (.13)  (1.15)  (.78)    (.44)  (1.02)
                                                               -----------------------------------------

 Net Asset Value, End of Period                                $    8.56    9.18  11.50    11.66   10.48
                                                               =========================================

 Total Return (a)                                              %   (5.52) (11.27)  5.36    15.71  (13.67)

 Net Assets, End of Period (in thousands)                      $     892   1,060  1,728    2,510   3,074
 Ratios to Average Net Assets:

    Expenses                                                   %    2.42    2.42   2.33     2.44    2.49

    Net Investment Income                                      %    1.04     .78   1.09      .94    1.52

    Expenses Without Waivers                                   %    2.47    2.48   2.43     2.44    2.64

    Net Investment Income Without Waivers                      %     .99     .73    .99      .94    1.37

 Portfolio Turnover Rate (excluding short-term securities)     %    47.8    35.6   44.2     73.8    57.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

60             FINANCIAL HIGHLIGHTS

MONEY MARKET FUND


 
 Financial Highlights
                                                                               Year Ended September 30,
                                                                      '02       '01       '00       '99       '98
                                                                                          
 Net Asset Value, Beginning of Period                           $      1.00      1.00      1.00      1.00      1.00
                                                               -----------------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                               .01       .04       .05       .04       .05
                                                               -----------------------------------------------------

       Total from Investment Operations                                 .01       .04       .05       .04       .05
                                                               -----------------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                               (.01)     (.04)     (.05)     (.04)     (.05)
                                                               -----------------------------------------------------

       Total Distributions                                             (.01)     (.04)     (.05)     (.04)     (.05)
                                                               -----------------------------------------------------

 Net Asset Value, End of Period                                 $      1.00      1.00      1.00      1.00      1.00
                                                               =====================================================

 Total Return (a)                                               %      1.27      4.56      5.33      4.24      4.78

 Net Assets, End of Period (in thousands)                       $    41,928    42,483    42,188    41,203    60,901
 Ratios to Average Net Assets:

    Expenses                                                    %       .85       .85       .85       .85       .85

    Net Investment Income                                       %      1.26      4.45      5.21      4.17      4.68

    Expenses Without Waivers                                    %      1.56      1.66      1.78      1.56      1.41

    Net Investment Income Without Waivers                       %       .55      3.64      4.28      3.46      4.12


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         61

MORTGAGE SECURITIES FUND


 
 Financial Highlights                                                                   CLASS A
                                                                               Year Ended September 30,
                                                                      '02       '01       '00       '99       '98
                                                                                          

 Net Asset Value, Beginning of Period                           $     10.99     10.37     10.30     10.75     10.54
                                                                    ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                               .70       .73       .69       .69       .64
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                     .11       .65       .09      (.45)      .25
                                                                    ------------------------------------------------

       Total from Investment Operations                                 .81      1.38       .78       .24       .89
                                                                    ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                               (.72)     (.72)     (.70)     (.68)     (.65)

    Tax Return of Capital                                              (.01)     (.04)     (.01)     (.01)     (.03)
                                                                    ------------------------------------------------

       Total Distributions                                             (.73)     (.76)     (.71)     (.69)     (.68)
                                                                    ------------------------------------------------

 Net Asset Value, End of Period                                 $     11.07     10.99     10.37     10.30     10.75
                                                                    ================================================

 Total Return (a)                                               %      7.88     13.90      7.70      2.26      8.73

 Net Assets, End of Period (in thousands)                       $    67,395    42,458    31,814    33,617    32,268
 Ratios to Average Net Assets:

    Expenses                                                    %       .95       .95       .95       .95       .95

    Net Investment Income                                       %      6.24      6.75      6.81      6.29      6.02

    Expenses Without Waivers                                    %      1.21      1.31      1.32      1.21      1.29

    Net Investment Income Without Waivers                       %      5.98      6.39      6.44      6.03      5.68

 Portfolio Turnover Rate (excluding short-term securities)      %      98.5      55.2      64.7     127.1     152.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

62             FINANCIAL HIGHLIGHTS

MORTGAGE SECURITIES FUND


 
 Financial Highlights                                                                   CLASS B
                                                                               Year Ended September 30,
                                                                      '02       '01       '00       '99       '98
                                                                                          

 Net Asset Value, Beginning of Period                           $     11.01     10.39     10.33     10.77     10.56
                                                                    ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                               .61       .65       .61       .61       .57
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                     .12       .65       .08      (.44)      .24
                                                                    ------------------------------------------------

       Total from Investment Operations                                 .73      1.30       .69       .17       .81
                                                                    ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                               (.64)     (.64)     (.62)     (.60)     (.57)

    Tax Return of Capital                                              (.01)     (.04)     (.01)     (.01)     (.03)
                                                                    ------------------------------------------------

       Total Distributions                                             (.65)     (.68)     (.63)     (.61)     (.60)
                                                                    ------------------------------------------------

 Net Asset Value, End of Period                                 $     11.09     11.01     10.39     10.33     10.77
                                                                    ================================================

 Total Return (a)                                               %      6.99     13.05      6.90      1.51      7.92

 Net Assets, End of Period (in thousands)                       $    29,879    21,227    14,436    14,057    10,079
 Ratios to Average Net Assets:

    Expenses                                                    %      1.70      1.70      1.70      1.70      1.70

    Net Investment Income                                       %      5.49      6.00      6.06      5.57      5.33

    Expenses Without Waivers                                    %      1.96      2.06      2.07      1.94      1.99

    Net Investment Income Without Waivers                       %      5.23      5.64      5.69      5.33      5.04

 Portfolio Turnover Rate (excluding short-term securities)      %      98.5      55.2      64.7     127.1     152.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         63

MORTGAGE SECURITIES FUND


 
 Financial Highlights                                                                   CLASS C
                                                                               Year Ended September 30,
                                                                      '02       '01       '00       '99       '98
                                                                                          

 Net Asset Value, Beginning of Period                           $     10.99     10.37     10.31     10.76     10.55
                                                                    ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                               .62       .66       .61       .61       .57
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                     .12       .64       .08      (.45)      .24
                                                                    ------------------------------------------------

       Total from Investment Operations                                 .74      1.30       .69       .16       .81
                                                                    ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                               (.64)     (.64)     (.62)     (.60)     (.57)

    Tax Return of Capital                                              (.01)     (.04)     (.01)     (.01)     (.03)
                                                                    ------------------------------------------------

       Total Distributions                                             (.65)     (.68)     (.63)     (.61)     (.60)
                                                                    ------------------------------------------------

 Net Asset Value, End of Period                                 $     11.08     10.99     10.37     10.31     10.76
                                                                    ================================================

 Total Return (a)                                               %      6.99     13.05      6.89      1.50      7.92

 Net Assets, End of Period (in thousands)                       $    10,411     5,216     3,259     5,126     4,343
 Ratios to Average Net Assets:

    Expenses                                                    %      1.70      1.70      1.70      1.70      1.70

    Net Investment Income                                       %      5.49      6.00      6.06      5.58      5.40

    Expenses Without Waivers                                    %      1.96      2.06      2.07      1.94      1.99

    Net Investment Income Without Waivers                       %      5.23      5.64      5.69      5.34      5.11

 Portfolio Turnover Rate (excluding short-term securities)      %      98.5      55.2      64.7     127.1     152.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

64             FINANCIAL HIGHLIGHTS

SPECTRUM FUND


 
 Financial Highlights                                                             CLASS A
                                                                         Year Ended September 30,
                                                                    '02     '01     '00     '99     '98
                                                                                 
 Net Asset Value, Beginning of Period                           $   11.45   19.73   17.88   16.50   16.40
                                                                -----------------------------------------

 Income from Investment Operations:

    Net Investment Income                                             .23     .22     .31     .31     .33
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                  (.89)  (6.08)   2.55    2.30    1.40
                                                                -----------------------------------------

       Total from Investment Operations                              (.66)  (5.86)   2.86    2.61    1.73
                                                                -----------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                             (.25)   (.20)   (.30)   (.31)   (.33)

    Distributions from Net Realized Gains                              --   (2.22)   (.71)   (.92)  (1.30)
                                                                -----------------------------------------

       Total Distributions                                           (.25)  (2.42)  (1.01)  (1.23)  (1.63)
                                                                -----------------------------------------

 Net Asset Value, End of Period                                 $   10.54   11.45   19.73   17.88   16.50
                                                                =========================================

 Total Return (a)                                               %   (5.91) (32.35)  16.22   16.08   11.31

 Net Assets, End of Period (in thousands)                       $  36,974  45,066  77,964  73,613  68,157
 Ratios to Average Net Assets:

    Expenses                                                    %    1.22    1.12    1.11    1.10    1.19

    Net Investment Income                                       %    1.84    1.57    1.58    1.77    1.98

    Expenses Without Waivers                                    %    1.52    1.40    1.20    1.10    1.19

    Net Investment Income Without Waivers                       %    1.54    1.29    1.49    1.77    1.98

 Portfolio Turnover Rate (excluding short-term securities)      %   129.0   158.4   132.0   100.8   139.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         65

SPECTRUM FUND


 
 Financial Highlights                                                             CLASS B
                                                                         Year Ended September 30,
                                                                   '02     '01     '00     '99       '98
                                                                                  
 Net Asset Value, Beginning of Period                          $   11.38   19.61   17.79   16.43     16.34
                                                               -------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                            .12     .11     .17     .19       .22
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                 (.87)  (6.03)   2.53    2.28      1.39
                                                               -------------------------------------------

       Total from Investment Operations                             (.75)  (5.92)   2.70    2.47      1.61
                                                               -------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                            (.16)   (.09)   (.17)   (.19)     (.22)

    Distributions from Net Realized Gains                             --   (2.22)   (.71)   (.92)    (1.30)
                                                               -------------------------------------------

       Total Distributions                                          (.16)  (2.31)   (.88)  (1.11)    (1.52)
                                                               -------------------------------------------

 Net Asset Value, End of Period                                $   10.47   11.38   19.61   17.79     16.43
                                                               ===========================================

 Total Return (a)                                              %   (6.56) (32.82)  15.51   15.31     10.55

 Net Assets, End of Period (in thousands)                      $  11,216  15,207  26,838  24,420    17,751
 Ratios to Average Net Assets:

    Expenses                                                   %    1.97    1.87    1.86    1.82      1.84

    Net Investment Income                                      %    1.09     .82     .83    1.06      1.32

    Expenses Without Waivers                                   %    2.27    2.15    1.95    1.82      1.84

    Net Investment Income Without Waivers                      %     .79     .54     .72    1.06      1.32

 Portfolio Turnover Rate (excluding short-term securities)     %   129.0   158.4   132.0   100.8     139.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

66             FINANCIAL HIGHLIGHTS

SPECTRUM FUND


 
 Financial Highlights                                                                CLASS C
                                                                            Year Ended September 30,
                                                                   '02     '01     '00     '99         '98
                                                                                  
 Net Asset Value, Beginning of Period                          $   11.29   19.49   17.69   16.34        16.27
                                                               -------------------------------------------------

 Income from Investment Operations:

    Net Investment Income                                            .12     .11     .17     .19          .24
    Net Gains (Losses) on Securities
     (both realized and unrealized)                                 (.86)  (6.00)   2.51    2.27         1.36
                                                               -------------------------------------------------

       Total from Investment Operations                             (.74)  (5.89)   2.68    2.46         1.60
                                                               -------------------------------------------------

 Less Distributions:

    Dividends from Net Investment Income                            (.16)   (.09)   (.17)   (.19)        (.23)

    Distributions from Net Realized Gains                             --   (2.22)   (.71)   (.92)       (1.30)
                                                               -------------------------------------------------

       Total Distributions                                          (.16)  (2.31)   (.88)  (1.11)       (1.53)
                                                               -------------------------------------------------

 Net Asset Value, End of Period                                $   10.39   11.29   19.49   17.69        16.34
                                                               =================================================

 Total Return (a)                                              %   (6.54) (32.87)  15.38   15.29        10.57

 Net Assets, End of Period (in thousands)                      $   2,381   3,210   5,928   5,659        4,062
 Ratios to Average Net Assets:

    Expenses                                                   %    1.97    1.87    1.86    1.82         1.83

    Net Investment Income                                      %    1.09     .82     .83    1.07         1.31

    Expenses Without Waivers                                   %    2.27    2.15    1.95    1.82         1.83

    Net Investment Income Without Waivers                      %     .79     .54     .72    1.07         1.31

 Portfolio Turnover Rate (excluding short-term securities)     %   129.0   158.4   132.0   100.8        139.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         67

                                                               OTHER INFORMATION

SERVICE PROVIDERS

INVESTMENT ADVISER

Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826

INVESTMENT SUB-ADVISERS

INTERNATIONAL BALANCED FUND
Templeton Investment Counsel, LLC
500 East Broward Boulevard
Fort Lauderdale, Florida 33394
(954) 527-7500

Franklin Advisers, Inc.
One Franklin Parkway
San Mateo, California 94403
(650) 312-2000

UNDERWRITER

Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838

SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT

Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005

TRANSFER AGENT

PFPC Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-9767

CUSTODIANS

Bankers Trust Company
280 Park Avenue
New York, New York 10017

  BOND FUND
  MORTGAGE SECURITIES FUND

Wells Fargo Bank Minnesota
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479

  INTERNATIONAL BALANCED FUND
  MONEY MARKET FUND
  SPECTRUM FUND

INDEPENDENT AUDITORS

KPMG LLP

GENERAL COUNSEL

Dorsey & Whitney LLP

INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS

Faegre & Benson LLP

68             OTHER INFORMATION

ADVANTUS FAMILY OF FUNDS
Each of the Funds is a member of the Advantus family of funds. The following is
a brief description of the investment objectives, policies and practices of all
the Advantus Funds.

BOND
- ----------------------------------------------------
High level of current income by investing primarily in high
quality debt securities.
CORNERSTONE
- ----------------------------------------------------
Long-term growth through investing primarily in stocks of
large capitalization companies deemed to be undervalued
relative to their future earnings and growth potential.
ENTERPRISE
- ----------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by small capitalization companies.
HORIZON
- ----------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by large capitalization companies.
INDEX 500
- ----------------------------------------------------
Investment results that correspond generally to the S&P 500
Index by investing a significant portion of its portfolio in
common stocks included in the S&P 500 Index.*
INTERNATIONAL BALANCED
- ----------------------------------------------------
Total return through investing primarily in stocks and bonds
of large and small companies located outside the U.S.
MONEY MARKET
- ----------------------------------------------------
High level of current income by investing primarily in money
market securities.
MORTGAGE SECURITIES
- ----------------------------------------------------
High level of current income by investing primarily in
mortgage-related securities.
REAL ESTATE SECURITIES
- ----------------------------------------------------
Total return through investing in real estate and
real-estate related securities.
SPECTRUM
- ----------------------------------------------------
Total return from a combination of income and capital
appreciation through investing in a portfolio of stocks,
debt securities and money market instruments.
VENTURE
- ----------------------------------------------------
Long-term growth through investing primarily in stocks of
small capitalization companies deemed to be undervalued
relative to their future earnings and growth potential.

An investment in any Advantus Fund will be subject to a variety of risks. As a
result, an Advantus Fund may not always achieve its investment objective. You
may obtain a prospectus for another Advantus Fund by calling the toll-free
telephone number or writing to the address shown on the back cover of this
prospectus under the caption "How to Obtain Additional Information". Read the
prospectus carefully before you invest.

*"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-",
"STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND
STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE FUND.

                                                    OTHER INFORMATION         69


                                                           
SECURIAN FINANCIAL SERVICES, INC.                                   PRESORTED STANDARD
400 ROBERT STREET NORTH                                              U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098                                                ST. PAUL, MN
                                                                      PERMIT NO. 3547
CHANGE SERVICE REQUESTED



ADDITIONAL INFORMATION ABOUT THE FUNDS

The Funds' annual and semi-annual reports list portfolio holdings, and discuss
recent market conditions, economic trends and investment strategies that
affected the Funds during the latest fiscal year.

A Statement of Additional Information (SAI) provides further information about
the Funds. The current SAI is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally part of this
Prospectus).

HOW TO OBTAIN ADDITIONAL INFORMATION

The SAI and the Funds' annual and semi-annual reports are available without
charge upon request. You may obtain additional information or make any
inquiries:

By Telephone - Call (800) 665-6005

By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
          02940-9767

Web Site Address - www.advantusfunds.com

Information about the Funds (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090). This information and other reports
about the Funds are also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may be obtained by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by
electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee
for copies.

Investment Company Act No. 811-5026 (Bond Fund)
Investment Company Act No. 811-8590 (International Balanced Fund)
Investment Company Act No. 811-4141 (Money Market Fund)
Investment Company Act No. 811-4140 (Mortgage Securities Fund)
Investment Company Act No. 811-4143 (Spectrum Fund)

[LOGO]
ADVANTUS-TM-
CAPITAL MANAGEMENT

- -C-2003 Advantus Capital Management, Inc.
   All rights reserved.

F. 58124 1-2003

EX-99.(17)(L)

                                                                Exhibit (17)(l)


                        STATEMENT OF ADDITIONAL INFORMATION




                              ADVANTUS BOND FUND, INC.
                     ADVANTUS INTERNATIONAL BALANCED FUND, INC.
                          ADVANTUS MONEY MARKET FUND, INC.
                      ADVANTUS MORTGAGE SECURITIES FUND, INC.
                            ADVANTUS SPECTRUM FUND, INC.


                                    January 31, 2003





THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.  THIS STATEMENT OF
      ADDITIONAL INFORMATION RELATES TO THE SEPARATE PROSPECTUS DATED
        JANUARY 31, 2003 AND SHOULD BE READ IN CONJUNCTION THEREWITH.


    THE FUNDS' AUDITED ANNUAL REPORT DATED SEPTEMBER 30, 2002, WHICH EITHER
  ACCOMPANIES THIS STATEMENT OF ADDITIONAL INFORMATION OR HAS PREVIOUSLY BEEN
  PROVIDED TO THE INVESTOR TO WHOM THIS STATEMENT OF ADDITIONAL INFORMATION IS
                 BEING SENT, IS INCORPORATED HEREIN BY REFERENCE.

  A COPY OF THE PROSPECTUS AND ANNUAL REPORT MAY BE OBTAINED BY TELEPHONE FROM
  ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005 OR BY WRITING TO THE FUNDS AT
    ADVANTUS FUNDS GROUP, P.O. BOX 9767, PROVIDENCE, RHODE ISLAND 02940-9767









                                         -1-


                                  TABLE OF CONTENTS

GENERAL INFORMATION AND HISTORY

INVESTMENT OBJECTIVES AND POLICIES
     Fund Names and Investment Policies
     Equity Securities of Small Capitalization Companies
     Debt and Money Market Securities - Advantus Multiple Class Funds
     Low Rated Securities
     Convertible Securities
     Money Market Securities - Money Market Fund
     U.S. Government Obligations
     Obligations of Non-Domestic Banks
     Variable Amount Master Demand Notes
     Mortgage-Related Securities
     U.S. Government Mortgage-Related Securities
     Non-Governmental Mortgage-Related Securities
     Collateralized Mortgage Obligations
     Stripped Mortgage-Backed Securities
     Asset-Backed and Stripped Asset-Backed Securities
     Direct Investments in Mortgages - Whole Loans
     Foreign Securities
     Investments in Russia
     Currency Exchange Transactions
     Foreign Currency Hedging Transactions
     Closed-End Investment Companies
     Real Estate Investment Trust Securities
     Loans of Portfolio Securities
     Restricted and Illiquid Securities
     When-Issued Securities and Forward Commitments
     Mortgage Dollar Rolls
     Repurchase Agreements
     Reverse Repurchase Agreements
     Futures Contracts and Options on Futures Contracts
     Options
     Warrants
     Warrants with Cash Extractions
     Index Depositary Receipts
     Short Sales Against the Box
     Defensive Purposes

INVESTMENT RESTRICTIONS
     Fundamental Restrictions
     Non-Fundamental Restrictions

PORTFOLIO TURNOVER

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTOR LIABILITY

INVESTMENT ADVISORY AND OTHER SERVICES
     General
     Control and Management of Advantus Capital and Securian Financial
     Investment Advisory Agreement with Advantus Capital
     International Fund Sub-Adviser - Templeton Counsel and FAV
     International Fund Investment Sub-Advisory Agreement - Templeton Counsel
      and FAV
     Annual Approval of Advisory and Sub-Advisory Agreements
     Code of Ethics
     Distribution Agreement
     Payment of Certain Distribution Expenses of the Funds
     Transfer Agent and Administrative Services

MONEY MARKET FUND AMORTIZED COST METHOD
OF PORTFOLIO VALUATION


                                         -2-


PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
     Horizon Fund, Spectrum Fund, Cornerstone Fund and Enterprise Fund
     Mortgage Securities Fund and Bond Fund
     Money Market Fund
     International Fund
     Generally

CALCULATION OF PERFORMANCE DATA
     Money Market Fund
     Advantus Multiple Class Funds

CAPITAL STOCK AND OWNERSHIP OF SHARES

HOW TO BUY SHARES
     Alternative Purchase Arrangements
     International Fund Redemption Fee
     Purchase by Check
     Purchase by Wire
     Purchase by Internet
     Timing of Purchase Orders
     Minimum Investments
     Public Offering Price

SALES CHARGES
     Class A Shares
     Class B Shares
     Class C Shares
     Other Payments to Broker-Dealers

NET ASSET VALUE AND PUBLIC OFFERING PRICE

REDUCED SALES CHARGES
     Right of Accumulation-Cumulative Purchase Discount
     Letter of Intent
     Combining Purchases
     Group Purchases
     Waiver of Sales Charges For Certain Sales of Class A Shares

EXCHANGE AND TRANSFER OF FUND SHARES
     Systematic Exchange Plan

SHAREHOLDER SERVICES
     Open Accounts
     Automatic Investment Plan
     Group Systematic Investment Plan
     Retirement Plans Offering Tax Benefits
     Systematic Withdrawal Plans

REDEMPTIONS
     Medallion Signature Guarantee
     Contingent Deferred Sales Charge
     Telephone Redemption
     Internet Redemption
     Delay in Payment of Redemption Proceeds
     Fund's Right to Redeem Small Accounts
     Checkwriting
     Automatic Premium Payments
     Reinstatement Privilege

TELEPHONE TRANSACTIONS

INTERNET TRANSACTIONS

DISTRIBUTIONS AND TAX STATUS
     Dividends and Capital Gains Distributions
     Taxation - General

FINANCIAL STATEMENTS

Appendix A - Mortgage-Related Securities
     Underlying Mortgages
     Liquidity and Marketability
     Average Life
     Yield Calculations

Appendix B - Bond and Commercial Paper Ratings
     Bond Ratings
     Commercial Paper Ratings

Appendix C - Futures Contracts
     Example of Futures Contract Sale
     Example of Futures Contract Purchase
     Tax Treatment


                                         -3-


                          GENERAL INFORMATION AND HISTORY

     Advantus Spectrum Fund, Inc. ("Spectrum Fund"),  Advantus Mortgage
Securities Fund, Inc. ("Mortgage Securities Fund"), Advantus Money Market
Fund, Inc. ("Money Market Fund"), Advantus Bond Fund, Inc. ("Bond Fund"), and
Advantus International Balanced Fund, Inc. ("International Fund"),
collectively referred to as the "Funds," are open-end diversified management
investment companies, commonly called mutual funds.  The Funds, together with
six other mutual funds which share the same investment adviser, are members
of a family of mutual funds known as the "Advantus Funds." Each of the
Advantus Funds, excluding Money Market Fund, offers more than one class of
shares (the "Advantus Multiple Class Funds").  The Advantus Multiple Class
Funds currently offer three classes of shares (Class A, Class B and Class C),
except for Advantus Real Estate Securities Fund, Inc., which currently offers
two classes of shares (Class A and Class B).  Each class is sold pursuant to
different sales arrangements and bears different expenses.  The Funds are
incorporated as Minnesota corporations. Spectrum Fund, Mortgage Securities
Fund and Money Market Fund were incorporated in October 1984.  Bond Fund was
incorporated in January 1987, and International Fund was incorporated in
January 1994.

                          INVESTMENT OBJECTIVES AND POLICIES

     The investment objectives and principal investment policies of each of
the Funds are set forth in the text of the Funds' Prospectus under "Investing
in the Funds-Investment Policies and Practices."  This section contains
detailed descriptions of the investment policies of the Funds as summarized
in each Fund's Prospectus.

FUND NAMES AND INVESTMENT POLICIES

     Mortgage Securities Fund and Bond Fund have names that suggest a focus
on a particular type of investment. In accordance with Rule 35d-1 under the
Investment Company Act of 1940 (the "1940 Act"), each of those Funds has
adopted a policy that it will, under normal circumstances, invest at least
80% of its assets in investments of the type suggested by its name. For this
policy, "assets" means net assets plus the amount of any borrowings for
investment purposes. In addition, in appropriate circumstances, synthetic
investments may be included in the 80% basket if they have economic
characteristics similar to the other investments included in the basket. A
Fund's policy to invest at least 80% of its assets in such a manner is not a
"fundamental" one, which means that it may be changed without the vote of a
majority of the Fund's outstanding shares as defined in the 1940 Act.
However, the names of Mortgage Securities Fund and Bond Fund may be changed
only if shareholders of each Fund vote to approve a new name by amending such
Fund's articles of incorporation. Such a change requires the vote of a
majority of the shares of the Fund represented, in person or by proxy, at a
meeting of shareholders called for the purpose of voting on such a proposal.
Rule 35d-1 also requires that shareholders be given written notice at least
60 days prior to any change by a Fund of its 80% investment policy.

EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES

     International Fund and Spectrum Fund may invest in equity securities
issued by small capitalization companies.  Small capitalization companies may
be in a relatively early stage of development or may produce goods and
services which have favorable prospects for growth due to increasing demand
or developing markets. Frequently, such companies have a small management
group and single product or product-line expertise that may result in an
enhanced entrepreneurial spirit and greater focus which allow such firms to
be successful. The Fund's investment adviser, or sub-adviser, believes that
such companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities.
However, small capitalization companies frequently retain a large part of
their earnings for research, development and investment in capital assets, so
that the prospects for immediate dividend income are limited.

     While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the Fund
will invest specifically in those companies which produce those results.
Because of the risks involved, the Fund is not intended to constitute a complete
investment program.


DEBT AND MONEY MARKET SECURITIES - ADVANTUS MULTIPLE CLASS FUNDS

     Each of Mortgage Securities Fund, Bond Fund, and International Fund may
invest in long, intermediate and short-term debt securities from various
industry classifications and money market instruments. The debt instruments
in which these Funds may invest include the following:

                                         -4-


     Corporate obligations which at the time of purchase are rated within the
     four highest grades assigned by Standard & Poor's Corporation ("S&P"),
     Moody's Investors Services, Inc. ("Moody's") or any other national
     rating service, or, if not rated, are of equivalent investment quality
     as determined by the Fund's investment adviser or sub-adviser, as the
     case may be.  To the extent that the Fund invests in securities rated
     BBB or Baa by S&P or Moody's, respectively, it will be investing in
     securities which have speculative elements.  As an operating policy,
     International Fund will not invest more than 5% of its assets in debt
     securities rated BBB by S&P or Baa by Moody's.  In addition, Spectrum
     Fund, Bond Fund and Mortgage Securities Fund may also invest up to 10% of
     their respective net assets in securities rated BB or Ba by S&P or
     Moody's, respectively, and Cornerstone Fund may also invest up to 10% of
     its net assets in securities (including convertible securities) rated at
     least B- by S&P or by B3 by Moody's.  See "Low Rated Securities," below.
     For a description of the ratings used by Moody's and S&P, see Appendix
     B ("Bond and Commercial Paper Ratings") below.

     Obligations of, or guaranteed by, the U.S. Government, its agencies or
     instrumentalities.

     Debt obligations of banks.

     Bond Fund may also purchase U.S. dollar denominated debt securities of
foreign governments and companies which are publicly traded in the United States
and rated within the four highest grades assigned by S&P or Moody's.

     In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:

     Obligations (including certificates of deposit and bankers acceptances)
     of U.S. banks, savings and loan associations, savings banks which have
     total assets (as of the date of their most recent annual financial
     statements at the time of investment) of not less than $2,000,000,000;
     U.S. dollar denominated obligations of Canadian chartered banks, London
     branches of U.S. banks and U.S. branches or agencies of foreign banks
     which meet the above-stated asset size; and obligations of any U.S.
     banks, savings and loan associations and savings banks, regardless of
     the amount of their total assets, provided that the amount of the
     obligations purchased does not exceed $100,000 for any one U.S. bank,
     savings and loan association or savings bank and the payment of the
     principal is insured by the Federal Deposit Insurance Corporation or the
     Federal Savings and Loan Insurance Corporation.

     Obligations of the International Bank for Reconstruction and Development.

     Commercial paper (including variable amount master demand notes) issued
     by U.S. corporations or affiliated foreign corporations and rated (or
     guaranteed by a company whose commercial paper is rated) at the date of
     investment Prime-1 by Moody's or A-1 by S&P or, if not rated by either
     Moody's or S&P, issued by a corporation having an outstanding debt issue
     rated Aa or better by Moody's or AA or better by S&P and, if issued by
     an affiliated foreign corporation, such commercial paper (not to exceed
     in the aggregate 10% of such Fund's (other than Mortgage Securities
     Fund's) net assets) is U.S. dollar denominated and not subject at the
     time of purchase to foreign tax withholding.

     The Fund may also invest in securities which are unrated if the Fund's
investment adviser or sub-adviser, as the case may be, determines that such
securities are of equivalent investment quality to the rated securities
described above.  In the case of "split-rated" securities, which result when
nationally-recognized rating agencies rate the security at different rating
levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy to
classify such securities at the higher rating level where, in the judgment of
the Fund's investment adviser or sub-adviser, such classification reasonably
reflects the security's quality and risk.


                                         -5-


     The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer.  During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines.  These changes in market value will be reflected
in each Fund's net asset value.

     These Funds may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above.  In such an event it is the Funds'
general policy to dispose of such down-graded securities except when, in the
judgment of the Funds' investment adviser or sub-adviser, it is to the Funds'
advantage to continue to hold such securities.  In no event, however, will any
Fund hold in excess of 5% of its net assets in securities which have been
down-graded subsequent to purchase where such down-graded securities are not
otherwise eligible for purchase by the Fund.  This 5% is in addition to
securities which the Fund may otherwise purchase under its usual investment
policies.

LOW RATED SECURITIES

     Spectrum Fund, Mortgage Securities Fund and Bond Fund may invest up to
10% of their respective net assets in corporate bonds and mortgage-related
securities, including convertible securities, which, at the time of
acquisition, are rated BB or Ba by S&P or Moody's, respectively, or rated at
a comparable level by another independent publicly-recognized rating agency,
or, if not rated, are of equivalent investment quality as determined by the
Fund's investment adviser or sub-adviser, as the case may be. Each of these
Funds may also hold an additional 5% of its net assets in securities rated
below "investment grade" (i.e. below BBB) where such securities were either
investment grade or eligible low rated securities at the time of purchase but
subsequently down-graded to a rating not otherwise eligible for purchase by
the Fund (see "Debt and Money Market Securities - Advantus Multiple Class
Funds" above).  Debt securities rated below the four highest categories
(i.e., below BBB) are not considered investment grade obligations and are
commonly called "junk bonds."  These securities are predominately speculative
and present more credit risk than investment grade obligations.  Bonds rated
below BBB are also regarded as predominately speculative with respect to the
issuer's continuing ability to meet principal and interest payments.

     Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities.  In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded.  The existence of limited
markets for particular securities may diminish the Funds' ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.

     Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market.  Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Funds to
achieve their respective investment objective may, to the extent of investment
in low rated debt securities, be more dependent upon such creditworthiness
analysis than would be the case if the Funds were investing in higher rated
securities.


                                      -6-


     Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities.  The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.  A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities.  If the issuer of
low rated debt securities defaults, the Funds may incur additional expenses to
seek recovery.  The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.

CONVERTIBLE SECURITIES

     Bond Fund, Spectrum Fund and Mortgage Securities Fund, may invest in debt
or preferred equity securities convertible into or exchangeable for equity
securities.  Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities.  They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree.
The total return and yield of lower quality (high yield/high risk) convertible
bonds can be expected to fluctuate more than the total return and yield of
higher quality, shorter-term bonds, but not as much as common stocks. Bond
Fund, Spectrum Fund and Mortgage Securities Fund will each limit its purchase
of convertible debt securities to those that, at the time of purchase, are
rated at least BB or Ba by S&P or Moody's, respectively, or if not rated by
S&P or Moody's, are of equivalent investment quality as determined by the
Fund's investment adviser. See "Low Rated Securities," above.

MONEY MARKET SECURITIES - MONEY MARKET FUND

     Subject to the limitations under Rule 2a-7 of the Investment Company Act of
1940 (as described in "Investment Restrictions - Money Market Fund" below),
Money Market Fund will invest in a managed portfolio of money market instruments
as follows:

     Obligations issued or guaranteed as to principal or interest by the U.S.
Government, or any agency or authority controlled or supervised by and acting as
an instrumentality of the U.S. Government pursuant to authority granted by
Congress.

     Obligations (including certificates of deposit and bankers acceptances)
     of U.S. banks, savings and loan associations and savings banks which at
     the date of the investment have total assets (as of the date of their
     most recent annual financial statements) of not less than
     $2,000,000,000; U.S. dollar denominated obligations of Canadian
     chartered banks, London branches of U.S. banks, and U.S. branches or
     agencies of foreign banks if such banks meet the above-stated asset
     size; and obligations of any such U.S. banks, savings and loan
     associations and savings banks, regardless of the amount of their total
     assets, provided that the amount of the obligations does not exceed
     $100,000 for any one U.S. bank, savings and loan association or savings
     bank and the payment of the principal is insured by the Federal Deposit
     Insurance Corporation.

     Obligations of the International Bank for Reconstruction and Development.

     U.S. dollar denominated obligations of Foreign governments and companies
     that are publicly traded in the United States.

     Commercial paper (including variable amount master demand notes) issued
     by U.S. limited partnerships, corporations or affiliated foreign
     corporations.

     Other corporate debt obligations that at the time of issuance were
     long-term securities, but that have remaining maturities of 397 calendar
     days or less.

     Repurchase agreements with respect to any of the foregoing obligations.

     By limiting the maturity of its investments as described above, the Fund
seeks to lessen the changes in the value of its assets caused by market factors.
The Fund intends to maintain a constant net asset value of $1.00 per share, but
there can be no assurance it will be able to do so.


                                      -7-


U.S. GOVERNMENT OBLIGATIONS

     These obligations are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the U.S. Government
or by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority
granted by Congress.  Bills, notes and bonds issued by the U.S. Treasury are
direct obligations of the U.S. Government and differ in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by agencies
or authorities controlled or supervised by and acting as instrumentalities of
the U.S. Government established under authority granted by Congress include
but are not limited to, the Government National Mortgage Association
("GNMA"), the Export-Import Bank, the Student Loan Marketing Association, the
U.S. Postal Service, the Tennessee Valley Authority, the Bank for
Cooperatives, the Farmers Home Administration, the Federal Home Loan Bank,
the Federal Financing Bank, the Federal Intermediate Credit Banks, the
Federal Land Banks, the Farm Credit Banks and the Federal National Mortgage
Association.  Some obligations of U.S. Government agencies, authorities and
other instrumentalities are supported by the full faith and credit of the
U.S. Treasury, such as securities of the Government National Mortgage
Association and the Student Loan Marketing Association; others by the right
of the issuer to borrow from the U.S. Treasury, such as securities of the
Federal Financing Bank and the U.S. Postal Service; and others only by the
credit of the issuing agency, authority or other instrumentality, such as
securities of the Federal Home Loan Bank and the Federal National Mortgage
Association ("FNMA").

OBLIGATIONS OF NON-DOMESTIC BANKS

     The Funds may invest in obligations of Canadian chartered banks, London
branches of U.S. banks, and U.S. branches and agencies of foreign banks,
which may involve somewhat greater opportunity for income than the other
money market instruments in which such Funds invest, but may also involve
investment risks in addition to any risks associated with direct obligations
of domestic banks.  These additional risks include future political and
economic developments, the possible imposition of withholding taxes on
interest income payable on such obligations, the possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls or the adoption of other governmental restrictions, as well as
market and other factors which may affect the market for or the liquidity of
such obligations.  Generally, Canadian chartered banks, London branches of
U.S. banks, and U.S. branches and agencies of foreign banks are subject to
fewer U.S. regulatory restrictions than those applicable to domestic banks,
and London branches of U.S. banks may be subject to less stringent reserve
requirements than domestic branches.  Canadian chartered banks, U.S. branches
and agencies of foreign banks, and London branches of U.S. banks may provide
less public information than, and may not be subject to the same accounting,
auditing and financial recordkeeping standards as, domestic banks.  Each Fund
will not invest more than 25% of its total assets in obligations of Canadian
chartered banks, London branches of U.S. banks, and U.S. branches and
agencies of foreign banks.

VARIABLE AMOUNT MASTER DEMAND NOTES

     Money Market Fund may invest in variable amount master demand notes.  These
instruments are short-term, unsecured promissory notes issued by corporations to
finance short-term credit needs.  They allow the investment of fluctuating
amounts by the Fund at varying market rates of interest pursuant to direct
arrangements between Money Market Fund, as lender, and the borrower.  Variable
amount master demand notes permit a series of short-term borrowings under a
single note.  The lender has the right to increase the amount under the note at
any time up to the full amount provided by the note agreement.  Both the lender
and the borrower have the right to reduce the amount of outstanding indebtedness
at any time.  Because variable amount master demand notes are direct lending
arrangements between the lender and borrower, it is not generally contemplated
that such instruments will be traded and there is no secondary market for the
notes.  Typically, agreements relating to such notes provide that the lender
shall not sell or otherwise transfer the note without the borrower's consent.
Thus, variable amount master demand notes are illiquid assets.  Such notes
provide that the interest rate on the amount outstanding varies on a daily basis
depending upon a stated short-term interest rate barometer.  The Fund's
investment adviser will monitor the creditworthiness of the borrower throughout
the term of the variable amount master demand note.


                                         -8-


MORTGAGE-RELATED SECURITIES

     Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
mortgage-related securities (including securities which represent interests in
pools of mortgage loans) issued by government (some of which may be U.S.
Government agency issued or guaranteed securities as described herein) and
non-government entities such as banks, mortgage lenders or other financial
institutions.  These securities may include both collateralized mortgage
obligations and stripped mortgage-backed securities.  Mortgage loans are
originated and formed into pools by various organizations, including the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
various private organizations including commercial banks and other mortgage
lenders.  Payments on mortgage-related securities generally consist of both
principal and interest, with occasional repayments of principal due to
refinancings, foreclosures or certain other events.  Some mortgage-related
securities, such as collateralized mortgage obligations, make payments of both
principal and interest at a variety of intervals.  Certain mortgage-related
securities, such as GNMA securities, entitle the holder to receive such
payments, regardless of whether or not the mortgagor makes loan payments;
certain mortgage-related securities, such as FNMA securities, guarantee the
timely payment of interest and principal; certain mortgage-related securities,
such as FHLMC securities, guarantee the timely payment of interest and ultimate
collection of principal; and certain mortgage-related securities contain no such
guarantees but may offer higher rates of return.  No mortgage-related securities
guarantee the Fund's yield or the price of its shares.

     Each Fund expects its investments in mortgage-related securities to be
primarily in high-grade mortgage-related securities either (a) issued by
GNMA, FNMA or FHLMC or other United States Government owned or sponsored
corporations or (b) rated A or better by S&P or Moody's, or rated at a
comparable level by another independent publicly-recognized rating agency,
or, if not rated, are of equivalent investment quality as determined by the
Fund's investment adviser or sub-adviser, as the case may be.  The Fund may
invest in mortgage-related securities rated BBB or Baa by S&P or Moody's,
respectively, or rated at a comparable level by another independent
publicly-recognized rating agency, or, if not rated, are of equivalent
investment quality as determined by the Fund's investment adviser or
sub-adviser, as the case may be, when deemed by the Fund's investment adviser
or sub-adviser to be consistent with the Fund's respective objective.  To the
extent that the Fund invests in securities rated BBB or Baa by S&P or
Moody's, respectively, it will be investing in securities which have
speculative elements. Each Fund may also invest up to 10% of its assets in
mortgage-related securities rated BB or Ba by S&P or Moody's, respectively,
or rated at a comparable level by another independent publicly-recognized
rating agency, or, if not rated, are of equivalent investment quality as
determined by the Fund's investment adviser or sub-adviser, as the case may
be. See "Low Rated Securities," above.  Mortgage Securities Fund may not
invest more than 35% of its total assets in securities rated BBB or Baa or
lower by S&P or Moody's, respectively. For further information about the
characteristics and risks of mortgage-related securities, and for a
description of the ratings used by Moody's and S&P, see Appendix A and B
("Mortgage-Related Securities" and "Bond and Commercial Paper Ratings") below.

U.S. GOVERNMENT MORTGAGE-RELATED SECURITIES

     A governmental (i.e., backed by the full faith and credit of the U.S.
Government) guarantor of mortgage-related securities is GNMA.  GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development.  GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.

     Government-related (i.e., not backed by the full faith and credit of the
U.S. Government) guarantors include FNMA and FHLMC.  FNMA is a
government-sponsored corporation owned entirely by private stockholders.  It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan associations,
mutual savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.


                                         -9-


     FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing.  Its stock is publicly traded.  FHLMC issues
Participation Certificates ("PCs") which represent interests in mortgages from
FHLMC's national portfolio.  FHLMC guarantees the timely payment of interest and
principal on most PCs.  There are some PCs, however, on which FHLMC guarantees
the timely payment of interest but only the ultimate payment of principal.  PCs
are not backed by the full faith and credit of the U.S. Government.

NON-GOVERNMENTAL MORTGAGE-RELATED SECURITIES

     Mortgage Securities Fund, Bond Fund and Spectrum Fund may invest in
non-governmental mortgage-related securities.  Commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers also create pass-through pools of conventional
residential and commercial mortgage loans.  Such issuers may in addition be
the originators and servicers of the underlying mortgage loans as well as the
guarantors of the mortgage-related securities.  Pools created by such
non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payments in the former pools.  However, timely payment
of interest and principal of these pools is supported by various forms of
insurance, guarantees and credit enhancements, including individual loan, title,
pool and hazard insurance.  The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.  Such insurance
and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the Fund's
investment quality standards.  There can be no assurance that the private
insurers can meet their obligations under the policies.  The Fund may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers the Fund's
investment adviser determines that the securities meet the Fund's quality
standards.  Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable.  The Fund will not purchase mortgage-related securities or any other
assets which in its investment adviser's opinion are illiquid if, as a result,
more than 15% of the value of the Fund's net assets will be illiquid.

COLLATERALIZED MORTGAGE OBLIGATIONS

     Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
collateralized mortgage obligations ("CMOs"), in which several different series
of bonds or certificates secured by pools of mortgage-backed securities or
mortgage loans, are issued.  The series differ from each other in terms of the
priority rights which each has to receive cash flows with the CMO from the
underlying collateral.  Each CMO series may also be issued in multiple classes.
Each class of a CMO series, often referred to as a "tranche," is usually issued
at a specific coupon rate and has a stated maturity.  The underlying security
for the CMO may consist of mortgage-backed securities issued or guaranteed by
U.S. Government agencies or whole loans.  CMOs backed by U.S. Government agency
securities retain the credit quality of such agency securities and therefore
present minimal credit risk.  CMOs backed by whole loans typically carry various
forms of credit enhancements to protect against credit losses and provide
investment grade ratings.  Unlike traditional mortgage pass-through securities,
which simply pass through interest and principal on a pro rata basis as
received, CMOs allocate the principal and interest from the underlying mortgages
among the several classes or tranches of the CMO in many ways.  All residential,
and some commercial, mortgage-related securities are subject to prepayment risk.
A CMO does not eliminate that risk, but, by establishing an order of priority
among the various tranches for the receipt and timing of principal payments, it
can reallocate that risk among the tranches.  Therefore, the stream of payments
received by a CMO bondholder may differ dramatically from that received by an
investor holding a traditional pass-through security backed by the same
collateral.


                                         -10-


     In the traditional form of CMO, interest is paid currently on all tranches
but principal payments are applied sequentially to retire each tranche in order
of stated maturity.  Traditional sequential payment CMOs have evolved into
numerous more flexible forms of CMO structures which can vary frequency of
payments, maturities, prepayment risk and performance characteristics.  The
differences between these new types of CMOs relate primarily to the manner in
which each varies the amount and timing of principal and interest received by
each tranche from the underlying collateral.  Under all but the sequential
payment structures, specific tranches of CMOs have priority rights over other
tranches with respect to the amount and timing of cash flow from the underlying
mortgages.

     The primary risk associated with any mortgage security is the uncertainty
of the timing of cash flows; specifically, uncertainty about the possibility of
either the receipt of unanticipated principal in falling interest rate
environments (prepayment or call risk) or the failure to receive anticipated
principal in rising interest rate environments (extension risk).  In a CMO, that
uncertainty may be allocated to a greater or lesser degree to specific tranches
depending on the relative cash flow priorities of those tranches.  By
establishing priority rights to receive and reallocate payments of prepaid
principal, the higher priority tranches are able to offer better call protection
and extension protection relative to the lower priority classes in the same CMO.
For example, when insufficient principal is received to make scheduled principal
payments on all tranches, the higher priority tranches receive their scheduled
premium payments first and thus bear less extension risk than lower priority
tranches.  Conversely, when principal is received in excess of scheduled
principal payments on all tranches (call risk), the lower priority tranches are
required to receive such excess principal until they are retired and thus bear
greater prepayment risk than the higher priority tranches.  Therefore, depending
on the type of CMO purchased, an investment may be subject to a greater or
lesser risk of prepayment, and experience a greater or lesser volatility in
average life, yield, duration and price, than other types of mortgage-related
securities.  A CMO tranche may also have a coupon rate which resets periodically
at a specified increment over an index.  These floating rate CMOs are typically
issued with lifetime caps on the level to which the floating coupon rate is
allowed to rise.  The Fund may invest in such securities, usually subject to a
cap, provided such securities satisfy the same requirements regarding cash flow
priority applicable to the Fund's purchase of CMOs generally.  CMOs are
typically traded over the counter rather than on centralized exchanges.  Because
CMOs of the type purchased by the Fund tend to have relatively more predictable
yields and are relatively less volatile, they are also generally more liquid
than CMOs with greater prepayment risk and more volatile performance profiles.

     Spectrum Fund, Bond Fund and Mortgage Securities Fund may also purchase
CMOs known as "accrual" or "Z" bonds.  An accrual or Z bond holder is not
entitled to receive cash payments until one or more other classes of the CMO
have been paid in full from payments on the mortgage loans underlying the CMO.
During the period in which cash payments are not being made on the Z tranche,
interest accrues on the Z tranche at a stated rate, and this accrued interest is
added to the amount of principal which is due to the holder of the Z tranche.
After the other classes have been paid in full, cash payments are made on the Z
tranche until its principal (including previously accrued interest which was
added to principal, as described above) and accrued interest at the stated rate
have been paid in full.  Generally, the date upon which cash payments begin to
be made on a Z tranche depends on the rate at which the mortgage loans
underlying the CMO are prepaid, with a faster prepayment rate resulting in an
earlier commencement of cash payments on the Z tranche.  Like a zero coupon
bond, during its accrual period the Z tranche of a CMO has the advantage of
eliminating the risk of reinvesting interest payments at lower rates during a
period of declining market interest rates.  At the same time, however, and also
like a zero coupon bond, the market value of a Z tranche can be expected to
fluctuate more widely with changes in market interest rates than would the
market value of a tranche which pays interest currently.  Changes in market
interest rates also can be expected to influence prepayment rates on the
mortgage loans underlying the CMO of which a Z tranche is a part.  As noted
above, such changes in prepayment rates will affect the date at which cash
payments begin to be made on a Z tranche, and therefore also will influence its
market value.  As an operating policy, Spectrum Fund, Mortgage Securities Fund
and Bond Fund will not purchase a Z bond if the respective Fund's aggregate
investment in Z bonds which are then still in their accrual periods would exceed
20% of the Fund's total assets (Z bonds which have begun to receive cash
payments are not included for purposes of this 20% limitation).


                                         -11-


     Spectrum Fund, Bond Fund and Mortgage Securities Fund may also invest in
inverse or reverse floating CMOs.  Inverse or reverse floating CMOs
constitute a tranche of a CMO with a coupon rate that moves in the reverse
direction to an applicable index.  Accordingly, the coupon rate will increase
as interest rates decrease.  The Fund would be adversely affected, however,
by the purchase of such CMOs in the event of an increase in interest rates
since the coupon rate will decrease as interest rates increase, and, like
other mortgage-related securities, the value will decrease as interest rates
increase.  Inverse or reverse floating rate CMOs are typically more volatile
than fixed or floating rate tranches of CMOs, and usually carry a lower cash
flow priority.  As an operating policy, Spectrum Fund, Bond Fund and Mortgage
Securities Fund will treat inverse floating rate CMOs as illiquid and,
therefore, will limit its investments in such securities, together with all
other illiquid securities, to 15% of such Fund's net assets.

STRIPPED MORTGAGE-BACKED SECURITIES

     Spectrum Fund, Bond Fund and Mortgage Securities Fund may invest in
stripped mortgage-backed securities.  Stripped mortgage-backed securities
represent undivided ownership interests in a pool of mortgages, the cash flow of
which has been separated into its interest and principal components.  "IOs"
(interest only securities) receive the interest portion of the cash flow while
"POs" (principal only securities) receive the principal portion.  Stripped
mortgage-backed securities may be issued by U.S. Government agencies or by
private issuers.  As interest rates rise and fall, the value of IOs tends to
move in the same direction as interest rates, unlike other mortgage-backed
securities (which tend to move in the opposite direction compared to interest
rates).  Under the Internal Revenue Code of 1986, as amended, POs may generate
taxable income from the current accrual of original issue discount, without a
corresponding distribution of cash to the Fund.

     The cash flows and yields on standard IO and PO classes are extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets.  For example, a rapid or slow rate of
principal payments may have a material adverse effect on the performance and
prices of IOs or POs, respectively.  If the underlying mortgage assets
experience greater than anticipated prepayments of principal, an investor may
fail to recoup fully its initial investment in an IO class of a stripped
mortgage-backed security, even if the IO class is rated AAA or Aaa or is derived
from a full faith and credit obligation (i.e., a GNMA).  Conversely, if the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the price on a PO class will be affected more severely than would be
the case with a traditional mortgage-backed security, but unlike IOs, an
investor will eventually recoup fully its initial investment provided no default
of the guarantor occurs.  As an operating policy, the Fund will limit its
investments in IOs and POs to 15% of the Fund's net assets, and will treat them
as illiquid securities (which, in the aggregate, may not exceed 15% of each
Fund's net assets) except to the extent such securities are deemed liquid by the
Fund's adviser in accordance with standards established by the Fund's Board of
Directors. See "Restricted and Illiquid Securities" below.

ASSET-BACKED AND STRIPPED ASSET-BACKED SECURITIES

     Bond Fund, Spectrum Fund and Mortgage Securities Fund may invest in
asset-backed securities rated within the four highest grades assigned by
Moody's or S&P, or, if not rated, are of equivalent investment quality as
determined by the Fund's investment adviser.  Asset-backed securities usually
represent interests in pools of consumer loans (typically trade, credit card
or automobile receivables).  The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying
such securities, how well the entity issuing the security is insulated from
the credit risk of the originator or any other affiliated entities, the
quality of the servicing  of the receivables, and the amount and quality of
any credit support provided to the securities.  The rate of principal payment
on asset-backed securities may depend on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety
of economic and other factors.  As a result, the yield on any asset-backed
security may be difficult to predict with precision and actual yield to
maturity may be more or less than the anticipated yield to maturity.  Some
asset-backed transactions are structured with a "revolving period" during
which the principal balance of the asset-backed security is maintained at a
fixed level, followed by a period of rapid repayment.  This structure is
intended to insulate holders of the asset-backed security from prepayment
risk to a significant extent. Asset-backed securities may be classified as
pass-through certificates or collateralized obligations.


                                         -12-


     Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool.  Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.

     Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.  The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders thereof.  Such
issuers generally hold no assets other than those underlying the asset-backed
securities and any credit support provided.  As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the issuing
entities are unlikely to have sufficient assets to satisfy their obligations on
the related asset-backed securities.

     To lessen the effect of failures by obligors on underlying assets to make
payments, such securities may contain elements of credit support.  Such credit
support falls into two classes:  liquidity protection and protection against
ultimate default by an obligor on the underlying assets.  Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that scheduled payments on the underlying pool are
made in a timely fashion.  Protection against ultimate default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool.
Such protection may be provided through guarantees, insurance policies or
letters of credit obtained from third parties, through various means of
structuring the transaction or through a combination of such approaches.

     Asset-backed securities may be stripped to create interest-only and
principal-only securities in the same manner as mortgage-backed securities. See
"Stripped Mortgage-Backed Securities," above. The value of asset-backed IOs also
tends to move in the same direction as changes in interest rates, unlike other
asset-backed (or mortgage-backed) securities, which tend to move in the opposite
direction compared to interest rates. As with stripped mortgage-backed
securities, the cash flows and yields on asset-backed IOs and POs are also
extremely sensitive to the rate of principal payments on the related underlying
assets. See "Stripped Mortgage-Backed Securities," above. As an operating
policy, the Fund will limit its investment in IOs and POs to 15% of the Fund's
net assets, and will treat them as illiquid securities (which, in the aggregate,
may not exceed 15% of each Fund's net assets) except to the extent such
securities are deemed liquid by the Fund's adviser in accordance with standards
established by the Fund's Board of Directors. See "Restricted and Illiquid
Securities" below.

DIRECT INVESTMENTS IN MORTGAGES - WHOLE LOANS

     Mortgage Securities Fund, Bond Fund and Spectrum Fund  may invest up to 10%
of the value of its net assets directly in mortgages securing residential or
commercial real estate (i.e., the Fund becomes the mortgagee).  Such investments
are not "mortgage-related securities" as described above.  They are normally
available from lending institutions which group together a number of mortgages
for resale (usually from 10 to 50 mortgages) and which act as servicing agent
for the purchaser with respect to, among other things, the receipt of principal
and interest payments.  (Such investments are also referred to as "whole
loans".) The vendor of such mortgages receives a fee from the Fund for acting
as servicing agent.  The vendor does not provide any insurance or guarantees
covering the repayment of principal or interest on the mortgages. Unlike
pass-through securities, whole loans constitute direct investment in
mortgages inasmuch as the Fund, rather than a financial intermediary, becomes
the mortgagee with respect to such loans purchased by the Fund.  At present,
such investments are considered to be illiquid by the Fund's investment
adviser. The Fund will invest in such mortgages only if its investment
adviser has determined through an examination of the mortgage loans and their
originators (which may include an examination of such factors as percentage
of family income dedicated to loan service and the relationship between loan
value and market value) that the purchase of the mortgages should not
represent a significant risk of loss to the Fund.


                                         -13-


FOREIGN SECURITIES

     Spectrum Fund may invest up to 10% of the market value of its total
assets in securities of foreign issuers which are not traded in the U.S.
(Securities of foreign issuers which are U.S. dollar denominated and issued
and publicly traded in the U.S., usually in the form of sponsored American
Depositary Receipts (ADRs), are not considered foreign securities for this
purpose and are not subject to this 10% limitation. Spectrum Fund may not,
however, invest more than 10% of its total assets in ADRs.) Bond Fund and
Mortgage Securities Fund may each invest up to 10% of its total assets in
foreign securities. Such securities are typically publicly traded but may in
some cases be issued as private placements (each Fund will treat private
placement securities as illiquid securities which, when aggregated with all
other illiquid securities, may not exceed 15% of the Fund's net assets). In
addition, International Fund may invest in foreign securities without
limitation.

     Investing in securities of foreign issuers may result in greater risk than
that incurred in investing in securities of domestic issuers.  There is the
possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with
respect to investments in foreign nations; foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations.  In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the U.S. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to U.S. companies.  Further, the Fund may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
 Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher.  Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets.  In many foreign countries there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S.  The foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than
those in the U.S.  Also, some countries may withhold portions of interest,
dividends and gains at the source. The Fund may also be unfavorably affected
by fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased).  There are further risk
considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.

     The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro.  It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund.  The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.  To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.

     Furthermore, International Fund may invest in securities issued by
governments, governmental agencies and companies located in developing market
countries.  The Fund considers countries having developing markets to be all
countries that are generally considered to be developing or emerging countries
by the International Bank for Reconstruction and Development (more commonly
referred to as the World Bank) and the International Finance Corporation, as
well as countries that are classified by the United Nations or otherwise
regarded by their authorities as developing.  Currently, the countries not
included in this category are Ireland, Spain, New Zealand, Australia, the United
Kingdom, Italy, the Netherlands, Belgium, Austria, France, Canada, Germany,
Denmark, the United States, Sweden, Finland, Norway, Japan and Switzerland.  In
addition, developing market securities means (i) securities of companies the
principal securities trading market for which is a developing market country, as
defined above, (ii) securities, traded in any market, of companies that derive
50% or more of their total revenue from either goods or services produced in
such developing market countries or sales made in such developing market
countries or (iii) securities of companies organized under the laws of, and with
a principal office in, a developing market country.  International Fund will at
all times, except during temporary defensive periods, maintain investments in at
least three countries having developing markets.


                                         -14-


     An American Depositary Receipt ("ADR") is a negotiable certificate,
usually issued by a U.S. bank, representing ownership of a specific number of
shares in a non-U.S. corporation. ADRs are quoted and traded in U.S. dollars
in the U.S. securities market. An ADR is sponsored if the original issuing
company has selected a single U.S. bank to serve as its U.S. depositary and
transfer agent.  This relationship requires a deposit agreement which defines
the rights and duties of both the issuer and depositary.  Companies that
sponsor  ADRs must also provide their ADR investors with English translations
of company information made public in their own domiciled country.  Sponsored
ADR investors also generally have the same voting rights as ordinary
shareholders, barring any unusual circumstances.  ADRs which meet these
requirements can be listed on U.S. stock exchanges. Unsponsored ADRs are
created at the initiative of a broker or bank reacting to demand for a
specific foreign stock.  The broker or bank purchases the underlying shares
and deposits them in a depositary.  Unsponsored shares issued after 1983 are
not eligible for U.S. stock exchange listings.  Furthermore, they do not
generally include voting rights.

     In addition, International Fund may invest in European Depositary Receipts,
which are receipts evidencing an arrangement with a European bank similar to
that for ADRs and which are designed for use in the European securities markets.
European Depository Receipts are not necessarily denominated in the currency of
the underlying security.

INVESTMENTS IN RUSSIA

     International Fund may invest in securities of Russian companies, which
involves risks and special considerations not typically associated with
investing in United States securities markets.  Since the breakup of the Soviet
Union at the end of 1991, Russia has experienced dramatic political and social
change.  The political system in Russia is emerging from a long history of
extensive state involvement in economic affairs.  The country is undergoing a
rapid transition from a centrally-controlled command system to a
market-oriented, democratic model.  The Fund may be affected unfavorably by
political or diplomatic developments, social instability, changes in government
policies, taxation and interest rates, currency repatriation restrictions and
other political and economic developments in the law or regulations in Russia
and, in particular, the risks of expropriation, nationalization and confiscation
of assets and changes in legislation relating to foreign ownership.

     The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a
market-oriented economy.  In general, relative to companies operating in Western
economies, companies in Russian are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations.  It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy.  Russia's economy has experienced severe economic recession, if not
depression, since 1990 during which time the economy has been characterized by
high rates of inflation, high rates of unemployment, declining gross domestic
product, deficit government spending, and a devaluing currency.  The economic
reform program has involved major disruptions and dislocations in various
sectors of the economy, and those problems have been exacerbated by growing
liquidity problems.  Further, Russia presently receives significant financial
assistance from a number of countries through various programs.  To the extent
these programs are reduced or eliminated in the future, Russian economic
development may be adversely impacted.


                                     -15-


     The Russian securities markets are substantially smaller, less liquid
and significantly more volatile than the securities markets in the United
States. In addition, there is little historical data on these securities
markets because they are of recent origin.  A substantial proportion of
securities transactions in Russia are privately negotiated outside of stock
exchanges and over-the-counter markets.  A limited number of issuers
represent a disproportionately large percentage of market capitalization and
trading volume. Although evolving rapidly, even the largest of Russia's stock
exchanges are not well developed compared to Western stock exchanges.  The
actual volume of exchange-based trading in Russia is low and active on-market
trading generally occurs only in the shares of a few private companies.  Most
secondary market trading of equity securities occurs through over-the-counter
trading facilitated by a growing number of licensed brokers.  Shares are
traded on the over-the-counter market primarily by the management of
enterprises, investment funds, short-term speculators and foreign investors.
The securities of Russian companies are mostly traded over-the-counter and,
despite the large number of stock exchanges, there is still no organized
public market for such securities. This may increase the difficulty of
valuing the Fund's investments.  No established secondary markets may exist
for many of the securities in which the Fund may invest.  Reduced secondary
market liquidity may have an adverse effect on market price and the Fund's
ability to dispose of particular instruments when necessary to meet its
liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer.  Reduced secondary
market liquidity for securities may also make it more difficult for the Fund
to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value.  Market quotations are generally
available on many emerging country securities only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or
prices for actual sales.

     Because of the recent formation of the securities markets as well as the
underdeveloped state of the banking and telecommunications systems,
settlement, clearing and registration transactions are subject to significant
risks not normally associated with investments in the United States and other
more developed markets.  Ownership of shares (except where shares are held
through depositories that meet the requirements of the 1940 Act) is defined
according to entries in the company's share register and normally evidenced
by extracts from the register or in certain limited cases by formal share
certificates.  However, there is not a central registration system and these
services are carried out by the companies themselves or by registrars located
throughout Russia.  These registrars are not necessarily subject to effective
state supervision and its possible for the Fund to lose its registration
through fraud, negligence and even mere oversight.  The laws and regulations
in Russia affecting Western investment business continue to evolve in an
unpredictable manner.  Russian laws and regulations, particularly those
involving taxation, foreign investment and trade, title to property or
securities, and transfer of title, applicable to the Fund's activities are
relatively new and can change quickly and unpredictably in a manner far more
volatile than in the United States or other developed market economies.
Although basic commercial laws are in place, they are often unclear or
contradictory and subject to varying interpretation, and may at any time be
amended, modified, repealed or replaced in a manner adverse to the interest
of the Fund.  There is still lacking a cohesive body of law and precedents
normally encountered in business environments.  Foreign investment in Russian
companies is, in certain cases, legally restricted.  Sometimes these
restrictions are contained in constitutional documents of an enterprise which
are not publicly available. Russian foreign investment legislation currently
guarantees the right of foreign investors to transfer abroad income received
on investments such as profits, dividends and interest payments.  This right
is subject to settlement of all applicable taxes and duties.  However, more
recent legislation governing currency regulation and control guarantees the
right to export interest, dividends and other income on investments, but does
not expressly permit the repatriation of capital from the realization of
investments.  Current practice is to recognize the right to repatriation of
capital.  Authorities currently do not attempt to restrict repatriation
beyond the extent of the earlier law.  No guarantee can be made, however,
that amounts representing realization of capital of income will be capable of
being remitted.  If, for any reason, the Fund were unable to distribute an
amount equal to substantially all of its investment company taxable income
(as defined for U.S. tax purposes) within applicable time periods, the Fund
would not qualify for the favorable U.S. federal income tax treatment
afforded to regulated investment companies, or, even if it did so qualify, it
might become liable for income and excise taxes on undistributed income.


                                     -16-


     Russian courts lack experience in commercial dispute resolution and many
of the procedural remedies for enforcement and protection of legal rights
typically found in Western jurisdictions are not available in Russia.  There
remains uncertainty as to the extent to which local parties and entities,
including Russian state authorities, will recognize the contractual and other
rights of the parties with which they deal.  Accordingly, there will be
difficulty and uncertainty in the Fund's ability to protect and enforce its
rights against Russian state and private entities.  There is also no
assurance that the Russian courts will recognize or acknowledge that the Fund
has acquired title to any property or securities in which the Fund invests,
or that the Fund is the owner of any property or security held in the name of
a nominee which has acquired such property or security on behalf of the Fund,
because there is at present in Russia no reliable system or legal framework
regarding the registration of titles.  There can be no assurance that this
difficulty in protecting and enforcing rights in Russia will not have a
material adverse effect on the Fund and its operations.  Difficulties are
likely to be encountered enforcing judgments of foreign courts within Russia
or of Russian courts in foreign jurisdictions due to the limited number of
countries which have signed treaties for mutual recognition of court
judgments with Russia.

CURRENCY EXCHANGE TRANSACTIONS

     SPOT EXCHANGE TRANSACTIONS. International Fund usually effects currency
exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing
in the foreign exchange market. However, some price spread on currency
exchange will be incurred when the Fund converts assets from one currency to
another.  Further, the Fund may be affected either unfavorably or favorably
by fluctuations in the relative rates of exchange between the currencies of
different nations.  For example, in order to realize the value of a foreign
investment, the Fund must convert that value, as denominated in its foreign
currency, into U.S. dollars using the applicable currency exchange rate.  The
exchange rate represents the current price of a U.S. dollar relative to that
foreign currency; that is, the amount of such foreign currency required to
buy one U.S. dollar.  If the Fund holds a foreign security which has
appreciated in value as measured in the foreign currency, the level of
appreciation actually realized by the Fund may be reduced or even eliminated
if the foreign currency has decreased in value relative to the U.S. dollar
subsequent to the date of purchase.  In such a circumstance, the cost of a
U.S. dollar purchased with that foreign currency has gone up and the same
amount of foreign currency purchases fewer dollars than at an earlier date.

         FORWARD EXCHANGE CONTRACTS. International Fund also has the authority
to deal in forward foreign currency exchange contracts between currencies of the
different countries in which such Portfolios may invest for speculative
purposes. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at the time
of the contract. Forward exchange contracts are individually negotiated and
privately traded by currency traders and their customers. These forward foreign
currency exchange contracts may involve the sale of U.S. dollars and the
purchase of a foreign currency, or may be foreign cross-currency contracts
involving the sale of one foreign currency and the purchase of another foreign
currency (such foreign cross-currency contracts may be considered a hedging
rather than a speculative strategy if the Fund's commitment to purchase the new
(more favorable) currency is limited to the market value of the Fund's
securities denominated in the old (less favorable) currency - see "Foreign
Currency Hedging Transactions," below). Because these transactions are not
entered into for hedging purposes, the Fund's custodian bank maintains, in a
separate account of the Fund, liquid assets, such as cash, short-term securities
and other liquid securities (marked to the market daily), having a value equal
to, or greater than, any commitments to purchase currency on a forward basis.
The prediction of currency movements is extremely difficult and the successful
execution of a speculative strategy is highly uncertain.

FOREIGN CURRENCY HEDGING TRANSACTIONS

         FORWARD EXCHANGE CONTRACTS. International Fund has authority to deal
in forward foreign currency exchange contracts between currencies of the
different countries in which the Fund will invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and prices set at the time of the
contract. Forward exchange contracts are individually negotiated and privately
traded by currency traders and their customers. The Fund's dealings in forward
foreign exchange contracts entered into for the purpose of hedging will be
limited to hedging involving specific transactions, portfolio positions or
foreign cross-currency hedging.

         Transaction hedging is the purchase or sale of forward foreign currency
with respect to specific receivables or payables of the Fund arising from the
purchase and sale of portfolio securities, the sale and redemption of shares of
the Fund, or the payment of dividends and distributions by the Fund. (An example
of a transaction hedge is when the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the price of the security in a particular currency). Position hedging is the
sale of forward foreign exchange contracts into U.S. dollars with respect to
portfolio security positions denominated or quoted in such foreign currency. (An
example of a position hedge is if the Fund's sub-adviser believes that a foreign
currency - for example the Japanese yen - may suffer a decline against another
currency - for example the U.S. dollar - it may enter into a forward sale
contract to sell an amount of the foreign currency expected to decline - the
Japanese yen - that approximates the value of some or all of the Fund's
investment securities denominated in the Japanese yen). Foreign cross-currency
hedging occurs when the Fund's investment sub-adviser believes a particular
foreign currency may enjoy a substantial movement against another foreign
currency and the sub-adviser decides to enter into a forward contract to sell
the less favorable foreign currency in which certain Fund securities are
denominated and to buy the more favorable foreign currency in an amount not to
exceed the total market value of the Fund's securities denominated in the less
favorable currency.

         The prediction of short-term currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.


                                         -17-


     It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract.  Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency.  Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.

     If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices.  If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency.  Should forward prices decline during the period between the
Fund entering into a forward contract for the sale of a foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase.  Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.

     CURRENCY FUTURES CONTRACTS.  International Fund may also enter into
exchange-traded contracts for the purchase or sale for future delivery of
foreign currencies ("foreign currency futures").  This investment technique will
be used only to hedge against anticipated future changes in exchange rates which
otherwise might adversely affect the value of the Fund's portfolio securities or
adversely affect the prices of securities that the Fund intends to purchase at a
later date.  The successful use of foreign currency futures will usually depend
on the ability of the Fund's investment sub-adviser to forecast currency
exchange rate movements correctly.  Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.

CLOSED-END INVESTMENT COMPANIES

     Some countries, such as South Korea, Chile and India, have authorized the
formation of closed-end investment companies to facilitate indirect foreign
investment in their capital markets.  In accordance with the Investment Company
Act of 1940, International Fund may invest up to 10% of its total assets in
securities of closed-end investment companies.  This restriction on investments
in securities of closed-end investment companies may limit opportunities for the
International Fund to invest indirectly in certain developing markets.  Shares
of certain closed-end investment companies may at times be acquired only at
market prices representing premiums to their net asset values.  If the
International Fund acquires shares of closed-end investment companies,
shareholders would bear both their proportionate share of expenses of the
International Fund (including management and advisory fees) and, indirectly, the
expenses of such closed-end investment companies.


REAL ESTATE INVESTMENT TRUST SECURITIES

         Spectrum Fund may invest in securities issued by real estate
investment trusts. A real estate investment trust ("REIT") is a corporation
or a business trust that would otherwise be taxed as a corporation, which
meets certain requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). The Code permits a qualifying REIT to deduct dividends paid,
thereby effectively eliminating corporate level federal income tax and making
the REIT a pass-through vehicle for federal income tax purposes. In order to
qualify as a REIT, a company must derive at least 75% of its gross income
from real estate sources (rents, mortgage interest, and gains from sale of
real estate assets), and must distribute to shareholders annually 95% or more
of its taxable income. Moreover, at the end of each quarter of its taxable
year, at least 75% of the value of its total assets must be represented by
real estate assets, cash and cash items and U.S. government securities.

         REITs are sometimes informally characterized as equity REITs,
mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee
ownership or leasehold ownership of land and buildings and derives its income
primarily from rental income. A mortgage REIT invests primarily in mortgages
on real estate, and derives primarily from interest payments received on
credit it has granted. A hybrid REIT combines the characteristics of equity
REITs and mortgage REITs. It is anticipated, although not required, that
under normal circumstances, a majority of the Fund investments in REITs will
consist of equity REITs.


                                         -18-


LOANS OF PORTFOLIO SECURITIES

     For the purpose of realizing additional income, Spectrum Fund, Mortgage
Securities Fund, Money Market Fund, Bond Fund and International Fund may make
secured loans of portfolio securities amounting to not more than one-third of
their respective total assets  (which, for purposes of this limitation, will
include the value of collateral received in return for securities loaned).
Collateral received in connection with securities lending shall not be
considered Fund assets, however, for purposes of compliance with any
requirement described in a Fund's prospectus that the Fund invest a specified
minimum percentage of its assets in certain types of securities (e.g.,
securities of small companies).  Securities loans are made to broker-dealers
or financial institutions pursuant to agreements requiring that the loans be
continuously secured by collateral at least equal at all times to the value
of the securities lent.  The collateral received will consist of cash,
letters of credit or securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.  While the securities are being lent, the
Fund will continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities, as well as interest on the investment
of the collateral or a fee from the borrower. Although the Fund does not
expect to pay commissions or other front-end fees (including finders fees) in
connection with loans of securities (but in some cases may do so), a portion
of the additional income realized will be shared with the Fund's custodian
for arranging and administering such loans.  The Fund has a right to call
each loan and obtain the securities on five business days' notice.  The Fund
will not have the right to vote securities while they are being lent, but it
will call a loan in anticipation of any important vote.  The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially.  Loans will only be made to firms deemed by the Fund's
investment adviser or sub-adviser to be of good standing and to have
sufficient financial responsibility, and will not be made unless, in the
judgment of the Fund's investment adviser or sub-adviser, the consideration
to be earned from such loans would justify the risk.  The creditworthiness of
entities to which the Fund makes loans of portfolio securities is monitored
by the Fund's investment adviser or sub-adviser throughout the term of each
loan.

     Deutsche Bank AG acts as the securities lending agent on behalf of the
International Fund. It has obtained an SEC exemptive order through its
affiliate, Bankers Trust Company, which allows securities lending cash
collateral to be invested in a single money market fund (affiliated with
Deutsche Bank and Bankers Trust Company) in amounts which are not subject to
the limits of sections 12(d)(1)(A) and 12(d)(1)(B) of the Investment Company
Act of 1940. The effect of this is that up to one-third of the total assets
of the International Fund can be invested in such a money market fund in
connection with the securities lending program.

RESTRICTED AND ILLIQUID SECURITIES

     Each Fund may invest up to 15% (10% in the case of Money Market Fund) of
its net assets in securities restricted as to disposition under the federal
securities laws or otherwise, or other illiquid assets.  An investment is
generally deemed to be "illiquid" if it cannot be disposed of within seven
days in the ordinary course of business at approximately the amount at which
the investment company is valuing the investment.  "Restricted securities"
are securities which were originally sold in private placements and which
have not been registered under the Securities Act of 1933 (the "1933 Act").
Such securities generally have been considered illiquid by the staff of the
Securities and Exchange Commission (the "SEC"), since such securities may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act.  Because of such restrictions, the Fund may not be able
to dispose of a block of restricted securities for a substantial period of
time or at prices as favorable as those prevailing in the open market should
like securities of an unrestricted class of the same issuer be freely traded.
 The Fund may be required to bear the expenses of registration of such
restricted securities.

     The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, the Fund's investment adviser and sub-adviser believe
that a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and for certain
interest-only and principal-only classes of mortgage-backed and asset-backed
securities. Each of the Funds may invest without limitation in these forms of
restricted securities if such securities are deemed by the Fund's investment
adviser or sub-adviser to be liquid in accordance with standards established
by the Fund's Board of Directors.  Under these guidelines, the Fund's
investment adviser or sub-adviser must consider (a) the frequency of trades
and quotes for the security, (b) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).  At the present time, it is not possible to predict
with accuracy how the markets for certain restricted securities will develop.
Investing in such restricted securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified purchasers
of the securities become, for a time, uninterested in purchasing these
securities.


                                         -19-


     If through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Fund is in a position where more than 15% (10%
in the case of Money Market Fund) of its net assets are invested in restricted
and other illiquid securities, the Fund will take appropriate steps to protect
liquidity.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

     Mortgage Securities Fund, Spectrum Fund, Bond Fund and International Fund
may each purchase securities offered on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis.  When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the securities
takes place at a later date.  Normally, the settlement date occurs within two
months after the transaction, but delayed settlements beyond two months may be
negotiated.  During the period between a commitment to purchase by the Fund and
settlement, no payment is made for the securities purchased by the Fund and,
thus, no interest accrues to the Fund from the transaction.

     The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices.  For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to limit its
exposure to falling prices.  In periods of falling interest rates and rising
prices, the Fund might sell a security in its portfolio and purchase the same or
a similar security on a when-issued or forward commitment basis, thereby fixing
the purchase price to be paid on the settlement date at an amount below that to
which the Fund anticipates the market price of such security to rise and, in the
meantime, obtaining the benefit of investing the proceeds of the sale of its
portfolio security at currently higher cash yields.  Of course, the success of
this strategy depends upon the ability of the Fund's investment adviser or
sub-adviser to correctly anticipate increases and decreases in interest rates
and prices of securities.  If the Fund's investment adviser or sub-adviser
anticipates a rise in interest rates and a decline in prices and, accordingly,
the Fund sells securities on a forward commitment basis in order to hedge
against falling prices, but in fact interest rates decline and prices rise, the
Fund will have lost the opportunity to profit from the price increase.  If the
investment adviser or sub-adviser anticipates a decline in interest rates and a
rise in prices, and, accordingly, the Fund sells a security in its portfolio and
purchases the same or a similar security on a when-issued or forward commitment
basis in order to enjoy currently high cash yields, but in fact interest rates
increase and prices fall, the Fund will have lost the opportunity to profit from
investment of the proceeds of the sale of the security at the increased interest
rates.  The likely effect of this hedging strategy, whether the Fund's
investment adviser or sub-adviser is correct or incorrect in its prediction of
interest rate and price movements, is to reduce the chances of large capital
gains or losses and thereby reduce the likelihood of wide variations in the
Fund's net asset value.

     When-issued securities and forward commitments may be sold prior to the
settlement date, but, except for mortgage dollar roll transactions (as discussed
below), the Fund enters into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be.  The Fund may hold a when-issued security or forward commitment until the
settlement date, even if the Fund will incur a loss upon settlement.  To
facilitate transactions in when-issued securities and forward commitments, the
Fund's custodian bank maintains, in a separate account of the Fund, liquid
assets, such as cash, short-term securities and other liquid securities (marked
to the market daily), having a value equal to, or greater than, any commitments
to purchase securities on a when-issued or forward commitment basis and, with
respect to forward commitments to sell portfolio securities of the Fund, the
portfolio securities themselves.  If the Fund, however, chooses to dispose of
the right to acquire a when-issued security prior to its acquisition or dispose
of its right to deliver or receive against a forward commitment, it can incur a
gain or loss.  (At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or forward commitment basis, it records the
transaction and reflects the value of the security purchased or, if a sale, the
proceeds to be received, in determining its net asset value.)


                                         -20-


     The Fund may also enter into such transactions to generate incremental
income.  In some instances, the third-party seller of when-issued or forward
commitment securities may determine prior to the settlement date that it will be
unable or unwilling to meet its existing transaction commitments without
borrowing securities.  If advantageous from a yield perspective, the Fund may,
in that event, agree to resell its purchase commitment to the third-party seller
at the current market price on the date of sale and concurrently enter into
another purchase commitment for such securities at a later date.  As an
inducement for the Fund to "roll over" its purchase commitment, the Fund may
receive a negotiated fee.  These transactions, referred to as "mortgage dollar
rolls," are entered into without the intention of actually acquiring securities.
For a description of mortgage dollar rolls and the Funds that may invest in such
transactions, see "Mortgage Dollar Rolls" below.

     The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior to
their delivery.  Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself.  The Fund's purchase of securities on a when-issued or forward
commitment basis while remaining substantially fully invested increases the
amount of the Fund's assets that are subject to market risk to an amount that is
greater than the Fund's net asset value, which could result in increased
volatility of the price of the Fund's shares.  No more than 30% of the value of
such Fund's (other than International Fund's) total assets will be committed to
when-issued or forward commitment transactions, and of such 30%, no more than
two-thirds (i.e., 20% of its total assets) may be invested in mortgage dollar
rolls. No more than 20% of the value of International Fund's total assets will
be committed to when-issued or forward commitment transactions.

MORTGAGE DOLLAR ROLLS

     In connection with its ability to purchase securities on a when-issued or
forward commitment basis, Spectrum Fund, Bond Fund and Mortgage Securities Fund
may enter into mortgage "dollar rolls" in which the Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase similar (same type, coupon and maturity) but not
identical securities on a specified future date.  In a mortgage dollar roll, the
Fund gives up the right to receive principal and interest paid on the securities
sold.  However, the Fund would benefit to the extent of any difference between
the price received for the securities sold and the lower forward price for the
future purchase plus any fee income received.  Unless such benefits exceed the
income, capital appreciation and gain or loss due to mortgage prepayments that
would have been realized on the securities sold as part of the mortgage dollar
roll, the use of this technique will diminish the investment performance of the
Fund compared with what such performance would have been without the use of
mortgage dollar rolls.  The Fund will hold and maintain in a segregated account
until the settlement date cash or liquid securities in an amount equal to the
forward purchase price.  The benefits derived from the use of mortgage dollar
rolls may depend upon the ability of the Fund's investment adviser to predict
correctly mortgage prepayments and interest rates.  There is no assurance that
mortgage dollar rolls can be successfully employed.  In addition, the use of
mortgage dollar rolls by the Fund while remaining substantially fully invested
increases the amount of the Fund's assets that are subject to market risk to an
amount that is greater than the Fund's net asset value, which could result in
increased volatility of the price of the Fund's shares.

     For financial reporting and tax purposes, mortgage dollar rolls are
considered as two separate transactions:  one involving the sale of a security
and a separate transaction involving a purchase.  The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
"financing" rather than as a separate sale and purchase transactions.


                                         -21-


REPURCHASE AGREEMENTS

     Spectrum Fund, Money Market Fund, Bond Fund and International Fund may
enter into repurchase agreements.  Repurchase agreements are agreements by
which the Fund purchases a security and obtains a simultaneous commitment
from the seller (a member bank of the Federal Reserve System or, if permitted
by law or regulation and if the Board of Directors of the Fund has evaluated
its creditworthiness through adoption of standards of review or otherwise, a
securities dealer) to repurchase the security at an agreed upon price and
date. The creditworthiness of entities with whom the Fund enters into
repurchase agreements is monitored by the Fund's investment adviser or
sub-adviser throughout the term of the repurchase agreement.  The resale
price is in excess of the purchase price and reflects an agreed upon market
rate unrelated to the coupon rate on the purchased security.  Such
transactions afford the Fund the opportunity to earn a return on temporarily
available cash.  The Fund's custodian, or a duly appointed subcustodian,
holds the securities underlying any repurchase agreement in a segregated
account or such securities may be part of the Federal Reserve Book Entry
System.  The market value of the collateral underlying the repurchase
agreement is determined on each business day.  If at any time the market
value of the collateral falls below the repurchase price of the repurchase
agreement (including any accrued interest), the Fund promptly receives
additional collateral, so that the total collateral is in an amount at least
equal to the repurchase price plus accrued interest.  While the underlying
security may be a bill, certificate of indebtedness, note or bond issued by
an agency, authority or instrumentality of the United States Government, the
obligation of the seller is not guaranteed by the United States Government.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the
underlying security and losses, including:  (a) possible decline in the value
of the underlying security during the period while the Fund seeks to enforce
its rights thereto; (b) possible subnormal levels of income and lack of
access to income during this period; and (c) expenses of enforcing its rights.

REVERSE REPURCHASE AGREEMENTS

     Spectrum Fund and Money Market Fund may also enter into reverse repurchase
agreements.  Reverse repurchase agreements are the counterparts of repurchase
agreements, by which the Fund sells a security and agrees to repurchase the
security from the buyer at an agreed upon price and future date.  Because
certain of the incidents of ownership of the security are retained by the Fund,
reverse repurchase agreements may be considered a form of borrowing by the Fund
from the buyer, collateralized by the security.  The Fund uses the proceeds of a
reverse repurchase agreement to purchase other money market securities either
maturing, or under an agreement to resell, at a date simultaneous with or prior
to the expiration of the reverse repurchase agreement.  The Fund utilizes
reverse repurchase agreements when the interest income to be earned from
investment of the proceeds of the reverse repurchase transaction exceeds the
interest expense of the transaction.


                                         -22-


     The use of reverse repurchase agreements by the Fund allows it to leverage
its portfolio.  While leveraging offers the potential for increased yield, it
magnifies the risks associated with the Fund's investments and reduces the
stability of the Fund's net asset value per share.  To limit this risk, the Fund
will not enter into a reverse repurchase agreement if all such transactions,
together with any money borrowed, exceed 5% of the Fund's net assets.  In
addition, when entering into reverse repurchase agreements, the Fund will
deposit and maintain in a segregated account with its custodian liquid assets,
such as cash or cash equivalents and other appropriate short-term securities and
high grade debt obligations, in an amount equal to the repurchase price (which
shall include the interest expense of the transaction). Moreover, the Money
Market Fund will not enter into reverse repurchase agreements if and to the
extent such transactions would, as determined by the Fund's investment adviser,
materially increase the risk of a significant deviation in the Fund's net asset
value per share. See "Money Market Fund Amortized Cost Method of Portfolio
Valuation" below.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

     FUTURES CONTRACTS. Consistent with their investment objectives and
strategies, the Funds may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts. (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to as
"futures contracts.")

     A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and the seller in
cash. Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.

     Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, and U.S. Treasury Bills. In addition, interest rate futures
contracts include contracts on indexes of municipal securities. Foreign currency
futures contracts currently are traded on the British pound, Canadian dollar,
Japanese yen, Swiss franc, West German mark, and on Eurodollar deposits.

     Stock index futures contracts include contracts on the S&P 500 Index and
other broad-based stock market indexes, as well as contracts based on narrower
market indexes or indexes of securities of particular industry groups. A stock
index assigns relative values to the common stocks included in the index and the
index fluctuates with the value of the common stocks so included. The parties to
a stock index futures contract agree to make a cash settlement on a specific
future date in an amount determined by the value of the stock index on the last
trading day of the contract. The amount is a specified dollar amount times the
difference between the value of the index on the last trading day and the value
on the day the contract was struck.


                                         -23-


     Purchases or sales of stock index futures contracts are used to attempt to
protect current or intended stock investments from broad fluctuations in stock
prices. Interest rate and foreign currency futures contracts are purchased or
sold to attempt to hedge against the effects of interest or exchange rate
changes on a Fund's current or intended investments in fixed income or foreign
securities. In the event that an anticipated decrease in the value of a Fund's
securities occurs as a result of a general stock market decline, a general
increase in interest rates, or a decline in the dollar value of foreign
currencies in which portfolio securities are denominated, the adverse effects of
such changes may be offset, in whole or in part, by gains on the sale of futures
contracts. Conversely, the increased cost of a Fund's securities to be acquired,
caused by a general rise in the stock market, a general decline in interest
rates, or a rise in the dollar value of foreign currencies, may be offset, in
whole or in part, by gains on futures contracts purchased by such Fund.

     Although many futures contracts by their terms call for actual delivery or
acceptance of the financial instrument, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out a short position is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument and the same
delivery month. If the price of the initial sale of the futures contract exceeds
the price of the offsetting purchase, the seller is paid the difference and
realizes a gain. Conversely, if the price of the offsetting purchase exceeds the
price of the initial sale, the trader realizes a loss. Similarly, the closing
out of a long position is effected by the purchaser entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
purchaser realizes a gain and, if the purchase price exceeds the offsetting sale
price, the purchaser realizes a loss.

     The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received. Instead, an
amount of cash or cash equivalents, which varies but may be as low as 5% or less
of the value of the contract, must be deposited with the broker as "initial
margin." Subsequent payments to and from the broker, referred to as "variation
margin," are made on a daily basis as the value of the index or instrument
underlying the futures contract fluctuates, making positions in the futures
contracts more or less valuable, a process known as "marking to the market."

     U.S. futures contracts may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
("CFTC") for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a futures contract by
in effect taking the opposite side of such contract. At any time prior to the
expiration of a futures contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it. Futures contracts may also be traded on foreign
exchanges.

     OPTIONS ON FUTURES CONTRACTS. The Funds also may purchase and sell put and
call options on futures contracts and enter into closing transactions with
respect to such options to terminate existing positions. The Funds may use such
options on futures contracts in connection with their hedging strategies in lieu
of purchasing and writing options directly on the underlying securities or
purchasing and selling the underlying futures contracts.

     An option on a futures contract provides the holder with the right to enter
into a "long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearing house establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position, in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts, such as payment of variation margin
deposits. In addition, the writer of an option on a futures contract, unlike the
holder, is subject to initial and variation margin requirements on the option
position.


                                         -24-


     A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase or
sale transaction, subject to the availability of a liquid secondary market,
which is the purchase or sale of an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.

     Options on futures contracts that are written or purchased by the Funds on
United States exchanges are traded on the same contract market as the underlying
futures contract and, like futures contracts, are subject to regulation by the
CFTC and the performance guarantee of the exchange clearing house. In addition,
options on futures contracts may be traded on foreign exchanges.

     RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The use of
futures contracts and options on futures contracts will expose the Funds to
additional investment risks and transactions costs. Risks include:

- -    the risk that interest rates, securities prices or currency markets will
     not move in the direction that the Fund's investment adviser or sub-adviser
     anticipates;

- -    an imperfect correlation between the price of the instrument and movements
     in the prices of any securities or currencies being hedged;

- -    the possible absence of a liquid secondary market for any particular
     instrument and possible exchange imposed price fluctuation limits;

- -    leverage risk, which is the risk that adverse price movements in an
     instrument can result in a loss substantially greater than a Fund's initial
     investment in that instrument; and

- -    the risk that the counterparty to an instrument will fail to perform its
     obligations.

     REGULATORY MATTERS. To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when entering
into futures contracts each Fund will maintain, in a segregated account, cash or
liquid securities equal to the value of such contracts.

     The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended. The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in a
business which is of the nature of a company, syndicate or a similar form of
enterprise, and who, in connection therewith, solicits, accepts or receives from
others, funds, securities or property for the purpose of trading in any
commodity for future delivery on or subject to the rules of any contract market.
The CFTC has adopted Rule 4.5, which provides an exclusion from the definition
of commodity pool operator for any registered investment company which meets the
requirements of the Rule. Rule 4.5 requires, among other things, that an
investment company wishing to avoid commodity pool operator status use futures
and options positions only (a) for "bona fide hedging purposes" (as defined in
CFTC regulations) or (b) for other purposes so long as aggregate initial margins
and premiums required in connection with non-hedging positions do not exceed 5%
of the liquidation value of the investment company's portfolio. Any investment
company wishing to claim the exclusion provided in Rule 4.5 must file a notice
of eligibility with both the CFTC and the National Futures Association. Before
engaging in transactions involving futures contracts, the Funds will file such
notices and meet the requirements of Rule 4.5, or such other requirements as the
CFTC or its staff may from time to time issue, in order to render registration
as a commodity pool operator unnecessary.

     For examples of futures contracts and their tax treatment, see Appendix C
to this Statement of Additional Information.

OPTIONS

     Each Fund may write (i.e., sell) covered call and secured put options and
purchase and sell put and call options written by others. Each Fund will limit
the total market value of


                                         -25-


securities against which it may write call or put options to 20% of its total
assets. In addition, no Fund will commit more than 5% of its total assets to
premiums when purchasing put or call options.

     A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of the
option. A call option gives the purchaser the right to purchase a security or
other instrument from the writer of the option at a stated price during the term
of the option. Thus, if a Fund writes a call option on a security, it becomes
obligated during the term of the option to deliver the security underlying the
option upon payment of the exercise price. If a Fund writes a put option, it
becomes obligated during the term of the option to purchase the security
underlying the option at the exercise price if the option is exercised.

     Funds may use put and call options for a variety of purposes. For example,
if a portfolio manager wishes to hedge a security a Fund owns against a decline
in price, the manager may purchase a put option on the underlying security;
I.E., purchase the right to sell the security to a third party at a stated
price. If the underlying security then declines in price, the manager can
exercise the put option, thus limiting the amount of loss resulting from the
decline in price. Similarly, if the manager intends to purchase a security at
some date in the future, the manager may purchase a call option on the security
today in order to hedge against an increase in its price before the intended
purchase date. Put and call options also can be used for speculative purposes.
For example, if a portfolio manager believes that the price of stocks generally
is going to rise, the manager may purchase a call option on a stock index, the
components of which are unrelated to the stocks held or intended to be
purchased. Finally, a portfolio manager may write options on securities owned in
order to realize additional income. Funds receive premiums from writing call or
put options, which they retain whether or not the options are exercised.

     By writing a call option, a Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option a Fund
might become obligated to purchase the underlying security for more than its
current market price upon exercise. If a Fund purchases a put or call option,
any loss to the Fund is limited to the premium paid for, and transaction costs
paid in connection with, the option.

     OPTIONS ON SECURITIES. An option on a security provides the purchaser, or
"holder," with the right, but not the obligation, to purchase, in the case of a
"call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although this entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered." A call option written by a Fund is "covered" if the
Fund owns the underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Fund holds a call on the same
security and in the same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise price of the
call written or (b) is greater than the exercise price of the call written if
the difference is maintained by the Fund in cash and liquid securities in a
segregated account with its custodian. A put option written by a Fund is
"covered" if the Fund maintains cash and liquid securities with a value equal to
the exercise price in a segregated account with its custodian, or else holds a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater than the
exercise price of the put written. If the writer's obligation is not so covered,
it is subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.

     Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise


                                         -26-


or expiration by entering into an offsetting transaction on the exchange on
which the initial position was established, subject to the availability of a
liquid secondary market.

     Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC. The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indexes of securities only through a registered
broker-dealer which is a member of the exchange on which the option is traded.

     In addition, options on securities and options on indexes of securities may
be traded on exchanges located outside the United States and over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. While exchange-traded options have a continuous liquid market,
over-the-counter options may not.

     OPTIONS ON STOCK INDEXES. In contrast to an option on a security, an option
on a stock index provides the holder with the right to make or receive a cash
settlement upon exercise of the option, rather than the right to purchase or
sell a security. The amount of this settlement is equal to (a) the amount, if
any, by which the fixed exercise price of the option exceeds (in the case of a
call) or is below (in the case of a put) the closing value of the underlying
index on the date of exercise, multiplied by (b) a fixed "index multiplier." The
purchaser of the option receives this cash settlement amount if the closing
level of the stock index on the day of exercise is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount if the option is exercised. As in the case of
options on securities, the writer or holder may liquidate positions in stock
index options prior to exercise or expiration by entering into closing
transactions on the exchange on which such positions were established, subject
to the availability of a liquid secondary market.

     A Fund will cover all options on stock indexes by owning securities whose
price changes, in the opinion of the Fund's adviser or sub-adviser, are expected
to be similar to those of the index, or in such other manner as may be in
accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations. Nevertheless, where a Fund covers a call option
on a stock index through ownership of securities, such securities may not match
the composition of the index. In that event, the Fund will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. The Funds will secure put options on stock indexes by
segregating assets equal to the option's exercise price, or in such other manner
as may be in accordance with the rules of the exchange on which the option is
traded and applicable laws and regulations.

     The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange Composite
Index, the changes in value of which ordinarily will reflect movements in the
stock market in general. In contrast, certain options may be based upon narrower
market indexes, such as the Standard & Poor's 100 Index, or on indexes of
securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stocks
included in the index and the index fluctuates with changes in the market values
of the stocks so included.

WARRANTS

     Spectrum Fund, Bond Fund and International Fund may invest in warrants.
Warrants are instruments that allow investors to purchase underlying shares
at a specified price (exercise price) at a given future date.  The market
price of a warrant is determined by market participants by the addition of
two distinct components:  (1) the price of the underlying shares less the
warrant's exercise price, and (2) the warrant's premium that is attributed to
volatility and leveraging power. Warrants are pure speculation in that they
have no voting rights, pay no dividends and have no rights with respect to
the assets of the corporation issuing them.  The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.

     It is not expected that Bond Fund will invest in common stocks or equity
securities other than warrants, but it may retain for reasonable periods of time
up to 5% of its total assets in common stocks acquired upon conversion of debt
securities or preferred stocks or upon exercise of warrants.


                                         -27-


WARRANTS WITH CASH EXTRACTIONS

     International Fund may also invest up to 5% of its assets in warrants used
in conjunction with the cash extraction method.  If an investor wishes to
replicate an underlying share, the investor can use the warrant with cash
extraction method by purchasing warrants and holding cash.  The cash component
would be determined by subtracting the market price of the warrant from the
underlying share price.

     For example, ASSUME one share for company "Alpha" has a current share price
of $40 and issued warrants can be converted one for one share at an exercise
price of $31 exercisable two years from today.  Also ASSUME that the market
price of the warrant is $10 ($40 - $31 + $1) because investors are willing to
pay a premium ($1) for previously stated reasons.  If an investor wanted to
replicate an underlying share by engaging in a warrant with cash extraction
strategy, the amount of cash the investor would need to hold for every warrant
would be $30 ($40 - $10 = $30).  A warrant with cash extraction is, thus, simply
a synthetically created quasi-convertible bond.

     If an underlying share issues no or a low dividend and has an associated
warrant with a market price that is low relative to its share price, a warrant
with cash extraction may provide attractive cash yields and minimize capital
loss risk, provided the underlying share is also considered a worthy investment.
For example, ASSUME Alpha's share is an attractive investment opportunity and
its share pays no dividend.  Given the information regarding Alpha provided
above, also ASSUME that short-term cash currently yields 5% per year and that
the investor plans to hold the investment at least two years, barring
significant near-term capital appreciation.  If the share price were to fall
below $30, the warrant with cash extraction strategy would yield a lower loss
than the underlying share because an investor cannot lose more than the purchase
cost of the warrant (capital risk minimized).  The cash component for this
strategy would yield $3.08 after two years (compound interest).  The total value
of the underlying investment would be $43.08 versus $40.00 for the non-yielding
underlying share (attractive yield).  Finally, it is important to note that this
strategy will not be pursued if it is not economically more attractive than
underlying shares.

INDEX DEPOSITARY RECEIPTS

     Spectrum Fund may invest up to 10% of its total assets in one or more
types of depositary receipts ("DRs") as a means of tracking the performance
of a designated stock index while maintaining liquidity.  No more than 5% of
a Fund's total assets may be invested in any one DR.  The Fund may invest in
S&P 500 Depositary Receipts ("SPDRs"), which track the S&P 500 Index; S&P
MidCap 400 Depositary Receipts ("MidCap SPDRs"), which track the S&P MidCap
400 Index; and "Dow Industrial Diamonds," which track the Dow Jones
Industrial Average, or in other DRs which track indexes, provided that such
investments are consistent with the Fund's investment objective as determined
by the Fund's investment adviser.  Each of these securities represents shares
of ownership of a long term unit investment trust (a type of investment
company) that holds all of the stock included in the relevant underlying
index.

                                         -28-


     DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded.  As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs.  In
addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).

     Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index.  DRs share in the same
market risks as other equity investments.

SHORT SALES AGAINST THE BOX

     Each Fund may sell securities "short against the box."  Whereas a short
sale is the sale of a security the Fund does not own, a short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities sold short or other securities
convertible into or exchangeable without further consideration for securities of
the same issue as the securities sold short.  Short sales against the box are
typically used by sophisticated investors to defer recognition of capital gains
or losses.  The Funds have no present intention to sell securities short in this
fashion.

DEFENSIVE PURPOSES

     The Funds may invest up to 20% of their respective net assets in cash or
cash items.  In addition, for temporary or defensive purposes, the Funds may
invest in cash or cash items without limitation.  The "cash items" in which
the Funds may invest, include short-term obligations such as rated commercial
paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government
or its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.  The
other mutual funds in which the Funds may so invest include money market
funds advised by the Fund's investment adviser.

                           INVESTMENT RESTRICTIONS

     Each of the Funds is "diversified" as defined in the Investment Company Act
of 1940.  This means that at least 75% of the value of the Fund's total assets
is represented by cash and cash items, government securities, securities of
other investment companies, and securities of other issuers, which for purposes
of this calculation, are limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer.


                                         -29-


     The Money Market Fund is also subject to the investment restrictions of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"),
in addition to its other policies and restrictions discussed below.  Pursuant
to Rule 2a-7, the Fund is required to invest exclusively in securities that
mature within 397 days from the date of purchase and to maintain an average
weighted maturity of not more than 90 days.  Rule 2a-7 also requires that all
investments by the Fund be limited to United States dollar-denominated
investments that (a) present "minimal credit risk" and (b) are at the time of
acquisition "Eligible Securities."  Eligible Securities include, among
others, securities that are rated by two Nationally Recognized Statistical
Rating Organizations ("NRSROs") in one of the two highest categories for
short-term debt obligations, such as A-1 or A-2 by S&P, or Prime-1 or Prime-2
by Moody's.

     Rule 2a-7 also requires, among other things, that the Money Market Fund may
not invest, other than in U.S. "Government securities" (as defined in the 1940
Act), (a) more than 5% of its total assets in Second Tier Securities (i.e.,
Eligible Securities that are not rated by two NRSROs in the highest category
such as A-1 and Prime-1) and (b) more than the greater of 1% of its total assets
or $1,000,000 in Second Tier Securities of any one issuer.  The Fund's present
practice is not to purchase any Second Tier Securities.

     In addition to the foregoing limitations, each Fund is subject to
certain "fundamental" investment restrictions, described below, which may not
be changed without the vote of a "majority" of the Fund's outstanding shares.
 As used in the applicable Prospectus and this Statement of Additional
Information, "majority" means the lesser of (i) 67% of a Fund's outstanding
shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
a Fund's outstanding shares.  Each Fund is also subject to certain other
investment restrictions which are not fundamental and may be changed by vote
of the Board of Directors without further shareholder approval.

FUNDAMENTAL RESTRICTIONS

     1.   Policy Regarding Borrowing and the Issuance of Senior Securities.

          The Fund will not borrow money or issue senior securities, except
          as permitted under the Investment Company Act of 1940, as amended,
          and as interpreted or modified from time to time by any regulatory
          authority having jurisdiction.


                                         -30-


     2.   Policy Regarding Concentration in a Particular Industry.

          BOND FUND, INTERNATIONAL BALANCED FUND AND SPECTRUM FUND.

          The Fund will not concentrate its investments in a particular
          industry. For purposes of this limitation, the United States
          Government, and state or municipal governments and their political
          subdivisions, are not considered members of any industry. Whether
          the Fund is concentrating in an industry shall be determined in
          accordance with the Investment Company Act of 1940, as amended, and
          as interpreted or modified from time to time by any regulatory
          authority having jurisdiction.

          MONEY MARKET FUND.

          The Fund will not concentrate its investments in a particular
          industry. For purposes of this limitation, the United States
          Government, and state or municipal governments and their political
          subdivisions, are not considered members of any industry. In
          addition, this limitation does not apply to investments in domestic
          banks. Whether the Fund is concentrating in an industry shall be
          determined in accordance with the Investment Company Act of 1940, as
          amended, and as interpreted or modified from time to time by any
          regulatory authority having jurisdiction.

          MORTGAGE SECURITIES FUND.

          Under normal market conditions, the Fund will concentrate its
          investments in the mortgage and mortgage-finance industry. The Fund
          will not concentrate its investments in any other particular
          industry. For purposes of this limitation, the United States
          Government, and state or municipal governments and their political
          subdivisions, are not considered members of any industry. Whether the
          Fund is concentrating in an industry shall be determined in accordance
          with the Investment Company Act of 1940, as amended, and as
          interpreted or modified from time to time by any regulatory authority
          having jurisdiction.

     3.   Policy Regarding Investments in Real Estate.

          The Fund will not purchase or sell real estate unless acquired as a
          result of ownership of securities or other instruments, but this shall
          not prevent the Fund from investing in securities or other instruments
          backed by real estate or interests therein or in securities of
          companies that deal in real estate or mortgages.

     4.   Policy Regarding Investments in Commodities.

          The Fund will not purchase physical commodities or contracts relating
          to physical commodities.

     5.   Policy Regarding Lending.

          The Fund may not make loans except as permitted under the Investment
          Company Act of 1940, as amended, and as interpreted or modified from
          time to time by any regulatory authority having jurisdiction.

     6.   Policy Regarding Underwriting of Securities.

          The Fund will not act as an underwriter of securities, except to the
          extent that the Fund may be deemed to be an underwriter, under the
          federal securities laws, in connection with the disposition of
          portfolio securities.

NON-FUNDAMENTAL RESTRICTIONS

     7.   The Fund will not acquire any new securities while borrowings,
          including borrowings through reverse repurchase agreements, exceed 5%
          of total assets.


                                         -31-


     8.   The Fund will use futures contracts and options on futures contracts
          only (a) for "bona fide hedging purposes" (as defined in regulations
          of the Commodity Futures Trading Commission) or (b) for other purposes
          so long as the aggregate initial margins and premiums required in
          connection with non-hedging positions do not exceed 5% of liquidation
          value of the Fund's portfolio.

     9.   The Fund may mortgage, pledge or hypothecate its assets only to secure
          permitted borrowings. Collateral arrangements with respect to futures
          contracts, options thereon and certain options transactions are not
          considered pledges for purposes of this limitation.

     10.  The Fund may not make short sales of securities, other than short
          sales "against the box."

     11.  The Fund may not purchase securities on margin, but it may obtain such
          short-term credits as may be necessary for the clearance of securities
          transactions and it may make margin deposits in connection with
          futures contracts.

     12.  The Fund will not invest more than 15% (10% in the case of Money
          Market Fund) of its net assets in illiquid securities.

     13.  The total market value of securities against which the Fund may write
          call or put options will not exceed 20% of the Fund's total assets. In
          addition, the Fund will not commit more than 5% of its total assets to
          premiums when purchasing put or call options.

     With respect to each of the Funds, any investment policy set forth under
"Investing in the Funds - Investment Policies and Practices" in the
Prospectus, under "Investment Objectives and Policies" above, or any
restriction set forth above which involves a maximum percentage of securities
or assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom, or unless the Investment Company
Act of 1940 provides otherwise.

                                         -32-


                                  PORTFOLIO TURNOVER

     Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities.  A 100% portfolio turnover rate would
occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.

     Spectrum Fund's objective and policies may cause the annual portfolio
turnover rate to be higher than the average turnover rate of other investment
companies.  Accordingly, the Fund may have high brokerage and other costs.  A
portfolio turnover rate that exceeds 100% is considered high and will result
in higher costs.  For the fiscal years ended September 30, 2002, 2001, and
2000, the Fund's portfolio turnover rates were 129.0%, 158.4%, and, 132.0%,
respectively.

     Mortgage Securities Fund's investment activities may result in the Fund's
engaging in a considerable amount of trading of securities held for less than
one year.  Accordingly, it can be expected that the Fund will have a higher
turnover rate, and thus a higher incidence of brokerage and other costs, than
might be expected from investment companies which invest substantially all of
their funds on a long-term basis.  A portfolio turnover rate that exceeds 100%
is considered high and will result in higher costs.  For the fiscal years
ended September 30, 2002, 2001, and 2000, the Fund's portfolio turnover rates
were 98.5%, 55.2%, and 64.7%, respectively.

     Money Market Fund, consistent with its investment objective, attempts to
maximize yield through portfolio trading.  This may involve selling portfolio
instruments and purchasing different instruments to take advantage of
disparities of yields in different segments of the high grade money market or
among particular instruments within the same segment of the market.  As a
result, the Fund may have significant portfolio turnover.  There usually are no
brokerage commissions paid by the Fund for such purchases since such securities
are purchased on a net basis.  Since securities with maturities of less than one
year are excluded from required portfolio turnover rate calculations, the Fund's
portfolio turnover rate for reporting purposes is zero.

     Bond Fund makes changes in its portfolio securities which are considered
advisable in light of market conditions.  Portfolio turnover rates may vary
greatly from year to year and within a particular year and may also be
affected by cash requirements for redemptions of Fund shares.  Rate of
portfolio turnover is not a limiting factor, however, and particular holdings
may be sold at any time, if, in the opinion of the Fund's investment adviser,
such a sale is advisable.  A portfolio turnover rate that exceeds 100% is
considered high and will result in higher costs.  For the fiscal years ended
September 30, 2002, 2001, and 2000, the Fund's portfolio turnover rates were
148.3%, 251.9%, and 191.4%, respectively.

                                         -33-


     International Fund also makes changes in its portfolio securities which
are considered advisable in light of market conditions.  The Fund does not
emphasize short-term trading profits.  For the fiscal years ended September
30, 2002, 2001, and 2000, International Fund's portfolio turnover rate was
47.8%, 35.6%, and 44.2%, respectively.

                           DIRECTORS AND EXECUTIVE OFFICERS

     Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund. Certain of the directors are considered
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund primarily by reason of their engagement as officers of the Fund's
investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or
as officers of companies affiliated with Advantus Capital, including Minnesota
Life Insurance Company ("Minnesota Life"). The remaining directors, because they
are not interested persons of the Fund, are considered independent ("Independent
Directors") and are not employees or officers of, and have no financial interest
in, Advantus Capital, Minnesota Life or their other affiliates. A majority of
the Board of Directors is comprised of Independent Directors.

     The individuals listed in the table below serve as directors and
officers of each Fund, and also serve in the same capacity for each of the
other seven Advantus Funds (the Advantus Funds are the twelve registered
investment companies, consisting of 29 portfolios, for which Advantus Capital
serves as the investment adviser). Only executive officers and other officers
who perform policy-making functions with the Funds are listed. None of the
directors is a director of any public company ( a company required to file
reports under the Securities Exchange Act of 1934) or of any registered
investment companies other than the Advantus Funds. Each director serves for
an indefinite term, until his or her resignation, death or removal.




                                        POSITION WITH FUNDS
NAME, ADDRESS(1)                        AND LENGTH OF                  PRINCIPAL OCCUPATION(S)
AND AGE                                 TIME SERVED                    DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- ---------------------------------------------------------------------------------------------------------
                                                                 
William N. Westhoff                     Director since                 Retired; prior to July 26, 2002,
Age:  55                                July 23, 1998                  President, Treasurer and Director,
                                                                       Advantus Capital Management, Inc.;
                                                                       Senior Vice President and
                                                                       Treasurer, Minnesota Life
                                                                       Insurance Company; Senior Vice
                                                                       President, Global Investments,
                                                                       American Express Financial
                                                                       Corporation, Minneapolis,
                                                                       Minnesota, from August 1994 to
                                                                       October 1997

Frederick P. Feuerherm                  Vice President,                Vice President, Assistant Secretary
Age:  56                                Director and                   and Director, Advantus Capital
                                        Treasurer since                Management, Inc.; Vice President,
                                        July 13, 1994                  Minnesota Life Insurance Company;
                                                                       Vice President, Minnesota Mutual
                                                                       Companies, Inc.; Vice President,
                                                                       Securian Financial Group, Inc.;
                                                                       Vice President, Securian Holding
                                                                       Company; Vice President and
                                                                       Director, MIMLIC Funding, Inc.
                                                                       (entity holding legal title to
                                                                       bonds beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital); Vice President and
                                                                       Assistant Secretary, MCM Funding
                                                                       1997-1, Inc. and MCM Funding
                                                                       1998-1, Inc. (entities holding
                                                                       legal title to mortgages
                                                                       beneficially owned by certain
                                                                       clients of Advantus Capital);
                                                                       Treasurer, Ministers Life
                                                                       Resources, Inc.; Treasurer, The
                                                                       Ministers Life Insurance Company
- ---------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------

Ralph D. Ebbott                         Director since                 Retired, Vice President and
Age:  75                                October 22, 1985               Treasurer of Minnesota Mining and
                                                                       Manufacturing Company (industrial
                                                                       and consumer products) through
                                                                       June 1989

William C. Melton                       Director since                 Founder and President of Melton
Age:  55                                April 25, 2002                 Research Inc. since 1997; member
                                                                       of the Advisory Board of
                                                                       Macroeconomic Advisors LLC since
                                                                       1998; member, Minneapolis
                                                                       StarTribune Board of Economists
                                                                       since 1986; member, State of
                                                                       Minnesota Council of Economic
                                                                       Advisors from 1988 to 1994;
                                                                       various senior positions at
                                                                       American Express Financial
                                                                       Advisors (formerly Investors
                                                                       Diversified Services and,
                                                                       thereafter, IDS/American Express)
                                                                       from 1982 through 1997, including
                                                                       Chief Economist and, thereafter,
                                                                       Chief International Economist

Ellen S. Berscheid                      Director since                 Regents' Professor of Psychology
Age:  66                                October 22, 1985               at the University of Minnesota

- ---------------------------------------------------------------------------------------------------------
OTHER EXECUTIVE OFFICERS
- ---------------------------------------------------------------------------------------------------------

Dianne M. Orbison                       President since                President and Treasurer, Advantus
Age:  50                                July 25, 2002                  Capital Management, Inc.; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Life Insurance Company; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Mutual Companies, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Financial Group, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Holding Company; President and
                                                                       Treasurer, MIMLIC Funding, Inc.
                                                                       (entity holding legal title to
                                                                       bonds beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital); President and Treasurer,
                                                                       MCM Funding 1997-1, Inc. and MCM
                                                                       Funding 1998-1, Inc. (entities
                                                                       holding legal title to mortgages
                                                                       beneficially owned by certain
                                                                       clients of Advantus Capital)


Michael J. Radmer                       Secretary since                Partner with the law firm of
Dorsey & Whitney LLP                    February 2, 1985               Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
Age:  57

- ---------------

(1) Unless otherwise noted, the address of each director and officer is the
    address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

    The Funds have both an Audit Committee and a Nominations Committee of the
Board of Directors, the members of which are all directors who are not
"interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott
comprise the members of both committees. The Board of Directors also has a
Dividend Declaration Committee, the sole member of which is Mr. Feuerherm. The
function of the Audit Committee is to recommend the engagement of the Funds'
independent auditor and oversee its activities. The Audit Committee also
receives reports from the Internal Audit Department of Minnesota Life and from
the Director of Compliance for Advantus Capital about compliance matters
affecting the Funds. The Audit Committee met two (2) times during the last
fiscal year. The Nominations Committee selects and recommends to the Board of
Directors individuals for nomination as Independent Directors. The names of
potential Independent Director candidates are drawn from a number of sources,
including recommendations from management of Advantus Capital. Inasmuch as the
Funds do not hold annual meetings of shareholders and meetings of shareholders
occur only intermittently, the Nominations Committee does not at present
consider nominees recommended by shareholders. The Nominations Committee met two
(2) times during the last fiscal year. The function of the Dividend Declaration
Committee is to oversee the distribution of the Funds' dividends and capital
gains distributions. The Dividend Declaration Committee met four (4) times
during the last fiscal year.

    The Directors owned shares in the Funds, and in all Advantus Funds for
which they serve on the Board of Directors, in the following dollar ranges as of
December 31, 2002:




                                                                                                       AGGREGATE DOLLAR RANGE
                                                                                               OF EQUITY SECURITIES IN ALL ADVANTUS
                                                                                                                FUNDS
   NAME OF DIRECTOR                         DOLLAR RANGE OF EQUITY SECURITIES IN                      OVERSEEN BY DIRECTOR
   ----------------                         ------------------------------------                      --------------------

                                                         MONEY
                              BOND     INTERNATIONAL     MARKET           MORTGAGE       SPECTRUM
                              ----     -------------  -----------------   -------------  --------
                                                                                        
William N. Westhoff            --            --       $10,001 - $50,000   Over $100,000       --            Over $100,000
Frederick P. Feuerherm         --            --                --                --           --             $1 - $10,000
Ralph D. Ebbott                --            --                --                --           --                 None
William C. Melton              --            --                --                --           --                 None
Ellen S. Berscheid             --            --                --                --           --             $1 - $10,000


                                         -34-


     Legal fees and expenses are paid to the law firm of which Michael J.
Radmer is a partner.  No compensation is paid by any of the Funds to any of
its officers or directors who is affiliated with Advantus Capital Management,
Inc. ("Advantus Capital").

     Each director of the Funds is also a director of the other seven
investment companies of which Advantus Capital is the investment adviser (12
investment companies in total -- the "Fund Complex").  As of the date hereof,
directors not affiliated with Advantus Capital receive compensation in
connection with all such investment companies which, in the aggregate, is
equal to $8,000 per year plus $2,000 per board meeting and committee meeting
attended (and reimbursement of travel expenses to attend directors'
meetings).  The portion of such compensation borne by any Fund is a pro rata
portion based on the ratio that such Fund's total net assets bears to the
total net assets of the Fund Complex. During the fiscal year ended September
30, 2002, each Director not affiliated with Advantus Capital was compensated
by the Funds in accordance with the following table:



                                     Pension or                       Total
                                     Retirement                       Compensation
                       Aggregate     Benefits        Estimated        From Funds and
                       Compensation  Accrued as      Annual           Fund Complex
                       from the      Part of Fund    Benefits Upon    Paid to
 Name of Director      Funds(1)      Expenses        Retirement       Directors
 ----------------      --------      --------        ----------       ---------
                                                          
 Ellen S. Berscheid    $2,591        n/a             n/a              $ 20,000
 Ralph D. Ebbott       $2,591        n/a             n/a              $ 20,000
 William C. Melton     $1,037        n/a             n/a              $ 10,000



(1)  During the fiscal year ended September 30, 2002, Ms. Berscheid and Mr.
Ebbott received $636 from Spectrum Fund, $724 from Mortgage Securities Fund,
$410 from Money Market Fund, $375 from Bond Fund, and $447 from International
Fund. During the same period, Mr. Melton, who was elected a Director on April
25, 2002, received $150 from Bond Fund, $179 from International Fund, $164
from Money Market Fund, $290 from Mortgage Fund and $254 from Spectrum Fund.

Prior to July 26, 2002, William N. Westhoff was president of and therefore
affiliated with Advantus Capital, but since his retirement from Advantus Capital
as of that date he has received compensation as a Director of the Funds as
described above.

                              DIRECTOR LIABILITY

     Under Minnesota law, the Board of Directors of each Fund owes certain
fiduciary duties to the Fund and to its shareholders.  Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances."  Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances).  Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care."  Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any
breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit. The Articles of Incorporation of each Fund
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as
provided in the Investment Company Act of 1940 (which prohibits any
provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).


                                         -35-


     Minnesota law does not eliminate the duty of "care" imposed upon a
director.  It only authorizes a corporation to eliminate monetary liability for
violations of that duty.  Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers).  Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief.  Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.

                     INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

     Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of each of the Funds since March 1, 1995.  Prior
to that date the Funds' investment adviser was MIMLIC Asset Management Company
("MIMLIC Management"), formerly the parent company of Advantus Capital. Securian
Financial Services, Inc. ("Securian Financial") acts as the Funds' underwriter.
Both Advantus Capital and Securian Financial act as such pursuant to written
agreements that will be periodically considered for approval by the directors or
shareholders of the Fund.  The address of both Advantus Capital and Securian
Financial is 400 Robert Street North, St. Paul, Minnesota 55101.

     Templeton Investment Counsel, LLC ("Templeton Counsel") serves as
investment sub-adviser to International Fund under an investment sub-advisory
agreement with Advantus Capital. Franklin Advisers, Inc. ("FAV"), an affiliate
of Templeton Counsel, manages the fixed income portion of the International
Fund's portfolio.

CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL

     Advantus Capital was incorporated in Minnesota in June 1994, and is an
affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective
October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by
forming a mutual insurance holding company named "Minnesota Mutual Companies,
Inc." The Minnesota Mutual Life Insurance Company continued its corporate
existence following conversion to a Minnesota stock life insurance company
named "Minnesota Life Insurance Company". All of the shares of the voting
stock of Minnesota Life are owned by a second tier intermediate stock holding
company named "Securian Financial Group, Inc.", which in turn is a
wholly-owned subsidiary of a first tier intermediate stock holding company
named "Securian Holding Company", which in turn is a wholly-owned subsidiary
of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital
and Securian Financial are also wholly-owned subsidiaries of Securian
Financial Group, Inc.

     Dianne M. Orbison, President of each of the Funds, is President,
Treasurer and Director of Advantus Capital.  Frederick P. Feuerherm, Vice
President, Treasurer and a Director of each of the Funds, is a Vice
President, Assistant Secretary and Director of Advantus Capital. William N.
Westhoff, a Director of each of the Funds, was President, Treasurer and
Director of Advantus Capital prior to July 26, 2002.

INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL

     Advantus Capital acts as investment adviser and manager of the Funds
under Investment Advisory Agreements (the "Advisory Agreements") dated May 1,
2000 for each Fund, each of which Advisory Agreements was approved by
shareholders on April 17, 2000 in the case of the International Balanced
Fund, and on April 28, 2000 in the case of Spectrum, Mortgage Securities,
Money Market and Bond Funds.  The Advisory Agreements were last approved by
the Board of Directors of each Fund (including a majority of the directors
who are not parties to the contract, or interested persons of any such party)
on January 30, 2003.  The Advisory Agreements will terminate automatically in
the event of their assignment.  In addition, each Advisory Agreement is
terminable at any time, without penalty, by the Board of Directors of the
respective Fund or by vote of a majority of the Fund's outstanding voting
securities on not more than 60 days' written notice to Advantus Capital, and
by Advantus Capital on 60 days' written notice to the Fund.  Unless sooner
terminated, each Advisory Agreement shall continue in effect for more than
two years after its execution only so long as such continuance is
specifically approved at least annually by either the Board of Directors of
the respective Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved
by the vote of a majority of the directors who are not parties to the
Advisory Agreement, or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval.

     Pursuant to the Advisory Agreements each Fund pays Advantus Capital an
advisory fee equal on an annual basis to a percentage of that Fund's average
daily net assets as set forth in the following table:


                                         -36-




                                                          ADVISORY FEE AS PERCENTAGE
FUND                                                         OF AVERAGE NET ASSETS
- ----                                                         ---------------------
                                                       
SPECTRUM FUND:
     On the first $1 billion in assets                                 .50%
     On the next $1 billion in assets                                  .48%
     On all assets in excess of $2 billion                             .46%
MORTGAGE SECURITIES FUND:
     On the first $1 billion in assets                                 .475%
     On the next $1 billion in assets                                  .46%
     On all assets in excess of $2 billion                             .45%
MONEY MARKET FUND:
     On the first $500 million in assets                               .50%
     On the next $500 million in assets                                .45%
     On the next $1 billion in assets                                  .425%
     On all assets in excess of $2 billion                             .40%
BOND FUND:
     On the first $250 million in assets                               .60%
     On the next $250 million in assets                                .55%
     On the next $500 million in assets                                .50%
     On all assets in excess of $1 billion                             .45%
INTERNATIONAL FUND:
     On the first $250 million in assets                               .70%
     On the next $250 million in assets                                .65%
     On the next $500 million in assets                                .60%
     On all assets in excess of $1 billion                             .55%


     Prior to May 1, 2000, each Fund paid Advantus Capital an advisory fee, in
accordance with its prior investment advisory agreement, equal on an annual
basis to a percentage of that Fund's average daily net assets as set forth in
the following table:



                                                 Advisory Fee Paid Prior to May 1, 2000 as Percentage
     Fund                                                       of Average Net Assets
     ----                                                    --------------------------
                                              
     Spectrum Fund                                                     .60%
     Mortgage Securities Fund                                          .575%
     Money Market Fund                                                 .50%
     Bond Fund                                                         .70%
     International Fund:
        On the first $25 million in assets                             .95%
        On the next $25 million in assets                              .80%
        On the next $50 million in assets                              .75%
        On all assets in excess of $100 million                        .65%


     The fees paid by the Funds during the fiscal years ended September 30,
2002, 2001, and 2000 (before Advantus Capital's absorption of certain expenses,
described below) were as follows:



     Fund                        2002              2001              2000
     ----                     ----------       ----------        ----------
                                                        
     Spectrum Fund            $309,933         $425,996          $624,481
     Mortgage Securities Fund  397,173          269,974           260,837
     Money Market Fund         204,824          214,125           204,795
     Bond Fund                 140,385          134,639           162,489
     International Fund        318,502          359,101           456,877


     For this fee, Advantus Capital acts as investment adviser and manager
for the Funds or, in the case of International Fund, pays Templeton Counsel
to serve as investment sub-adviser. Effective May 1, 2000, each Fund pays its
own transfer agent and shareholder servicing expenses.  Prior to that date,
Advantus Capital paid the transfer agent and shareholder servicing expenses
for each Fund other than Money Market Fund.

                                         -37-


     Under the Advisory Agreements, Advantus Capital furnishes the Funds
office space and all necessary office facilities, equipment and personnel for
servicing the investments of the Funds, and pays the salaries and fees of all
officers and directors of the Funds who are affiliated with Advantus Capital.
In addition, except to the extent that Securian Financial receives Rule
12b-1 distribution fees (see "Payment of Certain Distribution Expenses of the
Funds" below), Securian Financial bears all promotional expenses in connection
with the distribution of the Funds' shares, including paying for prospectuses
and statements of additional information for new shareholders, and
shareholder reports for new shareholders, and the costs of sales literature.
The Funds pay all other expenses not so expressly assumed.

     Under the Advisory Agreements for each Fund other than Money Market
Fund, Advantus Capital agreed to absorb all Fund costs and expenses which
exceed a specified percentage of the average daily net assets of each class
of share through the fiscal year of the Fund ending September 30, 2002, as
set forth in the following table:




                                                       Expenses Absorbed in Excess of
                                                 Specified Percentage of Average Net Assets
                                                 ------------------------------------------
Fund                                             Class A           Class B          Class C
- ----                                             -------           -------          -------
                                                                           
Spectrum Fund                                    1.22%            1.97%             1.97%
Mortgage Securities Fund                          .95%            1.70%             1.70%
Bond Fund                                        1.15%            1.90%             1.90%
International Fund                               1.63%            2.43%             2.43%


     During the fiscal years ended September 30, 2002, 2001, and 2000 Advantus
Capital voluntarily absorbed certain expenses of the Funds (which do not
include certain Rule 12b-1 fees waived by Securian Financial), or, in the
case of each Fund other than Money Market Fund, absorbed certain expenses of
the Fund during the period from May 1, 2000 through September 30, 2001 in
accordance with the Advisory Agreement, as set forth below:



     Fund                          2002       2001          2000
     ----                          ----       ----          ----
                                                 
     Spectrum Fund               $187,045    $241,979     $ 95,590
     Mortgage Securities Fund     216,342     205,818      180,596
     Money Market Fund            189,327     240,900      278,882
     Bond Fund                    181,150     188,638      168,365
     International Fund            21,524      28,799       48,370


INTERNATIONAL FUND SUB-ADVISER - TEMPLETON COUNSEL AND FAV

    Templeton Investment Counsel, LLC, (hereinafter "Templeton Counsel"), a
Delaware limited liability company with principal offices at 500 East Broward
Boulevard, Fort Lauderdale, Florida 33394 has been retained under an
investment sub-advisory agreement to provide investment advice and, in
general, to conduct the management investment program of the International
Fund, subject to the general control of the Board of Directors of the Fund.
Templeton Counsel is an indirect, wholly-owned subsidiary of Templeton
Worldwide, Inc., Fort Lauderdale, Florida, which in turn is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Franklin"). Franklin Advisers, Inc.
(hereinafter "FAV"), a California corporation with principal offices at One
Franklin Parkway, San Mateo, California 94403, has been retained under a
sub-advisory agreement with Templeton Counsel pursuant to which FAV provides
investment advice and generally conducts the investment management program
for the fixed income investments of the International Fund. FAV is also an
indirect, wholly-owned subsidiary of Franklin.

     Franklin is a large, diversified financial services organization.  Through
its operating subsidiaries, Franklin provides a variety of investment products
and services to institutions and individuals throughout the United States and
abroad.  One of the country's largest mutual fund organizations, Franklin's
business includes the provision of management, administrative and distribution
services to the Franklin/Templeton Group of Funds, which is distributed through
a nationwide network of banks, broker-dealers, financial planners and investment
advisers.  Franklin is headquartered in San Mateo, California, and its common
stock is listed on the New York Stock Exchange under the ticker symbol BEN.


                                         -38-


     Certain clients of Templeton Counsel may have investment objectives and
policies similar to that of the International Fund.  Templeton Counsel may, from
time to time make recommendations which result in the purchase or sale of a
particular security by its other clients simultaneously with Fund.  If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.  It is the policy of Templeton
Counsel to allocate advisory recommendations and the placing of orders in a
manner which is deemed equitable by Templeton Counsel to the accounts involved,
including the International Fund.  When two or more of the clients of Templeton
Counsel (including the International Fund) are purchasing the same security on a
given day from the same broker-dealer, such transactions may be averaged as to
price.

INTERNATIONAL FUND INVESTMENT SUB-ADVISORY AGREEMENT - TEMPLETON COUNSEL AND
FAV

     Templeton Counsel acts as an investment sub-adviser to the International
Fund under an Investment Sub-Advisory Agreement (the "Templeton Agreement")
with Advantus Capital dated March 1, 1995, approved by shareholders of the
Fund on February 14, 1995. Templeton Counsel has, in turn, entered into a
Sub-Advisory Agreement with FAV, dated January 24, 2002 (the "FAV Agreement")
pursuant to which FAV provides investment advisory services with respect to
the fixed income portfolio of the Fund. The Templeton Agreement, as amended,
and the FAV Agreement were last approved for continuance by the Board of
Directors of the Fund, including a majority of the Directors who are not a
party to the Templeton Agreement or the FAV Agreement or interested persons
of any such party, on January 30, 2003. The Templeton Agreement and the FAV
Agreement will each terminate automatically upon the termination of the
Advisory Agreement and in the event of its assignment. In addition, the
Templeton Agreement and the FAV Agreement are each terminable at any time,
without penalty, by the Board of Directors of the Fund, by Advantus Capital
or by a vote of the majority of the International Fund's outstanding voting
securities on 60 days' written notice to Templeton Counsel. The Templeton
Agreement may be terminated by Templeton Counsel on 60 days' written notice
to Advantus Capital, and the FAV Agreement may be terminated by either
Templeton or FAV on 60 days' written notice to the other party and to
Advantus Capital. Unless sooner terminated, the Templeton Agreement and the
FAV Agreement shall each continue in effect from year to year if approved at
least annually by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the International Fund,
provided that in either event such continuance is also approved by the vote
of a majority of the directors who are not interested persons of any party to
the Templeton Agreement, cast in person at a meeting called for the purpose
of voting on such approval.

     From the advisory fee received from International Fund, Advantus Capital
pays Templeton Counsel a sub-advisory fee equal to .70% on the first $25
million of International Fund's average daily net assets, .55% on the next
$25 million, .50% on the next $50 million, and .40% on all average daily net
assets in excess of $100 million. Solely for the purpose of establishing the
appropriate breakpoints at which the Fund's subadvisory fee shall be
calculated, the breakpoints are based on the aggregation of the monthly
market value of any non-mutual fund account of Minnesota Life or any
affiliate thereof advised or subadvised by Templeton Counsel or any advisory
affiliate thereof as well as the average daily net assets of any U.S.
registered mutual fund advised by Advantus and sub-advised by Templeton
Counsel or any advisory affiliate thereof. For fee-stacking purposes, the
asset classes so managed with the highest fee schedules shall be counted
first as assets of this Fund in order to determine this Fund's appropriate
starting breakpoint when the following conditions are satisfied: (i) Franklin
Advisors, Inc. an affiliate of Templeton Counsel provides other sub-advisory
services to Advantus Capital, beginning on or after February 15, 2000,
covering small company domestic equities in an amount in excess of $100
million; and (ii) Minnesota Life, the affiliate of Advantus Capital, offers
as investment options in its registered variable insurance contracts the
Templeton Developing Markets Fund and any other two funds in the
Franklin/Templeton Variable Insurance Products Fund.

     From the sub-advisory fee received from Advantus Capital for the
International Fund, Templeton Counsel pays its affiliate, FAV, a fee equal to
30% of such sub-advisory fee for managing the fixed income portion of the
International Fund's portfolio.

ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS

         At a meeting held on January 30, 2003, the Board of Directors of the
Funds, including a majority of the Directors who are not "interested persons"
(as defined under the Investment Company Act of 1940) of the Funds (the
"Independent Directors"), approved the continuation of each Fund's investment
advisory agreement with Advantus Capital for an additional one-year period. In
connection with such approval, the directors considered, with the assistance of
independent counsel, their legal responsibilities and reviewed the nature and
quality of Advantus Capital's services provided to the Fund and Advantus
Capital's experience and qualifications. In addition to quarterly evaluations of
the Fund's investment performance relative to broad-based index and industry
benchmarks and at least annual in person meetings with and presentations by each
portfolio manager or managers for the Fund (including personnel from Advantus
Capital and each sub-adviser), the Directors on January 30, 2003 reviewed and
considered:

- -   analyses prepared and compiled by Advantus Capital (i) setting forth the
    Fund's advisory fee (as a percentage of assets) on a contractual and
    after-waiver basis (ii) comparing the Fund's contractual advisory fees with
    standard fee schedules for private (non-mutual fund) accounts managed by
    Advantus Capital and with the contractual fee schedules of other funds
    represented by Advantus Capital to be of comparable size and complexity
    (with a description of the bases upon which funds were selected for
    comparison), (iii) comparing the Fund's total returns with the Fund's
    benchmark index or indices and with such comparable funds (again, with a
    description of the bases upon which funds were selected for comparison);

- -   descriptions of brokerage allocation practices (including any soft dollar
    arrangements) and assurances that such practices and arrangements are
    accurately described in the Fund's registration statement;

- -   assurances that Advantus Capital and its personnel are in compliance with
    the Fund's codes of ethics, policies and procedures and exemptive orders and
    with applicable laws and regulations; and

- -   a report on Advantus Capital's profitability related to providing advisory
    services to the Fund after taking into account (i) advisory fees and any
    other benefits realized by Advantus Capital or any of its affiliates as a
    result of Advantus Capital's role as adviser to the Fund, and (ii) the
    direct and indirect expenses incurred by Advantus Capital in providing such
    advisory services to the Fund.

         After discussion, the Board of Directors concluded that Advantus
Capital has the capabilities, resources and personnel necessary to manage each
Fund. The Board of Directors also concluded that, based on the services that
Advantus Capital would provide to each Fund under the Fund's investment advisory
agreement and the expenses incurred by Advantus Capital in the performance of
such services, the compensation to be paid to Advantus Capital is fair and
equitable with respect to the Fund. Based upon such information as it considered
necessary to the exercise of its reasonable business judgment, the Board of
Directors concluded unanimously that it is in the best interests of each Fund to
continue its investment advisory agreement with Advantus Capital for an
additional one-year period.

         At the January 30, 2003 meeting, the Fund's Board of Directors,
including a majority of the Independent Directors, also approved the
continuation of the sub-advisory agreements between Advantus Capital and each of
the following sub-advisers (with respect to the Fund set forth opposite the
sub-adviser's name in the table below), each for an additional one-year period:




         SUB-ADVISER                                         FUND
         -----------                                         ----
                                                          
         Templeton Investment Counsel, LLC and               International Fund
         Franklin Advisers, Inc.


         In approving the continuation of the sub-advisory agreements, the Board
of Directors considered the quality of the services being rendered by each
sub-adviser, its investment management style, the experience and qualifications
of each sub-adviser's personnel and the sub-adviser's fee structure. The Board
of Directors also reviewed written reports provided by each sub-adviser, which
contained, among other items:

- -   descriptions of brokerage allocation practices (including soft dollar
    arrangements, if any) and assurances that such practices and arrangements
    are accurately described in the Fund's registration statement; and

- -   assurances that the sub-adviser and its personnel are in compliance with the
    sub-adviser's code of ethics and with the laws and regulations that apply to
    its relationship as sub-adviser to the applicable Fund.

         Based upon such information as it considered necessary to the exercise
of its reasonable business judgment, the Board of Directors concluded
unanimously that it was in the best interests of each of the foregoing Funds
engaging a sub-adviser to continue its sub-advisory agreement for an additional
one-year period.

CODE OF ETHICS

     Advantus Capital, Securian Financial, Templeton Counsel, FAV and each of
the Funds has adopted a Code of Ethics in accordance with the Investment
Company Act of 1940 and the rules and regulations thereunder. The private
investment activities of personnel covered by the Code of Ethics are
restricted in accordance with the Code's provisions, but, subject to such
provisions, personnel may invest in securities, including securities that may
be purchased or held by the Funds.

DISTRIBUTION AGREEMENT

     Securian Financial acts as the underwriter of the Funds' shares.  The
Board of Directors of each Fund, on January 30, 2003, including a majority of
the directors who are not parties to the contract, or interested persons of
any such party, last approved the respective Fund's Distribution Agreement
with Securian Financial (the "Distribution Agreements"), each dated
October 22, 1998.

     During the fiscal years ended September 30, 2002, 2001, and 2000, the
commissions received by Securian Financial under the Distribution Agreements,
except in the case of Money Market Fund (which does not provide for Securian
Financial to receive a commission), with respect to shares of all classes
under the Distribution Agreements were as follows:



     Fund                        2002           2001          2000
     ----                        ----           ----          ----
                                                    
     Spectrum Fund             $285,316        $401,339      $437,766
     Mortgage Securities Fund   443,976         301,109        73,738
     Bond Fund                  113,731         112,593       101,969
     International Fund         146,708         171,258       153,603


During the same periods Securian Financial retained from these commissions the
following amounts:


                                         -39-




     Fund                          2002           2001           2000
     ----                          ----           ----           ----
                                                       
     Spectrum Fund               $21,010         $ 3,862        $44,385
     Mortgage Securities Fund     87,690          20,523         13,015
     Bond Fund                    11,613           4,914          1,342
     International Fund            4,142           4,602          9,942


The remainder of these commissions was paid to registered representatives of
Securian Financial or to broker-dealers who have selling agreements with
Securian Financial.

     Each Distribution Agreement may be terminated by the respective Fund or
Securian Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment.  Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue
in effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved
by the vote of a majority of the directors who are not parties to the
Distribution Agreement, or interested persons of such parties, cast in person
at a meeting called for the purpose of voting on such approval.

     The Distribution Agreements require Securian Financial to pay all
advertising and promotional expenses in connection with the distribution of
the Funds' shares including paying for Prospectuses and Statements of
Additional Information (if any) for new shareholders, shareholder reports for
new shareholders, and the costs of sales literature.

     In the Distribution Agreements, Securian Financial undertakes to
indemnify the Funds against all costs of litigation and other legal
proceedings, and against any liability incurred by or imposed upon the Funds
in any way arising out of or in connection with the sale or distribution of
the Funds' shares, except to the extent that such liability is the result of
information which was obtainable by Securian Financial only from persons
affiliated with the Funds but not with Securian Financial.

PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS

     Money Market Fund has adopted a Plan of Distribution, and each of the
other Funds has adopted separate Plans of Distribution applicable to Class A
shares, Class B shares and Class C shares, respectively, relating to the
payment of certain distribution and/or shareholder servicing expenses
pursuant to Rule 12b-1 under the Investment Company Act of 1940.  Money
Market Fund, pursuant to its Plan of Distribution, pays a fee to Securian
Financial which, on an annual basis, is equal to .25% of the Fund's average
daily net assets, and is to be used to pay certain expenses incurred in
connection with servicing shareholder accounts.  Each of the other Funds,
pursuant to its Plans of Distribution, also pays fees to Securian Financial
which equal, on an annual basis, a percentage of the Fund's average daily net
assets attributable to Class A shares, Class B shares and Class C shares,
respectively, as set forth in the following table:



                                        Rule 12b-1 Fee as Percentage
                                of Average Daily Net Assets Attributable to
                                -------------------------------------------
     Fund                  Class A Shares     Class B Shares      Class C Shares
     ----                  --------------     --------------      --------------
                                                         
Spectrum Fund                   .25%              1.00%               1.00%
Mortgage Securities Fund        .25%              1.00%               1.00%
Bond Fund                       .25%              1.00%               1.00%
International Fund              .25%              1.00%               1.00%



                                         -40-


     Such fees are used for distribution-related services for Class B and C
shares and for servicing of shareholder accounts in connection with Class A, B
and C shares.

     A portion of the Rule 12b-1 fees payable by the Advantus Multiple Class
Funds with respect to Class B and Class C shares equal to 0.75% of the
average daily net assets attributable to such Class B and Class C shares,
constitute distribution fees designed to compensate Securian Financial for
advertising, marketing and distributing the shares of the Advantus Multiple
Class Funds.

     The distribution fees may be used by Securian Financial for the purpose
of financing any activity which is primarily intended to result in the sale
of shares of the particular Fund.  For example, such distribution fee may be
used by Securian Financial:  (a) to compensate broker-dealers, including
Securian Financial and its registered representatives, for their sale of a
Fund's shares, including the implementation of the programs described below
with respect to broker-dealers, banks, and other financial institutions; and
(b) to pay other advertising and promotional expenses in connection with the
distribution of a Fund's shares.  These advertising and promotional expenses
include, by way of example but not by way of limitation, costs of
prospectuses for other than current shareholders; preparation and
distribution of sales literature; advertising of any type; expenses of branch
offices provided jointly by Securian Financial and any affiliate thereof; and
compensation paid to and expenses incurred by officers, employees or
representatives of Securian Financial or of other broker-dealers, banks, or
financial institutions.

     All of the Rule 12b-1 fee payable with respect to Class A shares and a
portion of the Rule 12b-1 fee payable with respect to Class B and Class C
shares, of each of the Advantus Multiple Class Funds, equal to .25% of the
average daily net assets attributable to such Class A, B and Class C shares,
constitute a shareholder servicing fee designed to compensate Securian
Financial for the provision of certain services to the holders of Class A, B
and Class C shares.

     Amounts expended by the Funds under the respective Plan of Distribution
are expected to be used for the implementation by Securian Financial of a
dealer incentive program.  Pursuant to the program, Securian Financial may
provide compensation to investment dealers for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers and for the provision of administrative support services to
customers who directly or beneficially own shares of the Funds.  The
distribution assistance and administrative support services rendered by
dealers may include, but are not limited to, the following:  distributing
sales literature; answering routine customer inquiries concerning the Funds;
assisting customers in changing dividend options, account designation and
addresses, and in enrolling into the pre-authorized check plan or systematic
withdrawal plan; assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions; investing dividends and any capital gains distributions
automatically in the Funds' shares and providing such other information and
services as the Funds or the customer may reasonably request.  Such fees for
servicing customer accounts would be in addition to the portion of the sales
charge received or to be received by dealers which sell shares of the Funds.

     Securian Financial may also provide compensation to certain institutions
such as banks ("Service Organizations") which have purchased shares of the
Funds for the accounts of their clients, or which have made the Funds' shares
available for purchase by their clients, and/or which provide continuing
service to such clients.  Applicable laws may prohibit certain banks from
engaging in the business of underwriting securities. In such circumstances,
Securian Financial, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers.  If a
bank were prohibited from acting as a Service Organization, its shareholder
clients would be permitted to remain shareholders of the Funds and
alternative means for continuing servicing of such shareholders would be
sought.  In such event changes in the operation of the Funds might occur and
a shareholder serviced by such bank might no longer be able to avail itself
of any automatic investment or other services then being provided by the
bank.  It is not expected that shareholders would suffer any adverse
financial consequences as a result of any of these occurrences.

                                      -41-


     In addition, the applicable Plan of Distribution contains, among other
things, provisions complying with the requirements of Rule 12b-1 discussed
below.  In particular, each Plan provides that (1) the Plan will not take
effect until it has been approved by a vote of a majority of the outstanding
voting securities of the Fund, and by a majority vote of both the full board
of directors of the Fund and those directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements relating to it (the Independent
Directors), (2) the Plan will continue in effect from one year to another so
long as its continuance is specifically approved annually by a majority vote
of both the full board of directors and the Independent Directors, (3) the
Plan may be terminated at any time, without penalty, by vote of a majority of
the Independent Directors or by a vote of a majority of the outstanding
voting securities of the Fund, (4) the Plan may not be amended to increase
materially the amount of the fees payable thereunder unless the amendment is
approved by a vote of a majority of the outstanding voting securities of the
Fund, and all material amendments must be approved by a majority vote of both
the full board of directors and the Independent Directors, (5) while the Plan
is in effect, the selection and nomination of any new Independent Directors
is committed to the discretion of the Independent Directors then in office,
and (6) the Fund's underwriter will prepare and furnish to the board of
directors, and the board of directors will review, at least quarterly,
written reports which set forth the amounts expended under the Plan and the
purposes for which those expenditures were made.

     Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing.  In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements.  Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance:  (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company.  Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors.  Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders.  At the Board of Directors meeting
held January 30, 2003, the directors of the Funds so concluded.

     During the fiscal year ended September 30, 2002, each of the Advantus
Multiple Class Funds made payments under its Plans of Distribution applicable to
Class A, Class B and Class C shares as set forth below (distribution fees waived
by Securian Financial, if any, are shown in parentheses).



                                    Class A                    Class B      Class C
                                    -------                    -------      -------
                                                                   
     Spectrum Fund                  $111,517 (n/a)             $143,002    $30,797
     Mortgage Securities Fund        130,726 (n/a)              243,286     69,964
     Bond Fund                        40,081 (n/a)               63,340     10,310
     International Fund              102,735 (20,547)            33,658     10,315


                                         -42-


     Money Market Fund made no payments under its Plan of Distribution during
the fiscal year ended September 30, 2002.  Securian Financial waived
distribution fees from Money Market Fund in the amount of $0 during such period.

     The Plans of Distribution could be construed as "compensation plans"
because Securian Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans of Distribution.  Under
a compensation plan, the fee to the distributor is not directly tied to
distribution expenses actually incurred by the distributor, thereby
permitting the distributor to receive a profit if amounts received exceed
expenses.  Securian Financial may spend more or less for the distribution and
promotion of the Funds' shares than it receives as distribution fees pursuant
to the Plans of Distribution. However, to the extent fees received exceed
expenses, including indirect expense such as overhead, Securian Financial
could be said to have received a profit.

TRANSFER AGENT AND ADMINISTRATIVE SERVICES

     Each Fund pays its own transfer agent costs.  The Funds' transfer agent
is PFPC Inc. ("PFPC").

     In addition, separate from the investment advisory agreement, each of
the Funds has entered into an agreement with Minnesota Life under which
Minnesota Life provides (i) accounting, legal and other administrative
services and (ii) shareholder servicing to the Funds. Minnesota Life
currently provides accounting, legal and other administrative services to the
Funds at a monthly cost of $6,200 for Spectrum Fund, Mortgage Securities Fund
and Bond Fund, $5,100 for Money Market Fund and $5,300 for International
Fund. During the fiscal year ended September 30, 2002, each of the Funds paid
Minnesota Life the following amounts for such administrative services:



         Fund                                   Amount
         ----                                   ------
                                            
         Spectrum Fund                         $74,400
         Mortgage Securities Fund               74,400
         Money Market Fund                      61,200
         Bond Fund                              74,400
         International Fund                     63,600


     Minnesota Life currently provides shareholder servicing to each Fund at
a cost of $7 per shareholder account per year.

     International Fund has also entered into a separate agreement with SEI
Investments Mutual Fund Services ("SEI") pursuant to which SEI provides daily
accounting services for the Fund. Minnesota Life, pursuant to its
administrative services agreement with International Fund, provides the Fund
with financial reporting services and generally oversees SEI's performance of
its services. Under the agreement with SEI, the cost to International Fund
for SEI's services is an annual fee equal to the greater of $45,000 or .08%
of the Fund's first $150 million of net assets and .05% of its net assets in
excess of $150 million. International Fund also reimburses SEI for certain
out-of-pocket expenses. During the last three fiscal years, the amounts paid
by International Fund to SEI were as follows:



                     September 30
     --------------------------------------------
     2002                2001                2000
     ----                ----                ----
                                     
   $54,839             $50,066             $52,063


            MONEY MARKET FUND AMORTIZED COST METHOD OF PORTFOLIO VALUATION

     Money Market Fund values its portfolio securities at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940, as amended.
This method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuations in interest rates on the market value of the instrument
and regardless of any unrealized capital gains or losses.  While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument.  During periods of declining interest rates,
the daily yield on shares of the Fund computed by dividing the annualized daily
income of the Fund by the net asset value computed as described above may tend
to be higher than a like computation made by the Fund with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its securities.

     Pursuant to Rule 2a-7, the Board of Directors of the Fund has determined,
in good faith based upon a full consideration of all material factors, that it
is in the best interests of the Fund and its shareholders to maintain a stable
net asset value per share by virtue of the amortized cost method of valuation.
The Fund will continue to use this method only so long as the Board of Directors
believes that it fairly reflects the market-based net asset value per share.  In
accordance with Rule 2a-7, the Board of Directors has undertaken, as a
particular responsibility within the overall duty of care owed to the Fund's
shareholders, to establish procedures reasonably designed, taking into account
current market conditions and the Fund's investment objectives, to stabilize the
Fund's net asset value per share at a single value.  These procedures include
the periodic determination of any deviation of current net asset value per share
calculated using available market quotations from the Fund's amortized cost
price per share, the periodic review by the Board of the amount of any such
deviation and the method used to calculate any such deviation, the maintenance
of records of such determinations and the Board's review thereof, the prompt
consideration by the Board if any such deviation exceeds 1/2 of 1%, and the
taking of such remedial action by the Board as it deems appropriate where it
believes the extent of any such deviation may result in material dilution or
other unfair results to investors or existing shareholders.  Such remedial
action may include redemptions in kind, selling portfolio instruments prior to
realizing capital gains or losses, shortening the average portfolio maturity,
withholding dividends or utilizing a net asset value per share as determined by
using available market quotations.

     The Fund will, in further compliance with Rule 2a-7, maintain a
dollar-weighted average portfolio maturity not exceeding 90 days and will limit
its portfolio investments to those United States dollar-denominated instruments
which the Board determines present minimal credit risks and which are eligible
securities.  The Fund will limit its investments in the securities of any one
issuer to no more than 5% of the Fund's total assets and it will limit
investment in securities of less than the highest rated category to 5% of the
Fund's total assets.  Investment in the securities of any issuer of less than
the highest rated category will be limited to the greater of 1% of the Fund's
total assets or one million dollars.  In addition, the Fund will reassess
promptly any security which is in default or downgraded from its rating category
to determine whether that security then presents minimal credit risks and
whether continuing to hold the securities is in the best interests of the Fund.
In addition, the Fund will record, maintain, and preserve a written copy of the
above-described procedures and a written record of the Board's considerations
and actions taken in connection with the discharge of its above-described
responsibilities.


                                         -43-


                  PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

SPECTRUM FUND

     In a number of security transactions, it is possible for Spectrum Fund
to deal in the over-the-counter security markets (including the so-called
"third market" which is the "over-the-counter" market for securities listed
on the New York Stock Exchange) without the payment of brokerage commissions
but at net prices including a spread or markup; the Fund trades in this
manner whenever the net price appears advantageous.

MORTGAGE SECURITIES FUND AND BOND FUND

     Portfolio transactions of Mortgage Securities Fund and Bond Fund occur
primarily with issuers, underwriters or major dealers acting as principals.
Such transactions are normally on a net basis which do not involve payment of
brokerage commissions.  The cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the underwriters;
transactions with dealers normally reflect the spread between bid and asked
prices.  Premiums are paid with respect to options purchased by these two Funds
and brokerage commissions are payable with respect to transactions in
exchange-traded interest rate futures contracts.

MONEY MARKET FUND

     Most transactions in portfolio securities of Money Market Fund are
purchases from issuers or dealers in money market instruments acting as
principal.  There usually are no brokerage commissions paid by the Fund for such
purchases since securities are purchased on a net price basis.  Trading does,
however, involve transaction costs.  Transactions with dealers serving as
primary market makers reflect the spread between the bid and asked prices of
securities.  Purchases of underwritten issues may be made which reflect a fee
paid to the underwriter.

INTERNATIONAL FUND

     Templeton Counsel, as investment sub-adviser to the International Fund, is
primarily responsible for selecting and (where applicable) negotiating
commissions with the brokers who execute the transactions for the Fund.
Templeton Counsel, in managing the International Fund, follows the same basic
brokerage practices as those described below for Advantus Capital.  In addition,
in selecting brokers for portfolio transactions, Templeton Counsel takes into
account its past experience as to brokers qualified to achieve "best execution,"
including the ability to effect transactions at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future, the financial strength and stability of
the broker, and whether the broker specializes in foreign securities held by the
International Fund.  Purchases and sales of portfolio securities within the
United States other than on a securities exchange are executed with primary
market makers acting as principal, except where, in the judgment of Templeton
Counsel, better prices and execution may be obtained on a commission basis or
from other sources.

GENERALLY

     Advantus Capital or a Fund's investment sub-adviser, selects and (where
applicable) negotiates commissions with the brokers who execute the
transactions for the Funds (except for International Fund, as described
above).  During the fiscal years ended September 30, 2001, 2000, and 1999,
brokerage commissions paid were:



          Fund                    2002           2001             2000
- ----------------------------------------------------------------------
                                                     
Spectrum Fund                $100,857        $172,785         $150,307
Mortgage Securities Fund      584,335               0                0
Money Market Fund                   0               0                0
Bond Fund                      88,540               0                0
International Fund             24,534          58,826           57,152


                                         -44-


     The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time.  In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Funds pay higher than the lowest commission rates available.  Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital.  Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analyses and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts.  By allocating brokerage business in order to
obtain research services for Advantus Capital, the Funds enable Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Funds.  To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Funds from these commissions.

     There is no formula for the allocation by Advantus Capital of the Funds'
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize a Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or Advantus
Capital's overall responsibilities with respect to the accounts as to which
it exercises investment discretion.  During the fiscal year ended September
30, 2002, Spectrum Fund and International Fund directed transactions to
brokers because of research services they provided, and paid commissions in
connection with such transactions, in the aggregate amounts set forth below:



                             Aggregate Transactions      Commissions Paid on
       Fund                   Directed for Research      Directed Transaction
- --------------------------------------------------------------------------------
                                                   
Spectrum Fund                $  8,222,723                $   70,335
International Fund             10,121,525                    24,895


During the same period, Mortgage Securities Fund, Money Market Fund and Bond
Fund directed no transactions to brokers because of research services they
provided.

     Advantus Capital believes that most research services obtained by it
generally benefit one or more of the investment companies which it manages
and also benefit accounts which it manages.  Normally research services
obtained through managed funds and managed accounts investing in common
stocks would primarily benefit such funds and accounts; similarly, services
obtained from transactions in fixed income securities would be of greater
benefit to the managed funds and managed accounts investing in debt
securities.

                                         -45-


     The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by Advantus Capital or its affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account.  The
simultaneous purchase or sale of the same securities by one Fund and other Funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.

     Consistent with achieving best execution, a Fund may participate in
so-called "directed brokerage" or "commission recapture" programs, under
which brokers (or dealers) used by the Fund remit a portion of brokerage
commissions (or credits on fixed income transactions) to the particular Fund
from which they were generated. Subject to oversight by the Fund's Board of
Directors, either Advantus Capital or the sub-adviser, if any, is responsible
for the selection of brokers or dealers and for ensuring that a Fund receives
best price and execution in connection with its portfolio brokerage
transactions. Participation in such programs may increase returns to the Fund.

     Although the rules of the National Association of Securities Dealers,
Inc. prohibit its members from seeking orders for the execution of investment
company portfolio transactions on the basis of their sales of investment
company shares, under such rules, sales of investment company shares may be
considered by the investment company as a factor in selecting brokers to
effect portfolio transactions. Accordingly, some portfolio transactions are,
subject to such rules and to obtaining best prices and executions, executed
through dealers who sell shares of Funds in the Advantus Funds complex or who
agree to transmit a portion of the brokerage commissions on transactions
executed by them to broker/dealers who sell Fund shares.

     The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds.  In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Funds to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Funds as to
which it exercises investment discretion.  If the Funds execute any transactions
on an agency basis, they will generally pay higher than the lowest commission
rates available.

     In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers.  While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.

     Information regarding the acquisition by the Funds during the fiscal year
ended September 30, 2002, of securities of the Funds' regular brokers or
dealers, or the parents of those broker or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is presented
below:


                                         -46-




                                                                                 Approximate Value of
                                                                                Securities Owned at the
Fund                          Name of Issuer                                     End of Fiscal Period
- -------------------------------------------------------------------------------------------------------
                                                                          
International Balanced Fund   AXA-UAP                                           235,532
                              NOMURA SECURITIES                                 310,169
                              ING GROUP                                         387,137
                              RODAMCO EUROPE                                    281,117

Mortgage Securities Fund      NONE

Spectrum Fund                 CITIGROUP, INC.                                   681,950
                              GOLDMAN SACHS GROUP, INC.                         171,678
                              MERRILL LYNCH & COMPANY, INC.                     233,945
                              MORGAN STANLEY                                    155,848



                           CALCULATION OF PERFORMANCE DATA

MONEY MARKET FUND

     Money Market Fund may issue "current yield" and "effective yield"
quotations.  "Current yields" are computed by determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a recent seven calendar day period, and multiplying that change by 365/7.
"Effective yields" are computed by determining the net change in the value of a
hypothetical account having a balance of one share at the beginning of a recent
seven calendar day period, dividing that change by seven, adding one to the
quotient, raising the sum to the 365th power, and subtracting one from the
result.  For purposes of the foregoing calculations, the value of the
hypothetical account includes accrued interest income plus or minus amortized
purchase discount or premium less accrued expenses, but does not include
realized gains and losses or unrealized appreciation and depreciation.  The Fund
will also quote the average dollar-weighted portfolio maturity for the
corresponding seven-day period.


                                         -47-


     Although there can be no assurance that the net asset value of Money Market
Fund's shares will always be $1.00, Advantus Capital does not expect that the
net asset value of its shares will fluctuate since the Fund uses the amortized
cost method of valuation to maintain a stable $1.00 net asset value.  See "Money
Market Fund Amortized Cost Method of Portfolio Valuation."  Principal is not,
however, insured.  Yield is a function of portfolio quality and composition,
maturity, and operating expenses.  Yield information is useful in reviewing the
Fund's performance, but it may not provide a basis for comparison with bank
deposits or other investments, which pay a fixed yield for a stated period of
time, or other investment instruments, which may use a different method of
calculating yield.

     For the seven calendar days ended September 30, 2002, Money Market
Fund's annualized current yield was .982% and its annualized effective yield
was .990%. The Fund's investment adviser was voluntarily absorbing certain
expenses of the Fund during that period.  If the Fund had been charged these
expenses its current yield and effective yield for the same period would have
been .172% and .173% respectively.

ADVANTUS MULTIPLE CLASS FUNDS

     Advertisements and other sales literature for the Advantus Multiple Class
Funds may refer to "yield," "average annual total return" and "cumulative total
return."  Performance quotations are computed separately for each class of
shares of the Advantus Multiple Class Funds.

     YIELD.  Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:

                   a-b
      YIELD = 2[( ----- )TO THE POWER OF 6 -1]
                   cd

  Where: a = dividends and interest earned during the period;

         b = expenses accrued for the period (net of reimbursements);

         c = the average daily number of shares outstanding during the period
             that were entitled to receive dividends; and

         d = the maximum offering price per share on the last day of the period.

     The yield on investments in each of these Funds for the 30 day period ended
September 30, 2002 was as set forth in the table below.  The Funds' investment
adviser and distributor were voluntarily absorbing and waiving certain expenses
of certain of the Funds during that period.  If such Funds had been charged for
these expenses the yield on investments for the same period would have been
lower, as also shown in the table below in parentheses.



                                                    Yield
                                                    -----
       Fund                    Class A              Class B           Class C
       ----                    -------              -------           -------
                                                           
Spectrum Fund                   1.96(1.07)         1.30(.36)         1.30(.36)
Mortgage Securities Fund        5.18(4.99)         4.67(4.47)        4.69(4.49)
Bond Fund                       4.22(3.23)         3.68(2.64)        3.70(2.67)
International Fund               .13(.13)          -.68(-.68)        -.68(-.68)


AVERAGE ANNUAL TOTAL RETURN.  Average annual total return is computed by finding
the average annual compounded rates of return over the periods indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:


                                         -48-


     P(1+T)TO THE POWER OF n  =  ERV

   Where: P = a hypothetical initial payment of $1,000;

          T = average annual total return;

          n = number of years; and

        ERV = ending redeemable value at the end of the period of a
              hypothetical $1,000 payment made at the beginning of such
              period.

     The average annual total return on investments in each of the Advantus
Multiple Class Funds for the periods indicated ending September 30, 2002,
were as set forth in the table below. Average annual total returns quoted
assume that the Class A maximum initial sales charge of 4.5% for Bond and
Mortgage Funds and 5.5% for Spectrum and International Funds was in effect at
the beginning of each period shown.  The maximum initial sales charge was
5.0% prior to February 1, 1999.  The Funds' investment adviser and
distributor were voluntarily absorbing and waiving certain expenses of
certain of the Funds during these periods.  If such Funds had been charged
for these expenses the average annual total returns for the same periods
would have been lower, as also shown in the table below in parentheses.



                                                                      1 YEAR

         FUND                               CLASS A                  CLASS B                 CLASS C
                                                                                    
Spectrum Fund (2)                           -11.08(-11.39)           -11.24(-11.54)          -6.54(-6.84)
Mortgage Securities Fund (1)                  3.03(2.76)               1.99(1.74)             6.99(6.74)
Bond Fund (3)                                 3.05(2.22)               1.99(1.26)             7.11(6.37)
International Fund (4)                       -9.86(-9.96)            -10.14(-10.19)          -5.41(-5.46)





                                                                    5 YEAR

         FUND                                CLASS A                   CLASS B                CLASS C
                                                                                    
Spectrum Fund (2)                            -2.01(-2.34)             -1.89(-2.10)           -1.61(-1.82)
Mortgage Securities Fund (1)                  7.04(6.70)               6.98(6.67)             7.21(6.90)
Bond Fund (3)                                 5.49(4.82)               5.46(4.86)             5.67(5.06)
International Fund (4)                       -2.76(-2.87)             -2.74(-2.74)           -2.47(-2.53)





                                                                    10 YEAR

         FUND                                CLASS A                   CLASS B                CLASS C
                                                                                     
Spectrum Fund (2)                            4.27(4.09)                N/A  N/A               N/A  N/A
Mortgage Securities Fund (1)                 6.81(6.54)                N/A  N/A               N/A  N/A
Bond Fund (3)                                6.13(5.39)                N/A  N/A               N/A  N/A
International Fund (4)                       N/A  N/A                  N/A  N/A               N/A  N/A





                                                                SINCE INCEPTION

         FUND                                CLASS A                   CLASS B                CLASS C
                                                                                     
Spectrum Fund (2)                            6.96(6.43)                4.45(4.32)             4.12(3.97)
Mortgage Securities Fund (1)                 8.44(8.17)                7.57(7.32)             7.61(7.34)
Bond Fund (3)                                7.33(6.43)                6.60(6.01)             6.62(6.04)
International Fund (4)                       2.80(2.66)                -.40(-.41)             3.56(3.51)



- --------------------


                                         -49-


(1)Class A Inception May 3, 1985.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995.
(2)Class A Inception November 16, 1987.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995
(3)Class A Inception August 14, 1987.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995.
(4)Class A Inception September 16, 1994.
     Class B Inception January 31, 1997.
     Class C Inception March 1, 1995.

CUMULATIVE TOTAL RETURN.  Cumulative total return figures are computed by
finding the cumulative compounded rate of return over the period indicated in
the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

              ERV-P
       CTR =( ----- )100
                P

   Where: CTR = cumulative total return;

          ERV = ending redeemable value at the end of the period of a
                hypothetical $1,000 payment made at the beginning of such
                period; and

            P = initial payment of $1,000.

     The cumulative total return on investments in each of the Advantus
Multiple Class Funds for the period indicated ended September 30, 2002, was
as set forth in the table below.  Average annual total returns quoted assume
that the Class A maximum initial sales charge of 4.5% for Bond and Mortgage
Funds and 5.5% for Spectrum and International Funds was in effect at the
inception date of Class A shares.  The maximum initial sales charge was 5.0%
prior to February 1, 1999. The Funds' investment adviser was voluntarily
absorbing certain expenses of certain of the Funds during these periods.  If
such Funds had been charged for these expenses the cumulative total return
for the same periods would have been lower, as also shown in the table below
in parentheses.



                                                    Cumulative Total Return
                                  ---------------------------------------------------------
     Fund                           Class A              Class B             Class C
                                    -------              -------             -------
                                                                    
Spectrum Fund (2)                 171.87(152.45)         42.57(40.91)        35.85(34.38)
Mortgage Securities Fund (1)      310.19(292.66)         80.57(77.55)        74.40(71.07)
Bond Fund (3)                     191.75(156.65)         68.00(60.57)        62.66(56.06)
International Fund (4)             24.88(23.45)          -2.24(-2.17)        30.39(30.09)


- --------------------

(1)Class A Inception May 3, 1985.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995.
(2)Class A Inception November 16, 1987.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995.
(3)Class A Inception August 14, 1987.
     Class B Inception August 19, 1994.
     Class C Inception March 1, 1995.
(4)Class A Inception September 16, 1994.
     Class B Inception January 31, 1997.
     Class C Inception March 1, 1995.

     The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.


                                         -50-


     Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.

                        CAPITAL STOCK AND OWNERSHIP OF SHARES

     Each Fund's shares of common stock, and each class thereof, have a par
value $.01 per share, and have equal rights to share in dividends and assets.
The shares possess no preemptive or conversion rights.  Cumulative voting is not
authorized.  This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and in such event the holders of the remaining shares will be unable to
elect any directors.

     Each of the Funds has 10 billion authorized shares of common stock.  Each
of the Advantus Multiple Class Funds has designated 2 billion authorized shares
as Class A shares, 2 billion authorized shares as Class B shares, and 2 billion
authorized shares as Class C shares.  The Funds have the number of shares
outstanding as set forth below.



                                             Shares Outstanding at September 30, 2002
                                        -------------------------------------------------
     Fund                                Class A              Class B             Class C
                                         -------              -------             -------
                                                                         
Spectrum Fund                             3,509,032           1,071,480           229,104
Mortgage Securities Fund                  6,086,238           2,693,353           939,860
Money Market Fund                        41,927,822             n/a                n/a
Bond Fund                                 1,638,445             595,446           104,778
International Fund                        4,185,948             327,158           104,167


     As of September 30, 2002, no person held of record, to the knowledge of the
respective Funds, or owned more than 5% of the outstanding shares of any of the
Funds, except as set forth in the following table:



                                         Number of
Name and Address of Shareholder           Shares       Percentage
- -------------------------------          ---------     ----------
                                                 
SPECTRUM FUND
     Minnesota Life and affiliates*           981          .02%

MORTGAGE SECURITIES FUND
     Minnesota Life and affiliates*       583,972         6.01%

MONEY MARKET FUND
     Minnesota Life and affiliates*     4,679,431        11.16%

BOND FUND
     Minnesota Life and affiliates*       341,589        14.61%

INTERNATIONAL FUND
     Minnesota Life and affiliates*     3,222,851        69.80%


*  400 Robert Street North, St. Paul, Minnesota 55101.


                                         -51-


                                  HOW TO BUY SHARES

     Each Fund's shares may be purchased at the public offering price from
Securian Financial, and from certain other broker-dealers or financial
services firms. Securian Financial reserves the right to reject any purchase
order. Shares of the Funds may be purchased at a price equal to their
respective net asset value, which, in the case of Money Market Fund, will
normally be constant at $1.00 per share.  There is no assurance that Money
Market Fund can maintain the $1.00 per share value.

     Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued.  SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.

ALTERNATIVE PURCHASE ARRANGEMENTS

     The Funds, other than Money Market Fund, offer investors the choice
among three classes of shares which offer different sales charges and bear
different expenses.  These alternatives permit an investor to choose the
method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.  For a detailed discussion of these
alternative purchase arrangements see "Sales Charges" below.

     The decision as to which class of shares provides a more suitable
investment for an investor may depend on a number of factors, including the
amount and intended length of the investment.  Investors making investments that
qualify for a waiver of initial sales charges should purchase Class A shares.
Other investors should consider Class B or Class C shares because all of the
purchase price is invested immediately.  Investors who expect to hold shares for
relatively shorter periods of time may prefer Class C shares because such shares
may be redeemed at any time without payment of a contingent deferred sales
charge.  Investors who expect to hold shares longer, however, may choose Class B
shares because such shares convert to Class A shares sooner than do Class C
shares and thus pay the higher Rule 12b-1 fee for a shorter period.

     Purchase orders for $1,000,000 or more will be accepted for Class A shares
only and are not subject to a sales charge at the time of purchase, but a
deferred sales charge will be imposed if such shares are sold within one year
after the date of purchase.  Orders for Class B or Class C shares for $1,000,000
or more will be treated as orders for Class A shares or declined.

INTERNATIONAL FUND REDEMPTION FEE

     The International Fund imposes a short-term redemption fee on shares of
all classes purchased and held for less than 60 days. The fee, equal to 2% of
the redemption value, is deducted from the redemption proceeds and retained
by the Fund for the benefit of its long-term shareholders. It is intended to
discourage short-term trading of the Fund by market timers or other investors
who do not share the long-term strategy of the Fund, and to reduce the
expenses of long-term shareholders for the trading and other costs associated
with short-term investments in the Fund. A redemption fee will not be charged
on shares acquired by reinvestment of dividends or capital gains
distributions. Shares with the longest holding period will be redeemed first
for purposes of determining whether the redemption fee applies.

PURCHASE BY CHECK

     New investors may purchase shares of the Funds by completing an account
application and sending it, together with a check payable to the Fund,
directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O.
Box 9767, Providence, Rhode Island 02940-9767. Additional purchases may be
made at anytime by mailing a check, payable to the Fund, to the same address.
Checks for additional purchases should be identified with the appropriate
account number.Purchase orders may also be submitted through Securian
Financial or other broker-dealers or financial services firms authorized to
sell shares of the Fund.

PURCHASE BY WIRE

     Shares may also be purchased by Federal Reserve or bank wire.  This
method will result in a more rapid investment in shares of the Funds. Before
wiring any funds, contact Minnesota Life, through its Advantus Shareholder
Services division, at (800) 665-6005 for instructions. Promptly after making
an initial purchase by wire, an investor should complete an account
application and mail it to at Advantus Funds Group, P.O. Box 9767,
Providence, Rhode Island 02940-9767.

     Subsequent purchases may be made in the same manner.  Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time).  Banks may charge a fee for
transmitting funds by wire.


                                         -52-


PURCHASE BY INTERNET

     Existing Advantus Funds shareholders may also purchase shares via the
Internet, once they have established on-line authorization. Please contact
Advantus Shareholder Services at (800) 665-6005 for information on how to
establish your account.

TIMING OF PURCHASE ORDERS

     An order in proper form for the purchase of shares of a Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. (Central time), will be effected at
the price next determined on the date received by PFPC. An order received by
PFPC from a financial services firm after the price is determined that day
will nonetheless be processed at that day's price if the order was received
by the firm from its customer prior to such determination and transmitted to
and received by PFPC prior to its close of business that day. Other orders
received after the close of the NYSE will be effected at the price next
determined on the next business day.

MINIMUM INVESTMENTS

     A minimum initial investment of $1,000 is required, except that $500 is
the minimum initial investment required to open a qualified account or an
account in which investments of not less than $50 are being made under an
automatic investment plan ($25 for an automatic investment plan established
prior to December 2, 2002). The minimum amount required for a subsequent
investment in all types of accounts is $50.

PUBLIC OFFERING PRICE

     The public offering price of the Fund will be the net asset value per
share of the Fund next determined after an order is received and becomes
effective, plus the applicable sales charge, if any. The net asset value per
share of each class is determined by dividing the value of the securities,
cash and other assets (including dividends accrued but not collected) of the
Fund attributable to such class less all liabilities (including accrued
expenses but excluding capital and surplus) attributable to such class, by
the total number of shares of such class outstanding.

     The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central Time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.

     Securities, except securities held by the Money Market Fund, including
put and call options, which are traded over-the-counter and on a national
exchange will be valued according to the broadest and most representative
market. A security which is only listed or traded on an exchange, or for
which an exchange is the most representative market, is valued at its last
sale price (prior to the time as of which assets are valued) on the exchange
where it is principally traded. Lacking any sales on the exchange where it is
principally traded on the day of valuation, prior to the time as of which
assets are valued, the security generally is valued at the last bid price on
that exchange. Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing settlement
price or in the absence of such a price, the most recent quoted bid price.
All other securities for which over-the-counter market quotations are readily
available are valued on the basis of the last current bid price. When market
quotations are not readily available, such securities are valued at fair
value as determined in good faith by the Board of Directors. Advantus Capital
and the Funds' sub-advisers, where applicable, monitor for "significant
events" that may (a) occur after closing market prices are established but
before the time a Fund calculates its net asset value and (b) cause market
quotations for certain securities to be considered "not readily available"
because of such significant events. In such circumstances, those securities
are also valued at fair value as determined in good faith by the Board of
Directors. Other assets also are valued at fair value as determined in good
faith by the Board of Directors. However, debt securities may be valued on
the basis of valuations furnished by a pricing service which utilizes current
market data, trading activity and the relative characteristics of securities
to determine valuations for normal institutional-size trading units of debt
securities, without regard to sale or bid prices, when such valuations are
believed to more accurately reflect the fair market value of such securities.
Short-term investments in debt securities are valued daily at market.

     Money Market Fund values its portfolio investments at amortized cost in
accordance with Rule 2a-7 under the 1940 Act. See "Money Market Fund Amortized
Cost Method of Portfolio Valuation" above.

                                    SALES CHARGES

CLASS A SHARES

     The public offering price of Class A shares of each Fund is the net
asset value of the Fund's shares (other than Money Market Fund) plus the
applicable front end sales charge ("FESC"), which will vary with the size of
the purchase. Securian Financial receives all applicable sales charges.
Shares of Money Market Fund will be purchased at its net asset value, which
will normally be constant at $1.00. There is no sales charge applicable to
the purchase of Money Market Fund shares. The Fund receives the net asset
value. The current sales charges are:


                                         -53-


                                     SPECTRUM FUND
                                AND INTERNATIONAL FUND



                                                                 Amount Paid to Broker-Dealers
                                          Sales Charge as a           as a Percentage of
                                            Percentage of:             Offering Price:
                                            --------------       -----------------------------
                                                         Net
                                       Offering        Amount
Value of Total Investment                Price        Invested
- ----------------------------------------------------------------------------------------------
                                                       
Less Than $50,000                         5.5%          5.82%               4.75%
$50,000 But Less Than
  $100,000                                4.5           4.71                3.75
$100,000 But Less Than
  $250,000                                3.5           3.63                2.75
$250,000 But Less Than
  $500,000                                2.5           2.56                2.00
$500,000 But Less Than
  $1,000,000                              2.0           2.04                1.50
$1,000,000 And Over (1)                     0              0                1.00


                      MORTGAGE SECURITIES FUND AND BOND FUND



                                                                 Amount Paid to Broker-Dealers
                                          Sales Charge as a           as a Percentage of
                                            Percentage of:             Offering Price:
                                            --------------       -----------------------------
                                                         Net
                                        Offering       Amount
Value of Total Investment                Price        Invested
- ----------------------------------------------------------------------------------------------
                                                        
Less Than $100,000                        4.5%          4.71%               3.75%
$100,000 But Less Than
  $250,000                                3.5           3.63                2.75
$250,000 But Less Than
  $500,000                                2.5           2.56                2.00
$500,000 But Less Than
  $1,000,000                              2.0           2.04                1.50
$1,000,000 And Over (1)                     0              0                1.00


(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.


     The sales charge applicable to an initial investment in the Fund depends
on the offering price of the investment.  The sales charge applicable to
subsequent investments, however, depends on the offering price of that
investment plus the current net asset value of the investor's previous
investments in the Fund.  For example, if an investor makes an initial
investment in Class A shares of Horizon Fund with an offering price of
$40,000 the investor will pay a sales charge equal to 5.5% of the $40,000
investment, but if an investor already owns Class A shares of Horizon Fund
with a current net asset value of $40,000 and invests in additional Class A
shares of Horizon Fund with an offering price of $10,000 the investor will
pay a sales charge equal to 4.5% of the additional $10,000 since the total
investment in the Fund would then be $50,000.

                                         -54-


CLASS B SHARES

     Class B shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase.  However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase.  For additional information, see
"Redemptions" below.  Class B shares will automatically convert to Class A
shares of the Fund on the fifteenth day of the month (or, if different, the last
business day prior to such date) following the expiration of a specified holding
period.  In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below.  The amount of the CDSC will depend on the number of years
since the purchase was made, the amount of shares originally purchased and the
dollar amount being redeemed.  The amount of the applicable CDSC and the holding
period prior to conversion are determined in accordance with the following
table:



                                                                                          Shares Convert to Class
                                                                                            A in the Month After
                                                          CDSC Applicable in Year              Expiration of
- -----------------------------------------------------------------------------------------------------------------
Shares Purchased in an Amount               1         2         3         4         5         6
- -----------------------------               -         -         -         -         -         -
                                                                               
Less Than $50,000                         5.0%      4.5%      3.5%      2.5%      1.5%      1.5%     84 Months
$50,000 But Less Than
  $100,000                                4.5       3.5       2.5       1.5       1.5         0      76 Months
$100,000 But Less Than
  $250,000                                3.5       2.5       1.5       1.5         0         0      60 Months
$250,000 But Less Than
  $500,000                                2.5       1.5       1.5         0         0         0      44 Months
$500,000 But Less Than
  $1,000,000                              1.5       1.5         0         0         0         0      28 Months


     Proceeds from the CDSC are paid to Securian Financial and are used to
defray expenses related to providing distribution-related services to the
Fund in connection with the sale of Class B shares, such as the payment of
compensation to selected broker-dealers, and for selling Class B shares.  The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares without deduction of a sales charge at the time of purchase.
Although Class B shares are sold without an initial sales charge, Securian
Financial pays a sales commission to broker-dealers, and to registered
representatives of Securian Financial, who sell Class B shares.  The amount
of this commission may differ from the amount of the commission paid in
connection with sales of Class A shares.  The higher Rule 12b-1 fee will
cause Class B shares to have a higher expense ratio and to pay lower
dividends than Class A shares.  Securian Financial pays other broker-dealers
for the sale of Class B shares in accordance with the following schedule:



                                                Advantus Multiple Class Funds:
                                                ----------------------------
                                     Amount Paid to Broker-Dealers as a Percentage
Shares Purchased in An Amount                        of Offering Price
- ---------------------------------------------------------------------------------------
                                  
Less Than $50,000                                          4.17%
$50,000 But Less Than $100,000                             3.75
$100,000 But Less Than $250,000                            2.92
$250,000 But Less Than $500,000                            2.08
$500,000 But Less Than $1,000,000                          1.25



                                         -55-


     CONVERSION FEATURE.  On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class B shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee.  Such conversion will be on the basis of the relative net asset values of
the two classes.  Class A shares issued upon such conversion will not be subject
to any FESC or CDSC.  Class B shares acquired by exchange from Class B shares of
another Advantus Multiple Class Funds will convert into Class A shares based on
the time of the initial purchase.  Purchased Class B shares ("Purchased B
Shares") will convert after the specified number of months following the
purchase date.  All Class B shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment B
Shares") will be held in a separate sub-account.  Each time any Purchased B
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased B Shares bears to the shareholder's total
converting and non-converting Purchased B Shares immediately prior to the
conversion) of the Reinvestment B Shares then in the sub-account will also
convert to Class A shares.

     The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes of
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that such conversions do not constitute taxable events for Federal tax
purposes.  There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B shares to Class A shares will not occur
if such ruling or opinion is not available.  In such event, Class B shares would
continue to be subject to higher expenses than Class A shares for an indefinite
period.

CLASS C SHARES

     Class C shares of the Fund are sold without an initial sales charge so that
the Fund receives the full amount of the investor's purchase.  Unlike Class B
shares, however, no CDSC is imposed when Class C shares are redeemed.  Class C
shares will automatically convert to Class A shares of the Fund on the fifteenth
day of the month (or, if different, the last business day prior to such date)
following the expiration of a specified holding period.  In addition, Class C
shares are subject to higher Rule 12b-1 fees (as described below), and are
subject to such higher fees for a longer period than are Class B shares because
of a longer holding period prior to conversion.  The applicable holding period
prior to conversion is determined in accordance with the following table:



                                        Shares Convert to Class A in the Month
Shares Purchased in an Amount                      After Expiration of
- ------------------------------------------------------------------------------
                                     
Less Than $50,000                                       96 Months
$50,000 But Less Than $100,000                          88 Months
$100,000 But Less Than $250,000                         72 Months
$250,000 But Less Than $500,000                         56 Months
$500,000 But Less Than $1,000,000                       40 Months


     The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the
time of purchase and without imposing a CDSC at redemption.  Securian
Financial does not pay a sales commission to broker-dealers, or to registered
representatives of Securian Financial, who sell Class C shares.  The higher
Rule 12b-1 fee will cause Class C shares to have a higher expense ratio and
to pay lower dividends than Class A shares.


                                         -56-


     CONVERSION FEATURE.  On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee.  Such conversion will be on the basis of the relative net asset values of
the two classes.  Class A shares issued upon such conversion will not be subject
to any FESC or CDSC.  Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase.  Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date.  All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account.  Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.

     The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes of
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that such conversions do not constitute taxable events for Federal tax
purposes.  There can be no assurance that such ruling or opinion will be
available, and the conversion of Class C shares to Class A shares will not occur
if such ruling or opinion is not available.  In such event, Class C shares would
continue to be subject to higher expenses than Class A shares for an
indefinite period.

OTHER PAYMENTS TO BROKER-DEALERS

     Broker-dealers selling Class A, Class B and Class C shares of the
Advantus Multiple Class Funds will receive a shareholder servicing fee (Rule
12b-1 fee) equal, on a an annual basis, to .25% of the net asset values
attributable to Class A, Class B and Class C shares. Shareholder servicing
fee attributable to Class A shares are paid quarterly in arrears beginning
with the end of the first quarter after the sale of the shares to which such
fees are attributable. Shareholder servicing fees attributable to Class B and
Class C shares are paid quarterly in arrears beginning with the second year
after the sale of the shares to which such fees are attributable (i.e., the
first payment is at the end of the fifteenth month). Rule 12b-1 distribution
fees will also be paid quarterly in arrears to broker-dealers selling Class C
shares equal, on an annual basis, to .75% of the net asset values
attributable to such Class C shares.

NET ASSET VALUE AND PUBLIC OFFERING PRICE

     Shares of Money Market Fund may be purchased at a price equal to their net
asset value, which will normally be constant at $1.00 per share.  See "Money
Market Fund Amortized Cost Method of Valuation."  There is no assurance that
Money Market Fund can maintain the $1.00 per share value.  The portfolio
securities in which the Advantus Multiple Class Funds invest fluctuate in value,
and hence the net asset value per share of each Fund also fluctuates.

     On September 30, 2002, the net asset value and public offering price per
share for Class A, Class B and Class C shares of each of the Funds (except Money
Market Fund) were calculated as set forth below.


                                         -57-


                                   SPECTRUM FUND

CLASS A SHARES

    Net Assets ($36,973,789)    = Net Asset Value Per Share ($10.54)
- ------------------------------
Shares outstanding (3,509,032)

     To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

          $10.54   = Public Offering Price Per Share ($11.15)
          ------
          .945(1)

CLASS B SHARES

    Net Assets ($11,216,484)    = Net Asset Value AND Public
- ------------------------------
Shares outstanding (1,071,480)    Offering Price Per Share ($10.47)

CLASS C SHARES

   Net Assets ($2,380,519)    = Net Asset Value AND Public
- ----------------------------
Shares Outstanding (229,104)    Offering Price Per Share ($10.39)

                              MORTGAGE SECURITIES FUND

CLASS A SHARES

    Net Assets ($67,395,315)      = Net Asset Value Per Share ($11.07)
- --------------------------------
Shares outstanding (6,086,238)

     To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

          $11.07  = Public Offering Price Per Share ($11.59)
          ------
          .955(1)

                                         -58-


CLASS B SHARES

    Net Assets ($29,879,468)    = Net Asset Value AND Public
- ----------------------------
Shares outstanding (2,693,353)    Offering Price Per Share ($11.09)

CLASS C SHARES

    Net Assets ($10,411,225)   = Net Asset Value AND Public
- -----------------------------
Shares outstanding (939,860)     Offering Price Per Share ($11.08)

                                     BOND FUND

CLASS A SHARES

    Net Assets ($17,313,342)      = Net Asset Value Per Share ($10.57)
- --------------------------------
Shares outstanding (1,638,445)

     To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

           $10.57  = Public Offering Price Per Share ($11.07)
           ------
           .955(1)

CLASS B SHARES

    Net Assets ($6,307,868)      = Net Asset Value AND Public
- -------------------------------
Shares outstanding (595,446)       Offering Price Per Share ($10.59)

CLASS C SHARES

    Net Assets ($1,106,114)          = Net Asset Value AND Public
- -----------------------------------
Shares outstanding (104,778)           Offering Price Per Share ($10.56)

                                         -59-


                              INTERNATIONAL FUND

CLASS A SHARES

    Net Assets ($36,487,887)      = Net Asset Value Per Share ($8.72)
- --------------------------------
Shares outstanding (4,185,948)

     To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

           $8.72   = Public Offering Price Per Share ($9.23)
           ------
           .945(1)

CLASS B SHARES

    Net Assets ($2,797,862)     = Net Asset Value AND Public
- -------------------------------   Offering Price Per Share ($8.55)
Shares outstanding (327,158)

CLASS C SHARES

    Net Assets ($891,646)       = Net Asset Value AND Public
- -------------------------------   Offering Price Per Share ($8.56)
Shares outstanding (104,167)

(1)  Effective February 1, 1999, the maximum FESC for Spectrum Fund and
     International Fund was increased to 5.5% and the maximum FESC for
     Mortgage Securities Fund and Bond Fund was decreased to 4.5%.

                             REDUCED SALES CHARGES

     Special purchase plans are enumerated in the text of the Funds'
Prospectus under "Buying and Selling Shares  Reducing Sales Charges" and are
fully described below.


                                         -60-


RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT

     The front end sales charge and contingent deferred sales charge
applicable to each purchase of Class A shares and Class B shares,
respectively, of the Advantus Multiple Class Funds is based on the next
computed net asset value of all Class A, Class B and Class C shares of such
Funds held by the shareholder (including dividends reinvested and capital
gains distributions accepted in shares), plus the cost of all Class A, Class
B and Class C shares of such Funds currently being purchased.  It is the
obligation of each shareholder desiring this discount in sales charge to
notify Securian Financial, through his or her dealer or otherwise, that he or
she is entitled to the discount.

LETTER OF INTENT

     The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase
equal to or exceeding $1,000, accompanied by filing with Securian Financial a
signed "Letter of Intent" form to purchase, and by in fact purchasing not
less than $100,000 of shares in the case of Mortgage Securities Fund or Bond
Fund, or not less than $50,000 of shares in one of the other Advantus Funds
(except Money Market Fund), within that time.  The 13-month period is
measured from the date the Letter of Intent is approved by Securian
Financial, or at the purchaser's option, it may be made retroactive 90 days,
in which case Securian Financial will make appropriate adjustments on
purchases during the 90-day period.

     In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A, Class B and Class C
shares currently held in all Advantus Multiple Class Funds, on the date of
the first purchase under the Letter of Intent, may be used as a credit toward
Fund shares to be purchased under the Letter of Intent.  Class A, Class B and
Class C shares of all the Advantus Multiple Class Funds may also be included
in the purchases during the 13-month period.

     The Letter of Intent includes a provision for payment of additional
applicable Class A sales charges at the end of the period in the event the
investor fails to purchase the amount indicated.  This is accomplished by
holding 5.5%, or 4.5% in the case of Mortgage Securities Fund and Bond Fund,
of the investor's initial Class A share purchase in escrow.  If the
investor's purchases equal those specified in the Letter of Intent, the
escrow is released.  If the purchases do not equal those specified in the
Letter of Intent, he or she may remit to Securian Financial an amount equal
to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges that would have been paid on the aggregate
purchases if the total of such purchases had been made at a single time.  If
the purchaser does not remit this sum to Securian Financial on a timely
basis, Securian Financial will redeem the appropriate number of shares, and
then release or deliver any remaining shares in the escrow account.  The
Letter of Intent is not a binding obligation on the part of the investor to
purchase, or the respective Fund to sell, the full amount indicated.
Nevertheless, the Letter of Intent should be read carefully before it is
signed.

COMBINING PURCHASES

     With respect to each of the Advantus Multiple Class Funds, purchases of
Class A, Class B and Class C shares for any other account of the investor, or
such person's spouse or minor children, or purchases on behalf of
participants in a tax-qualified retirement plan may be treated as purchases
by a single investor for purposes of determining the availability of a
reduced sales charge.


                                         -61-


GROUP PURCHASES

     An individual who is a member of a qualified group may also purchase
shares of the Advantus Multiple Class Funds at the reduced sales charge
applicable to the group taken as a whole. The sales charge is calculated by
taking into account not only the dollar amount of the Class A, Class B and
Class C shares of the Funds being purchased by the individual member, but
also the aggregate dollar value of such Class A, Class B and Class C shares
previously purchased and currently held by other members of the group.
Members of a qualified group may not be eligible for a Letter of Intent.

     A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a
discount, and (iii) satisfies uniform criteria which enable Securian
Financial to realize economies of scale in distributing such shares. A
qualified group must have more than ten members, must be available to arrange
for group meetings between representatives of Securian Financial, must agree
to include sales and other materials related to the Funds in its publications
and mailings to members at reduced or no cost to Securian Financial, and must
seek, upon request, to arrange for payroll deduction or other bulk
transmission of investments to the Funds.

WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES

     Directors and officers of Advantus Capital, Templeton Counsel and FAV
(with respect to International Fund only), Securian Financial, the Funds,
Minnesota Life, or any of Minnesota Life's other affiliated companies, and
their full-time and part-time employees, sales representatives and retirees,
any trust, pension, profit-sharing, or other benefit plan for such persons,
the spouses, siblings, direct ancestors or direct descendants of such
persons, independent legal counsel to the Fund's independent directors,
Minnesota Life and its affiliates themselves, advisory clients of Advantus
Capital, employees of sales representatives employed in offices maintained by
such sales representatives, certain accounts as to which a bank or
broker-dealer charges an account management fee, provided the bank or
broker-dealer has an agreement with Securian Financial, certain accounts sold
by registered investment advisers who charge clients a fee for their
services, investors who, within 60 days after redeeming shares of a class of
shares generally subject to either an initial or deferred sales charge issued
by a non-Advantus fund, use those redemption proceeds to purchase Class A
shares from Securian Financial or a broker-dealer that has entered into an
agreement with Securian Financial specifically providing for net asset value
purchases, and employer-sponsored retirement plans described in Sections 401
or 403, or governmental retirement plans described in Section 457, of the
Internal Revenue Code with total plan assets of not less than $500,000, may
purchase Class A shares of the Advantus Multiple Class Funds at net asset
value. These persons must give written assurance that they have bought for
investment purposes, and that the securities will not be resold except
through redemption or repurchase by, or on behalf of, the respective Fund.
These persons are not required to pay a sales charge because of the reduced
sales effort involved in their purchases.

                    EXCHANGE AND TRANSFER OF FUND SHARES

     A shareholder can exchange some or all of his or her Class A, Class B
and Class C shares in the Advantus Multiple Class Funds, including shares
acquired by reinvestment of dividends, for shares of the same class of any of
the other Advantus Multiple Class Funds (provided such Fund is available in
the shareholder's State), and can thereafter re-exchange such exchanged
shares back for shares of the same class of the Fund. Purchases by exchange
are subject to the minimum investment requirements of the Funds. The exchange
will be made on the basis of the relative net asset values without the
imposition of any additional sales load. Shares of International Fund may be
subject to a 2% redemption fee, however, if exchanged within 60 days of
purchase. When Class B shares acquired through the exchange are redeemed, the
shareholder will be treated as if no exchange took place for the purpose of
determining the contingent deferred sales charge ("CDSC") period and applying
the CDSC.

     Class A, Class B and Class C shares may also be exchanged for shares of
the Money Market Fund at net asset values. No CDSC will be imposed at the
time of any such exchange of Class B shares; however, the Money Market Fund
shares acquired in any such exchange will remain subject to the CDSC
otherwise applicable to such Class B shares as of the date of exchange, and
the period during which such shares of Money Market Fund are held will not be
included in the calculation of the CDSC due at redemption of such Money
Market Fund shares or any reacquired Class B shares, except as follows.
Securian Financial is currently waiving the entire Rule 12b-1 fee due from
Money Market Fund. In the event Securian Financial begins to receive any
portion of such fee, either (i) the time period during which shares of Money
Market Fund acquired in exchange for Class B shares are held will be included
in the calculation of the CDSC due at redemption, or (ii) such time period
will not be included but the amount of the CDSC will be reduced by the amount
of any Rule 12b-1 payments made by Money Market Fund with respect to those
shares.


                                         -62-


      Exchanges of shares from Money Market Fund are subject to applicable
sales charges of the Advantus Fund being purchased, unless the Money Market
Fund shares were previously acquired by an exchange from Class A or Class B
shares of another Advantus Fund or by reinvestment or cross-reinvestment of
dividends or capital gains distributions. Shares of Money Market Fund
previously acquired in an exchange for Class A, Class B or Class C shares
from any of the Funds may be re-exchanged at relative net asset values for
Class A, Class B and Class C shares, respectively, of another Advantus Fund.
Class C shares re-acquired in this manner will have a remaining holding
period prior to conversion equal to the remaining holding period applicable
to the prior Class C shares at the time of the initial exchange.

     The exchange privilege is available only in states where such exchanges
may legally be made (at the present time the Fund believes this privilege is
available in all states).  An exchange may be made by written request or by a
telephone call, (unless the shareholder has elected on the account
application not to have telephone transaction privileges) or by Internet. Up
to twelve exchanges each calendar year may be made without charge.  A $7.50
service charge will be imposed on each subsequent exchange and/or telephone
transfer.  No service charge is imposed in connection with systematic
exchange plans.  However, the Fund reserves the right to restrict the
frequency of, or otherwise modify, condition, terminate, or impose additional
charges upon, the exchange and/or telephone transfer privileges and/or
Internet transactions, upon 60 days' prior notice to shareholders.  An
exchange is considered to be a sale of shares for federal income tax purposes
on which an investor may realize a long- or short-term capital gain or loss.
See "Distributions and Tax Status" for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently
acquiring new shares in any mutual fund at a reduced sales charge.

SYSTEMATIC EXCHANGE PLAN

     Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis.  The minimum amount which may be exchanged on such a systematic
basis is $50.  The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.

                             SHAREHOLDER SERVICES

OPEN ACCOUNTS

     A shareholder's investment is automatically credited to an open account
maintained for the shareholder by PFPC, the Fund's transfer agent.  Stock
certificates are not currently issued.  Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account.  After the close of each year PFPC sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year.  This should be retained as a permanent
record.  A fee may be charged for providing duplicate information.

     The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.

     The costs of maintaining the open account system are paid by each Fund.
No direct charges are made to shareholders, except that the Funds will deduct
a $10 annual fee from a shareholder's account in December of each year if the
account balance at that time if below $2,000.  This low balance fee is waived
for qualified retirement accounts and for investors who have aggregate
Advantus Fund account assets of $25,000 or more (only shares held directly in
the investor's name, rather than in a broker's name, are aggregated for this
purpose).  Money Market Fund will also waive the low balance fee for Money
Market Fund investors who have had any purchase activity (excluding
reinvestments of dividend and capital gains distributions) in their account
during the preceding twelve months.  Although the Funds have no present
intention of making additional direct charges to shareholders, they reserve
the right to do so.  Shareholders will receive prior notice before any such
charges are made.

AUTOMATIC INVESTMENT PLAN

     Each Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").

     The principal purposes of the Plan are to encourage thrift by enabling
you to make regular purchases in amounts less than normally required, and, in
the case of the Advantus Multiple Class Funds, to employ the principle of
dollar cost averaging, described below.


                                         -63-


     By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging.  Under
dollar cost averaging, if a constant amount is invested at regular intervals
at varying price levels, the average cost of all the shares will be lower
than the average of the price levels.  This is because the same fixed number
of dollars buys more shares when price levels are low and fewer shares when
price levels are high.  There is no guarantee, however, that the automatic
investment plan will always result in a lower cost per share compared to other
investment programs.  It is essential that the investor consider his or her
financial ability to continue this investment program during times of market
decline as well as market rise.  The principle of dollar cost averaging will
not protect against loss in a declining market, as a loss will result if the
plan is discontinued when the market value is less than cost.

     A Plan may be opened with an initial investment of $500 and by
indicating an intention to invest $50 ($25 for plans established prior to
December 2, 2002) or more monthly for at least one year.  Investors will
receive a confirmation showing the number of shares purchased, purchase
price, and subsequent new balance of shares accumulated.

     An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty.  Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash.  The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.

GROUP SYSTEMATIC INVESTMENT PLAN

     This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans.  The Plan
may be started with an initial cash investment of $50 per participant for a
group consisting of five or more participants.  The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value.  To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account.  If the
group is reduced to less than five participants, the minimums set forth under
"Automatic Investment Plan" shall apply.  The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.

RETIREMENT PLANS OFFERING TAX BENEFITS

     The federal tax laws provide for a variety of retirement plans offering
tax benefits.  These plans may be funded with shares of any of the Funds.
The plans include H.R. 10 (Keogh) plans for self-employed individuals and
partnerships, individual retirement accounts (IRA's), corporate pension trust
and profit sharing plans, including 401(k) plans, and retirement plans for
public school systems and certain tax exempt organizations, e.g. 403(b) plans.

     The initial investment in each Fund by such a plan must be at least $250
for each participant in a plan, and subsequent investments must be at least $25
per month for each participant.  Income dividends and capital gain distributions
must be reinvested.  Plan documents and further information can be obtained from
Securian Financial.

     An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.

SYSTEMATIC WITHDRAWAL PLANS

     An investor owning shares in any one of the Funds having a value of
$5,000 or more at the current public offering price may establish a
Systematic Withdrawal Plan providing for periodic payments of a fixed or
variable amount. Withdrawal payments for Class A shares of the Advantus
Multiple Class Funds purchased in amounts of $1 million or more, and for
Class B shares of Advantus Multiple Class Funds, may also be subject to a
CDSC.  As a result, a shareholder should consider whether a Systematic
Withdrawal Plan is appropriate.  It may be appropriate for the shareholder to
consult a tax adviser before establishing such a plan.

                                         -64-


     The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees.  Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
respective Fund and to continue the tax-free accumulation of income and capital
gains prior to their distribution to the employee.  An investor may terminate
the Plan at any time.  A form for use in establishing such a plan is available
from Securian Financial.

     A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.).   The initial payment under a variable payment option may
be $50 or more.

     All shares under the Plan must be left on deposit.  Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.

     Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.

     Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the respective Fund
under this Plan, except in the case of Money Market Fund, other than by
reinvestment of distributions, it should be understood that, in the case of
Class A shares, he or she would be paying a sales commission on such purchases,
while liquidations effected under the Plan would be at net asset value, and, in
the case of Class B shares, he or she would be purchasing such shares at net
asset value while liquidations effected under the Plan would involve the payment
of a contingent deferred sales charge.  Purchases of additional shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities.  Additions to a shareholder
account in which an election has been made to receive systematic withdrawals
will be accepted only if each such addition is equal to at least one year's
scheduled withdrawals or $1,200, whichever is greater.  A shareholder may not
have an "Automatic Withdrawal Plan" and a "Systematic Investment Plan" in effect
simultaneously as it is not, as explained above, advantageous to do so.

                                     REDEMPTIONS

     Registered holders of shares of the Funds may redeem their shares at the
per share net asset value ("NAV") next determined following receipt by PFPC
(at its mailing address listed on the cover page) of a written redemption
request signed by all shareholders exactly as the account is registered (and
a properly endorsed stock certificate if one has been issued). A sale order
received by PFPC from a financial services firm after NAV is determined that
day will nonetheless be processed at that day's NAV if the order was received
by the firm from its customer prior to such determination and transmitted to
and received by PFPC prior to its close of business that day. Class C shares
may be redeemed without charge. A contingent deferred sales charge may be
applicable upon redemption of certain Class A shares and Class B shares.
Class A, Class B and Class C shares of International Fund, however, may be
subject to a 2% redemption fee if redeemed within 60 days of purchase. Both
share certificates and stock powers, if any, tendered in redemption must be
endorsed and executed exactly as the Fund shares are registered. Any
certificates should be sent to the Fund by certified mail.

     Payment will be made as soon as possible, but generally not later than
seven days after receipt of a properly executed written redemption request
(and any certificates). Sales proceeds from shares purchased by check or
bank draft, other than checks from government agencies, will not be available
until the check or draft clears the purchaser's bank, which may take up to
fifteen days after purchase. The amount received by the shareholder may be
more or less than the shares' original cost.

     If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission. The Fund's FAX number is
(508) 871-9960.


                                         -65-


     Each Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000 or
1% of the net asset value of the Fund at the beginning of such period.  When
redemption requests exceed such amount, however, the Fund reserves the right to
make part or all of the payment in the form of securities or other assets of the
Fund.  An example of when this might be done is in case of emergency, such as in
those situations enumerated in the following paragraph, or at any time a cash
distribution would impair the liquidity of the Fund to the detriment of the
existing shareholders.  Any securities being so distributed would be valued in
the same manner as the portfolio of the Fund is valued.  If the recipient sold
such securities, he or she probably would incur brokerage charges.  Each Fund
has filed with the Securities and Exchange Commission a notification of election
pursuant to Rule 18f-1 under the Investment Company Act of 1940 in order to make
such redemptions in kind.

     Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not  reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.

MEDALLION SIGNATURE GUARANTEE

     In order to protect both shareholders and the Funds against fraudulent
orders, a medallion shareholder signature guarantee is required in certain
cases. No signature guarantee is required if the redemption proceeds are less
than $50,000 and are to be paid to the registered  holder and sent to the
address of record for that account, or if the written redemption request is
from pre-authorized trustees of plans, trusts and other tax-exempt
organizations and the redemption proceeds are less than $50,000.

     A medallion signature guarantee is required, however, if (i) the
redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to
be paid to someone other than the registered holder, (iii) the redemption
proceeds are to be mailed to an address other than the registered
shareholder's address, (iv) within the 30-day period prior to receipt of the
redemption request, instructions have been received to change the
shareholder's address of record, or, in the case of redemptions to be paid by
wire, instructions have been received within such period to change the
shareholder's bank wire instructions, (v) the shares are requested to be
transferred to the account of another owner, or (vi) in the case of plans,
trusts, or other tax-exempt organizations, the redemption request is not from
a pre-authorized trustee.  The Fund reserves the right to require signature
guarantees on all redemptions.

     A signature guarantee must be a "medallion" signature guarantee provided by
a domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which participates in a medallion
program recognized by the Securities Transfer Association.  The three recognized
medallion programs are:

- -    Securities Transfer Agents Medallion Program (STAMP)

- -    Stock Exchanges Medallion Program (SEMP)

- -    New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP)

     Signature guarantees from financial institutions which are not participants
in a recognized medallion program will not be accepted.


                                         -66-


CONTINGENT DEFERRED SALES CHARGE

     The CDSC applicable upon redemption of Class A shares purchased in amounts
of $1 million or more and Class B shares will be calculated on an amount equal
to the lesser of the net asset value of the shares at the time of purchase or
their net asset value at the time of redemption.  No charge will be imposed on
increases in net asset value above the initial purchase price.  In addition, no
charge will be assessed on shares derived from reinvestment of dividends or
capital gains distributions or on shares held for longer than the applicable
CDSC period.  See "Sales Charges - Class B Shares" above.

     In determining whether a CDSC is payable with respect to any redemption
of Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged.

     The CDSC does not apply to:  (1) redemption of Class B shares in
connection with the automatic conversion to Class A shares; (2) redemption of
shares when a Fund exercises its right to liquidate accounts which are less
than the minimum account size; (3) redemptions in the event of the death or
disability of the shareholder within the meaning of Section 72(m)(7) of the
Internal Revenue Code; and (4) in connection with Class B shares redeemed
pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares
equal in amount to 12% of the value of a shareholder's account in a Fund at
the time the Systematic Withdrawal Plan is established. The CDSC will also
not apply to certain exchanges.  See "Exchange and Transfer of Fund Shares,"
above.

TELEPHONE REDEMPTION

     The Funds' shareholders have this privilege automatically, unless they
have elected on the account application not to have such privilege, and may
redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions").  A telephone redemption request will not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30-day
period prior to receipt of the redemption request.  The maximum amount which
may be redeemed by telephone is $50,000.  The proceeds will be sent by check
to the address of record for the account.  If the amount is $500 or more, and
if the shareholder has designated a bank account, the proceeds may be wired
to the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund. The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

INTERNET REDEMPTION

The Funds' shareholders may elect to perform certain transactions via the
Internet. In order to do so, the shareholder must first authorize the Fund to
transmit information on-line and agree to the Funds' web site procedures.
Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more
information on how to enable an account. Internet transactions may not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30 day
period prior to receipt of the redemption request. The maximum amount which
may be redeemed by internet is $50,000. The proceeds will be sent by check to
the address of record for the account. If the amount is $500 or more, and if
the shareholder has designated a bank account, the proceeds may be wired to
the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund. The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

DELAY IN PAYMENT OF REDEMPTION PROCEEDS

     Payment of redemption proceeds will ordinarily be made as soon as
possible and within the periods of time described above.  However, an
exception to this is that if redemption is requested after a purchase by
check or bank draft, other than checks from government agencies, the Fund
will delay mailing the redemption check or wiring proceeds until it has
reasonable assurance that the purchase check has cleared (good payment has
been collected).  This delay may be up to 15 days from the purchase date.

FUND'S RIGHT TO REDEEM SMALL ACCOUNTS

     Each Fund has the right to redeem the shares in small accounts which,
for any reason, have a total current value of less than $500. The Funds
usually make this determination in December of each year. Before redeeming an
account, the Fund will mail to the shareholder a written notice of its
intention to redeem, which will give the investor an opportunity to make an
additional investment.  If no additional investment is received by the Fund
within 60 days of the date the notice was mailed, the shareholder's account
will be redeemed.

MONEY MARKET FUND CHECKWRITING

     Money Market Fund shareholders may elect the checkwriting privilege
which allows them to write checks in amounts from a minimum of $250 to a
maximum of $100,000.  No charge is made for the initial supply of checks, but
each subsequent check order is subject to a charge of $7.  Checks may not be
written against shares in a Fund account which have been purchased within the
last 15 days, except for shares purchased by wire transfer (which are
immediately available) or a check from a government agency.  Checkwriting is
not an appropriate means to close a Fund account.  A $15 service fee will be
charged when a shareholder requests "stop payment" of a check.


                                         -67-


AUTOMATIC PREMIUM PAYMENTS

     A shareholder may authorize Minnesota Life to redeem shares in his or her
Money Market Fund account periodically in amounts equal to the premiums due on
insurance policies issued to the shareholder by Minnesota Life and to apply
those amounts in payment of the premiums due on those policies.  Payment of
insurance premiums in this manner may be made only where such insurance premiums
are due on a monthly basis.  In no event will Minnesota Life redeem shares to
pay on insurance premium unless there are shares in a shareholder's Money Market
Fund account sufficient to pay the full amount of the premium.

REINSTATEMENT PRIVILEGE

     The Prospectus for the Funds describes redeeming shareholders'
reinstatement privileges under the caption "Buying and Selling Shares."
Written notice from persons wishing to exercise this reinstatement privilege
must be received by Securian Financial within 90 days after the date of the
redemption.  The reinstatement or exchange will be made at net asset value
next determined after receipt of the notice and will be limited to the amount
of the redemption proceeds or to the nearest full share if fractional shares
are not purchased.  All shares issued as a result of the reinstatement
privilege applicable to redemptions of Class A and Class B shares will be
issued only as Class A shares.  Any CDSC incurred in connection with the
prior redemption (within 90 days) of Class B shares will not be refunded or
re-credited to the shareholder's account.  Shareholders who redeem Class C
shares and exercise their reinstatement privilege will be issued only Class C
shares, which shares will have a remaining holding period prior to conversion
equal to the remaining holding period applicable to the prior Class C shares
at redemption.

     See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge.  Should an investor
utilize the reinstatement privilege following a redemption which resulted in a
loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt.  See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.

                                TELEPHONE TRANSACTIONS

     Shareholders of the Funds are permitted to exchange or redeem a Fund's
shares by telephone.  See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details.  The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.

     Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
1-800-665-6005.  Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time).  Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day.  The maximum
amount which may be redeemed by telephone is $50,000.  During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls.  In such a circumstance, shareholders should consider
submitting a written request as an alternative to a telephone exchange or
redemption.  The Funds reserve the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.


                                         -68-


     A Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions.  The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.

                              INTERNET TRANSACTIONS

     Shareholders of the Funds are permitted to exchange or redeem a Fund's
share via the Internet. See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details. The privilege to initiate such transactions
via Internet requires that a shareholder contact Advantus at (800) 665-6005 to
enable their account.

     Shareholders, or persons authorized by shareholders, may initiate
Internet transactions by going to the Advantus Funds web site,
www.advantusfunds.com. Automated service is generally available 24 hours a
day. Internet transaction requests received after 3:00 p.m. (Central time)
will be treated as received the next business day. The maximum amount which
may be redeemed via Internet is $50,000. During periods of marked economic or
market changes, shareholders may experience difficulty in implementing an
on-line exchange or redemption due to a heavy volume. In such a circumstance,
shareholders should consider submitting a written request as an alternative
to an on-line exchange or redemption. The Funds reserve the right to modify,
terminate or impose charges upon the Internet on-line exchange and redemption
privileges upon 60 days' prior notice to shareholders.

     A Fund will not be liable for following instructions communicated by
Internet which it reasonably believes to be genuine; provided, however, that the
Fund will employ reasonable procedures to confirm that instructions communicated
via the Internet are genuine, and that if they do not, they may be liable for
any losses due to unauthorized or fraudulent instructions. The procedures for
processing Internet transactions include requiring shareholders to contact
Advantus in order to establish their on-line account, asking shareholders for
their account number and a personal identifying number, providing a confirmation
number on-screen, at the completion of an on-line transaction, and providing
written confirmation of such transactions.

                             DISTRIBUTIONS AND TAX STATUS

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

     The policy of the International Fund and Spectrum Fund has been to pay
dividends from net investment income, if any, quarterly. The policy of
Mortgage Securities Fund, Bond Fund and Money Market Fund has been to declare
dividends from net investment income on each business day of the Fund, except
that dividends for Saturdays, Sundays and holidays are declared on the next
business day, and to pay such dividends monthly. Bond Fund and Mortgage
Securities Fund each expects to pay dividends at a targeted level from its
net investment income and other distributable income without any impact on
the net asset values per share. Any net realized capital gains are generally
distributed once a year, during December.

     For all Funds other than Money Market Fund, distributions, if any, paid
with respect to Class A, Class B and Class C shares will be calculated in the
same manner, at the same time, on the same day and will be in the same
amount, except that the higher Rule 12b-1 fees applicable to Class B and
Class C shares will be borne exclusively by such shares.  The per share
distributions on Class B and Class C shares will be lower than the per share
distributions on Class A shares as a result of the higher Rule 12b-1 fees
applicable to Class B and Class C shares.

     Any dividend payments or net capital gains distributions made by a Fund
are in the form of additional shares of the same class of the Fund rather than
in cash, unless a shareholder specifically requests the Fund in writing that the
payment be made in cash.  The distribution of these shares is made at net asset
value on the payment date of the dividend, without any sales or other charges to
the shareholder.  The taxable status of income dividends and/or net capital
gains distributions is not affected by whether they are reinvested or paid in
cash.  Authorization to pay dividends in cash may be made on the application
form, or at any time by letter.

     For federal income tax purposes, Spectrum Fund,  Bond Fund and
International Balanced Fund have capital loss carryovers as of September 30,
2002 in the amounts of $11,482,396, $1,043,533 and $2,064,851, respectively.
It is unlikely the Board of Directors will authorize a distribution of any
net realized capital gain until the available capital loss carryover has been
offset or expires.

     Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Money
Market Fund or shares of the same class of another of the Advantus Funds at
the net asset value of such other Fund on the payable date for the dividends
being distributed.  To use this privilege of investing dividends from a Fund
in shares of another of the Funds, shareholders must maintain a minimum
account value of $500 in both the Fund paying the dividends and the other
Fund in which dividends are reinvested.

TAXATION - GENERAL

     The following is a general summary of certain federal tax considerations
affecting the Funds and their shareholders.  No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.

     During the year ended September 30, 2002 each Fund fulfilled, and
intends to continue to fulfill, the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company.  If so qualified, each Fund will not be liable for
federal income taxes to the extent it distributes its taxable income to its
shareholders.


                                         -69-


     Distributions of investment company taxable income from a Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock.  A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares.  Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.

     Some or all of the dividend distributions from Spectrum Fund are
expected to qualify for the 70% dividend received deduction for corporations.

     If more than 50% of International Fund's total assets at the close of its
fiscal year consist of securities of foreign corporations, it will be eligible
to, and may, file an election with the Internal Revenue Service pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Fund as income received by them.  Shareholders may
then either deduct such pro rata portions in computing their taxable income or
use them as foreign tax credits against their United States income taxes.  If
the Fund makes such an election, it will report annually to each shareholder the
amount of foreign taxes to be included in income and then either deducted or
credited.

     Alternatively, if the amount of foreign taxes paid by International Fund is
not large enough to warrant its making the election described above, the Fund
may claim the amount of foreign taxes paid as a deduction against its own gross
income.  In that case, shareholders would not be required to include any amount
of foreign taxes paid by the Fund in their income and would not be permitted
either to deduct any portion of foreign taxes from their own income or to claim
any amount of foreign tax credit for taxes paid by the Fund.

     Prior to purchasing shares of the Fund, prospective shareholders (except
for tax-qualified retirement plans) should consider the impact of dividends
or capital gains distributions which are expected to be announced, or have
been announced but not paid.  Any such dividends or capital gains
distributions paid shortly after a purchase of shares by an investor prior to
the record date will have the effect of reducing the per share net asset
value by the amount of the dividends or distributions.  All or a portion of
such dividends or distributions, although in effect a return of capital, is
subject to taxation.

     The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares.  The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.

     Shareholders of the Funds receive an annual statement detailing federal tax
information.  Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.

     The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations.  In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.

     Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and, particularly in the case of transactions in or with respect to
foreign currencies, affect the character of the gains or losses realized.  These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes.  Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities.  Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.


                                         -70-


     Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed.  In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.

     The foregoing relates only to federal taxation.  Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.

                                 FINANCIAL STATEMENTS

     Each Fund's financial statements for the year ended September 30, 2002,
including the financial highlights for each of the respective periods presented,
appearing in the Funds' Annual Report to Shareholders, and the report thereon
of such Fund's independent auditors, KPMG LLP, also appearing therein, are
incorporated by reference in this Statement of Additional Information.


                                         -71-


                                     APPENDIX A

                            MORTGAGE-RELATED SECURITIES

     Mortgage-related securities represent an ownership interest in a pool of
residential mortgage loans.  These securities are designed to provide monthly
payments of interest and principal to the investor.  The mortgagor's monthly
payments to his lending institution are "passed-through" to investors such as
the Fund.  Most insurers or services provide guarantees of payments, regardless
of whether or not the mortgagor actually makes the payment.  The guarantees made
by issuers or servicers are backed by various forms of credit, insurance and
collateral.

UNDERLYING MORTGAGES

     Pools consist of whole mortgage loans or participations in loans.  The
majority of these loans are made to purchasers of 1-4 family homes.  Some of
these loans are made to purchasers of mobile homes.  The terms and
characteristics of the mortgage instruments are generally uniform within a pool
buy may vary among pools.  For example, in addition to fixed-rate fixed-term
mortgages, the fund may purchase pools of variable rate mortgages, growing
equity mortgages, graduated payment mortgages and other types.

     All servicers apply standards for qualification to local lending
institutions which originate mortgages for the pools.  Servicers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools.  In addition, many mortgages included in pools are insured through
private mortgage insurance companies.

LIQUIDITY AND MARKETABILITY

     Since the inception of the mortgage-related pass-through security in 1970,
the market for these securities has expanded considerably.  The size of the
primary issuance market and active participation in the secondary market by
securities dealers and many types of investors makes government and
government-related pass-through pools highly liquid.  The recently introduced
private conventional pools of mortgages (pooled by commercial banks, savings and
loans institutions and others, with no relationship with government and
government-related entities) have also achieved broad market acceptance and
consequently an active secondary market has emerged.  However, the market for
conventional pools is smaller and less liquid than the market for the government
and government-related mortgage pools.  The Fund may purchase some
mortgage-related securities through private placements, in which case only a
limited secondary market exists, and the security is considered illiquid.

AVERAGE LIFE

     The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments.  In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages.  The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions.

     As prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool.  For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life.  Pools of mortgages with
other maturities or different characteristics will have varying assumptions for
average life.  The assumed average life of pools of mortgages having terms of
less than 30 years is less than 12 years, but typically not less than 5 years.


                                         A-1


YIELD CALCULATIONS

     Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption.  In periods of falling interest rates the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities.  Conversely, in periods of rising
rates and the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool.  Historically, actual average life has been
consistent with the 12-year assumption referred to above.

     Actual prepayment experience may cause the yield to differ from the assumed
average life yield.  Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yield of the
Fund.  The compounding effect from reinvestments of monthly payments received by
the Fund will increase the yield to shareholders compared to bonds that pay
interest semi-annually.


                                         A-2


                                      APPENDIX B

                          BOND AND COMMERCIAL PAPER RATINGS

BOND RATINGS

Moody's Investors Service, Inc. describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:

     Bonds which are rated Aaa are judged to be of the best quality.  They carry
     the smallest degree of investment risk and are generally referred to as
     "gilt edge."  Interest payments are protected by a large or by an
     exceptionally stable margin and principal is secure.  While the various
     protective elements are likely to change, such changes as can be visualized
     are most unlikely to impair the fundamentally strong position of such
     issues.

     Bonds which are rated Aa are judged to be of high quality by all standards.
     Together with the Aaa group they comprise what are generally known as high
     grade bonds.  They are rated lower than the best bonds because margins of
     protection may not be as large as in Aaa securities or fluctuation of
     protective elements may be of greater amplitude or there may be other
     elements present which make the long term risks appear somewhat larger than
     in Aaa securities.

     Bonds which are rated A possess many favorable investment attributes and
     are to be considered as upper medium grade obligations.  Factors giving
     security to principal and interest are considered adequate but elements may
     be present which suggest a susceptibility to impairment some time in the
     future.

     Bonds which are rated Baa are considered medium grade obligations, i.e.,
     they are neither highly protected nor poorly secured.  Interest payments
     and principal security appear adequate for the present but certain
     protective elements may be lacking or  may be characteristically unreliable
     over any great length of time.  Such bonds lack outstanding investment
     characteristics and in fact have speculative characteristics as well.

     Bonds which are rated Ba are judged to have speculative elements; their
     future cannot be considered as well-assured.  Often the protection of
     interest and principal payments may be very moderate, and thereby not well
     safeguarded during both good and bad times over the future.  Uncertainty of
     position characterizes bonds in this class.

     Bonds which are rated B generally lack characteristics of the desirable
     investment.  Assurance of interest and principal payments or of maintenance
     of other terms of the contract over any long period of time may be small.

Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and 3,
in each of these generic rating classifications.  The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

Standard & Poor's Corporation describes its six highest ratings for corporate
bonds and mortgage-related securities as follows:


                                         B-1


     AAA.  Debt rated "AAA" has the highest rating assigned by Standard &
     Poor's.  Capacity to pay interest and repay principal is extremely strong.

     AA.  Debt rated "AA" has a very strong capacity to pay interest and repay
     principal and differs from the higher rated issues only in small degree.

     A.  Debt rated "A" has a strong capacity to pay interest and repay
     principal although it is somewhat more susceptible to the adverse effects
     of changes in circumstances and economic conditions than debt in higher
     rated categories.

     BBB.  Debt rated "BBB" is regarded as having an adequate capacity to pay
     interest and repay principal.  Whereas it normally exhibits adequate
     protection parameters, adverse economic conditions or changing
     circumstances are more likely to lead to a weakened capacity to pay
     interest and repay principal for debt in this category than in higher rated
     categories.

     BB.  Debt rated "BB" has less near-term vulnerability to default than other
     speculative grade debt.  However, it faces major ongoing uncertainties or
     exposure to adverse business, financial, or economic conditions that could
     lead to inadequate capacity to meet timely interest and principal payments.

     B.  Debt rated "B" has a greater vulnerability to default but currently has
     the capacity to meet interest payments and principal repayments.  Adverse
     business, financial, or economic conditions will likely impair capacity or
     willingness to pay interest and repay principal.  The "B" rating category
     is also used for debt subordinated to senior debt that is assigned an
     actual or implied "BB" or "BB-" rating.

Standard & Poor's Corporation applies indicators "+", no character, and "-" to
the above rating categories.  The indicators show relative standing within the
major rating categories.

COMMERCIAL PAPER RATINGS

The rating Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc.  Among the factors considered by Moody's Investors
Service, Inc. in assigning the ratings are the following:  (1) evaluation of the
management of the issuer, (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
an (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations.

The rating A-1 is the highest rating assigned by Standard & Poor's Corporation
to commercial paper which is considered by Standard & Poor's Corporation to have
the following characteristics:

Liquidity ratios of the issuer are adequate to meet cash redemptions.  Long-term
senior debt is rated "A" or better.  The issuer has access to at least two
additional channels of borrowing.  Basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances.  Typically, the issuer's
industry is well established and the issuer has a strong position within the
industry.  The reliability and quality of management are unquestioned.


                                         B-2


                                      APPENDIX C

                                  FUTURES CONTRACTS

EXAMPLE OF FUTURES CONTRACT SALE

     The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term securities prices.  Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds").  The Fund wishes to fix the current market value of this portfolio
security until some point in the future.  Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated rise
in interest rates, the value will decline to $95.  The Fund might enter into
futures contract sales of Treasury bonds for a price of $98.  If the market
value of the portfolio security does indeed decline from $100 to $95, the
futures market price for the Treasury bonds might also decline from $98 to $93.

     In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale.  Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation between
cash and futures prices mentioned above.

     The Fund could be wrong in its forecast of interest rates and the futures
market price could rise above $98.  In this case, the market value of the
portfolio securities, including the portfolio security being protected, would
increase.  The benefit of this increase would be reduced by the loss realized on
closing out the futures contract sale.

     If interest rate levels did not change prior to settlement date, the Fund,
in the above example, would incur a loss of $2 if it delivered the portfolio
security on the settlement date (which loss might be reduced by an offsetting
transaction prior to the settlement date).  In each transaction, nominal
transaction expenses would also be incurred.

EXAMPLE OF FUTURES CONTRACT PURCHASE

     The Fund would engage in a futures contract purchase when it is not fully
invested in long-term securities but wishes to defer for a time the purchase of
long-term securities in light of the availability of advantageous interim
investments, e.g., short-term securities whose yields are greater than those
available on long-term securities.  The Fund's basic motivation would be to
maintain for a time the income advantage from investing in the short-term
securities; the Fund would be endeavoring at the same time to eliminate the
effect of all or part of the increases in market price of the long-term
securities that the Fund may purchase.

     For example, assume that the market price of a long-term security that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds.  The Fund wishes to fix the current market
price (and thus 10% yield) of the long-term security until the time (four months
away in this example) when it may purchase the security.

     Assuming the long-term security has a market price of $100, and the Fund
believes that, because of an anticipated fall in interest rates, the price will
have risen to $105 (and the yield will have dropped to about 9-1/2%) in four
months, the Fund might enter into futures contracts purchases of Treasury bonds
for a price of $98.  At the same time, the Fund would assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term security at an
assumed market price of $100.  Assume these short-term securities are yielding
15%.  If the market price of the long-term bond does indeed rise from $100 to
$105, the futures market price for Treasury bonds might also rise from $98 to
$103.  In that case, the $5 increase in the price that the Fund pays for the
long-term security would be offset by the $5 gain realized by closing out the
futures contract purchase.


                                         C-1


     The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could fall
below $98.  If short-term rates at the same time fall to 10% or below, it is
possible that the Fund would continue with its purchase program for long-term
securities.  The market prices of available long-term securities would have
decreased.  The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.

     If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
securities.  The yields on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term security,
would remain higher than yields on long-term bonds.  The benefit of this
continued incremental income will be reduced by the loss realized on closing out
the futures contract purchase.

     In each transaction, nominal transaction expenses would also be incurred.

TAX TREATMENT

     The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes.  Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year.  Forty percent of
any gain or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and 60 percent of such gain or loss will be
treated as long-term capital gain or loss.  The amount of any capital gain or
loss actually realized by the Fund in a subsequent sale or other disposition of
these futures contracts will be adjusted to reflect any capital gain or loss
taken into account by the Fund in a prior year as a result of the constructive
sale of the contract.  Notwithstanding the rules described above, with respect
to futures contracts which are part of futures contract sales, and in certain
other situations, the Fund may make an election which may have the effect of
exempting all or a part of those identified future contracts from being treated
for federal income tax purposes as sold on the last business day of the Fund's
taxable year; all or part of any gain or loss otherwise realized by the Fund on
any closing transaction may be deferred until all of the Fund's positions with
respect to the futures contract sales are closed; and, all or part of any gain
or loss may be treated as short-term capital gain or loss.

     Under the Federal income tax provisions applicable to regulated investment
companies, at least 90% of the Fund's annual gross income must be derived from
dividends, interest, payments with respect to loans of securities, and gains
from the sale or other disposition of securities ("qualifying income").  Under
the Internal Revenue Code of 1986, as amended (the "Code"), the Fund may include
gains from forward contracts in determining qualifying income.  In addition, in
order that the Fund continue to qualify as a regulated investment company for
Federal income tax purposes, less than 30% of its gross income for any year must
be derived from gains realized on the sale or other disposition of securities
held by the Fund for less than three months.  For this purpose, the Fund will
treat gains realized on the closing out of futures contracts as gains derived
from the sale of securities.  This treatment could, under certain circumstances,
require the Fund to defer the closing out of futures contracts until after three
months from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time.  However, under the
Code, a special rule is provided with respect to certain hedging transactions
which has the effect of allowing the Fund to engage in such short-term
transactions in limited circumstances.  Any gains realized by the Fund as a
result of the constructive sales of futures contacts held by the Fund at the end
of its taxable year, as described in the preceding paragraph, will in all
instances be treated as derived from the sale of securities held for three
months or more, regardless of the actual period for which the Fund has held the
futures contracts at the end of the year.


                                         C-2

EX-99.(17)(M)

                                                                 Exhibit (17)(m)


ADVANTUS EQUITY FUNDS            [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

PROSPECTUS DATED NOVEMBER 29, 2002

AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE,
NOR HAS IT APPROVED THE FUND'S SECURITIES. IT IS A CRIMINAL OFFENSE TO STATE
OTHERWISE.

ADVANTUS CORNERSTONE FUND, INC.
A LARGE COMPANY VALUE FUND

ADVANTUS ENTERPRISE FUND, INC.
A SMALL COMPANY GROWTH FUND

ADVANTUS HORIZON FUND, INC.
A LARGE COMPANY GROWTH FUND

ADVANTUS INDEX 500 FUND, INC.
A LARGE COMPANY INDEX FUND

ADVANTUS REAL ESTATE SECURITIES FUND, INC.
A REAL ESTATE - RELATED SECURITIES FUND

ADVANTUS VENTURE FUND, INC.
A SMALL COMPANY VALUE FUND

CUT DOWN PAPERWORK, NOT TREES.

ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL
REPORTS. TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT
(800) 665-6005.





ADVANTUS EQUITY FUNDS

This prospectus provides you with information about the six Advantus equity
funds (Fund or Funds). The Funds are all members of the Advantus family of funds
(Advantus Funds), a mutual fund complex comprised of eleven different funds. The
Advantus Funds other than Advantus Money Market Fund, Inc. are referred to as
"Advantus Multiple Class Funds."

TABLE OF CONTENTS



                                                      Page No.
                                                  
THE FUNDS IN SUMMARY ..............................           3
        Cornerstone Fund ..........................           3
        Enterprise Fund ...........................           7
        Horizon Fund ..............................          12
        Index 500 Fund ............................          17
        Real Estate Securities Fund ...............          21
        Venture Fund ..............................          25

INVESTING IN THE FUNDS ............................          30
        Managing the Funds ........................          30
        Advisory Fees .............................          32
        Investment Objective, Policies and
        Practices .................................          32
          Cornerstone Fund ........................          32
          Enterprise Fund .........................          34
          Horizon Fund ............................          36
          Index 500 Fund ..........................          37
          Real Estate Securities Fund .............          38
          Venture Fund ............................          40
        Defining Risks ............................          42

BUYING AND SELLING SHARES .........................          46
        Choosing a Share Class ....................          46
        Sales and Distribution Charges ............          46
        Reducing Sales Charges ....................          49
        Buying Shares .............................          51
        Selling Shares ............................          52
        Exchanging Shares .........................          54
        Telephone Transactions ....................          54
        Internet Transactions .....................          55
        Account Requirements ......................          55

DISTRIBUTIONS AND TAXES ...........................          56
        Dividends and Capital Gains
        Distributions .............................          56
        Taxes .....................................          56

FINANCIAL HIGHLIGHTS ..............................          58
        Cornerstone Fund ..........................          58
        Enterprise Fund ...........................          61
        Horizon Fund ..............................          64
        Index 500 Fund ............................          67
        Real Estate Securities Fund ...............          70
        Venture Fund ..............................          72

OTHER INFORMATION .................................          75
        Service Providers .........................          75
        Advantus Family of Funds ..................          77
        Additional Information About the Funds ....  Back Cover
        How to Obtain Additional Information ......  Back Cover



                                                                       [GRAPHIC]

                                                            THE FUNDS IN SUMMARY

- --------------------
FOR YOUR INFORMATION
- --------------------
A mutual fund is an investment company that invests the money of many people in
a variety of securities to seek a specific objective over time. An open-end
mutual fund buys back an investor's shares at the fund's current net asset
value.
- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more
detailed description of these main risks and additional risks in connection with
investing in the Fund.

Advantus Cornerstone Fund, Inc. (Cornerstone Fund), Advantus Enterprise Fund,
Inc. (Enterprise Fund), Advantus Horizon Fund, Inc. (Horizon Fund), Advantus
Index 500 Fund, Inc. (Index 500 Fund), Advantus Real Estate Securities Fund,
Inc. (Real Estate Securities Fund) and Advantus Venture Fund, Inc. (Venture
Fund) are all open-end, diversified investment companies, commonly called mutual
funds. Each of the Funds, except Real Estate Securities Fund, lets you choose
among three classes of shares that offer different sales charges and bear
different expenses. Real Estate Securities Fund offers two classes of shares.
These alternatives allow you to choose the share class that you believe is most
beneficial given the amount of your purchase, the length of time you expect to
hold onto the shares and whether you plan to make additional investments.

This section gives you a brief summary of each Fund's investment policies,
practices and main risks, as well as performance and fee information. More
detailed information about the Funds follows this summary.

Keep in mind that, in addition to the main risks summarized for each Fund below,
an investment in a Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency and that it is possible to lose money by investing in any
Fund. You should also note that since a Fund may make frequent changes in its
portfolio securities, such changes may result in higher Fund costs and may
adversely affect your return.

CORNERSTONE FUND

INVESTMENT OBJECTIVE AND POLICIES. Cornerstone Fund seeks long-term accumulation
of capital.

The Fund primarily invests in various types of equity securities of large
capitalization companies (i.e., companies with a market capitalization of at
least $1.5 billion) at the time of purchase. In selecting equity securities, the
Fund invests in securities that the Fund's investment adviser believes are
undervalued relative to other securities, earn low returns with a potential for
higher returns, are undervalued relative to their potential for improved
operating performance and financial strength or are issued by companies that
have recently undergone a change in management or control and are undervalued
relative to their potential for improved operating performance.

MAIN RISKS. An investment in the Cornerstone Fund may be subject to various
risks including the following types of main risk:

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

    - VALUE STOCK RISK - the risk that the value of a security believed by the
      Fund's investment adviser to be undervalued may never reach what the
      investment adviser believes is its full value, or that such security's
      value may decrease

                                                  THE FUNDS IN SUMMARY         3

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Cornerstone Fund's
annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows how the Fund's average annual
return over a one, five and ten year period compare to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions, and the table reflects applicable initial and contingent deferred
sales charges. Like other mutual funds, the past performance of the Fund does
not necessarily indicate how the Fund will perform in the future.

                 CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'95   32.93%
'96   30.13%
'97   21.08%
'98     .70%
'99     .02%
'00   -2.21%
'01  -10.81%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q4'98)      14.82%

 Worst Quarter:              (Q3'98)     -14.10%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was -21.88%.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)                                                            From
                                                                      1 Year      5 Years  10 Years  Inception
                                                                                      
 Class A Before Taxes(1)
  (inception 9/16/94)                                          %          -15.72     .10        --       7.31
 Class A After Taxes on Distributions                                     -15.94    -.99        --       5.46
 Class A After Taxes on Distributions and Redemptions                      -9.58    -.34        --       5.16
 Class B Before Taxes
  (inception 9/16/94)                                                     -15.95     .18        --       7.28
 Class C Before Taxes
  (inception 3/1/95)                                                      -11.48     .42        --       7.56
 Russell 1000 Value Index                                                  -5.59   11.13     14.15         --


 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      for Class A shares was 5.0% prior to February 1, 1999.

4             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Cornerstone Fund. This table describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.



                                                                        CLASS A   CLASS B   CLASS C
                                                                                
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)                             %        5.50     none       none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)                             %        1.00(a)   5.00      none
 Exchange Fees
 -On First Twelve Exchanges Each Year                                      none     none       none
 -On Each Additional Exchange                                     $        7.50     7.50       7.50
 Low Balance Fee (b)                                              $       10.00    10.00      10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                                                  %        0.70     0.70       0.70
 Rule 12b-1 Fees                                                  %        0.25     1.00       1.00
 Other Expenses                                                   %        0.46     0.46       0.46

 TOTAL ANNUAL FUND OPERATING EXPENSES (c)                         %        1.41     2.16       2.16


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .29% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.24% for Class A shares and 1.99% for Class B and
      Class C shares. Advantus Capital reserves the right to discontinue
      such absorption at any time at its sole discretion.

                                                  THE FUNDS IN SUMMARY         5

EXAMPLE. This example is intended to help you compare the costs of investing in
Cornerstone Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     686      972    1,279     2,147
 Class B                 719    1,026    1,309     2,213
 Class C                 219      676    1,159     2,303


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     686      972    1,279     2,147
 Class B                 219      676    1,159     2,213
 Class C                 219      676    1,159     2,303


6             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

ENTERPRISE FUND

INVESTMENT OBJECTIVE AND POLICIES. Enterprise Fund seeks long-term accumulation
of capital.

The Fund primarily invests in various types of equity securities of small
capitalization companies (i.e., companies with a market capitalization within
the range of capitalizations of companies in the Russell 2000 Growth Index) at
the time of purchase. In selecting equity securities, the Fund's investment
sub-adviser employs a growth investment style and looks for either developing or
older companies in a growth stage or companies providing products or services
with a high unit-volume growth rate.

MAIN RISKS. An investment in Enterprise Fund may be subject to various risks
including the following types of main risk:

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - GROWTH STOCK RISK - the risk that if the Fund's investment sub-adviser's
      assessment of a company's prospective earnings growth or judgment of how
      other investors assess the company's earnings growth is wrong, then the
      value of the company's securities may decrease or not approach the value
      that the Fund's investment sub-adviser placed on it

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

    - SMALL COMPANY RISK - the risk that equity securities of small
      capitalization companies are subject to greater price volatility due to,
      among other things, such companies' small size, limited product lines,
      limited access to financing sources and limited management depth

                                                  THE FUNDS IN SUMMARY         7

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.

FUND PERFORMANCE. The following bar chart and table show Enterprise Fund's
annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows how the Fund's average annual
return over a one, five and ten year period compare to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions, and the table reflects applicable initial and contingent deferred
sales charges. Like other mutual funds, the past performance of the Fund does
not necessarily indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'95   33.43%
'96    5.43%
'97    7.11%
'98     .97%
'99   45.52%
'00  -13.49%
'01  -16.02%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q4'99)      46.12%

 Worst Quarter:              (Q3'98)     -27.99%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was -36.29%.

8             THE FUNDS IN SUMMARY

- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)                                               From
                                                    1 Year        5 Years     10 Years  Inception
                                                                         
 Class A Before Taxes(1)
  (inception 9/16/94)                       %           -20.64         1.56        --       6.04
 Class A After Taxes on Distributions                   -20.64         -.80        --       3.64
 Class A After Taxes on Distributions and
  Redemptions                                           -12.57          .64        --       4.20
 Class B Before Taxes
  (inception 9/16/94)                                   -21.00         1.54        --       5.92
 Class C Before Taxes
  (inception 3/1/95)                                    -16.76         1.85        --       5.68
 Russell 2000 Growth Index                               -9.23         2.87      7.19         --


 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      for Class A shares was 5.0% prior to February 1, 1999.

                                                  THE FUNDS IN SUMMARY         9

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Enterprise Fund. This table describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.



                                                 CLASS A        CLASS B     CLASS C
                                                               
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)       %        5.50           none        none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)       %        1.00(a)        5.00        none
 Exchange Fees
 -On First Twelve Exchanges Each Year                none           none        none
 -On Each Additional Exchange               $        7.50           7.50        7.50
 Low Balance Fee (b)                        $       10.00          10.00       10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                            %        0.70           0.70        0.70
 Rule 12b-1 Fees                            %        0.25           1.00        1.00
 Other Expenses                             %        0.74           0.74        0.74

 TOTAL ANNUAL FUND OPERATING
  EXPENSES (c)                              %        1.69           2.44        2.44


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .53% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.48% for Class A shares and 2.23% for Class B and
      Class C shares. Advantus Capital reserves the right to discontinue
      such absorption at any time at its sole discretion.

10             THE FUNDS IN SUMMARY

EXAMPLE. This example is intended to help you compare the costs of investing in
Enterprise Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     712    1,053    1,417     2,438
 Class B                 747    1,111    1,451     2,504
 Class C                 247      761    1,301     2,591


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     712    1,053    1,417     2,438
 Class B                 247      761    1,301     2,504
 Class C                 247      761    1,301     2,591


                                                 THE FUNDS IN SUMMARY         11

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

HORIZON FUND

INVESTMENT OBJECTIVE AND POLICIES. Horizon Fund seeks long-term growth of
capital through investment in equity securities.

The Fund primarily invests in various types of equity securities of large
capitalization companies (i.e. companies with a market capitalization of at
least $1.5 billion) at the time of purchase. The Fund invests primarily in
common stocks but may also invest in preferred stocks and securities convertible
into equity securities. In selecting equity securities, the Fund invests in
securities that the Fund's investment adviser believes show sustainable earnings
growth potential above the average market growth rate.

MAIN RISKS. An investment in Horizon Fund may be subject to various risks
including the following types of main risk:

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - GROWTH STOCK RISK - the risk that if the Fund's investment adviser's
      assessment of a company's prospective earnings growth or judgment of how
      other investors assess the company's earnings growth is wrong, then the
      value of the company's securities may decrease or not approach the value
      that the Fund's investment adviser placed on it

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

12             THE FUNDS IN SUMMARY

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.

FUND PERFORMANCE. The following bar chart and table show Horizon Fund's annual
returns and long-term performance. The chart shows how the Fund's performance
has varied from year to year, and provides some indication of the risks in
investing in the Fund. The table shows how the Fund's average annual return over
a one, five and ten year period compare to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions, and the
table reflects applicable initial and contingent deferred sales charges. Like
other mutual funds, the past performance of the Fund does not necessarily
indicate how the Fund will perform in the future.

          CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'92    4.87%
'93    4.29%
'94   -0.69%
'95   29.16%
'96   16.79%
'97   27.33%
'98   34.28%
'99   24.57%
'00  -22.12%
'01  -26.05%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q4'98)      21.30%

 Worst Quarter:              (Q1'01)     -25.90%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was -29.96%.

                                                 THE FUNDS IN SUMMARY         13

- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)                                          From
                                                    1 Year      5 Years  10 Years  Inception
                                                                    
 Class A Before Taxes(1)
  (inception 5/3/85)                        %           -30.12    3.00      6.77       9.01
 Class A After Taxes on Distributions                   -30.12     .77      4.56       7.07
 Class A After Taxes on Distributions and
  Redemptions                                           -18.34    2.39      5.19       7.14
 Class B Before Taxes
  (inception 8/19/94)                                   -30.33    3.18        --       8.11
 Class C Before Taxes
  (inception 3/1/95)                                    -26.63    3.40        --       7.86
 Russell 1000 Growth Index                              -20.42    8.27     10.79         --


 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      for Class A shares was 5.0% prior to February 1, 1999.

14             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Horizon Fund. This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.



                                                  CLASS A    CLASS B    CLASS C
                                                           
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)       %       5.50       none       none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)       %       1.00(a)    5.00       none
 Exchange Fees
 -On First Twelve Exchanges Each Year               none       none       none
 -On Each Additional Exchange               $       7.50       7.50       7.50
 Low Balance Fee (b)                        $      10.00      10.00      10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                            %       0.70       0.70       0.70
 Rule 12b-1 Fees                            %       0.25       1.00       1.00
 Other Expenses                             %       1.22       1.22       1.22

 TOTAL ANNUAL FUND OPERATING
  EXPENSES (c)                              %       2.17       2.92       2.92


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .40% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.35% for Class A shares and 2.10% for Class B and Class C
      shares. Advantus Capital reserves the right to discontinue such
      absorption at any time at its sole discretion.

                                                 THE FUNDS IN SUMMARY         15

EXAMPLE. This example is intended to help you compare the costs of investing in
Horizon Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $    758     1,192    1,650    2,916
 Class B                795     1,254    1,688    2,983
 Class C                295       904    1,538    3,066


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $    758     1,192    1,650    2,916
 Class B                295       904    1,538    2,983
 Class C                295       904    1,538    3,066


16             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

INDEX 500 FUND

INVESTMENT OBJECTIVE AND POLICIES. Index Fund seeks investment results that
correspond, generally, before sales charges and other Fund expenses, to the
aggregate price and yield performance of the common stocks included in the
Standard & Poor's 500 Composite Stock Price Index (the S&P 500).

The Fund invests its assets in all of the common stocks included in the S&P 500.

MAIN RISKS. An investment in Index 500 Fund may be subject to various risks
including the following types of main risk:

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

    - S&P PERFORMANCE RISK - the risk that the Fund's ability to replicate the
      performance of the S&P 500 may be affected by, among other things, changes
      in securities markets, the manner in which Standard & Poor's Rating
      Services calculates the S&P 500, the amount and timing of cash flows into
      and out of the Fund, commissions, sales charges (if any) and other
      expenses

                                                 THE FUNDS IN SUMMARY         17

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Index 500 Fund's annual
returns and long-term performance. The chart shows how the Fund's performance
has varied from year to year, and provides some indication of the risks in
investing in the Fund. The table shows how the Fund's average annual return over
a one, five and ten year period compare to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions, and the
table reflects applicable initial and contingent deferred sales charges. Like
other mutual funds, the past performance of the Fund does not necessarily
indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'98   27.18%
'99   19.70%
'00  -10.16%
'01  -12.59%



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q4'98)      21.34%

 Worst Quarter:              (Q3'01)     -14.77%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was -28.47%.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)                         From
                                                    1 Year       Inception
                                                       
 Class A Before Taxes(1)
  (inception 1/31/97)                       %           -17.40      7.12
 Class A After Taxes on Distributions                   -17.61      6.71
 Class A After Taxes on Distributions and
  Redemptions                                           -10.60      5.63
 Class B Before Taxes
  (inception 1/31/97)                                   -17.67      7.21
 Class C Before Taxes
  (inception 1/31/97)                                   -13.31      7.35
 S&P 500                                                -11.90     10.89


 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      was 5.0% prior to February 1, 1999.

18             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Index 500 Fund. This table describes the fees and expenses that you may pay
if you buy and hold shares of the Fund.



                                                 CLASS A     CLASS B     CLASS C
                                                            
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)       %        5.50        none        none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)       %        1.00(a)      5.00       none
 Exchange Fees
 -On First Twelve Exchanges Each Year                none        none        none
 -On Each Additional Exchange               $        7.50        7.50        7.50
 Low Balance Fee (b)                        $       10.00       10.00       10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 ---------------------------------------------------------------------------------
 Management Fees                            %        0.34        0.34        0.34
 Rule 12b-1 Fees                            %        0.25        1.00        1.00
 Other Expenses                             %        0.94        0.94        0.94

 TOTAL ANNUAL FUND OPERATING
  EXPENSES (c)                              %        1.53        2.28        2.28


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .26% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be .85% for Class A shares and 1.60% for Class B and Class C
      shares. Advantus Capital reserves the right to discontinue such
      absorption at any time at its sole discretion.

                                                 THE FUNDS IN SUMMARY         19

EXAMPLE. This example is intended to help you compare the costs of investing in
Index 500 Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     697    1,007    1,338     2,273
 Class B                 731    1,062    1,370     2,339
 Class C                 231      712    1,220     2,427


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     697    1,007    1,338     2,273
 Class B                 231      712    1,220     2,339
 Class C                 231      712    1,220     2,427


20             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

REAL ESTATE SECURITIES FUND

INVESTMENT OBJECTIVE AND POLICIES. Real Estate Securities Fund seeks total
return through a combination of capital appreciation and current income.

The Fund invests its assets primarily in real estate and real estate-related
securities. "Real estate securities" include securities issued by companies that
receive at least 50% of their gross revenue from the construction, ownership,
management, financing or sale of residential, commercial or industrial real
estate. "Real estate-related securities" include securities issued by companies
primarily engaged in businesses that sell or offer products or services that are
closely related to the real estate industry.

Most of the Fund's real estate securities portfolio will consist of securities
issued by Real Estate Investment Trusts (REITs) that are listed on a securities
exchange or traded over-the-counter. A REIT is a corporation or trust that
invests in fee or leasehold ownership of real estate, mortgages or shares issued
by other REITs. In selecting securities, factors such as an issuer's financial
condition, financial performance, policies and strategies and competitive market
condition are considered by the Fund's investment adviser. The Fund then invests
in those issuers which its investment adviser determines have potential for
long-term sustainable growth in earnings.

MAIN RISKS. An investment in Real Estate Securities Fund may be subject to
various risks including the following types of main risk:

    - CONCENTRATION RISK - the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than an investment portfolio that does not concentrate its investments in
      a single industry. The Fund concentrates its investments in the real
      estate and real estate related industry.

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

    - REAL ESTATE RISK - the risk that the value of the Fund's investments may
      decrease due to a variety of factors related to the construction,
      development, ownership, financing, repair or servicing or other events
      affecting the value of real estate, buildings or other real estate
      fixtures

    - REIT-RELATED RISK - the risk that the value of the Fund's securities
      issued by REITs (as discussed in "Investing in the Fund - Investment
      Objective, Policies and Practices" below) will be adversely affected by
      changes in the value of the underlying property

                                                 THE FUNDS IN SUMMARY         21

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.
- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.

FUND PERFORMANCE. The following bar chart and table show Real Estate Securities
Fund's annual returns and long-term performance. The chart shows how the Fund's
performance has varied from year to year, and provides some indication of the
risks in investing in the Fund. The table shows how the Fund's average annual
return over a one, five and ten year period compare to the return of a broad
based index. The chart and table assume reinvestment of dividends and
distributions, and the table reflects applicable initial and contingent deferred
sales charges. Like other mutual funds, the past performance of the Fund does
not necessarily indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'00  25.22
'01  10.01



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q2'01)      10.85%

 Worst Quarter:              (Q3'01)      -4.30%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was 4.41%.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)               From
                                                1 Year  Inception
                                               
  Class A Before Taxes
  (inception 2/25/99)                       %    3.96       9.26
  Class A After Taxes on Distributions           1.20       6.46
  Class A After Taxes on Distributions
     and Redemptions                             2.99       6.12
  Wilshire Associates Real Estate
     Securities Index                           10.33      13.40


22             THE FUNDS IN SUMMARY

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Real Estate Securities Fund. This table describes the fees and expenses that
you may pay if you buy and hold shares of the Fund.



                                                CLASS A   CLASS B
                                                 
 SHAREHOLDER FEES
  (fees paid directly from your
  investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)       %     5.50      none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)       %     1.00(a)   5.00
 Exchange Fees
 -On First Twelve Exchanges Each Year             none      none
 -On Each Additional Exchange               $     7.50      7.50
 Low Balance Fee (b)                        $    10.00     10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from
  Fund assets)
 Management Fees                            %     0.75      0.75
 Rule 12b-1 Fees                            %     0.25      1.00
 Other Expenses                             %     0.69      0.69

 TOTAL ANNUAL FUND OPERATING
  EXPENSES (c)                              %     1.69      2.44


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."
 (c)  Advantus Capital Management, Inc. (Advantus Capital), the Fund's
      investment adviser, has voluntarily agreed to absorb "other
      expenses", excluding advisory fees and Rule 12b-1 fees, in excess
      of .65% of average net assets of the Fund. After such absorption,
      the ratio of total fund operating expenses to average net assets
      will be 1.65% for Class A shares and 2.40% for Class B shares.
      Advantus Capital reserves the right to discontinue such absorption
      at any time at its sole discretion.

                                                 THE FUNDS IN SUMMARY         23

EXAMPLE. This example is intended to help you compare the costs of investing in
Real Estate Securities Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     712    1,053    1,417     2,438
 Class B                 747    1,111    1,451     2,504


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     712    1,053    1,417     2,438
 Class B                 247      761    1,301     2,504


24             THE FUNDS IN SUMMARY

- ---------------
REFERENCE POINT
- ---------------
Please see "Investing in the Fund - Defining Risks" for a more detailed
description of these main risks and additional risks in connection with
investing in the Fund.

VENTURE FUND

INVESTMENT OBJECTIVE AND POLICIES. Venture Fund seeks long-term accumulation of
capital.

The Fund primarily invests in various types of equity securities of small
capitalization companies. Although a universal definition of small
capitalization companies does not exist, the Fund generally defines small
capitalization companies as those whose market capitalizations are similar to
the market capitalizations of companies in the Russell 2000-Registered
Trademark-Value Index. These equity securities will consist primarily of value
common stocks, but may also include preferred stock and other securities
convertible into equity securities. In selecting equity securities, the Fund's
investment sub-adviser searches for those companies that appear to be
undervalued or trading below their true worth, and examines such features as a
firm's financial condition, business prospects, competitive position and
business strategy. The Fund looks for companies that appear likely to come back
into favor with investors, for reasons that may range from good prospective
earnings or strong management teams to new products or services.

MAIN RISKS. An investment in Venture Fund may be subject to various risks
including the following types of main risk:

    - FUND RISK - the risk that Fund performance may not meet or exceed that of
      the market as a whole

    - MARKET RISK - the risk that equity securities are subject to adverse
      trends in equity markets

    - SMALL COMPANY RISK - the risk that equity securities of small
      capitalization companies are subject to greater price volatility due to,
      among other things, such companies' small size, limited product lines,
      limited access to financing sources and limited management depth

    - VALUE STOCK RISK - the risk that the value of a security believed by the
      Fund's investment sub-adviser to be undervalued may never reach what the
      investment sub-adviser believes is its full value, or that such security's
      value may decrease

                                                 THE FUNDS IN SUMMARY         25

- --------------------
FOR YOUR INFORMATION
- --------------------
The Fund seeks to achieve its investment objective over longer rather than
shorter periods of time. An investment in the Fund may therefore be more
appropriate for an investor with a longer-term focus.

FUND PERFORMANCE. The following bar chart and table show Venture Fund's annual
returns and long-term performance. The chart shows how the Fund's performance
has varied from year to year, and provides some indication of the risks in
investing in the Fund. The table shows how the Fund's average annual return over
a one, five and ten year period compare to the return of a broad based index.
The chart and table assume reinvestment of dividends and distributions, and the
table reflects applicable initial and contingent deferred sales charges. Like
other mutual funds, the past performance of the Fund does not necessarily
indicate how the Fund will perform in the future.

    CLASS A YEAR TO YEAR TOTAL RETURN(1) (AS OF DECEMBER 31)(2)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

  
'98  -7.30
'99  -3.93
'00  26.51
'01  15.98



(1) Absent reductions for sales loads, account fees and other charges. If such
    sales loads, account fees and other charges were included, returns would be
    less than shown above.

                                
 Best Quarter:               (Q4'01)      21.39%

 Worst Quarter:              (Q3'98)     -20.20%

 

(2) Total return for 2002 through the calendar quarter ended September 30, 2002
    was -24.36%.

26             THE FUNDS IN SUMMARY

- --------------------
FOR YOUR INFORMATION
- --------------------
After-tax returns are shown for Class A shares only. After-tax returns for other
Classes will vary. After-tax returns are calculated using the historical highest
individual federal marginal income tax rates, but do not reflect the impact of
state or local taxes. Return after taxes on distributions and redemption may be
higher than other returns for the same period due to a tax benefit of realizing
a capital loss upon the sale of fund shares. Actual after-tax returns may differ
depending on your individual circumstances. The after-tax returns shown are not
relevant if you hold your shares in a retirement account or in another
tax-deferred arrangement.



 AVERAGE ANNUAL TOTAL RETURN
 (FOR THE PERIODS ENDING DECEMBER 31, 2001)
                                                          From
                                                1 Year  Inception
                                               
 Class A Before Taxes(1)
  (inception 1/31/97)                       %    9.60      10.17
 Class A After Taxes on Distributions            7.47       8.62
 Class A After Taxes on Distributions and
  Redemptions                                    6.27       7.59
 Class B Before Taxes
  (inception 1/31/97)                           10.03      10.22
 Class C Before Taxes
  (inception 1/31/97)                           14.96      10.49
 Russell 2000 Value Index                       14.02      11.41


 (1)  Average annual total returns quoted assume that the Class A
      maximum initial sales charge of 5.5% was in effect at the
      beginning of each period shown. The maximum initial sales charge
      was 5.0% prior to February 1, 1999.

                                                 THE FUNDS IN SUMMARY         27

FEES AND EXPENSES. Investors pay fees and expenses in connection with investing
in Venture Fund. This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.



                                                          CLASS A   CLASS B   CLASS C
                                                                  
 SHAREHOLDER FEES
  (fees paid directly from your investment)
 Maximum Sales Charge on Purchases
  (as a percentage of offering price)                 %     5.50      none      none
 Maximum Deferred Sales Charge
  (as a percentage of sales proceeds)                 %     1.00(a)   5.00      none
 Exchange Fees
 -On First Twelve Exchanges Each Year                       none      none      none
 -On Each Additional Exchange                         $     7.50      7.50      7.50
 Low Balance Fee (b)                                  $    10.00     10.00     10.00

 ANNUAL FUND OPERATING EXPENSES
  (expenses that are deducted from Fund assets)
 Management Fees                                      %     0.70      0.70      0.70
 Rule 12b-1 Fees                                      %     0.25      1.00      1.00
 Other Expenses                                       %     0.42      0.42      0.42

 TOTAL ANNUAL FUND OPERATING EXPENSES                 %     1.37      2.12      2.12


 (a)  Applies only to purchases of at least $1 million, in which case a
      contingent deferred sales charge of 1.00% will be imposed if such
      shares are sold within one year after the date of purchase.
 (b)  Applies to certain accounts with balances below $2,000. See
      "Account Requirements - Low Balance Fee."

28             THE FUNDS IN SUMMARY

EXAMPLE. This example is intended to help you compare the costs of investing in
Venture Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     682      960    1,259     2,106
 Class B                 715    1,014    1,289     2,171
 Class C                 215      664    1,139     2,261


You would pay the following expenses if you did not redeem your shares:



                       1 YEAR  3 YEARS  5 YEARS  10 YEARS
                                  
 Class A           $     682      960    1,259     2,106
 Class B                 215      664    1,139     2,171
 Class C                 215      664    1,139     2,261


                                                 THE FUNDS IN SUMMARY         29

                                                                       [GRAPHIC]

                                                          INVESTING IN THE FUNDS

- --------------------
FOR YOUR INFORMATION
- --------------------
One of the advantages of investing in mutual funds is continuous professional
management of your investment. Skilled, experienced professionals manage the
Funds' assets.

MANAGING THE FUNDS

The investment adviser of each of the Funds is Advantus Capital
Management, Inc. (Advantus Capital), 400 Robert Street North, St. Paul,
Minnesota 55101. Since its inception in 1994, Advantus Capital has provided
investment advisory services for the Funds and other Advantus Funds, and has
managed investment portfolios for various private accounts, including its
affiliate, Minnesota Life Insurance Company (Minnesota Life). Advantus Capital
manages each Fund's investments and furnishes all necessary office facilities,
equipment and personnel for servicing the Fund's investments. Both Advantus
Capital and Minnesota Life are wholly-owned subsidiaries of Securian Financial
Group, Inc., which is a second-tier subsidiary of a mutual insurance holding
company called Minnesota Mutual Companies, Inc. Personnel of Advantus Capital
also manage Minnesota Life's investment portfolio. In addition, Minnesota Life,
through its Advantus Shareholder Services division, serves as shareholder and
administrative services agent to the Fund.

The investment sub-adviser of the Enterprise Fund is Credit Suisse Asset
Management, LLC (CSAM), 466 Lexington Avenue, New York, New York 10017. CSAM
provides investment advice and generally conducts the investment management
program for the Enterprise Fund.

The investment sub-adviser of the Venture Fund is State Street Research &
Management Company (State Street Research), One Financial Center, Boston,
Massachusetts 02111. State Street Research provides investment advice and
generally conducts the investment management program for the Venture Fund.

30             INVESTING IN THE FUNDS

The following persons serve as the primary portfolio managers for the Funds
(other than the Index 500 Fund):



                      PORTFOLIO MANAGER        PRIMARY PORTFOLIO       BUSINESS EXPERIENCE
      FUND                AND TITLE              MANAGER SINCE        DURING PAST FIVE YEARS
                                                           
 CORNERSTONE      Matthew D. Finn            January 2, 2002        Vice President and Head of
                  Lead Portfolio Manager                            Equities, Advantus
                                                                    Capital, since July 2001;
                                                                    Senior Vice President and
                                                                    Chief Investment
                                                                    Officer - Growth and
                                                                    Income Group, Evergreen
                                                                    Investment
                                                                    Management, Inc., from
                                                                    March 1998 to June 2001;
                                                                    Vice President and
                                                                    Investment Officer,
                                                                    Advantus Capital from
                                                                    April 1994 to March 1998
                  Matthew Norris             January 1, 2000        Portfolio Manager of
                  Co-Portfolio Manager                              Advantus Capital since
                                                                    December 1997;
                                                                    Institutional Portfolio
                                                                    Manager, Norwest
                                                                    Investment Management,
                                                                    Minneapolis, Minnesota,
                                                                    from September 1997 to
                                                                    December 1997
 ENTERPRISE       Elizabeth B. Dater         August 10, 2001        Managing Director and
                  Co-Portfolio Manager                              Portfolio Manager, CSAM,
                                                                    since 1999; prior to that
                                                                    time, Managing Director of
                                                                    Small Cap and Post-
                                                                    Venture Capital Group,
                                                                    Warburg Pincus, and
                                                                    from 1994 to 1998,
                                                                    Director of Research,
                                                                    Warburg Pincus
                  Sammy Oh                   May 1, 2000            Portfolio Manager, CSAM
                  Co-Portfolio Manager
 HORIZON          Thomas A. Gunderson        September 1, 1996      Vice President and
                  Portfolio Manager                                 Investment Officer of
                                                                    Advantus Capital
 REAL ESTATE      Joseph R. Betlej           February 25, 1999      Vice President and
  SECURITIES      Portfolio Manager                                 Investment Officer of
                                                                    Advantus Capital
 VENTURE          John Burbank               May 25, 2001           Senior Vice President,
                  Portfolio Manager                                 State Street Research


                                               INVESTING IN THE FUNDS         31

- --------------------
FOR YOUR INFORMATION
- --------------------
Market capitalization is the total market value of a company. (Share price
multiplied by the number of shares outstanding.) Market capitalization is used
to measure the relative size of corporations.

ADVISORY FEES

The Funds pay Advantus Capital advisory fees calculated on an annual basis for
each Fund. Advantus Capital uses a portion of the applicable fee to pay a Fund's
sub-adviser, if any. The advisory fee paid to Advantus Capital for each Fund
during the most recent fiscal year, as a percentage of average daily net assets,
was as follows:



                                      AGGREGATE FEE PAID DURING FISCAL
              FUND                        YEAR ENDED JULY 31, 2002
                                
 Cornerstone                      %                        0.70
 Enterprise                                                0.70
 Horizon                                                   0.70
 Index 500                                                 0.34
 Real Estate Securities                                    0.75
 Venture                                                   0.70


INVESTMENT OBJECTIVE, POLICIES AND PRACTICES

CORNERSTONE FUND

Cornerstone Fund seeks long-term accumulation of capital.

The Fund primarily invests in various types of equity securities such as common
stock, preferred stock and securities convertible into equity securities of
large capitalization companies (i.e., companies with a market capitalization of
at least $1.5 billion) at the time of purchase. Under normal circumstances, at
least 65% of the Fund's total assets (exclusive of collateral received in
connection with securities lending) will be invested in common stocks of large
capitalization domestic companies and foreign issuers that are publicly traded
in the United States. From time to time, the Fund will also invest a lesser
portion of its assets in securities of smaller capitalization companies (i.e.,
companies with a market capitalization of less than $1.5 billion). As of
July 31, 2002, the average weighted market capitalization of the Fund's
investment portfolio was $60.1 billion.

In selecting equity securities, Advantus Capital primarily looks to equity
securities it believes are undervalued. Undervalued securities are securities
that Advantus Capital believes: (a) are undervalued relative to other securities
in the market or currently earn low returns with a potential for higher returns,
(b) are undervalued relative to the potential for improved operating performance
and financial strength, and (c) are issued by companies that have recently
undergone a change in management or control and that are undervalued relative to
their potential for improved operating performance. In assessing relative value,
Advantus Capital will consider factors such as a company's ratio of market price
to earnings, ratio of market price to book value, ratio of market price to
assets, ratio of market price to cash flow, estimated earnings growth rate, cash
flow, yield, liquidation value, product pricing, quality of management and
competitive market position. As a secondary focus, Advantus Capital may also
consider an investment's potential to provide current income. In seeking to
achieve its investment objective, the Fund may also invest in equity securities
of companies that Advantus Capital believes show potential for sustainable
earnings growth above the average market growth rate.

32             INVESTING IN THE FUNDS

In addition, the Fund may invest lesser portions of its assets in restricted and
illiquid securities, convertible and non-convertible investment-grade and
non-investment grade debt securities, real estate investment trusts, stock index
futures contracts, options (the Fund may purchase, sell and write put and call
options), foreign securities, warrants, index depositary receipts, repurchase
agreement transactions, when-issued or forward commitment transactions,
securities of other mutual funds and money market securities. To generate
additional income, the Fund may lend securities representing up to one-third of
the value of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Cornerstone Fund is subject to the following risks:

                        
- - Company Risk             - Mid Size Company Risk
- - Diversification Risk     - Sector Risk
- - Fund Risk                - Securities Lending Risk
- - Inflation Risk           - Short-Term Trading Risk
- - Large Company Risk       - Value Stock Risk
- - Market Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         33

ENTERPRISE FUND

Enterprise Fund seeks long-term accumulation of capital.

The Fund primarily invests in various types of equity securities of small
capitalization growth companies at the time of purchase. The Fund primarily
invests in common stocks but may also invest in preferred stocks and securities
convertible into equity securities.

Under normal circumstances, at least 65% of the Fund's total assets (exclusive
of collateral received in connection with securities lending) will be invested
in equity securities of small U.S. companies. The Fund considers a "small"
company to be one whose market capitalization is within the range of
capitalizations of companies in the Russell 2000 Growth Index. As of July 31,
2002, market capitalizations of Russell 2000 Growth Index companies ranged from
$10.5 million to $1.9 billion.

Some companies may outgrow the definition of a small company after the Fund has
purchased their securities. These companies continue to be considered small for
purposes of the Fund's minimum 65% allocation to small-company equities. In
addition, the Fund may invest in companies of any size once the 65% policy is
met. As a result, the Fund's average market capitalization may sometimes exceed
that of the largest company in the Russell 2000 Growth Index. As of July 31,
2002, the average weighted market capitalization of the Fund's investment
portfolio was $1.1 billion.

In selecting equity securities of growth companies for the Fund, CSAM looks for:

    - companies still in the developmental stage

    - older companies that appear to be entering a new stage of growth

    - companies providing products or services with a high unit-volume growth
      rate

The Fund may also invest in emerging-growth companies - small or medium-size
companies that have passed their start-up phase, show positive earnings, and
offer the potential for accelerated earnings growth. Emerging-growth companies
generally stand to benefit from new products or services, technological
developments, changes in management or other factors.

In addition, the Fund may invest lesser portions of its assets in restricted and
illiquid securities, investment-grade corporate debt securities, foreign
securities, warrants, stock index futures contracts, options (the Fund may
purchase, sell and write put and call options), index depositary receipts,
repurchase agreement transactions, when-issued or forward commitment
transactions, securities of other mutual funds and money market securities. To
generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

34             INVESTING IN THE FUNDS

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Enterprise Fund is subject to the following risks:

                        
- - Company Risk             - Mid Size Company Risk
- - Diversification Risk     - Sector Risk
- - Fund Risk                - Securities Lending Risk
- - Growth Stock Risk        - Short-Term Trading Risk
- - Inflation Risk           - Small Company Risk
- - Market Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         35

- --------------------
FOR YOUR INFORMATION
- --------------------
Market capitalization is the total market value of a company. (Share price
multiplied by the number of shares outstanding.) Market capitalization is used
to measure the relative size of corporations.

HORIZON FUND

Horizon Fund seeks long-term growth of capital through investment in equity
securities.

The Fund primarily invests in various types of equity securities of large
capitalization companies (i.e., companies with a market capitalization of at
least $1.5 billion) at the time of purchase. The Fund primarily invests in
common stocks but may also invest in preferred stocks and securities convertible
into equity securities. From time to time, the Fund may also invest a lesser
portion of its assets in securities of smaller capitalization companies (i.e.,
companies with a market capitalization of less than $1.5 billion). As of
July 31, 2002, the average weighted market capitalization of the Fund's
investment portfolio was $88.5 billion.

In selecting equity securities, Advantus Capital primarily looks to an
investment's potential for sustainable earnings growth above the average market
growth rate. In selecting securities with earnings growth potential, Advantus
Capital considers factors such as a company's competitive market position,
quality of management, growth strategy, financial performance and financial
condition. In seeking to achieve its investment objective, the Fund may also
invest in equity securities of companies that Advantus Capital believes are
temporarily undervalued or show promise of improved results due to new
management, products, markets or other factors.

In addition, the Fund may invest lesser portions of its assets in convertible
and non-convertible investment-grade corporate debt securities, real estate
investment trusts, restricted and illiquid securities, foreign securities,
warrants, securities of other mutual funds, stock index futures contracts,
options (the Fund may purchase, sell and write put and call options), index
depositary receipts, repurchase agreement transactions, when-issued or forward
commitment transactions and money market securities. To generate additional
income, the Fund may lend securities representing up to one-third of the value
of its total assets to broker-dealers, banks and other institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Horizon Fund is subject to the following risks:

                    
- - Company Risk         - Market Risk
- - Diversification      - Mid Size Company Risk
  Risk                 - Sector Risk
- - Fund Risk            - Securities Lending Risk
- - Growth Stock Risk    - Short-Term Trading Risk
- - Inflation Risk       - Small Company Risk
- - Large Company Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

36             INVESTING IN THE FUNDS

INDEX 500 FUND

Index 500 Fund seeks investment results that correspond generally, before sales
charges and other Fund expenses, to the aggregate price and yield performance of
the common stocks included in the Standard & Poor's 500 Composite Stock Price
Index (the S&P 500).

Under normal conditions, the Fund invests its assets in all of the common stocks
included in the S&P 500. The Fund attempts to achieve a correlation of 100%
without considering sales charges and other Fund expenses. However, the Fund is
not required to hold a minimum or maximum number of common stocks included in
the S&P 500, and due to changing economic or markets, may invest in less than
all of the common stocks included in the S&P 500.

Advantus Capital utilizes a computer program to confirm the Fund's S&P 500
replication and to round off security weightings.

Under normal conditions, the Fund invests at least 80% of its net assets
(exclusive of collateral received in connection with securities lending) in the
common stocks included in the S&P 500 (investments covered by this 80% policy
may also include S&P 500 stock index futures contracts or S&P 500 depositary
receipts, each of which have economic characteristics similar to an investment
in the S&P 500). The 80% investment policy is not fundamental, which means it
may be changed without the vote of a majority of the Fund's outstanding shares,
but shareholders will be notified in writing at least 60 days prior to any
change of this policy.

In addition, the Fund may invest lesser portions of its assets in
investment-grade short-term fixed income securities, other stock index futures
contracts, options (the Fund may purchase, sell and write put and call options),
securities of other mutual funds, restricted and illiquid securities,
when-issued or forward commitment transactions, repurchase agreement
transactions and money market securities. To generate additional income, the
Fund may lend securities representing up to one-third of the value of its total
assets to broker-dealers, banks and other institutions.

You can find descriptions of these securities in the Statement of Additional
Information.

Standard & Poor's Rating Services (S&P), a division of the McGraw-Hill
Companies, Inc., designates the stocks included in the S&P 500. From time to
time, S&P may add or delete stocks from the S&P 500. Inclusion of a stock in the
S&P 500 does not imply an opinion by S&P as to its investment merit.
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Fund. The Fund is not sponsored, endorsed, sold or promoted by S&P and S&P
makes no representation regarding the advisability of investing in the Fund.
Please see the Statement of Additional Information which sets forth certain
additional disclaimers and limitations on behalf of S&P.

RISKS. An investment in Index 500 Fund is subject to the following risks:

                        
- - Company Risk             - Large Company Risk
- - Diversification Risk     - Market Risk
- - Index Performance Risk   - Sector Risk
- - Inflation Risk           - Securities Lending Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         37

REAL ESTATE SECURITIES FUND

Real Estate Securities Fund seeks total return through a combination of capital
appreciation and current income.

Under normal circumstances, at least 80% of the Fund's net assets (exclusive of
collateral received in connection with securities lending) will be invested in
real estate and real estate-related securities. The 80% investment policy is not
fundamental, which means it may be changed without the vote of a majority of the
Fund's outstanding shares, but shareholders will be notified in writing at least
60 days prior to any change of this policy.

The Fund will primarily invest in real estate and real estate-related equity
securities (including securities convertible into equity securities). The Fund
does not invest directly in real estate.

"Real estate securities" include securities issued by companies that receive at
least 50% of their gross revenue from the construction, ownership, management,
financing or sale of residential, commercial or industrial real estate. Real
estate securities issuers typically include real estate investment trusts
(REITs), real estate brokers and developers, real estate holding companies and
publicly traded limited partnerships.

"Real estate-related securities" include securities issued by companies
primarily engaged in businesses that sell or offer products or services that are
closely related to the real estate industry. Real estate-related securities
issuers typically include construction and related building companies,
manufacturers and distributors of building supplies, financial institutions that
issue or service mortgages and resort companies.

Most of the Fund's real estate securities portfolio will consist of securities
issued by REITs that are listed on a securities exchange or traded
over-the-counter. A REIT is a corporation or trust that invests in fee or
leasehold ownership of real estate, mortgages or shares issued by other REITs.
REITs may be characterized as equity REITs (i.e., REITs that primarily invest in
fee ownership and leasehold ownership of land), mortgage REITs (i.e., REITs that
primarily invest in mortgages on real estate) or hybrid REITs which invest in
both fee and leasehold ownership of land and mortgages. The Fund mostly invests
in equity REITs but also invests lesser portions of its assets in mortgage REITs
and hybrid REITs. A REIT that meets the applicable requirements of the Internal
Revenue Code of 1986 may deduct dividends paid to shareholders, effectively
eliminating any corporate level federal tax. As a result, REITs distribute a
larger portion of their earnings to investors than other corporate entities
subject to the federal corporate tax.

The Fund may invest in securities of issuers of any size, including issuers with
small, medium or large market capitalizations. Advantus Capital assesses an
investment's potential for sustainable earnings growth over time. In selecting
securities, Advantus Capital considers factors such as an issuer's financial
condition, financial performance, quality of management, policies and
strategies, real estate properties and competitive market position.

38             INVESTING IN THE FUNDS

In addition, the Fund may invest lesser portions of its assets in securities
issued by companies outside of the real estate industry. The Fund may also
invest in non-real estate-related equity securities, convertible debt
securities, investment-grade fixed income securities, securities of other mutual
funds, repurchase agreement transactions, restricted and illiquid securities,
stock index futures contracts, options (the Fund may purchase, sell and write
put and call options), American Depositary Receipts, securities purchased on a
when issued or forward commitment basis, and money market securities. To
generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.

You can find a description of these securities in the Statement of Additional
Information.

RISKS. An investment in Real Estate Securities Fund is subject to the following
risks:

                    
- - Company Risk         - Limited Portfolio Risk
- - Concentration Risk   - Market Risk
- - Credit Risk          - Mid Size Company Risk
- - Diversification      - Prepayment Risk
  Risk                 - Real Estate Risk
- - Extension Risk       - REIT-Related Risk
- - Fund Risk            - Sector Risk
- - Income Risk          - Securities Lending Risk
- - Inflation Risk       - Short-Term Trading Risk
- - Interest Rate Risk   - Small Company Risk
- - Large Company Risk



A detailed description of these risks is set forth in "Defining Risks" below.

                                               INVESTING IN THE FUNDS         39

- --------------------
FOR YOUR INFORMATION
- --------------------
Market capitalization is the total market value of a company. (Share price
multiplied by the number of shares outstanding.) Market capitalization is used
to measure the relative size of corporations.

VENTURE FUND

Venture Fund seeks long-term accumulation of capital.

The Fund primarily invests in various types of equity securities such as common
stock, preferred stock and securities convertible into equity securities of
small capitalization companies. Although a universal definition of small
capitalization companies does not exist, the Fund generally defines small
capitalization companies as those whose market capitalizations are similar to
the market capitalizations of companies in the Russell 2000-Registered
Trademark-Value Index. Under normal circumstances, at least 65% of the Fund's
total assets (exclusive of collateral received in connection with securities
lending) will be invested, at the time of purchase, in common stocks of small
capitalization domestic companies and foreign issuers that are publicly traded
in the United States. Some companies may outgrow the definition of a small
capitalization company after the Fund has purchased their securities. These
companies continue to be considered small for purposes of the Fund's minimum 65%
allocation to small capitalization companies. From time to time, the Fund will
also invest a lesser portion of its assets in securities of mid and large
capitalization companies (i.e., companies with market capitalizations larger
than that defined above). As of July 31, 2002, the average weighted market
capitalization of the Fund's investment portfolio was $1.2 billion.

In selecting value stocks and other equity securities, State Street Research
primarily looks to equity securities it believes are undervalued or trading
below their true worth, but that appear likely to come back into favor with
investors. Undervalued securities are securities that State Street Research
believes: (a) are undervalued relative to other securities in the market or
currently earn low returns with a potential for higher returns, (b) are
undervalued relative to the potential for improved operating performance and
financial strength, or (c) are issued by companies that have recently undergone
a change in management or control, or developed new products or services that
may improve their business prospects or competitive position. In assessing
relative value, State Street Research will consider factors such as a company's
ratio of market price to earnings, ratio of market price to book value, ratio of
market price to assets, ratio of market price to cash flow, estimated earnings
growth rate, cash flow, yield, liquidation value, product pricing, quality of
management and competitive market position. In seeking to achieve its investment
objectives, the Fund may also invest in equity securities of companies that
State Street Research believes show potential for sustainable earnings growth
above the average market growth rate.

The Fund's purchases of equity securities may include shares of common stock
that are part of a company's initial public offering. In addition, the Fund may
invest lesser portions of its assets in restricted and illiquid securities,
convertible and non-convertible investment-grade and non-investment grade debt
securities, securities of other mutual funds, foreign securities, warrants,
repurchase agreement transactions, stock index futures contracts, options (the
Fund may purchase, sell and write put and call options), when-issued or forward
commitment transactions, index depositary receipts, and money market securities.
To generate additional income, the Fund may lend securities representing up to
one-third of the value of its total assets to broker-dealers, banks and other
institutions.

40             INVESTING IN THE FUNDS

In an attempt to respond to adverse market, economic, political or other
conditions, the Fund may invest for temporary defensive purposes in various
short-term cash and cash equivalent items. When investing for temporary
defensive purposes, the Fund may not always achieve its investment objective.

You can find descriptions of these securities in the Statement of Additional
Information.

RISKS. An investment in Venture Fund is subject to the following risks:

                              
- - Company Risk                   - Mid Size Company Risk
- - Diversification Risk           - Sector Risk
- - Fund Risk                      - Securities Lending Risk
- - Inflation Risk                 - Short-Term Trading Risk
- - Initial Public Offering Risk   - Small Company Risk
- - Market Risk                    - Value Stock Risk



A detailed description of these risks is set forth in "Defining Risks" below.
Additional risk information is provided in the Statement of Additional
Information.

                                               INVESTING IN THE FUNDS         41

- --------------------
FOR YOUR INFORMATION
- --------------------
In order to make informed decisions, investors must be aware of both the risks
and rewards associated with investing. Not only should you understand the risks
associated with your investments, but you must be comfortable with them as well.
Risks are an inherent part of investing, and your investment in the Fund is
subject to different types and varying degrees of risk.

DEFINING RISKS

Investment in each Fund involves risks. A Fund's yield and price are not
guaranteed, and the value of an investment in a Fund will go up or down. The
value of an investment in a particular Fund may be affected by the risks of
investing in that Fund as identified for each Fund in "Investment Objective,
Policies and Practices" above. The following glossary describes those identified
risks associated with investing in the Funds.

    - COMPANY RISK - is the risk that individual securities may perform
      differently than the overall market. This may be a result of specific
      factors such as changes in corporate profitability due to the success or
      failure of specific products or management strategies, or it may be due to
      changes in investor perceptions regarding a company.

    - CONCENTRATION RISK - is the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than an investment portfolio that does not concentrate its investments in
      a single industry. The Fund is subject to concentration risk if the Fund
      invests more than 25% of its total assets in a particular industry.

    - CREDIT RISK - is the risk that an issuer of a REIT or debt security will
      not make payments on the security when due, or that the other party to a
      contract will default on its obligation. There is also the risk that an
      issuer could suffer adverse changes in financial condition that could
      lower the credit quality of a security. This could lead to greater
      volatility in the price of the security and in shares of the Fund. Also, a
      change in the quality rating of a REIT security or a debt security can
      affect the security's liquidity and make it more difficult to sell. The
      Fund may attempt to minimize credit risk by investing in debt securities
      and other fixed income obligations considered at least investment grade at
      the time of purchase. However, all of these securities and obligations,
      especially those in the lower investment grade rating categories, have
      credit risk. In adverse economic or other circumstances, issuers of these
      lower rated securities and obligations are more likely to have difficulty
      making principal and interest payments than issuers of higher rated
      securities and obligations. If the Fund purchases unrated securities and
      obligations, it will depend on its investment adviser's or sub-adviser's
      analysis of credit risk more heavily than usual.

    - DIVERSIFICATION RISK - is the risk that the Fund's performance may be more
      susceptible to a single economic, regulatory or technological occurrence
      than a more diversified investment portfolio. The Fund is subject to
      diversification risk if the Fund may invest more than 5% of its total
      assets in the securities of a single issuer with respect to 25% of its
      total investment portfolio (a Fund is considered diversified, as defined
      in the Investment Company Act of 1940, if it does not invest more than 5%
      of its total assets in the securities of a single issuer with respect to
      75% of its total investment portfolio).

    - EXTENSION RISK - is the risk that rising interest rates could cause
      property owners to prepay their mortgages more slowly than expected,
      resulting in slower prepayments of real estate debt securities. This
      would, in effect, convert a short or medium-duration REIT security into a
      longer-duration security, increasing its sensitivity to interest rate
      changes and causing its price to decline. Duration measures the expected
      price sensitivity of a fixed income security or portfolio for a given
      change in interest rates. For example, if interest rates rise by one
      percent, the value of a security or portfolio having a duration of two
      years generally will fall by approximately two percent.

    - FUND RISK - is the risk that Fund performance may not meet or exceed that
      of the market as a whole. The performance of the Fund will depend on the
      Fund's investment adviser's or sub-adviser's judgment of economic and
      market policies, trends in

42             INVESTING IN THE FUNDS

      investment yields and monetary policy. Due to its active management, the
      Fund could underperform other mutual funds with similar investment
      objectives or the market generally.

    - GROWTH STOCK RISK - is the risk that if the assessment by the Fund's
      investment adviser or sub-adviser of a company's prospective earnings
      growth or judgment of how other investors assess the company's earnings
      growth is wrong, then the value of the company's securities may decrease
      or not approach the value that the Fund's investment adviser or
      sub-adviser has placed on it.

    - INCOME RISK - is the risk that the Fund may experience a decline in its
      income due to falling interest rates.

    - INDEX PERFORMANCE RISK - is the risk that the Fund's ability to replicate
      the performance of a particular securities index may be affected by, among
      other things, changes in securities markets, the manner in which the
      index's sponsor calculates the applicable securities index, the amount and
      timing of cash flows into and out of the Fund, commissions, sales charges
      (if any) and other expenses.

    - INFLATION RISK - is the risk that even if the principal value of an
      investment in the Fund remains constant or increases, or the income from
      the investment remains constant or increases, their real value may be less
      in the future because of inflation. Thus, as inflation occurs, the
      purchasing power of an investor's Fund shares may decline, even if their
      value in dollars increases.

    - INITIAL PUBLIC OFFERING RISK - is the risk that the Fund will not be able
      to sustain the positive effect on performance that may result from
      investments in initial public offerings (IPOs). Investments in IPOs can
      have a significant positive impact on the Fund's performance. The positive
      effect of investments of IPOs may not be sustainable because of a number
      of factors. The Fund may not be able to buy shares in some IPOs, or may be
      able to buy only a small number of shares. Also, the Fund may not be able
      to buy the shares at the commencement of the offering, and the general
      availability and performance of IPOs are dependent on market psychology
      and economic conditions. The relative performance impact of IPOs is also
      likely to decline as the Fund grows.

    - INTEREST RATE RISK - is the risk that the value of a debt security,
      mortgage-backed security or fixed income obligation (including mortgage
      REITs) will decline due to changes in market interest rates. Generally,
      when interest rates rise, the value of such a security or obligation
      decreases. Conversely, when interest rates decline, the value of a debt
      security, mortgage-backed security or fixed income obligation (including
      mortgage REITs) generally increases. Long-term debt securities,
      mortgage-backed securities and fixed income obligations are generally more
      sensitive to interest rate changes.

    - LARGE COMPANY RISK - is the risk that a portfolio of large capitalization
      company securities may underperform the market as a whole.

    - LIMITED PORTFOLIO RISK - is the risk that an investment in the Fund may
      present greater volatility, due to the limited number of issuers of real
      estate and real estate-related securities, than an investment in portfolio
      of securities selected form a greater number of issuers. The Fund is
      subject to limited portfolio risk because the Fund may invest in a smaller
      number of individual issuers than other portfolios.

    - MARKET RISK - is the risk that equity securities are subject to adverse
      trends in equity markets. Securities are subject to price movements due to
      changes in general economic

                                               INVESTING IN THE FUNDS         43

      conditions, the level of prevailing interest rates or investor perceptions
      of the market. In addition, prices are affected by the outlook for overall
      corporate profitability. Market prices of equity securities are generally
      more volatile than debt securities. This may cause a security to be worth
      less than the price originally paid for it, or less than it was worth an
      earlier time. Market risk may affect a single issuer or the market as a
      whole. As a result, a portfolio of such equity securities may underperform
      the market as a whole.

    - MID SIZE COMPANY RISK - is the risk that securities of mid capitalization
      companies may be more vulnerable to adverse developments than those of
      large companies due to such companies' limited product lines, limited
      markets and financial resources and dependence upon a relatively small
      management group.

    - PREPAYMENT RISK - is the risk that falling interest rates could cause
      prepayments of mortgage loans to occur more quickly than expected. This
      occurs because, as interest rates fall, more property owners refinance the
      mortgages underlying mortgage REIT securities. The REIT must reinvest the
      prepayments at a time when interest rates of new mortgage investments are
      falling, potentially reducing the portion of the REIT's income
      distributable to the Fund. In addition, when interest rates fall, prices
      of mortgage loans held by a REIT may not rise as much as for other types
      of comparable securities because investors may anticipate an increase in
      mortgage prepayments.

    - REAL ESTATE RISK - is the risk that the value of the Fund's investments
      may decrease due to fluctuations in rental income, overbuilding and
      increased competition, casualty and condemnation losses, environmental
      costs and liabilities, extended vacancies of property, lack of available
      mortgage funds, government regulation and limitations, increases in
      property taxes, cash flow dependency, declines in real estate value,
      physical depreciation of buildings, inability to obtain project financing,
      increased operating costs and changes in general or local economic
      conditions.

    - REIT-RELATED RISK - is the risk that the value of the Fund's REIT
      securities will be adversely affected by changes in the value of the
      underlying property. In addition, the value of equity or mortgage REIT's
      could be adversely affected if the REIT fails to qualify for tax-free pass
      through income under the Internal Revenue Code of 1986 (as amended), or
      maintain its exemption from registration under the Investment Company Act
      of 1940.

    - SECTOR RISK - is the risk that the securities of companies within specific
      industries or sectors of the economy can periodically perform differently
      than the overall market. This may be due to changes in such things as the
      regulatory or competitive environment or to changes in investor
      perceptions regarding a company.

    - SECURITIES LENDING RISK - is the risk that the Fund may experience a delay
      in the recovery of loaned securities, or even the loss of rights in the
      collateral deposited by the borrower if the borrower should fail
      financially. To reduce these risks, the Fund enters into loan arrangements
      only with institutions that the Fund's investment adviser or sub-adviser
      has determined are creditworthy.

    - SHORT-TERM TRADING RISK - is the risk that a Fund may trade securities
      frequently and hold securities in its portfolio for one year or less.
      Frequent purchases and sales of securities will increase the Fund's
      transaction costs. Factors that can lead to short-term trading include
      market volatility, a significant positive or negative development
      concerning a security, an attempt to maintain a Fund's market
      capitalization target, and the need to sell a security to meet redemption
      activity.

44             INVESTING IN THE FUNDS

    - SMALL COMPANY RISK - is the risk that equity securities of small
      capitalization companies (including small capitalization REIT's) are
      subject to greater price volatility due to, among other things, such
      companies' small size, limited product lines, limited access to financing
      sources and limited management depth. In addition, the frequency and
      volume of trading of such securities may be less than is typical of larger
      companies, making them subject to wider price fluctuations. In some cases,
      there could be difficulties in selling securities of small capitalization
      companies at the desired time.

    - VALUE STOCK RISK - is the risk that the value of security believed by the
      Fund's investment adviser or sub-adviser to be undervalued may never reach
      what such investment adviser or sub-adviser believes is its full value, or
      that such security's value may decrease.

                                               INVESTING IN THE FUNDS         45

                                                                       [GRAPHIC]

                                                       BUYING AND SELLING SHARES

- ---------------
REFERENCE POINT
- ---------------
All Advantus Funds offer Class A, Class B and Class C shares, except for Real
Estate Securities Fund (Class A and Class B shares only) and Advantus Money
Market Fund, Inc. (a single class of shares).

CHOOSING A SHARE CLASS

You may purchase Class A, Class B or Class C shares of each of the Funds, except
Real Estate Securities Fund. You may purchase only Class A or Class B shares of
Real Estate Securities Fund. Your decision to purchase a particular class will
depend on a number of factors such as the amount you wish to invest, the amount
of time you wish to hold on to your investment and whether you intend to make
additional investments.

    CLASS A SHARES. If you invest in Class A shares, you will generally pay an
    initial sales charge. However, you will not be assessed an initial sales
    charge for purchases of Class A shares of $1 million or more, but a deferred
    sales charge will be imposed if you sell such shares within one year after
    the date of purchase. There are several ways to reduce or waive these sales
    charges that are described in "Reducing Sales Charges" below. Class A shares
    generally have lower annual operating expenses than Class B and Class C
    shares.

    CLASS B SHARES. If you invest in Class B shares, you will not pay an initial
    sales charge. However, if you wish to sell your shares within six years from
    the date of your purchase, you will pay a deferred sales charge. If you
    maintain your Class B shares for a certain period of time, your Class B
    shares will automatically convert to Class A shares in the manner described
    in "Sales and Distribution Charges" below. Class B shares generally have
    higher annual operating expenses than Class A shares.

    CLASS C SHARES. If you invest in Class C shares, you will not pay an initial
    sales charge. Unlike Class B shares, you will not pay a deferred sales
    charge if you wish to sell your shares. Class C shares generally have higher
    annual operating expenses than Class A shares. Class C shares will
    automatically convert to Class A shares in the manner described in "Sales
    and Distribution Charges" below, but you must hold on to such shares for a
    longer period of time than Class B shares prior to conversion.

If you qualify for a reduction or waiver of the sales charge you should purchase
Class A shares. If you expect to hold shares for a short period of time you may
prefer to purchase Class C shares since these shares may be purchased and sold
without any initial or deferred sales charge. If you expect to hold shares
longer you may prefer to purchase Class B shares since these shares convert to
Class A shares sooner than Class C shares.

SALES AND DISTRIBUTION CHARGES

As an investor, you pay certain fees and expenses in connection with each Fund.
Sales charges, whether initial or contingent deferred, are paid from your
account. Annual fund operating expenses (including distribution and shareholder
servicing fees) are paid out of Fund assets, which affects the Fund's share
price.

46             BUYING AND SELLING SHARES

CLASS A SHARES. If you purchase Class A shares of the Funds, you will generally
pay an initial sales charge. Class A sales charges are calculated as follows:



                                                 SALES CHARGE AS A PERCENTAGE OF:
 Value of Your Total Investment                 Net Offering Price  Amount Invested
                                                           
 Less than $50,000                          %              5.5              5.82
 At least $50,000 but less than $100,000                   4.5              4.71
 At least $100,000 but less than $250,000                  3.5              3.63
 At least $250,000 but less than $500,000                  2.5              2.56
 At least $500,000 but less than
  $1,000,000                                               2.0              2.04
 At least $1,000,000 and over(1)                             0                 0


 (1)  You will not be assessed an initial sales charge for purchases of
      Class A shares of at least $1 million, but a contingent deferred
      sales charge of 1.00% will be imposed if you sell such shares
      within one year after the date of purchase.

The sales charge applicable to your initial investment in the Fund depends on
the offering price of your investment. The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of your previous investments in the Fund. For example,
if you make an initial investment with an offering price of $40,000 you will pay
a sales charge equal to 5.5% of your $40,000 investment, but if you already own
shares with a current net asset value of $40,000 and you invest in additional
shares with an offering price of $10,000 you will pay a sales charge equal to
4.5% of the additional $10,000 since your total investment in the Fund would
then be $50,000.

Class A shares are also subject to a shareholder servicing fee (Rule 12b-1 fee).
The Fund has adopted a shareholder servicing plan that allows the Fund to pay
fees for services provided to shareholders. Because these fees are paid out of
the Fund's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
As a percentage of average daily net assets attributable to Class A shares of
the Fund, the maximum Rule 12b-1 fee is 0.25%.

CLASS B SHARES. If you wish to sell your Class B shares within six years from
the date of your purchase, you will pay a contingent deferred sales charge
(CDSC). The amount of the CDSC on Class B shares depends on the number of years
since your purchase was made, the amount of shares originally purchased and the
dollar amount being sold. The CDSC is based on the net asset value (NAV) of the
shares being sold at the time of your purchase or your sale of such shares,
whichever is lower. No CDSC is charged on shares acquired through reinvestment
of dividends or capital gains distributions, or on shares held longer than the
applicable CDSC period. Class B CDSC is calculated as follows:

                                            BUYING AND SELLING SHARES         47




                                                     CDSC APPLICABLE IN
                                                   YEAR FOLLOWING DATE OF
                                                          PURCHASE
 AMOUNT OF SHARES PURCHASED                      1    2    3    4    5    6
                                                    
 Less than $50,000                          %   5.0  4.5  3.5  2.5  1.5  1.5
 At least $50,000 but less than $100,000        4.5  3.5  2.5  1.5  1.5    0
 At least $100,000 but less than $250,000       3.5  2.5  1.5  1.5    0    0
 At least $250,000 but less than $500,000       2.5  1.5  1.5    0    0    0
 At least $500,000 but less than
  $1,000,000                                    1.5  1.5    0    0    0    0


Purchase orders for Class B shares of $1 million or more will be treated as
orders for Class A shares or declined.

To determine if a CDSC is payable for any redemption of Class B shares, CDSC
calculation will be determined in a manner that results in the lowest CDSC
charged.

Class B shares are also subject to a Rule 12b-1 fee that is payable at an annual
rate of 1.00% of average daily net assets attributable to Class B shares of the
Fund.

The Fund uses the proceeds from the CDSC to pay underwriting fees and expenses.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. As a result, the combination
of the CDSC and Rule 12b-1 fees allows the Fund to sell Class B shares without
any initial sales charge. Because these fees are paid out of the Fund's assets
continuously, over time these fees will increase the cost of your investment and
may cost you more than paying other types of sales charges.

Class B shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class B shares. The conversion will be based on the relative NAVs of the two
classes. For a description of NAV, see "Buying Shares" below. The date of
conversion is based on the amount of shares purchased and is determined as
described in the following table:



                                           CONVERSION DATE FOLLOWING EXPIRATION
 AMOUNT OF SHARES PURCHASED                 OF PERIOD AFTER DATE OF PURCHASE*
                                        
 Less than $50,000                                             84 months
 At least $50,000 but less than $100,000                       76 months
 At least $100,000 but less than $250,000                      60 months
 At least $250,000 but less than $500,000                      44 months
 At least $500,000 but less than
  $1,000,000                                                   28 months


   *  Conversion will occur on the fifteenth day of the month
      immediately following the termination of the applicable period. If
      the fifteenth day falls on a Saturday, Sunday or a national
      holiday, then conversion will occur on the most recent business
      day.

48             BUYING AND SELLING SHARES

CLASS C SHARES. Class C shares are sold without an initial sales charge or CDSC.

Class C shares are subject to a Rule 12b-1 fee that is payable at an annual rate
of 1.00% of average daily net assets attributable to Class C shares of the Fund.
The Fund uses the proceeds from Rule 12b-1 fees to pay expenses related to
distribution and shareholder services to the Fund. Because these fees are paid
out of the Fund's assets continuously, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.

Purchase orders for Class C shares of $1 million or more will be treated as
orders for Class A shares or declined.

Class C shares will automatically convert to Class A shares on a specified date
following your date of purchase. Thereafter, the Class A shares you receive upon
conversion will not be subject to the higher annual operating expenses assessed
on Class C shares. The conversion will be based on the relative NAVs of the two
classes. Generally, Class C shares must be held longer than Class B shares
before such shares automatically convert to Class A shares. Like Class B shares,
the date of conversion is based on the amount of shares purchased and is
determined as described in the following table:



                                           CONVERSION DATE FOLLOWING EXPIRATION
 AMOUNT OF SHARES PURCHASED                 OF PERIOD AFTER DATE OF PURCHASE*
                                        
 Less than $50,000                                             96 months
 At least $50,000 but less than $100,000                       88 months
 At least $100,000 but less than $250,000                      72 months
 At least $250,000 but less than $500,000                      56 months
 At least $500,000 but less than
  $1,000,000                                                   40 months


   *  Conversion will occur on the fifteenth day of the month
      immediately following the termination of the applicable period. If
      the fifteenth day falls on a Saturday, Sunday or a national
      holiday, then conversion will occur on the most recent business
      day.

Since the longer holding period for Class C shares enables the Fund to charge
the higher Rule 12b-1 fee for a longer period, the Fund is able to offer
Class C shares without an initial sales charge or CDSC.

REDUCING SALES CHARGES

PURCHASES OF SHARES. There are several ways you may reduce sales charges on your
purchase of a Fund's shares.

    - LETTER OF INTENT. Lets you purchase Class A shares of a Fund over a 13
      month period and receive the same sales charge as if all shares had been
      purchased at once.

    - COMBINATION PRIVILEGE. Lets you add the value of all shares you already
      own (Class A, Class B or Class C) in a Fund for purposes of calculating
      the sales charge.

    - FAMILY AND TRUST PRIVILEGE. Lets you combine purchases of shares of any
      class of a Fund made by your spouse, children and/or family trust for
      purposes of calculating the sales charge. If you wish to use this
      privilege, you must indicate on your account application that you are
      entitled to the reduced sales charge.

                                            BUYING AND SELLING SHARES         49

    - GROUP PURCHASES. Lets you purchase shares of a Fund with others as a group
      at a reduced sales charge applicable to the group as a whole. A purchase
      group must meet criteria established by Securian Financial Services, Inc.
      (Securian Financial), the Funds' underwriter.
    - AUTOMATIC INVESTMENT PLAN. Lets you automatically invest a specified
      amount in a Fund each month, which may result in a lower average cost per
      share through the principle of "dollar cost averaging." The automatic
      investment plan will not always result in a lower cost per share, nor will
      it alone reduce your sales charge.
For more information on any of these plans, please contact Advantus Shareholder
Services by telephone at: (800) 665-6005.
WAIVER OF SALES CHARGE ON CLASS A SHARE PURCHASES. Class A shares may be offered
without any sales charge to the following individuals and institutions:
    - officers, directors, employees, sales representatives and retirees of the
      Fund, Advantus Capital, CSAM (with respect to Enterprise Fund only), State
      Street (with respect to Venture Fund only), Securian Financial, Minnesota
      Life and affiliated companies of Minnesota Life, and their respective
      spouses, siblings, direct ancestors or direct descendants
    - independent legal counsel to the Funds' independent directors
    - Minnesota Life and its affiliated companies
    - trusts, pension or benefit plans sponsored by or on behalf of Advantus
      Capital, Securian Financial, Minnesota Life and affiliated companies of
      Minnesota Life
    - advisory clients of Advantus Capital or other affiliated companies of
      Minnesota Life
    - employees of sales representatives of Advantus Capital, Minnesota Life or
      affiliated companies of Minnesota Life
    - certain accounts as to which a bank or broker-dealer charges an account
      management fee, provided that the bank or broker-dealer has an agreement
      with Securian Financial
    - certain accounts sold by registered investment advisers
    - investors who, within sixty (60) days after redeeming shares of a class of
      shares generally subject to either an initial or deferred sales charge
      issued by a non-Advantus fund, purchase Class A shares with those
      redemption proceeds from Securian Financial or from a broker-dealer that
      has entered into an agreement with Securian Financial specifically
      providing for such net asset value purchase
    - employer-sponsored retirement plans described in Sections 401 or 403, or
      governmental retirement plans described in Section 457, of the Internal
      Revenue Code with total plan assets of not less than $500,000
WAIVER OF SALES CHARGES ON CLASS B SHARES. The CDSC for Class B shares will
generally be waived in the following cases:
    - upon the automatic conversion of Class B shares to Class A shares;
    - upon the Fund's decision to liquidate accounts with less than the minimum
      account size;
    - upon a shareholder's death or disability; and

    - in connection with Class B shares redeemed pursuant to a Systematic
      Withdrawal Plan, limited annually to Class B shares equal in amount to 12%
      of the value of a shareholder's account in a Fund at the time the
      Systematic Withdrawal Plan is established.

50             BUYING AND SELLING SHARES

For more information on these waivers, please see the Statement of Additional
Information or contact Advantus Shareholder Services or Securian Financial.

BUYING SHARES

You may purchase shares of the Funds on any day the New York Stock Exchange
(NYSE) is open for business. The price for Fund shares is equal to the
particular Fund's NAV plus any applicable sales charge. NAV is generally
calculated as of the close of normal trading on the NYSE (typically 3:00 p.m.
Central time). However, NAV is not calculated for a Fund on: (a) days in which
changes in the Fund's portfolio do not materially change the Fund's NAV,
(b) days on which no Fund shares are purchased or sold, and (c) customary
national business holidays on which the NYSE is closed for trading.

A Fund's NAV for each class is equal to the Fund's total investments
attributable to such class less liabilities attributable to such class divided
by the number of shares of such class. To determine NAV, a Fund generally values
the Fund's investments based on market quotations. If market quotations are not
available for certain Fund investments, the investments are valued based on the
fair value of the investments as determined in good faith by the Fund's board of
directors. Debt securities may be valued based on calculations furnished to the
Fund by a pricing service or by brokers who make a market in such securities.

You may purchase shares through Securian Financial or another authorized
broker-dealer or financial services firm (which may independently establish and
charge you transaction or other fees for its services). Your purchase order will
be priced at the next NAV (plus the applicable initial sales charge for Class A
shares) determined after your purchase order is received by the Funds' transfer
agent. An order received by the Funds' transfer agent from a financial services
firm after NAV is determined that day will nonetheless be processed at that
day's NAV if the order was received by the firm from its customer prior to such
determination and transmitted to and received by the transfer agent prior to its
close of business that day. Other orders received after the close of normal
trading on the NYSE will be priced at the NAV calculated on the next day the
NYSE is open for trading.

A Fund may reject any purchase order when the Fund determines it would not be in
the best interests of the Fund or its shareholders.

You may purchase shares of the Funds in any of the following ways:

BY CHECK.

    - New investors may purchase shares of the Funds by completing an account
      application and a check payable to "Advantus".

    - All checks must be in U.S. dollars. Cash, money orders, travelers checks,
      credit card and third-party checks are not accepted. If a check does not
      clear your bank, the Fund will cancel the purchase. If you purchase shares
      by check or bank draft and then redeem those shares, the redemption
      proceeds are not available until your check or draft clears, which may be
      up to 15 days after the date of purchase.

    - Send the completed application and a check payable to "Advantus" to your
      registered representative's authorized broker-dealer or other financial
      services firm. If you do not have a registered representative, send the
      completed account application and check to:

    Advantus Funds Group
    P.O. Box 9767
    Providence, Rhode Island 02940-9767

                                            BUYING AND SELLING SHARES         51

- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to sell shares by telephone or Internet.
See "Selling Shares - Signature Guarantee" below to determine whether your sale
will require a signature guarantee.

    - If you wish to purchase additional shares, please send a check payable to
      "Advantus" to the above address (referencing your Advantus Fund
      selection). When purchasing additional shares, certain third-party checks
      are acceptable. Please contact Advantus Shareholder Services at:
      (800) 665-6005 for more information.

BY WIRE.

    - New investors may also purchase shares of the Funds by Federal Reserve or
      bank wire through a domestic bank.

    - You should first complete an account application and send it to your
      registered representative's authorized broker-dealer or other financial
      services firm. If you do not have a registered representative, send the
      completed account application to the address referenced above.

    - Prior to wiring any funds, you must contact Advantus Shareholder Services
      at: (800) 665-6005 for wire instructions. Wire purchases normally take two
      or more hours to complete. To be accepted the same day, wire purchases
      must be received by the close of normal trading on the NYSE.

BY INTERNET.

    - Existing Advantus shareholders may also purchase shares via the internet
      once they have established on-line authorization. Please contact Advantus
      Shareholder Services at: (800) 665-6005 for more information.

SELLING SHARES

GENERAL. You may sell your shares at any time. You may make such requests by
contacting the Fund directly by mail or by telephone or by Internet. Requests by
mail should be sent to Advantus Funds Group, P.O. Box 9767, Providence, Rhode
Island 02940-9767. You may also sell your shares by sending a facsimile request
to Advantus Funds Group at: (508) 871-9960 if no signature guarantee is
required.

Shares will be sold at the NAV next calculated after your sale order is received
by the Funds' transfer agent less any applicable CDSC (for Class A shares
subject to a CDSC and for Class B shares). A sale order received by the Funds'
transfer agent from a financial services firm after NAV is calculated that day
will nonetheless be processed at that day's NAV if the order was received by the
firm from its customer prior to such calculation and transmitted to and received
by the transfer agent prior to its close of business that day. Class A shares
not otherwise subject to a CDSC and Class C shares may be sold without any
charge.

The Fund will forward the sales proceeds to you as soon as possible, but
generally no later than seven days after the Fund has received an order. If you
designate a bank account with the Fund and wish to sell shares with a value of
at least $500, then the proceeds can be wired directly to your bank account. If
you elect to have proceeds sent by wire transfer, the current $15.00 wire charge
will be deducted from your Fund account.

The amount you receive may be more or less than the original purchase price for
your shares.

DELAY ON PURCHASES BY CHECK. Sales proceeds from shares purchased by check or
bank draft, other than checks from government agencies, will not be available
until your check or draft clears, which may take up to fifteen days after your
purchase.

52             BUYING AND SELLING SHARES

SYSTEMATIC WITHDRAWAL PLAN. If you have an account in a Fund with a value of at
least $5,000, you may establish a Systematic Withdrawal Plan which allows you to
sell a portion of your shares of such Fund for a fixed or variable amount over a
period of time. Withdrawal payments for Class A shares purchased in amounts of
$1 million or more and for Class B shares may also be subject to a CDSC. As a
result, you should carefully consider whether a Systematic Withdrawal Plan is
appropriate. More information about the Systematic Withdrawal Plan is provided
in the Statement of Additional Information.

MEDALLION SIGNATURE GUARANTEE. In order to protect the Funds and shareholders
against fraudulent requests, a medallion signature guarantee may be required in
certain cases. No signature guarantee is required if the sale proceeds are less
than $50,000 and are to be paid to the registered holder of the account at the
address of record for that account. A medallion signature guarantee is required
if:

    - sale proceeds are $50,000 or more

    - sale proceeds will be paid to someone other than the registered
      shareholder

    - sale proceeds will be mailed to an address other than the registered
      shareholder's address of record

    - instructions were received by the Fund within 30 days before the sale
      order to change the registered shareholder's address or bank wire
      instructions

    - shares are to be transferred to another Fund account holder

    - the request is not made by a pre-authorized trustee for a plan, trust or
      other tax-exempt organization

The Funds reserve the right to require signature guarantees on all sales. If
your sale order requires a signature guarantee, the signature guarantee must be
an original (not a copy) and must be a medallion signature guarantee provided by
a domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which participates in a medallion
program recognized by the Securities Transfer Association. The three recognized
medallion programs are:

    - Securities Transfer Agents Medallion Program (STAMP)

    - Stock Exchanges Medallion Program (SEMP)

    - New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP)

Signature guarantees from financial institutions which are not participants in a
recognized medallion program will not be accepted.

REINSTATEMENT PRIVILEGE. If you sell shares of a Fund, you have a one-time
privilege within 90 days after the sale to use some or all of the sale proceeds
to purchase shares of any of the Advantus Multiple Class Funds at no sales
charge. Following your sale of Class A or Class B shares, you will be entitled
to purchase only Class A shares under this reinstatement privilege. Any CDSC
incurred in connection with the prior sale of Class A or B shares within a
90 day period will not be refunded to a shareholder's account. Following your
sale of Class C shares, you will be entitled to purchase only Class C shares
under this reinstatement privilege.

                                            BUYING AND SELLING SHARES         53

- ---------------
REFERENCE POINT
- ---------------
Please see "Telephone Transactions" or "Internet Transactions" for instructions
on how to exchange shares by telephone or Internet.
- ---------------
REFERENCE POINT
- ---------------
Please see "Selling Shares" and "Exchanging Shares" for sale and exchange
details.

EXCHANGING SHARES

You may exchange some or all of your shares of a Fund for shares of the same
class of any other Advantus Multiple Class Fund or for shares of Advantus Money
Market Fund, Inc. (Money Market Fund) provided the other Advantus Fund is
available in your state. If you are considering an exchange into another
Advantus Fund you should obtain the prospectus for that fund and read it
carefully. Exchanges may only be made between Advantus Fund accounts with
identical registrations. You may make exchanges by contacting the Fund by mail
or by telephone or by Internet. Purchases by exchange are subject to the minimum
investment requirements for the Advantus Funds. You may exchange your shares up
to twelve times a year without restriction or charge. A $7.50 service fee will
then be imposed on subsequent exchanges. The Fund reserves the right to change
the terms of and impose additional limitations and charges on exchanges after
giving 60 days' prior notice to shareholders.

Frequent exchanges may interfere with Fund management or operations and drive up
Fund costs. The Fund is not designed for market timers, or for large or frequent
transfers. To protect shareholders, the Fund may restrict or refuse purchases or
exchanges by market timers. You will be considered to be a market timer if you
have: (i) requested an exchange out of any Advantus Fund within two weeks of an
earlier exchange request, or (ii) exchanged shares out of any Advantus Fund more
than three times in a calendar quarter, or (iii) exchanged shares equal to at
least $1 million, or more than 1% of the net assets of any class of shares of
any Advantus Fund, or (iv) followed what otherwise seems to be a timing pattern
in the exercise of exchange or transfer rights. Accounts under common control or
ownership are combined for the purpose of determining these limitations.

Exchanges will be made based on the NAVs of the shares. No additional purchase
or sales charges will generally be imposed on exchanges for shares. However,
exchanges of shares from Money Market Fund are subject to applicable sales
charges of the Advantus Fund being purchased, unless the Money Market Fund
shares were previously acquired by an exchange from Class A or Class B shares of
another Advantus Fund or by reinvestment or cross-reinvestment of dividends or
capital gain distributions. If Class B shares are acquired by exchange of
Class B shares of another Advantus Fund and later sold, any CDSC on such sale
will be calculated as if no previous exchange occurred. However, shares of the
Money Market Fund acquired by exchange from Class B shares will still be subject
to the CDSC. The CDSC will be calculated without including the period that
shares of the Money Market Fund are held.

You may also elect to systematically exchange Fund shares for shares of other
Advantus Funds on a monthly basis. Systematic exchanges must be for an exchange
amount of at least $50.

More information about exchanging shares is provided in the Statement of
Additional Information.

TELEPHONE TRANSACTIONS

You may sell or exchange Fund shares by telephone. You will automatically have
the right to initiate such telephone transactions unless you elect not to do so
on your account application. You may initiate telephone transactions by calling
Advantus Shareholder Services at: (800) 665-6005. Automated service is available
24 hours a day or you may speak to a service representative Monday through
Friday, from 7:30 a.m. to 5:15 p.m. (Central time). The maximum amount of shares
you may sell by telephone is $50,000.

54             BUYING AND SELLING SHARES

During periods of economic or market changes, you may experience difficulty in
selling or exchanging shares due to a heavy volume of telephone calls. In such a
case, you should consider submitting a written request as an alternative to a
telephone sale or exchange. The Fund reserves the right to change, terminate or
impose a fee on, telephone sale and exchange privileges after giving 60 days'
prior notice to shareholders.

Unless you decline telephone privileges on your account application, you may be
responsible for any fraudulent telephone order as long as the Fund takes
reasonable measures to verify the order.

INTERNET TRANSACTIONS

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. The Advantus Funds maintain a web
site located at www.advantusfunds.com. Existing Advantus Funds shareholders may
purchase, exchange and redeem shares, and access account information such as
account balance and the Fund's NAVs. In order to engage in transactions on our
web site, you must first authorize us to transmit account information on-line
and accept our policies and procedures. Please contact Advantus Shareholder
Services at: (800) 665-6005. You may need to have bank account information or
other information to complete the authorization process.

You may be responsible for any fraudulent Internet transactions as long as the
Fund takes reasonable measures to verify the order.

ELECTRONIC DELIVERY OF DOCUMENTS. If you would like to have annual and
semi-annual shareholder reports and updated prospectuses delivered to you
electronically, rather than on paper, please visit our web site at
www.advantusfunds.com.

ACCOUNT REQUIREMENTS

MINIMUM INVESTMENT AMOUNTS. A minimum initial investment of $1,000 is required
to open your account in a Fund, except that $500 is the minimum initial
investment required to open a qualified account or an account in which you have
agreed to make investments of not less than $50 under an automatic investment
plan ($25 for an automatic investment plan established prior to December 2,
2002). The minimum amount required for a subsequent investment in all types of
accounts is $50.

MINIMUM ACCOUNT BALANCE. If for any reason the shares in your account have a
value of less than $150 in 2002, or $500 in subsequent years, the Fund has the
right to close your account. The Fund usually makes this determination in
December of each year. You will be given at least 60 days' written notice to add
funds to your account and reestablish the minimum balance.

LOW BALANCE FEE. The Fund will deduct a $10 annual fee from your account in
December of each year if your account balance at that time is below $2,000. The
low balance fee is waived for qualified accounts and for investors who have
aggregate Advantus Fund account assets of $25,000 or more (only shares held
directly in the investor's name, rather than in a broker's name, are aggregated
for this purpose).

                                            BUYING AND SELLING SHARES         55

                                                                       [GRAPHIC]

                                                         DISTRIBUTIONS AND TAXES

- --------------------
FOR YOUR INFORMATION
- --------------------
The redemption or exchange of Fund shares may generate a taxable event for you.
Depending on the purchase price and the sale price of the shares you redeem or
exchange, you may incur a gain or loss.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Fund pays its shareholders dividends from its net investment income, and
distributes any net capital gains that it has realized. Dividends, if any, are
paid quarterly and net capital gains distributions are generally paid once a
year. Distributions on Class A shares will generally be higher than Class B and
Class C share distributions due to higher Rule 12b-1 fees applicable to Class B
and Class C shares. Your distributions will be reinvested in additional shares
of the Fund unless you instruct the Fund otherwise. Distributions of these
additional shares are made at the NAV of the payment date. There are no fees or
sales charges on reinvestments. If you wish to receive cash distributions, you
may authorize the Fund to do so in your account application or by writing to
Advantus Shareholder Services. If your cash distribution checks cannot be
delivered by the postal or other delivery service to your address of record, all
distributions will automatically be reinvested in additional shares of the Fund.
No interest will be paid on amounts represented by uncashed distribution checks.

You may elect to have dividends invested in shares of the Money Market Fund or
in shares of the same class of another Advantus Multiple Class Fund described in
"Advantus Family of Funds" below. Dividends are valued at the NAV of such other
Advantus Fund on the dividend payment date. To qualify for this privilege, you
must maintain a minimum account balance of $500 in the Fund and the other
applicable Advantus Fund. You must request this privilege by writing to Advantus
Funds Group, P.O. Box 9767, Providence, Rhode Island 02940-9767.

TAXES

You will be taxed on both dividends and capital gains distributions paid by a
Fund (unless you hold your shares through an IRA or other tax-deferred
retirement account). Dividends and distributions are subject to tax regardless
of whether they are automatically invested or are received in cash. Dividends
paid from the Fund's investment income will be taxed as ordinary income. Capital
gains distributions will be taxed as long-term capital gains, regardless of the
length of time for which you have held your shares. Long-term capital gains are
currently taxable to individuals at a maximum federal tax rate of 20%. If you
purchase shares of the Fund before dividends or capital gains distributions,
such dividends and distributions will reduce the NAV per share by the amount of
such dividends and distributions. Furthermore, you will be subject to taxation
on such dividends and distributions.

56             DISTRIBUTIONS AND TAXES

If you sell your shares, you will generally realize a capital gain or loss. Any
gain will be treated as short-term if you have held the shares for one year or
less, and long-term if you have held the shares more than one year. Short-term
capital gains are taxed as ordinary income, while long-term capital gains are
subject to a maximum federal tax rate of 20%. If you exchange your shares in a
Fund for shares of another Advantus Fund, the exchange will be treated as a sale
for federal tax purposes, and you will be taxed on any capital gain you realize
on the sale.

A Fund makes changes in its portfolio that Advantus Capital or the Fund's
investment sub-adviser, if any, deems advisable. The Fund's portfolio turnover
may cause the Fund to realize capital gains which, when distributed to
shareholders, will be taxable to them.

You will receive an annual statement from the Fund providing detailed
information concerning the federal tax status of distributions you have received
during the year.

The above is only a general discussion of the federal income tax consequences of
an investment in a Fund. For more information, see the Statement of Additional
Information. You should consult your own tax adviser for the specific federal,
state or local tax consequences to you of an investment in a Fund.

                                              DISTRIBUTIONS AND TAXES         57

                                                                       [GRAPHIC]

                                                            FINANCIAL HIGHLIGHTS

The following table describes each Fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in the Fund would have
increased (or decreased) during each period, assuming you had reinvested all
dividends and distributions. These figures have been audited by KPMG LLP, the
Funds' independent auditor, whose report, along with the Funds' financial
statements, are included in the annual report, which is available upon request.

Per share data for a share of capital stock and selected information for each
period are as follows for each Fund:

CORNERSTONE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS A
                                            Period From
                                           October 1, 2001 to               Year Ended September 30,
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $           12.59           15.08     15.14     13.88     18.68     15.06
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Income (Loss)                     .08             .09       .06       .15       .16       .14
    Net Gains (Losses) (both
     realized and unrealized)                       (.78)          (2.50)      .13      1.26     (3.04)     5.19
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.70)          (2.41)      .19      1.41     (2.88)     5.33
                                           ----------------------------------------------------------------------
 Less Distributions:
    Dividends from Net Investment
     Income                                         (.08)           (.08)     (.05)     (.15)     (.16)     (.14)
    Distributions from Net Realized
     Gains                                            --              --      (.13)       --     (1.76)    (1.57)
    Excess Distributions of Net
     Realized Gain                                    --              --      (.06)       --        --        --
    Tax Return of Capital                             --              --      (.01)       --        --        --
                                           ----------------------------------------------------------------------
       Total Distributions                          (.08)           (.08)     (.25)     (.15)    (1.92)    (1.71)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $           11.81           12.59     15.08     15.14     13.88     18.68
                                           ======================================================================
 Total Return (a)                      %           (5.72)         (15.97)     1.26     10.13    (16.45)    38.35
 Net Assets, End of Period (in
  thousands)                           $          57,947          65,766    81,389    92,657    93,833   107,322
 Ratios to Average Net Assets:
    Expenses                           %            1.24(b)         1.24      1.24      1.21      1.16      1.08
    Net Investment Income              %             .70(b)          .61       .43       .94       .98       .85
    Expenses Without Waivers           %            1.41(b)         1.39      1.34      1.23      1.25      1.28
    Net Investment Income Without
     Waivers                           %             .53(b)          .46       .33       .92       .89       .65
 Portfolio Turnover Rate
  (excluding short-term securities)    %            95.3           147.9     180.1      78.7     114.4      87.7


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

58             FINANCIAL HIGHLIGHTS

CORNERSTONE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS B
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $           12.38           14.86     14.97     13.73     18.52     14.92
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Income (Loss)                      --            (.02)     (.02)      .03       .03        --
    Net Gains (Losses) (both
     realized and unrealized)                       (.77)          (2.46)      .10      1.24     (3.02)     5.18
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.77)          (2.48)      .08      1.27     (2.99)     5.18
                                           ----------------------------------------------------------------------
 Less Distributions:
    Dividends from Net Investment
     Income                                         (.01)             --        --      (.03)     (.04)     (.01)
    Distributions from Net Realized
     Gains                                            --              --      (.13)       --     (1.76)    (1.57)
    Excess Distributions of Net
     Realized Gain                                    --              --      (.06)       --        --        --
                                           ----------------------------------------------------------------------
       Total Distributions                          (.01)             --      (.19)     (.03)    (1.80)    (1.58)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $           11.60           12.38     14.86     14.97     13.73     18.52
                                           ======================================================================
 Total Return (a)                      %           (6.40)         (16.61)      .54      9.26    (17.21)    37.68
 Net Assets, End of Period (in
  thousands)                           $           6,190           8,382    12,615    18,611    21,176    21,405
 Ratios to Average Net Assets:
    Expenses                           %            1.99(b)         1.99      1.99      1.96      1.95      1.98
    Net Investment Income (Loss)       %            (.05)(b)        (.14)     (.29)      .20       .18      (.05)
    Expenses Without Waivers           %            2.16(b)         2.14      2.09      1.96      1.95      1.98
    Net Investment Income (Loss)
     Without Waivers                   %            (.22)(b)        (.29)     (.39)      .20       .18      (.05)
 Portfolio Turnover Rate
  (excluding short-term securities)    %            95.3          147.90     180.1      78.7     114.4      87.7


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to annual basis.

                                                 FINANCIAL HIGHLIGHTS         59

CORNERSTONE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS C
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $           12.35           14.82     14.93     13.68     18.48     14.94
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Income (Loss)                      --            (.02)     (.02)      .03       .03        --
    Net Gains (Losses) (both
     realized and unrealized)                       (.78)          (2.45)      .10      1.25     (3.04)     5.12
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.78)          (2.47)      .08      1.28     (3.01)     5.12
                                           ----------------------------------------------------------------------
 Less Distributions:
    Dividends from Net Investment
     Income                                         (.01)             --        --      (.03)     (.03)     (.01)
    Distributions from Net Realized
     Gains                                            --              --      (.13)       --     (1.76)    (1.57)
    Excess Distributions of Net
     Realized Gain                                    --              --      (.06)       --        --        --
    Tax Return of Capital                             --              --        --        --        --        --
                                           ----------------------------------------------------------------------
       Total Distributions                          (.01)             --      (.19)     (.03)    (1.79)    (1.58)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $           11.56           12.35     14.82     14.93     13.68     18.48
                                           ======================================================================
 Total Return (a)                      %           (6.42)         (16.58)      .54      9.35    (17.28)    37.10
 Net Assets, End of Period (in
  thousands)                           $             680             873     1,281     2,015     3,094     3,399
 Ratios to Average Net Assets:
    Expenses                           %            1.99(b)         1.99      1.99      1.96      1.95      1.98
    Net Investment Income (Loss)       %            (.05)(b)        (.14)     (.29)      .21       .18      (.05)
    Expenses Without Waivers           %            2.16(b)         2.14      2.09      1.96      1.95      1.98
    Net Investment Income (Loss)
     Without Waivers                   %            (.22)(b)        (.29)     (.39)      .21       .18      (.05)
 Portfolio Turnover Rate
  (excluding short-term securities)    %            95.3           147.9     180.1      78.7     114.4      87.7


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

60             FINANCIAL HIGHLIGHTS

ENTERPRISE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS A
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $            7.20           20.77     14.56     11.32     15.90     15.94
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.08)           (.03)     (.19)     (.14)     (.13)     (.04)
    Net Gains (Losses) (both
     realized and unrealized)                       (.68)          (7.07)     6.40      3.38     (4.45)     1.74
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.76)          (7.10)     6.21      3.24     (4.58)     1.70
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $            6.44            7.20     20.77     14.56     11.32     15.90
                                           ======================================================================
 Total Return (a)                      %          (10.56)         (44.09)    42.65     28.62    (28.81)    12.88
 Net Assets, End of Period
  (in thousands)                       $          27,357          30,744    56,087    40,009    31,844    44,102
 Ratios to Average Net Assets:
    Expenses                           %            1.38(b)         1.38      1.25      1.33      1.27      1.28
    Net Investment Income (Loss)       %           (1.14)(b)       (1.00)     (.92)     (.97)     (.91)     (.32)
    Expenses Without Waivers           %            1.69(b)         1.60      1.43      1.45      1.44      1.48
    Net Investment Income (Loss)
     Without Waivers                   %           (1.45)(b)       (1.22)    (1.10)    (1.09)    (1.08)     (.52)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            62.2          105.40     181.5      99.3      71.1      65.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

                                                 FINANCIAL HIGHLIGHTS         61

ENTERPRISE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS B
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $            6.51           19.63     13.88     10.88     15.42     15.64
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.16)           (.07)     (.35)     (.26)     (.24)     (.18)
    Net Gains (Losses) (both
     realized and unrealized)                       (.57)          (6.58)     6.10      3.26     (4.30)     1.70
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.73)          (6.65)     5.75      3.00     (4.54)     1.52
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $            5.78            6.51     19.63     13.88     10.88     15.42
                                           ======================================================================
 Total Return (a)                      %          (11.22)         (44.59)    41.43     27.57    (29.44)    11.89
 Net Assets, End of Period (in
  thousands)                           $           3,345           4,440     9,086     6,491     5,903     7,683
 Ratios to Average Net Assets:
    Expenses                           %            2.23(b)         2.23      2.10      2.18      2.14      2.18
    Net Investment Income (Loss)       %           (1.99)(b)       (1.85)    (1.77)    (1.82)    (1.77)    (1.60)
    Expenses Without Waivers           %            2.44(b)         2.35      2.10      2.18      2.14      2.18
    Net Investment Income (Loss)
     Without Waivers                   %           (2.20)(b)       (1.97)    (1.77)    (1.82)    (1.77)    (1.60)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            62.2           105.4     181.5      99.3      71.1      65.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

62             FINANCIAL HIGHLIGHTS

ENTERPRISE FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS C
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of
  Period                               $            6.50           19.62     13.87     10.87     15.41     15.63
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.15)           (.05)     (.36)     (.27)     (.26)     (.23)
    Net Gains (Losses) (both
     realized and unrealized)                       (.57)          (6.60)     6.11      3.27     (4.28)     1.75
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                  (.72)          (6.65)     5.75      3.00     (4.54)     1.52
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (6.47)       --        --        --     (1.74)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Period        $            5.78            6.50     19.62     13.87     10.87     15.41
                                           ======================================================================
 Total Return (a)                      %          (11.21)         (44.54)    41.46     27.48    (29.40)    11.89
 Net Assets, End of Period (in
  thousands)                           $             421             541     1,079       812       780     1,133
 Ratios to Average Net Assets:
    Expenses                           %            2.23(b)         2.23      2.10      2.18      2.14      2.18
    Net Investment Income (Loss)       %           (1.99)(b)       (1.85)    (1.77)    (1.82)    (1.78)    (1.75)
    Expenses Without Waivers           %            2.44(b)         2.35      2.10      2.18      2.14      2.18
    Net Investment Income (Loss)
     Without Waivers                   %           (2.20)(b)       (1.97)    (1.77)    (1.82)    (1.78)    (1.75)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            62.2           105.4     181.5      99.3      71.1      65.8


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

                                                 FINANCIAL HIGHLIGHTS         63

HORIZON FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS A
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of Year    $           12.63           31.08     26.88     23.59     23.06     23.07
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.07)           (.16)     (.28)     (.16)     (.09)     (.08)
    Net Gains (Losses) (both
     realized and unrealized)                      (1.33)         (13.38)     5.41      5.77      3.48      4.89
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                 (1.40)         (13.54)     5.13      5.61      3.39      4.81
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Year          $           11.23           12.63     31.08     26.88     23.59     23.06
                                           ======================================================================
 Total Return (a)                      %          (11.08)         (49.46)    19.26     24.74     16.38     24.96
 Net Assets, End of Year
  (in thousands)                       $          21,830          27,603    63,568    56,581    47,183    40,192
 Ratios to Average Net Assets:
    Expenses                           %            1.35(b)         1.35      1.33      1.30      1.36      1.43
    Net Investment Income (Loss)       %            (.58)(b)        (.85)     (.89)     (.61)     (.39)     (.39)
    Expenses Without Waivers           %            2.17(b)         1.81      1.42      1.30      1.37      1.48
    Net Investment Income (Loss)
     Without Waivers                   %           (1.40)(b)       (1.32)     (.97)     (.61)     (.40)     (.44)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            67.6           129.6     109.3      60.1      72.6      71.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

64             FINANCIAL HIGHLIGHTS

HORIZON FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS B
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of Year    $           11.62           29.26     25.54     22.65     22.41     22.65
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.16)           (.30)     (.49)     (.32)     (.22)     (.19)
    Net Gains (Losses) (both
     realized and unrealized)                      (1.19)         (12.43)     5.14      5.53      3.32      4.77
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                 (1.35)         (12.73)     4.65      5.21      3.10      4.58
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Year          $           10.27           11.62     29.26     25.54     22.65     22.41
                                           ======================================================================
 Total Return (a)                      %          (11.71)         (49.85)    18.40     23.93     15.48     24.25
 Net Assets, End of Year (in
  thousands)                           $           7,507          10,679    26,878    23,561    17,100    11,684
 Ratios to average net assets:
    Expenses                           %            2.10(b)         2.10      2.08      2.04      2.07      2.18
    Net Investment Income (Loss)       %           (1.33)(b)       (1.60)    (1.63)    (1.34)    (1.11)    (1.13)
    Expenses Without Waivers           %            2.92(b)         2.56      2.17      2.04      2.07      2.18
    Net Investment Income (Loss)
     Without Waivers                   %           (2.15)(b)       (2.07)    (1.72)    (1.34)    (1.11)    (1.13)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            67.6          129.60     109.3      60.1      72.6      71.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

                                                 FINANCIAL HIGHLIGHTS         65

HORIZON FUND


 
 FINANCIAL HIGHLIGHTS                                                     CLASS C
                                            Period From                     Year Ended September 30,
                                           October 1, 2001 to
                                           July 31, 2002           '01       '00       '99       '98       '97
                                                                                    
 Net Asset Value, Beginning of Year    $           11.71           29.44     25.69     22.79     22.38     22.67
                                           ----------------------------------------------------------------------
 Income from Investment Operations:
    Net Investment Loss                             (.16)           (.30)     (.51)     (.36)     (.24)     (.20)
    Net Gains (Losses) (both
     realized and unrealized)                      (1.21)         (12.52)     5.19      5.58      3.51      4.73
                                           ----------------------------------------------------------------------
       Total from Investment
        Operations                                 (1.37)         (12.82)     4.68      5.22      3.27      4.53
                                           ----------------------------------------------------------------------
 Less Distributions:
    Distributions from Net Realized
     Gains                                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
       Total Distributions                            --           (4.91)     (.93)    (2.32)    (2.86)    (4.82)
                                           ----------------------------------------------------------------------
 Net Asset Value, End of Year          $           10.34           11.71     29.44     25.69     22.79     22.38
                                           ======================================================================
 Total Return (a)                      %          (11.71)         (49.84)    18.37     23.82     15.74     24.03
 Net Assets, End of Year (in
  thousands)                           $             658             988     2,396     2,540     2,299     1,754
 Ratios to Average Net Assets:
    Expenses                           %            2.10(b)         2.10      2.08      2.04      2.07      2.18
    Net Investment Income (Loss)       %           (1.33)(b)       (1.60)    (1.63)    (1.34)    (1.10)    (1.14)
    Expenses Without Waivers           %            2.92(b)         2.56      2.17      2.04      2.07      2.18
    Net Investment Income (Loss)
     Without Waivers                   %           (2.15)(b)       (2.07)    (1.72)    (1.34)    (1.10)    (1.14)
 Portfolio Turnover Rate (excluding
  short-term securities)               %            67.6           129.6     109.3      60.1      72.6      71.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.

66             FINANCIAL HIGHLIGHTS

INDEX 500 FUND


 
 FINANCIAL HIGHLIGHTS                                          CLASS A
                                                          Year Ended July 31
                                             '02       '01       '00       '99       '98
                                                                 
 Net Asset Value, Beginning of Year    $     15.92     18.93     17.74     15.06     12.89
                                           ------------------------------------------------
 Income from Investment Operations:
    Net Investment Income (Loss)               .11       .12       .10       .11       .10
    Net Gains (Losses) (both
     realized and unrealized)                (3.94)    (2.98)     1.27      2.74      2.21
                                           ------------------------------------------------
       Total from Investment
        Operations                           (3.83)    (2.86)     1.37      2.85      2.31
                                           ------------------------------------------------
 Less Distributions:
    Dividends from Net Investment
     Income                                   (.09)     (.10)     (.03)     (.10)     (.12)
    Distributions from Net Realized
     Gains                                      --      (.05)     (.15)     (.07)     (.02)
                                           ------------------------------------------------
       Total Distributions                    (.09)     (.15)     (.18)     (.17)     (.14)
                                           ------------------------------------------------
 Net Asset Value, End of Year          $     12.00     15.92     18.93     17.74     15.06
                                           ================================================
 Total Return (a)                      %    (24.14)   (15.12)     7.67     19.13     18.19
 Net Assets, End of Year (in
  thousands)                           $    18,196    24,870    24,723    25,498    15,711
 Ratios to Average Net Assets:
    Expenses                           %       .75       .75       .75       .75       .74
    Net Investment Income (Loss)       %       .77       .72       .52       .64       .83
    Expenses Without Waivers           %      1.53      1.43      1.38      1.43      1.81
    Net Investment Income (Loss)
     Without Waivers                   %      (.01)      .04      (.11)     (.04)     (.24)
 Portfolio Turnover Rate (excluding
  short-term securities)               %      13.6      17.2      42.6      25.3      59.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         67

INDEX 500 FUND


 
 FINANCIAL HIGHLIGHTS                                          CLASS B
                                                          Year Ended July 31
                                             '02       '01       '00       '99       '98
                                                                 
 Net Asset Value, Beginning of Year    $     15.66     18.68     17.64     15.01     12.87
                                           ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income (Loss)              (.01)     (.02)     (.06)     (.03)      .02

    Net Gains (Losses) (both
     realized and unrealized)                (3.86)    (2.93)     1.25      2.73      2.17
                                           ------------------------------------------------

       Total from Investment
        Operations                           (3.87)    (2.95)     1.19      2.70      2.19
                                           ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment
     Income                                   (.01)     (.02)       --        --      (.03)

    Distributions from Net Realized
     Gains                                      --      (.05)     (.15)     (.07)     (.02)
                                           ------------------------------------------------

       Total Distributions                    (.01)     (.07)     (.15)     (.07)     (.05)
                                           ------------------------------------------------

 Net Asset Value, End of Year          $     11.78     15.66     18.68     17.64     15.01
                                           ================================================

 Total Return (a)                      %    (24.80)   (15.77)     6.71     18.10     17.17

 Net Assets, End of Year (in
  thousands)                           $    14,559    21,931    28,077    24,202    11,832

 Ratios to Average Net Assets:

    Expenses                           %      1.60      1.60      1.60      1.60      1.60

    Net Investment Income (Loss)       %      (.08)     (.11)     (.33)     (.21)     (.06)

    Expenses Without Waivers           %      2.28      2.18      2.13      2.16      2.51

    Net Investment Income (Loss)
     Without Waivers                   %      (.76)     (.69)     (.86)     (.77)     (.97)

 Portfolio Turnover Rate (excluding
  short-term securities)               %      13.6      17.2      42.6      25.3      59.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

68             FINANCIAL HIGHLIGHTS

INDEX 500 FUND


 
 FINANCIAL HIGHLIGHTS                                          CLASS C
                                                          Year Ended July 31
                                             '02       '01       '00       '99       '98
                                                                 
 Net Asset Value, Beginning of Year    $     15.63     18.64     17.60     14.97     12.85
                                           ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income (Loss)              (.01)     (.03)     (.06)     (.03)      .01

    Net Gains (Losses) (both
     realized and unrealized)                (3.86)    (2.91)     1.25      2.73      2.16
                                           ------------------------------------------------

       Total from Investment
        Operations                           (3.87)    (2.94)     1.19      2.70      2.17
                                           ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment
     Income                                   (.01)     (.02)       --        --      (.03)

    Distributions from Net Realized
     Gains                                      --      (.05)     (.15)     (.07)     (.02)
                                           ------------------------------------------------

       Total Distributions                    (.01)     (.07)     (.15)     (.07)     (.05)
                                           ------------------------------------------------

 Net Asset Value, End of Year          $     11.75     15.63     18.64     17.60     14.97
                                           ================================================

 Total Return (a)                      %    (24.80)   (15.80)     6.73     18.03     17.09

 Net Assets, End of Year (in
  thousands)                           $     1,605     2,291     3,168     2,910     1,508

 Ratios to Average Net Assets:

    Expenses                           %      1.60      1.60      1.60      1.60      1.60

    Net Investment Income (Loss)       %      (.08)     (.11)     (.33)     (.21)     (.06)

    Expenses Without Expense Waivers   %      2.28      2.18      2.13      2.16      2.51

    Net Investment Income (Loss)
     Without Waivers                   %      (.76)     (.69)     (.86)     (.77)     (.97)

 Portfolio Turnover Rate (excluding
  short-term securities)               %      13.6      17.2      42.6      25.3      59.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         69

REAL ESTATE SECURITIES FUND


 
 FINANCIAL HIGHLIGHTS                                                        CLASS A
                                                                                        PERIOD FROM
                                                               YEAR ENDED JULY 31       FEBRUARY 25,
                                                                                        1999(C) TO
                                                            '02       '01       '00     JULY 31, 1999
                                                                         
 Net Asset Value, Beginning of Year                   $     11.67     11.23     10.25        10.02
                                                          ---------------------------------------------
 Income from Investment Operations:
    Net Investment Income                                     .32       .51       .43          .18
    Net Gains
     (both realized and unrealized)                          1.01       .47      1.00          .31
                                                          ---------------------------------------------
       Total from Investment Operations                      1.33       .98      1.43          .49
                                                          ---------------------------------------------
 Less Distributions:
    Distributions from Net Investment Income                 (.28)     (.54)     (.41)        (.18)
    Distributions from Net Realized Gains                    (.79)       --      (.04)          --
    Excess Distributions of Net Investment Income              --        --        --         (.08)
                                                          ---------------------------------------------
       Total Distributions                                  (1.07)     (.54)     (.45)        (.26)
                                                          ---------------------------------------------
 Net Asset Value, End of Year                         $     11.93     11.67     11.23        10.25
                                                          =============================================
 Total Return (a)                                     %     12.31      9.10     14.89         4.78
 Net Assets, End of Year (in thousands)               $    32,269    17,336    11,704        6,113
 Ratios to Average Net Assets:
    Expenses                                          %      1.50      1.50      1.50         1.50(b)
    Net Investment Income                             %      2.83      4.29      4.26         4.09(b)
    Expenses Without Waivers                          %      1.69      1.99      2.72         3.49(b)
    Net Investment Income Without Waivers             %      2.64      3.81      3.04         2.10(b)
 Portfolio Turnover Rate (excluding short-term
  securities)                                         %     101.2     173.1     116.8         51.5


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.
 (b)  Adjusted to an annual basis.
 (c)  Date shares became effectively registered.

70             FINANCIAL HIGHLIGHTS

REAL ESTATE SECURITIES FUND


 
 FINANCIAL HIGHLIGHTS                                       CLASS B

                                                          PERIOD FROM
                                                          NOVEMBER 28,
                                                          2001(C) TO
                                                          JULY 31,
                                                            2002
                                                    
 Net Asset Value, Beginning of Year                   $       11.56
                                                          ------------

 Income from Investment Operations:

    Net Investment Income                                       .11
    Net Gains
     (both realized and unrealized)                            1.23
                                                          ------------

       Total from Investment Operations                        1.34
                                                          ------------

 Less Distributions:

    Distributions from Net Investment Income                   (.22)

    Distributions from Net Realized Gains                      (.79)

    Excess Distributions of Net Investment Income                --
                                                          ------------

       Total Distributions                                    (1.01)
                                                          ------------

 Net Asset Value, End of Year                         $       11.89
                                                          ============

 Total Return (a)                                     %        7.75

 Net Assets, End of Year (in thousands)               $       1,131

 Ratios to Average Net Assets:

    Expenses                                          %        2.40(b)

    Net Investment Income                             %        1.29(b)

    Expenses Without Waivers                          %        2.44(b)

    Net Investment Income Without Waivers             %        1.25(b)

 Portfolio Turnover Rate (excluding short-term
  securities)                                         %       101.2


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges. For periods less than one year, total return has
      not been annualized.

 (b)  Adjusted to an annual basis.

 (c)  Inception date of the Class B shares.

                                                 FINANCIAL HIGHLIGHTS         71

VENTURE FUND


 
 FINANCIAL HIGHLIGHTS                                            CLASS A
                                                            Year Ended July 31
                                             '02       '01       '00       '99         '98
                                                                   
 Net Asset Value, Beginning of Year    $     15.05     11.47     11.20      12.03       11.73
                                           ----------------------------------------------------

 Income from Investment Operations:

    Net Investment Income (Loss)              (.08)     (.06)      .05        .10         .06

    Net Gains (Losses) (both
     realized and unrealized)                (1.84)     4.04       .32       (.59)        .98
                                           ----------------------------------------------------

       Total from Investment
        Operations                           (1.92)     3.98       .37       (.49)       1.04
                                           ----------------------------------------------------

 Less Distributions:

    Dividends from Net Investment
     Income                                     --        --      (.06)      (.09)       (.08)

    Dividends in Excess of Net
     Investment Income                          --        --      (.04)        --          --

    Distributions from Net Realized
     Gains                                    (.88)     (.40)       --       (.23)       (.66)

    Tax Return of Capital                       --        --        --       (.02)         --
                                           ----------------------------------------------------

       Total Distributions                    (.88)     (.40)     (.10)      (.34)       (.74)
                                           ----------------------------------------------------

 Net Asset Value, End of Year          $     12.25     15.05     11.47      11.20       12.03
                                           ====================================================

 Total Return (a)                      %    (13.27)    35.18      3.74      (3.89)       8.92

 Net Assets, End of Year (in
  thousands)                           $    53,071    54,735    31,371     31,683      34,630

 Ratios to Average Net Assets:

    Expenses                           %      1.27      1.40      1.40       1.40        1.38

    Net Investment Income (Loss)       %      (.57)     (.56)      .63        .81         .55

    Expenses Without Waivers           %      1.37      1.51      1.71       1.64        1.55

    Net Investment Income (Loss)
     Without Waivers                   %      (.67)     (.67)      .32        .57         .38

 Portfolio Turnover Rate (excluding
  short-term securities)               %      37.3      37.8     169.0      103.9        45.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

72             FINANCIAL HIGHLIGHTS

VENTURE FUND


 
 FINANCIAL HIGHLIGHTS                                          CLASS B
                                                          Year Ended July 31
                                             '02       '01       '00       '99       '98
                                                                 
 Net Asset Value, Beginning of Year    $     14.77     11.36     11.11     11.94     11.71
                                           ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income (Loss)              (.17)     (.16)     (.04)       --      (.02)

    Net Gains (Losses) (both
     realized and unrealized)                (1.82)     3.97       .32      (.58)      .92
                                           ------------------------------------------------

       Total from Investment
        Operations                           (1.99)     3.81       .28      (.58)      .90
                                           ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment
     Income                                     --        --      (.02)     (.02)     (.01)

    Distributions from Net Realized
     Gains                                    (.88)     (.40)       --      (.23)     (.66)

    Dividends in Excess of Net
     Investment Income                          --        --      (.01)       --        --
                                           ------------------------------------------------

       Total Distributions                    (.88)     (.40)     (.03)     (.25)     (.67)
                                           ------------------------------------------------

 Net Asset Value, End of Year          $     11.90     14.77     11.36     11.11     11.94
                                           ================================================

 Total Return (a)                      %    (14.02)    34.01      2.89     (4.77)     7.65

 Net Assets, End of Year (in
  thousands)                           $     4,531     4,114     2,500     3,115     3,529
 Ratios to Average Net Assets:

    Expenses                           %      2.12      2.25      2.24      2.25      2.25

    Net Investment Income (Loss)       %     (1.42)    (1.41)     (.24)     (.04)     (.26)

    Expenses Without Waivers           %      2.12      2.26      2.45      2.36      2.25

    Net Investment Income (Loss)
     Without Waivers                   %     (1.42)    (1.42)     (.45)     (.15)     (.26)

 Portfolio Turnover Rate (excluding
  short-term securities)               %      37.3      37.8     169.0     103.9      45.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

                                                 FINANCIAL HIGHLIGHTS         73

VENTURE FUND


 
 FINANCIAL HIGHLIGHTS                                          CLASS C
                                                          Year Ended July 31
                                             '02       '01       '00       '99       '98
                                                                 
 Net Asset Value, Beginning of Year    $     14.83     11.41     11.15     11.98     11.71
                                           ------------------------------------------------

 Income from Investment Operations:

    Net Investment Income (Loss)              (.14)     (.15)     (.03)     (.01)     (.03)

    Net Gains (Losses) (both
     realized and unrealized)                (1.85)     3.98       .32      (.57)      .97
                                           ------------------------------------------------

       Total from Investment
        Operations                           (1.99)     3.83       .29      (.58)      .94
                                           ------------------------------------------------

 Less Distributions:

    Dividends from Net Investment
     Income                                     --        --      (.02)     (.02)     (.01)

    Distributions from Net Realized
     Gains                                    (.88)     (.40)       --      (.23)     (.66)

    Distributions in Excess of Net
     Investment Income                          --        --      (.01)       --        --
                                           ------------------------------------------------

       Total Distributions                    (.88)     (.40)     (.03)     (.25)     (.67)
                                           ------------------------------------------------

 Net Asset Value, End of Year          $     11.96     14.83     11.41     11.15     11.98
                                           ================================================

 Total Return (a)                      %    (13.96)    33.94      2.95     (4.81)     7.90

 Net Assets, End of Year (in
  thousands)                           $     1,477       479       273       467       702

 Ratios to Average Net Assets:

    Expenses                           %      2.12      2.25      2.24      2.25      2.25

    Net Investment Income (Loss)       %     (1.42)    (1.41)     (.24)     (.04)     (.26)

    Expenses Without Waivers           %      2.12      2.26      2.45      2.36      2.25

    Net Investment Income (Loss)
     Without Waivers                   %     (1.42)    (1.42)     (.45)     (.15)     (.26)

 Portfolio Turnover Rate (excluding
  short-term securities)               %      37.3      37.8     169.0     103.9      45.0


 (a)  Total return figures presented for the periods stated above assume
      reinvestment of distributions and do not include the effects of
      sales charges.

74             FINANCIAL HIGHLIGHTS

                                                               OTHER INFORMATION

SERVICE PROVIDERS

INVESTMENT ADVISER

Advantus Capital Management, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
(651) 665-3826

INVESTMENT SUB-ADVISERS

ENTERPRISE FUND
Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, New York 10017
(212) 832-2626

VENTURE FUND
State Street Research & Management Company
One Financial Center
Boston, Massachusetts 02111
(617) 357-1200

UNDERWRITER

Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101-2098
(651) 665-4833
(888) 237-1838

SHAREHOLDER AND ADMINISTRATIVE SERVICES AGENT

Advantus Shareholder Services
(a division of Minnesota Life Insurance Company)
(800) 665-6005

TRANSFER AGENT

PFPC Inc.
Advantus Funds Group
P.O. Box 9767
Providence, Rhode Island 02940-9767

CUSTODIAN

Wells Fargo Bank Minnesota
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479

INDEPENDENT AUDITORS

KPMG LLP

GENERAL COUNSEL

Dorsey & Whitney LLP

INDEPENDENT LEGAL COUNSEL TO INDEPENDENT DIRECTORS

Faegre & Benson LLP

                                                    OTHER INFORMATION         75

                       This page is purposely left blank.

76

ADVANTUS FAMILY OF FUNDS
Each of the Funds is a member of the Advantus family of funds. The following is
a brief description of the investment objectives, policies and practices of all
the Advantus Funds.

BOND
- ----------------------------------------------------
High level of current income by investing primarily in high
quality debt securities.
CORNERSTONE
- ----------------------------------------------------
Long-term growth through investing primarily in stocks of
large capitalization companies deemed to be undervalued
relative to their future earnings and growth potential.
ENTERPRISE
- ----------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by small capitalization companies.
HORIZON
- ----------------------------------------------------
Long-term growth through investing primarily in common
stocks issued by large capitalization companies.
INDEX 500
- ----------------------------------------------------
Investment results that correspond generally to the S&P 500
Index by investing a significant portion of its portfolio in
common stocks included in the S&P 500 Index.*
INTERNATIONAL BALANCED
- ----------------------------------------------------
Total return through investing primarily in stocks and bonds
of large and small companies located outside the U.S.
MONEY MARKET
- ----------------------------------------------------
High level of current income by investing primarily in money
market securities.
MORTGAGE SECURITIES
- ----------------------------------------------------
High level of current income by investing primarily in
mortgage-related securities.
REAL ESTATE SECURITIES
- ----------------------------------------------------
Total return through investing in real estate and
real-estate related securities.
SPECTRUM
- ----------------------------------------------------
Total return from a combination of income and capital
appreciation through investing in a portfolio of stocks,
debt securities and money market instruments.
VENTURE
- ----------------------------------------------------
Long-term growth through investing primarily in stocks of
small capitalization companies deemed to be undervalued
relative to their future earnings and growth potential.

An investment in any Advantus Fund will be subject to a variety of risks. As a
result, an Advantus Fund may not always achieve its investment objective. You
may obtain a prospectus for another Advantus Fund by calling the toll-free
telephone number or writing to the address shown on the back cover of this
prospectus under the caption "How to Obtain Additional Information". Read the
prospectus carefully before you invest.
*"STANDARD & POOR'S-REGISTERED TRADEMARK-", "S&P 500-REGISTERED TRADEMARK-",
"STANDARD & POOR'S 500", AND "500" ARE REGISTERED TRADEMARKS OF THE MCGRAW-HILL
COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY ADVANTUS INDEX 500 FUND, INC.
THE FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY STANDARD & POOR'S AND
STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF
INVESTING IN THE FUND.

                                                    OTHER INFORMATION         77


                                                           
SECURIAN FINANCIAL SERVICES, INC.                                   PRESORTED STANDARD
400 ROBERT STREET NORTH                                              U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098                                                ST. PAUL, MN
                                                                      PERMIT NO. 3547
FORWARDING SERVICE REQUESTED



ADDITIONAL INFORMATION ABOUT THE FUNDS

The Funds' annual and semi-annual reports list portfolio holdings, and discuss
recent market conditions, economic trends and investment strategies that
affected the Funds during the latest fiscal year.

A Statement of Additional Information (SAI) provides further information about
the Funds. The current SAI is on file with the Securities and Exchange
Commission and is incorporated by reference (is legally part of this
Prospectus).

HOW TO OBTAIN ADDITIONAL INFORMATION

The SAI and the Funds' annual and semi-annual reports are available without
charge upon request. You may obtain additional information or make any
inquiries:

By Telephone - Call (800) 665-6005

By Mail - Write to Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
          02940-9767

Web Site Address - www.advantusfunds.com

Information about the Funds (including the SAI and annual and semi-annual
reports) can be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (telephone 1-202-942-8090). This information and other reports
about the Funds are also available on the SEC's World Wide Web site at
http://www.sec.gov. Copies of this information may be obtained by writing to the
SEC's Public Reference Section, Washington, D.C. 20549-0102 or obtained by
electronic request to: publicinfo@sec.gov. You will be charged a duplicating fee
for copies.

Investment Company Act No. 811-8586 (Cornerstone Fund)

Investment Company Act No. 811-8588 (Enterprise Fund)

Investment Company Act No. 811-4142 (Horizon Fund)

Investment Company Act No. 811-7815 (Index 500 Fund)

Investment Company Act No. 811-9139 (Real Estate Securities Fund)

Investment Company Act No. 811-7817 (Venture Fund)

[LOGO]
ADVANTUS-TM-
CAPITAL MANAGEMENT
- -C-2002 Advantus Capital Management, Inc.
   All rights reserved.

F. 58125 11-2002

EX-99.(17)(N)

                                                                 Exhibit (17)(n)

Supplement dated February 3, 2003 to the Prospectus Dated November 29, 2002
        Advantus Cornerstone Fund, Inc.
        Advantus Enterprise Fund, Inc.
        Advantus Horizon Fund, Inc.
        Advantus Index 500 Fund, Inc.
        Advantus Real Estate Securities Fund, Inc.
        Advantus Venture Fund, Inc.

I.      In connection with Advantus Cornerstone Fund, Inc., footnote (c) to the
table of fees and expenses on page 5 of the prospectus is amended to
read as follows:

(c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment
adviser, has voluntarily agreed to absorb "other expenses", excluding advisory
fees and Rule 12b-1 fees, in excess of .39% of average net assets of the Fund.
After such absorption, the ratio of total fund operating expenses to average net
assets will be 1.34% for Class A shares and 2.09% for Class B and Class C
shares. Advantus Capital reserves the right to discontinue such absorption at
any time at its sole discretion.

II.     In connection with Advantus Enterprise Fund, Inc., footnote (c) to the
table of fees and expenses on page 10 of the prospectus is amended to
read as follows:

(c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment
adviser, has voluntarily agreed to absorb "other expenses", excluding advisory
fees and Rule 12b-1 fees, in excess of .58% of average net assets of the Fund.
After such absorption, the ratio of total fund operating expenses to average net
assets will be 1.53% for Class A shares and 2.28% for Class B and Class C
shares. Advantus Capital reserves the right to discontinue such absorption at
any time at its sole discretion.


III.    In connection with Advantus Horizon Fund, Inc., footnote (c) to the
table of fees and expenses on page 15 of the prospectus is amended to
read as follows:

(c) Advantus Capital Management, Inc. (Advantus Capital), the Fund's investment
adviser, has voluntarily agreed to absorb "other expenses", excluding advisory
fees and Rule 12b-1 fees, in excess of .45% of average net assets of the Fund.
After such absorption, the ratio of total fund operating expenses to average net
assets will be 1.40% for Class A shares and 2.15% for Class B and Class C
shares. Advantus Capital reserves the right to discontinue such absorption at
any time at its sole discretion.





Investors should retain this supplement for future reference.
F. 58814  2-2003

EX-99.(17)(O)

                                                                 Exhibit (17)(o)

                              ADVANTUS EQUITY FUNDS
                                       AND
                   ADVANTUS FIXED INCOME AND BLENDED FUNDS

                  PROSPECTUS SUPPLEMENT DATED APRIL 24, 2003
     TO THE ADVANTUS EQUITY FUNDS PROSPECTUS DATED NOVEMBER 29, 2002, AS
   SUPPLEMENTED FEBRUARY 3, 2003, AND THE ADVANTUS FIXED INCOME AND BLENDED
                   FUNDS PROSPECTUS DATED JANUARY 31, 2003

Advantus Capital Management, Inc. (Advantus Capital) is the investment
adviser to Advantus Cornerstone Fund, Inc. (Cornerstone Fund), Advantus
Enterprise Fund, Inc. (Enterprise Fund), Advantus Horizon Fund, Inc. (Horizon
Fund), Advantus Index 500 Fund, Inc. (Index 500 Fund), Advantus Real Estate
Securities Fund, Inc. (Real Estate Securities Fund), Advantus Venture Fund,
Inc. (Venture Fund), Advantus Bond Fund, Inc. (Bond Fund), Advantus
International Balanced Fund, Inc. (International Balanced Fund), Advantus
Money Market Fund, Inc. (Money Market Fund), Advantus Mortgage Securities
Fund, Inc. (Mortgage Securities Fund) and Advantus Spectrum Fund, Inc.
(Spectrum Fund) (together, the Funds).  Advantus Capital and certain
companies affiliated with Advantus Capital have entered into a Strategic
Alliance Agreement and a related Purchase Agreement with Waddell & Reed
Financial, Inc. (W&R), a leading U.S. mutual fund firm, its affiliates,
Waddell & Reed Ivy Investment Co. (WRIICO) and Waddell & Reed Investment
Management Co. (WRIMCO), and certain other companies affiliated with W&R.
Under these agreements, Advantus Capital has agreed to sell to WRIICO its
assets related to the Funds.  Advantus Capital has recommended to the Board
of Directors of each Fund that the Funds be merged into similar existing
mutual funds in W&R Funds, Inc. or Ivy Fund (W&R/Ivy Funds), investment
companies currently managed by WRIMCO and WRIICO, respectively, or, where
there is not a similar existing fund, into a newly formed shell fund in
W&R/Ivy Funds, as indicated in the following table.  WRIICO is expected to
take over management of W&R Funds, Inc. on June 30, 2003.

            ADVANTUS FUND                  CORRESPONDING W&R/IVY FUND

            Cornerstone Fund               shell fund
            Enterprise Fund                Small Cap Growth Fund
            Horizon Fund                   Large Cap Growth Fund
            Index 500 Fund                 Core Equity Fund
            Real Estate Securities Fund    shell fund
            Venture Fund                   shell fund
            Bond Fund                      shell fund
            International Balanced Fund    shell fund
            Money Market Fund              Money Market Fund
            Mortgage Securities Fund       shell fund
            Spectrum Fund                  shell fund


Investors should retain this supplement for future reference.

F. 59138 4-2003



It is anticipated that, after the mergers, Advantus Capital will act as the
sub-adviser for the newly formed shell W&R/Ivy Funds into which Real Estate
Securities Fund, Bond Fund and Mortgage Securities Fund will merge. It is also
anticipated that the current sub-advisers for Venture Fund and




International Balanced Fund will continue to act as sub-advisers for the shell
W&R/Ivy Funds into which Venture Fund and International Balanced Fund are
merged.

Each Fund's merger will be subject to the approval of the Board of Directors and
the shareholders of that Fund. It is currently anticipated that shareholders of
the Funds will be presented with merger proposals in September of 2003.

INTERIM ADVISORY AGREEMENT FOR CORNERSTONE FUND, HORIZON FUND AND SPECTRUM
FUND

Because Advantus Capital will no longer have the resources to actively manage
non-real estate equity funds after May 1, 2003, the Board of Directors of
Cornerstone Fund, Horizon Fund and Spectrum Fund determined that it would be in
shareholders' best interests to appoint a new investment adviser to manage these
Funds on an interim basis prior to the mergers. The other non-real estate equity
Funds are currently managed by sub-advisers. The Funds' Boards of Directors have
approved interim investment advisory agreements (the "Interim Agreements") under
which WRIICO will serve as the investment adviser to Cornerstone Fund, Horizon
Fund and Spectrum Fund, effective May 1, 2003. The terms of the Interim
Agreements are substantially identical to those of the current advisory
agreements with Advantus Capital (the "Current Agreements") except for the dates
of execution and termination and other non- material changes, and except that
advisory fees payable to WRIICO will be deposited in escrow until shareholders
of the Funds approve final advisory agreements with WRIICO. If shareholders of a
Fund do not approve a final advisory agreement, WRIICO will receive the lower of
the amount in escrow or its costs for performing services under that Fund's
Interim Agreement. Fees payable to WRIICO under the Interim Agreements are
identical to fees payable to Advantus Capital under the Current Agreements. All
fee waivers currently in place for the Funds will remain in effect.

WRIICO, an indirect, wholly owned subsidiary of W&R, was acquired by W&R on
December 16, 2002. WRIICO currently manages the fifteen mutual fund portfolios
that are offered by the Ivy Fund, an open-end management investment company.
WRIMCO, an affiliate of WRIICO, is the investment adviser to the W&R Funds, Inc.
and to each of the registered investment companies in the Waddell & Reed
Advisors Funds (collectively, the W&R Family of Funds) as well as W&R Target
Funds, Inc. (W&R Target Funds) and Waddell & Reed InvestEd Portfolios, Inc. The
Ivy Funds are currently in the process of being integrated into the W&R Family
of Funds. Effective June 30, 2003, WRIICO will become the investment adviser to
W&R Funds, Inc. WRIICO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201- 9217.

The following persons will serve as the primary fund managers for the Funds
subject to the Interim Agreements:

CORNERSTONE FUND.  Harry M. Flavin and Cynthia P. Prince-Fox will be
primarily responsible for the management of Cornerstone Fund.  The
Cornerstone Fund will be managed using the same investment strategies as are
currently in place for the Value Portfolio of the W&R Target Funds.  Mr.
Flavin has been primarily responsible for the management of the Value
Portfolio since its inception on May 1, 2001 and Ms. Prince-Fox has been
primarily responsible for the management of that Portfolio since January
2002.  Mr. Flavin is Senior Vice President of WRIICO and WRIMCO and
President, Chief Investment Officer and Director of Austin, Calvert & Flavin,
Inc., an affiliate of WRIICO and WRIMCO.  Ms. Prince-Fox is Senior Vice
President of WRIICO and WRIMCO.  From January 1993 to March 1998, Ms. Prince-
Fox was Vice President of, and a portfolio manger for, Waddell & Reed Asset
Management Company, a former affiliate of WRIMCO.  Ms. Prince-Fox is Co-Chief
Investment Officer, Vice President and Portfolio Manager for Austin, Calvert
& Flavin, Inc.  Ms. Prince-Fox has served as a portfolio manager for




investment companies managed by WRIMCO since January 1993.  From February
1983 to January 1993, Ms. Prince-Fox served as an investment analyst for
WRIMCO and its predecessor.

HORIZON FUND. Daniel P. Becker will be primarily responsible for the management
of the Horizon Fund. Horizon Fund will be managed using the same investment
strategies as are currently in place for the Large Cap Growth Fund of W&R Funds.
Mr. Becker has been primarily responsible for the management of the Large Cap
Growth Fund since its inception on June 30, 2000. He is Senior Vice President of
WRIICO and WRIMCO. From January 1995 to March 1998, Mr. Becker was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Becker has been an employee of WRIMCO and its predecessor since
October 1989, initially serving as an investment analyst, and has served as a
portfolio manager for WRIMCO since January 1997.

SPECTRUM FUND.  Cynthia P. Prince-Fox will be primarily responsible for the
management of Spectrum Fund.  Spectrum Fund will be managed using the same
investment strategies as are currently in place for the Balanced Portfolio of
the W&R Target Funds.  Ms. Prince-Fox has been primarily responsible for the
management of the Balanced Portfolio since July 1994.  Additional information
regarding Ms. Prince-Fox appears above.

CHANGES IN THE INVESTMENT STRATEGIES OF THE FUNDS

In managing Cornerstone Fund, Horizon Fund and Spectrum Fund, WRIICO intends to
employ investment strategies substantially identical to those used for the Value
Portfolio of the W&R Target Funds, the Large Cap Growth Fund of W&R Funds, Inc.
and the Balanced Portfolio of W&R Target Funds, respectively. These investment
strategies differ somewhat from those currently in place for the Funds.
Historically, Cornerstone Fund, Horizon Fund and Spectrum Fund have been
substantially fully invested, holding only enough cash to meet redemption
requests and operating requirements. There have been periods when certain of the
corresponding funds managed by WRIMCO have held significantly greater
percentages of cash. In addition, composition of the funds managed by WRIMCO
generally has differed from applicable benchmarks more than that of
corresponding Funds managed by Advantus Capital. This approach can result in
periods of greater over-performance or under-performance compared to such
benchmarks.

Information regarding the investment strategies that will be employed by WRIICO
is set forth below. In addition to the investments discussed below, each of
Cornerstone Fund, Horizon Fund and Spectrum Fund may also invest in other types
of securities and use certain instruments in seeking to achieve its goal. For
example, a Fund may invest in options, futures contracts, asset-backed
securities or other derivative instruments if it is permitted to invest in the
type of asset by which the return on, or value of, the derivative is measured.
Please see the applicable Statement of Additional Information for more
information about each Fund's permitted investments.

                                CORNERSTONE FUND

THE FOLLOWING REPLACES THE INFORMATION FOR CORNERSTONE FUND THAT APPEARS ON
PAGES 3 AND 42-45 OF THE ADVANTUS EQUITY FUNDS PROSPECTUS:

Cornerstone Fund seeks long-term accumulation of capital.

Cornerstone Fund seeks to achieve its goal by investing, for the long term, in
the common stocks of large-cap U.S. and foreign companies. The Fund seeks to
invest in stocks that are, in the opinion of WRIICO, undervalued relative to the
true value of the company, and/or are out of favor in the financial markets but
have a favorable outlook for capital appreciation. Although Cornerstone Fund
typically invests in large-cap companies, it may invest in securities of any
size company.






WRIICO utilizes both fundamental research and quantitative analysis to identify
securities for the Cornerstone Fund. The Cornerstone Fund will typically invest
in core value stocks: stocks of companies in industries that have relatively
lower price-to-earnings ratios than growth stocks. The Cornerstone Fund may also
invest in growth stocks that are, in WRIICO's opinion, temporarily undervalued.

WRIICO utilizes both a top-down (assess the market environment) and a bottom- up
(research individual issuers) analysis in its selection process. WRIICO
considers numerous factors in its analysis of issuers and stocks, including the
following:

     --  intrinsic value of the company not reflected in stock price

     --  historical earnings growth

     --  future expected earnings growth

     --  company's position in its respective industry

     --  industry conditions

     --  competitive strategy

     --  management capabilities

     --  free cash flow potential

Cornerstone Fund will typically sell a stock when it reaches an acceptable
price, its fundamental factors have changed or it has performed below WRIICO's
expectations.

When WRIICO believes that a temporary defensive position is desirable, the Fund
may invest up to all of its assets in debt securities (including commercial
paper or short-term U.S. government securities) or preferred stocks, or both. By
taking a temporary defensive position, the Fund may not achieve its investment
objective.

An investment in Cornerstone may result in the loss of money, and may also be
subject to various risks, including the following main types of risk:

     -- LARGE COMPANY RISK ? the risk that a portfolio of large capitalization
company securities may underperform the market as a whole.

     -- VALUE STOCK RISK ? the risk that the value of a security believed by the
Fund's investment adviser to be undervalued may never reach what the adviser
believes is its full value, or that the security's value may decrease.

     -- MARKET RISK ? the risk that equity securities are subject to adverse
trends in equity markets.

     -- FUND RISK ? the risk that Fund performance may not meet or exceed that
of the market as a whole.

     -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill
in evaluating and selecting securities for the Fund.

     -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities
may be subject to greater volatility than domestic securities due to factors
such as currency fluctuations and political or economic conditions affecting the
foreign country.

Please see "Investing in the Funds ? Defining Risks" in the Advantus Equity



Funds Prospectus for a more detailed description of some of these main risks.

Although Cornerstone Fund typically invests in large-cap companies, it may
invest in companies of any size. Market risk for small and medium sized
companies may be greater than that for large companies. Stocks of smaller
companies, as well as stocks of companies with high-growth expectations
reflected in their stock price, may experience volatile trading and price
fluctuations. For a more detailed description of these risks, see "Mid Size
Company Risk" and "Small and Micro-Cap Company Risk" under "Investing in the
Funds ? Defining Risks" in the Advantus Equity Funds Prospectus.

                                  HORIZON FUND

THE FOLLOWING REPLACES THE INFORMATION FOR HORIZON FUND THAT APPEARS ON PAGES 12
AND 42-45 OF THE ADVANTUS EQUITY FUDNS PROSPECTUS:

Horizon Fund seeks long-term growth of capital through investment in equity
securities.

Horizon Fund seeks to achieve its goal by investing primarily in a diversified
portfolio of common stocks issued by growth-oriented, large to medium sized U.S.
and foreign companies that WRIICO believes have appreciation possibilities.
Growth stocks are those whose earnings WRIICO believes are likely to grow faster
than the economy. Although WRIICO anticipates the majority of the Horizon Fund's
investments to be in large to medium sized companies, the Fund may invest in
companies of any size.

The Fund invests primarily in common stocks but may also own, to a lesser
extent, preferred stocks, convertible securities and debt securities, typically
of investment grade and of any maturity. The Fund may invest up to 25% of its
total assets in foreign securities.

WRIICO attempts to select securities with appreciation possibilities by looking
at many factors. These include:

     --  the company's market position, product line, technological position
and prospects for increased earnings

     --  the management capability of the company being considered

     --  the short-term and long-term outlook for the industry being analyzed

     --  changes in economic and political conditions

WRIICO may also analyze the demands of investors for the security relative to
its price. Securities may be chosen when WRIICO anticipates a development that
might have an effect on the value of a security.

In general, WRIICO may sell a security if it determines that the security no
longer presents sufficient appreciation potential; this may be caused by, or be
an effect of, changes in the industry of the issuer, loss by the company of its
competitive position, and/or poor use of resources. WRIICO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.

At times, as a temporary defensive measure, the Fund may invest up to all of its
assets in either debt securities (which may include money market instruments
held as cash reserves) or preferred stocks or both. The Fund may also use
options and futures contracts for defensive purposes. By taking a temporary
defensive position, the Fund may not achieve its investment objective.

An investment in Horizon Fund may be subject to various risks including the
following main types of risk:




     -- Growth Stock Risk ? the risk that if the Fund's investment adviser's
assessment of a company's prospective earnings growth or judgment of how other
investors assess the company's earnings growth is wrong, then the value of the
company's securities may decrease or not approach the value that the Fund's
investment adviser placed on it.

     -- Mid Size Company Risk ? the risk that medium sized companies may be more
vulnerable to adverse developments than large companies. These companies are
more likely to have limited financial resources and inexperienced management.
Stocks of these companies may experience volatile trading and price
fluctuations.

     -- MARKET RISK ? the risk that equity securities are subject to adverse
trends in equity markets.

     -- SECTOR RISK ? the risk that the Fund's performance may be adversely
affected by the mix of securities in the Fund's portfolio, particularly the
relative weightings in, and exposure to, different sectors of the economy.

     -- FUND RISK ? the risk that Fund performance may not meet or exceed that
of the market as a whole.

     -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill
in evaluating and selecting securities for the Fund.

     -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities
may be subject to greater volatility than domestic securities due to factors
such as currency fluctuations and political or economic conditions affecting the
foreign country.

Please see "Investing in the Funds ? Defining Risks" in the Advantus Equity
Funds Prospectus for a more detailed description of some of these main risks.

                                  SPECTRUM FUND

THE FOLLOWING REPLACES THE INFORMATION FOR SPECTRUM FUND THAT APPEARS ON PAGES
19 AND 37-40 OF THE ADVANTUS FIXED INCOME AND BLENDED FUNDS PROSPECTUS:

Spectrum Fund seeks the most favorable total return ? from capital appreciation,
interest and dividends ? consistent with preservation of capital.

Spectrum Fund invests primarily in a mix of stocks, debt securities and
short-term instruments, depending on market conditions. In general, the Fund
invests a portion of its total assets in either debt securities or preferred
stocks, or both, in order to provide income and relative stability of capital.
The Fund owns common stocks in order to provide possible appreciation of capital
and some dividend income. The Fund ordinarily invests at least 25% of its total
assets in fixed income securities.

In its equity investments, the Fund invests primarily in medium to large,
well-established companies, that typically issue dividend producing securities.
The majority of the Fund's debt holdings are either U.S. Government securities
or investment grade corporate bonds, that include bonds rated BBB and higher by
Standard & Poor's Ratings Service or Baa and higher by Moody's Investors
Services, Inc. or, if unrated, deemed by WRIICO to be of comparable quality. The
Fund has no limitations on the range of maturities of debt securities in which
it may invest. The Fund may invest in foreign securities.

WRIICO may look at a number of factors in selecting securities for the Fund. For
equity investments, WRIICO may emphasize a blend of value and growth potential.
For value securities, WRIICO looks for undervalued companies



whose asset value or earnings power is not reflected in the price of their
stock. In selecting growth securities, WRIICO seeks to identify securities whose
earnings are likely to grow faster than the economy. In selecting debt
securities for the Fund, WRIICO seeks high-quality securities with minimal
credit risk.

Generally, in determining whether to sell an equity security, WRIICO uses the
same analysis that it uses in order to determine if the equity security is still
undervalued or has ceased to offer the desired growth potential. In determining
whether to sell a debt security, WRIICO will consider whether the debt security
continues to maintain its minimal credit risk. WRIICO may also sell a security
if the security ceases to produce income or otherwise to take advantage of
attractive investment opportunities and/or to raise cash.

When WRIICO believes that a temporary defensive position is desirable, the Fund
may invest up to all of its assets in debt securities that may be considered
equivalent to owning cash because of their safety and liquidity. By taking a
temporary defensive position, the Fund may not achieve its investment objective.

An investment in Spectrum Fund may result in the loss of money, and may also be
subject to various risks including the following main types of risk:

     -- CREDIT RISK ? the risk that an issuer of a debt security or other fixed
income obligation will not make payments on the security when due.

     -- INCOME RISK ? the risk that the Fund may experience a decline in its
income due to falling interest rates.

     -- INTEREST RATE RISK ? the risk that the value of a debt security or other
fixed income obligation will increase or decrease due to changes in market
interest rates. This risk is generally greater for bonds with longer maturities.

     -- MARKET RISK ? the risk that equity and debt securities are subject to
adverse trends in equity and debt markets.

     -- PORTFOLIO RISK ? the risk that Fund performance may not meet or exceed
that of the market as a whole.

     -- MANAGER RISK ? the Fund's performance will be affected by WRIICO's skill
in allocating the Fund's assets among different types of investments.

     -- FOREIGN SECURITIES RISK ? the risk that the value of foreign securities
may be subject to greater volatility than domestic securities due to factors
such as currency fluctuations and political or economic conditions affecting the
foreign country.

Please see "Investing in the Funds ? Defining Risks" in the Advantus Fixed
Income and Blended Funds Prospectus for a more detailed description of some of
these main risks.
1

6

EX-99.(17)(P)

                                                                 Exhibit (17)(p)


Advantus Equity Funds
and
Advantus Fixed Income and Blended Funds

Prospectus Supplement dated June 18, 2003 to the Advantus Equity Funds
Prospectus dated November 29, 2002, as supplemented February 3, 2003 and April
24, 2003, and to the Advantus Fixed Income and Blended Funds Prospectus dated
January 31, 2003, as supplemented April 24, 2003


Effective July 1, 2003, sales of Class B and Class C shares
in each of Advantus Cornerstone Fund, Inc., Advantus
Enterprise Fund, Inc., Advantus Horizon Fund, Inc.,
Advantus Index 500 Fund, Inc., Advantus Real Estate
Securities Fund, Inc., Advantus Venture Fund, Inc.,
Advantus Bond Fund, Inc., Advantus International Balanced
Fund, Inc., Advantus Mortgage Securities Fund, Inc. and
Advantus Spectrum Fund, Inc. (each a ?Fund,? and together
the ?Funds?), will be limited to existing Class B and Class
C shareholders, respectively, in each Fund.  Individuals
and other persons who do not already own Class B or Class C
shares in a Fund on July 1, 2003, will not be able to
purchase Class B or Class C shares in that Fund on or after
July 1, 2003.

In addition, effective July 25, 2003, all sales of Class B and Class C shares in
the Funds, including sales to existing Class B and Class C shareholders, will be
suspended, except for sales occurring in connection with: (1) the reinvestment
of dividends and capital gains distributions, if any, and (2) exchanges of Class
B and Class C shares of a Fund for Class B and Class C shares, respectively, of
another Fund. All other orders for the purchase of Class B and Class C shares in
the Funds received on or after July 25, 2003, including orders received in
connection with automatic investment plans and exchanges from Advantus Money
Market Fund, Inc., will be declined.





Investors should retain this supplement for future reference.
F. 59366 6-2003

EX-99.(17)(Q)

                                                                 Exhibit (17)(q)

Advantus Equity Funds
and
Advantus Fixed Income and
Blended Funds

Prospectus Supplement Dated August 8, 2003 to the Advantus Equity Funds
Prospectus dated November 29, 2002, as supplemented February 3, 2003, April 24,
2003 and June 18, 2003, and

to the Advantus Fixed Income and Blended Funds Prospectus dated January 31,
2003, as supplemented April 24, 2003 and June 18, 2003


The paragraph captioned "Low Balance Fee", which appears under the Prospectus
heading "Buying and Selling Shares ? Account Requirements", is amended to read
as follows:

Low Balance Fee. The Fund will deduct a $10 annual fee from your account in
October of each year if your account balance at that time is below $2,000. The
low balance fee is waived for qualified accounts and for investors who have
aggregate Advantus Fund account assets of $25,000 or more (only shares held
directly in the investor's name, rather than in a broker's name, are aggregated
for this purpose).


Investors should retain this supplement for future reference.
F. 59557 8-2003

EX-99.(17)(R)

                                                                 EXHIBIT (17)(r)

                                                                     Page 1 of 3

Advantus Fixed Income and Blended Funds
And
Advantus Equity Funds

Prospectus Supplement dated August 20, 2003 to the Advantus Fixed Income and
Blended Funds Prospectus dated January 31, 2003 as supplemented April 24, 2003,
June 18, 2003 and August 8, 2003 and to the Advantus Equity Funds Prospectus
dated November 29, 2002, as supplemented February 3, 2003, April 24, 2003, June
18, 2003 and August 8, 2003

I. The portfolio manager information for the Bond, Money Market and Mortgage
Securities Funds which appears in the table on page 24 of the Advantus Fixed
Income and Blended Funds Prospectus is amended to read as follows:

Fund

Portfolio
Manager and
Title

Primary
Portfolio
Manager Since

Business Experience During Past Five Years
Bond
Christopher R. Sebald
Portfolio Manager
August 14, 2003

Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income,
Advantus Capital, since August, 2003; Senior Vice President and Portfolio
manager, AEGON USA Investment Management, 2000 through July 2003; Director of
Portfolio Management, GMAC-RFC, January 1998 through July 2000 Money



                                                                     Page 2 of 3

Market

Tom Houghton
Portfolio Manager
August 18, 2003
Vice President and Portfolio Manager, Total Return Fixed Income, Advantus
Capital, since August 2003; Senior Investment Officer, Advantus Capital, April
2002 to August 2003; Senior Securities Analyst, Public Corporate Bonds, Advantus
Capital, July 2001 through March 2002; Senior Investment Officer, Public
Corporate Bonds, Advantus Capital, July 1999 to June 2001; Head of Fixed Income
Trading, Advantus Capital, January 1998 to June 1999.

Mortgage Securities

Christopher R. Sebald
Portfolio Manager
August 14, 2003
Senior Vice President and Lead Portfolio Manager, Total Return Fixed Income,
Advantus Capital, since August, 2003; Senior Vice President and Portfolio
manager, AEGON USA Investment Management, 2000 through July 2003; Director of
Portfolio Management, GMAC-RFC, January 1998 through July 2000

II. The portfolio manager information for the Cornerstone Fund which appears on
page 31 of the Advantus Equity Funds Prospectus is amended to read as follows:

Fund

Portfolio
Manager and
Title

Primary
Portfolio
Manager Since


Business Experience During Past
Five Years
Cornerstone
Matthew T. Norris

                                                                     Page 3 of 3

Portfolio Manager
July 21, 2003
Portfolio Manager with Waddell & Reed Ivy Investment Company since July 2003;
Portfolio Manager from January 2000 to June 2003, and Analyst from December 1997
to January 2000, with Advantus Capital.

Investors should retain this supplement for future reference.
F. 59559 8-2003

EX-99.(17)(S)

                                                                 Exhibit (17)(s)



                       STATEMENT OF ADDITIONAL INFORMATION


                         ADVANTUS CORNERSTONE FUND, INC.
                         ADVANTUS ENTERPRISE FUND, INC.
                           ADVANTUS HORIZON FUND, INC.
                          ADVANTUS INDEX 500 FUND, INC.
                   ADVANTUS REAL ESTATE SECURITIES FUND, INC.
                           ADVANTUS VENTURE FUND, INC.

                                November 29, 2002










     This Statement of Additional Information is not a prospectus.  This
Statement of Additional Information relates to the separate Prospectus
dated November 29, 2002 and should be read in conjunction therewith.

     The Funds' audited Annual Report dated July 31, 2002, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.

     A copy of the Prospectus and Annual Report may be obtained by telephone
from Advantus Shareholder Services at (800) 665-6005 or by writing to the
Funds at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-9767.

                                          1


                                 TABLE OF CONTENTS

GENERAL INFORMATION AND HISTORY

INVESTMENT OBJECTIVES AND POLICIES
     Fund Names and Investment Policies
     Equity Securities of Small Capitalization Companies
     S&P 500 Index
     Real Estate Investment Trust Securities
     Debt and Money Market Securities
     Low Rated Securities
     Convertible Securities
     Foreign Securities
     Futures Contracts and Options on Futures Contracts
     Options

     U.S. Government Obligations
     Obligations of Non-Domestic Banks

     Short Sales Against the Box
     Loans of Portfolio Securities
     Restricted and Illiquid Securities
     Repurchase Agreements
     Warrants
     Index Depositary Receipts
     When-Issued Securities and Forward Commitments
     Defensive Purposes

INVESTMENT RESTRICTIONS
     Fundamental Restrictions
     Non-Fundamental Restrictions

PORTFOLIO TURNOVER

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTOR LIABILITY

INVESTMENT ADVISORY AND OTHER SERVICES
     General
     Control and Management of Advantus Capital and Securian Financial

     Investment Advisory Agreement with Advantus Capital
     Enterprise Fund Sub-Advisor --
        CSAM
     Enterprise Fund Investment
        Sub-Advisory Agreement --
        CSAM

     Venture Fund Sub-Adviser --
        State Street
     Venture Fund Investment
        Sub-Advisory Agreement --
        State Street

     Annual Approval of Advisory
        and Sub-Advisory Agreements

     Code of Ethics
     Distribution Agreement
     Payment of Certain Distribution Expenses of the Funds
     Transfer Agent and Administrative Services

PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

     Advantus Capital's Brokerage Practices
     Sub-Advisers' Brokerage Practices

CALCULATION OF PERFORMANCE DATA

CAPITAL STOCK AND OWNERSHIP OF SHARES

HOW TO BUY SHARES
     Alternative Purchase Arrangements
     Purchase by Check
     Purchase by Wire
     Purchase by Internet
     Timing of Purchase Orders
     Minimum Investments
     Public Offering Price

SALES CHARGES
     Class A Shares
     Class B Shares
     Class C Shares
     Other Payments to Broker-Dealers

NET ASSET VALUE AND PUBLIC OFFERING PRICE

REDUCED SALES CHARGES
     Right of Accumulation-Cumulative Purchase Discount
     Letter of Intent
     Combining Purchases
     Group Purchases
     Waiver of Sales Charges For Certain Sales of Class A Shares

EXCHANGE AND TRANSFER OF FUND SHARES
     Systematic Exchange Plan

SHAREHOLDER SERVICES
     Open Accounts
     Automatic Investment Plan
     Group Systematic Investment Plan
     Retirement Plans Offering Tax Benefits
     Systematic Withdrawal Plans

REDEMPTIONS

     Medallion Signature Guarantee

     Contingent Deferred Sales Charge
     Telephone Redemption
     Internet Redemptions
     Delay in Payment of Redemption Proceeds
     Fund's Right to Redeem Small Accounts
     Reinstatement Privilege

TELEPHONE TRANSACTIONS


INTERNET TRANSACTIONS


THE STANDARD & POOR'S LICENSE

DISTRIBUTIONS AND TAX STATUS
     Dividends and Capital Gains Distributions
     Taxation - General
     Taxation on Portfolio Holdings

FINANCIAL STATEMENTS
Appendix A - Bond and Commercial Paper Ratings
     Bond Ratings
     Commercial Paper Ratings
Appendix B - Futures Contracts
     Example of Futures Contract Sale
     Example of Futures Contract Purchase
     Tax Treatment


                                       2


                          GENERAL INFORMATION AND HISTORY

     Advantus Cornerstone Fund, Inc. ("Cornerstone Fund"), Advantus
Enterprise Fund, Inc. ("Enterprise Fund"), Advantus Horizon Fund, Inc.
("Horizon Fund"), Advantus Index 500 Fund, Inc. ("Index Fund"), Advantus Real
Estate Securities Fund, Inc. ("Real Estate Securities Fund") and Advantus
Venture Fund, Inc. ("Venture Fund"), collectively referred to as the "Funds,"
are open-end diversified investment companies, commonly called mutual funds.
The Funds, together with five other mutual funds which share the same
investment adviser, are members of a family of mutual funds known as the
"Advantus Funds."  Each of the Advantus Funds, excluding Advantus Money
Market Fund, Inc., offers more than one class of shares (the "Advantus
Multiple Class Funds").  The Advantus Multiple Class Funds currently offer
three classes of shares (Class A, Class B and Class C), except for Real
Estate Securities Fund which currently offers two classes of shares (Class A
and Class B).  Each class is sold pursuant to different sales arrangements
and bears different expenses. Horizon Fund was incorporated as a Minnesota
corporation in October 1984. Cornerstone and Enterprise Funds were
incorporated as Minnesota corporations in January 1994. The Venture and
Index Funds were incorporated as Minnesota corporations in July 1996. The
Real Estate Securities Fund was incorporated as a Minnesota corporation in
September 1998.

                         INVESTMENT OBJECTIVES AND POLICIES

     The investment objectives and principal investment policies of each of
the Funds are set forth in detail in the text of the Funds' Prospectus under
"Investing in the Funds --Investment Policies and Practices."

FUND NAMES AND INVESTMENT POLICIES

     Real Estate Securities Fund and Index Fund have names that suggest a
focus on a particular type of investment or index. In accordance with Rule 35d-1
under the Investment Company Act of 1940 (the "1940 Act"), each of those Funds
has adopted a policy that it will, under normal circumstances, invest at least
80% of its assets in investments of the type suggested by its name. For this
policy, "assets" means net assets plus the amount of any borrowings for
investment purposes. In addition, in appropriate circumstances, synthetic
investments may be included in the 80% basket if they have economic
characteristics similar to the other investments included in the basket. A
Fund's policy to invest at least 80% of its assets in such a manner is not a
"fundamental" one, which means that it may be changed without the vote of a
majority of the Fund's outstanding shares as defined in the 1940 Act. However,
the names of Real Estate Securities Fund and Index Fund may be changed only if
shareholders of each Fund vote to approve a new name by amending such Fund's
articles of incorporation. Such a change requires the vote of a majority of the
shares of the Fund represented, in person or by proxy, at a meeting of
shareholders called for the purpose of voting on such a proposal. Rule 35d-1
also requires that shareholders be given written notice at least 60 days prior
to any change by a Fund of its 80% investment policy.

EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES

     Enterprise Fund and Venture Fund will invest primarily in equity
securities issued by small capitalization companies.  To the extent specified
in the Prospectus, other Funds may also invest in such securities. Small
capitalization companies may be in a relatively early stage of development or
may produce goods and services which have favorable prospects for growth due
to increasing demand or developing markets. Frequently, such companies have a
small management group and single product or product-line expertise that may
result in an enhanced entrepreneurial spirit and greater focus which allow
such firms to be successful.  The Fund's investment sub-adviser believes that
such companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities.
However, small capitalization companies frequently retain a large part of
their earnings for research, development and investment in capital assets, so
that the prospects for immediate dividend income are limited.

     While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the
Fund will invest specifically in those companies which produce those results.
Because of the risks involved, the Fund is not intended to constitute a
complete investment program.

S&P 500 INDEX

     Index Fund invests in common stocks included in the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").  The S&P 500 is an unmanaged index
of common stocks which emphasizes large capitalization companies and is
comprised of 500 industrial, financial, utility and transportation companies.
The S&P 500 is a well-known stock market index that includes common stocks of
companies representing approximately 70% of the market value of all common
stocks publicly traded in the United States.  The weightings of stock in the S&P
500 are based on each stock's relative capitalization or total market value;
that is, its market price per share times the number of shares outstanding.
Because of this weighting, approximately 50% of the S&P 500 is typically
composed of stocks of the 50 to 60 largest companies in the S&P 500.  The
composition of the S&P 500 may be changed from time to time.  Stocks included in
the S&P 500 are chosen by Standard & Poor's on a statistical basis which
reflects such factors as the market capitalization and trading activity of each
stock and the extent to which each stock is representative of stocks in a
particular industry.  Typically, companies included in the S&P 500 are the
largest and most dominant companies in their respective industries.  The
inclusion of a stock in the S&P 500 in no way implies that Standard & Poor's
believes the stock to be an attractive investment, nor does it afford any
assurance against declines in the price or yield performance of that stock.  The
Fund's investment adviser believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.


                                       3


     The Fund will at all times invest at least 80% of its total assets in
common stocks included in the S&P 500.  There is no minimum or maximum number of
stocks included in the S&P 500 which the Fund must hold.  Under normal
circumstances Advantus Capital generally will seek to match the Fund to the
composition of the S&P 500 to the maximum extent, but may not always invest the
Fund's portfolio to mirror the S&P 500 exactly.  Because of the difficulty and
expense of executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted stocks included in the S&P 500,
and may at times have its portfolio weighted differently from the S&P 500,
particularly when the Fund has assets of less than $25 million.  Regardless of
the number, or relative weightings, of stocks included in the S&P 500 held by
the Fund, however, the Fund's intention is to seek investment results, before
sales charges and other Fund expenses, which match as closely as possible the
investment performance of the S&P 500.

     Over the long term, the Fund's investment adviser will seek a correlation
between the performance of the Fund, before sales charges and other Fund
expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's
assets are less than $25 million).  A correlation of 100% would indicate perfect
correlation, which would be achieved when the net asset value of the Fund,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500.  An investment in
shares of the Fund therefore involves risks similar to those of investing in a
portfolio consisting of the common stocks of some or all of the companies
included in the S&P 500.

REAL ESTATE INVESTMENT TRUST SECURITIES

     The Cornerstone, Horizon and Real Estate Securities Funds may invest in
securities issued by real estate investment trusts. A real estate investment
trust ("REIT") is a corporation or a business trust that would otherwise be
taxed as a corporation, which meets certain requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying
REIT to deduct dividends paid, thereby effectively eliminating corporate
level federal income tax and making the REIT a pass-through vehicle for
federal income tax purposes. In order to qualify as a REIT, a company must
derive at least 75% of its gross income from real estate sources (rents,
mortgage interest, and gains from sale of real estate assets), and must
distribute to shareholders annually 95% or more of its taxable income.
Moreover, at the end of each quarter of its taxable year, at least 75% of the
value of its total assets must be represented by real estate assets, cash and
cash items, and U.S. government securities.

     REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or
leasehold ownership of land and buildings and derives its income primarily from
rental income. A mortgage REIT invests primarily in mortgages on real estate,
and derives primarily from interest payments received on credit it has granted.
A hybrid REIT combines the characteristics of equity REITs and mortgage REITs.
It is anticipated, although not required, that under normal circumstances, a
majority of the Fund investments in REITs will consist of equity REITs.

DEBT AND MONEY MARKET SECURITIES

     Cornerstone, Enterprise, Horizon, Real Estate Securities and Venture
Funds may invest in long, intermediate and short-term debt securities from
various industry classifications and money market instruments. Index Fund may
invest in short-term fixed income securities. Such instruments in which the
Funds may invest include the following:

     *    Corporate obligations which at the time of purchase are rated within
          the four highest grades assigned by Standard & Poor's Corporation
          ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other
          national rating service, or, if not rated, are of equivalent
          investment quality as determined by the Fund's investment adviser or
          sub-adviser, as the case may be.  To the extent that the Fund invests
          in securities rated BBB or Baa by S&P or Moody's, respectively, it
          will be investing in securities which have speculative elements.
          Venture Fund may also invest up to 10% of its net assets in securities
          (including convertible securities) rated at least B- by S&P or B3 by
          Moody's.  See "Low Rated Securities," below.  For a description of the
          ratings used by Moody's and S&P, see Appendix A below.

     *    Obligations of, or guaranteed by, the U.S. Government, its agencies or
          instrumentalities.

     *    Debt obligations of banks.


                                       4


     In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:

     *    Obligations (including certificates of deposit and bankers'
          acceptances) of U.S. banks, savings and loan associations, savings
          banks which have total assets (as of the date of their most recent
          annual financial statements at the time of investment) of not less
          than $2,000,000,000; U.S. dollar denominated obligations of Canadian
          chartered banks, London branches of U.S. banks and U.S. branches or
          agencies of foreign banks which meet the above-stated asset size; and
          obligations of any U.S. banks, savings and loan associations and
          savings banks, regardless of the amount of their total assets,
          provided that the amount of the obligations purchased does not exceed
          $100,000 for any one U.S. bank, savings and loan association or
          savings bank and the payment of the principal is insured by the
          Federal Deposit Insurance Corporation or the Federal Savings and Loan
          Insurance Corporation.

     *    Obligations of the International Bank for Reconstruction and
          Development.

     *    Commercial paper (including variable amount master demand notes)
          issued by U.S. corporations or affiliated foreign corporations and
          rated (or guaranteed by a company whose commercial paper is rated) at
          the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
          rated by either Moody's or S&P, issued by a corporation having an
          outstanding debt issue rated Aa or better by Moody's or AA or better
          by S&P and, if issued by an affiliated foreign corporation, such
          commercial paper (not to exceed in the aggregate 10% of the Fund's net
          assets) is U.S. dollar denominated and not subject at the time of
          purchase to foreign tax withholding.

     The Fund may also invest in securities which are unrated if the Fund's
investment adviser or sub-adviser, as the case may be, determines that such
securities are of equivalent investment quality to the rated securities
described above.  In the case of "split-rated" securities, which result when
nationally-recognized rating agencies rate the security at different rating
levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy
to classify such securities at the higher rating level where, in the judgment
of the Fund's investment adviser, such classification reasonably reflects the
security's quality and risk.

     The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer.  During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines.  These changes in market value will be reflected
in the Fund's net asset value.

     The Fund may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above.  In such an event it is the Fund's
general policy to dispose of such down-graded securities except when, in the
judgment of the Fund's investment adviser, it is to the Fund's advantage to
continue to hold such securities.  In no event, however, will the Fund hold in
excess of 5% of its net assets in securities which have been down-graded
subsequent to purchase where such down-graded securities are not otherwise
eligible for purchase by the Fund.  This 5% is in addition to securities which
the Fund may otherwise purchase under its usual investment policies.

LOW RATED SECURITIES

     Cornerstone Fund and Venture Fund may also invest up to 10% of their
respective net assets in debt securities (including convertible debt
securities), which, at the time of acquisition, are rated at least B- or B3
by S&P or Moody's, respectively, or rated at a comparable level by another
independent publicly-recognized rating agency, or, if not rated, are of
equivalent investment quality as determined by the Fund's investment adviser.
Cornerstone Fund, Real Estate Securities Fund and Venture Fund may each also
hold an additional 5% of its net assets in low rated securities rated below
"investment grade" (i.e. below BBB) where such securities were either
investment grade or eligible securities at the time of purchase but
subsequently down-graded to a rating not otherwise

                                       5


eligible for purchase by the Fund (see "Debt and Money Market Securities"
above).  Debt securities rated below the four highest categories (i.e., below
BBB) are not considered investment grade obligations and are commonly called
"junk bonds."  These securities are predominately speculative and present
more credit risk than investment grade obligations.  Bonds rated below BBB
are also regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments.

     Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities.  In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded.  The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.

     Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market.  Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.

     Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities.  The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.  A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities.  If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery.  The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.

CONVERTIBLE SECURITIES

     Each of the Funds other than Index Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities.  Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities.  They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree.  The total return and yield of lower quality (high yield/high risk)
convertible bonds can be expected to fluctuate more than the total return and
yield of higher quality, shorter-term bonds, but not as much as common
stocks.  Cornerstone Fund and Venture Fund will each limit its purchase of
convertible debt securities to those that, at the time of purchase, are rated
at least B- by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are
of equivalent investment quality as determined by the Fund's investment
sub-adviser. See "Low Rated Securities," above. Enterprise Fund, Horizon Fund
and Real Estate Securities Fund will each limit its purchase of convertible
debt securities to those that, at the time of purchase, are rated at least
BBB by S&P or Baa by Moody's, or if not rated by S&P or Moody's, are of
equivalent investment quality as determined by the Fund's investment adviser.

FOREIGN SECURITIES

     Each of the Funds other than Index Fund may invest up to 10% of its
total assets in securities of foreign issuers which are not publicly traded
in the U.S. (Securities of foreign issuers which are publicly traded in the
U.S., usually in the form of sponsored American Depositary Receipts (ADRs),
are not subject to this 10% limitation. Such Funds may not, however, invest
more than 10% of their total assets in ADRs).

Investing in securities of foreign issuers may result in greater risk
than that incurred in investing in securities of domestic issuers.  There is
the possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with
respect to investments in foreign nations; foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations.  In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the U.S.  Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to U.S. companies. Further, the Fund may encounter difficulties or

                                       6


be unable to pursue legal remedies and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher.  Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets.  In many foreign countries there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S.  The foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than
those in the U.S.  Also, some countries may withhold portions of interest,
dividends and gains at the source.  The Fund may also be unfavorably affected
by fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased). There are further risk
considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.

     The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro.  It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund.  The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.  To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.

         An American Depositary Receipt ("ADR") is a negotiable certificate,
usually issued by a U.S. bank, representing ownership of a specific number of
shares in a non - U.S. corporation. ADRs are quoted and traded in U.S. dollars
in the U.S. securities market. An ADR is sponsored if the original issuing
company has selected a single U.S. bank to serve as its U.S. depositary and
transfer agent. This relationship requires a deposit agreement which defines the
rights and duties of both the issuer and depositary. Companies that sponsor ADRs
must also provide their ADR investors with English translations of company
information made public in their own domiciled country. Sponsored ADR investors
also generally have the same voting rights as ordinary shareholders, barring any
unusual circumstances. ADRs which meet these requirements can be listed on U.S.
stock exchanges. Unsponsored ADRs are created at the initiative of a broker or
bank reacting to demand for a specific foreign stock. The broker or bank
purchases the underlying shares and deposits them in a depositary. Unsponsored
shares issued after 1983 are not eligible for U.S. stock exchange listings.
Furthermore, they do not generally include voting rights.


FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

     FUTURES CONTRACTS.  Consistent with their investment objectives and
strategies, the Funds may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts.  (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to
as "futures contracts.")

     A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price.  By its terms, a futures contract
provides for a specified settlement date on which, in the case of the
majority of interest rate and foreign currency futures contracts, the fixed
income securities or currency underlying the contract are delivered by the
seller and paid for by the purchaser, or on which, in the case of stock index
futures contracts and certain interest rate and foreign currency futures
contracts, the difference between the price at which the contract was entered
into and the contract's closing value is settled between the purchaser and
the seller in cash.  Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time
during their term.

     Interest rate futures contracts currently are traded on a variety
of fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, and U.S. Treasury Bills.  In addition, interest
rate futures contracts include contracts on indexes of municipal securities.
Foreign currency futures contracts currently are traded on the British pound,
Canadian dollar, Japanese yen, Swiss franc, West German mark, and on
Eurodollar deposits.


                                        7


     Stock index futures contracts include contracts on the S&P 500 Index and
other broad-based stock market indexes, as well as contracts based on
narrower market indexes or indexes of securities of particular industry
groups. A stock index assigns relative values to the common stocks included
in the index and the index fluctuates with the value of the common stocks so
included.  The parties to a stock index futures contract agree to make a cash
settlement on a specific future date in an amount determined by the value of
the stock index on the last trading day of the contract.  The amount is a
specified dollar amount times the difference between the value of the index
on the last trading day and the value on the day the contract was struck.

     Purchases or sales of stock index futures contracts are used to attempt
to protect current or intended stock investments from broad fluctuations in
stock prices.  Interest rate and foreign currency futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on a Fund's current or intended investments in fixed
income or foreign securities.  In the event that an anticipated decrease in
the value of a Fund's securities occurs as a result of a general stock market
decline, a general increase in interest rates, or a decline in the dollar
value of foreign currencies in which portfolio securities are denominated,
the adverse effects of such changes may be offset, in whole or in part, by
gains on the sale of futures contracts.  Conversely, the increased cost of a
Fund's securities to be acquired, caused by a general rise in the stock
market, a general decline in interest rates, or a rise in the dollar value of
foreign currencies, may be offset, in whole or in part, by gains on futures
contracts purchased by such Fund.

     Although many futures contracts by their terms call for actual delivery
or acceptance of the financial instrument, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery.  Closing out a short position is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument and the same delivery month.  If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller
is paid the difference and realizes a gain.  Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the trader
realizes a loss.  Similarly, the closing out of a long position is effected
by the purchaser entering into a futures contract sale.  If the offsetting
sale price exceeds the purchase price, the purchaser realizes a gain and, if
the purchase price exceeds the offsetting sale price, the purchaser realizes
a loss.

     The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received.  Instead,
an amount of cash or cash equivalents, which varies but may be as low as 5%
or less of the value of the contract, must be deposited with the broker as
"initial margin." Subsequent payments to and from the broker, referred to as
"variation margin," are made on a daily basis as the value of the index or
instrument underlying the futures contract fluctuates, making positions in
the futures contracts more or less valuable, a process known as "marking to
the market."

     U.S. futures contracts may be purchased or sold only on an exchange,
known as a "contract market," designated by the Commodity Futures Trading
Commission ("CFTC") for the trading of such contract, and only through a
registered futures commission merchant which is a member of such contract
market.  A commission must be paid on each completed purchase and sale
transaction.  The contract market clearing house guarantees the performance
of each party to a futures contract by in effect taking the opposite side of
such contract.  At any time prior to the expiration of a futures contract, a
trader may elect to close out its position by taking an opposite position on
the contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the
initial position.  At that time, a final determination of variation margin is
made and any loss experienced by the trader is required to be paid to the
contract market clearing house while any profit due to the trader must be
delivered to it. Futures contracts may also be traded on foreign exchanges.

     OPTIONS ON FUTURES CONTRACTS.  The Funds also may purchase and sell put
and call options on futures contracts and enter into closing transactions
with respect to such options to terminate existing positions.  The Funds may
use such options on futures contracts in connection with their hedging
strategies in lieu of purchasing and writing options directly on the
underlying securities or purchasing and selling the underlying futures
contracts.

     An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract,
in the case of a put option, at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Upon
exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in
the case of a call option, or a corresponding long position, in the case of a
put option.  In the event that an option is exercised, the parties will be
subject to all the risks associated with the trading of futures contracts,
such as payment of variation margin deposits.  In addition, the writer of an
option on a futures contract, unlike the holder, is subject to initial and
variation margin requirements on the option position.

     A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase
or sale transaction, subject to the availability of a liquid secondary
market, which is the purchase or sale of an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.

     Options on futures contracts that are written or purchased by the Funds
on United States exchanges are traded on the same contract market as the
underlying futures contract and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, options on futures contracts may be traded on foreign
exchanges.

     RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.  The use of
futures contracts and options on futures contracts will expose the Funds to
additional investment risks and transactions costs.  Risks include:


                                   8


- -    the risk that interest rates, securities prices or currency markets will
     not omve in the direction that the Fund's investment adviser or
     sub-adviser anticipates;

- -    an imperfect correlation between the price of the instrument and
     movements in the prices of any securities or currencies being hedged;

- -    the possible absence of a liquid secondary market for any particular
     instrument and possible exchange imposed price fluctuation limits;

- -    leverage risk, which is the risk that adverse price movements in an
     instrument can result in a loss substantially greater than a Fund's
     initial investment in that instrument; and

- -    the risk that the counterparty to an instrument will fail to perform
     its obligations.

     REGULATORY MATTERS.  To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when
entering into futures contracts each Fund will maintain, in a segregated
account, cash or liquid securities equal to the value of such contracts.

     The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended.  The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in
a business which is of the nature of a company, syndicate or a similar form
of enterprise, and who, in connection therewith, solicits, accepts or
receives from others, funds, securities or property for the purpose of
trading in any commodity for future delivery on or subject to the rules of
any contract market. The CFTC has adopted Rule 4.5, which provides an
exclusion from the definition of commodity pool operator for any registered
investment company which meets the requirements of the Rule.  Rule 4.5
requires, among other things, that an investment company wishing to avoid
commodity pool operator status use futures and options positions only (a) for
"bona fide hedging purposes" (as defined in CFTC regulations) or (b) for
other purposes so long as aggregate initial margins and premiums required in
connection with non-hedging positions do not exceed 5% of the liquidation
value of the investment company's portfolio.  Any investment company wishing
to claim the exclusion provided in Rule 4.5 must file a notice of eligibility
with both the CFTC and the National Futures Association.  Before engaging in
transactions involving futures contracts, the Funds will file such notices
and meet the requirements of Rule 4.5, or such other requirements as the CFTC
or its staff may from time to time issue, in order to render registration as
a commodity pool operator unnecessary.

     For examples of futures contracts and their tax treatment, see Appendix
B to this Statement of Additional Information.

OPTIONS

     Each Fund may write (i.e., sell) covered call and secured put options
and purchase and sell put and call options written by others.  Each Fund will
limit the total market value of securities against which it may write call or
put options to 20% of its total assets.  In addition, no Fund will commit
more than 5% of its total assets to premiums when purchasing put or call
options.

     A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of
the option.  A call option gives the purchaser the right to purchase a
security or other instrument from the writer of the option at a stated price
during the term of the option.  Thus, if a Fund writes a call option on a
security, it becomes obligated during the term of the option to deliver the
security underlying the option upon payment of the exercise price.  If a Fund
writes a put option, it becomes obligated during the term of the option to
purchase the security underlying the option at the exercise price if the
option is exercised.

     Funds may use put and call options for a variety of purposes.  For
example, if a portfolio manager wishes to hedge a security a Fund owns
against a decline in price, the manager may purchase a put option on the
underlying security; i.e., purchase the right to sell the security to a third
party at a stated price.  If the underlying security then declines in price,
the manager can exercise the put option, thus limiting the amount of loss
resulting from the decline in price.  Similarly, if the manager intends to
purchase a security at some date in the future, the manager may purchase a
call option on the security today in order to hedge against an increase in
its price before the intended purchase date.  Put and call options also can
be used for speculative purposes. For example, if a portfolio manager
believes that the price of stocks generally is going to rise, the manager may
purchase a call option on a stock index, the components of which are
unrelated to the stocks held or intended to be purchased.  Finally, a
portfolio manager may write options on securities owned in order to realize
additional income.  Funds receive premiums from writing call or put options,
which they retain whether or not the options are exercised.

     By writing a call option, a Fund might lose the potential for gain on
the underlying security while the option is open, and by writing a put option
a Fund might become obligated to purchase the underlying security for more
than its current market price upon exercise.  If a Fund purchases a put or
call option, any loss to the Fund is limited to the premium paid for, and
transaction costs paid in connection with, the option.

     OPTIONS ON SECURITIES.  An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case
of a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium."
The maximum amount of risk the purchaser of the option assumes is equal to
the premium plus related transaction costs, although this entire amount may
be lost.  The risk of the seller, or "writer," however, is potentially
unlimited, unless the option is "covered."  A call option written by a Fund
is "covered" if the Fund owns the underlying security covered by the call or
has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio.  A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
Fund in cash and liquid securities in a segregated account with its
custodian.  A put option written by a Fund is "covered" if the Fund maintains
cash and liquid securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written.  If the writer's obligation is not so covered, it is
subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.


                                          9


     Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option.
Options on securities which have been purchased or written may be closed out
prior to exercise or expiration by entering into an offsetting transaction on
the exchange on which the initial position was established, subject to the
availability of a liquid secondary market.

     Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC.  The Options Clearing Corporation guarantees the performance of each
party to an exchange-traded option, by in effect taking the opposite side of
each such option.  A holder or writer may engage in transactions in
exchange-traded options on securities and options on indexes of securities
only through a registered broker-dealer which is a member of the exchange on
which the option is traded.

     In addition, options on securities and options on indexes of securities
may be traded on exchanges located outside the United States and
over-the-counter through financial institutions dealing in such options as
well as the underlying instruments.  While exchange-traded options have a
continuous liquid market, over-the-counter options may not.

     OPTIONS ON STOCK INDEXES.  In contrast to an option on a security, an
option on a stock index provides the holder with the right to make or receive
a cash settlement upon exercise of the option, rather than the right to
purchase or sell a security.  The amount of this settlement is equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value
of the underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." The purchaser of the option receives this cash settlement
amount if the closing level of the stock index on the day of exercise is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount if the
option is exercised.  As in the case of options on securities, the writer or
holder may liquidate positions in stock index options prior to exercise or
expiration by entering into closing transactions on the exchange on which
such positions were established, subject to the availability of a liquid
secondary market.

     A Fund will cover all options on stock indexes by owning securities
whose price changes, in the opinion of the Fund's adviser or sub-adviser, are
expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations.  Nevertheless, where a Fund covers a
call option on a stock index through ownership of securities, such securities
may not match the composition of the index. In that event, the Fund will not
be fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index.  The Funds will secure put options on
stock indexes by segregating assets equal to the option's exercise price, or
in such other manner as may be in accordance with the rules of the exchange
on which the option is traded and applicable laws and regulations.

    The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange
Composite Index, the changes in value of which ordinarily will reflect
movements in the stock market in general.  In contrast, certain options may
be based upon narrower market indexes, such as the Standard & Poor's 100
Index, or on indexes of securities of particular industry groups, such as
those of oil and gas or technology companies.  A stock index assigns relative
values to the stocks included in the index and the index fluctuates with
changes in the market values of the stocks so included.

U.S. GOVERNMENT OBLIGATIONS

         These obligations are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the U.S. Government or
by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority granted
by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct
obligations of the U.S. Government and differ in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by agencies or
authorities controlled or supervised by and acting as instrumentalities of the
U.S. Government established under authority granted by Congress include but are
not limited to, the Government National Mortgage Association ("GNMA"), the
Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal
Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers
Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the
Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks
and the Federal National Mortgage Association. Some obligations of U.S.
Government agencies, authorities and other instrumentalities are supported by
the full faith and credit of the U.S. Treasury, such as securities of the
Government National Mortgage Association and the Student Loan Marketing
Association; others by the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Financing Bank and the U.S. Postal Service;
and others only by the credit of the issuing agency, authority or other
instrumentality, such as securities of the Federal Home Loan Bank and the
Federal National Mortgage Association ("FNMA").

OBLIGATIONS OF NON-DOMESTIC BANKS

         The Funds may invest in obligations of Canadian chartered banks, London
branches of U.S. banks, and U.S. branches and agencies of foreign banks, which
may involve somewhat greater opportunity for income than the other money market
instruments in which such Funds invest, but may also involve investment risks in
addition to any risks associated with direct obligations of domestic banks.
These additional risks include future political and economic developments, the
possible imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other
governmental restrictions, as well as market and other factors which may affect
the market for or the liquidity of such obligations. Generally, Canadian
chartered banks, London branches of U.S. banks, and U.S. branches and agencies
of foreign banks are subject to fewer U.S. regulatory restrictions than those
applicable to domestic banks, and London branches of U.S. banks may be subject
to less stringent reserve requirements than domestic branches. Canadian
chartered banks, U.S. branches and agencies of foreign banks, and London
branches of U.S. banks may provide less public information than, and may not be
subject to the same accounting, auditing and financial recordkeeping standards
as, domestic banks. Each Fund will not invest more than 25% of its total assets
in obligations of Canadian chartered banks, London branches of U.S. banks, and
U.S. branches and agencies of foreign banks.


SHORT SALES AGAINST THE BOX

     Each Fund may sell securities "short against the box."  Whereas a short
sale is the sale of a security the Fund does not own, a short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities or securities sold short or other
securities convertible into or exchangeable without further consideration for
securities of the same issue as the securities sold short.  Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.  The Funds have no present intention to sell securities
short in this fashion.

LOANS OF PORTFOLIO SECURITIES

      Each Fund, for the purpose of realizing additional


                                       10


income, may make secured loans of portfolio securities amounting to not more
than one-third of their respective total assets (which, for purposes of this
limitation, will include the value of collateral received in return for
securities loaned). Collateral received in connection with securities lending
shall not be considered Fund assets, however, for purposes of compliance with
any requirement described in a Fund's prospectus that the Fund invest a
specified minimum percentage of its assets in certain types of securities
(e.g., securities of small companies). Securities loans are made to
broker-dealers or financial institutions pursuant to agreements requiring
that the loans be continuously secured by collateral at least equal at all
times to the value of the securities lent.  The collateral received will
consist of cash, letters of credit or securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.  While the securities are
being lent, the Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower.  Although the Fund
does not expect to pay commissions or other front-end fees (including finders
fees) in connection with loans of securities (but may in some cases do so), a
portion of the additional income realized will be shared with the Fund's
custodian for arranging and administering such loans.  The Fund has a right
to call each loan and obtain the securities on five business days' notice.
The Fund will not have the right to vote securities while they are being
lent, but it will call a loan in anticipation of any important vote.  The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially.  Loans will only be made to firms
deemed by the Fund's investment adviser to be of good standing and to have
sufficient financial responsibility, and will not be made unless, in the
judgment of the Fund's investment adviser, the consideration to be earned
from such loans would justify the risk.  The creditworthiness of entities to
which the Fund makes loans of portfolio securities is monitored by the Fund's
investment adviser or sub-adviser throughout the term of each loan.

RESTRICTED AND ILLIQUID SECURITIES

     Each Fund may invest up to 15% of its net assests, in securities
restricted as to disposition under the federal securities laws or otherwise,
or other illiquid assets.  An investment is generally deemed to be "illiquid"
if it cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which the investment company is
valuing the investment.  "Restricted securities" are securities which were
originally sold in private placements and which have not been registered
under the Securities Act of 1933 (the "1933 Act").  Such securities generally
have been considered illiquid by the staff of the Securities and Exchange
Commission (the "SEC"), since such securities may be resold only subject to
statutory restrictions and delays or if registered under the 1933 Act.
Because of such restrictions, the Fund may not be able to dispose of a block
of restricted securities for a substantial period of time or at prices as
favorable as those prevailing in the open market should like securities of an
unrestricted class of the same issuer be freely traded. The Fund may be
required to bear the expenses of registration of such restricted securities.

     The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, the Fund's investment adviser and sub-adviser believe
that a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and for certain
interest-only and principal-only classes of mortgage-backed and asset-backed
securities.  The Funds may invest without limitation in these forms of
restricted securities if such securities are deemed by the Fund's investment
adviser or sub-adviser to be liquid in accordance with standards established
by the Fund's Board of Directors. Under these guidelines, the Fund's
investment adviser or sub-adviser must consider (a) the frequency of trades
and quotes for the security, (b) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).  At the present time, it is not possible to predict
with accuracy how the markets for certain restricted securities will develop.
 Investing in such restricted securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified purchasers
of the securities become, for a time, uninterested in purchasing these
securities.


                                       11


     If through the appreciation of restricted securities or the depreciation
of unrestricted securities, the Fund is in a position where more than 15% of
its net assets are invested in restricted and other illiquid securities, the
Fund will take appropriate steps to protect liquidity.

REPURCHASE AGREEMENTS

     Each Fund may enter into repurchase agreements. Repurchase agreements
are agreements by which the Fund purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
System or, if permitted by law or regulation and if the Board of Directors of
the Fund has evaluated its creditworthiness through adoption of standards of
review or otherwise, a securities dealer) to repurchase the security at an
agreed upon price and date.  The creditworthiness of entities with whom the
Fund enters into repurchase agreements is monitored by the Fund's investment
adviser throughout the term of the repurchase agreement.  The resale price is
in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security.  Such transactions
afford the Fund the opportunity to earn a return on temporarily available
cash. The Fund's custodian, or a duly appointed subcustodian, holds the
securities underlying any repurchase agreement in a segregated account or
such securities may be part of the Federal Reserve Book Entry System.  The
market value of the collateral underlying the repurchase agreement is
determined on each business day.  If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the Fund promptly receives additional
collateral, so that the total collateral is in an amount at least equal to
the repurchase price plus accrued interest. While the underlying security may
be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the obligation of
the seller is not guaranteed by the United States Government.  In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and
losses, including:  (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.

WARRANTS

      Each of the Funds other than Index Fund may invest in warrants.
Warrants are instruments that allow investors to purchase underlying shares
at a specified price (exercise price) at a given future date.  Warrants are
pure speculation in that they have no voting rights, pay no dividends and
have no rights with respect to the assets of the corporation issuing them.
The prices of warrants do not necessarily move parallel to the prices of the
underlying securities.

INDEX DEPOSITARY RECEIPTS

     Each Fund other than Real Estate Securities Fund may invest up
to 10% of their respective total assets in one or more types of depositary
receipts ("DRs") as a means of tracking the performance of a designated stock
index while maintaining liquidity. No more than 5% of a Fund's total assets
may be invested in any one DR. Index Fund may invest in S&P 500 Depositary
Receipts ("SPDRs"), which track the S&P 500 Index.  The other Funds may
invest in SPDRs; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which
track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track
the Dow Jones Industrial Average; or in other DRs which track indexes,
provided that such investments are consistent with the Fund's investment
objective as determined by the Fund's investment adviser.  Each of these
securities represents shares of ownership of a long term unit investment
trust (a type of investment company) that holds all of the stock included in
the relevant underlying index.

     DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded.  As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs.  In


                                       12


addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).

     Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index.  DRs share in the same
market risks as other equity investments.


WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

     The Real Estate Securities Fund may purchase securities offered on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities takes place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment to purchase by the Fund and settlement, no payment is made
for the securities purchased by the Fund and, thus, no interest accrues to the
Fund from the transaction.

     The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
prices, the Fund might sell a security in its portfolio and purchase the same or
a similar security on a when-issued or forward commitment basis, thereby fixing
the purchase price to be paid on the settlement date at an amount below that to
which the Fund anticipates the market price of such security to rise and, in the
meantime, obtaining the benefit of investing the proceeds of the sale of its
portfolio security at currently higher cash yields. Of course, the success of
this strategy depends upon the ability of the Fund's investment adviser to
correctly anticipate increases and decreases in interest rates and prices of
securities. If the Fund's investment adviser anticipates a rise in interest
rates and a decline in prices and, accordingly, the Fund sells securities on a
forward commitment basis in order to hedge against falling prices, but in fact
interest rates decline and prices rise, the Fund will have lost the opportunity
to profit from the price increase. If the investment adviser anticipates a
decline in interest rates and a rise in prices, and, accordingly, the Fund sells
a security in its portfolio and purchases the same or a similar security on a
when-issued or forward commitment basis in order to enjoy currently high cash
yields, but in fact interest rates increase and prices fall, the Fund will have
lost the opportunity to profit from investment of the proceeds of the sale of
the security at the increased interest rates. The likely effect of this hedging
strategy, whether the Fund's investment adviser is correct or incorrect in its
prediction of interest rate and price movements, is to reduce the chances of
large capital gains or losses and thereby reduce the likelihood of wide
variations in the Fund's net asset value.

     When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. The Fund may hold a when-issued security or forward
commitment until the settlement date, even if the Fund will incur a loss upon
settlement. To facilitate transactions in when-issued securities and forward
commitments, the Fund's custodian bank maintains, in a separate account of the
Fund, liquid assets, such as cash, short-term securities and other liquid
securities (marked to the market daily), having a value equal to, or greater
than, any commitments to purchase securities on a when-issued or forward
commitment basis and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or receive against
a forward commitment, it can incur a gain or loss. (At the time the Fund makes
the commitment to purchase or sell a security on a when-issued or forward
commitment basis, it records the transaction and reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value.)

     The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Fund's purchase of securities on a when-issued or forward commitment
basis while remaining substantially fully invested increases the amount of the
Fund's assets that are subject to market risk to an amount that is greater than
the Fund's net asset value, which could result in increased volatility of the
price of the Fund's shares. No more than 30% of the value of the Fund's total
assets will be committed to when-issued or forward commitment transactions.

DEFENSIVE PURPOSES

     The Funds other than Real Estate Securities Fund may invest up to 20%
of their respective net assets in cash or cash items. Real Estate Securities
Fund may invest approximately 5% of its net assets in cash or cash items.  In
addition, for temporary or defensive purposes, the Funds may invest in cash
or cash items without limitation.  The "cash items" in which the Funds may
invest, include short-term obligations such as rated commercial paper and
variable amount master demand notes; United States dollar-denominated time
and savings deposits (including certificates of deposit); bankers'
acceptances; obligations of the United States Government or its agencies or
instrumentalities; repurchase agreements collateralized by eligible
investments of a Fund; securities of other mutual funds which invest
primarily in debt obligations with remaining maturities of 13 months or less
(which investments also are subject to the advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations.  The
other mutual funds in which the Funds may so invest include money market
funds advised by the Fund's investment adviser.

                              INVESTMENT RESTRICTIONS

     Each of the Funds is "diversified" as defined in the Investment Company Act
of 1940.  This means that at least 75% of the value of the Fund's total assets
is represented by cash and cash items, government securities, securities of
other investment companies, and securities of other issuers, which for purposes
of this calculation, are limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer.

     In addition to the foregoing limitations, each Fund is subject to
certain "fundamental" investment restrictions, described below, which may not
be changed without the vote of a "majority" of the Fund's outstanding shares.
 As used in the applicable Prospectus and this Statement of Additional
Information, "majority" means the lesser of (i) 67% of a Fund's outstanding
shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
a Fund's outstanding shares.  Each Fund is also subject to certain other
investment restrictions which are not fundamental and may be changed by vote
of the Board of Directors without further shareholder approval.


                                        13



FUNDAMENTAL RESTRICTIONS

    1.   Policy Regarding Borrowing and the Issuance of Senior Securities.

         The Fund will not borrow money or issue senior securities, except as
         permitted under the Investment Company Act of 1940, as amended, and
         as interpreted or modified from time to time by any regulatory
         authority having jurisdiction.

    2.   Policy Regarding Concentration in a Particular Industry.

         CORNERSTONE FUND, ENTERPRISE FUND, HORIZON FUND AND VENTURE FUND.
         The Fund will not concentrate its investments in a particular
         industry.  For purposes of this limitation, the United States
         Government, and state or municipal governments and their political
         subdivisions, are not considered members of any industry.  Whether the
         Fund is concentrating in an industry shall be determined in accordance
         with the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

         INDEX 500 FUND.
         The Fund will not concentrate its investments in a particular
         industry, except that the Fund may concentrate its investments in a
         particular industry if the S&P 500 Index is so concentrated.  For
         purposes of this limitation, the United States Government, and state or
         municipal governments and their political subdivisions, are not
         considered members of any industry. Whether the Fund is
         concentrating in an industry shall be determined in accordance with
         the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

         REAL ESTATE SECURITIES FUND.
         Under normal market conditions, the Fund will concentrate its
         investments in the real estate or real estate related industry. The
         Fund will not concentrate its investments in any other particular
         industry. For purposes of this limitation, the United States
         Government, and state or municipal governments and their political
         subdivisions, are not considered members of any industry.  Whether the
         Fund is concentrating in an industry shall be determined in accordance
         with the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

    3.   Policy Regarding Investments in Real Estate.

         The Fund will not purchase or sell real estate unless acquired as a
         result of ownership of securities or other instruments, but this
         shall not prevent the Fund from investing in securities or other
         instruments backed by real estate or interests therein or in
         securities of companies that deal in real estate or mortgages.

    4.   Policy Regarding Investments in Commodities.

         The Fund will not purchase physical commodities or contracts
         relating to physical commodities.

    5.   Policy Regarding Lending.

         The Fund may not make loans except as permitted under the Investment
         Company Act of 1940, as amended, and as interpreted or modified from
         time to time by any regulatory authority having jurisdiction.

    6.   Policy Regarding Underwriting of Securities.

         The Fund will not act as an underwriter of securities, except to the
         extent that the Fund may be deemed to be an underwriter, under the
         federal securities laws, in connection with the disposition of
         portfolio securities.


                                       14


NON-FUNDAMENTAL RESTRICTIONS

    7.   The Fund will not acquire any new securities while borrowings,
         including borrowings through reverse repurchase agreements, exceed
         5% of total assets.

    8.   The Fund will use futures contracts and options on futures contracts
         only (a) for "bona fide hedging purposes" (as defined in regulations
         of the Commodity Futures Trading Commission) or (b) for other
         purposes so long as the aggregate initial margins and premiums
         required in connection with non-hedging positions do not exceed 5%
         of liquidation value of the Fund's portfolio.

    9.   The Fund may mortgage, pledge or hypothecate its assets only to
         secure permitted borrowings.  Collateral arrangements with respect
         to futures contracts, options thereon and certain options
         transactions are not considered pledges for purposes of this
         limitation.

    10.  The Fund may not make short sales of securities, other than short
         sales "against the box."

    11.  The Fund may not purchase securities on margin, but it may obtain
         such short-term credits as may be necessary for the clearance of
         securities transactions and it may make margin deposits in
         connection with futures contracts.

    12.  The Fund will not invest more than 15% of its net assets in illiquid
         securities.

    13.  The total market value of securities against which the Fund may
         write call or put options will not exceed 20% of the Fund's total
         assets.  In addition, the Fund will not commit more than 5% of its
         total assets to premiums when purchasing put or call options.


                                      15


     With respect to each of the Funds, any investment policy set forth under
"Investing in the Funds - Investment Policies and Practices" in the
Prospectus, or any restriction set forth above which involves a maximum
percentage of securities or assets shall not be considered to be violated
unless an excess over the percentage occurs immediately after an acquisition
of securities or utilization of assets and results therefrom, or unless the
Investment Company Act of 1940 provides otherwise.

                               PORTFOLIO TURNOVER

         Portfolio turnover is the ratio of the lesser of annual purchases or
sales of portfolio securities to the average monthly value of portfolio
securities, not including short-term securities. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.


         Cornerstone Fund and Enterprise Fund each make changes in their
portfolio securities which are considered advisable in light of market
conditions. Frequent changes may result in higher brokerage and other costs for
the Funds. Portfolio turnover rates may vary greatly from year to year and
within a particular year and may also be affected by cash requirements for
redemptions of Fund shares. Neither Fund emphasizes short-term trading profits.
For the fiscal period ended July 31, 2002 and the fiscal years ended September
30, 2001 and 2000, Cornerstone Fund's portfolio turnover rate was 95.3%, 147.9%
and 180.1%, respectively. For the fiscal period ended July 31, 2002 and the
fiscal years ended September 30, 2001 and 2000, Enterprise Fund's portfolio
turnover rate was 62.2%, 105.4% and 181.5%, respectively.

         Horizon Fund makes changes in its portfolio securities which are
considered advisable in light of market conditions. Frequent changes may result
in higher brokerage and other costs for the Fund. For the fiscal period ended
July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, the Fund's
portfolio turnover rates were 67.6%, 129.6% and 109.3%, respectively.

         Index Fund generally seeks to invest for the long term, but reserves
the right to sell securities irrespective of how long they have been held.
However, because of the "passive" investment management approach of the Fund,
the Fund's portfolio turnover rate is expected to be generally lower than the
rate for most other investment companies. Ordinarily, securities will be sold by
Index Fund only to reflect certain administrative changes in the S&P 500
(including mergers or changes in its composition) or to accommodate cash flows
into and out of the Fund while maintaining the similarity of the Fund to the S&P
500. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's
portfolio turnover rate was 13.6%, 17.2%, and 42.6%, respectively.

         Real Estate Securities Fund makes changes in its portfolio securities
which are considered advisable in light of market conditions. Frequent changes
may result in higher brokerage and other costs for the Fund. Portfolio turnover
rates may vary greatly from year to year and within a particular year and may
also be affected by cash requirements for redemptions of Fund shares. The Fund
does not emphasize short-term trading profits. For the fiscal years ended July
31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 101.2%, 173.10%,
and 116.8%, respectively.

         Venture Fund makes changes in its portfolio securities which are
considered advisable in light of market conditions. Frequent changes may result
in higher brokerage and other costs for the Fund. Portfolio turnover rates may
vary greatly from year to year and within a particular year and may also be
affected by cash requirements for redemptions of Fund shares. Venture Fund does
not emphasize short-term trading profits. For the fiscal years ended July 31,
2002, 2001 and 2000, the Fund's portfolio turnover rate was 37.3%, 37.8%, and
169.0%, respectively. The turnover for the fiscal year ended in 2000 is
attributable primarily to the fact that, effective May 1, 2000, responsibility
for management of the Fund's assets was transferred from the Fund's adviser to
its new sub-adviser, which then repositioned the Fund's portfolio.


DIRECTORS AND EXECUTIVE OFFICERS

Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund,
and review the performance of the Fund. Certain of the directors are
considered "interested persons" (as defined in the Investment Company Act of
1940) of the Fund primarily by reason of their engagement as officers of the
Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus
Capital"), or as officers of companies affiliated with Advantus Capital,
including Minnesota Life Insurance Company ("Minnesota Life"). The remaining
directors, because they are not interested persons of the Fund, are
considered independent ("Independent Directors") and are not employees or
officers of, and have no financial interest in, Advantus Capital, Minnesota
Life or their other affiliates. A majority of the Board of Directors is
comprised of Independent Directors.

The individuals listed in the table below serve as directors and officers of
each Fund, and also serve in the same capacity for each of the other six
Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 29 portfolios, for which Advantus Capital serves as the
investment adviser). Only executive officers and other officers who perform
policy-making functions with the Funds are listed. None of the directors is a
director of any public company (a company required to file reports under the
Securities Exchange Act of 1934) or of any registered investment companies other
than the Advantus Funds. Each director serves for an indefinite term, until his
or her resignation, death or removal.





                                        POSITION WITH FUNDS
NAME, ADDRESS(1)                        AND LENGTH OF                  PRINCIPAL OCCUPATION(S)
AND AGE                                 TIME SERVED                    DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- ---------------------------------------------------------------------------------------------------------
                                                                 
William N. Westhoff                     Director since                 Retired; prior to July 26, 2002,
Age:  55                                July 23, 1998                  President, Treasurer and Director,
                                                                       Advantus Capital Management, Inc.;
                                                                       Senior Vice President and
                                                                       Treasurer, Minnesota Life
                                                                       Insurance Company; Senior Vice
                                                                       President, Global Investments,
                                                                       American Express Financial
                                                                       Corporation, Minneapolis,
                                                                       Minnesota, from August 1994 to
                                                                       October 1997

Frederick P. Feuerherm                  Vice President,                Vice President, Assistant Secretary
Age:  56                                Director and                   and Director, Advantus Capital
                                        Treasurer since                Management, Inc.; Vice President,
                                        July 13, 1994                  Minnesota Life Insurance Company;
                                                                       Vice President, Minnesota Mutual
                                                                       Companies, Inc.; Vice President,
                                                                       Securian Financial Group, Inc.;
                                                                       Vice President, Securian Holding
                                                                       Company; Vice President and
                                                                       Director, MIMLIC Funding, Inc.
                                                                       (entity holding legal title to
                                                                       bonds beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital); Vice President and
                                                                       Assistant Secretary, MCM Funding
                                                                       1997-1, Inc. and MCM Funding
                                                                       1998-1, Inc. (entities holding
                                                                       legal title to mortgages
                                                                       beneficially owned by certain
                                                                       clients of Advantus Capital);
                                                                       Treasurer, Ministers Life
                                                                       Resources, Inc.; Treasurer, The
                                                                       Ministers Life Insurance Company


                                      16





                                        POSITION WITH FUNDS
NAME, ADDRESS(1)                        AND LENGTH OF                  PRINCIPAL OCCUPATION(S)
AND AGE                                 TIME SERVED                    DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------
                                                                 
Ralph D. Ebbott                         Director since                 Retired, Vice President and
Age:  75                                October 22, 1985               Treasurer of Minnesota Mining and
                                                                       Manufacturing Company (industrial
                                                                       and consumer products) through
                                                                       June 1989

William C. Melton                       Director since                 Founder and President of Melton
Age:  55                                April 25, 2002                 Research Inc. since 1997; member
                                                                       of the Advisory Board of
                                                                       Macroeconomic Advisors LLC since
                                                                       1998; member, Minneapolis
                                                                       StarTribune Board of Economists
                                                                       since 1986; member, State of
                                                                       Minnesota Council of Economic
                                                                       Advisors from 1988 to 1994;
                                                                       various senior positions at
                                                                       American Express Financial
                                                                       Advisors (formerly Investors
                                                                       Diversified Services and,
                                                                       thereafter, IDS/American Express)
                                                                       from 1982 through 1997, including
                                                                       Chief Economist and, thereafter,
                                                                       Chief International Economist

Ellen S. Berscheid                      Director since                 Regents' Professor of Psychology
Age:  66                                October 22, 1985               at the University of Minnesota
- ---------------------------------------------------------------------------------------------------------
OTHER EXECUTIVE OFFICERS
- ---------------------------------------------------------------------------------------------------------

Dianne M. Orbison                       President since                President and Treasurer, Advantus
Age:  50                                July 25, 2002                  Capital Management, Inc.; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Life Insurance Company; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Mutual Companies, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Financial Group, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Holding Company; President and
                                                                       Treasurer, MIMLIC Funding, Inc.
                                                                       (entity holding legal title to
                                                                       bonds beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital); President and Treasurer,
                                                                       MCM Funding 1997-1,
                                                                       Inc. and MCM Funding 1998-1, Inc.
                                                                       (entities holding legal title to
                                                                       mortgages beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital)

Michael J. Radmer                       Secretary since                Partner with the law firm of
Dorsey & Whitney LLP                    February 2, 1985               Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
Age:  57


- ---------------

(1) Unless otherwise noted, the address of each director and officer is the
    address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

      The Funds have both an Audit Committee and a Nominations Committee of the
Board of Directors, the members of which are all directors who are not
"interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott
comprise the members of both committees. The Board of Directors also has a
Dividend Declaration Committee, the sole member of which is Mr. Feuerherm. The
function of the Audit Committee is to recommend the engagement of the Funds'
independent auditor and oversee its activities. The Audit Committee also
receives reports from the Internal Audit Department of Minnesota Life and from
the Director of Compliance for Advantus Capital about compliance matters
affecting the Funds. The Audit Committee met two (2) times during the last
fiscal year. The Nominations Committee selects and recommends to the Board of
Directors individuals for nomination as Independent Directors. The names of
potential Independent Director candidates are drawn from a number of sources,
including recommendations from management of Advantus Capital. Inasmuch as the
Funds do not hold annual meetings of shareholders and meetings of shareholders
occur only intermittently, the Nominations Committee does not at present
consider nominees recommended by shareholders. The Nominations Committee met two
(2) times during the last fiscal year. The function of the Dividend Declaration
Committee is to oversee the distribution of the Funds' dividends and capital
gains distributions. The Dividend Declaration Committee met four (4) times
during the last fiscal year.



         The Directors owned shares in the Funds, and in all Advantus Funds for
which they serve on the Board of Directors, in the following dollar ranges as of
December 31, 2001:





                                                                                                                  AGGREGATE DOLLAR
                                                                                                                        RANGE OF
                                                                                                                   EQUITY SECURITIES
                                                                                                                        IN ALL
                                                                                                                     ADVANTUS FUNDS
                                                                                                                       OVERSEEN
       NAME OF DIRECTOR                          DOLLAR RANGE OF EQUITY SECURITIES IN                                 BY DIRECTOR
       ----------------                          ------------------------------------                              -----------------

                                                                                       REAL ESTATE
                          CORNERSTONE      ENTERPRISE       HORIZON        INDEX 500   SECURITIES    VENTURE
                                                                                               
William N. Westhoff     $50,001-$100,000 $50,001-$100,000 $50,001-$100,000   ----      over $100,000 over $100,000  Over $100,000
Frederick P. Feuerherm        ----           ----              ----          ----         ----          ----          $1-$10,000
Ralph D. Ebbott               ----           ----              ----          ----         ----          ----             None
William C. Melton             ----           ----              ----          ----         ----          ----             None
Ellen S. Berscheid            ----           ----              ----          ----         ----          ----          $1-$10,000



     Legal fees and expenses are paid to the law firm of which Michael J.
Radmer is a partner.  No compensation is paid by the Funds to any of their
officers or directors who is affiliated with Advantus Capital Management,
Inc. ("Advantus Capital").

     Each director of the Funds is also a director of the other six
investment companies of which Advantus Capital is the investment adviser (12
investment companies in total -- the "Fund Complex").  As of the date hereof,
directors not affiliated with Advantus Capital receive compensation in
connection with all such investment companies which, in the aggregate, is
equal to $8,000 per year and $2,000 per meeting attended (and reimbursement
of travel expenses to attend directors' meetings).  The portion of such
compensation borne by any Fund is a pro rata portion based on the ratio that
such Fund's total net assets bears to the total net assets of the Fund
Complex.  During the fiscal year ended July 31, 2002, each Director not
affiliated with Advantus Capital was compensated by the Funds in accordance
with the following table:




                                   Pension or                         Total
                                   Retirement                     Compensation
                     Aggregate      Benefits        Estimated    from Funds and
                   Compensation    Accrued as        Annual       Fund Complex
                     from the     Part of Fund    Benefits Upon      Paid to
 Name of Director    Funds(1)       Expenses       Retirement       Directors
 ------------------ ----------    ------------    -------------  --------------
                                                     
 Ellen S. Berscheid   $2,833           n/a             n/a           $20,000
 Ralph D. Ebbott      $2,833           n/a             n/a           $20,000
 William C. Melton    $1,133           n/a             n/a           $10,000



                                       17


(1) During the fiscal year ended July 31, 2002, Ms. Berscheid and Mr. Ebbott
received $740 from Cornerstone Fund, $252 from Enterprise Fund, $397
from Horizon Fund, $504 from Index 500 Fund, $230 from Real Estate
Securities Fund, and $709 from Venture Fund. During the same period, Mr.
Melton, who was elected a Director on April 25, 2002, received $296 from
Cornerstone Fund, $101 from Enterprise Fund, $159 from Horizon Fund,
$202 from Index 500 Fund, $92 from Real Estate Securities Fund, and
$284 from Venture Fund.


     Prior to July 26, 2002, William N. Westhoff was president of and
therefore affiliated with Advantus Capital, but since his retirement from
Advantus Capital as of that date he has received compensation as a Director
of the Funds as described above.


                                 DIRECTOR LIABILITY

     Under Minnesota law, the Board of Directors of each Fund owes certain
fiduciary duties to the Fund and to its shareholders.  Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances."  Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances).  Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any
breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit.  The Articles of Incorporation of each Fund
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as
provided in the Investment Company Act of 1940 (which prohibits any
provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).

     Minnesota law does not eliminate the duty of "care" imposed upon a
director.  It only authorizes a corporation to eliminate monetary liability for
violations of that duty.  Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers).  Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief.  Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.

                       INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL

     Advantus Capital Management, Inc. ("Advantus Capital") has been the
investment adviser and manager of each of the Funds since its inception.
Securian Financial Services, Inc. ("Securian Financial") acts as the Funds'
underwriter.  Both Advantus Capital and Securian Financial act as such pursuant
to written agreements that will be periodically considered for approval by the
directors or shareholders of the Fund.  The address of both Advantus Capital and
Securian Financial is 400 Robert Street North, St. Paul, Minnesota 55101.

         Credit Suisse Asset Management, LLC ("CSAM") serves as investment
sub-adviser to Enterprise Fund pursuant to an investment sub-advisory agreement
with Advantus Capital. State Street Research & Management Company ("State
Street") serves as investment sub-adviser to Venture Fund pursuant to an
investment sub-advisory agreement with Advantus Capital.

CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL


                                       18


     Advantus Capital was incorporated in Minnesota in June 1994, and is an
affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective
October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by
forming a mutual insurance holding company named "Minnesota Mutual Companies,
Inc." The Minnesota Mutual Life Insurance Company continued its corporate
existence following conversion to a Minnesota stock life insurance company
named "Minnesota Life Insurance Company". All of the shares of the voting
stock of Minnesota Life are owned by a second tier intermediate stock holding
company named "Securian Financial Group, Inc.", which in turn is a
wholly-owned subsidiary of a first tier intermediate stock holding company
named "Securian Holding Company", which in turn is a wholly-owned subsidiary
of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and
Securian Financial are also wholly-owned subsidiaries of Securian Financial
Group, Inc.

     Dianne M. Orbison, President of each of the Funds, is President,
Treasurer and Director of Advantus Capital.  Frederick P. Feuerherm, Vice
President, Treasurer and a Director of each of the Funds, is a Vice
President, Assistant Secretary and Director of Advantus Capital. William N.
Westhoff, a Director of each of the Funds was President, Treasurer and
Director of Advantus Capital prior to July 26, 2002.

INVESTMENT ADVISORY AGREEMENT WITH ADVANTUS CAPITAL

     Advantus Capital acts as investment adviser and manager of the Funds
under Investment Advisory Agreements (the "Advisory Agreements") dated May 1,
2000 for each Fund, each of which was approved by shareholders on April 17,
2000 in the case of Cornerstone Fund, Enterprise Fund, Venture Fund and Real
Estate Securities Fund, and on April 28, 2000 in the case of Horizon Fund and
Index Fund.  The Advisory Agreements were last approved by the Board of
Directors of each Fund (including a majority of the directors who are not
parties to the contract, or interested persons of any such party) on January
24, 2002.  The Advisory Agreements will terminate automatically in the event
of their assignment.  In addition, each Advisory Agreement is terminable at
any time, without penalty, by the Board of Directors of the respective Fund
or by vote of a majority of the Fund's outstanding voting securities on not
more than 60 days' written notice to Advantus Capital, and by Advantus
Capital on 60 days' written notice to the Fund.  Unless sooner terminated,
each Advisory Agreement shall continue in effect for more than two years
after its execution only so long as such continuance is specifically approved
at least annually by either the Board of Directors of the respective Fund or
by a vote of a majority of the outstanding voting securities, provided that
in either event such continuance is also approved by the vote of a majority
of the directors who are not parties to the Advisory Agreement, or interested
persons of such parties, cast in person at a meeting called for the purpose
of voting on such approval.

     Pursuant to the Advisory Agreements each Fund pays Advantus Capital an
advisory fee equal on an annual basis to a percentage of that Fund's average
daily net assets as set forth in the following table:




                                          ADVISORY FEE AS PERCENTAGE
FUND                                           OF AVERAGE NET ASSETS
                                                   
CORNERSTONE FUND:
     On the first $500 million in assets              .70%
     On the next $500 million in assets               .65%
     On the next $1 billion in assets                 .60%
     On all assets in excess of $2 billion            .55%
ENTERPRISE FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .66%
HORIZON FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .60%
INDEX FUND:
     On the first $500 million in assets              .34%
     On the next $500 million in assets               .30%
     On the next $1 billion in assets                 .25%
     On all assets in excess of $2 billion            .20%
REAL ESTATE SECURITIES FUND:
     On the first $1 billion in assets                .75%
     On the next $1 billion in assets                 .725%
     On all assets in excess of $2 billion            .70%
VENTURE FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .66%



     Prior to May 1, 2000, each Fund paid Advantus Capital an advisory
fee, in accordance with its prior investment advisory agreement, equal on an
annual basis to a percentage of that Fund's average daily net assets as set
forth in the following table:




                                            Advisory Fee Paid Prior to May 1,
          Fund                        2000 as Percentage of Average Net Assets
          ----                        ----------------------------------------
                                   
     Cornerstone Fund                                     .80%
     Enterprise Fund                                      .80%
     Horizon Fund                                         .80%
     Index Fund                                           .34%
     Real Estate Securities Fund                          .75%
     Venture Fund                                         .80%




     The fees for investment advisory services paid by Cornerstone,
Enterprise and Horizon Funds during the fiscal period ended July 31, 2002 and
the fiscal years ended September 30, 2001 and 2000, and by Index, Real Estate
Securities and Venture Funds during the fiscal years ended July 31, 2002,
2001, and 2000, (before Advantus Capital's absorption of certain expenses,
described below) were as follows:




         Fund                2002            2001            2000
         ----                ----            ----            ----
                                                  
     Cornerstone            $443,621        $623,266       $797,700
     Enterprise              245,166         349,882        499,093
     Horizon                 231,587         427,000        725,918
     Index Fund              148,568         181,012        193,328
     Real Estate
      Securities Fund        163,110         103,301         61,059
     Venture Fund            444,881         325,568        250,117



     For this fee, Advantus Capital acts as investment adviser and manager
for the Funds, or, in the case of Enterprise Fund and Venture Fund, pays CSAM
and State Street, respectively, to serve as investment sub-adviser. Effective
May 1, 2000, each Fund pays its own transfer agent and shareholder servicing
expenses. Prior to that date, Advantus Capital paid the transfer agent and
shareholder servicing expenses for Venture Fund.

                                       19


     Under the Advisory Agreements, Advantus Capital furnishes the Funds office
space and all necessary office facilities, equipment and personnel for servicing
the investments of the Funds, and pays the salaries and fees of all officers and
directors of the Funds who are affiliated with Advantus Capital.  In addition,
except to the extent that Securian Financial receives Rule 12b-1 distribution
fees (see "Payment of Certain Distribution Expenses of the Funds" below),
Securian Financial bears all promotional expenses in connection with the
distribution of the Funds' shares, including paying for prospectuses and
statements of additional information for new shareholders, and shareholder
reports for new shareholders, and the costs of sales literature.  The Funds pay
all other expenses not so expressly assumed.

     Under the Advisory Agreements for each Fund other than Index Fund and
Real Estate Securities Fund, Advantus Capital agreed to absorb all Fund costs
and expenses which exceed a specified percentage of the average daily net
assets of each class of share through the fiscal year of the Fund ending
September 30, 2001 for Cornerstone, Enterprise and Horizon Funds and July 31,
2001 for Venture Fund, as set forth in the following table:





                                   EXPENSES ABSORBED IN EXCESS OF
                             SPECIFIED PERCENTAGE OF AVERAGE NET ASSETS
                            ---------------------------------------------
FUND                        CLASS A             CLASS B           CLASS C
- ----                        -------             -------           -------
                                                         
Cornerstone Fund             1.24%               1.99%             1.99%
Enterprise Fund              1.38%               2.23%             2.23%
Horizon Fund                 1.35%               2.10%             2.10%
Venture Fund                 1.40%               2.25%             2.25%



     During the fiscal period ended July 31, 2002 and the fiscal years ended
September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds,
and the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real
Estate Securities and Venture Funds, Advantus Capital voluntarily absorbed
certain expenses of the Funds (which do not include certain Rule 12b-1 fees
waived by Securian Financial), or, in the case of Cornerstone Fund,
Enterprise Fund, Horizon Fund and Venture Fund, absorbed certain expenses of
the Fund in accordance with the Advisory Agreement, as set forth below:




         Fund                2002              2001           2000
         ----                ----              ----           ----
                                                   
     Cornerstone Fund      $105,055           $131,531      $106,763
     Enterprise Fund         72,685             60,437        59,225
     Horizon Fund           271,049            284,604        90,632
     Index Fund             297,973            306,584       302,175
     Real Estate
      Securities Fund        10,569             46,235        87,768
     Venture Fund              --                7,163        67,821



ENTERPRISE FUND SUB-ADVISER - CSAM

     Credit Suisse Asset Management, LLC (CSAM) has been retained under an
investment sub-advisory agreement to provide investment advice and, in
general, to conduct the management of the Enterprise Fund, subject to the
general control of the Board of Directors of the Fund. CSAM is a registered
investment adviser under the Investment Advisers Act of 1940.

     CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the
largest financial services companies in the world, and comprises the U.S. arm
of Credit Suisse Group's Credit Suisse Asset Management division. CSAM,
together with its predecessor firms, has been engaged in the investment
advisory business for over 60 years. As of June 30, 2002, the Credit Suisse
Asset Management division had global assets under management of approximately
$306.9 billion, of which $66.8 billion was managed by CSAM. The principal
business address of CSAM is 466 Lexington Avenue, New York, New York 10017.

ENTERPRISE FUND INVESTMENT SUB-ADVISORY AGREEMENT - CSAM

     CSAM acts as investment sub-adviser of the Enterprise Fund under an
Investment Sub-Advisory Agreement (the CSAM Agreement) with Advantus Capital
dated May 1, 2000, and approved by shareholders of the Fund on April 17,
2000. Amendments to the CSAM Agreement, adjusting the level of sub-advisory
fees payable by Advantus Capital to CSAM under such Agreement, were approved
by the Board of Directors of the Fund on October 25, 2001 and July 25, 2002.
The CSAM Agreement as amended was last approved for continuance by the Board
of Directors of the Fund, including a majority of the Directors who are not a
party to the CSAM Agreement or interested persons of any such party, on
January 24, 2002 and July 25, 2002. Prior to May 1, 2000, the Enterprise Fund
was managed directly by Advantus Capital. The CSAM Agreement will terminate
automatically upon the termination of the Fund's Advisory Agreement and in
the event of its assignment. In addition, the CSAM Agreement is terminable at
any time, without penalty, by the Board of Directors of the Fund, by Advantus
Capital or by vote of a majority of the Fund's outstanding voting securities
on 60 days' written notice to CSAM, and by CSAM on 60 days' written notice to
Advantus Capital. Unless sooner terminated, the CSAM Agreement shall continue
in effect from year to year if approved at least annually either by the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not
interested persons of any party to the CSAM Agreement, cast in person at a
meeting called for the purpose of voting on such approval.

     In payment for the investment sub-advisory services to be rendered by
CSAM for the Enterprise Fund, Advantus Capital pays to CSAM a fee computed at
an annual rate which shall be a percentage of the average daily value of the
net assets of the Fund. The fee is accrued daily and shall be based on the
net asset value of all of the issued and outstanding shares of the Fund as
determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund. The fee is payable in arrears on the last
day of each calendar month.

     Effective June 30, 2002, the amount of such annual fee, as applied to
the total assets of the Fund, is determined in accordance with the following
table:





         AVERAGE ASSETS UNDER MANAGEMENT                      FEE
         -----------------------------------                  ---
                                                           
         Total assets from $0 up to $150 million              0.65%
         Total assets from $150 million up to $200 million    0.64%
         Total assets from $200 million up to $250 million    0.63%
         Total assets from $250 million up to $300 million    0.62%
         Total assets from $300 million up to $350 million    0.61%
         Total assets from $350 million up to $400 million    0.60%
         Total assets from $400 million up to $450 million    0.59%
         Total assets from $450 million up to $500 million    0.58%
         Total assets from $500 million up to $550 million    0.57%
         Total assets from $550 million up to $600 million    0.56%
         Total assets from $600 million up to $650 million    0.55%
         Total assets from $650 million up to $700 million    0.54%
         Total assets from $700 million up to $750 million    0.53%
         Total assets from $750 million up to $800 million    0.52%
         Total assets from $800 million up to $850 million    0.51%
         Total assets from $850 million up to $900 million    0.50%
         Total assets from $900 million up to $950 million    0.49%
         Total assets from $950 million up to $1 billion      0.48%
         Total assets from $1 billion up to $1.050 billion    0.47%
         Total assets from $1.050 billion up to $1.1 billion  0.46%
         Total assets from $1.1 billion and up                0.45%



         The term "Average Assets Under Management" for purposes of the above
schedule includes all assets advised or sub-advised by CSAM for Advantus Capital
or its affiliates, in addition to those assets of the Fund. The Average Assets
Under Management consists of the mathematical average of the quarterly aggregate
assets as measured on March 31st, June 30th, September 30th and December 31st of
each calendar year (or portion thereof) for each of the preceding 8 quarters,
with the fee rate determined on each such date being applicable to the following
period and applied to all assets back to the first dollar in the Fund.


VENTURE FUND SUB-ADVISER -- STATE STREET

     State Street Research & Management Company ("State Street") has been
retained under an investment sub-advisory agreement to provide investment
advice and, in general, to conduct the management of the investment program
of the Venture Fund, subject to the general control of the Board of Directors
of the Fund.  State Street is a registered investment adviser under the
Investment Advisers Act of 1940.

     State Street, a Delaware corporation, with offices at One Financial
Center, Boston, Massachusetts 02111-2690, acts at the investment sub-adviser
to the Portfolio.  State Street was founded by Paul Cabot, Richard
Saltonstall and Richard Paine to serve as investment adviser to one of the
nation's first mutual funds, presently known as State Street Research
Investment Trust, which they had formed in 1924.  Their investment management
philosophy emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment.  State Street's portfolio management group has extensive
investment industry experience managing equity and debt securities.  State
Street is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company.

VENTURE FUND INVESTMENT SUB-ADVISORY AGREEMENT -- STATE STREET

     State Street acts as investment sub-adviser to the Venture Fund under an
Investment Sub-Advisory Agreement (the "State Street Agreement") with
Advantus Capital dated May 1, 2000 and approved by shareholders of the Fund
on April 17, 2000.  An amendment to the State Street Agreement, adjusting the
level of sub-advisory fees payable by Advantus Capital to State Street under
such Agreement, was approved by the Board of Directors of the Fund on October
25, 2001. The State Street Agreement, as amended, was last approved for
continuance by the Board of Directors of the Fund, including a majority of
the Directors who are not a party to the State Street Agreement or interested
persons of any such party, on January 24, 2002.  Prior to May 1, 2000 the
Venture Fund was managed directly by Advantus Capital.  The State Street
Agreement will terminate automatically upon the termination of the Advisory
Agreement and in the event of its assignment.  In addition, the State Street
Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital or by vote of a majority of the
Venture Fund's outstanding voting securities on 60 days' written notice to
State Street, and by State Street on 60 days' written notice to Advantus
Capital.  Unless sooner terminated, the State Street Agreement shall continue
in effect from year to year if approved at least annually either by the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not
interested persons or any party to the State Street Agreement, cast in person
at a meeting called for the purpose of voting on such approval.

     In payment for the investment sub-advisory services to be rendered by
State Street to the Venture Fund, Advantus Capital pays to State Street a fee
computed at an annual rate which is a percentage of the average daily net
assets of the Fund. The fee is accrued daily and shall be based on the net
asset value of all of the issued and outstanding shares of the Fund as
determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund. The fee is payable in arrears on the last
day of each calendar month.

     The amount of such annual fee as applied to the average daily net assets
of the Fund, is equal to .65% of the first $100 million of average daily net
assets and .60% of average daily net assets in excess of $100 million. For
purposes of calculating the breakpoint, the term "assets" includes all "small
company value" assets sub-advised by State Street for Advantus Capital, in
addition to the assets of the Fund. The aggregation of those assets for
purposes of the breakpoint is calculated quarterly based upon the aggregate
assets on March 31st, June 30th, September 30th and December 31st of each
calendar year (or portion thereof) that the State Street agreement is
effective.

ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS

     At a meeting held on January 24, 2002, the Board of Directors of the
Funds, including a majority of the Directors who are not "interested persons"
(as defined under the Investment Company Act of 1940) of the Funds (the
"Independent Directors"), approved the continuation of each Fund's investment
advisory agreement with Advantus Capital for an additional one-year period.
In connection with such approval, the directors considered, with the
assistance of independent counsel, their legal responsibilities and reviewed
the nature and quality of Advantus Capital's services provided to the Fund
and Advantus Capital's experience and qualifications. In addition to
quarterly evaluations of the Fund's investment performance relative to
broad-based index and industry benchmarks and at least annual in person
meetings with and presentations by each portfolio manager or managers for the
Fund (including personnel from Advantus Capital and each sub-adviser), the
Directors on January 24, 2002 reviewed and considered:

- -    analyses prepared and compiled by Advantus Capital (i) setting forth the
     Fund's advisory fee (as a percentage of assets) on a contractual and
     after-waiver basis (ii) comparing the Fund's contractual advisory fees with
     standard fee schedules for private (non-mutual fund) accounts managed by
     Advantus Capital and with the contractual fee schedules of other funds
     represented by Advantus Capital to be of comparable size and complexity
     (with a description of the bases upon which funds were selected for
     comparison), (iii) comparing the Fund's total returns with the Fund's
     benchmark index or indices and with such comparable funds (again, with a
     description of the bases upon which funds were selected for comparison);

- -    descriptions of brokerage allocation practices (including any soft dollar
     arrangements) and assurances that such practices and arrangements are
     accurately described in the Fund's registration statement;

- -    assurances that Advantus Capital and its personnel are in compliance with
     the Fund's codes of ethics, policies and procedures and exemptive orders
     and with applicable laws and regulations; and

- -    a report on Advantus Capital's profitability related to providing advisory
     services to the Fund after taking into account (i) advisory fees and any
     other benefits realized by Advantus Capital or any of its affiliates as a
     result of Advantus Capital's role as adviser to the Fund, and (ii) the
     direct and indirect expenses incurred by Advantus Capital in providing such
     advisory services to the Fund.

     After discussion, the Board of Directors concluded that Advantus Capital
has the capabilities, resources and personnel necessary to manage each Fund.
The Board of Directors also concluded that, based on the services that
Advantus Capital would provide to each Fund under the Fund's investment
advisory agreement and the expenses incurred by Advantus Capital in the
performance of such services, the compensation to be paid to Advantus Capital
is fair and equitable with respect to the Fund. Based upon such information
as it considered necessary to the exercise of its reasonable business
judgment, the Board of Directors concluded unanimously that it is in the best
interests of each Fund to continue its investment advisory agreement with
Advantus Capital for an additional one-year period.

     At the January 24, 2002 meeting, the Fund's Board of Directors,
including a majority of the Independent Directors, also approved the
continuation of the sub-advisory agreements between Advantus Capital and each
of the following sub-advisers (with respect to the Fund set forth
opposite the sub-adviser's name in the table below), each for an additional
one-year period:




         SUB-ADVISER                                         FUND
         -----------                                         ----
                                                          
         Credit Suisse Asset Management, LLC                 Enterprise Fund
         State Street Research & Management Company          Venture Fund



     In approving the continuation of the sub-advisory agreements, the Board
of Directors considered the quality of the services being rendered by each
sub-adviser, its investment management style, the experience and
qualifications of each sub-adviser's personnel and the sub-adviser's fee
structure. The Board of Directors also reviewed written reports provided by
each sub-adviser, which contained, among other items:

- -    descriptions of brokerage allocation practices (including soft dollar
     arrangements, if any) and assurances that such practices and arrangements
     are accurately described in the Fund's registration statement; and

- -    assurances that the sub-adviser and its personnel are in compliance with
     the sub-adviser's code of ethics and with the laws and regulations that
     apply to its relationship as sub-adviser to the applicable Fund.

     Based upon such information as it considered necessary to the exercise
of its reasonable business judgment, the Board of Directors concluded
unanimously that it was in the best interests of each of the foregoing Funds
engaging a sub-adviser to continue its sub-advisory agreement for an
additional one-year period.

CODE OF ETHICS

     Advantus Capital, Securian Financial, CSAM, State Street and each of the
Funds has adopted a Code of Ethics in accordance with the Investment Company
Act of 1940 and the rules and regulations thereunder.  The private investment
activities of personnel covered by the Code of Ethics are restricted in
accordance with the Code's provisions, but, subject to such provisions,
personnel may invest in securities, including securities that may be
purchased or held by the Funds.

Distribution Agreement

     Securian Financial acts as the underwriter of the Funds' shares. The
Board of Directors of the Funds, on January 24, 2002, including a majority of
the directors who are not parties to the contract, or interested persons of
any such party, last approved the respective Fund's Distribution Agreement
with Securian Financial (the "Distribution Agreements"), dated October 22,
1998 for Cornerstone Fund, Enterprise Fund, Horizon Fund, Index Fund and
Venture Fund, and October 25, 2001 for Real Estate Securities Fund.

     During the fiscal period ended July 31, 2002, and the fiscal years ended
September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds,
and the fiscal years ended July 31, 2002, 2001 and 2000 for Index Fund, Real
Estate Securities Fund and Venture Fund, the commissions received by Securian
Financial under the Distribution Agreements with respect to shares of all
classes were as follows:




         Fund               2002          2001            2000
         ----               ----          ----            ----
                                              
     Cornerstone Fund      $50,234      $312,734        $345,082
     Enterprise Fund        19,407       180,816         158,512
     Horizon Fund           54,053       294,198         385,277
     Index Fund             97,938        78,345         114,832
     Real Estate
      Securities Fund       60,489         3,991          14,377
     Venture Fund           70,657        30,384          58,191


     During the same period Securian Financial retained from these commissions
the following amounts:


                                       20




         Fund              2002           2001        2000
         ----              ----           ----        ----
                                           
     Cornerstone         $ 6,127        $ 5,298      $ 9,265
     Enterprise            5,616          5,937        6,623
     Horizon               7,505         15,958       33,780
     Index Fund            7,931         12,524       13,503
     Real Estate
      Securities Fund     17,921           -783           72
     Venture Fund         20,106          6,975        1,254


     The remainder of these commissions was paid to registered representatives
of Securian Financial or to broker-dealers who have selling agreements with
Securian Financial.

     Each Distribution Agreement may be terminated by the respective Fund or
Securian Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment.  Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.

     The Distribution Agreements require Securian Financial to pay all
advertising and promotional expenses in connection with the distribution of the
Funds' shares including paying for Prospectuses and Statements of Additional
Information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.

     In the Distribution Agreements, Securian Financial undertakes to indemnify
the Funds against all costs of litigation and other legal proceedings, and
against any liability incurred by or imposed upon the Funds in any way arising
out of or in connection with the sale or distribution of the Funds' shares,
except to the extent that such liability is the result of information which was
obtainable by Securian Financial only from persons affiliated with the Funds but
not with Securian Financial.

PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS

     Each of the Funds except Real Estate Securities Fund has adopted separate
Plans of Distribution applicable to Class A shares, Class B shares and Class
C shares, respectively, relating to the payment of certain distribution
and/or shareholder servicing expenses pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Real Estate Securities Fund has two classes
of shares (Class A and Class B) and each class has also adopted a Plan of
Distribution pursuant to Rule 12b-1.  Each of the Funds, pursuant to its
Plan of Distribution, pays fees to Securian Financial which equal, on an
annual basis, a percentage of the Fund's average daily net assets
attributable to Class A shares, Class B shares and Class C shares,
respectively, as set forth in the following table:




                                   Rule 12b-1 Fee as Percentage
                            of Average Daily Net Assets Attributable to
                            --------------------------------------------
         Fund         Class A Shares       Class B Shares      Class C Shares
         ----         --------------       --------------      --------------
                                                      
     Cornerstone Fund      0.25%                1.00%               1.00%
     Enterprise Fund       0.25%                1.00%               1.00%
     Horizon Fund          0.25%                1.00%               1.00%
     Index Fund            0.25%                1.00%               1.00%
     Real Estate
      Securities Fund      0.25%                1.00%                n/a
     Venture Fund          0.25%                1.00%               1.00%



                                       21


     Such fees are used for distribution-related services for Class B and C
shares of the Funds and for servicing of shareholder accounts in connection
with Class A, B and C shares in each of the Funds.

     A portion of the Rule 12b-1 fees payable with respect to Class B and
Class C shares of the Funds equal to .75% of the average daily net assets
attributable to such Class B and Class C shares, constitute distribution fees
designed to compensate Securian Financial for advertising, marketing and
distributing the shares of the Funds.

     The distribution fees paid by each of the Funds may be used by Securian
Financial for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the particular Fund.  For example, such
distribution fee may be used by Securian Financial:  (a) to compensate
broker-dealers, including Securian Financial and its registered representatives,
for their sale of a Fund's shares, including the implementation of the programs
described below with respect to broker-dealers, banks, and other financial
institutions; and (b) to pay other advertising and promotional expenses in
connection with the distribution of a Fund's shares.  These advertising and
promotional expenses include, by way of example but not by way of limitation,
costs of prospectuses for other than current shareholders; preparation and
distribution of sales literature; advertising of any type; expenses of branch
offices (including overhead expenses) provided jointly by Securian Financial and
any affiliate thereof; and compensation paid to and expenses incurred by
officers, employees or representatives of Securian Financial or of other
broker-dealers, banks, or financial institutions.

     All of the 12b-1 fees payable with respect to each Fund's Class A shares
and a portion of the Rule 12b-1 fee payable with respect to Class B and Class
C shares of each Fund, equal to .25% of the average daily net assets
attributable to such Class A, B and Class C shares, constitutes a shareholder
servicing fee designed to compensate Securian Financial for the provision of
certain services to the holders of Class A, B and Class C shares.

     Amounts expended by the Funds under the Plans are expected to be used for
the implementation by Securian Financial of a dealer incentive program.
Pursuant to the program, Securian Financial may provide compensation to
investment dealers for the provision of distribution assistance in connection
with the sale of the Funds' shares to such dealers' customers and for the
provision of administrative support services to customers who directly or
beneficially own shares of the Funds.  The distribution assistance and
administrative support services rendered by dealers may include, but are not
limited to, the following:  distributing sales literature; answering routine
customer inquiries concerning the Funds; assisting customers in changing
dividend options, account designation and addresses, and in enrolling into the
pre-authorized check plan or systematic withdrawal plan; assisting in the
establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions; investing dividends and any
capital gains distributions automatically in the Funds' shares and providing
such other information and services as the Funds or the customer may reasonably
request.  Such fees for servicing customer accounts would be in addition to the
portion of the sales charge received or to be received by dealers which sell
shares of the Funds.

     Securian Financial may also provide compensation to certain institutions
such as banks ("Service Organizations") which have purchased shares of the
Funds for the accounts of their clients, or which have made the Funds' shares
available for purchase by their clients, and/or which provide continuing
service to such clients. Applicable laws may prohibit certain banks from
engaging in the business of underwriting securities. In such circumstances,
Securian Financial, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. If a
bank were prohibited from acting as a Service Organization, its shareholder
clients would be permitted to remain shareholders of the Funds and
alternative means for continuing servicing of such shareholders would be
sought.  In such event changes in the operation of


                                       22


the Funds might occur and a shareholder serviced by such bank might no longer
be able to avail itself of any automatic investment or other services then
being provided by the bank.  It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.

     In addition, the Plan contains, among other things, provisions complying
with the requirements of Rule 12b-1 discussed below.  In particular, each
Plan provides that (1) the Plan will not take effect until it has been
approved by a vote of a majority of the outstanding voting securities of the
Fund, and by a majority vote of both the full board of directors of the Fund
and those directors who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in
any agreements relating to it (the Independent Directors), (2) the Plan will
continue in effect from one year to another so long as its continuance is
specifically approved annually by a majority vote of both the full board of
directors and the Independent Directors, (3) the Plan may be terminated at
any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Fund,
(4) the Plan may not be amended to increase materially the amount of the fees
payable thereunder unless the amendment is approved by a vote of a majority
of the outstanding voting securities of the Fund, and all material amendments
must be approved by a majority vote of both the full board of directors and
the Independent Directors, (5) while the Plan is in effect, the selection and
nomination of any new Independent Directors is committed to the discretion of
the Independent Directors then in office, and (6) the Fund's underwriter will
prepare and furnish to the board of directors, and the board of directors
will review, at least quarterly, written reports which set forth the amounts
expended under the Plan and the purposes for which those expenditures were
made.

Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing.  In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements.  Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance:  (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company.  Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors.  Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders.  At the Board of Directors meeting
held January 24, 2002, the directors of the Funds so concluded.

     During the fiscal period ended July 31, 2002, each Fund made payments under
its Plans of Distribution applicable to Class A, Class B and Class C Shares as
set forth below (distribution fees waived by Securian Financial, if any, are
shown in parentheses).




         Fund                                   Class A             Class B    Class C
         ----                                   -------             -------    -------
                                                                 
     Cornerstone Fund                    $140,042   $  N/A         $66,388    $ 7,188
     Enterprise Fund                       75,907    (30,363)       41,469      5,141
     Horizon Fund                          58,966      N/A          87,139      7,835
     Index 500 Fund                        56,862    (22,745)      189,402     20,114
     Real Estate Securities Fund           53,635    (32,181)        2,939       N/A
     Venture Fund                         143,955    (57,582)       46,950     12,773


     The Plans of Distribution could be construed as "compensation plans"
because Securian Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans.  Under a compensation
plan, the fee to the distributor is not directly tied to distribution expenses
actually incurred by the distributor, thereby permitting the distributor to
receive a profit if amounts received exceed expenses.  Securian Financial may
spend more or


                                       23


less for the distribution and promotion of the Funds' shares than it receives as
distribution fees pursuant to the Plans.  However, to the extent fees received
exceed expenses, including indirect expense such as overhead, Securian Financial
could be said to have received a profit.

TRANSFER AGENT AND ADMINISTRATIVE SERVICES

         Each of the Funds pays its own transfer agent expenses. The Funds'
transfer agent is PFPC Inc. ("PFPC").

         In addition, separate from the investment advisory agreement, each
of the Funds has entered into an agreement with Minnesota Life under which
Minnesota Life provides (i) accounting, legal and other administrative
services and (ii) shareholder servicing to the Funds. Minnesota Life
currently provides accounting, legal and other administrative services to the
Funds at a monthly cost of $6,200 per Fund other than Real Estate Securities
Fund, and $5,100 for Real Estate Securities Fund. During the fiscal period
ended July 31, 2002, each Fund paid the following amounts for such
administrative services:





                  Fund                                              Amount
                  ----                                              ------
                                                                 
                  Cornerstone Fund                                  $62,000
                  Enterprise Fund                                    62,000
                  Horizon Fund                                       62,000
                  Index Fund                                         74,400
                  Real Estate Securities Fund                        61,200
                  Venture Fund                                       74,400



     Minnesota Life currently provides shareholder servicing to each Fund at
a cost of $7 per shareholder account per year.

                 PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

     In a number of security transactions, it is possible for the Funds to deal
in the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions but at net prices
including a spread or markup; the Funds trade in this manner whenever the net
price appears advantageous.

     Advantus Capital, or a Fund's sub-adviser, selects and (where applicable)
negotiates commissions with the brokers who execute the transactions for the
Funds.  During the fiscal period ended July 31, 2002, and the fiscal years
ended September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon
Funds, and the fiscal years ended July 31, 2002, 2001 and 2000 for Index,
Real Estate Securities and Venture Funds, brokerage commissions paid were:




         Fund                           2002        2001         2000
         ----                           ----        ----         ----
                                                       
     Cornerstone Fund                 $228,660     $335,867      $405,041
     Enterprise Fund                    82,298       61,217       112,916
     Horizon Fund                       80,789      128,104       123,143
     Index Fund                          9,557        7,794        26,239
     Real Estate Securities Fund       114,123      114,505        57,451
     Venture Fund                      193,659      224,490       124,323



ADVANTUS CAPITAL'S BROKERAGE PRACTICES

     The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of Advantus Capital, to secure prompt execution of the
transactions on favorable terms, including the reasonableness of the commission
and considering the state of the market at the time.  In selecting a broker,
Advantus Capital considers whether such broker provides brokerage and research
services (as defined in the Securities Exchange Act of 1934), and generally the
Funds pay higher than the lowest commission rates available.  Advantus Capital
may direct Fund transactions to brokers who furnish research services to
Advantus Capital.  Such research services include advice, both directly and in
writing, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, as well as analysis and reports concerning
issues, industries, securities, economic factors and trends, portfolio strategy,
and the performance of accounts.  By allocating brokerage business in order to
obtain research services for Advantus Capital, the Funds enable Advantus Capital
to supplement its own investment research activities and allows Advantus Capital
to obtain the views and information of individuals and research staffs of many
different securities research firms prior to making investment decisions for the
Funds.  To the extent such commissions are directed to these other brokers who
furnish research services to Advantus Capital, Advantus Capital receives a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Funds from these commissions.

     There is no formula for the allocation by Advantus Capital of the Funds'
brokerage business to any broker-dealer for brokerage and research services.
However, Advantus Capital will authorize a Fund to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or Advantus
Capital's overall responsibilities with respect to the accounts as to which
it exercises investment discretion.  During the fiscal period ended July 31,
2002, the Funds directed transactions to brokers because of research services
they provided, and paid commissions in connection with such transactions, in
the aggregate amounts set forth below:


                                       24




                           Aggregate Transactions         Commissions Paid on
         Fund              Directed for Research          Directed Transaction
         ----              ---------------------          --------------------
                                                    
     Cornerstone Fund           $2,127,165                     $113,864
     Enterprise Fund                    --                           --
     Horizon Fund                  787,904                       42,572
     Index Fund                        183                        1,124
     Real Estate
     Securities Fund               879,500                       25,058
     Venture Fund               35,075,991                       95,085




     Advantus Capital believes that most research services obtained by it
generally benefit one or more of the investment companies which it manages
and also benefit accounts which it manages.  Normally research services
obtained through managed funds and managed accounts investing in common
stocks would primarily benefit such funds and accounts; similarly, services
obtained from transactions in fixed income securities would be of greater
benefit to the managed funds and managed accounts investing in debt
securities.


     The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by Advantus Capital or its affiliates.
If and when two or more funds or accounts simultaneously purchase or sell the
same security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to each fund or account.  The
simultaneous purchase or sale of the same securities by one Fund and other Funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.

     Consistent with achieving best execution, a Fund may participate in
so-called "directed brokerage" or "commission recapture" programs, under
which brokers (or dealers) used by the Fund remit a portion of brokerage
commissions (or credits on fixed income transactions) to the particular Fund
from which they were generated. Subject to oversight by the Fund's Board of
Directors, either Advantus Capital or the sub-adviser, if any, is responsible
for the selection of brokers or dealers and for ensuring that a Fund receives
best price and execution in connection with its portfolio brokerage
transactions. Participation in such programs may increase returns to the Fund.

     Although the rules of the National Association of Securities Dealers,
Inc. prohibit its members from seeking orders for the execution of investment
company portfolio transactions on the basis of their sales of investment
company shares, under such rules, sales of investment company shares may be
considered by the investment company as a factor in selecting brokers to
effect portfolio transactions. Accordingly, some portfolio transactions are,
subject to such rules and to obtaining best prices and executions, executed
through dealers who sell shares of Funds in the Advantus Funds complex or who
agree to transmit a portion of the brokerage commissions on transactions
executed by them to broker/dealers who sell Fund shares.

     The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds.  In the event any transactions are executed on an
agency basis, Advantus Capital will authorize the Funds to pay an amount of
commission for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if Advantus Capital
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
overall responsibilities of Advantus Capital with respect to the Funds as to
which it exercises investment discretion.  If the Funds execute any transactions
on an agency basis, they will generally pay higher than the lowest commission
rates available.

     In determining the commissions to be paid to an affiliated
broker-dealer, it is the policy of the Funds that such commissions will, in
the judgment of Advantus Capital, subject to review by the Fund's Board of
Directors, be both (a) at least as favorable as those which would be charged
by other qualified brokers in connection with comparable transactions
involving similar securities being purchased or sold on an exchange during a
comparable period of time, and (b) at least as favorable as commissions
contemporaneously charged by such affiliated broker-dealers on comparable
transactions for their most favored comparable unaffiliated customers.  While
the Funds do not deem it practicable and in their best interest to solicit
competitive bids for commission rates on each transaction, consideration will
regularly be given to posted commission rates as well as to other information
concerning the level of commissions charged on comparable transactions by
other qualified brokers.

     Information regarding the acquisition by the Funds during the fiscal
period ended July 31, 2002, of securities of the Funds' regular brokers or
dealers, or the parents of those brokers or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is
presented below:


                                       25




                                                            Approximate
                                                        Value of Securities
                                                          Owned at End of
         Fund          Name of Issuer                      Fiscal Period
         ----          --------------                      -------------
                                                  
     Cornerstone Fund  CitiGroup, Inc.                  $   2,385,130
                       Goldman Sachs Group, Inc.              658,350
                       Morgan Stanley                         598,794
     Enterprise Fund   Affiliated Managers Group              288,042
     Horizon Fund      CitiGroup, Inc                         358,878
                       Goldman Sachs Group, Inc.              190,190
     Index Fund        Bear Stearns & Company                  24,329
                       Block Financial Corporation             34,955
     Real Estate
     Securities Fund   -----                                   -----
     Venture Fund      -----                                   -----



SUB-ADVISERS' BROKERAGE PRACTICES

     CSAM, investment sub-adviser to the Enterprise Fund, and State Street,
investment sub-adviser to the Venture Fund, each intends to follow the same
brokerage practices as those described above for Advantus Capital.

                           CALCULATION OF PERFORMANCE DATA
     Advertisements and other sales literature for the Funds may refer to
"yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for each class of shares of the
Funds.

     YIELD.  Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:

                              a-b     6
               YIELD  =  2[( ----- +1) -1]
                              cd

     Where:    a    =    dividends and interest earned during the period;

               b    =    expenses accrued for the period (net of
                         reimbursements);

               c    =    the average daily number of shares outstanding during
                         the period that were entitled to receive dividends; and

               d    =    the maximum offering price per share on the last day of
                         the period.

     The yield on investments in each of the Funds for the 30-day period ended
July 31, 2002 was as set forth in the table below.  The Funds' investment
adviser and distributor were voluntarily absorbing and waiving certain expenses
of certain of the Funds during that period.  If such Funds had been charged for
these expenses the yield on investments for the same period would have been
lower, as also shown in the table below in parentheses.




                                        Yield
                                        -------
        Fund               Class A                 Class B               Class C
        ----               -------                 -------               -------
                                                          
     Cornerstone Fund  1.06%     (.78%)           .39%     (.09%)    .39%      (.09%)
     Enterprise Fund   -.93%   (-1.34%)         -1.84%   (-2.28%)  -1.84%    (-2.27%)
     Horizon Fund      -.21%   (-2.06%)          -.96%   (-2.91%)   -.96%    (-2.91%)
     Index Fund        1.26%     (.80%)           .50%     (.01%)    .50%      (.01%)
     Real Estate
     Securities Fund    .86%     (.82%)           .03%    (-.001%)     N/A       N/A
     Venture Fund       .24%     (.24%)          -.63%    (-.63%)    -.63%     (-.63%)


     AVERAGE ANNUAL TOTAL RETURN.  Average annual total return is computed by
finding the average annual compounded rates of return over the periods indicated
in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

                     n
               P(1+T)    =    ERV

     Where:    P         =    a hypothetical initial payment of $1,000;

               T         =    average annual total return;

               n         =    number of years; and


                                       26


               ERV       =    ending redeemable value at the end of the period
                              of a hypothetical $1,000 payment made at the
                              beginning of such period.

     The average annual total return on investments in each of the Funds for the
periods indicated ending July 31, 2002, were as set forth in the table below.
Average annual total returns quoted assume that the Class A maximum initial
sales charge of 5.5% was in effect at the beginning of each period shown.
The maximum initial sales charge was 5.0% prior to February 1, 1999. The
Funds' investment adviser and distributor were voluntarily absorbing and
waiving certain expenses of certain of the Funds during these periods.  If
such Funds had been charged for these expenses the average annual total
returns for the same periods would have been lower, as also shown in the
table below in parentheses.




                                                                         1 YEAR
                                                                         ------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund                      -22.22%      (-22.39%)       -22.47%   (-22.64%)      -18.36%    (-18.53%)
Enterprise Fund                       -33.82%      (-34.13%)       -34.08%   (-34.29%)      -30.53%    (-30.74%)
Horizon Fund                          -31.53%      (-32.35%)       -31.74%   (-32.56%)      -28.15%    (-28.97%)
Index Fund                            -28.31%      (-29.09%)       -28.56%   (-29.24%)      -24.80%    (-25.48%)
Real Estate Securities Fund             6.13%        (5.94%)         N/A        N/A            N/A        N/A
Venture Fund                          -18.04%      (-18.14%)       -18.32%   (-18.32%)      -13.96%    (-13.96%)





                                                                  SINCE INCEPTION
                                                                  ---------------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund(1)                      5.05%      (4.68%)        4.97%      (4.77%)        5.08%      (4.88%)
Enterprise Fund(1)                       0.39%      (0.35%)        0.22%      (0.21%)       -0.33%     (-0.34%)
Horizon Fund(2)                          7.05%      (6.88%)        3.93%      (3.87%)        3.41%      (3.35%)
Index Fund(3)                            2.06%      (1.43%)        1.99%      (1.64%)        2.16%      (1.84%)
Real Estate Securities Fund(4)          10.16%      (9.53%)        6.56%      (6.50%)         N/A         N/A
Venture Fund(3)                          6.22%      (6.13%)        6.13%      (6.10%)        6.40%       (6.38%)
- ---------------



(1)      Class A and Class B Inception was September 16, 1994.
         Class C Inception was March 1, 1995.
(2)      Class A Inception was May 3, 1985.
         Class B Inception was August 19, 1994.
         Class C Inception was March 1, 1995.
(3)      Class A, Class B and Class C inception was January 31, 1997.
(4)      Class A inception date was February 25, 1999.
         Class B inception date was November 30, 2001.

         CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed
by finding the cumulative compounded rate of return over the period indicated in
the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

                                      ERV-P
                  CTR      =        ( ----- )100
                                        P

Where    :        CTR      =        cumulative total return;

                  ERV      =        ending redeemable value at the end of
                                    the period of a hypothetical $1,000
                                    payment made at the beginning of such
                                    period; and

                  P        =        initial payment of $1,000.

     The cumulative total return on investments in each of the Funds for the
period indicated ended July 31, 2002, was as set forth in the table below. The
cumulative total returns quoted assume that the Class A maximum initial sales
charge of 5.5% was in effect at the inception of Class A shares. The maximum
initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment
adviser and distributor were voluntarily absorbing certain expenses of certain
of the Funds during these periods. If such Funds had been charged for these
expenses the cumulative total return for the same periods would have been lower,
as also shown in the table below in parentheses.




                                                               CUMULATIVE TOTAL RETURN
                                                               -----------------------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund(1)                      47.39%    (43.36%)        46.45%    (44.35%)        44.36%    (42.39%)
Enterprise Fund(1)                        3.12%     (2.80%)         1.77%    ( 1.65%)        -2.40%    (-2.51%)
Horizon Fund(2)                         223.58%   (214.88%)        35.83%    (35.27%)        28.20%    (27.67%)
Index Fund(3)                            11.89%     (8.23%)        11.45%     (9.56%)        12.47%    (10.78%)
Real Estate Securities Fund(4)           39.35%    (36.62%)         4.32%     (4.28%)          N/A        N/A
Venture Fund(3)                          39.29%    (38.73%)        38.65%    (38.43%)        40.63%    (40.45%)


                                       27


- ---------------

(1) Class A and Class B Inception was September 16, 1994.
    Class C Inception was March 1, 1995.
(2) Class A Inception was May 3, 1985.
    Class B Inception was August 19, 1994.
    Class C Inception was March 1, 1995.
(3) Class A, Class B and Class C inception date was January 31, 1997.
(4) Class A inception date was February 25, 1999.
    Class B inception date was November 30, 2001.

     The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.

     Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.

                       CAPITAL STOCK AND OWNERSHIP OF SHARES

     Each Fund's shares of common stock, and each class thereof, have a par
value $.01 per share, and have equal rights to share in dividends and assets.
The shares possess no preemptive or conversion rights.  Cumulative voting is not
authorized.  This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and in such event the holders of the remaining shares will be unable to
elect any directors.

     Each of the Funds has 10 billion authorized shares of common stock and
has designated 2 billion authorized shares as Class A shares and 2 billion
authorized shares as Class B shares. Each of the Funds other than Real Estate
Securities Fund has also designated 2 billion authorized shares as Class C
shares.  The Funds have the number of shares outstanding as of July 31, 2002,
as set forth below.




                          Shares Outstanding at July 31, 2002
                          -----------------------------------
          Fund              Class A           Class B             Class C
          ----              -------           -------             -------
                                                      
     Cornerstone Fund    4,907,681          533,841              58,812
     Enterprise Fund     4,244,859          578,574              72,959
     Horizon Fund        1,944,245          731,303              63,563
     Index Fund          1,516,679        1,236,348             136,573
     Real Estate
      Securities Fund    2,704,869           95,132                N/A
     Venture Fund        4,333,250          380,789             123,524



     As of July 31, 2002, no person held of record, to the knowledge of the
respective Funds, or owned more than 5% of the outstanding shares of any of the
Funds, except as set forth in the following table:




                                             Number of
     Name and Address of Shareholder          Shares           Percentage
     -------------------------------          ------           ----------
                                                         
     Cornerstone Fund                        4,055,814         73.7%
        Minnesota Life and affiliates*
     Enterprise Fund                         3,564,971         72.8%
        Minnesota Life and affiliates*
     Horizon Fund                               13,098          0.5%
        Minnesota Life and affiliates*
     Index Fund
        Minnesota Life and affiliates*         719,158          24.9%

     Real Estate Securities Fund             2,454,169          87.7%
        Minnesota Life and affiliates*

     Venture Fund                            3,898,399          80.6%
        Minnesota Life and affiliates*


*  400 Robert Street North, St. Paul, Minnesota 55101.

                                 HOW TO BUY SHARES

     Each Fund's shares may be purchased at the public offering price from
Securian Financial, and from certain other broker-dealers or financial
services firms.  Securian Financial reserves the right to reject any purchase
order.  Shares of the Funds may be purchased at a price equal to their
respective net asset value.

                                       28


     Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued.  SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.

ALTERNATIVE PURCHASE ARRANGEMENTS

     Real Estate Securities Fund offers investors the choice between two
classes of shares (Class A and Class B). The other Funds offer investors the
choice among three classes of shares which offer different sales charges and
bear different expenses.  These alternatives permit an investor to choose the
method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.  For a detailed discussion of these
alternative purchase arrangements see "Sales Charges" below.

     The decision as to which class of shares provides a more suitable
investment for an investor may depend on a number of factors, including the
amount and intended length of the investment.  Investors making investments
that qualify for a waiver of initial sales charges should purchase Class A
shares. Other investors should consider Class B or Class C shares because all of
the purchase price is invested immediately.  Investors who expect to hold shares
for relatively shorter periods of time may prefer Class C shares because such
shares may be redeemed at any time without payment of a contingent deferred
sales charge.  Investors who expect to hold shares longer, however, may choose
Class B shares because such shares convert to Class A shares sooner than do
Class C shares and thus pay the higher Rule 12b-1 fee for a shorter period.

     Purchase orders for $1,000,000 or more will be accepted for Class A
shares only and are not subject to a sales charge at the time of purchase,
but a deferred sales charge will be imposed if such shares are sold within
one year after the date of purchase.  Orders for Class B or Class C shares
for $1,000,000 or more will be treated as orders for Class A shares or
declined.

PURCHASE BY CHECK

     New investors may purchase shares of the Funds by completing an account
application and sending it, together with a check payable to the Fund,
directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O.
Box 9767, Providence, Rhode Island 02940-9767.  Additional purchases may be
made at any time by mailing a check, payable to the Fund, to the same
address. Checks for additional purchases should be identified with the
appropriate account number.  Purchase orders may also be submitted through
Securian Financial or other broker-dealers or financial services firms
authorized to sell shares of the Fund.

PURCHASE BY WIRE

     Shares may also be purchased by Federal Reserve or bank wire.  This
method will result in a more rapid investment in shares of the Funds.  Before
wiring any funds, contact Minnesota Life, through its Advantus Shareholder
Services division, at 1-800-665-6005 for instructions.  Promptly after making
an initial purchase by wire, an investor should complete an account
application and mail it to Advantus Funds Group, P.O. Box 9767, Providence,
Rhode Island 02940-9767.

     Subsequent purchases may be made in the same manner.  Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time).  Banks may charge a fee for
transmitting funds by wire.

PURCHASE BY INTERNET

Existing Advantus Funds shareholders may also purchase shares via the Internet,
once they have established on-line authorization.  Please contact Advantus
Shareholder Services at (800) 665-6005 for information on how to establish your
account.

TIMING OF PURCHASE ORDERS

     An order in proper form for the purchase of shares of a Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the
price next determined on the date received by PFPC.  An order received by
PFPC from a financial services firm after the price is determined that day
will nonetheless be processed at that day's price if the order was received by
the firm from its customer prior to such determination and transmitted to and
received by PFPC prior to its close of business that day. Other orders
received after the close of the NYSE will be effected at the price next
determined on the next business day.


                                       29


MINIMUM INVESTMENTS

     A minimum initial investment of $1,000 is required, except that $500 is
the minimum initial investment required to open a qualified account or an
account in which investments of not less than $50 are being made under an
automatic investment plan ($25 for an automatic investment plan established
prior to December 2, 2002). The minimum amount required for a subsequent
investment in all types of accounts is $50.

PUBLIC OFFERING PRICE

     The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received and becomes effective,
plus the applicable sales charge, if any.  The net asset value per share of each
class is determined by dividing the value of the securities, cash and other
assets (including dividends accrued but not collected) of the Fund attributable
to such class less all liabilities (including accrued expenses but excluding
capital and surplus) attributable to such class, by the total number of shares
of such class outstanding.

     The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.

     Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market.  A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which
assets are valued) on the exchange where it is principally traded.  Lacking
any sales on the exchange where it is principally traded on the day of
valuation, prior to the time as of which assets are valued, the security
generally is valued at the last bid price on that exchange.  Futures
contracts will be valued in a like manner, except that open futures contracts
sales will be valued using the closing settlement price or in the absence of
such a price, the most recent quoted bid price.  All other securities for
which over-the-counter market quotations are readily available are valued on
the basis of the last current bid price.  When market quotations are not
readily available, such securities are valued at fair value as determined in
good faith by the Board of Directors. Advantus Capital and the Funds'
sub-advisers, where applicable, monitor for "significant events" that may (a)
occur after closing market prices are established but before the time a Fund
calculates its net asset value and (b) cause market quotations for certain
securities to be considered "not readily available" because of such
significant events. In such circumstances, those securities are also valued
at fair value as determined in good faith by the Board of Directors. Other
assets also are valued at fair value as determined in good faith by the Board
of Directors.  However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value
of such securities.  Short-term investments in debt securities are valued
daily at market.

                                   SALES CHARGES

CLASS A SHARES

     The public offering price of Class A shares of each Fund is the net asset
value of the Fund's shares plus the applicable front end sales charge ("FESC"),
which will vary with the size of the purchase.  Securian Financial receives all
applicable sales charges.  The Fund receives the net asset value.  The current
sales charges are:


                                       30




                                       Sales Charge as a
                                         Percentage of:
                                                             Net       Amount Paid to Broker-
                                        Offering            Amount    Dealers as a Percentage of
  Value of Total Investment              Price             Invested        Offering Price:
  -------------------------              -----             --------        ---------------
                                                             
Less than $50,000                         5.5%               5.82%               4.75%
$50,000 but less than $100,000            4.5                4.71                3.75
$100,000 but less than $250,000           3.5                3.63                2.75
$250,000 but less than $500,000           2.5                2.56                2.00
$500,000 but less than $1,000,000         2.0                2.04                1.50
$1,000,000 and over (1)                     0                   0                1.00


(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.


     The sales charge applicable to an initial investment in the Fund depends on
the offering price of the investment.  The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of the investor's previous investments in the Fund.  For
example, if an investor makes an initial investment in Class A shares of Venture
Fund with an offering price of $40,000 the investor will pay a sales charge
equal to 5.5% of the $40,000 investment, but if an investor already owns Class A
shares of Venture Fund with a current net asset value of $40,000 and invests in
additional Class A shares of Horizon Fund with an offering price of $10,000 the
investor will pay a sales charge equal to 4.5% of the additional $10,000 since
the total investment in the Fund would then be $50,000.

CLASS B SHARES

     Class B shares of each Fund are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase.  However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase.  For additional information, see
"Redemptions" below.  Class B shares will automatically convert to Class A
shares of the Fund on the fifteenth day of the month (or, if different, the last
business day prior to such date) following the expiration of a specified holding
period.  In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below.  The amount of the CDSC will depend on the number of years
since the purchase was made, the amount of shares originally purchased and the
dollar amount being redeemed.  The amount of the applicable CDSC and the holding
period prior to conversion are determined in accordance with the following
table:



                                                                                                  Shares Convert
                                                                                                  to Class A in
                                                   CDSC Applicable in Year                          the Month
                                                   -----------------------                            After
   Shares Purchased in an Amount      1         2         3         4         5         6         Expiration of
   -----------------------------      -         -         -         -         -         -         -------------
                                                                             
Less than $50,000                    5.0%      4.5%      3.5%      2.5%      1.5%      1.5%         84 months
$50,000 but less than $100,000       4.5       3.5       2.5       1.5       1.5         0          76 months
$100,000 but less than $250,000      3.5       2.5       1.5       1.5         0         0          60 months
$250,000 but less than $500,000      2.5       1.5       1.5         0         0         0          44 months
$500,000 but less than $1,000,000    1.5       1.5         0         0         0         0          28 months


     Proceeds from the CDSC are paid to Securian Financial and are used to
defray expenses related to providing distribution-related services to the Fund
in connection with the sale of Class B shares, such as the payment of
compensation to selected broker-dealers, and for selling Class B shares.  The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares


                                       31


without deduction of a sales charge at the time of purchase.  Although Class B
shares are sold without an initial sales charge, Securian Financial pays a sales
commission to broker-dealers, and to registered representatives of Securian
Financial, who sell Class B shares.  The amount of this commission may differ
from the amount of the commission paid in connection with sales of Class A
shares.  The higher Rule 12b-1 fee will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares.  Securian
Financial pays other broker-dealers for the sale of Class B shares in accordance
with the following schedule:



                                             Amount Paid to Broker-Dealers as a
  Shares Purchased in an Amount                Percentage of Offering Price:
  -----------------------------                -----------------------------
                                          
Less than $50,000                                           4.17%
$50,000 but less than $100,000                              3.75
$100,000 but less than $250,000                             2.92
$250,000 but less than $500,000                             2.08
$500,000 but less than $1,000,000                           1.25


CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the
last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class B shares will
automatically convert to Class A shares and will no longer be subject to a
higher Rule 12b-1 fee.  Such conversion will be on the basis of the relative
net asset values of the two classes.  Class A shares issued upon such
conversion will not be subject to any FESC or CDSC.  Class B shares acquired
by exchange from Class B shares of another Advantus Multiple Class Funds will
convert into Class A shares based on the time of the initial purchase.
Purchased Class B shares ("Purchased B Shares") will convert after the
specified number of months following the purchase date.  All Class B shares
in a shareholder's account that were acquired through the reinvestment of
dividends and distributions ("Reinvestment B Shares") will be held in a
separate sub-account.  Each time any Purchased B Shares convert to Class A
shares, a PRO RATA portion (based on the ratio that the total converting
Purchased B Shares bears to the shareholder's total converting and
non-converting Purchased B Shares immediately prior to the conversion) of the
Reinvestment B Shares then in the sub-account will also convert to Class A
shares.

     The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes.  There can be no assurance that such ruling or
opinion will be available, and the conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available.  In such
event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.

CLASS C SHARES

     Class C shares of Venture Fund and Index Fund are sold without an
initial sales charge so that the Fund receives the full amount of the
investor's purchase.  Unlike Class B shares, however, no CDSC is imposed when
Class C shares are redeemed.  Class C shares will automatically convert to
Class A shares of the Fund on the fifteenth day of the month (or, if
different, the last business day prior to such date) following the expiration
of a specified holding period.  In addition, Class C shares are subject to
higher Rule 12b-1 fees (as described below), and are subject to such higher
fees for a longer period than are Class B shares because of a longer holding
period prior to conversion.  The applicable holding period prior to
conversion is determined in accordance with the following table:


                                       32




                                                         Shares Convert to
                                                          Class A in the
                                                            Month After
  Shares Purchased in an Amount                            Expiration of
  -----------------------------                            -------------
                                                      
Less than $50,000                                           96 months
$50,000 but less than $100,000                              88 months
$100,000 but less than $250,000                             72 months
$250,000 but less than $500,000                             56 months
$500,000 but less than $1,000,000                           40 months


     The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the time
of purchase and without imposing a CDSC at redemption.  Securian Financial does
not pay a sales commission to broker-dealers, or to registered representatives
of Securian Financial, who sell Class C shares.  The higher Rule 12b-1 fee will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares.

     CONVERSION FEATURE.  On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee.  Such conversion will be on the basis of the relative net asset values of
the two classes.  Class A shares issued upon such conversion will not be subject
to any FESC or CDSC.  Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase.  Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date.  All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account.  Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.

     The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes.  There can be no assurance that such ruling or
opinion will be available, and the conversion of Class C shares to Class A
shares will not occur if such ruling or opinion is not available.  In such
event, Class C shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.

OTHER PAYMENTS TO BROKER-DEALERS

     Broker-dealers selling Class A, Class B and Class C shares of the Funds
will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual
basis, to .25% of the net asset values attributable to Class A, Class B and
Class C shares.  Shareholder servicing fees attributable to Class A shares
are paid quarterly in arrears beginning with the end of the first quarter
after the sale of the shares to which such fees are attributable. Shareholder
servicing fees attributable to Class B and Class C shares are paid quarterly
in arrears beginning with the second year after the sale of the shares to
which such fees are attributable (i.e., the first payment is at the end of
the fifteenth month). Rule 12b-1 distribution fees will also be paid
quarterly in arrears to broker-dealers selling Class C shares equal, on an
annual basis, to .75% of the net asset values attributable to such Class C
shares.

                     NET ASSET VALUE AND PUBLIC OFFERING PRICE

     The method for determining the public offering price and net asset value
per share is summarized in the Prospectus in the text following the heading
"Buying and Selling Shares."


                                       33


     The portfolio securities in which the Funds invest fluctuate in value, and
hence the net asset value per share of each Fund also fluctuates.

     On July 31, 2002 the net asset value and public offering price per share
for Class A, Class B and Class C shares of each of the Funds were calculated
as set forth below.

                                CORNERSTONE FUND

CLASS A SHARES

    Net Assets ($57,947,279)             =    Net Asset Value Per Share ($11.81)
- --------------------------------
    Shares outstanding (4,907,681)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $11.81      =        Public Offering Price Per Share ($12.50)
         ------
         .945(1)

CLASS B SHARES

    Net Assets ($6,190,135)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.60)
    Shares outstanding (533,841)

CLASS C SHARES

    Net Assets ($680,160)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.57)
    Shares outstanding (58,812)

                                 ENTERPRISE FUND

CLASS A SHARES

    Net Assets ($27,357,239)             =    Net Asset Value Per Share ($6.44)
- --------------------------------
    Shares outstanding (4,244,859)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $6.44    =        Public Offering Price Per Share ($6.81)
         -----
         .945(1)

CLASS B SHARES

    Net Assets ($3,345,090)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($5.78)
    Shares outstanding (578,574)

CLASS C SHARES

    Net Assets ($421,470)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($5.78)
    Shares outstanding (72,959)

                                  HORIZON FUND

CLASS A SHARES

    Net Assets ($21,830,076)             =    Net Asset Value Per Share ($11.23)
- --------------------------------
    Shares outstanding (1,944,245)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $11.23    =        Public Offering Price Per Share ($11.88)
         ------
         .945(1)

CLASS B SHARES

    Net Assets ($7,507,340)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($10.27)
    Shares outstanding (731,303)

CLASS C SHARES

    Net Assets ($657,556)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($10.34)
    Shares outstanding (63,563)

                                  INDEX FUND

CLASS A SHARES

   Net Assets ($18,196,010)              =    Net Asset Value Per Share ($12.00)
- --------------------------------
Shares outstanding (1,516,679)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $12.00    =  Public Offering Price Per Share ($12.70)
         ------
         .945 (1)

CLASS B SHARES

   Net Assets ($14,558,915)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.78)
Shares outstanding (1,236,348)

CLASS C SHARES

  Net Assets ($1,604,621)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.75)
Shares outstanding (136,573)

                        REAL ESTATE SECURITIES FUND

CLASS A SHARES

   Net Assets ($32,268,948)              =    Net Asset Value Per Share ($11.93)
- --------------------------------
Shares outstanding (2,704,869)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $11.93   =  Public Offering Price Per Share ($12.62)
         ------
         .945

CLASS B SHARES

    NET ASSETS ($1,131,179)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.89)
    Shares outstanding (95,132)

                                    VENTURE FUND

CLASS A SHARES

    Net Assets ($53,071,152)            =    Net Asset Value Per Share ($12.25)
- --------------------------------
Shares outstanding (4,333,250)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $12.25   =  Public Offering Price Per Share ($12.96)
         ------
         .945 (1)

CLASS B SHARES

   Net Assets ($4,531,306)               =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.90)
Shares outstanding (380,789)

CLASS C SHARES

   Net Assets ($1,476,813)               =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.96)
Shares outstanding (123,524)


- ------------

(1)  Effective February 1, 1999, the maximum FESC was increased to 5.5%.

                                REDUCED SALES CHARGES

     Special purchase plans are enumerated in the text of the Funds' Prospectus
under "Buying and Selling Shares - Reducing Sales Charges" and are fully
described below.


                                       34


RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT

     The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares and Class B shares, respectively, of the
Funds is based on the next computed net asset value of all Class A, Class B and
Class C shares of such Funds held by the shareholder (including dividends
reinvested and capital gains distributions accepted in shares), plus the cost of
all Class A, Class B and Class C shares of such Funds currently being purchased.
It is the obligation of each shareholder desiring this discount in sales charge
to notify Securian Financial, through his or her dealer or otherwise, that he or
she is entitled to the discount.

LETTER OF INTENT

     The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase equal
to or exceeding $1,000, accompanied by filing with Securian Financial a signed
"Letter of Intent" form to purchase, and by in fact purchasing not less than
$50,000 of shares in one of the Funds within that time.  The 13-month period is
measured from the date the Letter of Intent is approved by Securian Financial,
or at the purchaser's option, it may be made retroactive 90 days, in which case
Securian Financial will make appropriate adjustments on purchases during the
90-day period.

     In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A, Class B and Class
C shares currently held in all Advantus Multiple Class Funds, on the date of
the first purchase under the Letter of Intent, may be used as a credit toward
Fund shares to be purchased under the Letter of Intent. Class A, Class B and
Class C shares of all the Advantus Multiple Class Funds may also be included in
the purchases during the 13-month period.

     The Letter of Intent includes a provision for payment of additional
applicable Class A sales charges at the end of the period in the event the
investor fails to purchase the amount indicated.  This is accomplished by
holding 5.5% of the investor's initial purchase in escrow.  If the investor's
purchases equal those specified in the Letter of Intent, the escrow is released.
If the purchases do not equal those specified in the Letter of Intent, he or she
may remit to Securian Financial an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales charges
that would have been paid on the aggregate purchases if the total of such
purchases had been made at a single time.  If the purchaser does not remit this
sum to Securian Financial on a timely basis, Securian Financial will redeem the
appropriate number of shares, and then release or deliver any remaining shares
in the escrow account.  The Letter of Intent is not a binding obligation on the
part of the investor to purchase, or the respective Fund to sell, the full
amount indicated.  Nevertheless, the Letter of Intent should be read carefully
before it is signed.

COMBINING PURCHASES

     With respect to each of the Advantus Multiple Class Funds, purchases of
Class A, Class B and Class C shares for any other account of the investor, or
such person's spouse or minor children, or purchases on behalf of participants
in a tax-qualified retirement plan may be treated as purchases by a single
investor for purposes of determining the availability of a reduced sales
charge.

GROUP PURCHASES

     An individual who is a member of a qualified group may also purchase
shares of the Advantus Multiple Class Funds at the reduced sales charge
applicable to the group taken as a whole.  The sales charge is calculated by
taking into account not only the dollar amount of the Class A, Class B and
Class C shares of the Funds being purchased by the individual member, but also
the aggregate dollar value of such Class A, Class B and Class C shares
previously purchased and currently held by other members of the group.  Members
of a qualified group may not be eligible for a Letter of Intent.

     A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,


                                       35


and (iii) satisfies uniform criteria which enable Securian Financial to realize
economies of scale in distributing such shares.  A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Securian Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Securian Financial, and must seek, upon request, to
arrange for payroll deduction or other bulk transmission of investments to the
Funds.


WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES

         Directors and officers of Advantus Capital, CSAM (with respect to
Enterprise Fund only), State Street (with respect to Venture Fund only),
Securian Financial, the Funds, Minnesota Life, or any of Minnesota Life's
other affiliated companies, and their full-time and part-time employees,
sales representatives and retirees, any trust, pension, profit-sharing, or
other benefit plan for such persons, the spouses, siblings, direct ancestors
or direct descendants of such persons, independent legal counsel to the
Funds' independent directors, Minnesota Life and its affiliates themselves,
advisory clients of Advantus Capital, employees of sales representatives
employed in offices maintained by such sales representatives, certain
accounts as to which a bank or broker-dealer charges an account management
fee, provided the bank or broker-dealer has an agreement with Securian
Financial, certain accounts sold by registered investment advisers who charge
clients a fee for their services, investors who, within 60 days after
redeeming shares of a class of shares generally subject to either an initial
or deferred sales charge issued by a non-Advantus fund, use those redemption
proceeds to purchase Class A shares from Securian Financial or a
broker-dealer that has entered into an agreement with Securian Financial
specifically providing for net asset value purchases, and employer-sponsored
retirement plans described in Sections 401 or 403, or governmental retirement
plans described in Section 457, of the Internal Revenue Code with total plan
assets of not less than $500,000, may purchase Class A shares of the Advantus
Multiple Class Funds at net asset value. These persons must give written
assurance that they have bought for investment purposes, and that the
securities will not be resold except through redemption or repurchase by, or
on behalf of, the respective Fund. These persons are not required to pay a
sales charge because of the reduced sales effort involved in their purchases.

                      EXCHANGE AND TRANSFER OF FUND SHARES

         A shareholder can exchange some or all of his or her Class A, Class B
and Class C shares in the Advantus Multiple Class Funds, including shares
acquired by reinvestment of dividends, for shares of the same class of any of
the other Advantus Multiple Class Funds (provided such Fund is available in the
shareholder's State), and can thereafter re-exchange such exchanged shares back
for shares of the same class of the Fund. Purchases by exchange are subject to
the minimum investment requirements of the Funds. The exchange will be made on
the basis of the relative net asset values without the imposition of any
additional sales load. When Class B shares acquired through the exchange are
redeemed, the shareholder will be treated as if no exchange took place for the
purpose of determining the contingent deferred sales charge ("CDSC") period and
applying the CDSC.

         Class A, Class B and Class C shares may also be exchanged for shares of
the Money Market Fund at net asset values. No CDSC will be imposed at the time
of any such exchange of Class B shares; however, the Money Market Fund shares
acquired in any such exchange will remain subject to the CDSC otherwise
applicable to such Class B shares as of the date of exchange, and the period
during which such shares of Money Market Fund are held will not be included in
the calculation of the CDSC due at redemption of such Money Market Fund shares
or any reacquired Class B shares, except as follows. Securian Financial is
currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the
event Securian Financial begins to receive any portion of such fee, either (i)
the time period during which shares of Money Market Fund acquired in exchange
for Class B shares are held will be included in the calculation of the CDSC due
at redemption, or (ii) such time period will not be included but the amount of
the CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money
Market Fund with respect to those shares.

         Exchanges of shares from Money Market Fund are subject to applicable
sales charges of the Advantus Fund being purchased, unless the Money Market Fund
shares were previously acquired by an exchange from Class A or Class B shares of
another Advantus Fund or by reinvestment or cross-reinvestment of dividends or
capital gains distributions. Shares of Money Market Fund previously acquired in
an exchange for Class A, Class B or Class C shares from any of the Funds may be
re-exchanged at relative net asset values for Class A, Class B and Class C
shares, respectively, of another Advantus Fund. Class C shares re-acquired in
this manner will have a remaining holding period prior to conversion equal to
the remaining holding period applicable to the prior Class C shares at the time
of the initial exchange.

         The exchange privilege is available only in states where such exchanges
may legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, (unless the shareholder has elected on the account application

                                       36


not to have telephone transaction privileges) or by Internet. Up to twelve
exchanges each calendar year may be made without charge. A $7.50 service charge
will be imposed on each subsequent exchange and/or telephone transfer. No
service charge is imposed in connection with systematic exchange plans. However,
the Fund reserves the right to restrict the frequency of, or otherwise modify,
condition, terminate, or impose additional charges upon, the exchange and/or
telephone transfer privileges and/or Internet transactions, upon 60 days' prior
notice to shareholders. An exchange is considered to be a sale of shares for
federal income tax purposes on which an investor may realize a long- or
short-term capital gain or loss. See "Distributions and Tax Status" for a
discussion of the effect of redeeming shares within 90 days after acquiring them
and subsequently acquiring new shares in any mutual fund at a reduced sales
charge.


SYSTEMATIC EXCHANGE PLAN

     Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis.  The minimum amount which may be exchanged on such a systematic
basis is $50.  The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.

                            SHAREHOLDER SERVICES

OPEN ACCOUNTS

     A shareholder's investment is automatically credited to an open account
maintained for the shareholder by PFPC, the Funds' transfer agent.  Stock
certificates are not currently issued.  Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account.  After the close of each year PFPC sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year.  This should be retained as a permanent
record.  A fee may be charged for providing duplicate information.

     The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.

     The costs of maintaining the open account system are paid by each Fund.
No direct charges are made to shareholders, the costs of maintaining the open
account system are paid by each Fund. No direct charges are made to
shareholders, except that the Funds will deduct a $10 annual fee from a
shareholder's account in December of each year if the account balance at that
time is below $2000. This low balance fee is waived for qualified retirement
accounts and for investors who have aggregate Advantus Fund account assets of
$25,000 or more (only shares held directly in the investor's name, rather
than in a broker's name, are aggregated for this purpose). Although the Funds
have no present intention of making additional direct charges to
shareholders, they reserve the right to do so. Shareholders will receive
prior notice before any such charges are made.

AUTOMATIC INVESTMENT PLAN

     Each Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").

     The principal purposes of the Plan are to encourage thrift by enabling
you to make regular purchases in amounts less than normally required, and, in
the case of each of the Advantus Funds other than Money Market Fund, to
employ the principle of dollar cost averaging, described below.

     By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging.  Under
dollar cost averaging, if a constant amount is invested at regular intervals at
varying price levels, the average cost of all the shares will be lower than the
average of the price levels.  This is because the same fixed number of dollars
buys more shares when price levels are low and fewer shares when price levels
are high.  There is no guarantee, however, that the automatic investment plan
will always result in a lower cost per share compared to other investment
programs.  It is essential that the investor consider his or her financial
ability to continue this investment program during times of market decline as
well as market rise.  The principle of dollar cost averaging will not protect
against loss in a declining market, as a loss will result if the plan is
discontinued when the market value is less than cost.


                                       37


     A Plan may be opened with an initial investment of $500 and by
indicating an intention to invest $50 ($25 for plans established prior to
December 2, 2002) or more monthly for at least one year.  Investors will
receive a confirmation showing the number of shares purchased, purchase
price, and subsequent new balance of shares accumulated.

     An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty.  Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash.  The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.

GROUP SYSTEMATIC INVESTMENT PLAN

     This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans.  The Plan
may be started with an initial cash investment of $50 per participant for a
group consisting of five or more participants.  The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value.  To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account.  If the
group is reduced to less than five participants, the minimums set forth under
"Automatic Investment Plan" shall apply.  The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.

RETIREMENT PLANS OFFERING TAX BENEFITS

     The federal tax laws provide for a variety of retirement plans offering tax
benefits.  These plans may be funded with shares of any of the Funds.  The plans
include H.R. 10 (Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRA's), corporate pension trust and profit
sharing plans, including 401(k) plans, and retirement plans for public school
systems and certain tax exempt organizations, e.g. 403(b) plans.


     The initial investment in each Fund by such a plan must be at least $250
for each participant in a plan, and subsequent investments must be at least $25
per month for each participant.  Income dividends and capital gain distributions
must be reinvested.  Plan documents and further information can be obtained from
Securian Financial.


     An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.

SYSTEMATIC WITHDRAWAL PLANS

     An investor owning shares in any one of the Funds having a value of
$5,000 or more at the current public offering price may establish a
Systematic Withdrawal Plan providing for periodic payments of a fixed or
variable amount. Withdrawal payments for Class A shares of the Advantus
Multiple Class Funds purchased in amounts of $1 million or more, and for Class B
shares of Advantus Multiple Class Funds, may also be subject to a CDSC.  As a
result, a shareholder should consider whether a Systematic Withdrawal Plan is
appropriate.  It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.

     The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees.  Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
respective Fund and to continue the tax-free accumulation of income and capital
gains prior to their distribution to the employee.  An investor may terminate
the Plan at any time.  A form for use in establishing such a plan is available
from Securian Financial.


                                       38


     A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.).  The initial payment under a variable payment option may be
$50 or more.

     All shares under the Plan must be left on deposit.  Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.

     Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.

     Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the respective Fund
under this Plan, other than by reinvestment of distributions, it should be
understood that, in the case of Class A shares, he or she would be paying a
sales commission on such purchases, while liquidations effected under the Plan
would be at net asset value, and, in the case of Class B shares, he or she would
be purchasing such shares at net asset value while liquidations effected under
the Plan would involve the payment of a contingent deferred sales charge.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater.  A
shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously as it is not, as explained above,
advantageous to do so.

                                    REDEMPTIONS

     Registered holders of shares of the Funds may redeem their shares at the
per share net asset value ("NAV") next determined following receipt by PFPC
(at its mailing address listed on the cover page) of a written redemption
request signed by all shareholders exactly as the account is registered (and
a properly endorsed stock certificate if one has been issued).  A sale order
received by PFPC from a financial services firm after NAV is determined that
day will nonetheless be processed at that day's NAV if the order was received
by the firm from its customer prior to such determination and transmitted to
and received by PFPC prior to its close of business that day. Class C shares
may be redeemed without charge.  A contingent deferred sales charge may be
applicable upon redemption of certain Class A shares and Class B shares.
Both share certificates and stock powers, if any, tendered in redemption must
be endorsed and executed exactly as the Fund shares are registered.  Any
certificates should be sent to the Fund by certified mail.

     Payment will be made as soon as possible, but generally not later than
seven days after receipt of a properly executed written redemption request
(and any certificates).  Sales proceeds from shares purchased by check or
bank draft, other than checks from government agencies, will not be available
until the check or draft clears the purchaser's bank, which may take up to
fifteen days after purchase. The amount received by the shareholder may be
more or less than the shares' original cost.

     If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission.  The Fund's FAX number is
(508) 871-9960.

     Each Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of such period.
When redemption requests exceed such amount, however, the Fund reserves the
right to make part or all of the payment in the form of securities or other
assets of the Fund.  An example of when this might be done is in case of
emergency, such as in those situations enumerated in the following paragraph,
or at any time a cash distribution would impair the liquidity of the Fund to
the detriment of the existing shareholders.  Any securities being so
distributed would be valued in the same manner as the portfolio of the Fund


                                       39


is valued. If the recipient sold such securities, he or she probably would
incur brokerage charges.  Each Fund has filed with the Securities and Exchange
Commission a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in kind.

     Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations of
the SEC shall govern as to whether the conditions prescribed in (b) or (c)
exist.


MEDALLION SIGNATURE GUARANTEE

     In order to protect both shareholders and the Funds against fraudulent
orders, a medallion shareholder signature guarantee is required in certain
cases. No signature guarantee is required if the redemption proceeds are less
than $50,000 and are to be paid to the registered holder and sent to the
address of record for that account, or if the written redemption request is
from pre-authorized trustees of plans, trusts and other tax-exempt
organizations and the redemption proceeds are less than $50,000.

     A medallion signature guarantee is required, however, if (i) the
redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to
be paid to someone other than the registered holder, (iii) the redemption
proceeds are to be mailed to an address other than the registered
shareholder's address, (iv) within the 30-day period prior to receipt of the
redemption request, instructions have been received to change the
shareholder's address of record, or, in the case of redemptions to be paid by
wire, instructions have been received within such period to change the
shareholder's bank wire instructions, (v) the shares are requested to be
transferred to the account of another owner, or (vi) in the case of plans,
trusts, or other tax-exempt organizations, the redemption request is not from
a pre-authorized trustee.  The Fund reserves the right to require signature
guarantees on all redemptions.

     A signature guarantee must be a "medallion" signature guarantee provided
by a domestic bank or trust company, broker, dealer, clearing agency,
savings association, or other financial institution which participates in a
medallion program recognized by the Securities Transfer Association.  The
three recognized medallion programs are:

- -  Securities Transfer Agents Medallion Program (STAMP)

- -  Stock Exchanges Medallion Program (SEMP)

- -  New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP)

Signature guarantees from financial institutions which are not participants in
a recognized medallion program will not be accepted.

CONTINGENT DEFERRED SALES CHARGE

     The CDSC applicable upon redemption of Class A shares purchased in
amounts of $1 million or more and Class B shares will be calculated on an
amount equal to the lesser of the net asset value of the shares at the time
of purchase or their net asset value at the time of redemption.  No charge
will be imposed on increases in net asset value above the initial purchase
price.  In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions or on shares held
for longer than the applicable CDSC period.  See "Sales Charges - Class B
Shares" above.

     In determining whether a CDSC is payable with respect to any redemption
of Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged.


                                       40


     The CDSC does not apply to:  (1) redemption of Class B shares in
connection with the automatic conversion to Class A shares; (2) redemption of
shares when a Fund exercises its right to liquidate accounts which are less
than the minimum account size; (3) redemptions in the event of the death or
disability of the shareholder within the meaning of Section 72(m)(7) of the
Internal Revenue Code; and (4) in connection with Class B shares redeemed
pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares
equal in amount to 12% of the value of a shareholder's account in a Fund at
the time the Systematic Withdrawal Plan is established. The CDSC will also
not apply to certain exchanges.  See "Exchange and Transfer of Fund Shares,"
above.

TELEPHONE REDEMPTION

     The Funds' shareholders have this privilege automatically, unless they
have elected on the account application not to have such privilege, and may
redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions").  A telephone redemption request will not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30-day
period prior to receipt of the redemption request.  The maximum amount which
may be redeemed by telephone is $50,000.  The proceeds will be sent by check
to the address of record for the account.  If the amount is $500 or more, and
if the shareholder has designated a bank account, the proceeds may be wired
to the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund.  The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

INTERNET REDEMPTION

The Funds' shareholders may elect to perform certain transactions via the
Internet.  In order to do so, the shareholder must first authorize the Fund
to transmit information on-line and agree to the Funds' web site procedures.
Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more
information on how to enable an account.  Internet transactions may not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30 day
period prior to receipt of the redemption request.  The maximum amount which
may be redeemed by internet is $50,000.  The proceeds will be sent by check
to the address of record for the account.  If the amount is $500 or more, and
if the shareholder has designated a bank account, the proceeds may be wired
to the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund.  The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

DELAY IN PAYMENT OF REDEMPTION PROCEEDS

     Payment of redemption proceeds will ordinarily be made as soon as
possible and within the periods of time described above.  However, an
exception to this is that if redemption is requested after a purchase by
check or bank draft, other than checks from government agencies, the Fund
will delay mailing the redemption check or wiring proceeds until it has
reasonable assurance that the purchase check has cleared (good payment has
been collected).  This delay may be up to 15 days from the purchase date.

FUND'S RIGHT TO REDEEM SMALL ACCOUNTS

     Each Fund has the right to redeem the shares in small accounts which,
for any reason, have a total current value of less than $150 in 2002, or $500
in subsequent years. The Funds usually make this determination in December of
each year.  Before redeeming an account, the Fund will mail to the
shareholder a written notice of its intention to redeem, which will give the
investor an opportunity to make an additional investment.  If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed.

REINSTATEMENT PRIVILEGE

     The Prospectus for the Funds describes redeeming shareholders'
reinstatement privileges in "Buying and Selling Shares" in the Funds'
Prospectus.  Written notice from persons wishing to exercise this
reinstatement privilege must be received by Securian Financial within 90 days
after the date of the redemption.  The reinstatement or exchange will be made
at net asset value next determined after receipt of the notice and will be
limited to the amount of the redemption proceeds or to the nearest full share
if fractional shares are not purchased.  All shares issued as a result of the
reinstatement privilege applicable to redemptions of Class A and Class B
shares will be issued only as Class A shares.  Any CDSC incurred in
connection with the prior redemption (within 90 days) of Class B shares will
not be refunded or re-credited to the shareholder's account.  Shareholders
who redeem Class C shares and exercise their reinstatement privilege will be
issued only Class C shares, which shares will have a remaining holding period
prior to conversion equal to the remaining holding period applicable to the
prior Class C shares at redemption.

     See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge.  Should an investor
utilize the reinstatement privilege following a redemption which resulted in a


                                       41


loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt.  See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.

                               TELEPHONE TRANSACTIONS

     Shareholders of the Funds are permitted to exchange or redeem a Fund's
shares by telephone.  See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details.  The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.

     Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
at (800) 665-6005.  Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time).  Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day.  The maximum
amount which may be redeemed by telephone is $50,000.  During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls.  In such a circumstance, shareholders should consider
submitting a written request as an alternative to a telephone exchange or
redemption.  The Funds reserve the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.

     A Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions.  The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.


                               INTERNET TRANSACTIONS

            Shareholders of the Funds are permitted to exchange or redeem a
Fund's share via the Internet.  See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details.  The privilege to initiate such transactions
via Internet requires that a shareholder contact Advantus at (800) 665-6005 to
enable their account.

            Shareholders, or persons authorized by shareholders, may initiate
Internet transactions by going to the Advantus Funds web site,
www.advantusfunds.com.  Automated service is generally available 24 hours a day.
Internet transaction requests received after 3:00 p.m. (Central time) will be
treated as received the next business day.  The maximum amount which may be
redeemed via Internet is $50,000.  During periods of marked economic or market
changes, shareholders may experience difficulty in implementing an on-line
exchange or redemption due to a heavy volume.  In such a circumstance,
shareholders should consider submitting a written request as an alternative to
an on-line exchange or redemption.  The Funds reserve the right to modify,
terminate or impose charges upon the Internet on-line exchange and redemption
privileges upon 60 days' prior notice to shareholders.

            A Fund will not be liable for following instructions communicated
by Internet which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated via the Internet are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions.  The
procedures for processing Internet transactions include requiring shareholders
to contact Advantus in order to establish their on-line account, asking
shareholders for their account number and a personal identifying number,
providing a confirmation number on-screen, at the completion of an on-line
transaction, and providing written confirmation of such transactions.


                           THE STANDARD & POOR'S LICENSE

     Standard & Poor's ("S&P") is a division of The McGraw-Hill Companies, Inc.
S&P has trademark rights to the marks "Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's
500" and "500" and has licensed the use of such marks by the Index Fund.

     Index Fund is not sponsored, endorsed, sold or promoted by S&P.  S&P makes
no representation or warranty, express or implied, to the owners of the Index
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Index Fund particularly or the ability of the S&P
500 Index to track general stock market performance.  S&P's only relationship to
the Index Fund is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Fund.  S&P has no obligation to take the needs of the Index Fund
or the owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index.  S&P is not responsible for and has not
participated in the determination of the net asset value or public offering
price of the Index Fund nor is S&P a distributor of the Fund.  S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Index Fund.

     S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.  S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN.  S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE


                                       42


OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.  WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

                            DISTRIBUTIONS AND TAX STATUS

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

     The policy of the Funds has been to pay dividends from net investment
income quarterly.  Any net realized capital gains are generally distributed once
a year, during December.  Distributions paid by the Funds, if any, with respect
to Class A, Class B and Class C shares will be calculated in the same manner, at
the same time, on the same day and will be in the same amount, except that the
higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne
exclusively by such shares.  The per share distributions on Class B and Class C
shares will be lower than the per share distributions on Class A shares as a
result of the higher Rule 12b-1 fees applicable to Class B and Class C shares.

     Any dividend payments or net capital gains distributions made by the
Funds are in the form of additional shares of the same class of the Fund
rather than in cash, unless a shareholder specifically requests the Fund in
writing that the payment be made in cash.  The distribution of these shares
is made at net asset value on the payment date of the dividend, without any
sales or other charges to the shareholder.  The taxable status of income
dividends and/or net capital gains distributions is not affected by whether
they are reinvested or paid in cash.  Authorization to pay dividends in cash
may be made on the application form, or at any time by letter.

     Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Advantus
Money Market Fund or shares of the same class of another of the Advantus
Funds at the net asset value of such other Fund on the payable date for the
dividends being distributed.  To use this privilege of investing dividends
from a Fund in shares of another of the Funds, shareholders must maintain a
minimum account value of $500 in both the Fund paying the dividends and the
other Fund in which dividends are reinvested.

TAXATION - GENERAL

     The following is a general summary of certain federal tax considerations
affecting the Funds and their shareholders.  No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here is not intended as a substitute for careful tax
planning.

     During the year ended July 31, 2002 each Fund fulfilled, and intends to
continue to fulfill, the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), as a regulated investment company.  If
so qualified, each Fund will not be liable for federal income taxes to the
extent it distributes its taxable income to its shareholders.

     Distributions of investment company taxable income from a Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock.  A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares.  Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.

     Some or all of the dividend distributions from each Fund are expected to
qualify for the 70% dividend received deduction for corporations, except that
dividend distributions from the Real Estate Securities Fund attributable to
dividends that the Fund receives from REITs will not qualify for such
dividend received deduction for corporations.

     Prior to purchasing shares of a Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends or


                                       43


capital gains distributions which are expected to be announced, or have been
announced but not paid.  Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions.  All or a portion of such dividends or
distributions, although in effect a return of capital, is subject to taxation.

     The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares.  The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.

     Shareholders of the Funds receive an annual statement detailing federal tax
information.  Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.

     The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations.  In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.

     Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and affect the character of the gains or losses realized.  These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes.  Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities.  Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.

     The Real Estate Securities Fund may invest in REITs that hold residual
interests in real estate mortgage investment conduits ("REMICs"). Under Treasury
regulations that have not yet been issued, but may apply retroactively, a
portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by them with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions) and (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax on
unrelated business income, thereby potentially requiring such an entity that is
allocated excess inclusion income, and otherwise might not be required to file a
tax return, to file a tax return and pay tax on some income. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year thatis allocable to the
disqualified organization, multiplied by the highest Federal income tax rate
imposed on corporations.


                                       44


     Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed.  In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.

     The foregoing relates only to federal taxation.  Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.

                                FINANCIAL STATEMENTS

     Each Fund's financial statements for the fiscal year ended July 31,
2002, including the financial highlights for each of the respective periods
presented, appearing in the Funds' Annual Report to Shareholders, and the
report thereon of such Fund's independent auditors, KPMG LLP, also appearing
therein, are incorporated by reference in this Statement of Additional
Information.


                                       45


                                      APPENDIX A

                          BOND AND COMMERCIAL PAPER RATINGS

BOND RATINGS

     Moody's Investors Service, Inc. describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:

     Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge."  Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure.  While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

     Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

     Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

     Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured.  Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time.  Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

     Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured.  Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future.  Uncertainty of position
characterizes bonds in this class.

     Bonds which are rated B generally lack characteristics of the desirable
investment.  Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

     Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications.  The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

     Standard & Poor's Corporation describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:

     AAA.  Debt rated "AAA" has the highest rating assigned by Standard &
Poor's.  Capacity to pay interest and repay principal is extremely strong.

     AA.  Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

     A.  Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.


                                         A-1


     BBB.  Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal.  Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

     BB.  Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt.  However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.

     B.  Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.  Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.  The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.

     Standard & Poor's Corporation applies indicators "+", no character, and "-"
to the above rating categories.  The indicators show relative standing within
the major rating categories.

COMMERCIAL PAPER RATINGS

     The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc.  Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following:  (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.

     The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:

     Liquidity ratios of the issuer are adequate to meet cash redemptions.
     Long-term senior debt is rated "A" or better.  The issuer has access to at
     least two additional channels of borrowing.  Basic earnings and cash flow
     have an upward trend with allowance made for unusual circumstances.
     Typically, the issuer's industry is well established and the issuer has a
     strong position within the industry.  The reliability and quality of
     management are unquestioned.


                                       A-2


                        APPENDIX B - FUTURES CONTRACTS

EXAMPLE OF FUTURES CONTRACT SALE

     The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany
a decline in long-term securities prices.  Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds").  The Fund wishes to fix the current market value of this portfolio
security until some point in the future.  Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated
rise in interest rates, the value will decline to $95.  The Fund might enter
into futures contract sales of Treasury bonds for a price of $98. If the
market value of the portfolio security does indeed decline from $100 to $95,
the futures market price for the Treasury bonds might also decline from $98
to $93.

     In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale.  Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation
between cash and futures prices mentioned above.

     The Fund could be wrong in its forecast of interest rates and the
futures market price could rise above $98.  In this case, the market value of
the portfolio securities, including the portfolio security being protected,
would increase.  The benefit of this increase would be reduced by the loss
realized on closing out the futures contract sale.

     If interest rate levels did not change prior to settlement date, the
Fund, in the above example, would incur a loss of $2 if it delivered the
portfolio security on the settlement date (which loss might be reduced by an
offsetting transaction prior to the settlement date).  In each transaction,
nominal transaction expenses would also be incurred.

EXAMPLE OF FUTURES CONTRACT PURCHASE

     The Fund would engage in a futures contract purchase when it is not
fully invested in long-term securities but wishes to defer for a time the
purchase of long-term securities in light of the availability of advantageous
interim investments, e.g., short-term securities whose yields are greater
than those available on long-term securities.  The Fund's basic motivation
would be to maintain for a time the income advantage from investing in the
short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of the increases in market price of the
long-term securities that the Fund may purchase.

     For example, assume that the market price of a long-term security that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds.  The Fund wishes to fix the current
market price (and thus 10% yield) of the long-term security until the time
(four months away in this example) when it may purchase the security.

     Assuming the long-term security has a market price of $100, and the Fund
believes that, because of an anticipated fall in interest rates, the price
will have risen to $105 (and the yield will have dropped to about 9-1/2%) in
four months, the Fund might enter into futures contracts purchases of
Treasury bonds for a price of $98.  At the same time, the Fund would assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term
security at an assumed market price of $100.  Assume these short-term
securities are yielding 15%.  If the market price of the long-term bond does
indeed rise from $100 to $105, the futures market price for Treasury bonds
might also rise from $98 to $103.  In that case, the $5 increase in the price
that the Fund pays for the long-term security would be offset by the $5 gain
realized by closing out the futures contract purchase.

    The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could
fall below $98.  If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term securities.  The market prices of available long-term securities
would have decreased.  The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.

    If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term securities.  The yields on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
security, would remain higher than yields on long-term bonds.  The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase.

     In each transaction, nominal transaction expenses would also be incurred.

TAX TREATMENT

     The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes.  Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year.  Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60 percent of such gain or
loss will be treated as long-term capital gain or loss.  The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or
other disposition of these futures contracts will be adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contract.  Notwithstanding the rules
described above, with respect to futures contracts which are part of futures
contract sales, and in certain other situations, the Fund may make an
election which may have the effect of exempting all or a part of those
identified future contracts from being treated for federal income tax
purposes as sold on the last business day of the Fund's taxable year; all or
part of any gain or loss otherwise realized by the Fund on any closing
transaction may be deferred until all of the Fund's positions with respect to
the futures contract sales are closed; and, all or part of any gain or loss
may be treated as short-term capital gain or loss.

     Under the Federal income tax provisions applicable to regulated
investment companies, at least 90% of the Fund's annual gross income must be
derived from dividends, interest, payments with respect to loans of
securities, and gains from the sale or other disposition of securities
("qualifying income").  Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Fund may include gains from forward contracts in
determining qualifying income. In addition, in order that the Fund continue
to qualify as a regulated investment company for Federal income tax purposes,
less than 30% of its gross income for any year must be derived from gains
realized on the sale or other disposition of securities held by the Fund for
less than three months.  For this purpose, the Fund will treat gains realized
on the closing out of futures contracts as gains derived from the sale of
securities.  This treatment could, under certain circumstances, require the
Fund to defer the closing out of futures contracts until after three months
from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time.  However, under
the Code, a special rule is provided with respect to certain hedging
transactions which has the effect of allowing the Fund to engage in such
short-term transactions in limited circumstances.  Any gains realized by the
Fund as a result of the constructive sales of futures contacts held by the
Fund at the end of its taxable year, as described in the preceding paragraph,
will in all instances be treated as derived from the sale of securities held
for three months or more, regardless of the actual period for which the Fund
has held the futures contracts at the end of the year.

EX-99.(17)(T)

                                                                 Exhibit (17)(t)

                        STATEMENT OF ADDITIONAL INFORMATION


                          ADVANTUS CORNERSTONE FUND, INC.
                           ADVANTUS ENTERPRISE FUND, INC.
                             ADVANTUS HORIZON FUND, INC.
                           ADVANTUS INDEX 500 FUND, INC.
                       ADVANTUS REAL ESTATE SECURITIES FUND, INC.
                            ADVANTUS VENTURE FUND, INC.


                 November 29, 2002, as supplemented May 1, 2003


















     This Statement of Additional Information is not a prospectus.  This
Statement of Additional Information relates to the separate Prospectus dated
November 29, 2002  and supplemented April 24, 2003 and should be read in
conjunction therewith.


     The Funds' audited Annual Report dated July 31, 2002, which either
accompanies this Statement of Additional Information or has previously been
provided to the investor to whom this Statement of Additional Information is
being sent, is incorporated herein by reference.

     A copy of the Prospectus and Annual Report may be obtained by telephone
from Advantus Shareholder Services at (800) 665-6005 or by writing to the
Funds at Advantus Funds Group, P.O. Box 9767, Providence, Rhode Island
02940-9767.

                                          1


                                 TABLE OF CONTENTS

GENERAL INFORMATION AND HISTORY

INVESTMENT OBJECTIVES AND POLICIES
     Fund Names and Investment Policies
     Equity Securities of Small Capitalization Companies
     S&P 500 Index
     Real Estate Investment Trust Securities
     Debt and Money Market Securities
     Low Rated Securities
     Convertible Securities
     Foreign Securities
     Futures Contracts and Options on Futures Contracts
     Options

     U.S. Government Obligations
     Obligations of Non-Domestic Banks

     Short Sales Against the Box
     Loans of Portfolio Securities
     Restricted and Illiquid Securities
     Repurchase Agreements
     Warrants
     Index Depositary Receipts
     When-Issued Securities and Forward Commitments
     Defensive Purposes

INVESTMENT RESTRICTIONS
     Fundamental Restrictions
     Non-Fundamental Restrictions

PORTFOLIO TURNOVER

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTOR LIABILITY


INVESTMENT ADVISORY AND OTHER SERVICES
     General
     Control and Management of Advantus Capital and Securian Financial
     Control and Management of WRIICO
     Investment Advisory Agreement with Advantus Capital
     Investment Advisory Agreement with WRIICO
     The Funds' Investment Advisory Fees
     Enterprise Fund Sub-Advisor --
        CSAM
     Enterprise Fund Investment
        Sub-Advisory Agreement --
        CSAM


     Venture Fund Sub-Adviser --
        State Street
     Venture Fund Investment
        Sub-Advisory Agreement --
        State Street


     Annual Approval of Advisory
        and Sub-Advisory Agreements
     Approval of the Interim Agreement
     Code of Ethics
     Distribution Agreement
     Payment of Certain Distribution Expenses of the Funds
     Transfer Agent and Administrative Services


PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE


     The Investment Advisers' Brokerage Practices
     Sub-Advisers' Brokerage Practices


CALCULATION OF PERFORMANCE DATA

CAPITAL STOCK AND OWNERSHIP OF SHARES

HOW TO BUY SHARES
     Alternative Purchase Arrangements
     Purchase by Check
     Purchase by Wire
     Purchase by Internet
     Timing of Purchase Orders
     Minimum Investments
     Public Offering Price

SALES CHARGES
     Class A Shares
     Class B Shares
     Class C Shares
     Other Payments to Broker-Dealers

NET ASSET VALUE AND PUBLIC OFFERING PRICE

REDUCED SALES CHARGES
     Right of Accumulation-Cumulative Purchase Discount
     Letter of Intent
     Combining Purchases
     Group Purchases
     Waiver of Sales Charges For Certain Sales of Class A Shares

EXCHANGE AND TRANSFER OF FUND SHARES
     Systematic Exchange Plan

SHAREHOLDER SERVICES
     Open Accounts
     Automatic Investment Plan
     Group Systematic Investment Plan
     Retirement Plans Offering Tax Benefits
     Systematic Withdrawal Plans

REDEMPTIONS

     Medallion Signature Guarantee

     Contingent Deferred Sales Charge
     Telephone Redemption
     Internet Redemptions
     Delay in Payment of Redemption Proceeds
     Fund's Right to Redeem Small Accounts
     Reinstatement Privilege

TELEPHONE TRANSACTIONS


INTERNET TRANSACTIONS


THE STANDARD & POOR'S LICENSE

DISTRIBUTIONS AND TAX STATUS
     Dividends and Capital Gains Distributions
     Taxation - General
     Taxation on Portfolio Holdings

FINANCIAL STATEMENTS
Appendix A - Bond and Commercial Paper Ratings
     Bond Ratings
     Commercial Paper Ratings
Appendix B - Futures Contracts
     Example of Futures Contract Sale
     Example of Futures Contract Purchase
     Tax Treatment


                                       2


                          GENERAL INFORMATION AND HISTORY


     Advantus Cornerstone Fund, Inc. ("Cornerstone Fund"), Advantus Enterprise
Fund, Inc. ("Enterprise Fund"), Advantus Horizon Fund, Inc. ("Horizon Fund"),
Advantus Index 500 Fund, Inc. ("Index Fund"), Advantus Real Estate Securities
Fund, Inc. ("Real Estate Securities Fund") and Advantus Venture Fund, Inc.
("Venture Fund"), collectively referred to as the "Funds," are open-end
diversified investment companies, commonly called mutual funds. The Funds,
together with Advantus Bond Fund, Inc., Advantus International Balanced Fund,
Inc., Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc.,
Advantus Spectrum Fund, Inc. and Advantus Series Fund, Inc. are members of a
family of mutual funds known as the "Advantus Funds."  Each of the Advantus
Funds, excluding Advantus Money Market Fund, Inc. and Advantus Series Fund,
Inc., offers more than one class of shares (the "Advantus Multiple Class
Funds"). The Advantus Multiple Class Funds currently offer three classes of
shares (Class A, Class B and Class C), except for Real Estate Securities Fund
which currently offers two classes of shares (Class A and Class B). Each class
is sold pursuant to different sales arrangements and bears different expenses.
Horizon Fund was incorporated as a Minnesota corporation in October 1984.
Cornerstone and Enterprise Funds were incorporated as Minnesota corporations in
January 1994. The Venture and Index Funds were incorporated as Minnesota
corporations in July 1996. The Real Estate Securities Fund was incorporated as a
Minnesota corporation in September 1998.


                         INVESTMENT OBJECTIVES AND POLICIES

     The investment objectives and principal investment policies of each of
the Funds are set forth in detail in the text of the Funds' Prospectus under
"Investing in the Funds --Investment Policies and Practices."

FUND NAMES AND INVESTMENT POLICIES

     Real Estate Securities Fund and Index Fund have names that suggest a
focus on a particular type of investment or index. In accordance with Rule 35d-1
under the Investment Company Act of 1940 (the "1940 Act"), each of those Funds
has adopted a policy that it will, under normal circumstances, invest at least
80% of its assets in investments of the type suggested by its name. For this
policy, "assets" means net assets plus the amount of any borrowings for
investment purposes. In addition, in appropriate circumstances, synthetic
investments may be included in the 80% basket if they have economic
characteristics similar to the other investments included in the basket. A
Fund's policy to invest at least 80% of its assets in such a manner is not a
"fundamental" one, which means that it may be changed without the vote of a
majority of the Fund's outstanding shares as defined in the 1940 Act. However,
the names of Real Estate Securities Fund and Index Fund may be changed only if
shareholders of each Fund vote to approve a new name by amending such Fund's
articles of incorporation. Such a change requires the vote of a majority of the
shares of the Fund represented, in person or by proxy, at a meeting of
shareholders called for the purpose of voting on such a proposal. Rule 35d-1
also requires that shareholders be given written notice at least 60 days prior
to any change by a Fund of its 80% investment policy.

EQUITY SECURITIES OF SMALL CAPITALIZATION COMPANIES

     Enterprise Fund and Venture Fund will invest primarily in equity
securities issued by small capitalization companies.  To the extent specified
in the Prospectus, other Funds may also invest in such securities. Small
capitalization companies may be in a relatively early stage of development or
may produce goods and services which have favorable prospects for growth due
to increasing demand or developing markets. Frequently, such companies have a
small management group and single product or product-line expertise that may
result in an enhanced entrepreneurial spirit and greater focus which allow
such firms to be successful.  The Fund's investment sub-adviser believes that
such companies may develop into significant business enterprises and that an
investment in such companies offers a greater opportunity for capital
appreciation than an investment in larger more established entities.
However, small capitalization companies frequently retain a large part of
their earnings for research, development and investment in capital assets, so
that the prospects for immediate dividend income are limited.

     While securities issued by smaller capitalization companies have
historically produced better market results than the securities of larger
issuers, there is no assurance that they will continue to do so or that the
Fund will invest specifically in those companies which produce those results.
Because of the risks involved, the Fund is not intended to constitute a
complete investment program.

S&P 500 INDEX

     Index Fund invests in common stocks included in the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").  The S&P 500 is an unmanaged index
of common stocks which emphasizes large capitalization companies and is
comprised of 500 industrial, financial, utility and transportation companies.
The S&P 500 is a well-known stock market index that includes common stocks of
companies representing approximately 70% of the market value of all common
stocks publicly traded in the United States.  The weightings of stock in the S&P
500 are based on each stock's relative capitalization or total market value;
that is, its market price per share times the number of shares outstanding.
Because of this weighting, approximately 50% of the S&P 500 is typically
composed of stocks of the 50 to 60 largest companies in the S&P 500.  The
composition of the S&P 500 may be changed from time to time.  Stocks included in
the S&P 500 are chosen by Standard & Poor's on a statistical basis which
reflects such factors as the market capitalization and trading activity of each
stock and the extent to which each stock is representative of stocks in a
particular industry.  Typically, companies included in the S&P 500 are the
largest and most dominant companies in their respective industries.  The
inclusion of a stock in the S&P 500 in no way implies that Standard & Poor's
believes the stock to be an attractive investment, nor does it afford any
assurance against declines in the price or yield performance of that stock.  The
Fund's investment adviser believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.


                                       3


     The Fund will at all times invest at least 80% of its total assets in
common stocks included in the S&P 500.  There is no minimum or maximum number of
stocks included in the S&P 500 which the Fund must hold.  Under normal
circumstances Advantus Capital generally will seek to match the Fund to the
composition of the S&P 500 to the maximum extent, but may not always invest the
Fund's portfolio to mirror the S&P 500 exactly.  Because of the difficulty and
expense of executing relatively small stock transactions, the Fund may not
always be invested in the less heavily weighted stocks included in the S&P 500,
and may at times have its portfolio weighted differently from the S&P 500,
particularly when the Fund has assets of less than $25 million.  Regardless of
the number, or relative weightings, of stocks included in the S&P 500 held by
the Fund, however, the Fund's intention is to seek investment results, before
sales charges and other Fund expenses, which match as closely as possible the
investment performance of the S&P 500.

     Over the long term, the Fund's investment adviser will seek a correlation
between the performance of the Fund, before sales charges and other Fund
expenses, and that of the S&P 500 of at least 95% (or 85% - 95% if the Fund's
assets are less than $25 million).  A correlation of 100% would indicate perfect
correlation, which would be achieved when the net asset value of the Fund,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500.  An investment in
shares of the Fund therefore involves risks similar to those of investing in a
portfolio consisting of the common stocks of some or all of the companies
included in the S&P 500.

REAL ESTATE INVESTMENT TRUST SECURITIES

     The Cornerstone, Horizon and Real Estate Securities Funds may invest in
securities issued by real estate investment trusts. A real estate investment
trust ("REIT") is a corporation or a business trust that would otherwise be
taxed as a corporation, which meets certain requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). The Code permits a qualifying
REIT to deduct dividends paid, thereby effectively eliminating corporate
level federal income tax and making the REIT a pass-through vehicle for
federal income tax purposes. In order to qualify as a REIT, a company must
derive at least 75% of its gross income from real estate sources (rents,
mortgage interest, and gains from sale of real estate assets), and must
distribute to shareholders annually 95% or more of its taxable income.
Moreover, at the end of each quarter of its taxable year, at least 75% of the
value of its total assets must be represented by real estate assets, cash and
cash items, and U.S. government securities.

     REITs are sometimes informally characterized as equity REITs, mortgage
REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or
leasehold ownership of land and buildings and derives its income primarily from
rental income. A mortgage REIT invests primarily in mortgages on real estate,
and derives primarily from interest payments received on credit it has granted.
A hybrid REIT combines the characteristics of equity REITs and mortgage REITs.
It is anticipated, although not required, that under normal circumstances, a
majority of the Fund investments in REITs will consist of equity REITs.

DEBT AND MONEY MARKET SECURITIES

     Cornerstone, Enterprise, Horizon, Real Estate Securities and Venture
Funds may invest in long, intermediate and short-term debt securities from
various industry classifications and money market instruments. Index Fund may
invest in short-term fixed income securities. Such instruments in which the
Funds may invest include the following:

     *    Corporate obligations which at the time of purchase are rated within
          the four highest grades assigned by Standard & Poor's Corporation
          ("S&P"), Moody's Investors Services, Inc. ("Moody's") or any other
          national rating service, or, if not rated, are of equivalent
          investment quality as determined by the Fund's investment adviser or
          sub-adviser, as the case may be.  To the extent that the Fund invests
          in securities rated BBB or Baa by S&P or Moody's, respectively, it
          will be investing in securities which have speculative elements.
          Venture Fund may also invest up to 10% of its net assets in securities
          (including convertible securities) rated at least B- by S&P or B3 by
          Moody's.  See "Low Rated Securities," below.  For a description of the
          ratings used by Moody's and S&P, see Appendix A below.

     *    Obligations of, or guaranteed by, the U.S. Government, its agencies or
          instrumentalities.

     *    Debt obligations of banks.


                                       4


     In addition to the instruments described above, which will generally be
long-term, but may be purchased by the Fund within one year of the date of a
security's maturity, the Fund may also purchase other high quality securities
including:

     *    Obligations (including certificates of deposit and bankers'
          acceptances) of U.S. banks, savings and loan associations, savings
          banks which have total assets (as of the date of their most recent
          annual financial statements at the time of investment) of not less
          than $2,000,000,000; U.S. dollar denominated obligations of Canadian
          chartered banks, London branches of U.S. banks and U.S. branches or
          agencies of foreign banks which meet the above-stated asset size; and
          obligations of any U.S. banks, savings and loan associations and
          savings banks, regardless of the amount of their total assets,
          provided that the amount of the obligations purchased does not exceed
          $100,000 for any one U.S. bank, savings and loan association or
          savings bank and the payment of the principal is insured by the
          Federal Deposit Insurance Corporation or the Federal Savings and Loan
          Insurance Corporation.

     *    Obligations of the International Bank for Reconstruction and
          Development.

     *    Commercial paper (including variable amount master demand notes)
          issued by U.S. corporations or affiliated foreign corporations and
          rated (or guaranteed by a company whose commercial paper is rated) at
          the date of investment Prime-1 by Moody's or A-1 by S&P or, if not
          rated by either Moody's or S&P, issued by a corporation having an
          outstanding debt issue rated Aa or better by Moody's or AA or better
          by S&P and, if issued by an affiliated foreign corporation, such
          commercial paper (not to exceed in the aggregate 10% of the Fund's net
          assets) is U.S. dollar denominated and not subject at the time of
          purchase to foreign tax withholding.

     The Fund may also invest in securities which are unrated if the Fund's
investment adviser or sub-adviser, as the case may be, determines that such
securities are of equivalent investment quality to the rated securities
described above.  In the case of "split-rated" securities, which result when
nationally-recognized rating agencies rate the security at different rating
levels (e.g., BBB by S&P and Ba by Moody's), it is the Fund's general policy
to classify such securities at the higher rating level where, in the judgment
of the Fund's investment adviser, such classification reasonably reflects the
security's quality and risk.

     The market value of debt securities generally varies in response to changes
in interest rates and the financial condition of each issuer.  During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines.  These changes in market value will be reflected
in the Fund's net asset value.

     The Fund may, however, acquire debt securities which, after acquisition,
are down-graded by the rating agencies to a rating which is lower than the
applicable minimum rating described above.  In such an event it is the Fund's
general policy to dispose of such down-graded securities except when, in the
judgment of the Fund's investment adviser, it is to the Fund's advantage to
continue to hold such securities.  In no event, however, will the Fund hold in
excess of 5% of its net assets in securities which have been down-graded
subsequent to purchase where such down-graded securities are not otherwise
eligible for purchase by the Fund.  This 5% is in addition to securities which
the Fund may otherwise purchase under its usual investment policies.

LOW RATED SECURITIES

     Cornerstone Fund and Venture Fund may also invest up to 10% of their
respective net assets in debt securities (including convertible debt
securities), which, at the time of acquisition, are rated at least B- or B3
by S&P or Moody's, respectively, or rated at a comparable level by another
independent publicly-recognized rating agency, or, if not rated, are of
equivalent investment quality as determined by the Fund's investment adviser.
Cornerstone Fund, Real Estate Securities Fund and Venture Fund may each also
hold an additional 5% of its net assets in low rated securities rated below
"investment grade" (i.e. below BBB) where such securities were either
investment grade or eligible securities at the time of purchase but
subsequently down-graded to a rating not otherwise

                                       5


eligible for purchase by the Fund (see "Debt and Money Market Securities"
above).  Debt securities rated below the four highest categories (i.e., below
BBB) are not considered investment grade obligations and are commonly called
"junk bonds."  These securities are predominately speculative and present
more credit risk than investment grade obligations.  Bonds rated below BBB
are also regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments.

     Low rated and unrated debt securities generally involve greater volatility
of price and risk of principal and income, including the possibility of default
by, or bankruptcy of, the issuers of the securities.  In addition, the markets
in which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded.  The existence of limited
markets for particular securities may diminish the Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to
changes in the economy or in the financial markets and could adversely affect
and cause fluctuations in the daily net asset value of the Funds' shares.

     Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market.  Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of the Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher rated securities.

     Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities.  The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.  A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities.  If the issuer of
low rated debt securities defaults, the Fund may incur additional expenses to
seek recovery.  The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.

CONVERTIBLE SECURITIES

     Each of the Funds other than Index Fund may invest in debt or
preferred equity securities convertible into or exchangeable for equity
securities.  Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities.  They generally participate in the appreciation or depreciation
of the underlying stock into which they are convertible, but to a lesser
degree.  The total return and yield of lower quality (high yield/high risk)
convertible bonds can be expected to fluctuate more than the total return and
yield of higher quality, shorter-term bonds, but not as much as common
stocks.  Cornerstone Fund and Venture Fund will each limit its purchase of
convertible debt securities to those that, at the time of purchase, are rated
at least B- by S&P or B3 by Moody's, or if not rated by S&P or Moody's, are
of equivalent investment quality as determined by the Fund's investment
sub-adviser. See "Low Rated Securities," above. Enterprise Fund, Horizon Fund
and Real Estate Securities Fund will each limit its purchase of convertible
debt securities to those that, at the time of purchase, are rated at least
BBB by S&P or Baa by Moody's, or if not rated by S&P or Moody's, are of
equivalent investment quality as determined by the Fund's investment adviser.

FOREIGN SECURITIES


     Real Estate Securities Fund and Venture Fund may invest up to 10% of their
total assets in securities of foreign issuers which are not publicly traded in
the U.S. (Securities of foreign issuers which are publicly traded in the U.S.,
usually in the form of sponsored American Depositary Receipts (ADRs), are not
subject to this 10% limitation. Index Fund, Real Estate Securities Fund and
Venture Fund may not, however, invest more than 10% of their total assets in
ADRs).



Cornerstone Fund and Horizon Fund may invest up to 25% of their total assets in
securities of foreign issuers which are not publicly traded in the U.S., and
are under no restrictions with respect to ADRs.


Investing in securities of foreign issuers may result in greater risk
than that incurred in investing in securities of domestic issuers.  There is
the possibility of expropriation, nationalization or confiscatory taxation,
taxation of income earned in foreign nations or other taxes imposed with
respect to investments in foreign nations; foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), default in foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations.  In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the U.S.  Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards,
and auditing practices and requirements may not be comparable to those
applicable to U.S. companies. Further, the Fund may encounter difficulties or

                                       6


be unable to pursue legal remedies and obtain judgments in foreign courts.
Commission rates in foreign countries, which are sometimes fixed rather than
subject to negotiation as in the U.S., are likely to be higher.  Further, the
settlement period of securities transactions in foreign markets may be longer
than in domestic markets.  In many foreign countries there is less government
supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the U.S.  The foreign
securities markets of many of the countries in which the Fund may invest may
also be smaller, less liquid, and subject to greater price volatility than
those in the U.S.  Also, some countries may withhold portions of interest,
dividends and gains at the source.  The Fund may also be unfavorably affected
by fluctuations in the relative rates of exchange between the currencies of
different nations (i.e., when the currency being exchanged has decreased in
value relative to the currency being purchased). There are further risk
considerations, including possible losses through the holding of securities
in domestic and foreign custodial banks and depositories.

     The countries of the European Monetary Union (EMU) began the process of
converting their individual country currencies to the Euro on January 1, 1999.
There is also a risk that the value of foreign securities of companies located
in EMU countries may decrease due to market volatility resulting from the
conversion of certain EMU country currencies to the Euro.  It is not possible to
predict the impact of the Euro on the business or financial condition of
European issues or on the Fund.  The transition and the elimination of currency
risk among EMU countries may change the economic environment and behavior of
investors, particularly in European markets.  To the extent the Fund holds
non-U.S. dollar (Euro or other) denominated securities, it will still be exposed
to currency risk due to fluctuations in those currencies versus the U.S. dollar.

         An American Depositary Receipt ("ADR") is a negotiable certificate,
usually issued by a U.S. bank, representing ownership of a specific number of
shares in a non - U.S. corporation. ADRs are quoted and traded in U.S. dollars
in the U.S. securities market. An ADR is sponsored if the original issuing
company has selected a single U.S. bank to serve as its U.S. depositary and
transfer agent. This relationship requires a deposit agreement which defines the
rights and duties of both the issuer and depositary. Companies that sponsor ADRs
must also provide their ADR investors with English translations of company
information made public in their own domiciled country. Sponsored ADR investors
also generally have the same voting rights as ordinary shareholders, barring any
unusual circumstances. ADRs which meet these requirements can be listed on U.S.
stock exchanges. Unsponsored ADRs are created at the initiative of a broker or
bank reacting to demand for a specific foreign stock. The broker or bank
purchases the underlying shares and deposits them in a depositary. Unsponsored
shares issued after 1983 are not eligible for U.S. stock exchange listings.
Furthermore, they do not generally include voting rights.


FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

     FUTURES CONTRACTS.  Consistent with their investment objectives and
strategies, the Funds may enter into interest rate futures contracts, stock
index futures contracts and foreign currency futures contracts.  (Unless
otherwise specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively referred to
as "futures contracts.")

     A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future for a fixed price.  By its terms, a futures contract
provides for a specified settlement date on which, in the case of the
majority of interest rate and foreign currency futures contracts, the fixed
income securities or currency underlying the contract are delivered by the
seller and paid for by the purchaser, or on which, in the case of stock index
futures contracts and certain interest rate and foreign currency futures
contracts, the difference between the price at which the contract was entered
into and the contract's closing value is settled between the purchaser and
the seller in cash.  Futures contracts differ from options in that they are
bilateral agreements, with both the purchaser and the seller equally
obligated to complete the transaction. Futures contracts call for settlement
only on the expiration date, and cannot be "exercised" at any other time
during their term.

     Interest rate futures contracts currently are traded on a variety
of fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, and U.S. Treasury Bills.  In addition, interest
rate futures contracts include contracts on indexes of municipal securities.
Foreign currency futures contracts currently are traded on the British pound,
Canadian dollar, Japanese yen, Swiss franc, West German mark, and on
Eurodollar deposits.


                                        7


     Stock index futures contracts include contracts on the S&P 500 Index and
other broad-based stock market indexes, as well as contracts based on
narrower market indexes or indexes of securities of particular industry
groups. A stock index assigns relative values to the common stocks included
in the index and the index fluctuates with the value of the common stocks so
included.  The parties to a stock index futures contract agree to make a cash
settlement on a specific future date in an amount determined by the value of
the stock index on the last trading day of the contract.  The amount is a
specified dollar amount times the difference between the value of the index
on the last trading day and the value on the day the contract was struck.

     Purchases or sales of stock index futures contracts are used to attempt
to protect current or intended stock investments from broad fluctuations in
stock prices.  Interest rate and foreign currency futures contracts are
purchased or sold to attempt to hedge against the effects of interest or
exchange rate changes on a Fund's current or intended investments in fixed
income or foreign securities.  In the event that an anticipated decrease in
the value of a Fund's securities occurs as a result of a general stock market
decline, a general increase in interest rates, or a decline in the dollar
value of foreign currencies in which portfolio securities are denominated,
the adverse effects of such changes may be offset, in whole or in part, by
gains on the sale of futures contracts.  Conversely, the increased cost of a
Fund's securities to be acquired, caused by a general rise in the stock
market, a general decline in interest rates, or a rise in the dollar value of
foreign currencies, may be offset, in whole or in part, by gains on futures
contracts purchased by such Fund.

     Although many futures contracts by their terms call for actual delivery
or acceptance of the financial instrument, in most cases the contracts are
closed out before the settlement date without the making or taking of
delivery.  Closing out a short position is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument and the same delivery month.  If the price of the initial sale of
the futures contract exceeds the price of the offsetting purchase, the seller
is paid the difference and realizes a gain.  Conversely, if the price of the
offsetting purchase exceeds the price of the initial sale, the trader
realizes a loss.  Similarly, the closing out of a long position is effected
by the purchaser entering into a futures contract sale.  If the offsetting
sale price exceeds the purchase price, the purchaser realizes a gain and, if
the purchase price exceeds the offsetting sale price, the purchaser realizes
a loss.

     The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received.  Instead,
an amount of cash or cash equivalents, which varies but may be as low as 5%
or less of the value of the contract, must be deposited with the broker as
"initial margin." Subsequent payments to and from the broker, referred to as
"variation margin," are made on a daily basis as the value of the index or
instrument underlying the futures contract fluctuates, making positions in
the futures contracts more or less valuable, a process known as "marking to
the market."

     U.S. futures contracts may be purchased or sold only on an exchange,
known as a "contract market," designated by the Commodity Futures Trading
Commission ("CFTC") for the trading of such contract, and only through a
registered futures commission merchant which is a member of such contract
market.  A commission must be paid on each completed purchase and sale
transaction.  The contract market clearing house guarantees the performance
of each party to a futures contract by in effect taking the opposite side of
such contract.  At any time prior to the expiration of a futures contract, a
trader may elect to close out its position by taking an opposite position on
the contract market on which the position was entered into, subject to the
availability of a secondary market, which will operate to terminate the
initial position.  At that time, a final determination of variation margin is
made and any loss experienced by the trader is required to be paid to the
contract market clearing house while any profit due to the trader must be
delivered to it. Futures contracts may also be traded on foreign exchanges.

     OPTIONS ON FUTURES CONTRACTS.  The Funds also may purchase and sell put
and call options on futures contracts and enter into closing transactions
with respect to such options to terminate existing positions.  The Funds may
use such options on futures contracts in connection with their hedging
strategies in lieu of purchasing and writing options directly on the
underlying securities or purchasing and selling the underlying futures
contracts.

     An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case
of a call option, or a "short" position in the underlying futures contract,
in the case of a put option, at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Upon
exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in
the case of a call option, or a corresponding long position, in the case of a
put option.  In the event that an option is exercised, the parties will be
subject to all the risks associated with the trading of futures contracts,
such as payment of variation margin deposits.  In addition, the writer of an
option on a futures contract, unlike the holder, is subject to initial and
variation margin requirements on the option position.

     A position in an option on a futures contract may be terminated by the
purchaser or the seller prior to expiration by affecting a closing purchase
or sale transaction, subject to the availability of a liquid secondary
market, which is the purchase or sale of an option of the same series (i.e.,
the same exercise price and expiration date) as the option previously
purchased or sold. The difference between the premiums paid and received
represents the trader's profit or loss on the transaction.

     Options on futures contracts that are written or purchased by the Funds
on United States exchanges are traded on the same contract market as the
underlying futures contract and, like futures contracts, are subject to
regulation by the CFTC and the performance guarantee of the exchange clearing
house. In addition, options on futures contracts may be traded on foreign
exchanges.

     RISKS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.  The use of
futures contracts and options on futures contracts will expose the Funds to
additional investment risks and transactions costs.  Risks include:


                                   8


- -    the risk that interest rates, securities prices or currency markets will
     not move in the direction that the Fund's investment adviser or
     sub-adviser anticipates;

- -    an imperfect correlation between the price of the instrument and
     movements in the prices of any securities or currencies being hedged;

- -    the possible absence of a liquid secondary market for any particular
     instrument and possible exchange imposed price fluctuation limits;

- -    leverage risk, which is the risk that adverse price movements in an
     instrument can result in a loss substantially greater than a Fund's
     initial investment in that instrument; and

- -    the risk that the counterparty to an instrument will fail to perform
     its obligations.

     REGULATORY MATTERS.  To the extent required to comply with applicable
Securities and Exchange Commission releases and staff positions, when
entering into futures contracts each Fund will maintain, in a segregated
account, cash or liquid securities equal to the value of such contracts.

     The CFTC, a federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended.  The CFTC requires the
registration of "commodity pool operators," defined as any person engaged in
a business which is of the nature of a company, syndicate or a similar form
of enterprise, and who, in connection therewith, solicits, accepts or
receives from others, funds, securities or property for the purpose of
trading in any commodity for future delivery on or subject to the rules of
any contract market. The CFTC has adopted Rule 4.5, which provides an
exclusion from the definition of commodity pool operator for any registered
investment company which meets the requirements of the Rule.  Rule 4.5
requires, among other things, that an investment company wishing to avoid
commodity pool operator status use futures and options positions only (a) for
"bona fide hedging purposes" (as defined in CFTC regulations) or (b) for
other purposes so long as aggregate initial margins and premiums required in
connection with non-hedging positions do not exceed 5% of the liquidation
value of the investment company's portfolio.  Any investment company wishing
to claim the exclusion provided in Rule 4.5 must file a notice of eligibility
with both the CFTC and the National Futures Association.  Before engaging in
transactions involving futures contracts, the Funds will file such notices
and meet the requirements of Rule 4.5, or such other requirements as the CFTC
or its staff may from time to time issue, in order to render registration as
a commodity pool operator unnecessary.

     For examples of futures contracts and their tax treatment, see Appendix
B to this Statement of Additional Information.

OPTIONS

     Each Fund may write (i.e., sell) covered call and secured put options
and purchase and sell put and call options written by others.  Each Fund will
limit the total market value of securities against which it may write call or
put options to 20% of its total assets.  In addition, no Fund will commit
more than 5% of its total assets to premiums when purchasing put or call
options.

     A put option gives the purchaser the right to sell a security or other
instrument to the writer of the option at a stated price during the term of
the option.  A call option gives the purchaser the right to purchase a
security or other instrument from the writer of the option at a stated price
during the term of the option.  Thus, if a Fund writes a call option on a
security, it becomes obligated during the term of the option to deliver the
security underlying the option upon payment of the exercise price.  If a Fund
writes a put option, it becomes obligated during the term of the option to
purchase the security underlying the option at the exercise price if the
option is exercised.

     Funds may use put and call options for a variety of purposes.  For
example, if a portfolio manager wishes to hedge a security a Fund owns
against a decline in price, the manager may purchase a put option on the
underlying security; i.e., purchase the right to sell the security to a third
party at a stated price.  If the underlying security then declines in price,
the manager can exercise the put option, thus limiting the amount of loss
resulting from the decline in price.  Similarly, if the manager intends to
purchase a security at some date in the future, the manager may purchase a
call option on the security today in order to hedge against an increase in
its price before the intended purchase date.  Put and call options also can
be used for speculative purposes. For example, if a portfolio manager
believes that the price of stocks generally is going to rise, the manager may
purchase a call option on a stock index, the components of which are
unrelated to the stocks held or intended to be purchased.  Finally, a
portfolio manager may write options on securities owned in order to realize
additional income.  Funds receive premiums from writing call or put options,
which they retain whether or not the options are exercised.

     By writing a call option, a Fund might lose the potential for gain on
the underlying security while the option is open, and by writing a put option
a Fund might become obligated to purchase the underlying security for more
than its current market price upon exercise.  If a Fund purchases a put or
call option, any loss to the Fund is limited to the premium paid for, and
transaction costs paid in connection with, the option.

     OPTIONS ON SECURITIES.  An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the case
of a "call" option, or sell, in the case of a "put" option, the security or
securities underlying the option, for a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. The holder
pays a nonrefundable purchase price for the option, known as the "premium."
The maximum amount of risk the purchaser of the option assumes is equal to
the premium plus related transaction costs, although this entire amount may
be lost.  The risk of the seller, or "writer," however, is potentially
unlimited, unless the option is "covered."  A call option written by a Fund
is "covered" if the Fund owns the underlying security covered by the call or
has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio.  A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
Fund in cash and liquid securities in a segregated account with its
custodian.  A put option written by a Fund is "covered" if the Fund maintains
cash and liquid securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written where the
exercise price of the put held is equal to or greater than the exercise price
of the put written.  If the writer's obligation is not so covered, it is
subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.


                                          9


     Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option.
Options on securities which have been purchased or written may be closed out
prior to exercise or expiration by entering into an offsetting transaction on
the exchange on which the initial position was established, subject to the
availability of a liquid secondary market.

     Options on securities and options on indexes of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
SEC.  The Options Clearing Corporation guarantees the performance of each
party to an exchange-traded option, by in effect taking the opposite side of
each such option.  A holder or writer may engage in transactions in
exchange-traded options on securities and options on indexes of securities
only through a registered broker-dealer which is a member of the exchange on
which the option is traded.

     In addition, options on securities and options on indexes of securities
may be traded on exchanges located outside the United States and
over-the-counter through financial institutions dealing in such options as
well as the underlying instruments.  While exchange-traded options have a
continuous liquid market, over-the-counter options may not.

     OPTIONS ON STOCK INDEXES.  In contrast to an option on a security, an
option on a stock index provides the holder with the right to make or receive
a cash settlement upon exercise of the option, rather than the right to
purchase or sell a security.  The amount of this settlement is equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds
(in the case of a call) or is below (in the case of a put) the closing value
of the underlying index on the date of exercise, multiplied by (b) a fixed
"index multiplier." The purchaser of the option receives this cash settlement
amount if the closing level of the stock index on the day of exercise is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount if the
option is exercised.  As in the case of options on securities, the writer or
holder may liquidate positions in stock index options prior to exercise or
expiration by entering into closing transactions on the exchange on which
such positions were established, subject to the availability of a liquid
secondary market.

     A Fund will cover all options on stock indexes by owning securities
whose price changes, in the opinion of the Fund's adviser or sub-adviser, are
expected to be similar to those of the index, or in such other manner as may
be in accordance with the rules of the exchange on which the option is traded
and applicable laws and regulations.  Nevertheless, where a Fund covers a
call option on a stock index through ownership of securities, such securities
may not match the composition of the index. In that event, the Fund will not
be fully covered and could be subject to risk of loss in the event of adverse
changes in the value of the index.  The Funds will secure put options on
stock indexes by segregating assets equal to the option's exercise price, or
in such other manner as may be in accordance with the rules of the exchange
on which the option is traded and applicable laws and regulations.

    The index underlying a stock option index may be a "broad-based" index,
such as the Standard & Poor's 500 Index or the New York Stock Exchange
Composite Index, the changes in value of which ordinarily will reflect
movements in the stock market in general.  In contrast, certain options may
be based upon narrower market indexes, such as the Standard & Poor's 100
Index, or on indexes of securities of particular industry groups, such as
those of oil and gas or technology companies.  A stock index assigns relative
values to the stocks included in the index and the index fluctuates with
changes in the market values of the stocks so included.

U.S. GOVERNMENT OBLIGATIONS

         These obligations are bills, certificates of indebtedness, notes and
bonds issued or guaranteed as to principal or interest by the U.S. Government or
by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority granted
by Congress. Bills, notes and bonds issued by the U.S. Treasury are direct
obligations of the U.S. Government and differ in their interest rates,
maturities and times of issuance. Securities issued or guaranteed by agencies or
authorities controlled or supervised by and acting as instrumentalities of the
U.S. Government established under authority granted by Congress include but are
not limited to, the Government National Mortgage Association ("GNMA"), the
Export-Import Bank, the Student Loan Marketing Association, the U.S. Postal
Service, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers
Home Administration, the Federal Home Loan Bank, the Federal Financing Bank, the
Federal Intermediate Credit Banks, the Federal Land Banks, the Farm Credit Banks
and the Federal National Mortgage Association. Some obligations of U.S.
Government agencies, authorities and other instrumentalities are supported by
the full faith and credit of the U.S. Treasury, such as securities of the
Government National Mortgage Association and the Student Loan Marketing
Association; others by the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Financing Bank and the U.S. Postal Service;
and others only by the credit of the issuing agency, authority or other
instrumentality, such as securities of the Federal Home Loan Bank and the
Federal National Mortgage Association ("FNMA").

OBLIGATIONS OF NON-DOMESTIC BANKS

         The Funds may invest in obligations of Canadian chartered banks, London
branches of U.S. banks, and U.S. branches and agencies of foreign banks, which
may involve somewhat greater opportunity for income than the other money market
instruments in which such Funds invest, but may also involve investment risks in
addition to any risks associated with direct obligations of domestic banks.
These additional risks include future political and economic developments, the
possible imposition of withholding taxes on interest income payable on such
obligations, the possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls or the adoption of other
governmental restrictions, as well as market and other factors which may affect
the market for or the liquidity of such obligations. Generally, Canadian
chartered banks, London branches of U.S. banks, and U.S. branches and agencies
of foreign banks are subject to fewer U.S. regulatory restrictions than those
applicable to domestic banks, and London branches of U.S. banks may be subject
to less stringent reserve requirements than domestic branches. Canadian
chartered banks, U.S. branches and agencies of foreign banks, and London
branches of U.S. banks may provide less public information than, and may not be
subject to the same accounting, auditing and financial recordkeeping standards
as, domestic banks. Each Fund will not invest more than 25% of its total assets
in obligations of Canadian chartered banks, London branches of U.S. banks, and
U.S. branches and agencies of foreign banks.


SHORT SALES AGAINST THE BOX

     Each Fund may sell securities "short against the box."  Whereas a short
sale is the sale of a security the Fund does not own, a short sale is "against
the box" if, at all times during which the short position is open, the Fund owns
at least an equal amount of the securities or securities sold short or other
securities convertible into or exchangeable without further consideration for
securities of the same issue as the securities sold short.  Short sales against
the box are typically used by sophisticated investors to defer recognition of
capital gains or losses.  The Funds have no present intention to sell securities
short in this fashion.

LOANS OF PORTFOLIO SECURITIES

      Each Fund, for the purpose of realizing additional


                                       10


income, may make secured loans of portfolio securities amounting to not more
than one-third of their respective total assets (which, for purposes of this
limitation, will include the value of collateral received in return for
securities loaned). Collateral received in connection with securities lending
shall not be considered Fund assets, however, for purposes of compliance with
any requirement described in a Fund's prospectus that the Fund invest a
specified minimum percentage of its assets in certain types of securities
(e.g., securities of small companies). Securities loans are made to
broker-dealers or financial institutions pursuant to agreements requiring
that the loans be continuously secured by collateral at least equal at all
times to the value of the securities lent.  The collateral received will
consist of cash, letters of credit or securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.  While the securities are
being lent, the Fund will continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower.  Although the Fund
does not expect to pay commissions or other front-end fees (including finders
fees) in connection with loans of securities (but may in some cases do so), a
portion of the additional income realized will be shared with the Fund's
custodian for arranging and administering such loans.  The Fund has a right
to call each loan and obtain the securities on five business days' notice.
The Fund will not have the right to vote securities while they are being
lent, but it will call a loan in anticipation of any important vote.  The
risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delay in receiving additional collateral or in
the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially.  Loans will only be made to firms
deemed by the Fund's investment adviser to be of good standing and to have
sufficient financial responsibility, and will not be made unless, in the
judgment of the Fund's investment adviser, the consideration to be earned
from such loans would justify the risk.  The creditworthiness of entities to
which the Fund makes loans of portfolio securities is monitored by the Fund's
investment adviser or sub-adviser throughout the term of each loan.

RESTRICTED AND ILLIQUID SECURITIES

     Each Fund may invest up to 15% of its net assets, in securities
restricted as to disposition under the federal securities laws or otherwise,
or other illiquid assets.  An investment is generally deemed to be "illiquid"
if it cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which the investment company is
valuing the investment.  "Restricted securities" are securities which were
originally sold in private placements and which have not been registered
under the Securities Act of 1933 (the "1933 Act").  Such securities generally
have been considered illiquid by the staff of the Securities and Exchange
Commission (the "SEC"), since such securities may be resold only subject to
statutory restrictions and delays or if registered under the 1933 Act.
Because of such restrictions, the Fund may not be able to dispose of a block
of restricted securities for a substantial period of time or at prices as
favorable as those prevailing in the open market should like securities of an
unrestricted class of the same issuer be freely traded. The Fund may be
required to bear the expenses of registration of such restricted securities.

     The SEC has acknowledged, however, that a market exists for certain
restricted securities (for example, securities qualifying for resale to
certain "qualified institutional buyers" pursuant to Rule 144A under the 1933
Act). Additionally, the Fund's investment adviser and sub-adviser believe
that a similar market exists for commercial paper issued pursuant to the
private placement exemption of Section 4(2) of the 1933 Act and for certain
interest-only and principal-only classes of mortgage-backed and asset-backed
securities.  The Funds may invest without limitation in these forms of
restricted securities if such securities are deemed by the Fund's investment
adviser or sub-adviser to be liquid in accordance with standards established
by the Fund's Board of Directors. Under these guidelines, the Fund's
investment adviser or sub-adviser must consider (a) the frequency of trades
and quotes for the security, (b) the number of dealers willing to purchase or
sell the security and the number of other potential purchasers, (c) dealer
undertakings to make a market in the security, and (d) the nature of the
security and the nature of the marketplace trades (for example, the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).  At the present time, it is not possible to predict
with accuracy how the markets for certain restricted securities will develop.
 Investing in such restricted securities could have the effect of increasing
the level of the Fund's illiquidity to the extent that qualified purchasers
of the securities become, for a time, uninterested in purchasing these
securities.


                                       11


     If through the appreciation of restricted securities or the depreciation
of unrestricted securities, the Fund is in a position where more than 15% of
its net assets are invested in restricted and other illiquid securities, the
Fund will take appropriate steps to protect liquidity.

REPURCHASE AGREEMENTS

     Each Fund may enter into repurchase agreements. Repurchase agreements
are agreements by which the Fund purchases a security and obtains a
simultaneous commitment from the seller (a member bank of the Federal Reserve
System or, if permitted by law or regulation and if the Board of Directors of
the Fund has evaluated its creditworthiness through adoption of standards of
review or otherwise, a securities dealer) to repurchase the security at an
agreed upon price and date.  The creditworthiness of entities with whom the
Fund enters into repurchase agreements is monitored by the Fund's investment
adviser throughout the term of the repurchase agreement.  The resale price is
in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security.  Such transactions
afford the Fund the opportunity to earn a return on temporarily available
cash. The Fund's custodian, or a duly appointed subcustodian, holds the
securities underlying any repurchase agreement in a segregated account or
such securities may be part of the Federal Reserve Book Entry System.  The
market value of the collateral underlying the repurchase agreement is
determined on each business day.  If at any time the market value of the
collateral falls below the repurchase price of the repurchase agreement
(including any accrued interest), the Fund promptly receives additional
collateral, so that the total collateral is in an amount at least equal to
the repurchase price plus accrued interest. While the underlying security may
be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the obligation of
the seller is not guaranteed by the United States Government.  In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying security and
losses, including:  (a) possible decline in the value of the underlying
security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.

WARRANTS

      Each of the Funds other than Index Fund may invest in warrants.
Warrants are instruments that allow investors to purchase underlying shares
at a specified price (exercise price) at a given future date.  Warrants are
pure speculation in that they have no voting rights, pay no dividends and
have no rights with respect to the assets of the corporation issuing them.
The prices of warrants do not necessarily move parallel to the prices of the
underlying securities.

INDEX DEPOSITARY RECEIPTS

     Each Fund other than Real Estate Securities Fund may invest up
to 10% of their respective total assets in one or more types of depositary
receipts ("DRs") as a means of tracking the performance of a designated stock
index while maintaining liquidity. No more than 5% of a Fund's total assets
may be invested in any one DR. Index Fund may invest in S&P 500 Depositary
Receipts ("SPDRs"), which track the S&P 500 Index.  The other Funds may
invest in SPDRs; S&P MidCap 400 Depositary Receipts ("MidCap SPDRs"), which
track the S&P MidCap 400 Index; and "Dow Industrial Diamonds," which track
the Dow Jones Industrial Average; or in other DRs which track indexes,
provided that such investments are consistent with the Fund's investment
objective as determined by the Fund's investment adviser.  Each of these
securities represents shares of ownership of a long term unit investment
trust (a type of investment company) that holds all of the stock included in
the relevant underlying index.

     DRs carry a price which equals a specified fraction of the value of the
designated index and are exchange traded.  As with other equity transactions,
brokers charge a commission in connection with the purchase of DRs.  In


                                       12


addition, an asset management fee is charged in connection with the underlying
unit investment trust (which is in addition to the asset management fee paid by
the Fund).

     Trading costs for DRs are somewhat higher than those for stock index
futures contracts, but, because DRs trade like other exchange-listed equities,
they represent a quick and convenient method of maximizing the use of the Fund's
assets to track the return of a particular stock index.  DRs share in the same
market risks as other equity investments.


WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

     The Real Estate Securities Fund may purchase securities offered on a
"when-issued" basis and may purchase or sell securities on a "forward
commitment" basis. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities takes place at a later date.
Normally, the settlement date occurs within two months after the transaction,
but delayed settlements beyond two months may be negotiated. During the period
between a commitment to purchase by the Fund and settlement, no payment is made
for the securities purchased by the Fund and, thus, no interest accrues to the
Fund from the transaction.

     The use of when-issued transactions and forward commitments enables the
Fund to hedge against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling prices, the Fund might
sell securities in its portfolio on a forward commitment basis to limit its
exposure to falling prices. In periods of falling interest rates and rising
prices, the Fund might sell a security in its portfolio and purchase the same or
a similar security on a when-issued or forward commitment basis, thereby fixing
the purchase price to be paid on the settlement date at an amount below that to
which the Fund anticipates the market price of such security to rise and, in the
meantime, obtaining the benefit of investing the proceeds of the sale of its
portfolio security at currently higher cash yields. Of course, the success of
this strategy depends upon the ability of the Fund's investment adviser to
correctly anticipate increases and decreases in interest rates and prices of
securities. If the Fund's investment adviser anticipates a rise in interest
rates and a decline in prices and, accordingly, the Fund sells securities on a
forward commitment basis in order to hedge against falling prices, but in fact
interest rates decline and prices rise, the Fund will have lost the opportunity
to profit from the price increase. If the investment adviser anticipates a
decline in interest rates and a rise in prices, and, accordingly, the Fund sells
a security in its portfolio and purchases the same or a similar security on a
when-issued or forward commitment basis in order to enjoy currently high cash
yields, but in fact interest rates increase and prices fall, the Fund will have
lost the opportunity to profit



from investment of the proceeds of the sale of the security at the increased
interest rates. The likely effect of this hedging strategy, whether the Fund's
investment adviser is correct or incorrect in its prediction of interest rate
and price movements, is to reduce the chances of large capital gains or losses
and thereby reduce the likelihood of wide variations in the Fund's net asset
value.

     When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. The Fund may hold a when-issued security or forward
commitment until the settlement date, even if the Fund will incur a loss upon
settlement. To facilitate transactions in when-issued securities and forward
commitments, the Fund's custodian bank maintains, in a separate account of the
Fund, liquid assets, such as cash, short-term securities and other liquid
securities (marked to the market daily), having a value equal to, or greater
than, any commitments to purchase securities on a when-issued or forward
commitment basis and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or receive against
a forward commitment, it can incur a gain or loss. (At the time the Fund makes
the commitment to purchase or sell a security on a when-issued or forward
commitment basis, it records the transaction and reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value.)

     The purchase of securities on a when-issued or forward commitment basis
exposes the Fund to risk because the securities may decrease in value prior to
their delivery. Purchasing securities on a when-issued or forward commitment
basis involves the additional risk that the return available in the market when
the delivery takes place will be higher than that obtained in the transaction
itself. The Fund's purchase of securities on a when-issued or forward commitment
basis while remaining substantially fully invested increases the amount of the
Fund's assets that are subject to market risk to an amount that is greater than
the Fund's net asset value, which could result in increased volatility of the
price of the Fund's shares. No more than 30% of the value of the Fund's total
assets will be committed to when-issued or forward commitment transactions.

DEFENSIVE PURPOSES


     The Funds other than Real Estate Securities Fund may invest up to 20% of
their respective net assets in cash or cash items. Real Estate Securities Fund
may invest approximately 5% of its net assets in cash or cash items.  In
addition, for temporary or defensive purposes, the Funds may invest in cash or
cash items without limitation and in other securities as noted in the Prospectus
Supplement dated April 24, 2003. The "cash items" in which the Funds may invest,
include short-term obligations such as rated commercial paper and variable
amount master demand notes; United States dollar-denominated time and savings
deposits (including certificates of deposit); bankers' acceptances; obligations
of the United States Government or its agencies or instrumentalities; repurchase
agreements collateralized by eligible investments of a Fund; securities of other
mutual funds which invest primarily in debt obligations with remaining
maturities of 13 months or less (which investments also are subject to the
advisory fee); and other similar high-quality short-term United States
dollar-denominated obligations.  The other mutual funds in which the Funds may
so invest include money market funds advised by the Fund's investment adviser.


                              INVESTMENT RESTRICTIONS

     Each of the Funds is "diversified" as defined in the Investment Company Act
of 1940.  This means that at least 75% of the value of the Fund's total assets
is represented by cash and cash items, government securities, securities of
other investment companies, and securities of other issuers, which for purposes
of this calculation, are limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer.

     In addition to the foregoing limitations, each Fund is subject to
certain "fundamental" investment restrictions, described below, which may not
be changed without the vote of a "majority" of the Fund's outstanding shares.
 As used in the applicable Prospectus and this Statement of Additional
Information, "majority" means the lesser of (i) 67% of a Fund's outstanding
shares present at a meeting of the holders if more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
a Fund's outstanding shares.  Each Fund is also subject to certain other
investment restrictions which are not fundamental and may be changed by vote
of the Board of Directors without further shareholder approval.


                                        13


FUNDAMENTAL RESTRICTIONS

    1.   Policy Regarding Borrowing and the Issuance of Senior Securities.

         The Fund will not borrow money or issue senior securities, except as
         permitted under the Investment Company Act of 1940, as amended, and
         as interpreted or modified from time to time by any regulatory
         authority having jurisdiction.

    2.   Policy Regarding Concentration in a Particular Industry.

         CORNERSTONE FUND, ENTERPRISE FUND, HORIZON FUND AND VENTURE FUND.
         The Fund will not concentrate its investments in a particular
         industry.  For purposes of this limitation, the United States
         Government, and state or municipal governments and their political
         subdivisions, are not considered members of any industry.  Whether the
         Fund is concentrating in an industry shall be determined in accordance
         with the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

         INDEX 500 FUND.
         The Fund will not concentrate its investments in a particular
         industry, except that the Fund may concentrate its investments in a
         particular industry if the S&P 500 Index is so concentrated.  For
         purposes of this limitation, the United States Government, and state or
         municipal governments and their political subdivisions, are not
         considered members of any industry. Whether the Fund is
         concentrating in an industry shall be determined in accordance with
         the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

         REAL ESTATE SECURITIES FUND.
         Under normal market conditions, the Fund will concentrate its
         investments in the real estate or real estate related industry. The
         Fund will not concentrate its investments in any other particular
         industry. For purposes of this limitation, the United States
         Government, and state or municipal governments and their political
         subdivisions, are not considered members of any industry.  Whether the
         Fund is concentrating in an industry shall be determined in accordance
         with the Investment Company Act of 1940, as amended, and as interpreted
         or modified from time to time by any regulatory authority having
         jurisdiction.

    3.   Policy Regarding Investments in Real Estate.

         The Fund will not purchase or sell real estate unless acquired as a
         result of ownership of securities or other instruments, but this
         shall not prevent the Fund from investing in securities or other
         instruments backed by real estate or interests therein or in
         securities of companies that deal in real estate or mortgages.

    4.   Policy Regarding Investments in Commodities.

         The Fund will not purchase physical commodities or contracts
         relating to physical commodities.

    5.   Policy Regarding Lending.

         The Fund may not make loans except as permitted under the Investment
         Company Act of 1940, as amended, and as interpreted or modified from
         time to time by any regulatory authority having jurisdiction.

    6.   Policy Regarding Underwriting of Securities.

         The Fund will not act as an underwriter of securities, except to the
         extent that the Fund may be deemed to be an underwriter, under the
         federal securities laws, in connection with the disposition of
         portfolio securities.


                                       14


NON-FUNDAMENTAL RESTRICTIONS

    7.   The Fund will not acquire any new securities while borrowings,
         including borrowings through reverse repurchase agreements, exceed
         5% of total assets.

    8.   The Fund will use futures contracts and options on futures contracts
         only (a) for "bona fide hedging purposes" (as defined in regulations
         of the Commodity Futures Trading Commission) or (b) for other
         purposes so long as the aggregate initial margins and premiums
         required in connection with non-hedging positions do not exceed 5%
         of liquidation value of the Fund's portfolio.

    9.   The Fund may mortgage, pledge or hypothecate its assets only to
         secure permitted borrowings.  Collateral arrangements with respect
         to futures contracts, options thereon and certain options
         transactions are not considered pledges for purposes of this
         limitation.

    10.  The Fund may not make short sales of securities, other than short
         sales "against the box."

    11.  The Fund may not purchase securities on margin, but it may obtain
         such short-term credits as may be necessary for the clearance of
         securities transactions and it may make margin deposits in
         connection with futures contracts.

    12.  The Fund will not invest more than 15% of its net assets in illiquid
         securities.

    13.  The total market value of securities against which the Fund may
         write call or put options will not exceed 20% of the Fund's total
         assets.  In addition, the Fund will not commit more than 5% of its
         total assets to premiums when purchasing put or call options.


                                      15


     With respect to each of the Funds, any investment policy set forth under
"Investing in the Funds - Investment Policies and Practices" in the
Prospectus, or any restriction set forth above which involves a maximum
percentage of securities or assets shall not be considered to be violated
unless an excess over the percentage occurs immediately after an acquisition
of securities or utilization of assets and results therefrom, or unless the
Investment Company Act of 1940 provides otherwise.

                               PORTFOLIO TURNOVER

         Portfolio turnover is the ratio of the lesser of annual purchases or
sales of portfolio securities to the average monthly value of portfolio
securities, not including short-term securities. A 100% portfolio turnover rate
would occur, for example, if the lesser of the value of purchases or sales of
portfolio securities for a particular year were equal to the average monthly
value of the portfolio securities owned during such year.


         Cornerstone Fund and Enterprise Fund each make changes in their
portfolio securities which are considered advisable in light of market
conditions. Frequent changes may result in higher brokerage and other costs for
the Funds. Portfolio turnover rates may vary greatly from year to year and
within a particular year and may also be affected by cash requirements for
redemptions of Fund shares. Neither Fund emphasizes short-term trading profits.
For the fiscal period ended July 31, 2002 and the fiscal years ended September
30, 2001 and 2000, Cornerstone Fund's portfolio turnover rate was 95.3%, 147.9%
and 180.1%, respectively. For the fiscal period ended July 31, 2002 and the
fiscal years ended September 30, 2001 and 2000, Enterprise Fund's portfolio
turnover rate was 62.2%, 105.4% and 181.5%, respectively.

         Horizon Fund makes changes in its portfolio securities which are
considered advisable in light of market conditions. Frequent changes may result
in higher brokerage and other costs for the Fund. For the fiscal period ended
July 31, 2002 and the fiscal years ended September 30, 2001 and 2000, the Fund's
portfolio turnover rates were 67.6%, 129.6% and 109.3%, respectively.

         Index Fund generally seeks to invest for the long term, but reserves
the right to sell securities irrespective of how long they have been held.
However, because of the "passive" investment management approach of the Fund,
the Fund's portfolio turnover rate is expected to be generally lower than the
rate for most other investment companies. Ordinarily, securities will be sold by
Index Fund only to reflect certain administrative changes in the S&P 500
(including mergers or changes in its composition) or to accommodate cash flows
into and out of the Fund while maintaining the similarity of the Fund to the S&P
500. For the fiscal years ended July 31, 2002, 2001 and 2000, the Fund's
portfolio turnover rate was 13.6%, 17.2%, and 42.6%, respectively.

         Real Estate Securities Fund makes changes in its portfolio securities
which are considered advisable in light of market conditions. Frequent changes
may result in higher brokerage and other costs for the Fund. Portfolio turnover
rates may vary greatly from year to year and within a particular year and may
also be affected by cash requirements for redemptions of Fund shares. The Fund
does not emphasize short-term trading profits. For the fiscal years ended July
31, 2002, 2001 and 2000, the Fund's portfolio turnover rate was 101.2%, 173.10%,
and 116.8%, respectively.

         Venture Fund makes changes in its portfolio securities which are
considered advisable in light of market conditions. Frequent changes may result
in higher brokerage and other costs for the Fund. Portfolio turnover rates may
vary greatly from year to year and within a particular year and may also be
affected by cash requirements for redemptions of Fund shares. Venture Fund does
not emphasize short-term trading profits. For the fiscal years ended July 31,
2002, 2001 and 2000, the Fund's portfolio turnover rate was 37.3%, 37.8%, and
169.0%, respectively. The turnover for the fiscal year ended in 2000 is
attributable primarily to the fact that, effective May 1, 2000, responsibility
for management of the Fund's assets was transferred from the Fund's adviser to
its new sub-adviser, which then repositioned the Fund's portfolio.


DIRECTORS AND EXECUTIVE OFFICERS


     Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund. One of the directors is considered an
"interested person" (as defined in the Investment Company Act of 1940) of the
Fund primarily by reason of his engagement as an officer of Advantus Capital
Management, Inc. ("Advantus Capital") which acts as investment adviser for all
of the Funds, except Cornerstone Fund and Horizon Fund, and companies affiliated
with Advantus Capital, including Minnesota Life Insurance Company ("Minnesota
Life"). The remaining directors, because they are not interested persons of the
Fund, are considered independent ("Independent Directors") and are not employees
or officers of, and have no financial interest in, Advantus Capital, Minnesota
Life, Waddell & Reed Ivy Investment Co. ("WRIICO") or their affiliates. A
majority of the Board of Directors is comprised of Independent Directors.



     The individuals listed in the table below serve as directors and officers
of each Fund, and also serve in the same capacity for each of the other six
Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 29 portfolios, for which Advantus Capital, WRIICO or
WRIICO's affiliate, Waddell & Reed Investment Management Company serve as the
investment adviser). Only executive officers and other officers who perform
policy-making functions with the Funds are listed. None of the directors is a
director of any public company (a company required to file reports under the
Securities Exchange Act of 1934) or of any registered investment companies other
than the Advantus Funds. Each director serves for an indefinite term, until his
or her resignation, death or removal.






                                        POSITION WITH FUNDS
NAME, ADDRESS(1)                        AND LENGTH OF                  PRINCIPAL OCCUPATION(S)
AND AGE                                 TIME SERVED                    DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- ---------------------------------------------------------------------------------------------------------
                                                                 
William N. Westhoff                     Director since                 Retired; prior to July 26, 2002,
Age:  55                                July 23, 1998                  President, Treasurer and Director,
                                                                       Advantus Capital Management, Inc.;
                                                                       Senior Vice President and
                                                                       Treasurer, Minnesota Life
                                                                       Insurance Company; Senior Vice
                                                                       President, Global Investments,
                                                                       American Express Financial
                                                                       Corporation, Minneapolis,
                                                                       Minnesota, from August 1994 to
                                                                       October 1997



                                      16





                                        POSITION WITH FUNDS
NAME, ADDRESS(1)                        AND LENGTH OF                  PRINCIPAL OCCUPATION(S)
AND AGE                                 TIME SERVED                    DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ---------------------------------------------------------------------------------------------------------
                                                                 
Ralph D. Ebbott                         Director since                 Retired, Vice President and
Age:  75                                October 22, 1985               Treasurer of Minnesota Mining and
                                                                       Manufacturing Company (industrial
                                                                       and consumer products) through
                                                                       June 1989

William C. Melton                       Director since                 Founder and President of Melton
Age:  55                                April 25, 2002                 Research Inc. since 1997; member
                                                                       of the Advisory Board of
                                                                       Macroeconomic Advisors LLC since
                                                                       1998; member, Minneapolis
                                                                       StarTribune Board of Economists
                                                                       since 1986; member, State of
                                                                       Minnesota Council of Economic
                                                                       Advisors from 1988 to 1994;
                                                                       various senior positions at
                                                                       American Express Financial
                                                                       Advisors (formerly Investors
                                                                       Diversified Services and,
                                                                       thereafter, IDS/American Express)
                                                                       from 1982 through 1997, including
                                                                       Chief Economist and, thereafter,
                                                                       Chief International Economist

Ellen S. Berscheid                      Director since                 Regents' Professor of Psychology
Age:  66                                October 22, 1985               at the University of Minnesota
- ---------------------------------------------------------------------------------------------------------
OTHER EXECUTIVE OFFICERS
- ---------------------------------------------------------------------------------------------------------

Dianne M. Orbison                       President since                President and Treasurer, Advantus
Age:  50                                July 25, 2002                  Capital Management, Inc.; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Life Insurance Company; Vice
                                                                       President and Treasurer, Minnesota
                                                                       Mutual Companies, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Financial Group, Inc.; Vice
                                                                       President and Treasurer, Securian
                                                                       Holding Company; President and
                                                                       Treasurer, MIMLIC Funding, Inc.
                                                                       (entity holding legal title to
                                                                       bonds beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital); President and Treasurer,
                                                                       MCM Funding 1997-1,
                                                                       Inc. and MCM Funding 1998-1, Inc.
                                                                       (entities holding legal title to
                                                                       mortgages beneficially owned by
                                                                       certain clients of Advantus
                                                                       Capital)

Michael J. Radmer                       Secretary since                Partner with the law firm of
Dorsey & Whitney LLP                    February 2, 1985               Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota 55402
Age:  57


- ---------------

(1) Unless otherwise noted, the address of each director and officer is the
    address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.


         The Funds have both an Audit Committee and a Nominations Committee of
the Board of Directors, the members of which are all directors who are not
"interested persons" of the Funds. Ms. Berscheid and Messrs. Melton and Ebbott
comprise the members of both committees. The Board of Directors also has a
Dividend Declaration Committee, the sole member of which is Frederick P.
Feuerherm. Mr. Feuerherm, an officer of Advantus Capital, Securian Financial
Services, Inc. and Minnesota Life, served as a Director of the Funds until April
23, 2003. Upon his resignation, the Board of Directors determined that he should
continue to serve as the sole member of the Dividend Declaration Committee. The
function of the Audit Committee is to recommend the engagement of the Funds'
independent auditor and oversee its activities. The Audit Committee also
receives reports from the Internal Audit Department of Minnesota Life and from
the Directors of Compliance for Advantus Capital and WRIICO about compliance
matters affecting the Funds. The Audit Committee met two (2) times during the
last fiscal year. The Nominations Committee selects and recommends to the Board
of Directors individuals for nomination as Independent Directors. The names of
potential Independent Director candidates have been drawn from a number of
sources, including recommendations from management of Advantus Capital. Inasmuch
as the Funds do not hold annual meetings of shareholders and meetings of
shareholders occur only intermittently, the Nominations Committee does not at
present consider nominees recommended by shareholders. The Nominations Committee
met two (2) times during the last fiscal year. The function of the Dividend
Declaration Committee is to oversee the distribution of the Funds' dividends and
capital gains distributions. The Dividend Declaration Committee met four (4)
times during the last fiscal year.




         The Directors owned shares in the Funds, and in all Advantus Funds for
which they serve on the Board of Directors, in the following dollar ranges as of
December 31, 2001:





                                                                                                                  AGGREGATE DOLLAR
                                                                                                                        RANGE OF
                                                                                                                   EQUITY SECURITIES
                                                                                                                        IN ALL
                                                                                                                     ADVANTUS FUNDS
                                                                                                                       OVERSEEN
       NAME OF DIRECTOR                          DOLLAR RANGE OF EQUITY SECURITIES IN                                 BY DIRECTOR
       ----------------                          ------------------------------------                              -----------------

                                                                                       REAL ESTATE
                          CORNERSTONE      ENTERPRISE       HORIZON        INDEX 500   SECURITIES    VENTURE
                                                                                               
William N. Westhoff     $50,001-$100,000 $50,001-$100,000 $50,001-$100,000   ----      over $100,000 over $100,000  Over $100,000
Frederick P. Feuerherm        ----           ----              ----          ----         ----          ----          $1-$10,000
Ralph D. Ebbott               ----           ----              ----          ----         ----          ----             None
William C. Melton             ----           ----              ----          ----         ----          ----             None
Ellen S. Berscheid            ----           ----              ----          ----         ----          ----          $1-$10,000



     Legal fees and expenses are paid to the law firm of which Michael J.
Radmer is a partner.  No compensation is paid by the Funds to any of their
officers or directors who is affiliated with Advantus Capital Management,
Inc. ("Advantus Capital").


     Each director of the Funds is also a director of the other Advantus Funds
(12 investment companies in total -- the "Fund Complex").  As of the date
hereof, directors not affiliated with Advantus Capital or WRIICO receive
compensation in connection with all such investment companies which, in the
aggregate, is equal to $8,000 per year and $2,000 per meeting attended (and
reimbursement of travel expenses to attend directors' meetings).  The portion of
such compensation borne by any Fund is a pro rata portion based on the ratio
that such Fund's total net assets bears to the total net assets of the Fund
Complex.  During the fiscal year ended July 31, 2002, each Director not
affiliated with Advantus Capital was compensated by the Funds in accordance with
the following table:





                                   Pension or                         Total
                                   Retirement                     Compensation
                     Aggregate      Benefits        Estimated    from Funds and
                   Compensation    Accrued as        Annual       Fund Complex
                     from the     Part of Fund    Benefits Upon      Paid to
 Name of Director    Funds(1)       Expenses       Retirement       Directors
 ------------------ ----------    ------------    -------------  --------------
                                                     
 Ellen S. Berscheid   $2,833           n/a             n/a           $20,000
 Ralph D. Ebbott      $2,833           n/a             n/a           $20,000
 William C. Melton    $1,133           n/a             n/a           $10,000



                                       17


(1) During the fiscal year ended July 31, 2002, Ms. Berscheid and Mr. Ebbott
received $740 from Cornerstone Fund, $252 from Enterprise Fund, $397
from Horizon Fund, $504 from Index 500 Fund, $230 from Real Estate
Securities Fund, and $709 from Venture Fund. During the same period, Mr.
Melton, who was elected a Director on April 25, 2002, received $296 from
Cornerstone Fund, $101 from Enterprise Fund, $159 from Horizon Fund,
$202 from Index 500 Fund, $92 from Real Estate Securities Fund, and
$284 from Venture Fund.


     Prior to July 26, 2002, William N. Westhoff was president of and
therefore affiliated with Advantus Capital, but since his retirement from
Advantus Capital as of that date he has received compensation as a Director
of the Funds as described above.


                                 DIRECTOR LIABILITY

     Under Minnesota law, the Board of Directors of each Fund owes certain
fiduciary duties to the Fund and to its shareholders.  Minnesota law provides
that a director "shall discharge the duties of the position of director in
good faith, in a manner the director reasonably believes to be in the best
interest of the corporation, and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances."  Fiduciary
duties of a director of a Minnesota corporation include, therefore, both a
duty of "loyalty" (to act in good faith and act in a manner reasonably
believed to be in the best interests of the corporation) and a duty of "care"
(to act with the care an ordinarily prudent person in a like position would
exercise under similar circumstances).  Minnesota law also authorizes
corporations to eliminate or limit the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
fiduciary duty of "care." Minnesota law does not, however, permit a
corporation to eliminate or limit the liability of a director (i) for any
breach of the directors' duty of "loyalty" to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for authorizing a
dividend, stock repurchase or redemption or other distribution in violation
of Minnesota law or for violation of certain provisions of Minnesota
securities laws, or (iv) for any transaction from which the director derived
an improper personal benefit.  The Articles of Incorporation of each Fund
limit the liability of directors to the fullest extent permitted by Minnesota
statutes, except to the extent that such liability cannot be limited as
provided in the Investment Company Act of 1940 (which prohibits any
provisions which purport to limit the liability of directors arising from
such directors' willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their role as directors).

     Minnesota law does not eliminate the duty of "care" imposed upon a
director.  It only authorizes a corporation to eliminate monetary liability for
violations of that duty.  Minnesota law, further, does not permit elimination or
limitation of liability of "officers" to the corporation for breach of their
duties as officers (including the liability of directors who serve as officers
for breach of their duties as officers).  Minnesota law does not permit
elimination or limitation of the availability of equitable relief, such as
injunctive or rescissionary relief.  Further, Minnesota law does not permit
elimination or limitation of a director's liability under the Securities Act of
1933 or the Securities Exchange Act of 1934, and it is uncertain whether and to
what extent the elimination of monetary liability would extend to violations of
duties imposed on directors by the Investment Company Act of 1940 and the rules
and regulations adopted under such Act.

                       INVESTMENT ADVISORY AND OTHER SERVICES

GENERAL


     Advantus Capital Management, Inc. ("Advantus Capital") is the investment
adviser and manager of Enterprise Fund, Index 500 Fund, Real Estate Securities
Fund and Venture Fund. Advantus Capital also acted as the investment adviser and
manager of Cornerstone Fund and Horizon Fund prior to May 1, 2003. As of May 1,
2003, Waddell & Reed Ivy Investment Co. ("WRIICO") became the investment adviser
and manager of Cornerstone Fund and Horizon Fund. As discussed in the Prospectus
Supplement dated April 24, 2003, Advantus Capital has agreed to sell to WRIICO
its assets related to the Funds and has recommended that the Funds be merged
into corresponding funds in W&R Funds, Inc. or Ivy Fund. This merger is expected
to be presented to the shareholders of the Funds in September 2003. Because
Advantus Capital no longer has the resources to actively manage non-real estate
equity funds, the Board of Directors approved an interim investment advisory
agreement, effective May 1, 2003, under which WRIICO will serve as the
investment adviser to the Cornerstone Fund and Horizon Fund until the mergers.
WRIICO currently manages the fifteen mutual fund portfolios that are offered by
the Ivy Fund, an open-ended management investment company. The Ivy Fund
portfolios are currently in the process of being integrated into the W&R Family
of Funds. Securian Financial Services, Inc. ("Securian Financial") acts as the
Funds' underwriter.



     Advantus Capital and WRIICO act as investment advisers pursuant to written
agreements that will be periodically considered for approval by the directors or
shareholders of the Fund. Securian Financial also acts pursuant to a written
agreement that will be periodically considered for approval by the directors or
shareholders of the Fund. The address of both Advantus Capital and Securian
Financial is 400 Robert Street North, St. Paul, Minnesota 55101. WRIICO is
located at 6300 Lamar Avenue, P.O. Box 2917, Shawnee Mission, Kansas 66201-9217.


         Credit Suisse Asset Management, LLC ("CSAM") serves as investment
sub-adviser to Enterprise Fund pursuant to an investment sub-advisory agreement
with Advantus Capital. State Street Research & Management Company ("State
Street") serves as investment sub-adviser to Venture Fund pursuant to an
investment sub-advisory agreement with Advantus Capital.

CONTROL AND MANAGEMENT OF ADVANTUS CAPITAL AND SECURIAN FINANCIAL


                                       18


     Advantus Capital was incorporated in Minnesota in June 1994, and is an
affiliate of Minnesota Life Insurance Company ("Minnesota Life"). Effective
October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by
forming a mutual insurance holding company named "Minnesota Mutual Companies,
Inc." The Minnesota Mutual Life Insurance Company continued its corporate
existence following conversion to a Minnesota stock life insurance company
named "Minnesota Life Insurance Company". All of the shares of the voting
stock of Minnesota Life are owned by a second tier intermediate stock holding
company named "Securian Financial Group, Inc.", which in turn is a
wholly-owned subsidiary of a first tier intermediate stock holding company
named "Securian Holding Company", which in turn is a wholly-owned subsidiary
of the ultimate parent, Minnesota Mutual Companies, Inc. Advantus Capital and
Securian Financial are also wholly-owned subsidiaries of Securian Financial
Group, Inc.

     Dianne M. Orbison, President of each of the Funds, is President,
Treasurer and Director of Advantus Capital.  Frederick P. Feuerherm, Vice
President and Treasurer of each of the Funds, is a Vice
President, Assistant Secretary and Director of Advantus Capital. William N.
Westhoff, a Director of each of the Funds was President, Treasurer and
Director of Advantus Capital prior to July 26, 2002.


CONTROL AND MANAGEMENT OF WRIICO



     WRIICO is an indirect, wholly owned subsidiary of Waddell & Reed Financial,
Inc., a publicly held company. WRIICO was acquired by W&R on December 16, 2002.
The address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.



INVESTMENT ADVISORY AGREEMENTS WITH ADVANTUS CAPITAL



     Advantus Capital acts as investment adviser and manager of each of the
Funds except Cornerstone Fund and Horizon Fund under Investment Advisory
Agreements (the "Advisory Agreements") dated May 1, 2000 for each Fund, which
were approved by shareholders on April 17, 2000 in the case of Enterprise Fund,
Venture Fund and Real Estate Securities Fund, and on April 28, 2000 in the case
of Index Fund.  The Advisory Agreements were last approved by the Board of
Directors of each Fund (including a majority of the directors who are not
parties to the contract, or interested persons of any such party) on January 24,
2002.  The Advisory Agreements will terminate automatically in the event of
their assignment.  In addition, each Advisory Agreement is terminable at any
time, without penalty, by the Board of Directors of the respective Fund or by
vote of a majority of the Fund's outstanding voting securities on not more than
60 days' written notice to Advantus Capital, and by Advantus Capital on 60 days'
written notice to the Fund.  Unless sooner terminated, each Advisory Agreement
shall continue in effect for more than two years after its execution only so
long as such continuance is specifically approved at least annually by either
the Board of Directors of the respective Fund or by a vote of a majority of the
outstanding voting securities, provided that in either event such continuance is
also approved by the vote of a majority of the directors who are not parties to
the Advisory Agreement, or interested persons of such parties, cast in person at
a meeting called for the purpose of voting on such approval.



INVESTMENT ADVISORY AGREEMENT WITH WRIICO



     As discussed in the Prospectus Supplement dated April 24, 2003, Advantus
Capital has agreed to sell to WRIICO its assets related to the Funds and has
recommended to the Board of Directors of each Fund that the Funds be merged into
corresponding funds in W&R Funds, Inc. or Ivy Fund. Because Advantus Capital no
longer has the resources to actively manage non-real estate equity funds, the
Board of Directors of Cornerstone Fund and Horizon Fund determined that it would
be in shareholders' best interests to appoint a new investment adviser to manage
Cornerstone Fund and Horizon Fund on an interim basis prior to the mergers. The
Board of Directors approved an interim investment advisory agreement (the
"Interim Agreement") under which WRIICO will serve as the investment adviser to
the Cornerstone Fund and Horizon Fund, effective May 1, 2003. The terms of the
Interim Agreement are substantially identical to those of the investment
advisory agreements previously in effect between the Cornerstone Fund and
Horizon Fund and Advantus Capital and each of the other Advisory Agreements with
Advantus Capital discussed above, except for the dates of execution and
termination and other non material changes, and except that advisory fees
payable to WRIICO will be deposited in escrow until shareholders of the
Cornerstone Fund and Horizon Fund approve a new investment advisory agreement
with WRIICO.



     Normally, a mutual fund's investment advisory agreement must be approved by
the fund's shareholders in advance of the effective date of such agreement.
However, pursuant to Rule 15a-4 under the 1940 Act, an investment adviser may
serve as adviser to a mutual fund under an interim contract with a term of no
more than 150 days, so long as prior to the expiration of such term,
shareholders approve a new agreement with the investment adviser. Under Rule
15a-4, the interim contract must be identical in all material respects to the
agreement that was previously approved by shareholders (except for the effective
date and termination date). In addition, under Rule 15a-4, during the term of
the interim agreement, advisory fees otherwise payable under the interim
agreement are required to be deposited into an interest-bearing escrow account.
If shareholders approve a new advisory agreement, such fees (plus interest) may
be paid to the adviser. If, on the other hand, shareholders do not approve a new
advisory agreement, the adviser will be reimbursed only for the lesser of its
costs of providing services during the term of the interim agreement (plus
interest) or amounts held in escrow. Accordingly and in accordance with Rule
15a-4, the fees otherwise payable to WRIICO under the Interim Agreement are
being held in escrow pending shareholder approval of a new advisory agreement.
Fees payable to WRIICO under the Interim Agreement are identical to fees
previously payable to Advantus Capital by the Cornerstone Fund and Horizon Fund.



INVESTMENT ADVISORY FEES



     Pursuant to the Advisory Agreements and the Interim Agreement each Fund
pays its investment adviser an advisory fee equal on an annual basis to a
percentage of the Fund's average daily net assets as set forth in the following
table:




                                          ADVISORY FEE AS PERCENTAGE
FUND                                           OF AVERAGE NET ASSETS
                                                   
CORNERSTONE FUND:
     On the first $500 million in assets              .70%
     On the next $500 million in assets               .65%
     On the next $1 billion in assets                 .60%
     On all assets in excess of $2 billion            .55%
ENTERPRISE FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .66%
HORIZON FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .60%
INDEX FUND:
     On the first $500 million in assets              .34%
     On the next $500 million in assets               .30%
     On the next $1 billion in assets                 .25%
     On all assets in excess of $2 billion            .20%
REAL ESTATE SECURITIES FUND:
     On the first $1 billion in assets                .75%
     On the next $1 billion in assets                 .725%
     On all assets in excess of $2 billion            .70%
VENTURE FUND:
     On the first $1 billion in assets                .70%
     On the next $1 billion in assets                 .68%
     On all assets in excess of $2 billion            .66%



     Prior to May 1, 2000, each Fund paid Advantus Capital an advisory
fee, in accordance with its prior investment advisory agreement, equal on an
annual basis to a percentage of that Fund's average daily net assets as set
forth in the following table:




                                            Advisory Fee Paid Prior to May 1,
          Fund                        2000 as Percentage of Average Net Assets
          ----                        ----------------------------------------
                                   
     Cornerstone Fund                                     .80%
     Enterprise Fund                                      .80%
     Horizon Fund                                         .80%
     Index Fund                                           .34%
     Real Estate Securities Fund                          .75%
     Venture Fund                                         .80%




     The fees for investment advisory services paid by Cornerstone,
Enterprise and Horizon Funds during the fiscal period ended July 31, 2002 and
the fiscal years ended September 30, 2001 and 2000, and by Index, Real Estate
Securities and Venture Funds during the fiscal years ended July 31, 2002,
2001, and 2000, (before Advantus Capital's absorption of certain expenses,
described below) were as follows:




         Fund                2002            2001            2000
         ----                ----            ----            ----
                                                  
     Cornerstone            $443,621        $623,266       $797,700
     Enterprise              245,166         349,882        499,093
     Horizon                 231,587         427,000        725,918
     Index Fund              148,568         181,012        193,328
     Real Estate
      Securities Fund        163,110         103,301         61,059
     Venture Fund            444,881         325,568        250,117




     For these fees, Advantus Capital and WRIICO act as investment advisers and
managers for the respective Funds, or, in the case of Enterprise Fund and
Venture Fund, pay CSAM and State Street, respectively, to serve as investment
sub-adviser. Effective May 1, 2000, each Fund pays its own transfer agent and
shareholder servicing expenses. Prior to that date, Advantus Capital paid the
transfer agent and shareholder servicing expenses for Venture Fund.


                                       19


     Under each Advisory Agreement and the Interim Agreement, the respective
investment adviser furnishes the Fund office space and all necessary office
facilities, equipment and personnel for servicing the investments of the Fund,
and pays the salaries and fees of all officers and directors of the Fund who are
affiliated with that investment adviser. In addition, except to the extent that
Securian Financial receives Rule 12b-1 distribution fees (see "Payment of
Certain Distribution Expenses of the Funds" below), Securian Financial bears all
promotional expenses in connection with the distribution of the Funds' shares,
including paying for prospectuses and statements of additional information for
new shareholders, and shareholder reports for new shareholders, and the costs of
sales literature.  The Funds pay all other expenses not so expressly assumed.



     Under the Advisory Agreements for each Fund other than Index Fund and Real
Estate Securities Fund, including the investment advisory agreements between
Advantus Capital and Cornerstone Fund and Horizon Fund that were in place prior
to May 1, 2003, Advantus Capital agreed to absorb all Fund costs and expenses
which exceed a specified percentage of the average daily net assets of each
class of shares through the fiscal year of the Fund ending September 30, 2001
for Cornerstone, Enterprise and Horizon Funds and July 31, 2001 for Venture
Fund, as set forth in the following table:






                                   EXPENSES ABSORBED IN EXCESS OF
                             SPECIFIED PERCENTAGE OF AVERAGE NET ASSETS
                            ---------------------------------------------
FUND                        CLASS A             CLASS B           CLASS C
- ----                        -------             -------           -------
                                                         
Cornerstone Fund             1.24%               1.99%             1.99%
Enterprise Fund              1.38%               2.23%             2.23%
Horizon Fund                 1.35%               2.10%             2.10%
Venture Fund                 1.40%               2.25%             2.25%




     During the fiscal period ended July 31, 2002 and the fiscal years ended
September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds, and
the fiscal years ended July 31, 2002, 2001 and 2000 for Index, Real Estate
Securities and Venture Funds, Advantus Capital voluntarily absorbed certain
expenses of the Funds (which do not include certain Rule 12b-1 fees waived by
Securian Financial), or, in the case of Cornerstone Fund, Enterprise Fund,
Horizon Fund and Venture Fund, absorbed certain expenses of the Fund in
accordance with the advisory agreement then, as set forth below:




         Fund                2002              2001           2000
         ----                ----              ----           ----
                                                   
     Cornerstone Fund      $105,055           $131,531      $106,763
     Enterprise Fund         72,685             60,437        59,225
     Horizon Fund           271,049            284,604        90,632
     Index Fund             297,973            306,584       302,175
     Real Estate
      Securities Fund        10,569             46,235        87,768
     Venture Fund              --                7,163        67,821



ENTERPRISE FUND SUB-ADVISER - CSAM

     Credit Suisse Asset Management, LLC (CSAM) has been retained under an
investment sub-advisory agreement to provide investment advice and, in
general, to conduct the management of the Enterprise Fund, subject to the
general control of the Board of Directors of the Fund. CSAM is a registered
investment adviser under the Investment Advisers Act of 1940.

     CSAM is a wholly-owned subsidiary of Credit Suisse Group, one of the
largest financial services companies in the world, and comprises the U.S. arm
of Credit Suisse Group's Credit Suisse Asset Management division. CSAM,
together with its predecessor firms, has been engaged in the investment
advisory business for over 60 years. As of June 30, 2002, the Credit Suisse
Asset Management division had global assets under management of approximately
$306.9 billion, of which $66.8 billion was managed by CSAM. The principal
business address of CSAM is 466 Lexington Avenue, New York, New York 10017.

ENTERPRISE FUND INVESTMENT SUB-ADVISORY AGREEMENT - CSAM

     CSAM acts as investment sub-adviser of the Enterprise Fund under an
Investment Sub-Advisory Agreement (the CSAM Agreement) with Advantus Capital
dated May 1, 2000, and approved by shareholders of the Fund on April 17,
2000. Amendments to the CSAM Agreement, adjusting the level of sub-advisory
fees payable by Advantus Capital to CSAM under such Agreement, were approved
by the Board of Directors of the Fund on October 25, 2001 and July 25, 2002.
The CSAM Agreement as amended was last approved for continuance by the Board
of Directors of the Fund, including a majority of the Directors who are not a
party to the CSAM Agreement or interested persons of any such party, on
January 24, 2002 and July 25, 2002. Prior to May 1, 2000, the Enterprise Fund
was managed directly by Advantus Capital. The CSAM Agreement will terminate
automatically upon the termination of the Fund's Advisory Agreement and in
the event of its assignment. In addition, the CSAM Agreement is terminable at
any time, without penalty, by the Board of Directors of the Fund, by Advantus
Capital or by vote of a majority of the Fund's outstanding voting securities
on 60 days' written notice to CSAM, and by CSAM on 60 days' written notice to
Advantus Capital. Unless sooner terminated, the CSAM Agreement shall continue
in effect from year to year if approved at least annually either by the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not
interested persons of any party to the CSAM Agreement, cast in person at a
meeting called for the purpose of voting on such approval.

     In payment for the investment sub-advisory services to be rendered by
CSAM for the Enterprise Fund, Advantus Capital pays to CSAM a fee computed at
an annual rate which shall be a percentage of the average daily value of the
net assets of the Fund. The fee is accrued daily and shall be based on the
net asset value of all of the issued and outstanding shares of the Fund as
determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund. The fee is payable in arrears on the last
day of each calendar month.

     Effective June 30, 2002, the amount of such annual fee, as applied to
the total assets of the Fund, is determined in accordance with the following
table:





         AVERAGE ASSETS UNDER MANAGEMENT                      FEE
         -----------------------------------                  ---
                                                           
         Total assets from $0 up to $150 million              0.65%
         Total assets from $150 million up to $200 million    0.64%
         Total assets from $200 million up to $250 million    0.63%
         Total assets from $250 million up to $300 million    0.62%
         Total assets from $300 million up to $350 million    0.61%
         Total assets from $350 million up to $400 million    0.60%
         Total assets from $400 million up to $450 million    0.59%
         Total assets from $450 million up to $500 million    0.58%
         Total assets from $500 million up to $550 million    0.57%
         Total assets from $550 million up to $600 million    0.56%
         Total assets from $600 million up to $650 million    0.55%
         Total assets from $650 million up to $700 million    0.54%
         Total assets from $700 million up to $750 million    0.53%
         Total assets from $750 million up to $800 million    0.52%
         Total assets from $800 million up to $850 million    0.51%
         Total assets from $850 million up to $900 million    0.50%
         Total assets from $900 million up to $950 million    0.49%
         Total assets from $950 million up to $1 billion      0.48%
         Total assets from $1 billion up to $1.050 billion    0.47%
         Total assets from $1.050 billion up to $1.1 billion  0.46%
         Total assets from $1.1 billion and up                0.45%



         The term "Average Assets Under Management" for purposes of the above
schedule includes all assets advised or sub-advised by CSAM for Advantus Capital
or its affiliates, in addition to those assets of the Fund. The Average Assets
Under Management consists of the mathematical average of the quarterly aggregate
assets as measured on March 31st, June 30th, September 30th and December 31st of
each calendar year (or portion thereof) for each of the preceding 8 quarters,
with the fee rate determined on each such date being applicable to the following
period and applied to all assets back to the first dollar in the Fund.


VENTURE FUND SUB-ADVISER -- STATE STREET

     State Street Research & Management Company ("State Street") has been
retained under an investment sub-advisory agreement to provide investment
advice and, in general, to conduct the management of the investment program
of the Venture Fund, subject to the general control of the Board of Directors
of the Fund.  State Street is a registered investment adviser under the
Investment Advisers Act of 1940.

     State Street, a Delaware corporation, with offices at One Financial
Center, Boston, Massachusetts 02111-2690, acts at the investment sub-adviser
to the Portfolio.  State Street was founded by Paul Cabot, Richard
Saltonstall and Richard Paine to serve as investment adviser to one of the
nation's first mutual funds, presently known as State Street Research
Investment Trust, which they had formed in 1924.  Their investment management
philosophy emphasized comprehensive fundamental research and analysis,
including meetings with the management of companies under consideration for
investment.  State Street's portfolio management group has extensive
investment industry experience managing equity and debt securities.  State
Street is an indirect wholly-owned subsidiary of Metropolitan Life Insurance
Company.

VENTURE FUND INVESTMENT SUB-ADVISORY AGREEMENT -- STATE STREET

     State Street acts as investment sub-adviser to the Venture Fund under an
Investment Sub-Advisory Agreement (the "State Street Agreement") with
Advantus Capital dated May 1, 2000 and approved by shareholders of the Fund
on April 17, 2000.  An amendment to the State Street Agreement, adjusting the
level of sub-advisory fees payable by Advantus Capital to State Street under
such Agreement, was approved by the Board of Directors of the Fund on October
25, 2001. The State Street Agreement, as amended, was last approved for
continuance by the Board of Directors of the Fund, including a majority of
the Directors who are not a party to the State Street Agreement or interested
persons of any such party, on January 24, 2002.  Prior to May 1, 2000 the
Venture Fund was managed directly by Advantus Capital.  The State Street
Agreement will terminate automatically upon the termination of the Advisory
Agreement and in the event of its assignment.  In addition, the State Street
Agreement is terminable at any time, without penalty, by the Board of
Directors of the Fund, by Advantus Capital or by vote of a majority of the
Venture Fund's outstanding voting securities on 60 days' written notice to
State Street, and by State Street on 60 days' written notice to Advantus
Capital.  Unless sooner terminated, the State Street Agreement shall continue
in effect from year to year if approved at least annually either by the Board
of Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, provided that in either event such continuance is
also approved by the vote of a majority of the Directors who are not
interested persons or any party to the State Street Agreement, cast in person
at a meeting called for the purpose of voting on such approval.

     In payment for the investment sub-advisory services to be rendered by
State Street to the Venture Fund, Advantus Capital pays to State Street a fee
computed at an annual rate which is a percentage of the average daily net
assets of the Fund. The fee is accrued daily and shall be based on the net
asset value of all of the issued and outstanding shares of the Fund as
determined as of the close of each business day pursuant to the Articles of
Incorporation, Bylaws and currently effective Prospectus and Statement of
Additional Information of the Fund. The fee is payable in arrears on the last
day of each calendar month.

     The amount of such annual fee as applied to the average daily net assets
of the Fund, is equal to .65% of the first $100 million of average daily net
assets and .60% of average daily net assets in excess of $100 million. For
purposes of calculating the breakpoint, the term "assets" includes all "small
company value" assets sub-advised by State Street for Advantus Capital, in
addition to the assets of the Fund. The aggregation of those assets for
purposes of the breakpoint is calculated quarterly based upon the aggregate
assets on March 31st, June 30th, September 30th and December 31st of each
calendar year (or portion thereof) that the State Street agreement is
effective.

ANNUAL APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS

     At a meeting held on January 24, 2002, the Board of Directors of the
Funds, including a majority of the Directors who are not "interested persons"
(as defined under the Investment Company Act of 1940) of the Funds (the
"Independent Directors"), approved the continuation of each Fund's investment
advisory agreement with Advantus Capital for an additional one-year period.
In connection with such approval, the directors considered, with the
assistance of independent counsel, their legal responsibilities and reviewed
the nature and quality of Advantus Capital's services provided to the Fund
and Advantus Capital's experience and qualifications. In addition to
quarterly evaluations of the Fund's investment performance relative to
broad-based index and industry benchmarks and at least annual in person
meetings with and presentations by each portfolio manager or managers for the
Fund (including personnel from Advantus Capital and each sub-adviser), the
Directors on January 24, 2002 reviewed and considered:

- -    analyses prepared and compiled by Advantus Capital (i) setting forth the
     Fund's advisory fee (as a percentage of assets) on a contractual and
     after-waiver basis (ii) comparing the Fund's contractual advisory fees with
     standard fee schedules for private (non-mutual fund) accounts managed by
     Advantus Capital and with the contractual fee schedules of other funds
     represented by Advantus Capital to be of comparable size and complexity
     (with a description of the bases upon which funds were selected for
     comparison), (iii) comparing the Fund's total returns with the Fund's
     benchmark index or indices and with such comparable funds (again, with a
     description of the bases upon which funds were selected for comparison);

- -    descriptions of brokerage allocation practices (including any soft dollar
     arrangements) and assurances that such practices and arrangements are
     accurately described in the Fund's registration statement;

- -    assurances that Advantus Capital and its personnel are in compliance with
     the Fund's codes of ethics, policies and procedures and exemptive orders
     and with applicable laws and regulations; and

- -    a report on Advantus Capital's profitability related to providing advisory
     services to the Fund after taking into account (i) advisory fees and any
     other benefits realized by Advantus Capital or any of its affiliates as a
     result of Advantus Capital's role as adviser to the Fund, and (ii) the
     direct and indirect expenses incurred by Advantus Capital in providing such
     advisory services to the Fund.

     After discussion, the Board of Directors concluded that Advantus Capital
has the capabilities, resources and personnel necessary to manage each Fund.
The Board of Directors also concluded that, based on the services that
Advantus Capital would provide to each Fund under the Fund's investment
advisory agreement and the expenses incurred by Advantus Capital in the
performance of such services, the compensation to be paid to Advantus Capital
is fair and equitable with respect to the Fund. Based upon such information
as it considered necessary to the exercise of its reasonable business
judgment, the Board of Directors concluded unanimously that it is in the best
interests of each Fund to continue its investment advisory agreement with
Advantus Capital for an additional one-year period.

     At the January 24, 2002 meeting, the Fund's Board of Directors,
including a majority of the Independent Directors, also approved the
continuation of the sub-advisory agreements between Advantus Capital and each
of the following sub-advisers (with respect to the Fund set forth
opposite the sub-adviser's name in the table below), each for an additional
one-year period:




         SUB-ADVISER                                         FUND
         -----------                                         ----
                                                          
         Credit Suisse Asset Management, LLC                 Enterprise Fund
         State Street Research & Management Company          Venture Fund



     In approving the continuation of the sub-advisory agreements, the Board
of Directors considered the quality of the services being rendered by each
sub-adviser, its investment management style, the experience and
qualifications of each sub-adviser's personnel and the sub-adviser's fee
structure. The Board of Directors also reviewed written reports provided by
each sub-adviser, which contained, among other items:

- -    descriptions of brokerage allocation practices (including soft dollar
     arrangements, if any) and assurances that such practices and arrangements
     are accurately described in the Fund's registration statement; and

- -    assurances that the sub-adviser and its personnel are in compliance with
     the sub-adviser's code of ethics and with the laws and regulations that
     apply to its relationship as sub-adviser to the applicable Fund.

     Based upon such information as it considered necessary to the exercise
of its reasonable business judgment, the Board of Directors concluded
unanimously that it was in the best interests of each of the foregoing Funds
engaging a sub-adviser to continue its sub-advisory agreement for an
additional one-year period.


APPROVAL OF THE INTERIM AGREEMENT

     At a meeting held on April 23, 2003, the Board of Directors of Cornerstone
Fund and Horizon Fund, including a majority of the Independent Directors,
approved the Interim Agreement. Prior to such meeting, Advantus Capital had
informed the Board that, as a result of entering into the Strategic Alliance
Agreement and related Purchase Agreement discussed in the Prospectus Supplement
dated April 24, 2003, it would no longer have the resources to actively manage
non-real estate equity funds after May 1, 2003. Advantus Capital therefore
recommended to the Board that it appoint WRIICO to act as the investment adviser
for Cornerstone Fund and Horizon Fund for the period from May 1, 2003 until the
time of the proposed mergers of Cornerstone Fund and Horizon Fund into
corresponding W&R/Ivy Funds (as discussed in the Prospectus Supplement dated
April 24, 2003). Advantus Capital and WRIICO provided to the Board of Directors
such information as the Directors, upon the advice of counsel, determined to be
relevant, including, among other things:



         o  general information concerning WRIICO and its affiliates and their
            operations,



         o  information concerning the ethical profile and compliance
            history of WRIICO and its affiliates,



         o  information regarding WRIICO's investment management process,



         o  style and performance, including performance information
            regarding similar funds currently managed by WRIICO , and



         o  profitability information.



     At meetings held on March 6, March 21, April 8, April 17 and April 23,
2003, the Directors reviewed, analyzed and asked questions concerning such
information. During certain of these meetings, and during a due diligence trip
to WRIICO's headquarters on March 25, 2003, Directors also met, either
telephonically or in person, with senior officers of WRIICO and its affiliates
and with the proposed fund managers for Cornerstone Fund and Horizon Fund. The
Board also considered that the terms of the Interim Agreement do not differ
materially from those of the investment advisory agreements between Cornerstone
Fund and Horizon Fund and Advantus Capital and that investment advisory fees
paid by Cornerstone Fund and Horizon Funds will remain unchanged.



     Based on its review, the Board of Directors concluded, among other things,
that the scope and quality of services to be provided under the Interim
Agreement will be at least equivalent to the scope and quality of the services
provided under the Investment Advisory Agreements between Cornerstone Fund and
Horizon Fund, and the Board approved the Interim Agreement.


CODE OF ETHICS


     Advantus Capital, WRIICO, Securian Financial, CSAM, State Street and each
of the Funds has adopted a Code of Ethics in accordance with the Investment
Company Act of 1940 and the rules and regulations thereunder.  The private
investment activities of personnel covered by the Code of Ethics are restricted
in accordance with the Code's provisions, but, subject to such provisions,
personnel may invest in securities, including securities that may be purchased
or held by the Funds.


Distribution Agreement

     Securian Financial acts as the underwriter of the Funds' shares. The
Board of Directors of the Funds, on January 24, 2002, including a majority of
the directors who are not parties to the contract, or interested persons of
any such party, last approved the respective Fund's Distribution Agreement
with Securian Financial (the "Distribution Agreements"), dated October 22,
1998 for Cornerstone Fund, Enterprise Fund, Horizon Fund, Index Fund and
Venture Fund, and October 25, 2001 for Real Estate Securities Fund.

     During the fiscal period ended July 31, 2002, and the fiscal years ended
September 30, 2001 and 2000 for Cornerstone, Enterprise and Horizon Funds,
and the fiscal years ended July 31, 2002, 2001 and 2000 for Index Fund, Real
Estate Securities Fund and Venture Fund, the commissions received by Securian
Financial under the Distribution Agreements with respect to shares of all
classes were as follows:




         Fund               2002          2001            2000
         ----               ----          ----            ----
                                              
     Cornerstone Fund      $50,234      $312,734        $345,082
     Enterprise Fund        19,407       180,816         158,512
     Horizon Fund           54,053       294,198         385,277
     Index Fund             97,938        78,345         114,832
     Real Estate
      Securities Fund       60,489         3,991          14,377
     Venture Fund           70,657        30,384          58,191


     During the same period Securian Financial retained from these commissions
the following amounts:


                                       20




         Fund              2002           2001        2000
         ----              ----           ----        ----
                                           
     Cornerstone         $ 6,127        $ 5,298      $ 9,265
     Enterprise            5,616          5,937        6,623
     Horizon               7,505         15,958       33,780
     Index Fund            7,931         12,524       13,503
     Real Estate
      Securities Fund     17,921           -783           72
     Venture Fund         20,106          6,975        1,254


     The remainder of these commissions was paid to registered representatives
of Securian Financial or to broker-dealers who have selling agreements with
Securian Financial.

     Each Distribution Agreement may be terminated by the respective Fund or
Securian Financial at any time by the giving of 60 days' written notice, and
terminates automatically in the event of its assignment.  Unless sooner
terminated, the Distribution Agreement for the respective Fund shall continue in
effect for more than two years after its execution only so long as such
continuance is specifically approved at least annually by either the Board of
Directors of the Fund or by a vote of a majority of the outstanding voting
securities, provided that in either event such continuance is also approved by
the vote of a majority of the directors who are not parties to the Distribution
Agreement, or interested persons of such parties, cast in person at a meeting
called for the purpose of voting on such approval.

     The Distribution Agreements require Securian Financial to pay all
advertising and promotional expenses in connection with the distribution of the
Funds' shares including paying for Prospectuses and Statements of Additional
Information (if any) for new shareholders, shareholder reports for new
shareholders, and the costs of sales literature.

     In the Distribution Agreements, Securian Financial undertakes to indemnify
the Funds against all costs of litigation and other legal proceedings, and
against any liability incurred by or imposed upon the Funds in any way arising
out of or in connection with the sale or distribution of the Funds' shares,
except to the extent that such liability is the result of information which was
obtainable by Securian Financial only from persons affiliated with the Funds but
not with Securian Financial.

PAYMENT OF CERTAIN DISTRIBUTION EXPENSES OF THE FUNDS

     Each of the Funds except Real Estate Securities Fund has adopted separate
Plans of Distribution applicable to Class A shares, Class B shares and Class
C shares, respectively, relating to the payment of certain distribution
and/or shareholder servicing expenses pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Real Estate Securities Fund has two classes
of shares (Class A and Class B) and each class has also adopted a Plan of
Distribution pursuant to Rule 12b-1.  Each of the Funds, pursuant to its
Plan of Distribution, pays fees to Securian Financial which equal, on an
annual basis, a percentage of the Fund's average daily net assets
attributable to Class A shares, Class B shares and Class C shares,
respectively, as set forth in the following table:




                                   Rule 12b-1 Fee as Percentage
                            of Average Daily Net Assets Attributable to
                            --------------------------------------------
         Fund         Class A Shares       Class B Shares      Class C Shares
         ----         --------------       --------------      --------------
                                                      
     Cornerstone Fund      0.25%                1.00%               1.00%
     Enterprise Fund       0.25%                1.00%               1.00%
     Horizon Fund          0.25%                1.00%               1.00%
     Index Fund            0.25%                1.00%               1.00%
     Real Estate
      Securities Fund      0.25%                1.00%                n/a
     Venture Fund          0.25%                1.00%               1.00%



                                       21


     Such fees are used for distribution-related services for Class B and C
shares of the Funds and for servicing of shareholder accounts in connection
with Class A, B and C shares in each of the Funds.

     A portion of the Rule 12b-1 fees payable with respect to Class B and
Class C shares of the Funds equal to .75% of the average daily net assets
attributable to such Class B and Class C shares, constitute distribution fees
designed to compensate Securian Financial for advertising, marketing and
distributing the shares of the Funds.

     The distribution fees paid by each of the Funds may be used by Securian
Financial for the purpose of financing any activity which is primarily intended
to result in the sale of shares of the particular Fund.  For example, such
distribution fee may be used by Securian Financial:  (a) to compensate
broker-dealers, including Securian Financial and its registered representatives,
for their sale of a Fund's shares, including the implementation of the programs
described below with respect to broker-dealers, banks, and other financial
institutions; and (b) to pay other advertising and promotional expenses in
connection with the distribution of a Fund's shares.  These advertising and
promotional expenses include, by way of example but not by way of limitation,
costs of prospectuses for other than current shareholders; preparation and
distribution of sales literature; advertising of any type; expenses of branch
offices (including overhead expenses) provided jointly by Securian Financial and
any affiliate thereof; and compensation paid to and expenses incurred by
officers, employees or representatives of Securian Financial or of other
broker-dealers, banks, or financial institutions.

     All of the 12b-1 fees payable with respect to each Fund's Class A shares
and a portion of the Rule 12b-1 fee payable with respect to Class B and Class
C shares of each Fund, equal to .25% of the average daily net assets
attributable to such Class A, B and Class C shares, constitutes a shareholder
servicing fee designed to compensate Securian Financial for the provision of
certain services to the holders of Class A, B and Class C shares.

     Amounts expended by the Funds under the Plans are expected to be used for
the implementation by Securian Financial of a dealer incentive program.
Pursuant to the program, Securian Financial may provide compensation to
investment dealers for the provision of distribution assistance in connection
with the sale of the Funds' shares to such dealers' customers and for the
provision of administrative support services to customers who directly or
beneficially own shares of the Funds.  The distribution assistance and
administrative support services rendered by dealers may include, but are not
limited to, the following:  distributing sales literature; answering routine
customer inquiries concerning the Funds; assisting customers in changing
dividend options, account designation and addresses, and in enrolling into the
pre-authorized check plan or systematic withdrawal plan; assisting in the
establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions; investing dividends and any
capital gains distributions automatically in the Funds' shares and providing
such other information and services as the Funds or the customer may reasonably
request.  Such fees for servicing customer accounts would be in addition to the
portion of the sales charge received or to be received by dealers which sell
shares of the Funds.

     Securian Financial may also provide compensation to certain institutions
such as banks ("Service Organizations") which have purchased shares of the
Funds for the accounts of their clients, or which have made the Funds' shares
available for purchase by their clients, and/or which provide continuing
service to such clients. Applicable laws may prohibit certain banks from
engaging in the business of underwriting securities. In such circumstances,
Securian Financial, if so requested, will engage such banks as Service
Organizations only to perform administrative and shareholder servicing
functions, but at the same fees and other terms applicable to dealers. If a
bank were prohibited from acting as a Service Organization, its shareholder
clients would be permitted to remain shareholders of the Funds and
alternative means for continuing servicing of such shareholders would be
sought.  In such event changes in the operation of


                                       22


the Funds might occur and a shareholder serviced by such bank might no longer
be able to avail itself of any automatic investment or other services then
being provided by the bank.  It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.

     In addition, the Plan contains, among other things, provisions complying
with the requirements of Rule 12b-1 discussed below.  In particular, each
Plan provides that (1) the Plan will not take effect until it has been
approved by a vote of a majority of the outstanding voting securities of the
Fund, and by a majority vote of both the full board of directors of the Fund
and those directors who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan or in
any agreements relating to it (the Independent Directors), (2) the Plan will
continue in effect from one year to another so long as its continuance is
specifically approved annually by a majority vote of both the full board of
directors and the Independent Directors, (3) the Plan may be terminated at
any time, without penalty, by vote of a majority of the Independent Directors
or by a vote of a majority of the outstanding voting securities of the Fund,
(4) the Plan may not be amended to increase materially the amount of the fees
payable thereunder unless the amendment is approved by a vote of a majority
of the outstanding voting securities of the Fund, and all material amendments
must be approved by a majority vote of both the full board of directors and
the Independent Directors, (5) while the Plan is in effect, the selection and
nomination of any new Independent Directors is committed to the discretion of
the Independent Directors then in office, and (6) the Fund's underwriter will
prepare and furnish to the board of directors, and the board of directors
will review, at least quarterly, written reports which set forth the amounts
expended under the Plan and the purposes for which those expenditures were
made.

Rule 12b-1(b) provides that any payments made by an investment company in
connection with the distribution of its shares may only be made pursuant to a
written plan describing all material aspects of the proposed financing of
distribution and also requires that all agreements with any person relating
to implementation of the plan must be in writing.  In addition, Rule
12b-1(b)(2) requires that such plan, together with any related agreements, be
approved by a vote of the board of directors and of the directors who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan, cast in person at a meeting called for the purpose of voting on
such plan or agreements.  Rule 12b-1(b)(3) requires that the plan or
agreement provide, in substance:  (1) that it shall continue in effect for a
period of more than one year from the date of its execution or adoption only
so long as such continuance is specifically approved at least annually in the
manner described in paragraph (b)(2) of Rule 12b-1; (2) that any person
authorized to direct the disposition of monies paid or payable by the
investment company pursuant to the plan or any related agreement shall
provide to the investment company's board of directors, and the directors
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made; and (3) in the case
of a plan, that it may be terminated at any time by vote of a majority of the
members of the board of directors of the investment company who are not
interested persons of the investment company and have no direct or indirect
financial interest in the operation of the plan or in any agreements related
to the plan or by vote of a majority of the outstanding voting securities of
the investment company.  Rule 12b-1(b)(4) requires that such plans may not be
amended to increase materially the amount to be spent for distribution
without shareholder approval and that all material amendments of the plan
must be approved in the manner described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the investment company may rely upon Rule
12b-1(b) only if selection and nomination of the investment company's
disinterested directors are committed to the discretion of such disinterested
directors.  Rule 12b-1(e) provides that the investment company may implement
or continue a plan pursuant to Rule 12b-1(b) only if the directors who vote
to approve such implementation or continuation conclude, in the exercise of
reasonable business judgment and in light of their fiduciary duties under
state law, and under Sections 36(a) and (b) of the Investment Company Act of
1940, that there is a reasonable likelihood that the plan will benefit the
investment company and its shareholders.  At the Board of Directors meeting
held January 24, 2002, the directors of the Funds so concluded.

     During the fiscal period ended July 31, 2002, each Fund made payments under
its Plans of Distribution applicable to Class A, Class B and Class C Shares as
set forth below (distribution fees waived by Securian Financial, if any, are
shown in parentheses).




         Fund                                   Class A             Class B    Class C
         ----                                   -------             -------    -------
                                                                 
     Cornerstone Fund                    $140,042   $  N/A         $66,388    $ 7,188
     Enterprise Fund                       75,907    (30,363)       41,469      5,141
     Horizon Fund                          58,966      N/A          87,139      7,835
     Index 500 Fund                        56,862    (22,745)      189,402     20,114
     Real Estate Securities Fund           53,635    (32,181)        2,939       N/A
     Venture Fund                         143,955    (57,582)       46,950     12,773


     The Plans of Distribution could be construed as "compensation plans"
because Securian Financial is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans.  Under a compensation
plan, the fee to the distributor is not directly tied to distribution expenses
actually incurred by the distributor, thereby permitting the distributor to
receive a profit if amounts received exceed expenses.  Securian Financial may
spend more or


                                       23


less for the distribution and promotion of the Funds' shares than it receives as
distribution fees pursuant to the Plans.  However, to the extent fees received
exceed expenses, including indirect expense such as overhead, Securian Financial
could be said to have received a profit.

TRANSFER AGENT AND ADMINISTRATIVE SERVICES

         Each of the Funds pays its own transfer agent expenses. The Funds'
transfer agent is PFPC Inc. ("PFPC").


         In addition, separate from the Investment Advisory Agreements, each
of the Funds has entered into an agreement with Minnesota Life under which
Minnesota Life provides (i) accounting, legal and other administrative
services and (ii) shareholder servicing to the Funds. Minnesota Life
currently provides accounting, legal and other administrative services to the
Funds at a monthly cost of $6,200 per Fund other than Real Estate Securities
Fund, and $5,100 for Real Estate Securities Fund. During the fiscal period
ended July 31, 2002, each Fund paid the following amounts for such
administrative services:





                  Fund                                              Amount
                  ----                                              ------
                                                                 
                  Cornerstone Fund                                  $62,000
                  Enterprise Fund                                    62,000
                  Horizon Fund                                       62,000
                  Index Fund                                         74,400
                  Real Estate Securities Fund                        61,200
                  Venture Fund                                       74,400



     Minnesota Life currently provides shareholder servicing to each Fund at
a cost of $7 per shareholder account per year.

                 PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE

     In a number of security transactions, it is possible for the Funds to deal
in the over-the-counter security markets (including the so-called "third market"
which is the "over-the-counter" market for securities listed on the New York
Stock Exchange) without the payment of brokerage commissions but at net prices
including a spread or markup; the Funds trade in this manner whenever the net
price appears advantageous.


     Each Fund's investment adviser selects and (where applicable) negotiates
commissions with the brokers who execute the transactions for the Fund (except
for Enterprise Fund and Value Fund, as described below).  During the fiscal
period ended July 31, 2002, and the fiscal years ended September 30, 2001 and
2000 for Cornerstone, Enterprise and Horizon Funds, and the fiscal years ended
July 31, 2002, 2001 and 2000 for Index, Real Estate Securities and Venture
Funds, brokerage commissions paid were:




         Fund                           2002        2001         2000
         ----                           ----        ----         ----
                                                       
     Cornerstone Fund                 $228,660     $335,867      $405,041
     Enterprise Fund                    82,298       61,217       112,916
     Horizon Fund                       80,789      128,104       123,143
     Index Fund                          9,557        7,794        26,239
     Real Estate Securities Fund       114,123      114,505        57,451
     Venture Fund                      193,659      224,490       124,323




THE INVESTMENT ADVISERS' BROKERAGE PRACTICES



     The primary criteria for the selection of a broker is the ability of the
broker, in the opinion of the investment adviser, to secure prompt execution of
the transactions on favorable terms, including the reasonableness of the
commission and considering the state of the market at the time.  In selecting a
broker, each investment adviser considers whether such broker provides brokerage
and research services (as defined in the Securities Exchange Act of 1934), and
generally the Funds pay higher than the lowest commission rates available.  Each
investment adviser may direct Fund transactions to brokers who furnish research
services to that investment adviser.  Such research services include advice,
both directly and in writing, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, as well as analysis and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts.  By allocating brokerage
business in order to obtain research services for its investment adviser, a
Fund enables its investment adviser to supplement its own investment research
activities and allows the investment adviser to obtain the views and information
of individuals and research staffs of many different securities research firms
prior to making investment decisions for the Fund.  To the extent such
commissions are directed to these other brokers who furnish research services to
an investment adviser, the investment adviser receives a benefit, not capable of
evaluation in dollar amounts, without providing any direct monetary benefit to
the Funds from these commissions.



     There is no formula for the allocation by the investment advisers of the
Funds' brokerage business to any broker-dealer for brokerage and research
services. However, an investment adviser will authorize a Fund to pay an amount
of commission for effecting a securities transaction in excess of the amount of
commission another broker would have charged only if the investment adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker viewed in terms of either that particular transaction or the investment
adviser's overall responsibilities with respect to the accounts as to which it
exercises investment discretion.  During the fiscal period ended July 31, 2002,
the Funds directed transactions to brokers because of research services they
provided, and paid commissions in connection with such transactions, in the
aggregate amounts set forth below:



                                       24




                           Aggregate Transactions         Commissions Paid on
         Fund              Directed for Research          Directed Transaction
         ----              ---------------------          --------------------
                                                    
     Cornerstone Fund           $2,127,165                     $113,864
     Enterprise Fund                    --                           --
     Horizon Fund                  787,904                       42,572
     Index Fund                        183                        1,124
     Real Estate
     Securities Fund               879,500                       25,058
     Venture Fund               35,075,991                       95,085





     The investment advisers believe that most research services obtained by
them generally benefit one or more of the investment companies which they
manage and also benefit accounts which they manage.  Normally research services
obtained through managed funds and managed accounts investing in common stocks
would primarily benefit such funds and accounts; similarly, services obtained
from transactions in fixed income securities would be of greater benefit to the
managed funds and managed accounts investing in debt securities.



     The same security may be suitable for one or more of the Funds and the
other funds or private accounts managed by an investment adviser or its
affiliates. If and when two or more funds or accounts simultaneously purchase or
sell the same security, the transactions will be allocated as to price and
amount in accordance with arrangements equitable to each fund or account.  The
simultaneous purchase or sale of the same securities by one Fund and other funds
or accounts may have a detrimental effect on that Fund, as this may affect the
price paid or received by the Fund or the size of the position obtainable by the
Fund.



     Consistent with achieving best execution, a Fund may participate in
so-called "directed brokerage" or "commission recapture" programs, under which
brokers (or dealers) used by the Fund remit a portion of brokerage commissions
(or credits on fixed income transactions) to the particular Fund from which they
were generated. Subject to oversight by the Fund's Board of Directors, either
the Fund's investment adviser or the sub-adviser, if any, is responsible for
the selection of brokers or dealers and for ensuring that the Fund receives best
price and execution in connection with its portfolio brokerage transactions.
Participation in such programs may increase returns to the Fund.


     Although the rules of the National Association of Securities Dealers,
Inc. prohibit its members from seeking orders for the execution of investment
company portfolio transactions on the basis of their sales of investment
company shares, under such rules, sales of investment company shares may be
considered by the investment company as a factor in selecting brokers to
effect portfolio transactions. Accordingly, some portfolio transactions are,
subject to such rules and to obtaining best prices and executions, executed
through dealers who sell shares of Funds in the Advantus Funds complex or who
agree to transmit a portion of the brokerage commissions on transactions
executed by them to broker/dealers who sell Fund shares.


     The Funds will not execute portfolio transactions through any affiliate,
unless such transactions, including the frequency thereof, the receipt of
commissions payable in connection therewith and the selection of the affiliated
broker-dealer effecting such transactions are not unfair or unreasonable to the
shareholders of the Funds.  In the event any transactions for a Fund are
executed on an agency basis, the Fund's investment adviser will authorize the
Fund to pay an amount of commission for effecting a securities transaction in
excess of the amount of commission another broker-dealer would have charged only
if the Fund's investment adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of the Fund's investment
adviser with respect to the Fund as to which it exercises investment discretion.
If the Funds execute any transactions on an agency basis, they will generally
pay higher than the lowest commission rates available.



     In determining the commissions to be paid to an affiliated broker-dealer,
it is the policy of each Fund that such commissions will, in the judgment of the
Fund's investment adviser, subject to review by the Fund's Board of Directors,
be both (a) at least as favorable as those which would be charged by other
qualified brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time, and (b) at least as favorable as commissions contemporaneously charged by
such affiliated broker-dealers on comparable transactions for their most favored
comparable unaffiliated customers.  While the Funds do not deem it practicable
and in their best interest to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers.


     Information regarding the acquisition by the Funds during the fiscal
period ended July 31, 2002, of securities of the Funds' regular brokers or
dealers, or the parents of those brokers or dealers that derive more than 15
percent of their gross revenue from securities-related activities, is
presented below:


                                       25




                                                            Approximate
                                                        Value of Securities
                                                          Owned at End of
         Fund          Name of Issuer                      Fiscal Period
         ----          --------------                      -------------
                                                  
     Cornerstone Fund  CitiGroup, Inc.                  $   2,385,130
                       Goldman Sachs Group, Inc.              658,350
                       Morgan Stanley                         598,794
     Enterprise Fund   Affiliated Managers Group              288,042
     Horizon Fund      CitiGroup, Inc                         358,878
                       Goldman Sachs Group, Inc.              190,190
     Index Fund        Bear Stearns & Company                  24,329
                       Block Financial Corporation             34,955
     Real Estate
     Securities Fund   -----                                   -----
     Venture Fund      -----                                   -----



SUB-ADVISERS' BROKERAGE PRACTICES

     CSAM, investment sub-adviser to the Enterprise Fund, and State Street,
investment sub-adviser to the Venture Fund, each intends to follow the same
brokerage practices as those described above for Advantus Capital.

                           CALCULATION OF PERFORMANCE DATA
     Advertisements and other sales literature for the Funds may refer to
"yield," "average annual total return" and "cumulative total return."
Performance quotations are computed separately for each class of shares of the
Funds.

     YIELD.  Yield is computed by dividing the net investment income per share
(as defined under Securities and Exchange Commission rules and regulations)
earned during the computation period by the maximum offering price per share on
the last day of the period, according to the following formula:

                              a-b     6
               YIELD  =  2[( ----- +1) -1]
                              cd

     Where:    a    =    dividends and interest earned during the period;

               b    =    expenses accrued for the period (net of
                         reimbursements);

               c    =    the average daily number of shares outstanding during
                         the period that were entitled to receive dividends; and

               d    =    the maximum offering price per share on the last day of
                         the period.

     The yield on investments in each of the Funds for the 30-day period ended
July 31, 2002 was as set forth in the table below.  The Funds' investment
adviser and distributor were voluntarily absorbing and waiving certain expenses
of certain of the Funds during that period.  If such Funds had been charged for
these expenses the yield on investments for the same period would have been
lower, as also shown in the table below in parentheses.




                                        Yield
                                        -------
        Fund               Class A                 Class B               Class C
        ----               -------                 -------               -------
                                                          
     Cornerstone Fund  1.06%     (.78%)           .39%     (.09%)    .39%      (.09%)
     Enterprise Fund   -.93%   (-1.34%)         -1.84%   (-2.28%)  -1.84%    (-2.27%)
     Horizon Fund      -.21%   (-2.06%)          -.96%   (-2.91%)   -.96%    (-2.91%)
     Index Fund        1.26%     (.80%)           .50%     (.01%)    .50%      (.01%)
     Real Estate
     Securities Fund    .86%     (.82%)           .03%    (-.001%)     N/A       N/A
     Venture Fund       .24%     (.24%)          -.63%    (-.63%)    -.63%     (-.63%)


     AVERAGE ANNUAL TOTAL RETURN.  Average annual total return is computed by
finding the average annual compounded rates of return over the periods indicated
in the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

                     n
               P(1+T)    =    ERV

     Where:    P         =    a hypothetical initial payment of $1,000;

               T         =    average annual total return;

               n         =    number of years; and


                                       26


               ERV       =    ending redeemable value at the end of the period
                              of a hypothetical $1,000 payment made at the
                              beginning of such period.

     The average annual total return on investments in each of the Funds for the
periods indicated ending July 31, 2002, were as set forth in the table below.
Average annual total returns quoted assume that the Class A maximum initial
sales charge of 5.5% was in effect at the beginning of each period shown.
The maximum initial sales charge was 5.0% prior to February 1, 1999. The
Funds' investment adviser and distributor were voluntarily absorbing and
waiving certain expenses of certain of the Funds during these periods.  If
such Funds had been charged for these expenses the average annual total
returns for the same periods would have been lower, as also shown in the
table below in parentheses.




                                                                         1 YEAR
                                                                         ------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund                      -22.22%      (-22.39%)       -22.47%   (-22.64%)      -18.36%    (-18.53%)
Enterprise Fund                       -33.82%      (-34.13%)       -34.08%   (-34.29%)      -30.53%    (-30.74%)
Horizon Fund                          -31.53%      (-32.35%)       -31.74%   (-32.56%)      -28.15%    (-28.97%)
Index Fund                            -28.31%      (-29.09%)       -28.56%   (-29.24%)      -24.80%    (-25.48%)
Real Estate Securities Fund             6.13%        (5.94%)         N/A        N/A            N/A        N/A
Venture Fund                          -18.04%      (-18.14%)       -18.32%   (-18.32%)      -13.96%    (-13.96%)





                                                                  SINCE INCEPTION
                                                                  ---------------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund(1)                      5.05%      (4.68%)        4.97%      (4.77%)        5.08%      (4.88%)
Enterprise Fund(1)                       0.39%      (0.35%)        0.22%      (0.21%)       -0.33%     (-0.34%)
Horizon Fund(2)                          7.05%      (6.88%)        3.93%      (3.87%)        3.41%      (3.35%)
Index Fund(3)                            2.06%      (1.43%)        1.99%      (1.64%)        2.16%      (1.84%)
Real Estate Securities Fund(4)          10.16%      (9.53%)        6.56%      (6.50%)         N/A         N/A
Venture Fund(3)                          6.22%      (6.13%)        6.13%      (6.10%)        6.40%       (6.38%)
- ---------------



(1)      Class A and Class B Inception was September 16, 1994.
         Class C Inception was March 1, 1995.
(2)      Class A Inception was May 3, 1985.
         Class B Inception was August 19, 1994.
         Class C Inception was March 1, 1995.
(3)      Class A, Class B and Class C inception was January 31, 1997.
(4)      Class A inception date was February 25, 1999.
         Class B inception date was November 30, 2001.

         CUMULATIVE TOTAL RETURN. Cumulative total return figures are computed
by finding the cumulative compounded rate of return over the period indicated in
the advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:

                                      ERV-P
                  CTR      =        ( ----- )100
                                        P

Where    :        CTR      =        cumulative total return;

                  ERV      =        ending redeemable value at the end of
                                    the period of a hypothetical $1,000
                                    payment made at the beginning of such
                                    period; and

                  P        =        initial payment of $1,000.

     The cumulative total return on investments in each of the Funds for the
period indicated ended July 31, 2002, was as set forth in the table below. The
cumulative total returns quoted assume that the Class A maximum initial sales
charge of 5.5% was in effect at the inception of Class A shares. The maximum
initial sales charge was 5.0% prior to February 1, 1999. The Funds' investment
adviser and distributor were voluntarily absorbing certain expenses of certain
of the Funds during these periods. If such Funds had been charged for these
expenses the cumulative total return for the same periods would have been lower,
as also shown in the table below in parentheses.




                                                               CUMULATIVE TOTAL RETURN
                                                               -----------------------
FUND                                         CLASS A                   CLASS B                   CLASS C
- ----                                         -------                   -------                   -------
                                                                                    
Cornerstone Fund(1)                      47.39%    (43.36%)        46.45%    (44.35%)        44.36%    (42.39%)
Enterprise Fund(1)                        3.12%     (2.80%)         1.77%    ( 1.65%)        -2.40%    (-2.51%)
Horizon Fund(2)                         223.58%   (214.88%)        35.83%    (35.27%)        28.20%    (27.67%)
Index Fund(3)                            11.89%     (8.23%)        11.45%     (9.56%)        12.47%    (10.78%)
Real Estate Securities Fund(4)           39.35%    (36.62%)         4.32%     (4.28%)          N/A        N/A
Venture Fund(3)                          39.29%    (38.73%)        38.65%    (38.43%)        40.63%    (40.45%)


                                       27


- ---------------

(1) Class A and Class B Inception was September 16, 1994.
    Class C Inception was March 1, 1995.
(2) Class A Inception was May 3, 1985.
    Class B Inception was August 19, 1994.
    Class C Inception was March 1, 1995.
(3) Class A, Class B and Class C inception date was January 31, 1997.
(4) Class A inception date was February 25, 1999.
    Class B inception date was November 30, 2001.

     The calculations for both average annual total return and cumulative total
return deduct the maximum sales charge from the initial hypothetical $1,000
investment, assume all dividends and capital gain distributions are reinvested
at net asset value on the appropriate reinvestment dates as described in the
Prospectus, and include all recurring fees, such as investment advisory and
management fees, charged as expenses to all shareholder accounts.

     Such average annual total return and cumulative total return figures may
also be accompanied by average annual total return and cumulative total return
figures, for the same or other periods, which do not reflect the deduction of
any sales charges.

                       CAPITAL STOCK AND OWNERSHIP OF SHARES

     Each Fund's shares of common stock, and each class thereof, have a par
value $.01 per share, and have equal rights to share in dividends and assets.
The shares possess no preemptive or conversion rights.  Cumulative voting is not
authorized.  This means that the holders of more than 50% of the shares voting
for the election of directors can elect 100% of the directors if they choose to
do so, and in such event the holders of the remaining shares will be unable to
elect any directors.

     Each of the Funds has 10 billion authorized shares of common stock and
has designated 2 billion authorized shares as Class A shares and 2 billion
authorized shares as Class B shares. Each of the Funds other than Real Estate
Securities Fund has also designated 2 billion authorized shares as Class C
shares.  The Funds have the number of shares outstanding as of July 31, 2002,
as set forth below.




                          Shares Outstanding at July 31, 2002
                          -----------------------------------
          Fund              Class A           Class B             Class C
          ----              -------           -------             -------
                                                      
     Cornerstone Fund    4,907,681          533,841              58,812
     Enterprise Fund     4,244,859          578,574              72,959
     Horizon Fund        1,944,245          731,303              63,563
     Index Fund          1,516,679        1,236,348             136,573
     Real Estate
      Securities Fund    2,704,869           95,132                N/A
     Venture Fund        4,333,250          380,789             123,524



     As of July 31, 2002, no person held of record, to the knowledge of the
respective Funds, or owned more than 5% of the outstanding shares of any of the
Funds, except as set forth in the following table:




                                             Number of
     Name and Address of Shareholder          Shares           Percentage
     -------------------------------          ------           ----------
                                                         
     Cornerstone Fund                        4,055,814         73.7%
        Minnesota Life and affiliates*
     Enterprise Fund                         3,564,971         72.8%
        Minnesota Life and affiliates*
     Horizon Fund                               13,098          0.5%
        Minnesota Life and affiliates*
     Index Fund
        Minnesota Life and affiliates*         719,158          24.9%

     Real Estate Securities Fund             2,454,169          87.7%
        Minnesota Life and affiliates*

     Venture Fund                            3,898,399          80.6%
        Minnesota Life and affiliates*


*  400 Robert Street North, St. Paul, Minnesota 55101.

                                 HOW TO BUY SHARES

     Each Fund's shares may be purchased at the public offering price from
Securian Financial, and from certain other broker-dealers or financial
services firms.  Securian Financial reserves the right to reject any purchase
order.  Shares of the Funds may be purchased at a price equal to their
respective net asset value.

                                       28


     Certificates representing shares purchased are not currently issued.
However, shareholders will receive written confirmation of their purchases.
Shareholders will have the same rights of ownership with respect to such shares
as if certificates had been issued.  SHAREHOLDERS WHO HOLD PREVIOUSLY ISSUED
CERTIFICATES REPRESENTING ANY OF THEIR SHARES WILL NOT BE ALLOWED TO REDEEM SUCH
CERTIFICATED SHARES BY TELEPHONE.

ALTERNATIVE PURCHASE ARRANGEMENTS

     Real Estate Securities Fund offers investors the choice between two
classes of shares (Class A and Class B). The other Funds offer investors the
choice among three classes of shares which offer different sales charges and
bear different expenses.  These alternatives permit an investor to choose the
method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances.  For a detailed discussion of these
alternative purchase arrangements see "Sales Charges" below.

     The decision as to which class of shares provides a more suitable
investment for an investor may depend on a number of factors, including the
amount and intended length of the investment.  Investors making investments
that qualify for a waiver of initial sales charges should purchase Class A
shares. Other investors should consider Class B or Class C shares because all of
the purchase price is invested immediately.  Investors who expect to hold shares
for relatively shorter periods of time may prefer Class C shares because such
shares may be redeemed at any time without payment of a contingent deferred
sales charge.  Investors who expect to hold shares longer, however, may choose
Class B shares because such shares convert to Class A shares sooner than do
Class C shares and thus pay the higher Rule 12b-1 fee for a shorter period.

     Purchase orders for $1,000,000 or more will be accepted for Class A
shares only and are not subject to a sales charge at the time of purchase,
but a deferred sales charge will be imposed if such shares are sold within
one year after the date of purchase.  Orders for Class B or Class C shares
for $1,000,000 or more will be treated as orders for Class A shares or
declined.

PURCHASE BY CHECK

     New investors may purchase shares of the Funds by completing an account
application and sending it, together with a check payable to the Fund,
directly to PFPC, the Funds' transfer agent, at Advantus Funds Group, P.O.
Box 9767, Providence, Rhode Island 02940-9767.  Additional purchases may be
made at any time by mailing a check, payable to the Fund, to the same
address. Checks for additional purchases should be identified with the
appropriate account number.  Purchase orders may also be submitted through
Securian Financial or other broker-dealers or financial services firms
authorized to sell shares of the Fund.

PURCHASE BY WIRE

     Shares may also be purchased by Federal Reserve or bank wire.  This
method will result in a more rapid investment in shares of the Funds.  Before
wiring any funds, contact Minnesota Life, through its Advantus Shareholder
Services division, at 1-800-665-6005 for instructions.  Promptly after making
an initial purchase by wire, an investor should complete an account
application and mail it to Advantus Funds Group, P.O. Box 9767, Providence,
Rhode Island 02940-9767.

     Subsequent purchases may be made in the same manner.  Wire purchases
normally take two or more hours to complete, and to be accepted the same day
must be received by 3:00 p.m. (Central time).  Banks may charge a fee for
transmitting funds by wire.

PURCHASE BY INTERNET

Existing Advantus Funds shareholders may also purchase shares via the Internet,
once they have established on-line authorization.  Please contact Advantus
Shareholder Services at (800) 665-6005 for information on how to establish your
account.

TIMING OF PURCHASE ORDERS

     An order in proper form for the purchase of shares of a Fund received by
the Fund prior to the close of normal trading on the New York Stock Exchange
("NYSE"), which is generally 3:00 p.m. Central Time, will be effected at the
price next determined on the date received by PFPC.  An order received by
PFPC from a financial services firm after the price is determined that day
will nonetheless be processed at that day's price if the order was received by
the firm from its customer prior to such determination and transmitted to and
received by PFPC prior to its close of business that day. Other orders
received after the close of the NYSE will be effected at the price next
determined on the next business day.


                                       29


MINIMUM INVESTMENTS

     A minimum initial investment of $1,000 is required, except that $500 is
the minimum initial investment required to open a qualified account or an
account in which investments of not less than $50 are being made under an
automatic investment plan ($25 for an automatic investment plan established
prior to December 2, 2002). The minimum amount required for a subsequent
investment in all types of accounts is $50.

PUBLIC OFFERING PRICE

     The public offering price of the Fund will be the net asset value per share
of the Fund next determined after an order is received and becomes effective,
plus the applicable sales charge, if any.  The net asset value per share of each
class is determined by dividing the value of the securities, cash and other
assets (including dividends accrued but not collected) of the Fund attributable
to such class less all liabilities (including accrued expenses but excluding
capital and surplus) attributable to such class, by the total number of shares
of such class outstanding.

     The net asset value of the shares of the Fund is determined as of the close
of normal trading on the New York Stock Exchange (as of the date of this
Statement of Additional Information the primary close of trading is 3:00 p.m.
(Central time), but this time may be changed) on each day, Monday through
Friday, except (i) days on which changes in the value of the Fund's portfolio
securities will not materially affect the current net asset value of Fund
shares, (ii) days during which no Fund shares are tendered for redemption and no
order to purchase or sell Fund shares is received by the Fund and (iii)
customary national business holidays on which the New York Stock Exchange is
closed for trading.

     Securities, including put and call options, which are traded
over-the-counter and on a national exchange will be valued according to the
broadest and most representative market.  A security which is only listed or
traded on an exchange, or for which an exchange is the most representative
market, is valued at its last sale price (prior to the time as of which
assets are valued) on the exchange where it is principally traded.  Lacking
any sales on the exchange where it is principally traded on the day of
valuation, prior to the time as of which assets are valued, the security
generally is valued at the last bid price on that exchange.  Futures
contracts will be valued in a like manner, except that open futures contracts
sales will be valued using the closing settlement price or in the absence of
such a price, the most recent quoted bid price.  All other securities for
which over-the-counter market quotations are readily available are valued on
the basis of the last current bid price.  When market quotations are not
readily available, such securities are valued at fair value as determined in
good faith by the Board of Directors. Advantus Capital and the Funds'
sub-advisers, where applicable, monitor for "significant events" that may (a)
occur after closing market prices are established but before the time a Fund
calculates its net asset value and (b) cause market quotations for certain
securities to be considered "not readily available" because of such
significant events. In such circumstances, those securities are also valued
at fair value as determined in good faith by the Board of Directors. Other
assets also are valued at fair value as determined in good faith by the Board
of Directors.  However, debt securities may be valued on the basis of
valuations furnished by a pricing service which utilizes electronic data
processing techniques to determine valuations for normal institutional-size
trading units of debt securities, without regard to sale or bid prices, when
such valuations are believed to more accurately reflect the fair market value
of such securities.  Short-term investments in debt securities are valued
daily at market.

                                   SALES CHARGES

CLASS A SHARES

     The public offering price of Class A shares of each Fund is the net asset
value of the Fund's shares plus the applicable front end sales charge ("FESC"),
which will vary with the size of the purchase.  Securian Financial receives all
applicable sales charges.  The Fund receives the net asset value.  The current
sales charges are:


                                       30




                                       Sales Charge as a
                                         Percentage of:
                                                             Net       Amount Paid to Broker-
                                        Offering            Amount    Dealers as a Percentage of
  Value of Total Investment              Price             Invested        Offering Price:
  -------------------------              -----             --------        ---------------
                                                             
Less than $50,000                         5.5%               5.82%               4.75%
$50,000 but less than $100,000            4.5                4.71                3.75
$100,000 but less than $250,000           3.5                3.63                2.75
$250,000 but less than $500,000           2.5                2.56                2.00
$500,000 but less than $1,000,000         2.0                2.04                1.50
$1,000,000 and over (1)                     0                   0                1.00


(1) A FESC will not be assessed for purchases of Class A shares of at least $1
million, but a contingent deferred sales charge of 1.00% will be imposed if such
shares are sold within one year after the date of purchase.


     The sales charge applicable to an initial investment in the Fund depends on
the offering price of the investment.  The sales charge applicable to subsequent
investments, however, depends on the offering price of that investment plus the
current net asset value of the investor's previous investments in the Fund.  For
example, if an investor makes an initial investment in Class A shares of Venture
Fund with an offering price of $40,000 the investor will pay a sales charge
equal to 5.5% of the $40,000 investment, but if an investor already owns Class A
shares of Venture Fund with a current net asset value of $40,000 and invests in
additional Class A shares of Horizon Fund with an offering price of $10,000 the
investor will pay a sales charge equal to 4.5% of the additional $10,000 since
the total investment in the Fund would then be $50,000.

CLASS B SHARES

     Class B shares of each Fund are sold without an initial sales charge so
that the Fund receives the full amount of the investor's purchase.  However, a
contingent deferred sales charge ("CDSC") of up to 5% will be imposed if shares
are redeemed within six years of purchase.  For additional information, see
"Redemptions" below.  Class B shares will automatically convert to Class A
shares of the Fund on the fifteenth day of the month (or, if different, the last
business day prior to such date) following the expiration of a specified holding
period.  In addition, Class B shares are subject to higher Rule 12b-1 fees as
described below.  The amount of the CDSC will depend on the number of years
since the purchase was made, the amount of shares originally purchased and the
dollar amount being redeemed.  The amount of the applicable CDSC and the holding
period prior to conversion are determined in accordance with the following
table:



                                                                                                  Shares Convert
                                                                                                  to Class A in
                                                   CDSC Applicable in Year                          the Month
                                                   -----------------------                            After
   Shares Purchased in an Amount      1         2         3         4         5         6         Expiration of
   -----------------------------      -         -         -         -         -         -         -------------
                                                                             
Less than $50,000                    5.0%      4.5%      3.5%      2.5%      1.5%      1.5%         84 months
$50,000 but less than $100,000       4.5       3.5       2.5       1.5       1.5         0          76 months
$100,000 but less than $250,000      3.5       2.5       1.5       1.5         0         0          60 months
$250,000 but less than $500,000      2.5       1.5       1.5         0         0         0          44 months
$500,000 but less than $1,000,000    1.5       1.5         0         0         0         0          28 months


     Proceeds from the CDSC are paid to Securian Financial and are used to
defray expenses related to providing distribution-related services to the Fund
in connection with the sale of Class B shares, such as the payment of
compensation to selected broker-dealers, and for selling Class B shares.  The
combination of the CDSC and the Rule 12b-1 fee enables the Fund to sell the
Class B shares


                                       31


without deduction of a sales charge at the time of purchase.  Although Class B
shares are sold without an initial sales charge, Securian Financial pays a sales
commission to broker-dealers, and to registered representatives of Securian
Financial, who sell Class B shares.  The amount of this commission may differ
from the amount of the commission paid in connection with sales of Class A
shares.  The higher Rule 12b-1 fee will cause Class B shares to have a higher
expense ratio and to pay lower dividends than Class A shares.  Securian
Financial pays other broker-dealers for the sale of Class B shares in accordance
with the following schedule:



                                             Amount Paid to Broker-Dealers as a
  Shares Purchased in an Amount                Percentage of Offering Price:
  -----------------------------                -----------------------------
                                          
Less than $50,000                                           4.17%
$50,000 but less than $100,000                              3.75
$100,000 but less than $250,000                             2.92
$250,000 but less than $500,000                             2.08
$500,000 but less than $1,000,000                           1.25


CONVERSION FEATURE. On the fifteenth day of the month (or, if different, the
last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class B shares will
automatically convert to Class A shares and will no longer be subject to a
higher Rule 12b-1 fee.  Such conversion will be on the basis of the relative
net asset values of the two classes.  Class A shares issued upon such
conversion will not be subject to any FESC or CDSC.  Class B shares acquired
by exchange from Class B shares of another Advantus Multiple Class Funds will
convert into Class A shares based on the time of the initial purchase.
Purchased Class B shares ("Purchased B Shares") will convert after the
specified number of months following the purchase date.  All Class B shares
in a shareholder's account that were acquired through the reinvestment of
dividends and distributions ("Reinvestment B Shares") will be held in a
separate sub-account.  Each time any Purchased B Shares convert to Class A
shares, a PRO RATA portion (based on the ratio that the total converting
Purchased B Shares bears to the shareholder's total converting and
non-converting Purchased B Shares immediately prior to the conversion) of the
Reinvestment B Shares then in the sub-account will also convert to Class A
shares.

     The conversion of Class B shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes.  There can be no assurance that such ruling or
opinion will be available, and the conversion of Class B shares to Class A
shares will not occur if such ruling or opinion is not available.  In such
event, Class B shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.

CLASS C SHARES

     Class C shares of Venture Fund and Index Fund are sold without an
initial sales charge so that the Fund receives the full amount of the
investor's purchase.  Unlike Class B shares, however, no CDSC is imposed when
Class C shares are redeemed.  Class C shares will automatically convert to
Class A shares of the Fund on the fifteenth day of the month (or, if
different, the last business day prior to such date) following the expiration
of a specified holding period.  In addition, Class C shares are subject to
higher Rule 12b-1 fees (as described below), and are subject to such higher
fees for a longer period than are Class B shares because of a longer holding
period prior to conversion.  The applicable holding period prior to
conversion is determined in accordance with the following table:


                                       32




                                                         Shares Convert to
                                                          Class A in the
                                                            Month After
  Shares Purchased in an Amount                            Expiration of
  -----------------------------                            -------------
                                                      
Less than $50,000                                           96 months
$50,000 but less than $100,000                              88 months
$100,000 but less than $250,000                             72 months
$250,000 but less than $500,000                             56 months
$500,000 but less than $1,000,000                           40 months


     The longer period during which the Rule 12b-1 fee is charged enables the
Fund to sell the Class C shares without deduction of a sales charge at the time
of purchase and without imposing a CDSC at redemption.  Securian Financial does
not pay a sales commission to broker-dealers, or to registered representatives
of Securian Financial, who sell Class C shares.  The higher Rule 12b-1 fee will
cause Class C shares to have a higher expense ratio and to pay lower dividends
than Class A shares.

     CONVERSION FEATURE.  On the fifteenth day of the month (or, if different,
the last business day prior to such date) after the expiration of the applicable
holding period described in the table above, Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher Rule 12b-1
fee.  Such conversion will be on the basis of the relative net asset values of
the two classes.  Class A shares issued upon such conversion will not be subject
to any FESC or CDSC.  Class C shares acquired by exchange from Class C shares of
another Advantus Multiple Class Fund will convert into Class A shares based on
the time of the initial purchase.  Purchased Class C shares ("Purchased C
Shares") will convert after the specified number of months following the
purchase date.  All Class C shares in a shareholder's account that were acquired
through the reinvestment of dividends and distributions ("Reinvestment C
Shares") will be held in a separate sub-account.  Each time any Purchased C
Shares convert to Class A shares, a pro rata portion (based on the ratio that
the total converting Purchased C Shares bears to the shareholder's total
converting and non-converting Purchased C Shares immediately prior to the
conversion) of the Reinvestment C Shares then in the sub-account will also
convert to Class A shares.

     The conversion of Class C shares to Class A shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that payment of different dividends by each of the classes
of shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Internal Revenue Code of
1986, as amended, and that such conversions do not constitute taxable events
for Federal tax purposes.  There can be no assurance that such ruling or
opinion will be available, and the conversion of Class C shares to Class A
shares will not occur if such ruling or opinion is not available.  In such
event, Class C shares would continue to be subject to higher expenses than
Class A shares for an indefinite period.

OTHER PAYMENTS TO BROKER-DEALERS

     Broker-dealers selling Class A, Class B and Class C shares of the Funds
will receive a shareholder servicing fee (Rule 12b-1 fee) equal, on an annual
basis, to .25% of the net asset values attributable to Class A, Class B and
Class C shares.  Shareholder servicing fees attributable to Class A shares
are paid quarterly in arrears beginning with the end of the first quarter
after the sale of the shares to which such fees are attributable. Shareholder
servicing fees attributable to Class B and Class C shares are paid quarterly
in arrears beginning with the second year after the sale of the shares to
which such fees are attributable (i.e., the first payment is at the end of
the fifteenth month). Rule 12b-1 distribution fees will also be paid
quarterly in arrears to broker-dealers selling Class C shares equal, on an
annual basis, to .75% of the net asset values attributable to such Class C
shares.

                     NET ASSET VALUE AND PUBLIC OFFERING PRICE

     The method for determining the public offering price and net asset value
per share is summarized in the Prospectus in the text following the heading
"Buying and Selling Shares."


                                       33


     The portfolio securities in which the Funds invest fluctuate in value, and
hence the net asset value per share of each Fund also fluctuates.

     On July 31, 2002 the net asset value and public offering price per share
for Class A, Class B and Class C shares of each of the Funds were calculated
as set forth below.

                                CORNERSTONE FUND

CLASS A SHARES

    Net Assets ($57,947,279)             =    Net Asset Value Per Share ($11.81)
- --------------------------------
    Shares outstanding (4,907,681)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $11.81      =        Public Offering Price Per Share ($12.50)
         ------
         .945(1)

CLASS B SHARES

    Net Assets ($6,190,135)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.60)
    Shares outstanding (533,841)

CLASS C SHARES

    Net Assets ($680,160)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.57)
    Shares outstanding (58,812)

                                 ENTERPRISE FUND

CLASS A SHARES

    Net Assets ($27,357,239)             =    Net Asset Value Per Share ($6.44)
- --------------------------------
    Shares outstanding (4,244,859)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $6.44    =        Public Offering Price Per Share ($6.81)
         -----
         .945(1)

CLASS B SHARES

    Net Assets ($3,345,090)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($5.78)
    Shares outstanding (578,574)

CLASS C SHARES

    Net Assets ($421,470)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($5.78)
    Shares outstanding (72,959)

                                  HORIZON FUND

CLASS A SHARES

    Net Assets ($21,830,076)             =    Net Asset Value Per Share ($11.23)
- --------------------------------
    Shares outstanding (1,944,245)

         To obtain the maximum public offering price per share, the Fund's
maximum sales charge must be added to the net asset value obtained above:

         $11.23    =        Public Offering Price Per Share ($11.88)
         ------
         .945(1)

CLASS B SHARES

    Net Assets ($7,507,340)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($10.27)
    Shares outstanding (731,303)

CLASS C SHARES

    Net Assets ($657,556)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($10.34)
    Shares outstanding (63,563)

                                  INDEX FUND

CLASS A SHARES

   Net Assets ($18,196,010)              =    Net Asset Value Per Share ($12.00)
- --------------------------------
Shares outstanding (1,516,679)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $12.00    =  Public Offering Price Per Share ($12.70)
         ------
         .945 (1)

CLASS B SHARES

   Net Assets ($14,558,915)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.78)
Shares outstanding (1,236,348)

CLASS C SHARES

  Net Assets ($1,604,621)                =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.75)
Shares outstanding (136,573)

                        REAL ESTATE SECURITIES FUND

CLASS A SHARES

   Net Assets ($32,268,948)              =    Net Asset Value Per Share ($11.93)
- --------------------------------
Shares outstanding (2,704,869)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $11.93   =  Public Offering Price Per Share ($12.62)
         ------
         .945

CLASS B SHARES

    NET ASSETS ($1,131,179)              =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.89)
    Shares outstanding (95,132)

                                    VENTURE FUND

CLASS A SHARES

    Net Assets ($53,071,152)            =    Net Asset Value Per Share ($12.25)
- --------------------------------
Shares outstanding (4,333,250)

     To obtain the maximum public offering price per share, the Fund's maximum
sales charge must be added to the net asset value obtained above:

         $12.25   =  Public Offering Price Per Share ($12.96)
         ------
         .945 (1)

CLASS B SHARES

   Net Assets ($4,531,306)               =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.90)
Shares outstanding (380,789)

CLASS C SHARES

   Net Assets ($1,476,813)               =    Net Asset Value and Public
- --------------------------------              Offering Price Per Share ($11.96)
Shares outstanding (123,524)


- ------------

(1)  Effective February 1, 1999, the maximum FESC was increased to 5.5%.

                                REDUCED SALES CHARGES

     Special purchase plans are enumerated in the text of the Funds' Prospectus
under "Buying and Selling Shares - Reducing Sales Charges" and are fully
described below.


                                       34


RIGHT OF ACCUMULATION-CUMULATIVE PURCHASE DISCOUNT

     The front end sales charge and contingent deferred sales charge applicable
to each purchase of Class A shares and Class B shares, respectively, of the
Funds is based on the next computed net asset value of all Class A, Class B and
Class C shares of such Funds held by the shareholder (including dividends
reinvested and capital gains distributions accepted in shares), plus the cost of
all Class A, Class B and Class C shares of such Funds currently being purchased.
It is the obligation of each shareholder desiring this discount in sales charge
to notify Securian Financial, through his or her dealer or otherwise, that he or
she is entitled to the discount.

LETTER OF INTENT

     The applicable sales charge for purchases of Class A shares is based on
total purchases over a 13-month period where there is an initial purchase equal
to or exceeding $1,000, accompanied by filing with Securian Financial a signed
"Letter of Intent" form to purchase, and by in fact purchasing not less than
$50,000 of shares in one of the Funds within that time.  The 13-month period is
measured from the date the Letter of Intent is approved by Securian Financial,
or at the purchaser's option, it may be made retroactive 90 days, in which case
Securian Financial will make appropriate adjustments on purchases during the
90-day period.

     In computing the total amount purchased for purposes of determining the
applicable sales charge, the net asset value of Class A, Class B and Class
C shares currently held in all Advantus Multiple Class Funds, on the date of
the first purchase under the Letter of Intent, may be used as a credit toward
Fund shares to be purchased under the Letter of Intent. Class A, Class B and
Class C shares of all the Advantus Multiple Class Funds may also be included in
the purchases during the 13-month period.

     The Letter of Intent includes a provision for payment of additional
applicable Class A sales charges at the end of the period in the event the
investor fails to purchase the amount indicated.  This is accomplished by
holding 5.5% of the investor's initial purchase in escrow.  If the investor's
purchases equal those specified in the Letter of Intent, the escrow is released.
If the purchases do not equal those specified in the Letter of Intent, he or she
may remit to Securian Financial an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales charges
that would have been paid on the aggregate purchases if the total of such
purchases had been made at a single time.  If the purchaser does not remit this
sum to Securian Financial on a timely basis, Securian Financial will redeem the
appropriate number of shares, and then release or deliver any remaining shares
in the escrow account.  The Letter of Intent is not a binding obligation on the
part of the investor to purchase, or the respective Fund to sell, the full
amount indicated.  Nevertheless, the Letter of Intent should be read carefully
before it is signed.

COMBINING PURCHASES

     With respect to each of the Advantus Multiple Class Funds, purchases of
Class A, Class B and Class C shares for any other account of the investor, or
such person's spouse or minor children, or purchases on behalf of participants
in a tax-qualified retirement plan may be treated as purchases by a single
investor for purposes of determining the availability of a reduced sales
charge.

GROUP PURCHASES

     An individual who is a member of a qualified group may also purchase
shares of the Advantus Multiple Class Funds at the reduced sales charge
applicable to the group taken as a whole.  The sales charge is calculated by
taking into account not only the dollar amount of the Class A, Class B and
Class C shares of the Funds being purchased by the individual member, but also
the aggregate dollar value of such Class A, Class B and Class C shares
previously purchased and currently held by other members of the group.  Members
of a qualified group may not be eligible for a Letter of Intent.

     A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring Fund shares at a discount,


                                       35


and (iii) satisfies uniform criteria which enable Securian Financial to realize
economies of scale in distributing such shares.  A qualified group must have
more than ten members, must be available to arrange for group meetings between
representatives of Securian Financial, must agree to include sales and other
materials related to the Funds in its publications and mailings to members at
reduced or no cost to Securian Financial, and must seek, upon request, to
arrange for payroll deduction or other bulk transmission of investments to the
Funds.


WAIVER OF SALES CHARGES FOR CERTAIN SALES OF CLASS A SHARES

         Directors and officers of Advantus Capital, CSAM (with respect to
Enterprise Fund only), State Street (with respect to Venture Fund only),
Securian Financial, the Funds, Minnesota Life, or any of Minnesota Life's
other affiliated companies, and their full-time and part-time employees,
sales representatives and retirees, any trust, pension, profit-sharing, or
other benefit plan for such persons, the spouses, siblings, direct ancestors
or direct descendants of such persons, independent legal counsel to the
Funds' independent directors, Minnesota Life and its affiliates themselves,
advisory clients of Advantus Capital, employees of sales representatives
employed in offices maintained by such sales representatives, certain
accounts as to which a bank or broker-dealer charges an account management
fee, provided the bank or broker-dealer has an agreement with Securian
Financial, certain accounts sold by registered investment advisers who charge
clients a fee for their services, investors who, within 60 days after
redeeming shares of a class of shares generally subject to either an initial
or deferred sales charge issued by a non-Advantus fund, use those redemption
proceeds to purchase Class A shares from Securian Financial or a
broker-dealer that has entered into an agreement with Securian Financial
specifically providing for net asset value purchases, and employer-sponsored
retirement plans described in Sections 401 or 403, or governmental retirement
plans described in Section 457, of the Internal Revenue Code with total plan
assets of not less than $500,000, may purchase Class A shares of the Advantus
Multiple Class Funds at net asset value. These persons must give written
assurance that they have bought for investment purposes, and that the
securities will not be resold except through redemption or repurchase by, or
on behalf of, the respective Fund. These persons are not required to pay a
sales charge because of the reduced sales effort involved in their purchases.

                      EXCHANGE AND TRANSFER OF FUND SHARES

         A shareholder can exchange some or all of his or her Class A, Class B
and Class C shares in the Advantus Multiple Class Funds, including shares
acquired by reinvestment of dividends, for shares of the same class of any of
the other Advantus Multiple Class Funds (provided such Fund is available in the
shareholder's State), and can thereafter re-exchange such exchanged shares back
for shares of the same class of the Fund. Purchases by exchange are subject to
the minimum investment requirements of the Funds. The exchange will be made on
the basis of the relative net asset values without the imposition of any
additional sales load. When Class B shares acquired through the exchange are
redeemed, the shareholder will be treated as if no exchange took place for the
purpose of determining the contingent deferred sales charge ("CDSC") period and
applying the CDSC.

         Class A, Class B and Class C shares may also be exchanged for shares of
the Money Market Fund at net asset values. No CDSC will be imposed at the time
of any such exchange of Class B shares; however, the Money Market Fund shares
acquired in any such exchange will remain subject to the CDSC otherwise
applicable to such Class B shares as of the date of exchange, and the period
during which such shares of Money Market Fund are held will not be included in
the calculation of the CDSC due at redemption of such Money Market Fund shares
or any reacquired Class B shares, except as follows. Securian Financial is
currently waiving the entire Rule 12b-1 fee due from Money Market Fund. In the
event Securian Financial begins to receive any portion of such fee, either (i)
the time period during which shares of Money Market Fund acquired in exchange
for Class B shares are held will be included in the calculation of the CDSC due
at redemption, or (ii) such time period will not be included but the amount of
the CDSC will be reduced by the amount of any Rule 12b-1 payments made by Money
Market Fund with respect to those shares.

         Exchanges of shares from Money Market Fund are subject to applicable
sales charges of the Advantus Fund being purchased, unless the Money Market Fund
shares were previously acquired by an exchange from Class A or Class B shares of
another Advantus Fund or by reinvestment or cross-reinvestment of dividends or
capital gains distributions. Shares of Money Market Fund previously acquired in
an exchange for Class A, Class B or Class C shares from any of the Funds may be
re-exchanged at relative net asset values for Class A, Class B and Class C
shares, respectively, of another Advantus Fund. Class C shares re-acquired in
this manner will have a remaining holding period prior to conversion equal to
the remaining holding period applicable to the prior Class C shares at the time
of the initial exchange.

         The exchange privilege is available only in states where such exchanges
may legally be made (at the present time the Fund believes this privilege is
available in all states). An exchange may be made by written request or by a
telephone call, (unless the shareholder has elected on the account application

                                       36


not to have telephone transaction privileges) or by Internet. Up to twelve
exchanges each calendar year may be made without charge. A $7.50 service charge
will be imposed on each subsequent exchange and/or telephone transfer. No
service charge is imposed in connection with systematic exchange plans. However,
the Fund reserves the right to restrict the frequency of, or otherwise modify,
condition, terminate, or impose additional charges upon, the exchange and/or
telephone transfer privileges and/or Internet transactions, upon 60 days' prior
notice to shareholders. An exchange is considered to be a sale of shares for
federal income tax purposes on which an investor may realize a long- or
short-term capital gain or loss. See "Distributions and Tax Status" for a
discussion of the effect of redeeming shares within 90 days after acquiring them
and subsequently acquiring new shares in any mutual fund at a reduced sales
charge.


SYSTEMATIC EXCHANGE PLAN

     Shareholders of the Fund may elect to have shares of the Fund
systematically exchanged for shares of any of the other Advantus Funds on a
monthly basis.  The minimum amount which may be exchanged on such a systematic
basis is $50.  The terms and conditions otherwise applicable to exchanges
generally, as described above, also apply to such systematic exchange plans.

                            SHAREHOLDER SERVICES

OPEN ACCOUNTS

     A shareholder's investment is automatically credited to an open account
maintained for the shareholder by PFPC, the Funds' transfer agent.  Stock
certificates are not currently issued.  Following each transaction in the
account, a shareholder will receive a confirmation statement disclosing the
current balance of shares owned and the details of recent transactions in the
account.  After the close of each year PFPC sends to each shareholder a
statement providing federal tax information on dividends and distributions paid
to the shareholder during the year.  This should be retained as a permanent
record.  A fee may be charged for providing duplicate information.

     The open account system provides for full and fractional shares expressed
to four decimal places and, by making the issuance and delivery of stock
certificates unnecessary, eliminates problems of handling and safekeeping, and
the cost and inconvenience of replacing lost, stolen, mutilated or destroyed
certificates.

     The costs of maintaining the open account system are paid by each Fund.
No direct charges are made to shareholders, the costs of maintaining the open
account system are paid by each Fund. No direct charges are made to
shareholders, except that the Funds will deduct a $10 annual fee from a
shareholder's account in December of each year if the account balance at that
time is below $2000. This low balance fee is waived for qualified retirement
accounts and for investors who have aggregate Advantus Fund account assets of
$25,000 or more (only shares held directly in the investor's name, rather
than in a broker's name, are aggregated for this purpose). Although the Funds
have no present intention of making additional direct charges to
shareholders, they reserve the right to do so. Shareholders will receive
prior notice before any such charges are made.

AUTOMATIC INVESTMENT PLAN

     Each Fund provides a convenient, voluntary method of purchasing shares in
the Fund through its "Automatic Investment Plan" (the "Plan").

     The principal purposes of the Plan are to encourage thrift by enabling
you to make regular purchases in amounts less than normally required, and, in
the case of each of the Advantus Funds other than Money Market Fund, to
employ the principle of dollar cost averaging, described below.

     By acquiring Fund shares on a regular basis pursuant to the Automatic
Investment Plan, or investing regularly on any other systematic plan, the
investor takes advantage of the principle of dollar cost averaging.  Under
dollar cost averaging, if a constant amount is invested at regular intervals at
varying price levels, the average cost of all the shares will be lower than the
average of the price levels.  This is because the same fixed number of dollars
buys more shares when price levels are low and fewer shares when price levels
are high.  There is no guarantee, however, that the automatic investment plan
will always result in a lower cost per share compared to other investment
programs.  It is essential that the investor consider his or her financial
ability to continue this investment program during times of market decline as
well as market rise.  The principle of dollar cost averaging will not protect
against loss in a declining market, as a loss will result if the plan is
discontinued when the market value is less than cost.


                                       37


     A Plan may be opened with an initial investment of $500 and by
indicating an intention to invest $50 ($25 for plans established prior to
December 2, 2002) or more monthly for at least one year.  Investors will
receive a confirmation showing the number of shares purchased, purchase
price, and subsequent new balance of shares accumulated.

     An investor has no obligation to invest regularly or to continue the Plan,
which may be terminated by the investor at any time without penalty.  Under the
Plan, any distributions of income and realized capital gains will be reinvested
in additional shares at net asset value unless a shareholder instructs the Fund
in writing to pay them in cash.  The Fund reserves the right to increase or
decrease the amount required to open and continue a Plan, and to terminate any
Plan after one year if the value of the amount invested is less than $250.

GROUP SYSTEMATIC INVESTMENT PLAN

     This Plan provides employers and employees with a convenient means for
purchasing shares of each Fund under various types of employee benefit and
thrift plans, including payroll withholding and bonus incentive plans.  The Plan
may be started with an initial cash investment of $50 per participant for a
group consisting of five or more participants.  The shares purchased by each
participant under the Plan will be held in a separate account in which all
dividends and capital gains will be reinvested in additional shares of the Fund
at net asset value.  To keep his or her account open, subsequent payments
totaling $25 per month must be made into each participant's account.  If the
group is reduced to less than five participants, the minimums set forth under
"Automatic Investment Plan" shall apply.  The Plan may be terminated by the Fund
or the shareholder at any time upon reasonable notice.

RETIREMENT PLANS OFFERING TAX BENEFITS

     The federal tax laws provide for a variety of retirement plans offering tax
benefits.  These plans may be funded with shares of any of the Funds.  The plans
include H.R. 10 (Keogh) plans for self-employed individuals and partnerships,
individual retirement accounts (IRA's), corporate pension trust and profit
sharing plans, including 401(k) plans, and retirement plans for public school
systems and certain tax exempt organizations, e.g. 403(b) plans.


     The initial investment in each Fund by such a plan must be at least $250
for each participant in a plan, and subsequent investments must be at least $25
per month for each participant.  Income dividends and capital gain distributions
must be reinvested.  Plan documents and further information can be obtained from
Securian Financial.


     An investor should consult a competent tax or other adviser as to the
suitability of Fund shares as a vehicle for funding a plan, in whole or in part,
under the Employee Retirement Income Security Act of 1974 and as to the
eligibility requirements for a specific plan and its state as well as federal
tax aspects.

SYSTEMATIC WITHDRAWAL PLANS

     An investor owning shares in any one of the Funds having a value of
$5,000 or more at the current public offering price may establish a
Systematic Withdrawal Plan providing for periodic payments of a fixed or
variable amount. Withdrawal payments for Class A shares of the Advantus
Multiple Class Funds purchased in amounts of $1 million or more, and for Class B
shares of Advantus Multiple Class Funds, may also be subject to a CDSC.  As a
result, a shareholder should consider whether a Systematic Withdrawal Plan is
appropriate.  It may be appropriate for the shareholder to consult a tax adviser
before establishing such a plan.

     The Plan is particularly convenient and useful for trustees in making
periodic distributions to retired employees.  Through this Plan a trustee can
arrange for the retirement benefit to be paid directly to the employee by the
respective Fund and to continue the tax-free accumulation of income and capital
gains prior to their distribution to the employee.  An investor may terminate
the Plan at any time.  A form for use in establishing such a plan is available
from Securian Financial.


                                       38


     A shareholder under a Systematic Withdrawal Plan may elect to receive
payments monthly, quarterly, semiannually, or annually for a fixed amount of not
less than $50 or a variable amount based on (1) the market value of a stated
number of shares, (2) a specified percentage of the account's market value or
(3) a specified number of years for liquidating the account (e.g., a 20-year
program of 240 monthly payments would be liquidated at a monthly rate of 1/240,
1/239, 1/238, etc.).  The initial payment under a variable payment option may be
$50 or more.

     All shares under the Plan must be left on deposit.  Income dividends and
capital gain distributions will be reinvested without a sales charge at net
asset value determined on the record date.

     Since withdrawal payments represent proceeds from the liquidation of
shares, withdrawals may reduce and possibly exhaust the initial investment,
particularly in the event of a decline in net asset value.

     Under this Plan, any distributions of income and realized capital gains
must be reinvested in additional shares, and are reinvested at net asset value.
If a shareholder wishes to purchase additional shares of the respective Fund
under this Plan, other than by reinvestment of distributions, it should be
understood that, in the case of Class A shares, he or she would be paying a
sales commission on such purchases, while liquidations effected under the Plan
would be at net asset value, and, in the case of Class B shares, he or she would
be purchasing such shares at net asset value while liquidations effected under
the Plan would involve the payment of a contingent deferred sales charge.
Purchases of additional shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
Additions to a shareholder account in which an election has been made to receive
systematic withdrawals will be accepted only if each such addition is equal to
at least one year's scheduled withdrawals or $1,200, whichever is greater.  A
shareholder may not have an "Automatic Withdrawal Plan" and a "Systematic
Investment Plan" in effect simultaneously as it is not, as explained above,
advantageous to do so.

                                    REDEMPTIONS

     Registered holders of shares of the Funds may redeem their shares at the
per share net asset value ("NAV") next determined following receipt by PFPC
(at its mailing address listed on the cover page) of a written redemption
request signed by all shareholders exactly as the account is registered (and
a properly endorsed stock certificate if one has been issued).  A sale order
received by PFPC from a financial services firm after NAV is determined that
day will nonetheless be processed at that day's NAV if the order was received
by the firm from its customer prior to such determination and transmitted to
and received by PFPC prior to its close of business that day. Class C shares
may be redeemed without charge.  A contingent deferred sales charge may be
applicable upon redemption of certain Class A shares and Class B shares.
Both share certificates and stock powers, if any, tendered in redemption must
be endorsed and executed exactly as the Fund shares are registered.  Any
certificates should be sent to the Fund by certified mail.

     Payment will be made as soon as possible, but generally not later than
seven days after receipt of a properly executed written redemption request
(and any certificates).  Sales proceeds from shares purchased by check or
bank draft, other than checks from government agencies, will not be available
until the check or draft clears the purchaser's bank, which may take up to
fifteen days after purchase. The amount received by the shareholder may be
more or less than the shares' original cost.

     If stock certificates have not been issued, and if no signature guarantee
is required, shareholders may also submit their signed written redemption
request to the Fund by facsimile (FAX) transmission.  The Fund's FAX number is
(508) 871-9960.

     Each Fund will pay in cash all redemption requests by any shareholder of
record, limited in amount during any 90-day period to the lesser of $250,000
or 1% of the net asset value of the Fund at the beginning of such period.
When redemption requests exceed such amount, however, the Fund reserves the
right to make part or all of the payment in the form of securities or other
assets of the Fund.  An example of when this might be done is in case of
emergency, such as in those situations enumerated in the following paragraph,
or at any time a cash distribution would impair the liquidity of the Fund to
the detriment of the existing shareholders.  Any securities being so
distributed would be valued in the same manner as the portfolio of the Fund


                                       39


is valued. If the recipient sold such securities, he or she probably would
incur brokerage charges.  Each Fund has filed with the Securities and Exchange
Commission a notification of election pursuant to Rule 18f-1 under the
Investment Company Act of 1940 in order to make such redemptions in kind.

     Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said Exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable, or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the SEC, by order, so permits; provided that applicable rules and regulations of
the SEC shall govern as to whether the conditions prescribed in (b) or (c)
exist.


MEDALLION SIGNATURE GUARANTEE

     In order to protect both shareholders and the Funds against fraudulent
orders, a medallion shareholder signature guarantee is required in certain
cases. No signature guarantee is required if the redemption proceeds are less
than $50,000 and are to be paid to the registered holder and sent to the
address of record for that account, or if the written redemption request is
from pre-authorized trustees of plans, trusts and other tax-exempt
organizations and the redemption proceeds are less than $50,000.

     A medallion signature guarantee is required, however, if (i) the
redemption proceeds are $50,000 or more, (ii) the redemption proceeds are to
be paid to someone other than the registered holder, (iii) the redemption
proceeds are to be mailed to an address other than the registered
shareholder's address, (iv) within the 30-day period prior to receipt of the
redemption request, instructions have been received to change the
shareholder's address of record, or, in the case of redemptions to be paid by
wire, instructions have been received within such period to change the
shareholder's bank wire instructions, (v) the shares are requested to be
transferred to the account of another owner, or (vi) in the case of plans,
trusts, or other tax-exempt organizations, the redemption request is not from
a pre-authorized trustee.  The Fund reserves the right to require signature
guarantees on all redemptions.

     A signature guarantee must be a "medallion" signature guarantee provided
by a domestic bank or trust company, broker, dealer, clearing agency,
savings association, or other financial institution which participates in a
medallion program recognized by the Securities Transfer Association.  The
three recognized medallion programs are:

- -  Securities Transfer Agents Medallion Program (STAMP)

- -  Stock Exchanges Medallion Program (SEMP)

- -  New York Stock Exchange, Inc. Medallion Signature Program (NYSE MSP)

Signature guarantees from financial institutions which are not participants in
a recognized medallion program will not be accepted.

CONTINGENT DEFERRED SALES CHARGE

     The CDSC applicable upon redemption of Class A shares purchased in
amounts of $1 million or more and Class B shares will be calculated on an
amount equal to the lesser of the net asset value of the shares at the time
of purchase or their net asset value at the time of redemption.  No charge
will be imposed on increases in net asset value above the initial purchase
price.  In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions or on shares held
for longer than the applicable CDSC period.  See "Sales Charges - Class B
Shares" above.

     In determining whether a CDSC is payable with respect to any redemption
of Class B shares, the calculation will be determined in the manner that
results in the lowest rate being charged.


                                       40


     The CDSC does not apply to:  (1) redemption of Class B shares in
connection with the automatic conversion to Class A shares; (2) redemption of
shares when a Fund exercises its right to liquidate accounts which are less
than the minimum account size; (3) redemptions in the event of the death or
disability of the shareholder within the meaning of Section 72(m)(7) of the
Internal Revenue Code; and (4) in connection with Class B shares redeemed
pursuant to a Systematic Withdrawal Plan, limited annually to Class B shares
equal in amount to 12% of the value of a shareholder's account in a Fund at
the time the Systematic Withdrawal Plan is established. The CDSC will also
not apply to certain exchanges.  See "Exchange and Transfer of Fund Shares,"
above.

TELEPHONE REDEMPTION

     The Funds' shareholders have this privilege automatically, unless they
have elected on the account application not to have such privilege, and may
redeem shares by calling Advantus Shareholder Services at 1-800-665-6005 (see
"Telephone Transactions").  A telephone redemption request will not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30-day
period prior to receipt of the redemption request.  The maximum amount which
may be redeemed by telephone is $50,000.  The proceeds will be sent by check
to the address of record for the account.  If the amount is $500 or more, and
if the shareholder has designated a bank account, the proceeds may be wired
to the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund.  The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

INTERNET REDEMPTION

The Funds' shareholders may elect to perform certain transactions via the
Internet.  In order to do so, the shareholder must first authorize the Fund
to transmit information on-line and agree to the Funds' web site procedures.
Please contact Advantus Funds Shareholder Services at (800) 665-6005 for more
information on how to enable an account.  Internet transactions may not be
honored, however, if the shareholder's address of record or bank wire
instructions have been changed without a guarantee of the shareholder's
signature (see "Medallion Signature Guarantee" above) within the 30 day
period prior to receipt of the redemption request.  The maximum amount which
may be redeemed by internet is $50,000.  The proceeds will be sent by check
to the address of record for the account.  If the amount is $500 or more, and
if the shareholder has designated a bank account, the proceeds may be wired
to the shareholder's designated bank account, and the prevailing wire charge
(currently $15.00) will be added to the amount redeemed from the Fund.  The
Funds reserve the right to modify, terminate or impose charges upon the
telephone redemption privilege.

DELAY IN PAYMENT OF REDEMPTION PROCEEDS

     Payment of redemption proceeds will ordinarily be made as soon as
possible and within the periods of time described above.  However, an
exception to this is that if redemption is requested after a purchase by
check or bank draft, other than checks from government agencies, the Fund
will delay mailing the redemption check or wiring proceeds until it has
reasonable assurance that the purchase check has cleared (good payment has
been collected).  This delay may be up to 15 days from the purchase date.

FUND'S RIGHT TO REDEEM SMALL ACCOUNTS

     Each Fund has the right to redeem the shares in small accounts which,
for any reason, have a total current value of less than $150 in 2002, or $500
in subsequent years. The Funds usually make this determination in December of
each year.  Before redeeming an account, the Fund will mail to the
shareholder a written notice of its intention to redeem, which will give the
investor an opportunity to make an additional investment.  If no additional
investment is received by the Fund within 60 days of the date the notice was
mailed, the shareholder's account will be redeemed.

REINSTATEMENT PRIVILEGE

     The Prospectus for the Funds describes redeeming shareholders'
reinstatement privileges in "Buying and Selling Shares" in the Funds'
Prospectus.  Written notice from persons wishing to exercise this
reinstatement privilege must be received by Securian Financial within 90 days
after the date of the redemption.  The reinstatement or exchange will be made
at net asset value next determined after receipt of the notice and will be
limited to the amount of the redemption proceeds or to the nearest full share
if fractional shares are not purchased.  All shares issued as a result of the
reinstatement privilege applicable to redemptions of Class A and Class B
shares will be issued only as Class A shares.  Any CDSC incurred in
connection with the prior redemption (within 90 days) of Class B shares will
not be refunded or re-credited to the shareholder's account.  Shareholders
who redeem Class C shares and exercise their reinstatement privilege will be
issued only Class C shares, which shares will have a remaining holding period
prior to conversion equal to the remaining holding period applicable to the
prior Class C shares at redemption.

     See "Distributions and Tax Status" below for a discussion of the effect of
redeeming shares within 90 days after acquiring them and subsequently acquiring
new shares in any mutual fund at a reduced sales charge.  Should an investor
utilize the reinstatement privilege following a redemption which resulted in a


                                       41


loss, all or a portion of that loss might not be currently deductible for
Federal income tax purposes, for an investor which is not tax-exempt.
Exercising the reinstatement privilege would not alter any capital gains taxes
payable on a realized gain, for an investor which is not tax-exempt.  See
discussion under "Distributions and Tax Status" below regarding the taxation of
capital gains.

                               TELEPHONE TRANSACTIONS

     Shareholders of the Funds are permitted to exchange or redeem a Fund's
shares by telephone.  See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details.  The privilege to initiate such transactions
by telephone is made available automatically unless the shareholder elects on
the account application not to have such privilege.

     Shareholders, or persons authorized by shareholders, may initiate telephone
transactions by telephoning Advantus Shareholder Services, toll free, at
at (800) 665-6005.  Automated service is available 24 hours a day, and service
representatives are available Monday through Friday, from 8:00 a.m. to 4:45 p.m.
(Central Time).  Telephone transaction requests received after 3:00 p.m.
(Central Time) will be treated as received the next business day.  The maximum
amount which may be redeemed by telephone is $50,000.  During periods of marked
economic or market changes, shareholders may experience difficulty in
implementing a telephone exchange or redemption due to a heavy volume of
telephone calls.  In such a circumstance, shareholders should consider
submitting a written request as an alternative to a telephone exchange or
redemption.  The Funds reserve the right to modify, terminate or impose charges
upon the telephone exchange and redemption privileges upon 60 days' prior notice
to shareholders.

     A Fund will not be liable for following instructions communicated by
telephone which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions.  The
procedures for processing telephone transactions include tape recording of
telephone instructions, asking shareholders for their account number and a
personal identifying number, and providing written confirmation of such
transactions.


                               INTERNET TRANSACTIONS

            Shareholders of the Funds are permitted to exchange or redeem a
Fund's share via the Internet.  See "Exchange and Transfer of Fund Shares" and
"Redemptions" for further details.  The privilege to initiate such transactions
via Internet requires that a shareholder contact Advantus at (800) 665-6005 to
enable their account.

            Shareholders, or persons authorized by shareholders, may initiate
Internet transactions by going to the Advantus Funds web site,
www.advantusfunds.com.  Automated service is generally available 24 hours a day.
Internet transaction requests received after 3:00 p.m. (Central time) will be
treated as received the next business day.  The maximum amount which may be
redeemed via Internet is $50,000.  During periods of marked economic or market
changes, shareholders may experience difficulty in implementing an on-line
exchange or redemption due to a heavy volume.  In such a circumstance,
shareholders should consider submitting a written request as an alternative to
an on-line exchange or redemption.  The Funds reserve the right to modify,
terminate or impose charges upon the Internet on-line exchange and redemption
privileges upon 60 days' prior notice to shareholders.

            A Fund will not be liable for following instructions communicated
by Internet which it reasonably believes to be genuine; provided, however, that
the Fund will employ reasonable procedures to confirm that instructions
communicated via the Internet are genuine, and that if they do not, they may be
liable for any losses due to unauthorized or fraudulent instructions.  The
procedures for processing Internet transactions include requiring shareholders
to contact Advantus in order to establish their on-line account, asking
shareholders for their account number and a personal identifying number,
providing a confirmation number on-screen, at the completion of an on-line
transaction, and providing written confirmation of such transactions.


                           THE STANDARD & POOR'S LICENSE

     Standard & Poor's ("S&P") is a division of The McGraw-Hill Companies, Inc.
S&P has trademark rights to the marks "Standard & Poor's-Registered Trademark-,"
"S&P-Registered Trademark-," "S&P 500-Registered Trademark-," "Standard & Poor's
500" and "500" and has licensed the use of such marks by the Index Fund.

     Index Fund is not sponsored, endorsed, sold or promoted by S&P.  S&P makes
no representation or warranty, express or implied, to the owners of the Index
Fund or any member of the public regarding the advisability of investing in
securities generally or in the Index Fund particularly or the ability of the S&P
500 Index to track general stock market performance.  S&P's only relationship to
the Index Fund is the licensing of certain trademarks and trade names of S&P and
of the S&P 500 Index which is determined, composed and calculated by S&P without
regard to the Fund.  S&P has no obligation to take the needs of the Index Fund
or the owners of the Fund into consideration in determining, composing or
calculating the S&P 500 Index.  S&P is not responsible for and has not
participated in the determination of the net asset value or public offering
price of the Index Fund nor is S&P a distributor of the Fund.  S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Index Fund.

     S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN, NOR DOES S&P HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN.  S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE INDEX FUND, OWNERS OF THE FUND, OR
ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN.  S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE


                                       42


OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.  WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

                            DISTRIBUTIONS AND TAX STATUS

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

     The policy of the Funds has been to pay dividends from net investment
income quarterly.  Any net realized capital gains are generally distributed once
a year, during December.  Distributions paid by the Funds, if any, with respect
to Class A, Class B and Class C shares will be calculated in the same manner, at
the same time, on the same day and will be in the same amount, except that the
higher Rule 12b-1 fees applicable to Class B and Class C shares will be borne
exclusively by such shares.  The per share distributions on Class B and Class C
shares will be lower than the per share distributions on Class A shares as a
result of the higher Rule 12b-1 fees applicable to Class B and Class C shares.

     Any dividend payments or net capital gains distributions made by the
Funds are in the form of additional shares of the same class of the Fund
rather than in cash, unless a shareholder specifically requests the Fund in
writing that the payment be made in cash.  The distribution of these shares
is made at net asset value on the payment date of the dividend, without any
sales or other charges to the shareholder.  The taxable status of income
dividends and/or net capital gains distributions is not affected by whether
they are reinvested or paid in cash.  Authorization to pay dividends in cash
may be made on the application form, or at any time by letter.

     Upon written request to a Fund, a shareholder may also elect to have
dividends from the Fund invested without sales charge in shares of Advantus
Money Market Fund or shares of the same class of another of the Advantus
Funds at the net asset value of such other Fund on the payable date for the
dividends being distributed.  To use this privilege of investing dividends
from a Fund in shares of another of the Funds, shareholders must maintain a
minimum account value of $500 in both the Fund paying the dividends and the
other Fund in which dividends are reinvested.

TAXATION - GENERAL

     The following is a general summary of certain federal tax considerations
affecting the Funds and their shareholders.  No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their shareholders,
and the discussion here is not intended as a substitute for careful tax
planning.

     During the year ended July 31, 2002 each Fund fulfilled, and intends to
continue to fulfill, the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), as a regulated investment company.  If
so qualified, each Fund will not be liable for federal income taxes to the
extent it distributes its taxable income to its shareholders.

     Distributions of investment company taxable income from a Fund generally
will be taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional shares of the
Fund's stock.  A distribution of net capital gain (a "capital gain
distribution"), whether paid in cash or reinvested in shares, generally is
taxable to shareholders as long-term capital gain, regardless of the length of
time a shareholder has held his or her shares or whether such gain was realized
by the Fund before the shareholder acquired such shares and was reflected in the
price paid for the shares.  Long-term capital gains of individuals are taxed at
a maximum rate of 20%, and the highest marginal regular tax rates on ordinary
income for individuals is 39.6%.

     Some or all of the dividend distributions from each Fund are expected to
qualify for the 70% dividend received deduction for corporations, except that
dividend distributions from the Real Estate Securities Fund attributable to
dividends that the Fund receives from REITs will not qualify for such
dividend received deduction for corporations.

     Prior to purchasing shares of a Fund, prospective shareholders (except
for tax qualified retirement plans) should consider the impact of dividends or


                                       43


capital gains distributions which are expected to be announced, or have been
announced but not paid.  Any such dividends or capital gains distributions paid
shortly after a purchase of shares by an investor prior to the record date will
have the effect of reducing the per share net asset value by the amount of the
dividends or distributions.  All or a portion of such dividends or
distributions, although in effect a return of capital, is subject to taxation.

     The Code provides that a shareholder who pays a sales charge in acquiring
shares of a mutual fund, redeems those shares within 90 days after acquiring
them, and subsequently acquires new shares in any mutual fund for a reduced
sales charge or no sales charge (pursuant to a reinvestment right acquired with
the first shares), may not take into account the sales charge imposed on the
first acquisition, to the extent of the reduction in the sales charge on the
second acquisition, for purposes of computing gain or loss on disposition of the
first acquired shares.  The amount of sales charge disregarded under this rule
will, however, be treated as incurred in connection with the acquisition of the
second acquired shares.

     Shareholders of the Funds receive an annual statement detailing federal tax
information.  Distributions by the Funds, including the amount of any
redemption, are reported to shareholders in such annual statement and to the
Internal Revenue Service to the extent required by the Code.

     The Funds are required by federal law to withhold 31% of reportable
payments (including dividends, capital gain distributions, and redemptions) paid
to certain accounts whose owners have not complied with IRS regulations.  In
order to avoid this backup withholding requirement, each shareholder will be
asked to certify on the shareholder's account application that the social
security or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting to
the IRS.

     Some of the investment practices that may be employed by the Funds will be
subject to special provisions that, among other things, may defer the use of
certain losses of such Funds, affect the holding period of the securities held
by the Funds and affect the character of the gains or losses realized.  These
provisions may also require the Funds to mark-to-market some of the positions in
their respective portfolios (i.e., treat them as closed out) or to accrue
original discount, both of which may cause such Funds to recognize income
without receiving cash with which to make distributions in amounts necessary to
satisfy the distribution requirements for qualification as a regulated
investment company and for avoiding income and excise taxes.  Accordingly, in
order to make the required distributions, a Fund may be required to borrow or
liquidate securities.  Each Fund will monitor its transactions and may make
certain elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as regulated investment companies.

     The Real Estate Securities Fund may invest in REITs that hold residual
interests in real estate mortgage investment conduits ("REMICs"). Under Treasury
regulations that have not yet been issued, but may apply retroactively, a
portion of the Fund's income from a REIT that is attributable to the REIT's
residual interest in a REMIC (referred to in the Code as an "excess inclusion")
will be subject to federal income tax in all events. These regulations are also
expected to provide that excess inclusion income of a regulated investment
company, such as the Fund, will be allocated to shareholders of the regulated
investment company in proportion to the dividends received by them with the same
consequences as if the shareholders held the related REMIC residual interest
directly. In general, excess inclusion income allocated to shareholders (i)
cannot be offset by net operating losses (subject to a limited exception for
certain thrift institutions) and (ii) will constitute unrelated business taxable
income to entities (including a qualified pension plan, an individual retirement
account, a 401K plan, a Keogh plan or other tax-exempt entity) subject to tax on
unrelated business income, thereby potentially requiring such an entity that is
allocated excess inclusion income, and otherwise might not be required to file a
tax return, to file a tax return and pay tax on some income. In addition, if at
any time during any taxable year a "disqualified organization" (as defined in
the Code) is a record holder of a share in a regulated investment company, then
the regulated investment company will be subject to a tax equal to that portion
of its excess inclusion income for the taxable year thatis allocable to the
disqualified organization, multiplied by the highest Federal income tax rate
imposed on corporations.


                                       44


     Each Fund is subject to a non-deductible excise tax equal to 4 percent of
the excess, if any, of the amount required to be distributed pursuant to the
Code for each calendar year over the amount actually distributed.  In order to
avoid the imposition of this excise tax, the Fund generally must declare
dividends by the end of a calendar year representing 98 percent of the Fund's
ordinary income for the calendar year and 98 percent of its capital gain net
income (both long-term and short-term capital gains) for the twelve-month period
ending October 31 of the calendar year.

     The foregoing relates only to federal taxation.  Prospective shareholders
should consult their tax advisers as to the possible application of state and
local income tax laws to ownership of Fund shares.

                                FINANCIAL STATEMENTS

     Each Fund's financial statements for the fiscal year ended July 31,
2002, including the financial highlights for each of the respective periods
presented, appearing in the Funds' Annual Report to Shareholders, and the
report thereon of such Fund's independent auditors, KPMG LLP, also appearing
therein, are incorporated by reference in this Statement of Additional
Information.


                                       45


                                      APPENDIX A

                          BOND AND COMMERCIAL PAPER RATINGS

BOND RATINGS

     Moody's Investors Service, Inc. describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:

     Bonds which are rated Aaa are judged to be of the best quality.  They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge."  Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure.  While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

     Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

     Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

     Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured.  Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time.  Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

     Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured.  Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future.  Uncertainty of position
characterizes bonds in this class.

     Bonds which are rated B generally lack characteristics of the desirable
investment.  Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

     Moody's Investors Service, Inc. also applies numerical modifiers, 1, 2, and
3, in each of these generic rating classifications.  The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.

     Standard & Poor's Corporation describes its six highest ratings for
corporate bonds and mortgage-related securities as follows:

     AAA.  Debt rated "AAA" has the highest rating assigned by Standard &
Poor's.  Capacity to pay interest and repay principal is extremely strong.

     AA.  Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

     A.  Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.


                                         A-1


     BBB.  Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal.  Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

     BB.  Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt.  However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments.

     B.  Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.  Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.  The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.

     Standard & Poor's Corporation applies indicators "+", no character, and "-"
to the above rating categories.  The indicators show relative standing within
the major rating categories.

COMMERCIAL PAPER RATINGS

     The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc.  Among the factors considered by Moody's
Investors Service, Inc. in assigning the ratings are the following:  (1)
evaluation of the management of the issuer, (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; an (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.

     The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation to commercial paper which is considered by Standard & Poor's
Corporation to have the following characteristics:

     Liquidity ratios of the issuer are adequate to meet cash redemptions.
     Long-term senior debt is rated "A" or better.  The issuer has access to at
     least two additional channels of borrowing.  Basic earnings and cash flow
     have an upward trend with allowance made for unusual circumstances.
     Typically, the issuer's industry is well established and the issuer has a
     strong position within the industry.  The reliability and quality of
     management are unquestioned.


                                       A-2


                        APPENDIX B - FUTURES CONTRACTS

                        EXAMPLE OF FUTURES CONTRACT SALE

     The Fund would engage in a futures contract sale to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany
a decline in long-term securities prices.  Assume that the market value of a
certain security in the Fund's portfolio tends to move in concert with the
futures market prices of long-term United States Treasury bonds ("Treasury
bonds").  The Fund wishes to fix the current market value of this portfolio
security until some point in the future.  Assume the portfolio security has a
market value of $100, and the Fund believes that, because of an anticipated
rise in interest rates, the value will decline to $95.  The Fund might enter
into futures contract sales of Treasury bonds for a price of $98. If the
market value of the portfolio security does indeed decline from $100 to $95,
the futures market price for the Treasury bonds might also decline from $98
to $93.

     In that case, the $5 loss in the market value of the portfolio security
would be offset by the $5 gain realized by closing out the futures contract
sale.  Of course, the futures market price of Treasury bonds might decline to
more than $93 or to less than $93 because of the imperfect correlation
between cash and futures prices mentioned above.

     The Fund could be wrong in its forecast of interest rates and the
futures market price could rise above $98.  In this case, the market value of
the portfolio securities, including the portfolio security being protected,
would increase.  The benefit of this increase would be reduced by the loss
realized on closing out the futures contract sale.

     If interest rate levels did not change prior to settlement date, the
Fund, in the above example, would incur a loss of $2 if it delivered the
portfolio security on the settlement date (which loss might be reduced by an
offsetting transaction prior to the settlement date).  In each transaction,
nominal transaction expenses would also be incurred.

EXAMPLE OF FUTURES CONTRACT PURCHASE

     The Fund would engage in a futures contract purchase when it is not
fully invested in long-term securities but wishes to defer for a time the
purchase of long-term securities in light of the availability of advantageous
interim investments, e.g., short-term securities whose yields are greater
than those available on long-term securities.  The Fund's basic motivation
would be to maintain for a time the income advantage from investing in the
short-term securities; the Fund would be endeavoring at the same time to
eliminate the effect of all or part of the increases in market price of the
long-term securities that the Fund may purchase.

     For example, assume that the market price of a long-term security that
the Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds.  The Fund wishes to fix the current
market price (and thus 10% yield) of the long-term security until the time
(four months away in this example) when it may purchase the security.

     Assuming the long-term security has a market price of $100, and the Fund
believes that, because of an anticipated fall in interest rates, the price
will have risen to $105 (and the yield will have dropped to about 9-1/2%) in
four months, the Fund might enter into futures contracts purchases of
Treasury bonds for a price of $98.  At the same time, the Fund would assign a
pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term
security at an assumed market price of $100.  Assume these short-term
securities are yielding 15%.  If the market price of the long-term bond does
indeed rise from $100 to $105, the futures market price for Treasury bonds
might also rise from $98 to $103.  In that case, the $5 increase in the price
that the Fund pays for the long-term security would be offset by the $5 gain
realized by closing out the futures contract purchase.

    The Fund could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%, and the futures market price could
fall below $98.  If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term securities.  The market prices of available long-term securities
would have decreased.  The benefit of this price decrease, and thus yield
increase, will be reduced by the loss realized on closing out the futures
contract purchase.

    If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term securities.  The yields on short-term securities in the portfolio,
including those originally in the pool assigned to the particular long-term
security, would remain higher than yields on long-term bonds.  The benefit of
this continued incremental income will be reduced by the loss realized on
closing out the futures contract purchase.

     In each transaction, nominal transaction expenses would also be incurred.

TAX TREATMENT

     The amount of any gain or loss realized by the Fund on closing out a
futures contract may result in a capital gain or loss for federal income tax
purposes.  Generally, futures contracts held by the Fund at the close of the
Fund's taxable year will be treated for federal income tax purposes as sold
for their fair market value on the last business day of such year.  Forty
percent of any gain or loss resulting from such constructive sale will be
treated as short-term capital gain or loss and 60 percent of such gain or
loss will be treated as long-term capital gain or loss.  The amount of any
capital gain or loss actually realized by the Fund in a subsequent sale or
other disposition of these futures contracts will be adjusted to reflect any
capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contract.  Notwithstanding the rules
described above, with respect to futures contracts which are part of futures
contract sales, and in certain other situations, the Fund may make an
election which may have the effect of exempting all or a part of those
identified future contracts from being treated for federal income tax
purposes as sold on the last business day of the Fund's taxable year; all or
part of any gain or loss otherwise realized by the Fund on any closing
transaction may be deferred until all of the Fund's positions with respect to
the futures contract sales are closed; and, all or part of any gain or loss
may be treated as short-term capital gain or loss.

     Under the Federal income tax provisions applicable to regulated
investment companies, at least 90% of the Fund's annual gross income must be
derived from dividends, interest, payments with respect to loans of
securities, and gains from the sale or other disposition of securities
("qualifying income").  Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Fund may include gains from forward contracts in
determining qualifying income. In addition, in order that the Fund continue
to qualify as a regulated investment company for Federal income tax purposes,
less than 30% of its gross income for any year must be derived from gains
realized on the sale or other disposition of securities held by the Fund for
less than three months.  For this purpose, the Fund will treat gains realized
on the closing out of futures contracts as gains derived from the sale of
securities.  This treatment could, under certain circumstances, require the
Fund to defer the closing out of futures contracts until after three months
from the date the fund acquired the contracts, even if it would be more
advantageous to close out the contracts prior to that time.  However, under
the Code, a special rule is provided with respect to certain hedging
transactions which has the effect of allowing the Fund to engage in such
short-term transactions in limited circumstances.  Any gains realized by the
Fund as a result of the constructive sales of futures contacts held by the
Fund at the end of its taxable year, as described in the preceding paragraph,
will in all instances be treated as derived from the sale of securities held
for three months or more, regardless of the actual period for which the Fund
has held the futures contracts at the end of the year.

EX-99.(17)(U)

                                                                 Exhibit (17)(u)


                    W&R Funds
                      Asset Strategy Fund
                      Core Equity Fund
                      High Income Fund
                      International Growth Fund
                      Large Cap Growth Fund
                      Limited-Term Bond Fund
                      Mid Cap Growth Fund
                      Money Market Fund
                      Municipal Bond Fund
                      Science and Technology Fund
                      Small Cap Growth Fund
                      Tax-Managed Equity Fund

                    Annual
                    Report
                    --------------
                    March 31, 2003



CONTENTS


         3     Asset Strategy Fund

        22     Core Equity Fund

        39     High Income Fund

        61     International Growth Fund

        79     Large Cap Growth Fund

        95     Limited-Term Bond Fund

       113     Mid Cap Growth Fund

       131     Money Market Fund

       144     Municipal Bond Fund

       165     Science and Technology Fund

       183     Small Cap Growth Fund

       200     Tax-Managed Equity Fund

       217     Notes to Financial Statements

       243     Independent Auditors' Report

       244     Income Tax Information

       247     Directors & Officers

       254     Annual Privacy Notice

       256     Householding Notice





This report is submitted for the general information of the shareholders of W&R
Funds, Inc.  It is not authorized for distribution to prospective investors
unless accompanied with or preceded by the W&R Funds, Inc. current prospectus
and current Fund performance information.



MANAGERS' DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Michael L. Avery and Daniel J. Vrabac, portfolio managers of
W&R Funds, Inc. - Asset Strategy Fund


This report relates to the operation of W&R Funds, Inc. -- Asset Strategy Fund
for the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
The Fund posted slightly negative returns for the fiscal year, as the Class C
shares of the Fund declined 0.79 percent.  The Fund outperformed its stock
benchmark index, the S&P 500 Index (reflecting the performance of securities
that generally represent the stock market), which decreased 24.76 percent during
the fiscal year, and the Lipper Flexible Portfolio Funds Universe Average
(generally representing the performance of the universe of funds with similar
investment objectives), which decreased 13.68 percent for the fiscal year.
However, the Fund lagged its bond benchmark indexes, as the Citigroup Broad
Investment Grade Index (reflecting the performance of securities that generally
represent the bond market) increased 11.56 percent for the fiscal year, and the
Citigroup Short-Term Index for 1 Month Certificates of Deposit (reflecting the
performance of securities that generally represent one-month certificates of
deposit) increased 1.66 percent for the year.  Multiple indexes are presented
because the Fund invests in stocks and bonds and short-term instruments.  Please
note that while the Fund's bond benchmarks remain the same, their names have
changed from the Salomon Brothers indexes to the Citigroup indexes.

Why did the Fund outperform its stock benchmarks but lag its bond and short-term
benchmarks?
The Fund's relative outperformance compared to the S&P 500 and stock benchmark
universe was attributable to our asset allocation decision.  We maintained a low
exposure to U.S. equities and high exposure to U.S. short-term fixed-income
securities and precious metals (specifically, gold bullion and gold-related
equities) throughout the year relative to these benchmark comparisons.
Essentially, most of our bond investments were short-term U.S. Treasuries.  This
was more of a defensive posture, desiring to be very liquid and not take on a
lot of price risk.  Because interest rates declined so much during the year,
longer duration bonds performed better than our shorter-duration bonds which
helps to explain our underperformance versus the bond benchmark index.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
Although the Fund's relative performance was competitive, we were not pleased
with the Fund's absolute performance, which was negative.  This poor absolute
performance was, in our view, primarily the result of market events in the last
quarter.  For the quarter, the Fund declined 1.19 percent.  In the final weeks
of the period, the equity market had a significant rally.  Precious metals and
fixed-income markets underperformed.  Why?  We believe that the financial
markets were greatly distracted by daily events as they pertained to the war in
Iraq.  We feel that too little attention was focused on the U.S. economy and the
increasingly dim prospect of an acceleration in growth over the next 12 months.
Our view is that if investors were not captivated by daily war developments, the
equity market would have had to trade on fundamentals, meaning, we believe,
lower valuation levels.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
Our defensive posture of emphasis on short-term fixed-income securities and
precious metals over equities had a positive effect on Fund performance for most
of the year.  However, in the last quarter, this strategy had a negative effect
as equities rallied and precious metals and fixed-income underperformed.


What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
As mentioned earlier, during the last fiscal year we emphasized U.S. short-term
fixed-income securities and precious metals such as gold bullion and gold-
related equities.  Going forward, we plan to continue this defensive strategy,
which is based on our cautious view of the equity market.  When the equity
market refocuses on secular issues, we believe it will have to reconcile the
systemic problem of excessive debt, particularly in the private sector, with
temporary disruptions.  We feel that the equity market has not fully appreciated
that in any economy with high debt levels, a dependency on foreign capital and
poor growth prospects, the debt must be either inflated or defaulted away.
Looking ahead, we expect gold to continue to play an important role in the
Fund's portfolio.  In an economy with deteriorating debt quality, current
account deficit, low growth prospects and declining demand for equities, we
believe that the value of the paper currency of that economy is at risk of
devaluation.  For the U.S. economy, we believe that there are few viable
currencies for the dollar to devalue against.  Gold is unique in that it is
relatively scarce, has no offsetting liabilities and is generally ignored by the
investment community.


Respectfully,


Michael L. Avery
Daniel J. Vrabac
Managers
W&R Asset Strategy Fund



Comparison of Change in Value of $10,000 Investment


                      W&R                     Citigroup    Lipper
                    Asset           CitigroupShort-Term  Flexible
                 Strategy               Broad Index for Portfolio
                    Fund,          Investment   1 month     Funds
                  Class C   S&P 500     GradeCertificatesUniverse
                   Shares     Index     Indexof Deposit   Average
               ------------ --------------------------- ---------
     04-30-95      10,000    10,000    10,000    10,000    10,000
     03-31-96      10,300    12,832    10,936    10,541    11,887
     03-31-97      10,212    15,366    11,473    11,122    13,179
     03-31-98      12,758    22,748    12,848    11,760    17,009
     03-31-99      12,987    26,963    13,682    12,406    18,200
     03-31-00      18,129    31,862    13,930    13,097    20,969
     03-31-01      17,365    24,898    15,681    13,949    18,983
     03-31-02      17,020    24,950    16,519    14,387    19,256
     03-31-03      16,886    18,773    18,428    14,626    16,622

     ====      W&R Asset Strategy Fund, Class C Shares (1)(2) -- $16,886
     ++++      S&P 500 Index (1) -- $18,773
     -+-+-+    Citigroup Broad Investment Grade Index (1) -- $18,428
     *--*--    Citigroup Short-Term Index for 1 Month Certificates of Deposit
               (1) --  $14,626
     ----      Lipper Flexible Portfolio Funds Universe Average (1) -- $16,622

(1)  Because the Fund commenced operations on a date other than at the end of a
     month, and partial month calculations of the performance of the indexes
     (including income) are not available, the investments were effected as of
     April 30, 1995.

(2)  The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(3)
                    Class A     Class B      Class C(4)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03             -5.76%    -4.87%         -0.79%      0.08%
5-year period ended
  3-31-03              ---       ---            5.77%      6.70%
Since inception of
  Class through
  3-31-03(5)          -3.97%    -3.52%          6.81%      7.93%

(3)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(4)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B

   shares, were added to the Fund on 6-30-00.
(5)7-10-00 for Class A shares, 7-3-00 for Class B shares, 4-20-95 for Class C
   shares and 12-29-95 for Class Y shares (the date on which shares were first
   acquired by shareholders).

Past performance is not necessarily indicative of future performance.  Indexes
are unmanaged.  The performance graph and table do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.



SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND

- -----------------------------------------------------------------
Asset Strategy Fund

GOAL
To seek high total return over the long term.

Strategy
Invests in stocks, bonds and short-term instruments.  Within each of these
classes, the Fund may invest in both domestic and foreign securities.

Founded
1995

Scheduled Dividend Frequency
Quarterly (March, June, September and December)

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Dividends paid                   $0.06
                                 =====

Net asset value on
3-31-03                         $11.17
3-31-02                          11.32
                                ------
Change per share                $(0.15)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------   -------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03       -5.76%     0.00%         -4.87%         -0.92%
 5-year period
  ended 3-31-03        ---       ---            ---            ---
10-year period
  ended 3-31-03        ---       ---            ---            ---
Since inception
  of Class(F)         -3.97%    -1.85%         -3.52%         -2.67%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-10-00 for Class A shares and 7-3-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return (A)
Period             Class C(B)   Class Y(C)
- ------             ---------    ---------
 1-year period
  ended 3-31-03        -0.79%     0.08%
 5-year period
  ended 3-31-03         5.77%     6.70%
10-year period
  ended 3-31-03          ---       ---
Since inception
  of Class(D)           6.81%     7.93%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  4-20-95 for Class C shares and 12-29-95 for Class Y shares (the date on
     which shares were first acquired by shareholders).



SHAREHOLDER SUMMARY OF ASSET STRATEGY FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Asset Strategy Fund had net assets totaling $64,439,478
invested in a diversified portfolio of:

   52.55% United States Government Securities
   26.19% Common Stocks
    9.21% Corporate Debt Securities
    8.21% Bullion
    3.21% Other Government Securities
    0.63% Cash and Cash Equivalents and Unrealized Loss on
            Open Forward Currency Contracts

As a shareholder of Asset Strategy Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

  $52.55  United States Government Securities
   26.19  Common Stocks
    9.21  Corporate Debt Securities
    8.21  Bullion
    3.21  Other Government Securities
    0.63  Cash and Cash Equivalents and Unrealized Loss on Open Forward Currency
          Contracts



THE INVESTMENTS OF ASSET STRATEGY FUND

     March 31, 2003

                                                Troy
                                              Ounces        Value

BULLION - 8.21%
 Gold  ...................................    15,743    $ 5,291,868
                                                        -----------
 (Cost: $5,084,196)

                                              Shares

COMMON STOCKS
Aircraft -0.76%
 Northrop Grumman Corporation  ...........     5,700        489,060
                                                        -----------

Chemicals - Petroleum and Inorganic - 0.52%
 Potash Corporation of Saskatchewan Inc.       5,400        333,720
                                                        -----------

Coal - 0.36%
 CONSOL Energy Inc.  .....................     3,800         62,814
 Massey Energy Company  ..................     7,000         65,800
 Peabody Energy Corporation  .............     3,780        105,424
                                                        -----------
                                                            234,038
                                                        -----------

Communications Equipment - 0.42%
 Nokia Corporation, Series A, ADR  .......    19,300        270,393
                                                        -----------

Computers -- Peripherals - 0.55%
 Electronic Arts Inc.*  ..................     6,100        357,765
                                                        -----------

Construction Materials - 0.21%
 Cemex, S.A. de C.V., ADR  ...............     7,600        132,544
                                                        -----------

Farm Machinery - 0.24%
 Deere & Company  ........................     3,900        153,114
                                                        -----------

Food and Related - 0.76%
 American Italian Pasta Company, Class A*      3,600        155,700
 ConAgra Foods, Inc.  ....................    16,600        333,328
                                                        -----------
                                                            489,028
                                                        -----------

Forest and Paper Products - 0.49%
 Weyerhaeuser Company  ...................     6,600        315,678
                                                        -----------

Gold and Precious Metals - 10.18%
 Agnico-Eagle Mines Limited  .............    52,000        681,720
 Barrick Gold Corporation  ...............   165,791      2,579,708
 Glamis Gold Ltd.*  ......................    25,500        263,670
 Kinross Gold Corporation (A)*  ..........    23,100        142,144
 Meridian Gold Inc. (A)*  ................    47,210        447,966
 Placer Dome Inc.  .......................   249,391      2,444,032
                                                        -----------
                                                          6,559,240

                                                        -----------

Health Care -- General - 0.25%
 Wyeth  ..................................     4,300        162,626
                                                        -----------

Hospital Supply and Management - 0.28%
 Health Management Associates,
   Inc., Class A .........................     9,429        179,151
                                                        -----------

Household --General Products - 0.29%
 Clorox Company (The)  ...................     4,000        184,680
                                                        -----------

Mining - 4.94%
 Newmont Mining Corporation  .............    87,345      2,284,072
 Phelps Dodge Corporation*  ..............     9,100        295,568
 Rio Tinto plc (A)  ......................    32,450        604,064
                                                        -----------
                                                          3,183,704
                                                        -----------

Multiple Industry - 0.19%
 Companhia Vale do Rio Doce, ADR  ........     4,600        123,970
                                                        -----------

Petroleum -- Canada - 0.45%
 Nabors Industries Ltd.*  ................     7,200        287,064
                                                        -----------

Petroleum -- Domestic - 3.04%
 Anadarko Petroleum Corporation  .........    16,141        734,416
 Burlington Resources Inc.  ..............    18,858        899,715
 Patterson-UTI Energy, Inc.*  ............    10,100        326,483
                                                        -----------
                                                          1,960,614
                                                        -----------

Petroleum -- International - 1.24%
 Exxon Mobil Corporation  ................    22,853        798,712
                                                        -----------

Petroleum -- Services - 1.02%
 Baker Hughes Incorporated  ..............    22,054        660,076
                                                        -----------

TOTAL COMMON STOCKS - 26.19%                            $16,875,177
 (Cost: $17,562,981)

                                           Principal
                                           Amount in
                                           Thousands

CORPORATE DEBT SECURITIES
Banks - 1.09%
 Banco Nacional de Comercio Exterior,
   S.N.C.,
   7.25%, 2-2-04 .........................      $580        604,650
 Unibanco - Uniao de Bancos Brasileiros S.A.,
   7.25%, 8-26-03 ........................       100         98,989
                                                        -----------
                                                            703,639
                                                        -----------

Beverages - 0.97%
 Coca-Cola FEMSA, S.A. de C.V.,
   8.95%, 11-1-06 ........................       450        516,938
 Pepsi-Gemex, S.A. de C.V.,
   9.75%, 3-30-04 ........................       100        107,625
                                                        -----------
                                                            624,563
                                                        -----------

Broadcasting - 0.68%
 Grupo Televisa, S.A.,
   8.625%, 8-8-05 ........................       400        440,000
                                                        -----------

Food and Related - 1.20%
 GRUMA, S.A. de C.V.,
   7.625%, 10-15-07 ......................       250        252,500
 Kellogg Company,
   6.625%, 1-29-04 .......................       500        518,923
                                                        -----------
                                                            771,423
                                                        -----------

Forest and Paper Products - 0.80%
 Abitibi-Consolidated Inc.,
   8.3%, 8-1-05 ..........................       250        266,943
 International Paper Company,
   8.125%, 7-8-05 ........................       225        251,809
                                                        -----------
                                                            518,752
                                                        -----------

Furniture and Furnishings - 0.17%
 Leggett & Platt, Incorporated,
   7.65%, 2-15-05 ........................       100        108,505
                                                        -----------

Leisure Time Industry - 0.31%
 Royal Caribbean Cruises Ltd.,
   8.125%, 7-28-04 .......................       200        200,000
                                                        -----------

Multiple Industry - 1.17%
 Ford Motor Credit Company,
   6.125%, 4-28-03 .......................       500        500,529
 National Rural Utilities Cooperative
   Finance Corporation,
   3.0%, 2-15-06 .........................       250        253,087
                                                        -----------
                                                            753,616
                                                        -----------

Petroleum -- International - 0.83%
 Petroleos Mexicanos,
   6.5%, 2-1-05 ..........................       500        533,125
                                                        -----------

Petroleum -- Services - 0.26%
 Pemex Finance Ltd. and Petroleos Mexicanos,
   8.02%, 5-15-07 ........................       150        169,547
                                                        -----------

Railroad - 0.25%
 MRS Logistica S.A.,
   10.625%, 8-15-05 ......................       202        161,893

                                                        -----------

Trucking and Shipping - 0.47%
 WMX Technologies, Inc.,
   6.375%, 12-1-03 .......................       300        305,967
                                                        -----------

Utilities -- Electric - 0.43%
 Dominion Resources, Inc.,
   7.625%, 7-15-05 .......................       250        277,554
                                                        -----------

Utilities -- Telephone - 0.58%
 Comtel Brasileira Ltda.,
   10.75%, 9-26-04 .......................       150        147,046
 Telefonos de Mexico, S.A. de C.V.,
   8.25%, 1-26-06 ........................       200        224,250
                                                        -----------
                                                            371,296
                                                        -----------

TOTAL CORPORATE DEBT SECURITIES - 9.21%                  $5,939,880
 (Cost: $5,887,789)

OTHER GOVERNMENT SECURITIES
Brazil - 1.65%
 Federative Republic of Brazil (The),
   11.0%, 1-11-12 ........................     1,250      1,062,500
                                                      ------------

Germany - 1.10%
 Bundesschwatzanweisungen Treasury Note,
   2.5%, 3-18-05 (B) .....................    EUR650        709,845
                                                        -----------

Mexico - 0.46%
 United Mexican States,
   8.625%, 3-12-08 .......................    $  250        293,750
                                                        -----------

TOTAL OTHER GOVERNMENT SECURITIES - 3.21%                $2,066,095
 (Cost: $1,962,258)

UNITED STATES GOVERNMENT SECURITIES
 United States Treasury Notes:
   2.75%, 10-31-03 .......................    10,000     10,094,140
   3.0%, 2-29-04 .........................     5,000      5,083,400
   3.375%, 4-30-04 .......................     3,000      3,070,077
   1.75%, 12-31-04 .......................    10,000     10,057,420
   7.5%, 2-15-05 .........................     5,000      5,557,420
                                                        -----------
TOTAL UNITED STATES GOVERNMENT SECURITIES - 52.55%      $33,862,457
 (Cost: $33,483,015)                                    -----------

                                                Face
                                           Amount in
                                           Thousands

UNREALIZED GAIN (LOSS) ON OPEN
FORWARD CURRENCY CONTRACTS - (0.21%)
 Euro Dollar, 11-7-03 (B)  ...............  EUR1,803         22,531
 Euro Dollar, 11-7-03 (B)  ...............     1,803       (157,555)
 Swiss Franc, 2-11-04 (B)  ...............    CHF870           (626)
                                                        -----------
                                                        $  (135,650)

                                                        -----------

TOTAL SHORT-TERM SECURITIES - 1.57%                     $ 1,010,439
 (Cost: $994,238)

TOTAL INVESTMENTS - 100.73%                             $64,910,266
 (Cost: $64,974,477)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.73%)        (470,788)

NET ASSETS - 100.00%                                    $64,439,478


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Listed on an exchange outside the United States.

(B)Principal amounts are denominated in the indicated foreign currency, where
   applicable (EUR - Euro, CHF - Swiss Franc).

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     ASSET STRATEGY FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investments -- at value (Notes 1 and 3):
   Bullion (cost - $5,084)..................................   $ 5,292
   Securities (cost - $59,890)..............................    59,618
                                                               -------
                                                                64,910
 Cash  .....................................................         1
 Receivables:
   Dividends and interest...................................       419
   Investment securities sold...............................       133
   Fund shares sold ........................................        55
 Prepaid insurance premium .................................         1
                                                               -------
    Total assets  ..........................................    65,519
LIABILITIES                                                    -------
 Payable for investment securities purchased  ..............       881
 Payable to Fund shareholders  .............................       166
 Accrued shareholder servicing (Note 2)  ...................        17
 Accrued accounting services fee (Note 2)  .................         3
 Accrued distribution and service fees (Note 2)  ...........         2
 Accrued management fee (Note 2)  ..........................         1
 Other  ....................................................        10
                                                               -------
    Total liabilities  .....................................     1,080
                                                               -------
      Total net assets .....................................   $64,439
NET ASSETS                                                     =======
 $0.01 par value capital stock:
   Capital stock ...........................................   $    58
   Additional paid-in capital...............................    67,023
 Accumulated undistributed income (loss):
   Accumulated undistributed net investment income .........        25
   Accumulated undistributed net realized loss
    on investment transactions  ............................    (2,602)
   Net unrealized depreciation in value of investments .....       (65)
                                                               -------
    Net assets applicable to outstanding units of
      capital ..............................................   $64,439
Net asset value per share (net assets divided                  =======
 by shares outstanding):
 Class A  ..................................................    $11.18
 Class B  ..................................................    $11.17
 Class C  ..................................................    $11.17
 Class Y  ..................................................    $11.18
Capital shares outstanding:
 Class A  ..................................................       844
 Class B  ..................................................       301
 Class C  ..................................................     4,520
 Class Y  ..................................................       103
Capital shares authorized ..................................   200,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     ASSET STRATEGY FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ...............................    $1,424
   Dividends (net of foreign withholding taxes of $7) ......       155
                                                                ------
    Total income  ..........................................     1,579
 Expenses (Note 2):                                             ------
   Investment management fee ...............................       416
   Distribution fee:
    Class A  ...............................................         1
    Class B  ...............................................        22
    Class C  ...............................................       369
    Class Y  ...............................................         2
   Shareholder servicing:
    Class A  ...............................................        15
    Class B  ...............................................        12
    Class C  ...............................................       134
    Class Y  ...............................................         1
   Service fee:
    Class A  ...............................................        15
    Class B  ...............................................         7
    Class C  ...............................................       123
   Registration fees .......................................        38
   Accounting services fee .................................        35
   Custodian fees ..........................................        23
   Audit fees ..............................................        13
   Legal fees ..............................................         4
   Other ...................................................        22
                                                                ------
    Total  .................................................     1,252
                                                                ------
       Net investment income  ..............................       327
                                                                ------


See Notes to Financial Statements.



STATEMENT OF OPERATIONS (Continued)

     ASSET STRATEGY FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTES 1 AND 3)
 Realized net gain on securities  ..........................     1,150
 Realized net gain on futures contracts  ...................       167
 Realized net loss on forward currency contracts  ..........      (173)
 Realized net loss on written options  .....................      (360)
 Realized net gain on purchased options  ...................        75
 Realized net gain on foreign currency transactions  .......         7
                                                                ------
   Realized net gain on investments ........................       866
 Unrealized depreciation in value of securities                 ------
   during the period .......................................    (1,539)
 Unrealized depreciation in value of forward currency
   contracts during the period .............................      (134)
   Unrealized depreciation in value of investments              ------
    during the period  .....................................    (1,673)
                                                                ------
    Net loss on investments  ...............................      (807)
                                                                ------
      Net decrease in net assets resulting from operations .    $ (480)
                                                                ======


See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     ASSET STRATEGY FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment income .................   $   327      $   933
   Realized net gain (loss) on investments       866       (3,330)
   Unrealized appreciation (depreciation)     (1,673)       1,177
                                             -------      -------
    Net decrease in net assets resulting
      from operations ....................      (480)      (1,220)
                                             -------      -------
 Distributions to shareholders from (Note 1E):(A)
   Net investment income:
    Class A  .............................       (88)         (89)
    Class B  .............................       (12)         (44)
    Class C  .............................      (264)        (911)
    Class Y  .............................       (11)         (16)
   Realized gains on investment transactions:
    Class A  .............................       ---          (64)
    Class B  .............................       ---          (43)
    Class C  .............................       ---         (833)
    Class Y  .............................       ---          (10)
                                             -------      -------
                                                (375)      (2,010)
                                             -------      -------
 Capital share transactions
   (Note 5) ..............................    11,160       (1,608)
                                             -------      -------
   Total increase (decrease)..............    10,305       (4,838)
NET ASSETS
 Beginning of period  ....................    54,134       58,972
                                             -------      -------
 End of period  ..........................   $64,439      $54,134
                                             =======      =======
   Undistributed net investment
    income  ..............................   $    25      $    66
                                             =======      =======

(A)  See "Financial Highlights" on pages 18 - 21.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     ASSET STRATEGY FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-10-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $11.33 $11.98         $15.22
                             ------ ------         ------
Income (loss) from investment
 operations:
 Net investment
   income ..........           0.16   0.25           0.15
 Net realized and
   unrealized loss
   on investments ..          (0.16) (0.40)         (0.60)
                             ------ ------         ------
Total from investment
 operations  .......           0.00  (0.15)         (0.45)
                             ------ ------         ------
Less distributions:
 From net investment
   income ..........          (0.15) (0.30)         (0.13)
 From capital gains           (0.00) (0.20)         (2.66)
                             ------ ------         ------
Total distributions           (0.15) (0.50)         (2.79)
                             ------ ------         ------
Net asset value,
 end of period  ....         $11.18 $11.33         $11.98
                             ====== ======         ======
Total return(2) ....           0.00% -1.25%         -3.77%
Net assets, end of
 period (in
 millions)  ........             $9     $4             $2
Ratio of expenses
 to average net
 assets  ...........           1.40%  1.45%          1.26%(3)
Ratio of net investment
 income to average
 net assets  .......           1.23%  2.28%          2.26%(3)
Portfolio turnover
 rate  .............         109.38%143.38%        214.77%(4)

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     ASSET STRATEGY FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $11.32 $11.97         $15.21
                             ------ ------         ------
Income (loss) from investment
 operations:
 Net investment
   income ..........           0.05   0.17           0.07
 Net realized and
   unrealized loss
   on investments ..          (0.15) (0.41)         (0.60)
                             ------ ------         ------
Total from investment
 operations  .......          (0.10) (0.24)         (0.53)
                             ------ ------         ------
Less distributions:
 From net investment
   income ..........          (0.05) (0.21)         (0.05)
 From capital gains           (0.00) (0.20)         (2.66)
                             ------ ------         ------
Total distributions           (0.05) (0.41)         (2.71)
                             ------ ------         ------
Net asset value,
 end of period  ....         $11.17 $11.32         $11.97
                             ====== ======         ======
Total return .......          -0.92% -2.03%         -4.35%
Net assets, end of
 period (in
 millions)  ........             $3     $3             $2
Ratio of expenses
 to average net
 assets  ...........           2.35%  2.25%          2.15%(2)
Ratio of net investment
 income to average
 net assets  .......           0.31%  1.50%          1.37%(2)
Portfolio turnover
 rate  .............         109.38%143.38%        214.77%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     ASSET STRATEGY FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                            -------------- -------------- -------
Net asset value,
 beginning of period         $11.32 $11.97  $15.21 $11.20  $11.42
                             ------ ------  ------ ------  ------
Income (loss) from
 investment operations:
 Net investment
   income ..........           0.05   0.19    0.11   0.03    0.15
 Net realized and
   unrealized gain (loss)
   on investments ..          (0.14) (0.43)  (0.62)  4.33    0.05
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (0.09) (0.24)  (0.51)  4.36    0.20
                             ------ ------  ------ ------  ------
Less distributions:
 From net investment
   income ..........          (0.06) (0.21)  (0.07) (0.05)  (0.16)
 From capital gains           (0.00) (0.20)  (2.66) (0.30)  (0.26)
                             ------ ------  ------ ------  ------
Total distributions           (0.06) (0.41)  (2.73) (0.35)  (0.42)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $11.17 $11.32  $11.97 $15.21  $11.20
                             ====== ======  ====== ======  ======
Total return .......          -0.79% -1.98%  -4.22% 39.60%   1.79%
Net assets, end of
 period (in
 millions)  ........            $51    $47     $54    $52     $30
Ratio of expenses
 to average net
 assets  ...........           2.20%  2.20%   2.15%  2.24%   2.32%
Ratio of net investment
 income to average
 net assets  .......           0.46%  1.59%   0.86%  0.24%   1.38%
Portfolio turnover
 rate  .............         109.38%143.38% 214.77%204.12% 168.17%

(1)  See Note 5.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     ASSET STRATEGY FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                            -------------- -------------- -------
Net asset value,
 beginning of
 period  ...........         $11.33 $11.98  $15.26 $11.21  $11.43
                             ------ ------  ------ ------  ------
Income (loss) from
 investment operations:
 Net investment
   income ..........           0.11   0.28    0.24   0.15    0.26
 Net realized and
   unrealized gain (loss)
   on investments ..          (0.10) (0.42)  (0.63)  4.33    0.05
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......           0.01  (0.14)  (0.39)  4.48    0.31
                             ------ ------  ------ ------  ------
Less distributions:
 From net investment
   income ..........          (0.16) (0.31)  (0.23) (0.13)  (0.27)
 From capital gains           (0.00) (0.20)  (2.66) (0.30)  (0.26)
                             ------ ------  ------ ------  ------
Total distributions           (0.16) (0.51)  (2.89) (0.43)  (0.53)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $11.18 $11.33  $11.98 $15.26  $11.21
                             ====== ======  ====== ======  ======
Total return .......           0.08% -1.14%  -3.39% 40.85%   2.75%
Net assets, end of
 period (in thousands)       $1,150   $627    $550   $508    $307
Ratio of expenses
 to average net
 assets  ...........           1.32%  1.33%   1.32%  1.33%   1.45%
Ratio of net investment
 income to average
 net assets  .......           1.34%  2.44%   1.71%  1.14%   2.25%
Portfolio turnover
 rate  .............         109.38%143.38% 214.77%204.12% 168.17%


See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with James D. Wineland, portfolio manager of W&R Funds, Inc. - Core
Equity Fund

This report relates to the operation of W&R Funds, Inc. -- Core Equity Fund for
the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
The Fund had a negative return for the fiscal year, slightly underperforming its
benchmark indexes.  In a challenging economic environment, most large
capitalization stocks struggled, and the benchmark index experienced a large
decline for the period.  The Class C shares of the Fund declined 26.03 percent
during the last fiscal year, compared with the Lipper Large-Cap Core Funds
Universe Average (generally reflecting the performance of the universe of funds
with similar investment objectives), which declined 25.78 percent for the year,
and the S&P 500 Index (reflecting the performance of securities that generally
represent the stock market), which declined 24.76 percent for the year.

Why did the Fund lag its benchmark index during the fiscal year?
The Fund owned several stocks that did poorly and that detracted from
performance.  In addition, holdings in the electric utilities sector
underperformed the market and hindered the Fund's performance, especially in the
summer months of 2002.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
During the last 12 months, the financial markets have been dominated by
geopolitical events surrounding the War on Terrorism and events in Iraq.  High
energy prices and weak global economies helped create a general atmosphere of
very sluggish earnings growth. The technology and telecommunications sectors
continued to be very lackluster as corporate capital spending remained weak.
The key event for all financial markets in the last quarter of the period was
the ongoing international debate surrounding, and the eventual start of, the war
with Iraq.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
In the difficult market of the past year, preservation of capital was an
important objective.  Accordingly, we raised the cash position in the Fund, a
move driven by our concerns regarding earnings and the global economy.  We also
placed emphasis on increasing the overall dividend yield of the portfolio.  We
have focused on stocks of companies that we believe to have excellent financial
strength and companies that are, in our view, unlikely to produce negative
accounting "surprises."

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
The portfolio continues to emphasize aerospace/defense, energy, health care and
utility stocks.  We remain substantially underweighted in consumer-related and
technology issues.  Looking ahead, we feel that the short-term outlook for the
stock market is not favorable.  While a sharp positive rebound is likely to
follow any successful conclusion to the war in Iraq, we think global economic
difficulties also are likely to limit the magnitude and duration of any "relief
rally."  We remain conservatively positioned, emphasizing what we feel are high-
quality, financially strong companies with meaningful competitive advantages in
their industries.



Respectfully,


James D. Wineland
Manager
W&R Core Equity Fund



Comparison of Change in Value of $10,000 Investment


                                W&R
                               Core                        Lipper
                             Equity                     Large-Cap
                              Fund,                    Core Funds
                            Class C        S&P 500       Universe
                             Shares          Index        Average
                          ---------      ---------     ----------
     03-31-93                10,000         10,000         10,000
     03-31-94                10,831         10,147         10,366
     03-31-95                11,500         11,727         11,482
     03-31-96                14,806         15,492         14,811
     03-31-97                16,572         18,550         17,083
     03-31-98                23,129         27,462         24,544
     03-31-99                24,857         32,550         28,101
     03-31-00                30,819         38,465         33,764
     03-31-01                25,766         30,059         26,140
     03-31-02                24,750         30,122         25,648
     03-31-03                18,308         22,665         19,037

===== W&R Core Equity Fund, Class C Shares (1) -- $18,308
+++++ S&P 500 Index -- $22,665
- ----- Lipper Large-Cap Core Funds Universe Average -- $19,037

 (1) The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03            -29.71%   -29.15%         -26.03%   -25.35%
5-year period ended
  3-31-03              ---       ---            -4.57%    -3.75%
10-year period ended
  3-31-03              ---       ---             6.23%     ---
Since inception of
  Class through
  3-31-03(4)         -18.70%   -19.02%           ---       4.74%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)7-3-00 for Class A shares, 7-11-00 for Class B shares and 12-29-95 for Class
   Y shares (the date on which shares were first acquired by shareholders).

   Past performance is not necessarily indicative of future performance.

   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF CORE EQUITY FUND

- -----------------------------------------------------------------
Core Equity Fund

GOALS
To seek capital growth and income.

Strategy
Invests primarily in common stocks of large United States and foreign companies
with dominant market positions in their industries and that have the potential
for capital appreciation or that are expected to resist market decline.

Founded
1992

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Net asset value on
 3-31-03                         $6.48
 3-31-02                          8.76
                                ------
Change per share                $(2.28)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF CORE EQUITY FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    -------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03      -29.71%   -25.42%            -29.15%        -26.20%
 5-year period
  ended 3-31-03        ---       ---                ---          ---
10-year period
  ended 3-31-03        ---       ---                ---          ---
Since inception
  of Class (F)       -18.70%   -16.93%            -19.02%        -18.30%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-3-00 for Class A shares and 7-11-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period             Class C(B)   Class Y(C)
- ------             ---------    ---------
 1-year period
  ended 3-31-03       -26.03%   -25.35%
 5-year period
  ended 3-31-03        -4.57%    -3.75%
10-year period
  ended 3-31-03         6.23%      ---
Since inception
  of Class (D)           ---      4.74%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  12-29-95 for Class Y shares (the date on which shares were first acquired
     by shareholders).



SHAREHOLDER SUMMARY OF CORE EQUITY FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Core Equity Fund had net assets totaling $219,979,896
invested in a diversified portfolio of:

   88.24% Common Stocks
   11.76% Cash and Cash Equivalents

As a shareholder of Core Equity Fund, for every $100 you had invested on March
31, 2003, your Fund owned:

 $17.50  Energy Stocks
  14.99  Technology Stocks
  12.81  Financial Services Stocks
  11.76  Cash and Cash Equivalents
  11.35  Utilities Stocks
  10.68  Health Care Stocks
   6.55  Raw Materials Stocks
   6.17  Consumer Goods and Services Stocks
   4.00  Retail Stocks
   2.35  Capital Goods Stocks
   1.84  Transportation Stocks



THE INVESTMENTS OF CORE EQUITY FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Aircraft - 8.60%
 Lockheed Martin Corporation  ............   249,200  $11,849,460
 Northrop Grumman Corporation  ...........    25,800    2,213,640
 Raytheon Company  .......................   171,100    4,854,107
                                                     ------------
                                                       18,917,207
                                                     ------------

Aluminum - 2.79%
 Alcoa Incorporated  .....................   317,300    6,149,274
                                                     ------------

Banks - 5.73%
 U.S. Bancorp  ...........................   378,600    7,185,828
 Wells Fargo & Company  ..................   120,300    5,412,297
                                                     ------------
                                                       12,598,125
                                                     ------------

Beverages - 1.89%
 Anheuser-Busch Companies, Inc.  .........    89,000    4,148,290
                                                     ------------

Broadcasting - 3.69%
 Cox Communications, Inc., Class A*  .....   140,084    4,358,013
 Viacom Inc., Class B*  ..................   102,700    3,750,604
                                                     ------------
                                                        8,108,617
                                                     ------------

Capital Equipment - 1.39%
 Caterpillar Inc.  .......................    62,300    3,065,160
                                                     ------------

Chemicals -- Petroleum and Inorganic - 1.53%
 du Pont (E.I.) de Nemours and Company  ..    86,500    3,361,390
                                                     ------------

Chemicals -- Specialty - 2.23%
 Air Products and Chemicals, Inc.  .......   118,300    4,901,169
                                                     ------------

Computers -- Peripherals - 4.02%
 Microsoft Corporation  ..................   187,300    4,534,533
 SAP Aktiengesellschaft, ADR  ............   227,100    4,305,816
                                                     ------------
                                                        8,840,349
                                                     ------------

Electronic Components - 2.37%
 Analog Devices, Inc.*  ..................    96,500    2,653,750
 Intel Corporation  ......................   157,500    2,564,100
                                                     ------------
                                                        5,217,850
                                                     ------------

Farm Machinery - 0.96%
 Deere & Company  ........................    53,700    2,108,262
                                                     ------------

Health Care -- Drugs - 7.81%
 Amgen Inc.*  ............................    45,500    2,620,118
 Forest Laboratories, Inc.*  .............    22,200    1,198,134
 Pfizer Inc.  ............................   251,675    7,842,193
 Pharmacia Corporation  ..................   127,373    5,515,250
                                                     ------------
                                                       17,175,695
                                                     ------------

Health Care -- General - 1.46%
 Johnson & Johnson  ......................    55,700    3,223,359
                                                     ------------

Hospital Supply and Management - 1.41%
 Medtronic, Inc.  ........................    68,600    3,095,232
                                                     ------------

Household -- General Products - 0.59%
 Clorox Company (The)  ...................    28,200    1,301,994
                                                     ------------

Insurance -- Property and Casualty - 5.87%
 American International Group, Inc.  .....    83,650    4,136,493
 Berkshire Hathaway Inc., Class B*  ......     1,900    4,060,300
 Chubb Corporation (The)  ................   106,500    4,720,080
                                                     ------------
                                                       12,916,873
                                                     ------------

Petroleum -- Canada - 1.27%
 Nabors Industries Ltd.*  ................    69,900    2,786,913
                                                     ------------

Petroleum -- Domestic - 6.41%
 Anadarko Petroleum Corporation  .........   155,100    7,057,050
 Burlington Resources Inc.  ..............   147,600    7,041,996
                                                     ------------
                                                       14,099,046
                                                     ------------

Petroleum -- International - 4.77%
 Exxon Mobil Corporation  ................   168,268    5,880,967
 Royal Dutch Petroleum Company, NY Shares    113,300    4,616,975
                                                     ------------
                                                       10,497,942
                                                     ------------

Petroleum -- Services - 5.05%
 Baker Hughes Incorporated  ..............   251,600    7,530,388
 Schlumberger Limited  ...................    94,300    3,584,343
                                                     ------------
                                                       11,114,731
                                                     ------------

Retail -- General Merchandise - 2.74%
 Sears, Roebuck and Co.  .................   104,800    2,530,920
 Target Corporation  .....................   119,600    3,499,496
                                                     ------------
                                                        6,030,416
                                                     ------------

Retail -- Specialty Stores - 1.26%
 Best Buy Co., Inc.*  ....................   103,000    2,777,910
                                                     ------------

Security and Commodity Brokers - 1.21%
 Fannie Mae  .............................    40,800    2,666,280
                                                     ------------

Trucking and Shipping - 1.84%
 United Parcel Service, Inc., Class B  ...    70,900    4,041,300
                                                     ------------

Utilities -- Electric - 5.93%
 Dominion Resources, Inc.  ...............   153,900    8,521,443
 Southern Company  .......................   159,000    4,521,960
                                                     ------------
                                                       13,043,403
                                                     ------------

Utilities -- Telephone - 5.42%
 BellSouth Corporation  ..................   194,100    4,206,147
 SBC Communications Inc.  ................   213,600    4,284,816
 Vodafone Group Plc, ADR  ................   188,000    3,425,360
                                                     ------------
                                                       11,916,323
                                                     ------------

TOTAL COMMON STOCKS - 88.24%                         $194,103,110
 (Cost: $174,757,756)

                                         Principal
                                         Amount in
                                         Thousands

SHORT-TERM SECURITIES
Commercial Paper
 Beverages - 0.91%
 Coca-Cola Company (The),
   1.18%, 4-15-03 ........................    $2,000    1,999,082
                                                     ------------

 Chemicals - Petroleum and Inorganic - 0.38%
   du Pont (E.I.) de Nemours and Company,
    1.16315%, Master Note  ...............       838      838,000
                                                     ------------

 Food and Related - 6.03%
 General Mills, Inc.,
   1.4588%, Master Note ..................     1,274    1,274,000
 Heinz (H.J.) Co.,
   1.3%, 4-17-03 .........................     4,000    3,997,689
 Sara Lee Corporation,
   1.35%, 4-16-03 ........................     8,000    7,995,500
                                                     ------------
                                                       13,267,189
                                                     ------------

 Forest and Paper Products - 1.15%
 Sonoco Products Co.,
   1.44%, 4-1-03 .........................     2,543    2,543,000
                                                     ------------

 Health Care - Drugs - 1.36%
 Merck & Co., Inc.,
   1.2%, 5-23-03 .........................     3,000    2,994,800
                                                     ------------

 Household -- General Products - 0.91%
 Colgate-Palmolive Company,

   1.22%, 5-1-03 .........................     2,000    1,997,967
                                                     ------------

 Retail -- General Merchandise - 1.82%
 Wal-Mart Stores, Inc.,
   1.23%, 4-1-03 .........................     4,000    4,000,000
                                                     ------------

Total Commercial Paper - 12.56%                        27,640,038

United States Government Security - 0.68%
 United States Treasury Bill,
   1.04%, 8-7-03 .........................     1,500    1,494,453
                                                     ------------

TOTAL SHORT-TERM SECURITIES - 13.24%                 $ 29,134,491
 (Cost: $29,134,491)

TOTAL INVESTMENT SECURITIES - 101.48%                $223,237,601
 (Cost: $203,892,247)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.48%)    (3,257,705)

NET ASSETS - 100.00%                                 $219,979,896


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     CORE EQUITY FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities--at value (cost - $203,892)
   (Notes 1 and 3)..........................................  $223,238
 Cash  .....................................................         1
 Receivables:
   Dividends and interest...................................       219
   Investment securities sold ..............................       186
   Fund shares sold ........................................       148
 Prepaid insurance premium .................................         2
                                                              --------
    Total assets  ..........................................   223,794
                                                              --------
LIABILITIES
 Payable for investment securities purchased ...............     2,496
 Payable to Fund shareholders  .............................     1,179
 Accrued shareholder servicing (Note 2)  ...................        97
 Accrued accounting services fee (Note 2)  .................         5
 Accrued distribution fee (Note 2)  ........................         4
 Accrued management fee (Note 2)  ..........................         4
 Accrued service fee (Note 2)  .............................         2
 Other  ....................................................        27
                                                              --------
    Total liabilities  .....................................     3,814
                                                              --------
      Total net assets .....................................  $219,980
                                                              ========
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................  $    339
   Additional paid-in capital...............................   265,665
 Accumulated undistributed income (loss):
   Accumulated undistributed net investment loss ...........        (7)
   Accumulated undistributed net realized loss on
    investment transactions  ...............................   (65,372)
   Net unrealized appreciation in value of investments .....    19,355
                                                              --------
    Net assets applicable to outstanding units
      of capital ...........................................  $219,980
                                                              ========
Net asset value per share (net assets divided by
 shares outstanding):
 Class A  ..................................................     $6.63
 Class B  ..................................................     $6.45
 Class C  ..................................................     $6.48
 Class Y  ..................................................     $6.86
Capital shares outstanding:
 Class A  ..................................................     1,948
 Class B  ..................................................       708
 Class C  ..................................................    30,880
 Class Y  ..................................................       358
Capital shares authorized ..................................   400,000


See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     CORE EQUITY FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT LOSS
 Income (Note 1B):
   Dividends (net of foreign withholding taxes of $46)......  $  3,933
   Interest and amortization ...............................       445
                                                              --------
    Total income  ..........................................     4,378
                                                              --------
 Expenses (Note 2):
   Distribution fee:
    Class A  ...............................................         1
    Class B  ...............................................        38
    Class C  ...............................................     1,924
    Class Y  ...............................................         7
   Investment management fee ...............................     1,916
   Shareholder servicing:
    Class A  ...............................................        26
    Class B  ...............................................        28
    Class C  ...............................................       963
    Class Y   ..............................................         4
   Service fee:
    Class A  ...............................................        23
    Class B  ...............................................        13
    Class C  ...............................................       641
   Accounting services fee .................................        60
   Custodian fees ..........................................        29
   Audit fees ..............................................        19
   Legal fees ..............................................         5
   Other ...................................................       165
                                                              --------
    Total expenses  ........................................     5,862
                                                              --------
      Net investment loss ..................................    (1,484)
                                                              --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1 AND 3)
 Realized net loss on securities  ..........................   (27,557)
 Realized net gain on foreign currency transactions ........         7
                                                              --------
   Realized net loss on investments ........................   (27,550)
 Unrealized depreciation in value of investments
   during the period .......................................   (63,354)
                                                              --------
    Net loss on investments ................................   (90,904)
                                                              --------
      Net decrease in net assets resulting from operations .  $(92,388)
                                                              ========


See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     CORE EQUITY FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
DECREASE IN NET ASSETS
 Operations:
   Net investment loss ...................  $ (1,484)    $ (3,706)
   Realized net loss on
    investments  .........................   (27,550)     (37,801)
   Unrealized appreciation (depreciation)    (63,354)      23,521
                                            --------     --------
    Net decrease in net assets
      resulting from operations ..........   (92,388)     (17,986)
                                            --------     --------
 Distributions to shareholders from
   (Note 1E):(1)
   Net investment income:
    Class A  .............................       ---          ---
    Class B  .............................       ---          ---
    Class C  .............................       ---          ---
    Class Y  .............................       ---          ---
   Realized gains on investment transactions:
    Class A  .............................       ---         (247)
    Class B  .............................       ---         (199)
    Class C  .............................       ---      (12,921)
    Class Y  .............................       ---         (112)
                                            --------     --------
                                                 ---      (13,479)
                                            --------     --------
 Capital share transactions (Note 5)  ....   (62,188)     (44,714)
                                            --------     --------
   Total decrease ........................  (154,576)     (76,179)
NET ASSETS
 Beginning of period  ....................   374,556      450,735
                                            --------     --------
 End of period  ..........................  $219,980     $374,556
                                            ========     ========
   Undistributed net investment loss .....  $     (7)    $     (5)
                                            ========     ========

(1)  See "Financial Highlights" on pages 35 - 38.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     CORE EQUITY FUND (1)
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(2)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.89  $9.51         $13.89
                              -----  -----         ------
Loss from investment
 operations:
 Net investment loss          (0.08) (0.20)         (0.00)
 Net realized and
   unrealized loss
   on investments ..          (2.18) (0.11)         (2.00)
                              -----  -----         ------
Total from investment
 operations  .......          (2.26) (0.31)         (2.00)
                              -----  -----         ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.31)         (2.38)
                              -----  -----         ------
Total distributions           (0.00) (0.31)         (2.38)
                              -----  -----         ------
Net asset value,
 end of period  ....          $6.63  $8.89         $ 9.51
                              =====  =====         ======
Total return(3) ....         -25.42% -3.18%        -16.72%
Net assets, end of
 period (in
 millions)  ........            $13     $9             $4
Ratio of expenses
 to average net
 assets  ...........           1.31%  1.26%          1.18%(4)
Ratio of net investment
 income (loss) to average
 net assets  .......           0.28% -0.11%         -0.11%(4)
Portfolio turnover
 rate  .............          39.13% 22.36%         39.02%(5)

(1)  Core Equity Fund (formerly Total Return Fund) changed its name effective
     October 2, 2000.
(2)  Commencement of operations of the class.
(3)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(4)  Annualized.
(5)  For the fiscal year ended March 31, 2001.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     CORE EQUITY FUND (1)
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-11-00(2)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.74  $9.44         $14.10
                              -----  -----         ------
Loss from investment operations:
 Net investment loss          (0.06) (0.14)         (0.05)
 Net realized and
   unrealized loss
   on investments ..          (2.23) (0.25)         (2.23)
                              -----  -----         ------
Total from investment
 operations  .......          (2.29) (0.39)         (2.28)
                              -----  -----         ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.31)         (2.38)
                              -----  -----         ------
Total distributions           (0.00) (0.31)         (2.38)
                              -----  -----         ------
Net asset value,
 end of period  ....          $6.45  $8.74         $ 9.44
                              =====  =====         ======
Total return .......         -26.20% -4.06%        -18.50%
Net assets, end of
 period (in
 millions)  ........             $5     $6             $5
Ratio of expenses
 to average net
 assets  ...........           2.36%  2.18%          2.11%(3)
Ratio of net investment
 loss to average
 net assets  .......          -0.76% -1.04%         -1.02%(3)
Portfolio turnover
 rate  .............          39.13% 22.36%         39.02%(4)

(1)  Core Equity Fund (formerly Total Return Fund) changed its name effective
     October 2, 2000.
(2)  Commencement of operations of the class.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

    CORE EQUITY FUND (1)
    Class C Shares (2)
    For a Share of Capital Stock Outstanding Throughout Each Period(3)

                              For the fiscal year ended March 31,
                             ------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value, beginning
 of period  ........          $8.76  $9.45  $13.76 $11.52  $12.24
                              -----  -----  ------  -----   -----
Income (loss) from investment
 operations:
 Net investment
   income (loss)....          (0.04) (0.08)  (0.11) (0.01)   0.03
 Net realized and
   unrealized gain (loss)
   on investments ..          (2.24) (0.30)  (1.82)  2.71    0.82
                              -----  -----  ------  -----   -----
Total from investment
 operations  .......          (2.28) (0.38)  (1.93)  2.70    0.85
Less distributions:           -----  -----  ------  -----   -----
 From net investment
   income ..........          (0.00) (0.00)  (0.00) (0.03)  (0.01)
 From capital gains           (0.00) (0.31)  (2.38) (0.43)  (1.56)
                              -----  -----  ------  -----   -----
Total distributions           (0.00) (0.31)  (2.38) (0.46)  (1.57)
                              -----  -----  ------  -----   -----
Net asset value,
 end of period  ....          $6.48  $8.76  $ 9.45 $13.76  $11.52
                              =====  =====  ====== ======  ======
Total return .......         -26.03% -3.94% -16.40% 23.98%   7.47%
Net assets, end of
 period (in
 millions)  ........           $200   $356    $440   $585    $508
Ratio of expenses
 to average net
 assets  ...........           2.18%  2.05%   1.97%  1.98%   1.93%
Ratio of net investment
 income (loss) to average
 net assets  .......          -0.58% -0.91%  -0.93% -0.12%   0.30%
Portfolio turnover
 rate  .............          39.13% 22.36%  39.02% 75.64%  54.73%

(1)  Core Equity Fund (formerly Total Return Fund) changed its name effective
     October 2, 2000.
(2)  See Note 5.
(3)  Per share amounts have been adjusted retroactively to reflect the 100%
     stock dividend effected June 26, 1998.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

    CORE EQUITY FUND (1)
    Class Y Shares
    For a Share of Capital Stock Outstanding Throughout Each Period(2)
                              For the fiscal year ended March 31,
                             ------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........          $9.19  $9.82  $14.08 $11.78  $12.46
                              -----  -----  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   income (loss) ...           0.04  (0.11)  (0.04)  0.06    0.12
 Net realized and
   unrealized gain (loss)
   on investments ..          (2.37) (0.21)  (1.84)  2.80    0.84
                              -----  -----  ------ ------  ------
Total from investment
 operations  .......          (2.33) (0.32)  (1.88)  2.86    0.96
Less distributions:           -----  -----  ------ ------  ------
 From net investment
   income ..........          (0.00) (0.00)  (0.00) (0.13)  (0.08)
 From capital gains           (0.00) (0.31)  (2.38) (0.43)  (1.56)
                              -----  -----  ------ ------  ------
Total distributions           (0.00) (0.31)  (2.38) (0.56)  (1.64)
                              -----  -----  ------ ------  ------
Net asset value,
 end of period  ....          $6.86  $9.19  $ 9.82 $14.08  $11.78
                              =====  =====  ====== ======  ======
Total return .......         -25.35% -3.18% -15.62% 24.96%   8.37%
Net assets, end of
 period (in
   millions) .......             $2     $4      $2     $2      $1
Ratio of expenses
 to average net
 assets  ...........           1.20%  1.17%   1.15%  1.16%   1.15%
Ratio of net investment
 income (loss) to average
 net assets  .......           0.40% -0.03%  -0.11%  0.67%   1.10%
Portfolio turnover
 rate  .............          39.13% 22.36%  39.02% 75.64%  54.73%

(1)  Core Equity Fund (formerly Total Return Fund) changed its name effective
     October 2, 2000.
(2)  Per share amounts have been adjusted retroactively to reflect the 100%
     stock dividend effected June 26, 1998.
See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Louise D. Rieke, portfolio manager of W&R Funds, Inc. - High
Income Fund


This report relates to the operation of W&R Funds, Inc. -- High Income Fund for
the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
The Fund showed a positive return during the fiscal year, but underperformed its
benchmark index.  The Class C shares of the Fund increased 2.15 percent for the
fiscal year, compared with the Citigroup High Yield Market Index (generally
reflecting the performance of securities that represent the high yield bond
market), which increased 4.92 percent during the period, and the Lipper High
Current Yield Funds Universe Average (reflecting the performance of the universe
of funds with similar objectives), which increased 2.89 percent during the
period.  Please note that while the Fund's benchmark index remains the same, its
name has changed from the Salomon Brothers High Yield Market Index to the
Citigroup High Yield Market Index.

Why did the Fund lag its benchmark index during the fiscal year?
We believe that this was primarily due to the Fund holding better-quality names
and taking a more defensive approach.  The vast majority of the Fund's
underperformance occurred in the last fiscal quarter (December 2002 to March
2003).  During this quarter, all of the sectors that the Fund exited from in
2001 (telecom, wireless towers and broadband) came back to life.  Because the
Fund was more quality oriented with a bent toward the defensive, we missed out
on outperformance from some of these riskier sectors.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
Market conditions during the past fiscal year varied from negative returns in
the first two quarters to positive returns in the last two quarters.  The market
turned in the fall of 2002 when money started flowing into the high yield area
because of the yield pickup versus alternative investments.  This, in
conjunction with a lack of new issue product to buy, led to the improved
performance of the sector in our opinion.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
We employed three major strategies over the past fiscal year:  We held cash in
the first half of the year and reduced it starting last fall, we bought short
callable paper as a proxy to holding commercial paper at extremely low yields,
and we looked for slightly distressed companies at a discount that, in our view,
were on the verge of a turnaround.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
The industries we emphasized were health care, higher-quality lodging and
leisure.  In health care, investments included acute-care hospitals, imaging
companies, specialty hospitals and distributors of supplies to the industry.
The lodging companies we held are the better quality names with leading hotel
properties.  The values on these investments have held up well in this
environment.  The leisure names are in the movie theater business, as well as
theme parks.  Going forward, we intend to look for sectors that are leveraged to
an economic rebound but that suffered in the last year or so.  These may include
publishing, some utilities, and paper and forest-products companies.


Respectfully,



Louise D. Rieke
Manager
W&R High Income Fund



Comparison of Change in Value of $10,000 Investment


                                       Lipper
                          Citigroup      High
                      W&R      High   Current
               High Income    YieldYield Funds
               Fund, Class   Market  Universe
                 C Shares     Index   Average
               -----------   ------ ---------
     07-31-97     $10,000   $10,000   $10,000
     03-31-98      11,177    10,868    10,847
     03-31-99      10,986    10,982    10,749
     03-31-00      11,005    10,720    10,837
     03-31-01      11,025    11,010    10,565
     03-31-02      11,860    11,164    10,448
     03-31-03      12,114    11,713    10,750

+++++ W&R High Income Fund, Class C Shares(1) -- $12,114
===== Citigroup High Yield Market Index -- $11,713
- ----- Lipper High Current Yield Funds Universe Average -- $10,750

(1)  The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period
  ended 3-31-03       -2.90%    -1.74%           2.15%     3.03%
5-year period
  ended 3-31-03          ---       ---           1.62%   ---
Since inception of
  Class through
  3-31-03(4)           2.24%     2.63%           3.44%     3.66%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)7-3-00 for Class A shares, 7-18-00 for Class B shares, 7-31-97 for Class C
   shares and 12-30-98 for Class Y shares (the date on which shares were first
   acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.


SHAREHOLDER SUMMARY OF HIGH INCOME FUND

- --------------------------------------------------------------
High Income Fund

GOALS
To seek a high level of current income as a primary goal and capital growth as a
secondary goal when consistent with its primary goal.

Strategy
Invests primarily in high-yield, high-risk, fixed-income securities of United
States and foreign issuers.  The Fund invests primarily in lower quality, non-
investment grade bonds, commonly called junk bonds.  The Fund may invest up to
20% of its total assets in common stocks in order to seek capital growth.

Founded
1997

Scheduled Dividend Frequency
Declared daily, paid monthly

Performance Summary -- Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- -------------------------------------------

Dividends paid                  $0.57
                                =====

Net asset value on
   3-31-03                      $8.07
   3-31-02                       8.48
                               ------
Change per share               $(0.41)
                               ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF HIGH INCOME FUND

- --------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------   -------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03       -2.90%     3.02%         -1.74%            2.06%
 5-year period
  ended 3-31-03        ---       ---            ---              ---
10-year period
  ended 3-31-03        ---       ---            ---              ---
Since inception
  of Class (F)         2.24%     4.47%          2.63%            3.58%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-3-00 for Class A shares and 7-18-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period             Class C(B)    Class Y(C)
- ------             --------    --------
 1-year period
  ended 3-31-03         2.15%     3.03%
 5-year period
  ended 3-31-03        1.62%       ---
10-year period
  ended 3-31-03          ---       ---
Since inception
  of Class(D)           3.44%     3.66%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  7-31-97 for Class C shares and 12-30-98 for Class Y shares (the date on
     which shares were first acquired by shareholders).

Investing in high income securities may carry a greater risk of nonpayment of
interest or principal than higher-rated bonds.



SHAREHOLDER SUMMARY OF HIGH INCOME FUND

- --------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, High Income Fund had net assets totaling $30,099,517 invested
in a diversified portfolio of:

 89.40%  Corporate Debt Securities
  9.43%  Cash and Cash Equivalents
  1.17%  Preferred Stocks, Rights and Warrants

As a shareholder of High Income Fund, for every $100 you had invested on March
31, 2003, your Fund owned:

 $19.26  Consumer Services Bonds
  10.29  Consumer Nondurables Bonds
   9.43  Cash and Cash Equivalents
   9.03  Business Equipment and Services Bonds
   8.72  Retail Bonds
   7.49  Capital Goods Bonds
   6.49  Multi-Industry Bonds
   6.41  Utilities Bonds
   5.70  Energy Bonds
   5.97  Health Care Bonds
   3.78  Shelter Bonds
   3.66  Shelter Bonds
   2.21  Miscellaneous Bonds
   1.17  Preferred Stocks, Rights and Warrants
   1.15  Raw Materials Bonds



THE INVESTMENTS OF HIGH INCOME FUND

     March 31, 2003

                                            Shares          Value

PREFERRED STOCKS, RIGHTS AND WARRANTS
Broadcasting - 0.01%
 Adelphia Communications Corporation,
   13.0% Preferred* ......................     2,500  $     1,875
                                                      -----------

Communications Equipment - 0.00%
 Primus Telecommunications Group,
   Incorporated, Warrants* ...............       300          338
                                                       ----------

Multiple Industry - 1.16%
 Anvil Holdings, Inc., 13.0% Preferred*  .    14,774      350,887
                                                      -----------

Security and Commodity Brokers - 0.00%
 ONO Finance Plc, Rights (A)* ............       250            2
                                                       ----------

Utilities -- Telephone - 0.00%
 IWO Holdings, Inc., Warrants (A)*  ......       250            2
 Intermedia Communications Inc., 13.5%
   Preferred* ............................         1           10
                                                      -----------
                                                               12
                                                      -----------

TOTAL PREFERRED STOCKS, RIGHTS
 AND WARRANTS - 1.17%                                 $   353,114
 (Cost: $536,810)

                                         Principal
                                         Amount in
                                         Thousands

CORPORATE DEBT SECURITIES
Beverages - 0.86%
 Constellation Brands, Inc.,
   8.125%, 1-15-12 .....................      $250        258,750
                                                      -----------

Broadcasting - 7.19%
 Comcast Corporation,
   5.5%, 3-15-11 .......................       250        250,422
 Cox Communications, Inc.,
   7.75%, 11-1-10 ......................       250        292,243
 Entravision Communications Corporation,
   8.125%, 3-15-09 .....................       100        102,750
 Gray Communications Systems, Inc.,
   9.25%, 12-15-11 .....................       375        406,406
 LIN Television Corporation,
   8.375%, 3-1-08 ......................       500        520,000
 Mediacom Broadband LLC and Mediacom
   Broadband Corporation,
   11.0%, 7-15-13 ......................        50         55,875
 Sinclair Broadcast Group, Inc.,
   8.75%, 12-15-11 .....................       250        265,625
 Young Broadcasting Inc.,
   10.0%, 3-1-11 .......................       255        270,300
                                                      -----------
                                                        2,163,621

                                                      -----------

Business Equipment and Services - 8.15%
 Alderwoods Group, Inc.,
   12.25%, 1-2-09 ......................       100         90,500
 Allbritton Communications Company,
   7.75%, 12-15-12 (A) .................       100        101,750
 Allied Waste North America, Inc.,
   10.0%, 8-1-09 .......................       300        311,250
 Avis Rent A Car, Inc.,
   11.0%, 5-1-09 .......................       250        279,063
 IESI Corporation,
   10.25%, 6-15-12 .....................       100        101,000
 Iron Mountain Incorporated,
   8.625%, 4-1-13 ......................       300        324,000
 Lamar Advertising Company,
   8.625%, 9-15-07 .....................       250        260,937
 Moore North America Finance Inc.,
   7.875%, 1-15-11 (A) .................       125        129,375
 Owens & Minor, Inc.,
   8.5%, 7-15-11 .......................       250        269,063
 Synagro Technologies, Inc.,
   9.5%, 4-1-09 ........................       100        107,000
 UCAR Finance Inc.,
   10.25%, 2-15-12 .....................       250        222,500
 Vertis, Inc.,
   10.875%, 6-15-09 ....................       250        258,125
                                                      -----------
                                                        2,454,563
                                                      -----------

Capital Equipment - 2.65%
 CSK Auto, Inc.,
   12.0%, 6-15-06 ......................       280        303,800
 Remington Arms Company, Inc.,
   10.5%, 2-1-11 (A) ...................       250        267,500
 TRW Automotive Acquisition Corp.:
   9.375%, 2-15-13 (A) .................       150        150,000
   11.0%, 2-15-13 (A) ..................        75         74,812
                                                      -----------
                                                          796,112
                                                      -----------

Chemicals - Petroleum and Inorganic - 0.35%
 Berry Plastics Corporation,
   10.75%, 7-15-12 .....................       100        105,500
                                                      -----------

Chemicals -- Specialty - 0.80%
 Buckeye Cellulose Corporation,
   8.5%, 12-15-05 ......................       250        241,250
                                                      -----------

Coal - 0.84%
 Peabody Energy Corporation,
   6.875%, 3-15-13 (A) .................       250        253,125
                                                      -----------

Communications Equipment - 0.91%
 EchoStar DBS Corporation,
   9.125%, 1-15-09 .....................       250        273,125
                                                      -----------

Construction Materials - 1.73%
 ANR Pipeline Company,

   8.875%, 3-15-10 (A) .................       100        106,000
 Brand Services, Inc.,
   12.0%, 10-15-12 (A) .................       100        109,125
 Interface, Inc.,
   10.375%, 2-1-10 .....................       350        304,500
                                                      -----------
                                                          519,625
                                                      -----------
Containers - 2.64%
 Crown European Holdings SA,
   9.5%, 3-1-11 (A) ....................       500        499,375
 MDP Acquisitions plc,
   9.625%, 10-1-12 (A) .................       280        295,050
                                                      -----------
                                                          794,425
                                                      -----------

Cosmetics and Toiletries - 1.21%
 Armkel, LLC and Armkel Finance, Inc.,
   9.5%, 8-15-09 .......................       100        109,750
 Chattem, Inc.,
   8.875%, 4-1-08 ......................       250        254,375
                                                      -----------
                                                          364,125
                                                      -----------

Electrical Equipment - 2.77%
 Nortek, Inc.,
   9.25%, 3-15-07 ......................       250        257,187
 Northwest Pipeline Corporation,
   8.125%, 3-1-10 (A) ..................       450        470,250
 Rexnord Corporation,
   10.125%, 12-15-12 (A) ...............       100        106,250
                                                      -----------
                                                          833,687
                                                      -----------

Finance Companies - 3.78%
 American Seafoods Group LLC and American
   Seafoods, Inc.,
   10.125%, 4-15-10 ....................       300        317,250
 DIRECTV Holdings LLC and DIRECTV
   Financing Co., Inc.,
   8.375%, 3-15-13 (A) .................       125        137,812
 NBC Acquisition Corp.,
   10.75%, 2-15-09 .....................       150        147,750
 Owens-Brockway Glass Container Inc.,
   8.75%, 11-15-12 (A) .................       520        534,950
                                                      -----------
                                                        1,137,762
                                                      -----------

Food and Related - 0.81%
 Pilgrim's Pride Corporation,
   9.625%, 9-15-11 .....................       250        242,500
                                                      -----------

Forest and Paper Products - 1.22%
 Georgia-Pacific Corporation,
   8.875%, 2-1-10 (A) ..................       200        207,500
 Jefferson Smurfit Corporation,
   8.25%, 10-1-12 ......................       150        160,500
                                                      -----------
                                                          368,000
                                                      -----------


Furniture and Furnishings - 0.73%
 Associated Materials Incorporated,
   9.75%, 4-15-12 ......................       205        219,350
                                                      -----------

Health Care - General - 0.51%
 Sybron Dental Specialties, Inc.,
   8.125%, 6-15-12 .....................       150        153,000
                                                      -----------

Hospital Supply and Management - 4.70%
 Columbia/HCA Healthcare Corporation:
   8.12%, 8-4-03 .......................       125        127,056
   7.0%, 7-1-07 ........................       250        268,686
 HCA Inc.,
   6.3%, 10-1-12 .......................       250        256,823
 Tenet Healthcare Corporation,
   7.375%, 2-1-13 ......................       150        150,750
 Triad Hospitals, Inc.,
   8.75%, 5-1-09 .......................       250        270,000
 US Oncology, Inc.,
   9.625%, 2-1-12 ......................       200        209,000
 United Surgical Partners Holdings, Inc.,
   10.0%, 12-15-11 .....................       125        131,250
                                                      -----------
                                                        1,413,565
                                                      -----------

Hotels and Gaming - 4.64%
 Chumash Casino and Resort Enterprise,
   9.0%, 7-15-10 (A) ...................       150        159,375
 Hilton Hotels Corporation,
   7.625%, 12-1-12 .....................       300        300,750
 John Q Hammons Hotels, L.P. and John Q
   Hammons Hotels Finance Corporation III,
   8.875%, 5-15-12 .....................        50         48,750
 MGM MIRAGE,
   8.5%, 9-15-10 .......................       250        276,250
 Mohegan Tribal Gaming Authority,
   8.0%, 4-1-12 ........................       150        155,437
 Prime Hospitality Corp.,
   8.375%, 5-1-12 ......................       100         88,500
 Turning Stone Casino Resort Enterprise,
   9.125%, 12-15-10 (A) ................       100        104,500
 Venetian Casino Resort, LLC and Las
   Vegas Sands, Inc.,
   11.0%, 6-15-10 ......................       250        261,563
                                                      -----------
                                                        1,395,125
                                                      -----------

Household -- General Products - 4.77%
 Alltrista Corporation,
   9.75%, 5-1-12 .......................       200        209,000
 Central Garden & Pet Company,
   9.125%, 2-1-13 (A) ..................        50         52,250
 Del Monte Corporation,
   8.625%, 12-15-12 (A) ................       100        106,000
 Fort James Corporation,
   6.625%, 9-15-04 .....................       300        301,500
 Levi Strauss & Co.,
   12.25%, 12-15-12 (A) ................       250        236,875
 Sealy Mattress Company,
   10.875%, 12-15-07 ...................       250        261,562

 Simmons Company,
   10.25%, 3-15-09 .....................       250        269,375
                                                      -----------
                                                        1,436,562
                                                      -----------

Leisure Time Industry - 1.20%
 Hollywood Park, Inc.,
   9.25%, 2-15-07 ......................       250        216,875
 Premier Parks Inc.,
   9.75%, 6-15-07 ......................       150        145,500
                                                      -----------
                                                          362,375
                                                      -----------

Metal Fabrication - 0.35%
 Wolverine Tube, Inc.,
   10.5%, 4-1-09 .......................       100        106,000
                                                      -----------

Motion Pictures - 3.87%
 AMC Entertainment Inc.:
   9.5%, 3-15-09 .......................       150        149,625
   9.5%, 2-1-11 ........................       150        149,250
 Cinemark USA, Inc.:
   9.625%, 8-1-08 ......................       325        329,469
   9.0%, 2-1-13 (A) ....................       250        265,625
 Regal Cinemas Corporation,
   9.375%, 2-1-12 ......................       250        271,875
                                                      -----------
                                                        1,165,844
                                                      -----------

Motor Vehicle Parts - 0.32%
 Collins & Aikman Floorcoverings, Inc.,
   9.75%, 2-15-10 ......................       100         96,500
                                                      -----------

Motor Vehicles - 0.18%
 Sonic Automotive, Inc.,
   11.0%, 8-1-08 .......................        50         53,375
                                                      -----------

Multiple Industry - 6.49%
 Cablevision Systems Corporation,
   7.875%, 12-15-07 ....................       250        252,500
 Doane Pet Care Company,
   10.75%, 3-1-10 (A) ..................       300        307,500
 Fisher Scientific International Inc.,
   8.125%, 5-1-12 (A) ..................       100        106,500
 Phoenix Color Corp.,
   10.375%, 2-1-09 .....................       500        445,000
 Tyco International Group S.A.,
   6.125%, 11-1-08 .....................       150        141,000
   3.125%, 1-15-23, Convertible (A) ....       100         89,000
 Tyco International Ltd.,
   0.0%, 11-17-20, Convertible .........       150        112,313
 United Industries Corporation,
   9.875%, 4-1-09 (A) ..................       300        312,750
 WESCO Distribution, Inc.,
   9.125%, 6-1-08 ......................       250        187,500
                                                      -----------
                                                        1,954,063
                                                      -----------

Petroleum -- Domestic - 1.91%
 Chesapeake Energy Corporation:
   8.125%, 4-1-11 ......................       200        211,000
   7.5%, 9-15-13 (A) ...................       150        153,375
 Encore Acquisition Company,
   8.375%, 6-15-12 .....................       100        104,750
 Westport Resources Corporation,
   8.25%, 11-1-11 ......................       100        106,750
                                                      -----------
                                                          575,875
                                                      -----------

Petroleum -- Services - 2.95%
 Key Energy Services, Inc.,
   8.375%, 3-1-08 ......................       250        265,625
 Pemex Project Funding Master Trust,
   7.375%, 12-15-14 (A) ................       300        307,875
 R&B Falcon Corporation,
   9.5%, 12-15-08 ......................       250        315,540
                                                      -----------
                                                          889,040
                                                      -----------

Publishing - 2.36%
 Dex Media East LLC and Dex Media
   East Finance Co.:
   9.875%, 11-15-09 (A) ................       150        169,125
   12.125%, 11-15-12 (A) ...............       150        174,750
 Hollinger International Publishing Inc.,
   9.0%, 12-15-10 (A) ..................       100        105,750
 TransWestern Publishing Company LLC,
   9.625%, 11-15-07 ....................       250        260,937
                                                      -----------
                                                          710,562
                                                      -----------

Railroad - 0.80%
 Kansas City Southern Railway Company (The),
   7.5%, 6-15-09 .......................       225        239,625
                                                      -----------

Real Estate Investment Trust - 1.71%
 La Quinta Properties, Inc.,
   8.875%, 3-15-11 (A) .................       250        250,938
 Meritage Corporation,
   9.75%, 6-1-11 .......................       250        263,750
                                                      -----------
                                                          514,688
                                                      -----------

Restaurants - 1.61%
 Carrols Corporation,
   9.5%, 12-1-08 .......................       250        236,875
 Host Marriott, L.P.,
   9.25%, 10-1-07 ......................       250        248,750
                                                      -----------
                                                          485,625
                                                      -----------

Retail -- General Merchandise - 4.77%
 Advance Stores Company, Incorporated,
   10.25%, 4-15-08 .....................       250        262,813
 AutoNation, Inc.,
   9.0%, 8-1-08 ........................       250        263,750
 Domino's, Inc.,

   10.375%, 1-15-09 ....................       250        268,125
 Roundy's, Inc.,
   8.875%, 6-15-12 .....................       300        298,500
 United Auto Group, Inc.,
   9.625%, 3-15-12 .....................       350        341,250
                                                      -----------
                                                        1,434,438
                                                      -----------

Retail -- Specialty Stores - 2.34%
 Cole National Group, Inc.,
   8.875%, 5-15-12 .....................       350        316,750
 Jo-Ann Stores, Inc.,
   10.375%, 5-1-07 .....................       110        116,050
 Michaels Stores, Inc.,
   9.25%, 7-1-09 .......................       250        272,500
                                                      -----------
                                                          705,300
                                                      -----------

Timesharing and Software - 0.87%
 NDCHealth Corporation,
   10.5%, 12-1-12 (A)...................       250        261,875
                                                      -----------

Utilities -- Gas and Pipeline - 2.91%
 AmeriGas Partners, L.P. and AP Eagle Finance Corp.,
   8.875%, 5-20-11 .....................       100        106,000
 El Paso Energy Partners, L.P. and
   El Paso Energy Partners Finance Corporation,
   8.5%, 6-1-10 (A) ....................       500        510,000
 Wynn Las Vegas, LLC and Wynn Las
   Vegas Capital Corp.,
   12.0%, 11-1-10 ......................       250        261,250
                                                      -----------
                                                          877,250
                                                      -----------

Utilities -- Telephone - 3.50%
 Nextel Communications, Inc.:
   10.65%, 9-15-07 .....................       350        364,875
   9.95%, 2-15-08 ......................       150        156,375
 Triton PCS, Inc.:
   9.375%, 2-1-11 ......................       125        108,750
   8.75%, 11-15-11 .....................       500        422,500
                                                      -----------
                                                        1,052,500
                                                      -----------

TOTAL CORPORATE DEBT SECURITIES - 89.40%              $26,908,707
 (Cost: $25,947,675)

SHORT-TERM SECURITIES
 Chemicals - Petroleum and Inorganic - 0.82%
   du Pont (E.I.) de Nemours and Company,
    1.16315%, Master Note  ...............       246      246,000
                                                     ------------

 Food and Related - 4.98%
 McCormick & Co. Inc.,
   1.45%, 4-1-03 .........................     1,000    1,000,000
 Sara Lee Corporation,
   1.35%, 4-16-03 ........................       500      499,719
                                                     ------------
                                                        1,499,719

                                                     ------------

 Forest and Paper Products - 1.66%
 Sonoco Products Co.,
   1.44%, 4-1-03 .........................       500      500,000
                                                     ------------

 Retail - Food Stores - 5.95%
 Kroger Co. (The),
   1.9%, 4-1-03 ..........................     1,790    1,790,000
                                                     ------------

TOTAL SHORT-TERM SECURITIES  - 13.41%                 $ 4,035,719
 (Cost: $4,035,719)

TOTAL INVESTMENT SECURITIES - 103.98%                 $31,297,540
 (Cost: $30,520,204)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (3.98%)    (1,198,023)

NET ASSETS - 100.00%                                  $30,099,517

Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Securities were purchased pursuant to Rule 144A under the Securities Act of
   1933 and may be resold in transactions exempt from registration, normally to
   qualified institutional buyers.  At March 31, 2003, the total value of these
   securities amounted to $7,116,941 or 23.64% of net assets.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     HIGH INCOME FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities--at value (cost - $30,520)
   (Notes 1 and 3)..........................................   $31,298
 Cash  .....................................................         1
 Receivables:
   Dividends and interest...................................       587
   Fund shares sold ........................................       125
 Prepaid registration fees .................................         6
                                                               -------
    Total assets  ..........................................    32,017
                                                               -------
LIABILITIES
 Payable for investment securities purchased ...............     1,790
 Payable to Fund shareholders  .............................        53
 Dividends payable  ........................................        20
 Accrued shareholder servicing (Note 2)  ...................         8
 Accrued accounting services fee (Note 2)  .................         2
 Accrued distribution and service fees (Note 2)  ...........         1
 Accrued management fee (Note 2)  ..........................         1
 Other  ....................................................        42
                                                               -------
    Total liabilities  .....................................     1,917
                                                               -------
      Total net assets .....................................   $30,100
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    37
   Additional paid-in capital...............................    35,352
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss
    on investment transactions  ............................    (6,066)
   Net unrealized appreciation in value of investments .....       777
                                                               -------
    Net assets applicable to outstanding units of capital  .   $30,100
                                                               =======
Net asset value per share (net assets divided by
 shares outstanding):
 Class A  ..................................................     $8.07
 Class B  ..................................................     $8.07
 Class C  ..................................................     $8.07
 Class Y  ..................................................     $8.07
Capital shares outstanding:
 Class A  ..................................................       777
 Class B  ..................................................       212
 Class C  ..................................................     2,289
 Class Y  ..................................................       451
Capital shares authorized ..................................   200,000


See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     HIGH INCOME FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ...............................    $1,948
   Dividends ...............................................        34
                                                                ------
    Total income  ..........................................     1,982
                                                                ------
 Expenses (Note 2):
   Distribution fee:
    Class A  ...............................................         1
    Class B  ...............................................         9
    Class C  ...............................................       130
    Class Y  ...............................................         1
   Investment management fee ...............................       139
   Shareholder servicing:
    Class A  ...............................................         9
    Class B  ...............................................         5
    Class C  ...............................................        59
    Class Y  ...............................................         1
   Service fee:
    Class A  ...............................................         9
    Class B  ...............................................         3
    Class C  ...............................................        43
   Registration fees .......................................        24
   Accounting services fee .................................        14
   Audit fees ..............................................        12
   Custodian fees ..........................................         8
   Other ...................................................        13
                                                                ------
   Total ...................................................       480
    Less expenses in excess of voluntary waiver of
      investment management fee (Note 2)....................      (119)
                                                                ------
      Total expenses .......................................       361
                                                                ------
       Net investment income  ..............................     1,621
                                                                ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on investments  .........................    (1,158)
 Unrealized appreciation in value of investments
   during the period .......................................       259
                                                                ------
   Net loss on investments..................................      (899)
                                                                ------
    Net increase in net assets resulting from
      operations ...........................................    $  722
                                                                ======


See Notes to Financial Statements.




STATEMENT OF CHANGES IN NET ASSETS

     HIGH INCOME FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE IN NET ASSETS
 Operations:
   Net investment income .................    $1,621       $1,596
   Realized net loss on investments ......    (1,158)        (641)
   Unrealized appreciation ...............       259          490
                                             -------      -------
    Net increase in net assets
      resulting from operations ..........       722        1,445
                                             -------      -------
 Distributions to shareholders from
   net investment income (Note 1E):(1)
   Class A ...............................      (288)         (94)
   Class B ...............................       (81)         (72)
   Class C ...............................    (1,224)      (1,428)
   Class Y ...............................       (28)          (2)
                                             -------      -------
                                              (1,621)      (1,596)
                                             -------      -------
 Capital share transactions
   (Note 5) ..............................    10,768          733
                                             -------      -------
   Total increase ........................     9,869          582
NET ASSETS
 Beginning of period  ....................    20,231       19,649
                                             -------      -------
 End of period  ..........................   $30,100      $20,231
                                             =======      =======
   Undistributed net investment income ...   $   ---      $   ---
                                             =======      =======

(1)  See "Financial Highlights" on pages 57 - 60.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     HIGH INCOME FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.48  $8.54          $9.04
Income (loss) from            -----  -----          -----
 investment operations:
 Net investment
   income ..........           0.64   0.74           0.58
 Net realized and unrealized
   loss on investments        (0.41) (0.06)         (0.50)
Total from investment         -----  -----          -----
 operations  .......           0.23   0.68           0.08
Less distributions:           -----  -----          -----
 Declared from net
   investment income          (0.64) (0.74)         (0.58)
 From capital gains           (0.00) (0.00)         (0.00)
                              -----  -----          -----
Total distributions           (0.64) (0.74)         (0.58)
Net asset value,              -----  -----          -----
 end of period  ....          $8.07  $8.48          $8.54
                              =====  =====          =====
Total return(2) ....           3.02%  8.46%          0.90%
Net assets, end of period (000
 omitted)  .........         $6,269 $1,895           $442
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           0.91%  0.84%          1.05%(3)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           7.83%  9.00%          9.01%(3)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           1.44%  1.14%          1.42%(3)
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           7.30%  8.70%          8.64%(3)
Portfolio turnover rate       52.20% 82.42%        114.89%(4)
(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     HIGH INCOME FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-18-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.48  $8.54         $ 9.03
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
    income .........           0.56   0.68           0.48
 Net realized and unrealized
   loss on investments        (0.41) (0.06)         (0.49)
Total from investment         -----  -----         ------
  operations  ......           0.15   0.62          (0.01)
                              -----  -----         ------
Less distributions:
 Declared from net
   investment income          (0.56) (0.68)         (0.48)
 From capital gains           (0.00) (0.00)         (0.00)
                              -----  -----         ------
Total distributions           (0.56) (0.68)         (0.48)
                              -----  -----         ------
Net asset value,
 end of period  ....          $8.07  $8.48          $8.54
                              =====  =====          =====
Total return .......           2.06%  7.64%          0.09%
Net assets, end of period (in
 millions)  ........             $2     $1             $1
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.84%  1.74%          1.85%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           6.90%  8.09%          8.30%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           2.37%  2.36%          2.50%(2)
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           6.37%  7.47%          7.65%(2)
Portfolio turnover rate       52.20% 82.42%        114.89%(3)
(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     HIGH INCOME FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                     For the fiscal
                                  year ended March 31,
                            -----------------------------------
                               2003   2002    2001   2000    1999
                            ------- ------  ------ ------  ------
Net asset value,
 beginning of period          $8.48  $8.54   $9.27  $9.94  $10.79
                              -----  -----   -----  -----  ------
Income (loss) from
 investment operations:
 Net investment income         0.57   0.68    0.73   0.69    0.63
 Net realized and
   unrealized loss
   on investments ..          (0.41) (0.06)  (0.73) (0.67)  (0.82)
                              -----  -----   -----  -----  ------
Total from investment
 operations  .......           0.16   0.62    0.00   0.02   (0.19)
                              -----  -----   -----  -----  ------
Less distributions:
 Declared from net
   investment income          (0.57) (0.68)  (0.73) (0.69)  (0.63)
 From capital gains           (0.00) (0.00)  (0.00) (0.00)  (0.03)
                              -----  -----   -----  -----  ------
Total distributions           (0.57) (0.68)  (0.73) (0.69)  (0.66)
Net asset value,              -----  -----   -----  -----  ------
 end of period  ....          $8.07  $8.48   $8.54  $9.27  $ 9.94
                              =====  =====   =====  =====  ======
Total return .......           2.15%  7.58%   0.18%  0.17%  -1.72%
Net assets, end of period
 (in millions)  ....            $18    $17     $19    $23     $25
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.74%  1.82%   1.78%  2.17%   2.20%
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           7.05%  8.01%   8.38%  7.16%   6.29%
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           2.27%  2.46%   2.41% 2.26%     ---
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           6.52%  7.36%   7.75% 7.07%     ---
Portfolio turnover
 rate  .............          52.20% 82.42% 114.89% 71.31%  50.98%

(1)  See Note 5.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     HIGH INCOME FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                          For the
                                                           period
                                     For the fiscal          from
                                   year ended March 31,  12-30-98(1)
                             ----------------------------    to
                               2003   2002    2001   2000  3-31-99
                             ------ ------ --------------  ------
Net asset value,
 beginning of period          $8.48  $8.54   $9.27  $9.94   $9.97
Income (loss) from            -----  -----   -----  -----   -----
 investment operations:
 Net investment income         0.64   0.75    0.78   0.77    0.20
 Net realized and
   unrealized gain (loss)
   on investments...          (0.41) (0.06)  (0.73) (0.67)   0.00
Total from investment         -----  -----   -----  -----   -----
 operations ........           0.23   0.69    0.05   0.10    0.20
Less distributions:           -----  -----   -----  -----   -----
 Declared from net
   investment income          (0.64) (0.75)  (0.78) (0.77)  (0.20)
 From capital gains           (0.00) (0.00)  (0.00) (0.00)  (0.03)
                              -----  -----   -----  -----   -----
Total distributions           (0.64) (0.75)  (0.78) (0.77)  (0.23)
                              -----  -----   -----  -----   -----
Net asset value,
 end of period .....          $8.07  $8.48   $8.54  $9.27   $9.94
                              =====  =====   =====  =====   =====
Total return .......           3.03%  8.50%   0.79%  0.94%   2.45%
Net assets, end of
 period (000 omitted)        $3,643    $64     $12     $6      $6
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.08%  0.79%   1.20%  1.40%   0.26%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           7.22%  8.99%   8.95%  7.85%   8.55%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           1.61%  1.08%  1.62%  1.46%     ---
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           6.69%  8.71%   8.52%  7.79%    ---
Portfolio turnover
 rate  .............          52.20% 82.42% 114.89% 71.31%  50.98%(3)
(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 1999.
See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Thomas A. Mengel, portfolio manager of W&R Funds, Inc. -
International Growth Fund


This report relates to the operation of W&R Funds, Inc. -- International Growth
Fund for the fiscal year ended March 31, 2003.  The following discussion, graphs
and tables provide you with information regarding the Fund's performance during
that period.

How did the Fund perform during the last fiscal year?
The Fund struggled during what proved to be a difficult environment for
international equities, slightly underperforming its benchmark index.  The Class
C shares of the Fund declined 23.63 percent, compared with the Morgan Stanley
Capital International E.A.FE. Index (the index that generally reflects the
performance of the securities markets in Europe, Australia and the Far East),
which declined 23.24 percent for the fiscal year.  However, the Fund slightly
outperformed the Lipper International Funds Universe Average (the index that
generally reflects the performance of funds with similar investment objectives),
which declined 24.61 percent during the period.

Why did the Fund slightly lag its benchmark index during the fiscal year?
Country selection was the primary factor causing the Fund to slightly lag the
benchmark return.  However, the Fund did benefit from our stock selection and
from stronger foreign currency movements.  The Fund benefited significantly from
a weaker U.S. dollar over the past twelve months.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
Investor sentiment remained very cautious during this third difficult year for
equity market investments.  Early in the fiscal year, global economic growth
slowed and manufacturing employment weakened in the largest industrialized
countries.  Interest rates stayed low but business spending failed to recover.
Rising budget deficits suggested that fiscal stimulus would be limited,
especially in Europe.  In recent months, global geopolitical concerns triggered
extreme global market volatility and risk aversion.  Continental Europe suffered
some of the weakest equity markets, due to their inflexible corporate legal
structure and labor markets.  In mid-March the Asian consumer markets were
shocked by an outbreak of atypical pneumonia that is depressing travel and
consumer sectors.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
Early in the fiscal year, many of the Fund's large-cap stocks were hurt by broad
corporate profit concerns and accounting issues that remained in the spotlight.
The Fund continued to hold what we feel are fundamentally sound growth companies
that were negatively impacted by these factors.

Looking at country selection, the Fund was underweight in Japanese equities,
which had a negative effect on performance.  Japan's Nikkei was the best-
performing developed market for calendar year 2002 because, in our view, broad
market expectations of severe financial stress in Japan did not materialize.

Throughout the year, we held underweight positions in the weakest sectors
(financials, technology and industrials) and made very careful selections in
retail stocks.  Both strategies had a positive effect on performance.

What industries did you emphasize during the fiscal year, and what looks
attractive to you going forward?
We have continued to emphasize growth companies in Continental Europe with
defensive characteristics (consumer products, impressive management, strong
balance sheet, attractive dividend yield and solid competitive position).  In
Britain, we have focused on growth stocks that are, in our view, benefiting from

the relatively strong domestic economy.  Despite continuing imbalances within
Japan's economy, we believe that there are still good companies with solid
balance sheets, good management and growth prospects, especially some of the
larger exporters we have selected.  In Asia, we have concentrated our holdings
in what we see as industry leaders that we believe should benefit from continued
strong Chinese business demand.  We are alert to signs of over-leveraged
households in several countries, especially those with recent housing booms.

The difficult business climate of the last few years has forced many foreign
companies to accelerate restructuring efforts.  We feel that this positive
improvement should be an important focus for investors once the broader
financial and geopolitical environment improves.  We continue to believe that
foreign equity investments provide important long-term portfolio diversification
for our customers.


Respectfully,



Thomas A. Mengel
Manager
W&R International Growth Fund



Comparison of Change in Value of $10,000 Investment


                                            Morgan
                                           Stanley
                                W&R        Capital
                      International  International         Lipper
                             Growth        E.A.FE.  International
                              Fund,          Index          Funds
                            Class C      (with net       Universe
                             Shares     dividends)        Average
                          ---------     ----------     ----------
  03-31-93                   10,000         10,000         10,000
  03-31-94                   10,032         12,251         12,382
  03-31-95                   10,418         12,996         12,282
  03-31-96                   11,214         14,598         14,343
  03-31-97                   14,000         14,810         15,735
  03-31-98                   18,933         17,566         18,896
  03-31-99                   20,894         18,632         18,963
  03-31-00                   41,349         23,307         26,542
  03-31-01                   24,623         17,276         19,134
  03-31-02                   20,012         15,811         17,768
  03-31-03                   15,283         12,137         13,396

===== W&R International Growth Fund, Class C (1) (2) -- $15,283
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends) -
     $12,137
*-*-* Lipper International Funds Universe Average - $13,396

  Past performance is not necessarily indicative of future performance.  Indexes
  are unmanaged.  The performance graph and table do not reflect the deduction
  of taxes that a shareholder would pay on Fund distributions or the redemption
  of Fund shares.

  Comparative performance of W&R International Growth Fund, Class C Shares
  following change in objective.

                                            Morgan
                                           Stanley
                                W&R        Capital
                      International  International         Lipper
                             Growth        E.A.FE.  International
                              Fund,          Index          Funds
                            Class C      (with net       Universe
                             Shares     dividends)        Average
                          ---------     ----------     ----------
  04-30-95                   10,000         10,000         10,000
  03-31-96                   10,625         10,826         11,309
  03-31-97                   13,265         10,983         12,406
  03-31-98                   17,939         13,027         14,899
  03-31-99                   19,797         13,817         14,952
  03-31-00                   39,178         17,284         20,928
  03-31-01                   23,330         12,811         15,087
  03-31-02                   18,961         11,726         14,009
  03-31-03                   14,480          9,001         10,562

===== W&R International Growth Fund, Class C (2) (3) -- $14,480
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)
     (3) - $9,001
*-*-* Lipper International Funds Universe Average (3) - $10,562

(1)  Effective as of 4-20-95, the name of the Fund was changed to W&R
     International Growth Fund and its investment objective was changed to long-
     term appreciation, with realization of income as a secondary objective.
(2)  The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.
(3)  Because the Fund's new investment objective became effective on a date

     other than at the end of a month, and partial month calculations of the
     performance of both the indexes are not available, the investments were
     effected as of April 30, 1995.

                           Average Annual Total Return(4)
                    Class A     Class B      Class C(5)  Class Y
                    ---------------------------------------------
1-year period
  ended 3-31-03      -27.35%   -26.88%         -23.63%   -22.56%
5-year period
  ended 3-31-03          ---       ---          -4.19%    -3.17%
10-year period
  ended 3-31-03          ---       ---           4.33%       ---
Since inception of
  Class through
  3-31-03(6)         -27.24%   -27.42%           ---       5.75%

(4)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(5)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(6)7-3-00 for Class A shares, 7-10-00 for Class B shares and 12-29-95 for Class
   Y shares (the date on which shares were first acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND

- -----------------------------------------------------------------
International Growth Fund

GOALS
To seek long-term appreciation of capital as a primary goal and current income
as a secondary goal.

Strategy
Invests primarily in common stocks of foreign companies that have the potential
to provide long-term growth.  The Fund emphasizes growth stocks which are
securities of companies whose earnings are likely to grow faster than the
economy.

Founded
1992

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Net asset value on
3-31-03                          $7.40
3-31-02                           9.69
                                ------
Change per share                $(2.29)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------   -------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
 ended 3-31-03        -27.35%   -22.91%        -26.88%        -23.83%
 5-year period
 ended 3-31-03           ---       ---            ---            ---
10-year period
 ended 3-31-03           ---       ---            ---            ---
Since inception
 of Class (F)         -27.24%   -25.65%        -27.42%        -26.85%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-3-00 for Class A shares and 7-10-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period            Class C(B)   Class Y(C)
- ------            ----------   ----------
 1-year period
  ended 3-31-03       -23.63%   -22.56%
 5-year period
  ended 3-31-03        -4.19%    -3.17%
10-year period
  ended 3-31-03         4.33%      ---
Since inception
  of Class (D)           ---      5.75%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  12-29-95 for Class Y shares (the date on which shares were first acquired
     by shareholders).

International investing involves special risks, including political, economic
and currency risks.



SHAREHOLDER SUMMARY OF INTERNATIONAL GROWTH FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, International Growth Fund had net assets totaling $64,505,767
invested in a diversified portfolio of:

   71.86% Common Stocks
   21.36% Cash and Cash Equivalents
    6.78% Other Government Security

As a shareholder of International Growth Fund, for every $100 you had invested
on March 31, 2003, your Fund was invested by geographic region and by industry,
respectively, as follows:

    $56.74  Europe
     21.36  Cash and Cash Equivalents
     16.13  Pacific Basin
      4.22  Scandinavia
      1.03  Mexico
      0.52  South America





    $21.36  Cash and Cash Equivalents
     16.32  Financial Services Stocks
     16.13  Consumer Goods Stocks
      7.07  Health Care Stocks
      6.78  Other Government Security
      6.64  Utilities Stocks
      5.45  Raw Materials Stocks
      4.65  Miscellaneous Stocks
      4.59  Energy Stocks
      3.46  Consumer Services Stocks
      3.26  Business Equipment and Services Stocks
      2.68  Capital Goods Stocks
      1.61  Retail Stocks



THE INVESTMENTS OF INTERNATIONAL GROWTH FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Australia - 1.34%
 Novogen LTD (A)*  .......................   474,580 $    863,805
                                                     ------------

Austria - 1.18%
 Erste Bank der oesterreichischen
   Sparkassen AG (A) .....................    10,700      762,690
                                                     ------------

Brazil - 0.52%
 Tele Norte Leste Participacoes
   S.A., ADR .............................    40,700      335,775
                                                     ------------

Finland - 2.68%
 Nokia Oyj (A)  ..........................    96,200    1,327,380
 UPM-Kymmene Oyj (A)  ....................    31,200      402,958
                                                     ------------
                                                        1,730,338
                                                     ------------

France - 7.22%
 AXA (A)  ................................    29,500      347,885
 BNP Paribas SA (A)  .....................    28,400    1,135,981
 Carrefour SA (A)  .......................    16,900      639,334
 Publicis Groupe S.A. (A)  ...............    22,270      377,673
 Renault SA (A)  .........................     7,900      261,062
 Societe Generale, Class A (A)  ..........    11,400      587,944
 TotalFinaElf, S.A. (A)  .................    10,350    1,308,534
                                                     ------------
                                                        4,658,413
                                                     ------------

Germany - 6.98%
 Altana AG (A)  ..........................    17,000      798,570
 BASF Aktiengesellschaft (A)  ............    26,760    1,001,843
 Deutsche Boerse AG (A)  .................    20,000      765,546
 Henkel Kommanditgesellschaft
   auf Aktien (A).........................    14,700      905,216
 Siemens AG (A)  .........................     3,000      122,941
 VOLKSWAGEN AKTIENGESELLSCHAFT (A)  ......    28,400      906,618
                                                     ------------
                                                        4,500,734
                                                     ------------

Hong Kong - 1.50%
 Cheung Kong (Holdings) Limited (A)  .....    54,000      298,400
 Hutchison Whampoa Limited,
   Ordinary Shares (A) ...................    57,000      309,862
 Johnson Electric Holdings Limited (A)  ..   330,000      361,749
                                                     ------------
                                                          970,011
                                                     ------------

Ireland - 1.17%
 DePfa Deutsche Pfandbriefbank AG (A)  ...    17,100      752,947
                                                     ------------

Italy - 5.80%
 Assicurazioni Generali S.p.A. (A)  ......    27,500      565,876

 Eni S.p.A. (A)  .........................    78,800    1,051,222
 Saipem S.p.A. (A)  ......................    96,200      603,927
 Telecom Italia Mobile S.p.A. (A)  .......   217,000      884,541
 UniCredito Italiano SpA (A)  ............   166,500      633,325
                                                     ------------
                                                        3,738,891
                                                     ------------

Japan - 13.29%
 Canon Inc. (A)  .........................    20,000      701,338
 Eisai Co., Ltd. (A)  ....................    18,500      342,389
 FANUC LTD (A)  ..........................     7,700      335,236
 Honda Motor Co., Ltd. (A)  ..............    19,000      635,694
 Kao Corporation (A)  ....................    40,000      811,452
 Mitsubishi Corporation (A)  .............   105,000      651,025
 Nintendo Co., Ltd. (A)  .................     3,700      300,864
 Nissan Motor Co., Ltd. (A)  .............   105,300      704,616
 Nomura Holdings, Inc. (A)  ..............    82,000      857,784
 Ricoh Company, Ltd. (A)  ................    24,000      376,690
 SMC Corporation (A)  ....................     3,900      306,556
 Sony Corporation (A)  ...................    21,200      754,193
 Takeda Chemical Industries, Ltd. (A)  ...    33,000    1,238,269
 Toyota Motor Corporation (A)  ...........    25,000      557,979
                                                     ------------
                                                        8,574,085
                                                     ------------

Mexico - 1.03%
 Telefonos de Mexico, S.A. de C.V., ADR  .    22,300      662,756
                                                     ------------

Netherlands - 4.10%
 ABN AMRO Holding N.V. (A)  ..............    14,600      213,228
 Koninklijke KPN N.V. (A)*  ..............    80,900      518,457
 Royal Dutch Petroleum Company (A) .......    14,700      597,763
 Unilever N.V. - Certicaaten Van
   Aandelen (A) ..........................    22,100    1,313,934
                                                     ------------
                                                        2,643,382
                                                     ------------

Portugal - 1.82%
 Portugal Telecom, SGPS, S.A. (A)  .......   169,900    1,175,855
                                                     ------------

Spain - 1.18%
 Banco Bilbao Vizcaya
   Argentaria, S.A. (A) ..................    42,600      354,259
 Banco Santander Central
   Hispano, S.A. (A)......................    63,900      407,421
                                                     ------------
                                                          761,680
                                                     ------------

Sweden - 1.54%
 H&M Hennes & Mauritz AB,
   Class B Shares (A) ....................    19,000      399,230
 Nordea AB (A)  ..........................   134,000      591,598
                                                     ------------
                                                          990,828
                                                     ------------

Switzerland - 5.18%
 Credit Suisse Group,
  Registered Shares (A)* ................    39,100      678,769

 Nestle S.A., Registered Shares (A)  .....     5,000      988,033
 Novartis AG, Registered Shares (A)  .....    26,000      961,291
 Roche Holdings AG, Genussschein (A)  ....     6,000      358,573
 UBS AG (A)*  ............................     8,300      352,552
                                                     ------------
                                                        3,339,218
                                                     ------------

United Kingdom - 15.33%
 BHP Billiton Plc (A)  ...................   111,200      556,569
 British Sky Broadcasting Group plc (A)*     125,100    1,237,465
 Diageo plc (A)  .........................   200,000    2,049,412
 HSBC Holdings plc (A)  ..................    79,600      815,666
 Reckitt Benckiser plc (A)  ..............    68,500    1,121,564
 Reed Elsevier plc (A)  ..................   139,500      995,560
 Rio Tinto plc (A)  ......................    56,300    1,048,038
 Royal Bank of Scotland
   Group plc (The) (A) ...................    31,177      701,461
 Vodafone Group Plc (A)  .................   766,100    1,366,843
                                                     ------------
                                                        9,892,578
                                                     ------------

TOTAL COMMON STOCKS - 71.86%                         $ 46,353,986
 (Cost: $51,067,544)

                                           Principal
                                           Amount in
                                           Thousands

OTHER GOVERNMENT SECURITY - 6.78%
Germany
Bundesschwatzanweisungen Treasury Note,
 4.25%, 6-13-03 (B)  .....................  EUR4,000  $ 4,374,117
                                                      -----------
 (Cost: $3,978,440)

SHORT-TERM SECURITIES
Commercial Paper
 Apparel - 1.55%
 NIKE, Inc.,
   1.18%, 4-17-03 ........................    $1,000      999,476
                                                      -----------

 Chemicals -- Petroleum and Inorganic - 3.23%
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................     2,083    2,083,000
                                                      -----------

 Health Care -- Drugs - 6.98%
 Alcon Capital Corporation (Nestle S.A.),
   1.25%, 4-28-03 ........................     2,500    2,497,656
 Pharmacia Corporation,
   1.23%, 4-3-02 .........................     2,000    1,999,863
                                                      -----------
                                                        4,497,519
                                                      -----------

 Household -- General Products - 4.17%
 Procter & Gamble Company (The),
   1.19%, 4-24-03 ........................     2,693    2,690,953
                                                      -----------

 Multiple Industry - 3.41%
 BOC Group Inc. (DE),

   1.39%, 4-1-03 .........................     2,200    2,200,000
                                                      -----------

 Security and Commodity Brokers - 2.44%
 UBS Finance Delaware LLC,
   1.39%, 4-1-03 .........................     1,575    1,575,000
                                                      -----------

Total Commercial Paper - 21.78%                        14,045,948

Commercial Paper (backed by irrevocable
   bank letter of credit) - 1.98%
 Motor Vehicles
 Hyundai Motor Finance Co.
   (Bank of America N.A.),
   1.4%, 4-1-03 ..........................     1,279    1,279,000
                                                      -----------

TOTAL SHORT-TERM SECURITIES - 23.76%                  $15,324,948
 (Cost: $15,324,948)

TOTAL INVESTMENT SECURITIES - 102.40%                 $66,053,051
 (Cost: $70,370,932)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.40%)    (1,547,284)

NET ASSETS - 100.00%                                  $64,505,767


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Listed on an exchange outside the United States.

(B)Principal amounts are denominated in the indicated foreign currency, where
   applicable (EUR-Euro).

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     INTERNATIONAL GROWTH FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities -- at value (cost - $70,371)
   (Notes 1 and 3) .........................................   $66,053
 Cash   ....................................................         1
 Receivables:
   Investment securities sold ..............................       645
   Dividends and interest ..................................       430
   Fund shares sold ........................................        44
 Prepaid insurance premium  ................................         1
                                                               -------
    Total assets  ..........................................    67,174
                                                               -------
LIABILITIES
 Payable to Fund shareholders  .............................     2,559
 Accrued shareholder servicing (Note 2)  ...................        46
 Accrued accounting services fee (Note 2)  .................         3
 Accrued distribution and service fees (Note 2)  ...........         1
 Accrued management fee (Note 2)  ..........................         1
 Other  ....................................................        58
                                                               -------
    Total liabilities  .....................................     2,668
                                                               -------
      Total net assets .....................................   $64,506
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    86
   Additional paid-in capital ..............................   125,203
 Accumulated undistributed loss:
   Accumulated undistributed net investment loss ...........        (2)
   Accumulated undistributed net realized loss
    on investment transactions  ............................   (56,489)
   Net unrealized depreciation in value of investments .....    (4,292)
                                                              --------
    Net assets applicable to outstanding units
      of capital ...........................................  $ 64,506
                                                              ========
Net asset value per share (net assets divided by
 shares outstanding):
 Class A  ..................................................     $7.57
 Class B  ..................................................     $7.35
 Class C  ..................................................     $7.40
 Class Y  ..................................................     $8.17
Capital shares outstanding:
 Class A  ..................................................       717
 Class B  ..................................................       251
 Class C  ..................................................     6,219
 Class Y  ..................................................     1,372
Capital shares authorized ..................................   400,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     INTERNATIONAL GROWTH FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)
INVESTMENT LOSS
 Income (Note 1B):
   Dividends (net of foreign withholding taxes of $122) ....   $ 1,343
   Interest and amortization ...............................       237
                                                               -------
    Total income  ..........................................     1,580
                                                               -------
 Expenses (Note 2):
   Investment management fee ...............................       647
   Distribution fee:
    Class A  ...............................................         2
    Class B  ...............................................        15
    Class C  ...............................................       440
    Class Y  ...............................................        24
   Shareholder servicing:
    Class A  ...............................................        39
    Class B  ...............................................        19
    Class C  ...............................................       404
    Class Y  ...............................................        15
   Service fee:
    Class A  ...............................................        15
    Class B  ...............................................         5
    Class C  ...............................................       147
   Custodian fees ..........................................       167
   Accounting services fee .................................        35
   Audit fees ..............................................        18
   Legal fees ..............................................         2
   Other ...................................................        85
                                                               -------
    Total expenses  ........................................     2,079
                                                               -------
      Net investment loss ..................................      (499)
REALIZED AND UNREALIZED GAIN (LOSS) ON                         -------
INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities  ..........................   (15,365)
 Realized net loss on forward currency contracts  ..........      (270)
 Realized net loss on foreign currency transactions  .......      (100)
                                                               -------
   Realized net loss on investments ........................   (15,735)
                                                               -------
 Unrealized depreciation in value of securities
   during the period .......................................    (2,922)
 Unrealized appreciation in value of forward
   currency contracts during the period.....................        65
                                                               -------
   Unrealized depreciation in value of investments
    during the period  .....................................    (2,857)
                                                               -------
    Net loss on investments ................................   (18,592)
                                                               -------
      Net decrease in net assets resulting from
       operations  .........................................  $(19,091)
                                                               =======
See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     INTERNATIONAL GROWTH FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
DECREASE IN NET ASSETS
 Operations:
   Net investment loss....................   $  (499)    $ (1,063)
   Realized net loss on investments ......   (15,735)     (27,914)
   Unrealized appreciation (depreciation)     (2,857)       4,921
                                             -------     --------
    Net decrease in net assets
      resulting from operations ..........   (19,091)     (24,056)
                                             -------     --------
 Distributions to shareholders from
   realized gains on investment
   transactions (Note 1E): (1)
    Class A  .............................       ---          (21)
    Class B  .............................       ---           (7)
    Class C  .............................       ---         (265)
    Class Y  .............................       ---          (19)
                                             -------     --------
                                                 ---         (312)
                                             -------     --------
 Capital share transactions
   (Note 5) ..............................    (7,585)     (21,059)
                                             -------     --------
   Total decrease ........................   (26,676)     (45,427)
NET ASSETS
 Beginning of period  ....................    91,182      136,609
                                             -------     --------
 End of period  ..........................   $64,506     $ 91,182
                                             =======     ========
   Undistributed net investment loss .....   $    (2)    $     (2)
                                             =======     ========

(1)  See "Financial Highlights" on pages 75 - 78.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     INTERNATIONAL GROWTH FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.82 $12.03         $24.33
                              ----- ------         ------
Loss from investment
 operations:
 Net investment
   loss ............          (0.03) (0.17)         (0.02)
 Net realized and unrealized
   loss on investments        (2.22) (2.01)         (6.46)
                              ----- ------         ------
Total from investment
 operations  .......          (2.25) (2.18)         (6.48)
                              ----- ------         ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.03)         (5.82)
                              ----- ------         ------
Total distributions           (0.00) (0.03)         (5.82)
                              ----- ------         ------
Net asset value,
 end of period  ....          $7.57 $ 9.82         $12.03
                              ===== ======         ======
Total return(2) ....         -22.91%-18.12%        -29.73%
Net assets, end of
 period (in
 millions)  ........             $5     $7             $5
Ratio of expenses to
 average net assets            2.10%  1.89%          1.72%(3)
Ratio of net investment
 loss to average
 net assets  .......          -0.10% -0.49%         -0.31%(3)
Portfolio turnover rate      107.62%133.83%        103.03%(4)

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     INTERNATIONAL GROWTH FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-10-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.65 $11.94         $24.59
                              ----- ------         ------
Loss from
 investment operations:
 Net investment
   loss ............          (0.11) (0.19)         (0.09)
 Net realized and unrealized
   loss on investments        (2.19) (2.07)         (6.74)
                              ----- ------         ------
Total from investment
 operations  .......          (2.30) (2.26)         (6.83)
                              ----- ------         ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.03)         (5.82)
                              ----- ------         ------
Total distributions           (0.00) (0.03)         (5.82)
                              ----- ------         ------
Net asset value,
 end of period  ....          $7.35 $ 9.65         $11.94
                              ===== ======         ======
Total return .......         -23.83%-18.93%        -30.89%
Net assets, end of
 period (in
 millions)  ........             $2     $2             $2
Ratio of expenses to
 average net assets            3.24%  2.89%          2.61%(2)
Ratio of net investment
 loss to average net
 assets  ...........          -1.22% -1.42%         -1.30%(2)
Portfolio turnover rate      107.62%133.83%        103.03%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     INTERNATIONAL GROWTH FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........          $9.69 $11.96  $28.58 $15.58  $15.04
                              ----- ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment loss          (0.08) (0.11)  (0.17) (0.34)  (0.07)
 Net realized and
   unrealized gain
   (loss) on
   investments .....          (2.21) (2.13) (10.63) 15.14    1.55
                              ----- ------  ------ ------  ------
Total from investment
 operations  .......          (2.29) (2.24) (10.80) 14.80    1.48
                              ----- ------  ------ ------  ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)  (0.00) (0.00)  (0.00)
 From capital gains           (0.00) (0.03)  (5.82) (1.80)  (0.94)
                              ----- ------  ------ ------  ------
Total distributions           (0.00) (0.03)  (5.82) (1.80)  (0.94)
                              ----- ------  ------ ------  ------
Net asset value,
 end of period  ....          $7.40 $ 9.69  $11.96 $28.58  $15.58
                              ===== ======  ====== ======  ======
Total return .......        -23.63%-18.73% -40.45% 97.89%  10.36%
Net assets, end of
 period (in
 millions)  ........            $46    $74    $123   $233    $100
Ratio of expenses to
 average net assets            2.93%  2.62%   2.36%  2.37%   2.35%
Ratio of net investment
 loss to average net
 assets  ...........          -0.86% -1.03%  -1.03% -1.48%  -0.53%
Portfolio turnover rate      107.62%133.83% 103.03%125.71% 116.25%

(1)  See Note 5.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     INTERNATIONAL GROWTH FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........         $10.55 $12.87  $29.86 $16.08  $15.35
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment income
   (loss) ..........          (0.16) (0.18)  (0.17) (1.41)   0.05
 Net realized and
   unrealized gain
   (loss) on
   investments .....          (2.22) (2.11) (11.00) 16.99    1.62
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (2.38) (2.29) (11.17) 15.58    1.67
                             ------ ------  ------ ------  ------
Less distributions:
 From net investment
   income ..........          (0.00) (0.00)  (0.00) (0.00)  (0.00)
 From capital gains           (0.00) (0.03)  (5.82) (1.80)  (0.94)
                             ------ ------  ------ ------  ------
Total distributions           (0.00) (0.03)  (5.82) (1.80)  (0.94)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....          $8.17 $10.55  $12.87 $29.86  $16.08
                             ====== ======  ====== ======  ======
Total return .......         -22.56%-17.79% -39.91% 99.74%  11.41%
Net assets, end of
 period (000
 omitted) ..........        $11,205 $8,314  $6,594 $5,296    $629
Ratio of expenses to
 average net assets            1.63%  1.52%   1.44%  1.48%   1.44%
Ratio of net investment
 income (loss) to average
 net assets  .......           0.39% -0.11%  -0.02% -0.80%   0.36%
Portfolio turnover rate      107.62%133.83% 103.03%125.71% 116.25%


See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Daniel P. Becker, portfolio manager of W&R Funds, Inc. - Large
Cap Growth Fund


This report relates to the operation of W&R Funds, Inc. -- Large Cap Growth Fund
for the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
In a difficult environment for large-cap U.S. stocks, the Fund posted a negative
return for the period.  Class A shares of the Fund declined 21.39 percent before
the impact of sales load, and declined 25.91 percent after the impact of sales
load.  This compared with the S&P 500 Index (reflecting the performance of
securities that generally represent the stock market), which decreased 24.76
percent during the period, and the Lipper Large-Cap Growth Funds Universe
Average (generally representing the performance of the universe of funds with
similar investment objectives), which declined 27.02 percent during the period.
It should be noted that the values for the benchmark index and the Lipper
category do not reflect a sales load.

Why did the Fund lag (with sales load impact) its benchmark index during the
fiscal year?
Primarily, in relation to its index, the Fund was adversely affected by the
impact of the Fund's sales load.  On a more favorable note, large holdings in
health care companies early in the year, and select technology companies later
in the year, had a positive effect on performance relative to the benchmark.  In
addition, the Fund was underweight in some of the large underperforming stocks
that make up a large part of the S&P 500 Index.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
The year was characterized by a continued slowdown in economic growth, driven
primarily by the capital spending- and industrial cyclical-linked industries.
Many years of prosperity had resulted in overcapacity in many economically
sensitive industries, and the unwinding of the prior-spending boom had a
negative effect on the economy.  Companies were quick to restructure by reducing
employee levels, capital spending and R&D (research and development).  These
further cuts deepened the economic problems and were responsible for the
sharpest decline in corporate profits in decades.  Stocks leveraged to these
cyclical events did very poorly in 2002.  However, some stocks in health care
and consumer staple industries did very well as they were far removed from the
economic turmoil.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
During the middle of 2002, we felt it was appropriate to start to position the
Fund to benefit from possible economic recovery.  We felt the recovery would
appear by early 2003, and added to positions in technology and decreased
positions in what we felt were less economically leveraged stocks in consumer-
related areas.  The performance of the Fund was initially hurt by these moves.
But by late 2002, performance had been enhanced by this strategy, which
continued into 2003.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
During 2002, we emphasized the pharmaceutical, tobacco, financial and biotech
industries.  We tried to establish a balance between what we view as high
quality, very profitable stable businesses and those that were less profitable
but that we felt were set to improve as the economy improved.

Looking forward, we intend to maintain our balance between those companies that

we feel should benefit from stronger economic growth and those whose profits are
relatively immune to economic fluctuations.  We intend to emphasize drug,
biotech, financial and capital-spending-linked companies.  As we go further into
the fiscal year, we expect to increase our exposure to economically linked
industries and decrease our holdings in more stable businesses.


Respectfully,



Daniel P. Becker
Manager
W&R Large Cap Growth Fund



Comparison of Change in Value of $10,000 Investment


                        W&R                        Lipper
                        Large                   Large-Cap
                        Cap                        Growth
                        Growth         S&P          Funds
                        Fund,          500       Universe
                        Class A      Index        Average
                      ---------  ---------     ----------
      07-3-00           $ 9,425    $10,000        $10,000
     03-31-01             9,023      8,043          6,528
     03-31-02             8,766      8,060          6,154
     03-31-03             6,891      6,064          4,491

 ===== W&R Large Cap Growth Fund, Class A Shares (1) -- $6,891
 +++++ S&P 500 Index -- $6,064
 ***** Lipper Large-Cap Growth Funds Universe Average -- $4,491

(1)  The value of the investment in the Fund is impacted by the sales load at
     the time of the investment and by the ongoing expenses of the Fund and
     assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C     Class Y
                    ---------------------------------------------
1-year period
  ended 3-31-03       -25.91%  -25.85%        -22.28%    -21.26%
Since inception of
  Class through
  3-31-03(3)         -12.66%   -13.15%        -11.64%    -10.77%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%,
   respectively. (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)6-30-00 for Class A shares, 7-6-00 for Class B shares, 7-3-00 for Class C
   shares and 7-6-00 for Class Y shares (the date on which shares were first
   acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND

- -----------------------------------------------------------------
Large Cap Growth Fund

GOAL
To seek the appreciation of your investment.

Strategy
Invests primarily in a diversified portfolio of common stocks issued by growth-
oriented large to medium sized United States and foreign companies that the
Fund's investment manager believes have appreciation potential.

Founded
2000

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class A Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Net asset value on
3-31-03                          $7.24
3-31-02                           9.21
                                ------
Change per share                $(1.97)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------   -------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03       -25.91%   -21.39%        -25.85%        -22.76%
 5-year period
  ended 3-31-03          ---       ---            ---            ---
10-year period
  ended 3-31-03          ---       ---            ---            ---
Since inception
  of Class (F)        -12.66%   -10.76%        -13.15%        -12.18%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period             Class C(B)   Class Y(C)
- ------             ---------    ---------
 1-year period
 ended 3-31-03        -22.28%   -21.26%
 5-year period
 ended 3-31-03           ---       ---
10-year period
 ended 3-31-03           ---       ---
Since inception
 of Class (D)         -11.64%   -10.77%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 1.00% which  declines to zero
     at the end of the first year after investment. Accordingly, these returns
     reflect no CDSC since it only applies to Class C shares redeemed within
     twelve months after purchase.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  7-3-00 for Class C shares and 7-6-00 for Class Y shares (the date on which

     shares were first acquired by shareholders).



SHAREHOLDER SUMMARY OF LARGE CAP GROWTH FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Large Cap Growth Fund had net assets totaling $27,808,893
invested in a diversified portfolio of:

   80.87% Common Stocks
   19.13% Cash and Cash Equivalents

As a shareholder of Large Cap Growth Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

 $27.94  Health Care Stocks
  19.96  Technology Stocks
  19.13  Cash and Cash Equivalents
  15.48  Financial Services Stocks
   4.47  Energy Stocks
   3.01  Consumer Nondurables Stocks
   2.64  Miscellaneous Stocks
   2.42  Business Equipment and Services Stocks
   2.21  Consumer Durables Stocks
   1.40  Retail Stocks
   1.34  Raw Materials Stocks



THE INVESTMENTS OF LARGE CAP GROWTH FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Aircraft - 2.53%
 Lockheed Martin Corporation  ............    14,800    $   703,740
                                                        -----------

Banks - 5.31%
 Bank of America Corporation  ............     9,500        634,980
 Commerce Bancorp, Inc.  .................     5,200        206,648
 Wells Fargo & Company  ..................    14,100        634,359
                                                        -----------
                                                          1,475,987
                                                       -----------

Beverages - 0.85%
 Anheuser-Busch Companies, Inc.  .........     5,100        237,711
                                                        -----------

Business Equipment and Services - 2.42%
 Manpower Inc.  ..........................    22,500        672,300
                                                       ------------

Capital Equipment - 0.84%
 Parker Hannifin Corporation  ............     6,000        232,440
                                                       ------------

Chemicals -- Specialty - 1.34%
 Praxair, Inc.  ..........................     6,600        371,910
                                                       ------------

Communications Equipment - 2.55%
 Cisco Systems, Inc.*  ...................    54,600        708,162
                                                       ------------

Computers -- Micro - 1.09%
 Dell Computer Corporation*  .............    11,100        303,363
                                                       ------------

Computers -- Peripherals - 10.12%
 EMC Corporation*  .......................   144,211      1,042,646
 Microsoft Corporation  ..................    37,600        910,296
 SAP Aktiengesellschaft, ADR  ............    45,400        860,784
                                                       ------------
                                                          2,813,726
                                                       ------------

Consumer Electronics - 1.28%
 Harman International Industries,
   Incorporated ..........................     6,100        357,277
                                                       -----------

Electronic Components - 3.67%
 Analog Devices, Inc.*  ..................    11,400        313,500
 Maxim Integrated Products, Inc.  ........     9,400        339,528
 Microchip Technology Incorporated  ......    18,500        369,075
                                                       -----------
                                                          1,022,103
                                                        -----------

Health Care -- Drugs - 15.18%
 Amgen Inc.*  ............................    30,800      1,773,618
 Forest Laboratories, Inc.*  .............    12,200        658,434

 Gilead Sciences, Inc.*  .................    16,800        705,348
 Pfizer Inc.  ............................    34,800      1,084,368
                                                        -----------
                                                          4,221,768
                                                        -----------

Health Care -- General - 4.89%
 Johnson & Johnson  ......................     8,800        509,256
 Zimmer Holdings, Inc.*  .................    17,500       851,025
                                                       -----------
                                                          1,360,281
                                                        -----------

Hospital Supply and Management - 7.87%
 Health Management Associates, Inc.,
   Class A ...............................    54,400      1,033,600
 Medtronic, Inc.  ........................    25,600      1,155,072
                                                        -----------
                                                          2,188,672
                                                        -----------

Hotels and Gaming - 1.18%
 International Game Technology*  .........     4,000        327,600
                                                        -----------

Household -- General Products - 2.16%
 Clorox Company (The)  ...................     7,800        360,126
 Procter & Gamble Company (The)  .........     2,700        240,435
                                                       -----------
                                                            600,561
                                                        -----------

Insurance -- Property and Casualty - 0.75%
 MGIC Investment Corporation  ............     5,000        196,350
 Travelers Property Casualty Corp.,
   Class A ...............................       293          4,128
 Travelers Property Casualty Corp.,
   Class B ...............................       603          8,508
                                                       -----------
                                                            208,986
                                                        -----------

Motor Vehicle Parts - 0.84%
 AutoZone, Inc.*  ........................     3,400        233,614
                                                        -----------

Motor Vehicles - 0.09%
 Harley-Davidson, Inc.  ..................       600         23,826
                                                       -----------

Multiple Industry - 0.62%
 Garmin Ltd.*  ...........................     4,800        171,864
                                                       -----------

Petroleum -- Services - 4.47%
 Smith International, Inc.*  .............    35,300      1,243,619
                                                       -----------

Retail -- General Merchandise - 1.40%
 Target Corporation  .....................     3,700        108,262
 Wal-Mart Stores, Inc.  ..................     5,400        280,962
                                                       -----------
                                                            389,224
                                                        -----------

Security and Commodity Brokers - 9.42%
 Chicago Mercantile Exchange
   Holdings Inc. .........................     7,400        356,310
 Fannie Mae  .............................     4,800        313,680
 Freddie Mac  ............................     6,900        366,390
 Goldman Sachs Group, Inc. (The)  ........     9,100        619,528
 SLM Corporation  ........................     8,700        965,004
                                                       -----------
                                                          2,620,912
                                                        -----------

TOTAL COMMON STOCKS - 80.87%                            $22,489,646
 (Cost: $23,335,933)

                                           Principal
                                           Amount in
                                           Thousands

SHORT-TERM SECURITIES
Commercial Paper
 Chemicals -- Petroleum and Inorganic - 2.37%
   du Pont (E.I.) de Nemours and Company,
    1.16315%, Master Note  ...............    $  659        659,000
                                                       -----------

 Food and Related - 4.23%
   General Mills, Inc.,
    1.4588%, Master Note  ................     1,176      1,176,000
                                                        -----------

Total Commercial Paper - 6.60%                            1,835,000

Repurchase Agreement - 12.56%
 Merrill Lynch, Pierce, Fenner &
   Smith Inc., 1.25% Repurchase Agreement
   dated 3-31-03, to be repurchased
   at $3,492,121 on 4-1-03(A) ............     3,492      3,492,000
                                                       -----------

TOTAL SHORT-TERM SECURITIES - 19.16%                    $ 5,327,000
 (Cost: $5,327,000)

TOTAL INVESTMENT SECURITIES - 100.03%                   $27,816,646
 (Cost: $28,662,933)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%)          (7,753)

NET ASSETS - 100.00%                                    $27,808,893


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Collateralized by $3,335,152 Government National Mortgage Association, 7.5%
   due 12-15-23; market value and accrued interest aggregate $3,635,663.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     LARGE CAP GROWTH FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities--at value (cost - $28,663)
   (Notes 1 and 3) .........................................   $27,817
 Cash  .....................................................         1
 Receivables:
   Fund shares sold ........................................        47
   Dividends and interest ..................................         3
                                                               -------
    Total assets  ..........................................    27,868
                                                               -------
LIABILITIES
 Payable to Fund shareholders  .............................        38
 Accrued shareholder servicing (Note 2)  ...................        12
 Accrued accounting services fee (Note 2)  .................         2
 Accrued management fee (Note 2)  ..........................         1
 Other  ....................................................         6
                                                               -------
    Total liabilities  .....................................        59
                                                               -------
      Total net assets .....................................   $27,809
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    39
   Additional paid-in capital ..............................    41,367
 Accumulated undistributed loss:
   Accumulated undistributed net investment loss ...........       ---*
   Accumulated undistributed net realized loss on
    investment transactions  ...............................   (12,751)
   Net unrealized depreciation in value of investments .....      (846)
                                                               -------
    Net assets applicable to outstanding units
      of capital ...........................................   $27,809
                                                               =======
Net asset value per share (net assets divided by shares
 outstanding):
 Class A  ..................................................     $7.24
 Class B  ..................................................     $6.99
 Class C  ..................................................     $7.08
 Class Y  ..................................................     $7.26
Capital shares outstanding:
 Class A  ..................................................     2,858
 Class B  ..................................................       270
 Class C  ..................................................       613
 Class Y  ..................................................       123
Capital shares authorized ..................................   400,000

*Not shown due to rounding.
See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     LARGE CAP GROWTH FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)
INVESTMENT LOSS
 Income (Note 1B):
   Dividends ...............................................   $   211
   Interest and amortization ...............................        48
                                                               -------
    Total income  ..........................................       259
                                                               -------
 Expenses (Note 2):
   Investment management fee ...............................       173
   Shareholder servicing:
    Class A  ...............................................        65
    Class B  ...............................................        25
    Class C  ...............................................        29
    Class Y  ...............................................         1
   Service fee:
    Class A  ...............................................        40
    Class B  ...............................................         5
    Class C  ...............................................        12
   Distribution fee:
    Class A  ...............................................         3
    Class B  ...............................................        15
    Class C  ...............................................        37
    Class Y  ...............................................         2
   Registration fees .......................................        26
   Accounting services fee .................................        18
   Audit fees ..............................................        16
   Custodian fees ..........................................         7
   Other ...................................................        13
                                                               -------
    Total  .................................................       487
      Less expenses in excess of voluntary waiver of
       investment management fee (Note 2)  .................       (93)
                                                               -------
       Total expenses  .....................................       394
                                                               -------
         Net investment loss ...............................      (135)
                                                               -------
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities ...........................    (3,398)
 Realized net loss on purchased options ....................       (67)
                                                               -------
   Realized net loss on investments ........................    (3,465)
 Unrealized depreciation in value of investments
   during the period .......................................    (2,633)
                                                               -------
   Net loss on investments .................................    (6,098)
                                                               -------
    Net decrease in net assets resulting from
      operations ...........................................   $(6,233)
                                                               =======
See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     LARGE CAP GROWTH FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment loss ...................   $  (135)    $   (196)
   Realized net loss on investments ......    (3,465)      (5,708)
   Unrealized appreciation (depreciation)     (2,633)       5,055
                                             -------      -------
    Net decrease in net assets resulting
      from operations ....................    (6,233)        (849)
                                             -------      -------
 Distributions to shareholders from
   net investment income (Note 1E):(1)
    Class A  .............................       ---          ---
    Class B  .............................       ---          ---
    Class C  .............................       ---          ---
    Class Y  .............................       ---          ---
                                             -------      -------
                                                 ---          ---
                                             -------      -------
 Capital share transactions (Note 5)  ....      4,829       1,934
                                             -------      -------
    Total increase (decrease)  ...........    (1,404)       1,085
NET ASSETS
 Beginning of period  ....................    29,213       28,128
                                             -------      -------
 End of period  ..........................   $27,809      $29,213
                                             =======      =======
   Undistributed net investment
   income (loss) ........................    $   ---*     $   ---
                                             =======      =======

  * Not shown due to rounding.

  (1)  See "Financial Highlights" on pages 91 - 94.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LARGE CAP GROWTH FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         6-30-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.21  $9.48         $10.00
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
   income (loss) ...          (0.03) (0.04)          0.05
 Net realized and unrealized
   loss on investments        (1.94) (0.23)         (0.45)
Total from investment         -----  -----         ------
 operations  .......          (1.97) (0.27)         (0.40)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.06)
 From capital gains           (0.00) (0.00)         (0.06)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.12)
                              -----  -----         ------
Net asset value,
 end of period  ....          $7.24  $9.21         $ 9.48
                              =====  =====         ======
Total return(2) ....         -21.39% -2.85%         -4.27%
Net assets, end of period
 (in millions)  ....            $21    $20            $19
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.28%  1.58%          1.13%(3)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -0.23% -0.38%          0.89%(3)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           1.66%  1.69%          1.34%(3)
Ratio of net investment
 income (loss) to
 average net assets
 excluding voluntary
 expense waiver  ...          -0.61% -0.49%          0.68%(3)
Portfolio turnover rate       71.98% 98.59%         75.42%
(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LARGE CAP GROWTH FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-6-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.05  $9.44         $10.02
                              -----  -----         ------
Loss from investment operations:
 Net investment
   loss ............          (0.14) (0.16)         (0.03)
 Net realized and unrealized
   loss on investments        (1.92) (0.23)         (0.49)
Total from investment         -----  -----         ------
 operations ........          (2.06) (0.39)         (0.52)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.00)         (0.06)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.06)
Net asset value,              -----  -----         ------
 end of period  ....          $6.99  $9.05         $ 9.44
                              =====  =====         ======
Total return .......         -22.76% -4.13%         -5.32%
Net assets, end of period
 (in millions)  ....             $2     $2             $2
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.93%  2.98%          2.53%(2)
Ratio of net investment
 loss to average net
 assets including
 voluntary expense
 waiver  ...........          -1.87% -1.79%         -0.60%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           3.31%  3.19%          3.00%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -2.25% -2.00%         -1.07%(2)
Portfolio turnover rate       71.98% 98.59%         75.42%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LARGE CAP GROWTH FUND
     Class C Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.10  $9.45         $10.00
                              -----  -----         ------
Loss from investment operations:
 Net investment
   loss ............          (0.10) (0.12)         (0.00)
 Net realized and unrealized
   loss on investments        (1.92) (0.23)         (0.48)
Total from investment         -----  -----         ------
 operations  .......          (2.02) (0.35)         (0.48)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.01)
 From capital gains           (0.00) (0.00)         (0.06)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.07)
Net asset value,              -----  -----         ------
 end of period  ....          $7.08  $9.10         $ 9.45
                              =====  =====         ======
Total return .......         -22.28% -3.60%         -4.93%
Net assets, end of period
 (in millions)  ....             $4     $7             $7
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.26%  2.51%          2.06%(2)
Ratio of net investment
 loss to average net
 assets including
 voluntary expense
 waiver  ...........          -1.20% -1.31%         -0.08%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           2.64%  2.68%          2.44%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -1.58% -1.48%         -0.46%(2)
Portfolio turnover rate       71.98% 98.59%         75.42%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LARGE CAP GROWTH FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-6-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $9.22  $9.48         $10.02
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
   income (loss) ...          (0.30) (0.01)          0.09
 Net realized and unrealized
   loss on investments        (1.66) (0.25)         (0.50)
Total from investment         -----  -----         ------
 operations  .......          (1.96) (0.26)         (0.41)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.07)
 From capital gains           (0.00) (0.00)         (0.06)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.13)
Net asset value,              -----  -----         ------
 end of period  ....          $7.26  $9.22         $ 9.48
                              =====  =====         ======
Total return .......         -21.26% -2.74%         -4.38%
Net assets, end of period (000
 omitted)  .........           $892   $768           $279
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.05%  1.36%          1.13%(2)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -0.00% -0.20%          1.11%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           1.43%  1.45%          1.34%(2)
Ratio of net investment
 income (loss) to
 average net assets
 excluding voluntary
 expense waiver  ...          -0.38% -0.29%          0.90%(2)
Portfolio turnover rate       71.98% 98.59%         75.42%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with W. Patrick Sterner, portfolio manager of W&R Funds, Inc. -
Limited-Term Bond Fund


This report relates to the operation of W&R Funds, Inc. -- Limited-Term Bond
Fund for the fiscal year ended March 31, 2003.  The following discussion, graphs
and tables provide you with information regarding the Fund's performance during
that period.

How did the Fund perform during the last fiscal year?
The Fund underperformed its benchmark during the fiscal year, with Class C
shares of the Fund showing a positive return of 5.22 percent.  The Citigroup 1-5
Years Treasury/Government Sponsored/Credit Index (reflecting the performance of
securities generally representing the limited-term sector of the bond market)
increased 9.37 percent for the fiscal year, while the Lipper Short-Intermediate
Investment Grade Debt Funds Universe Average (generally reflecting the
performance of the universe of funds with similar investment objectives)
returned 7.94 percent.  The Citigroup 1-5 Years Treasury/Government
Sponsored/Credit Index replaces the Citigroup 1-5 Years Treasury/Government
Sponsored/Corporate Index in this year's report.  We believe that the new index
provides a more accurate basis for comparing the Fund's performance to the types
of securities in which the Fund invests.  Both indexes are presented in this
year's report for comparison purposes.  In addition, the name of both indexes
has changed from the Salomon Brothers indexes to the Citigroup indexes.

Why did the Fund lag its benchmark index during the fiscal year?
Several factors contributed negatively to the Fund's performance last year, the
most important of which was a one percent position in WorldCom bonds.  We failed
to react quickly enough to the company's deteriorating financial condition, and
suffered a substantial loss upon the sale of the securities.  In addition, the
Fund held the securities of several troubled utility companies with energy
trading operations.  Although we sold the bonds before major losses were
incurred, and overall exposure to the sector was small, performance was still
adversely impacted.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
The portfolio's shorter duration during a period of falling interest rates hurt
performance.  We had expected rates to rise along with an improving economy
during the latter part of the year, but economic growth disappointed on the low
side.  As a result, the Federal Reserve Board cut the funds rate from 1.75
percent to 1.25 percent, and market rates moved lower.  A substantial weighting
in mortgage-backed securities also hurt performance during the second half of
the year as rates moved sharply lower.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
Our management style attempts to identify relative value opportunities between
sectors of the market.  Those sectors include treasuries, agencies, corporates
and mortgage-backed securities.  Based on our determination that intermediate
maturity corporates offered good value, we overweighted the sector.  Although
corporates outperformed at the very end of the year, for the year as a whole
they lagged.  Sectors such as utilities and telecom were especially poor
performers.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
Although we feel that the next move in interest rates is up, we also believe
that they will most likely stay in a range around current levels until the
economic numbers signal that a sustained recovery is in place.  We intend to
continue to watch initial unemployment claims, capital-spending trends, and the
size and makeup of the fiscal stimulus plan coming out of Washington.  In this

environment, we believe that both mortgage-backed securities and corporate bonds
should provide superior total return potential over treasuries.  We also intend
to continue to maintain a shorter duration to help protect against rising
yields.


Respectfully,



W. Patrick Sterner
Manager
W&R Limited-Term Bond Fund



Comparison of Change in Value of $10,000 Investment


               W&R        Citigroup  Lipper Short-      Citigroup
               Limited-   1-5 Years   Intermediate      1-5 Years
               Term       Treasury/     Investment      Treasury/
               Bond      Government     Grade Debt     Government
               Fund,     Sponsored/          Funds     Sponsored/
               Class C       Credit       Universe      Corporate
               Shares         Index        Average          Index
               --------- ---------- -------------- --------------
     03-31-93  10,000        10,000         10,000         10,000
     03-31-94  10,141        10,270         10,239         10,270
     03-31-95  10,417        10,717         10,573         10,717
     03-31-96  11,188        11,640         11,493         11,640
     03-31-97  11,582        12,240         12,041         12,240
     03-31-98  12,410        13,264         13,071         13,264
     03-31-99  12,987        14,123         13,778         14,123
     03-31-00  13,082        14,545         14,070         14,545
     03-31-01  14,322        16,157         15,517         16,157
     03-31-02  14,961        17,063         16,145         17,061
     03-31-03  15,741        18,661         17,427         18,660

===== W&R Limited-Term Bond Fund, Class C Shares (1) -- $15,741
***** Citigroup 1-5 Years Treasury/ Government Sponsored/Credit Index  --
      $18,661
- ----- Lipper Short-Intermediate Investment Grade Debt Funds Universe Average --
      $17,427
+++++ Citigroup 1-5 Years Treasury/ Government Sponsored/ Corporate Index --
      $18,661

(1)The value of the investment in the Fund is impacted by the ongoing expenses
   of the Fund and assumes reinvestment of dividends and distributions.

   Please not that the performance of the Citigroup 1-5 Years
   Treasury/Government Sponsored/Credit Index (Credit Index) is substantially
   similar to the performance of the Citigroup 1-5 Years Treasury/Government
   Sponsored/Corporate Index (Corporate Index).  The Credit Index was
   introduced by Citigroup in April of 2001.  In creating the performance
   history for the Credit Index, Citigroup used the performance history of the
   Corporate Index for the period prior to April of 2001.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03              1.64%     1.18%           5.22%     6.14%
5-year period ended
  3-31-03              ---       ---             4.87%     5.84%
10-year period ended
  3-31-03              ---       ---             4.64%      ---
Since inception of
  Class through
  3-31-03(4)           5.36%     5.30%            ---      5.63%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 4.25%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.

(3)Performance data from 3-24-00 represents the actual performance of Class C

   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)8-17-00 for Class A shares, 7-3-00 for Class B shares and 12-29-95 for Class
   Y shares (the date on which shares were first acquired by shareholders).

  Past performance is not necessarily indicative of future performance.  Indexes
  are unmanaged.  The performance graph and table do not reflect the deduction
  of taxes that a shareholder would pay on Fund distributions or the redemption
  of Fund shares.



SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND

- -----------------------------------------------------------------
Limited-Term Bond Fund

GOAL
To seek a high level of current income consistent with preservation of capital.

Strategy
Invests primarily in investment-grade debt securities of United States issuers,
including corporate bonds, mortgage-backed securities and United States
Government securities.  The Fund maintains a dollar-weighted average maturity of
not less than two years and not more than five years.

Founded
1992

Scheduled Dividend Frequency
Declared daily, paid monthly

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- -------------------------------------------
Dividends paid                   $0.28
                                 =====

Net asset value on
   3-31-03                      $10.45
   3-31-02                       10.20
                                ------
Change per share                $ 0.25
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03         1.64%     6.15%          1.18%          5.18%
 5-year period
  ended 3-31-03          ---       ---            ---            ---
10-year period
  ended 3-31-03          ---       ---            ---            ---
Since inception
  of Class (F)          5.36%     7.12%          5.30%          6.30%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 4.25% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  8-17-00 for Class A shares and 7-3-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period              Class C(B)Class Y(C)
- ------              -------------------
 1-year period
  ended 3-31-03         5.22%     6.14%
 5-year period
  ended 3-31-03         4.87%     5.84%
10-year period
  ended 3-31-03         4.64%      ---
Since inception
  of Class (D)           ---      5.63%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  12-29-95 for Class Y shares (the date on which shares were first acquired
     by shareholders).



SHAREHOLDER SUMMARY OF LIMITED-TERM BOND FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Limited-Term Bond Fund had net assets totaling $77,844,136
invested in a diversified portfolio of:

   95.87% Bonds
    4.13% Cash and Cash Equivalents


As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

  $58.98Corporate Bonds
   36.89United States Government Securities
    4.13Cash and Cash Equivalents



THE INVESTMENTS OF LIMITED-TERM BOND FUND

     March 31, 2003

                                           Principal
                                           Amount in
                                           Thousands        Value

CORPORATE DEBT SECURITIES
Aircraft - 4.88%
 Lockheed Martin Corporation,
   7.25%, 5-15-06 ........................    $1,600   $1,810,944
 Raytheon Company,
   6.75%, 8-15-07 ........................     1,800    1,989,205
                                                      -----------
                                                        3,800,149
                                                      -----------

Banks - 1.99%
 First Union Corporation,
   6.875%, 9-15-05 .......................     1,397    1,547,197
                                                      -----------

Broadcasting - 2.99%
 Clear Channel Communications, Inc.,
   7.875%, 6-15-05 .......................     2,112    2,326,719
                                                      -----------

Business Equipment and Services - 2.85%
 USA Waste Services, Inc.,
   7.125%, 10-1-07 .......................     2,000    2,220,058
                                                      -----------

Construction Materials - 1.16%
 Black & Decker Corp.,
   7.5%, 4-1-03 ..........................       901      901,000
                                                      -----------

Finance Companies - 4.85%
 Aristar, Inc.,
   5.85%, 1-27-04 ........................       670      694,343
 General Motors Acceptance Corporation,
   6.625%, 10-15-05 ......................     1,500    1,575,133
 Grand Metropolitan Investment Corp.,
   7.125%, 9-15-04 .......................       800      860,799
 John Deere Capital Corporation,
   5.125%, 10-19-06 ......................       600      644,186
                                                      -----------
                                                        3,774,461
                                                      -----------

Food and Related - 4.90%
 ConAgra, Inc.,
   7.4%, 9-15-04 .........................     2,100    2,253,999
 Earthgrains Company (The),
   8.375%, 8-1-03 ........................       800      818,400
 Kellogg Company,
   4.875%, 10-15-05 ......................       700      742,215
                                                      -----------
                                                        3,814,614
                                                      -----------

Forest and Paper Products - 1.30%
 International Paper Company,
   6.125%, 11-1-03 .......................       985    1,011,208
                                                      -----------

Insurance -- Life - 1.24%
 American General Finance Corporation,
   6.75%, 11-15-04 .......................       900      967,720
                                                      -----------

Leisure Time Industry - 2.78%
 Walt Disney Company (The),
   4.5%, 9-15-04 .........................     2,100    2,166,755
                                                      -----------

Multiple Industry - 10.41%
 Ford Motor Credit Company,
   6.7%, 7-16-04 .........................     1,600    1,630,976
 General Electric Capital Corporation,
   2.85%, 1-30-06 ........................     2,000    2,027,960
 Honeywell International Inc.,
   6.875%, 10-3-05 .......................     1,100    1,218,357
 Household Finance Corporation,
   6.5%, 1-24-06 .........................       950    1,034,575
 National Rural Utilities Cooperative
   Finance Corporation,
   6.0%, 5-15-06 .........................     2,000    2,190,518
                                                      -----------
                                                        8,102,386
                                                      -----------

Petroleum -- Domestic - 1.50%
 Anadarko Petroleum Corporation,
   6.5%, 5-15-05 .........................     1,083    1,170,161
                                                      -----------

Petroleum -- International - 2.24%
 Chevron Corporation Profit Sharing/Savings
   Plan Trust Fund,
   8.11%, 12-1-04 ........................       166      179,130
 Conoco Inc.,
   5.9%, 4-15-04 .........................     1,500    1,567,250
                                                      -----------
                                                        1,746,380
                                                      -----------

Railroad - 4.06%
 Norfolk Southern Corporation,
   7.35%, 5-15-07 ........................       850      971,165
 Union Pacific Corporation:
   7.6%, 5-1-05 ..........................     1,450    1,601,493
   6.7%, 12-1-06 .........................       525      586,300
                                                      -----------
                                                        3,158,958
                                                      -----------

Retail -- Food Stores - 2.20%
 Safeway Inc.,
   7.25%, 9-15-04 ........................     1,600    1,711,094
                                                      -----------

Security and Commodity Brokers - 2.13%
 CIT Group Holdings, Inc. (The),
   6.625%, 6-15-05 .......................       600      636,087
 Salomon Smith Barney Holdings Inc.,
   6.25%, 6-15-05 ........................       950    1,024,479
                                                      -----------
                                                        1,660,566
                                                      -----------

Utilities -- Electric - 5.60%
 Dominion Resources, Inc.,
   7.625%, 7-15-05 .......................     2,000    2,220,434
 Kansas City Power & Light Company,
   7.125%, 12-15-05 ......................       950    1,049,795
 PacifiCorp,
   6.75%, 4-1-05 .........................     1,000    1,086,419
                                                      -----------
                                                        4,356,648
                                                      -----------

Utilities -- Telephone - 1.90%
 GTE Corporation,
   6.36%, 4-15-06 ........................     1,344    1,480,386
                                                      -----------

TOTAL CORPORATE DEBT SECURITIES - 58.98%              $45,916,460
 (Cost: $44,763,094)

UNITED STATES GOVERNMENT SECURITIES
Agency Obligations - 7.09%
 Federal Home Loan Bank,
   4.875%, 5-14-04 .......................       895      930,525
 Federal National Mortgage Association:
   5.125%, 2-13-04 .......................     1,500    1,550,658
   3.78%, 8-9-04 .........................     1,500    1,504,145
   4.5%, 10-17-06 ........................       900      915,572
 Tennessee Valley Authority,
   5.0%, 12-18-03 ........................       600      615,431
                                                      -----------
Total Agency Obligations                                5,516,331
                                                      -----------

Mortgage-Backed Obligations - 23.45%
 Federal Home Loan Mortgage Corporation Fixed Rate
   Participation Certificates:
   5.5%, 2-1-16 ..........................       407      422,039
   5.5%, 1-1-17 ..........................       755      784,197
   5.5%, 5-1-17 ..........................       834      865,404
   4.5%, 4-1-18 (A) ......................     2,000    2,029,376
 Federal National Mortgage Association Fixed Rate
   Pass-Through Certificates:
   8.0%, 2-1-08 ..........................        24       25,515
   6.5%, 12-1-10 .........................       167      177,603
   6.0%, 1-1-11 ..........................       142      148,939
   6.5%, 2-1-11 ..........................       155      164,435
   7.0%, 5-1-11 ..........................        71       76,316
   7.0%, 7-1-11 ..........................        84       90,088
   7.0%, 9-1-12 ..........................        81       86,084
   6.0%, 11-1-13 .........................       203      212,959
   7.0%, 9-1-14 ..........................       155      165,676
   7.0%, 10-1-14 .........................       175      186,927
   6.0%, 6-1-16 ..........................       311      325,989
   6.5%, 6-1-16 ..........................       329      348,445
   5.5%, 2-1-17 ..........................     1,452    1,508,519
   5.0%, 11-1-17 .........................     1,474    1,516,813
   5.5%, 1-1-18 ..........................     1,967    2,043,065
   7.0%, 4-1-26 ..........................       100      105,610
 Government National Mortgage Association Fixed Rate
   Pass-Through Certificates:
   6.5%, 1-15-14 .........................       194      206,854
   6.0%, 5-15-14 .........................       808      854,123
   5.5%, 1-15-17 .........................       811      850,351
   6.0%, 1-15-17 .........................       643      678,333
   5.5%, 7-15-17 .........................     1,561    1,636,866

   5.0%, 12-15-17 ........................     1,874    1,943,246
   7.0%, 10-15-28 ........................       334      355,377
   7.0%, 4-15-29 .........................       226      240,285
   7.0%, 7-15-29 .........................       193      205,401
                                                      -----------
Total Mortgage-Backed Obligations                      18,254,835
                                                      -----------

Treasury Obligations - 6.35%
 United States Treasury Notes:
   2.875%, 6-30-04 .......................     2,000    2,040,312
   3.0%, 11-15-07 ........................     2,000    2,027,500
   5.0%, 8-15-11 .........................       800      877,187
                                                      -----------
Total Treasury Obligations                              4,944,999
                                                      -----------

TOTAL UNITED STATES GOVERNMENT SECURITIES - 36.89%    $28,716,165
 (Cost: $28,056,996)

SHORT-TERM SECURITIES
 Chemicals -- Petroleum and Inorganic - 4.59%
   du Pont (E.I.) de Nemours and Company,
    1.16315%, Master Note  ...............     3,571    3,571,000
                                                      -----------

 Food and Related - 1.73%
   General Mills, Inc.,
    1.4588%, Master Note  ................     1,347    1,347,000
                                                      -----------

TOTAL SHORT-TERM SECURITIES - 6.32%                   $ 4,918,000
 (Cost: $4,918,000)

TOTAL INVESTMENT SECURITIES - 102.19%                 $79,550,625
 (Cost: $77,738,090)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.19%)    (1,706,489)

NET ASSETS - 100.00%                                  $77,844,136


Notes to Schedule of Investments

(A)Purchased on a when-issued basis with settlement subsequent to March 31,
   2003.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     LIMITED-TERM BOND FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)
ASSETS
 Investment securities--at value (cost - $77.738)
   (Notes 1 and 3) .........................................   $79,551
 Cash  .....................................................         1
 Receivables:
   Securities sold..........................................     1,723
   Interest ................................................     1,024
   Fund shares sold ........................................       269
 Prepaid registration fees  ................................        10
                                                               -------
    Total assets  ..........................................    82,578
                                                               -------
LIABILITIES
 Payable for investment securities purchased  ..............     4,224
 Payable to Fund shareholders  .............................       424
 Dividends payable  ........................................        24
 Accrued shareholder servicing (Note 2)  ...................        14
 Accrued accounting services fee (Note 2)  .................         3
 Accrued distribution fee (Note 2)  ........................         1
 Accrued management fee (Note 2)  ..........................         1
 Accrued service fee (Note 2)  .............................         1
 Other  ....................................................        42
                                                               -------
    Total liabilities  .....................................     4,734
                                                               -------
      Total net assets .....................................   $77,844
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    75
   Additional paid-in capital...............................    76,710
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss
    on investment transactions  ............................      (754)
   Net unrealized appreciation in value of investments .....     1,813
                                                               -------
    Net assets applicable to outstanding units
      of capital ...........................................   $77,844
                                                               =======
Net asset value per share (net assets divided by shares outstanding):
 Class A  ..................................................    $10.45
 Class B  ..................................................    $10.45
 Class C  ..................................................    $10.45
 Class Y  ..................................................    $10.45
Capital shares outstanding:
 Class A  ..................................................     3,806
 Class B  ..................................................       523
 Class C  ..................................................     2,915
 Class Y  ..................................................       206
Capital shares authorized ..................................   200,000
See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     LIMITED-TERM BOND FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ...............................    $2,398
                                                                ------
 Expenses (Note 2):
   Investment management fee ...............................       266
   Distribution fee:
    Class A  ...............................................         3
    Class B  ...............................................        25
    Class C  ...............................................       194
    Class Y  ...............................................         3
   Service fee:
    Class A  ...............................................        54
    Class B  ...............................................         8
    Class C  ...............................................        65
   Shareholder servicing:
    Class A  ...............................................        34
    Class B  ...............................................        11
    Class C  ...............................................        70
    Class Y  ...............................................         2
   Accounting services fee .................................        32
   Audit fees ..............................................        14
   Custodian fees ..........................................         8
   Other ...................................................        54
                                                                ------
      Total expenses .......................................       843
                                                                ------
       Net investment income  ..............................     1,555
                                                                ------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1 AND 3)
 Realized net loss on investments  .........................      (440)
 Unrealized appreciation in value of investments
   during the period .......................................     1,641
                                                                ------
   Net gain on investments .................................     1,201
                                                                ------
    Net increase in net assets resulting from operations  ..    $2,756
                                                                ======


See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     LIMITED-TERM BOND FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE IN NET ASSETS
 Operations:
   Net investment income .................    $1,555      $ 1,005
   Realized net loss on
    investments  .........................      (440)          (6)
   Unrealized appreciation (depreciation)      1,641          (40)
                                             -------      -------
    Net increase in net assets resulting
      from operations ....................     2,756          959
                                             -------      -------
 Distributions to shareholders from net
   investment income (Note 1E):(1)
   Class A ...............................      (755)        (121)
   Class B ...............................       (84)         (33)
   Class C ...............................      (671)        (767)
   Class Y ...............................       (45)         (84)
                                             -------      -------
                                              (1,555)      (1,005)
                                             -------      -------
 Capital share transactions (Note 5)  ....    47,724        8,138
                                             -------      -------
   Total increase ........................    48,925        8,092
NET ASSETS
 Beginning of period  ....................    28,919       20,827
                                             -------      -------
 End of period  ..........................   $77,844      $28,919
                                             =======      =======
   Undistributed net investment income ...   $   ---      $   ---
                                             =======      =======

(1)  See "Financial Highlights" on pages 109 - 112.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LIMITED-TERM BOND FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         8-17-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.20 $10.17         $ 9.84
                             ------ ------         ------
Income from investment
 operations:
 Net investment
   income ..........           0.36   0.51           0.36
 Net realized and unrealized
   gain on investments         0.25   0.03           0.33
                             ------ ------         ------
Total from investment
 operations  .......           0.61   0.54           0.69
                             ------ ------         ------
Less distributions:
 Declared from net
   investment income          (0.36) (0.51)         (0.36)
 From capital gains           (0.00) (0.00)         (0.00)
                             ------ ------         ------
Total distributions           (0.36) (0.51)         (0.36)
                             ------ ------         ------
Net asset value,
 end of period  ....         $10.45 $10.20         $10.17
                             ====== ======         ======
Total return(2) ....           6.15%  5.42%          7.01%
Net assets, end of period (000
 omitted)  .........        $39,765 $6,124           $494
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.09%  1.04%          0.85%(3)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           3.32%  4.76%          5.83%(3)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           ---(4) 1.19%          1.09%(3)
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           ---(4) 4.61%          5.59%(3)
Portfolio turnover rate       49.41% 32.97%         16.10%(5)
(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  Because the Fund's net assets exceeded $25 million for the entire period,
     there is no waiver of expenses.  Therefore, no ratio is provided.
(5)  For the fiscal year ended March 31, 2001.
See Notes to Financial Statements.


FINANCIAL HIGHLIGHTS

     LIMITED-TERM BOND FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.20 $10.17         $ 9.80
                             ------ ------         ------
Income from investment
 operations:
 Net investment
   income ..........           0.27   0.42           0.36
 Net realized and unrealized
   gain on investments         0.25   0.03           0.37
                             ------ ------         ------
Total from investment
 operations  .......           0.52   0.45           0.73
                             ------ ------         ------
Less distributions:
 Declared from net
   investment income          (0.27) (0.42)         (0.36)
 From capital gains           (0.00) (0.00)         (0.00)
                             ------ ------         ------
Total distributions           (0.27) (0.42)         (0.36)
                             ------ ------         ------
Net asset value,
 end of period  ....         $10.45 $10.20         $10.17
                             ====== ======         ======
Total return .......           5.18%  4.52%          7.54%
Net assets, end of period (000
 omitted)  .........         $5,471 $1,419           $425
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.01%  1.88%          1.81%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           2.47%  4.02%          4.91%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           ---(3) 2.15%          2.33%(2)
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           ---(3) 3.76%          4.39%(2)
Portfolio turnover rate       49.41% 32.97%         16.10%(4)
(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  Because the Fund's net assets exceeded $25 million for the entire period,
     there is no waiver of expenses.  Therefore, no ratio is provided.
(4)  For the fiscal year ended March 31, 2001.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LIMITED-TERM BOND FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:
                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of period         $10.20 $10.17  $ 9.76 $10.16  $10.14
Income (loss) from           ------ ------  ------ ------  ------
 investment operations:
 Net investment income         0.27   0.42    0.48   0.47    0.44
 Net realized and unrealized
   gain (loss) on
   investments .....           0.25   0.03    0.41  (0.40)   0.02
Total from investment        ------ ------  ------ ------  ------
 operations  .......           0.52   0.45    0.89   0.07    0.46
Less distributions:          ------ ------  ------ ------  ------
 Declared from net
   investment income          (0.27) (0.42)  (0.48) (0.47)  (0.44)
 From capital gains           (0.00) (0.00)  (0.00) (0.00)  (0.00)
                             ------ ------  ------ ------  ------
Total distributions           (0.27) (0.42)  (0.48) (0.47)  (0.44)
Net asset value,             ------ ------  ------ ------  ------
 end of period  ....         $10.45 $10.20  $10.17 $ 9.76  $10.16
                             ====== ======  ====== ======  ======
Total return .......           5.22%  4.46%   9.48%  0.73%   4.65%
Net assets, end of
 period (in millions)           $30    $20     $18    $19     $21
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.98%  1.94%   1.82%  1.81%   2.11%
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           2.59%  4.04%   4.97%  4.75%   4.34%
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           ---(2) 2.21%  2.34%  2.19%     ---
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           ---(2) 3.77%  4.44%  4.37%     ---
Portfolio turnover
 rate  .............          49.41% 32.97%  16.10% 37.02%  32.11%
(1)  See Note 5.
(2)  Because the Fund's net assets exceeded $25 million for the entire period,
     there is no waiver of expenses.  Therefore, no ratio is provided.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     LIMITED-TERM BOND FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of period         $10.20 $10.17  $ 9.76 $10.16  $10.14
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment income         0.36   0.51    0.59   0.57    0.53
 Net realized and
   unrealized gain
   (loss) on
   investments .....           0.25   0.03    0.41  (0.40)   0.02
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......           0.61   0.54    1.00   0.17    0.55
Less distributions:          ------ ------  ------ ------  ------
 Declared from net
   investment income          (0.36) (0.51)  (0.59) (0.57)  (0.53)
 From capital gains           (0.00) (0.00)  (0.00) (0.00)  (0.00)
                             ------ ------  ------ ------  ------
Total distributions           (0.36) (0.51)  (0.59) (0.57)  (0.53)
Net asset value,             ------ ------  ------ ------  ------
 end of period  ....         $10.45 $10.20  $10.17 $ 9.76  $10.16
                             ====== ======  ====== ======  ======
Total return .......           6.14%  5.41%  10.56%  1.69%   5.60%
Net assets, end of
 period (000 omitted)        $2,149   $906  $1,836 $1,229    $263
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.09%  1.04%   0.83%  0.69%   1.20%
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           3.42%  4.97%   5.95%  6.03%   5.25%
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           ---(1) 1.18%  1.07%  0.84%     ---
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           ---(1) 4.83%  5.71%  5.88%     ---
Portfolio turnover
 rate  .............          49.41% 32.97%  16.10% 37.02%  32.11%
 (1) Because the Fund's net assets exceeded $25 million for the entire period,
     there is no waiver of expenses.  Therefore, no ratio is provided.
See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Kimberly A. Scott, portfolio manager of W&R Funds, Inc. - Mid
Cap Growth Fund


This report relates to the operation of W&R Funds, Inc. -- Mid Cap Growth Fund
for the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
It was a difficult period for equities, and the Fund struggled in an environment
of declining markets and weak economic conditions.  The Fund's Class A shares
declined 25.13 percent before the impact of sales load and, with the sales load
impact, declined 29.43 percent.  This compares with the Russell Mid-Cap Growth
Index (generally reflecting the performance of securities that represent the mid
cap sector of the stock market), which declined 26.09 percent during the same
period, and the Lipper Mid-Cap Growth Funds Universe Average (reflecting the
universe of funds with similar investment objectives), which declined 27.40
percent for the period.  It should be noted that the values for the benchmark
index and the Lipper category do not reflect a sales load.

Why did the Fund slightly lag (with sales load impact) its benchmark index
during the fiscal year?
Primarily, in relation to its index, the Fund was adversely affected by the
impact of the Fund's sales load.  On a more favorable note, the Fund's
performance was positively impacted by the Fund's cash balance over the course
of the year.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
Mid-cap growth stocks struggled through most of 2002, with a steady fall-off
throughout the first quarter of the fiscal year.  This decline picked up speed
in the September quarter and finally found a bottom in early October, with the
index down 36.5 percent.  The index slightly recovered late in the year,
regaining about 10 percentage points to end the March quarter at a loss of 26
percent for the year.  The market reacted to ongoing weakness in domestic and
international economies and the negative impact on earnings.  It also reacted to
the uncertainties surrounding the buildup to the war in Iraq that erupted just
before the end of the March quarter.  The Russell Mid-Cap Growth Index saw
losses in all but the utilities sector.  Losses were exceptionally large in the
technology, health care, consumer discretionary, integrated oils, producer
durables and financial services sectors.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
The Fund's performance was helped by its cash position, by underweight positions
in the poorly performing technology, health care, and integrated oil sectors,
and by stronger performing stocks in other energy sectors and the
autos/transportation sector.  The gains in the above groups were offset by
weakness in others, such as financial services, where we had both an overweight
position in a weak sector and poor stock selection.  The Fund's performance in
the consumer discretionary, consumer staples, and materials and processing
sectors was also weak.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
Areas of emphasis for the Fund last year relative to the Russell Mid-Cap Growth
Index included the consumer discretionary sector.  Media and advertising-related
names remain an area of emphasis within the consumer discretionary sector, but
less so than last year, as we have reduced our exposure to a number of companies
that we felt had specific fundamental or management problems.  Energy was
another area of emphasis for the Fund last year, but we believe it is likely to

be less so going forward.  We intend to manage our slightly overweight energy
position to a market weight or slight underweight in anticipation of other areas
of the economy beginning to exhibit stronger earnings growth.  We also intend to
continue to increase our emphasis in the health care sector as stocks become
attractive to us on both a fundamental and a valuation basis.  We steadily
increased our exposure to this sector over the past year and expect to reach a
slight overweight position over the next year.  We intend to de-emphasize the
financial services and utilities sectors, and we have a renewed interest in
investment opportunities in the industrial cyclical area.


Respectfully,



Kimberly A. Scott
Manager
W&R Mid Cap Growth Fund



Comparison of Change in Value of $10,000 Investment


                        W&R                        Lipper
                        Mid                       Mid-Cap
                        Cap        Russell         Growth
                        Growth     Mid-Cap          Funds
                        Fund        Growth       Universe
                        Class A      Index        Average
                      ---------  ---------     ----------
     07-3-00            $ 9,425    $10,000        $10,000
     03-31-01             8,871      5,899          6,672
     03-31-02             8,723      6,170          6,634
     03-31-03             6,531      4,560          4,816


 ===== W&R Mid Cap Growth Fund, Class A Shares (1) -- $6,531
 +++++ Russell Mid-Cap Growth Index  -- $4,560
 ***** Lipper Mid-Cap Growth Funds Universe Average  -- $4,816

(1)  The value of the investment in the Fund is impacted by the sales load at
     the time of the investment and by the ongoing expenses of the Fund and
     assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C     Class Y
                    ---------------------------------------------
1-year period
  ended 3-31-03      -29.43%   -29.28%         -25.88%   -24.86%
Since inception of
  Class through
  3-31-03(3)         -14.35%   -14.72%         -13.36%   -13.16%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%,
   respectively. (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.

(3)6-30-00 for Class A shares, 7-6-00 for Class B shares, 7-3-00 for Class C
   shares and 7-10-00 for Class Y shares (the date on which shares were first
   acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND

- -----------------------------------------------------------------
Mid Cap Growth Fund

GOAL
To seek the growth of your investment.

Strategy
Invests primarily in common stocks of United States and foreign companies whose
market capitalizations are within the range of capitalizations of companies
comprising the Russell Mid Cap Growth Index and that the Fund's investment
manager believes offer above-average growth potential.

Founded
2000

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class A Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Net asset value on
3-31-03                          $6.67
3-31-02                           8.91
                                ------
Change per share                $(2.24)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03       -29.43%   -25.13%        -29.28%        -26.33%
 5-year period
  ended 3-31-03          ---       ---            ---            ---
10-year period
  ended 3-31-03          ---       ---            ---            ---
Since inception
  of Class (F)        -14.35%   -12.48%        -14.72%        -13.79%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  6-30-00 for Class A shares and 7-6-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period              Class C(B)Class Y(C)
- ------              -------------------
 1-year period
  ended 3-31-03      -25.88%   -24.86%
 5-year period
  ended 3-31-03          ---       ---
10-year period
  ended 3-31-03          ---       ---
Since inception
  of Class (D)        -13.36%   -13.16%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero
     at the end of the first year after investment.  Accordingly, these returns
     reflect no CDSC since it only applies to Class C shares redeemed within
     twelve months after purchase.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  7-3-00 for Class C shares and 7-10-00 for Class Y shares (the date on which

     shares were first acquired by shareholders).



SHAREHOLDER SUMMARY OF MID CAP GROWTH FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Mid Cap Growth Fund had net assets totaling $18,689,548
invested in a diversified portfolio of:

   80.54% Common Stocks
   18.52% Cash and Cash Equivalents and Options
    0.94% Preferred Stock


As a shareholder of Mid Cap Growth Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

 $18.52  Cash and Cash Equivalents and Options
  16.91  Business Equipment and Services Stocks
  15.09  Health Care Stocks
  14.73  Technology Stocks
   9.45  Financial Services Stocks
   6.20  Consumer Goods and Services Stocks
   5.25  Capital Goods Stocks
   4.25  Utilities Stocks
   3.74  Energy Stocks
   3.49  Retail Stocks
   1.43  Transportation Stocks
   0.94  Preferred Stock



THE INVESTMENTS OF MID CAP GROWTH FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Banks - 4.32%
 Charter One Financial, Inc.  ............    13,402    $   370,699
 Synovus Financial Corp.  ................    24,400        436,516
                                                       -----------
                                                            807,215
                                                        -----------

Broadcasting - 2.00%
 Cox Radio, Inc., Class A*  ..............    18,100        373,946
                                                       -----------

Business Equipment and Services - 8.30%
 Arbitron Inc.*  .........................     7,550        239,335
 BearingPoint, Inc.*  ....................    26,800        170,716
 Convergys Corporation*  .................    25,150        331,980
 Lamar Advertising Company*  .............    15,200        446,120
 Stericycle, Inc.*  ......................     9,650        362,695
                                                       -----------
                                                          1,550,846
                                                       -----------

Capital Equipment - 2.42%
 Cooper Cameron Corporation (A)*  ........     4,000        198,040
 IDEX Corporation  .......................     8,800        255,200
                                                       -----------
                                                            453,240
                                                       -----------

Communications Equipment - 2.13%
 ADC Telecommunications, Inc.*  ..........    99,900        205,295
 McData Corporation, Class A*  ...........    20,100        173,362
 McData Corporation, Class B*  ...........     2,250         19,564
                                                       -----------
                                                            398,221
                                                       -----------

Computers -- Micro - 1.59%
 Apple Computer, Inc.*  ..................    21,050        297,963
                                                       -----------

Computers -- Peripherals - 3.18%
 Brocade Communications Systems, Inc.* ...    14,150         68,769
 EMC Corporation*  .......................    30,500        220,515
 Mercury Interactive Corporation*  .......     5,550        164,779
 Siebel Systems, Inc.*  ..................    17,550        140,488
                                                       -----------
                                                            594,551
                                                       -----------

Cosmetics and Toiletries - 2.09%
 Estee Lauder Companies Inc. (The), Class A   12,850        390,126
                                                        -----------

Electrical Equipment - 0.96%
 Federal Signal Corporation  .............    12,650        179,630
                                                       -----------

Electronic Components - 6.18%
 Analog Devices, Inc.*  ..................     5,850        160,875
 Intersil Corporation, Class A*  .........    16,200        252,153

 Microchip Technology Incorporated  ......    13,300        265,335
 Network Appliance, Inc.*  ...............    42,650        476,187
                                                       -----------
                                                          1,154,550
                                                       -----------

Electronic Instruments - 1.65%
 Molex Incorporated  .....................     5,100        109,701
 Molex Incorporated, Class A  ............    10,800        198,450
                                                       -----------
                                                            308,151
                                                       -----------

Health Care -- Drugs - 5.50%
 Cephalon, Inc.*  ........................     5,650        225,520
 Forest Laboratories, Inc.*  .............    10,300        555,891
 Gilead Sciences, Inc.*  .................     2,400        100,764
 Neurocrine Biosciences, Inc.*  ..........     3,500        145,897
                                                       -----------
                                                          1,028,072
                                                       -----------

Health Care -- General - 5.30%
 Biomet, Inc.  ...........................    19,275        591,453
 Kyphon Inc.*  ...........................     6,400         56,256
 Schein (Henry), Inc.*  ..................     7,600        342,798
                                                       -----------
                                                            990,507
                                                       -----------

Hospital Supply and Management - 4.29%
 Bard (C. R.), Inc.  .....................     5,700        359,442
 Express Scripts, Inc., Class A*  ........     1,700         94,630
 Laboratory Corporation
   of America Holdings* ..................    11,750        348,388
                                                       -----------
                                                            802,460
                                                       -----------

Metal Fabrication - 1.87%
 Fastenal Company  .......................    12,400        349,618
                                                       -----------

Petroleum -- Domestic - 2.92%
 Burlington Resources Inc.  ..............     7,550        360,210
 Noble Energy, Inc.  .....................     5,400        185,166
                                                       -----------
                                                            545,376
                                                       -----------

Petroleum -- Services - 0.82%
 Baker Hughes Incorporated  ..............     5,100        152,643
                                                       -----------

Publishing - 2.11%
 Getty Images, Inc.*  ....................    14,400        395,424
                                                       -----------

Restaurants - 0.59%
 Starbucks Corporation*  .................     4,250        109,523
                                                        -----------

Retail -- Food Stores - 0.71%
 Rite Aid Corporation*  ..................    59,200        132,608
                                                        -----------


Retail -- Specialty Stores - 2.19%
 Abercrombie & Fitch, Class A*  ..........    13,650        409,910
                                                        -----------

Security and Commodity Brokers - 5.13%
 Charles Schwab Corporation (The)  .......    46,000        332,120
 Chicago Mercantile Exchange
   Holdings Inc. .........................    13,000        625,950
                                                        -----------
                                                            958,070
                                                        -----------

Timesharing and Software - 8.61%
 Concord EFS, Inc.*  .....................    31,300        294,220
 eBay Inc. (A)*  .........................    10,600        904,127
 Sabre Holdings Corporation*  ............    10,350        164,669
 Total System Services, Inc.  ............    15,700       245,862
                                                       -----------
                                                          1,608,878
                                                       -----------

Trucking and Shipping - 1.43%
 C.H. Robinson Worldwide, Inc.  ..........     8,200        267,853
                                                       -----------

Utilities -- Telephone - 4.25%
 CenturyTel, Inc.  .......................     7,500        207,000
 Citizens Communications Company*  .......    40,550        404,689
 Commonwealth Telephone
   Enterprises, Inc.* ....................     4,700        182,172
                                                       -----------
                                                            793,861
                                                       -----------

TOTAL COMMON STOCKS - 80.54%                            $15,053,242
 (Cost: $17,696,482)

PREFERRED STOCK - 0.94%
Security and Commodity Brokers
 Prudential Financial, Inc. and Prudential
   Financial Capital Trust I, 6.75% Equity
   Security Units, Convertible ...........     3,400     $  174,930
                                                       -----------
 (Cost: $181,110)

                                           Number of
                                           Contracts

PUT OPTION - 0.01%
 eBay Inc., April 70,
   Expires 4-19-03 .......................       106    $     2,120
                                                       -----------
 (Cost: $17,278)

                                           Principal
                                           Amount in
                                           Thousands

SHORT-TERM SECURITIES
Commercial Paper
 Chemicals -- Petroleum and Inorganic - 4.54%
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................     $ 848        848,000
                                                        -----------


 Food and Related - 4.26%
 General Mills, Inc.,
   1.45880%, Master Note .................       796        796,000
                                                       -----------

Total Commercial Paper - 8.80%                            1,644,000

Repurchase Agreement - 9.56%
 Merrill Lynch, Pierce, Fenner &
   Smith Inc., 1.25% Repurchase Agreement
   dated 3-31-03, to be repurchased
   at $1,787,062 on 4-1-03(B).............     1,787      1,787,000
                                                       -----------

TOTAL SHORT-TERM SECURITIES - 18.36%                    $ 3,431,000
 (Cost: $3,431,000)

TOTAL INVESTMENT SECURITIES - 99.85%                    $18,661,292
 (Cost: $21,325,870)

CASH AND OTHER ASSETS, NET OF LIABILITIES- 0.15%             28,256

NET ASSETS - 100.00%                                    $18,689,548


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Securities serve as cover for the following written call options outstanding
   at March 31, 2003.  (See Note 6 to financial statements):

                         Contracts
     Underlying          Subject  Expiration Month/Premium    Market
     Security            to Call  Exercise Price  Received     Value
- ---------------------    -------  ------------    --------    ------
Cooper Cameron Corporation 40       May/55         $ 7,885   $ 4,000
eBay Inc.                 106       April/85        11,872    31,800
                                                   -------   -------
                                                   $19,757   $35,800
                                                   =======   =======

(B)Collateralized by $1,835,237 Government National Mortgage Association, 7.0%
   due 10-20-28; market value and accrued interest aggregate $1,891,795.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     MID CAP GROWTH FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)
ASSETS
 Investment securities -- at value (cost - $21,326)
   (Notes 1 and 3)..........................................   $18,661
 Receivables:
   Fund shares sold ........................................        95
   Dividends and interest ..................................        11
                                                               -------
    Total assets  ..........................................    18,767
                                                               -------
LIABILITIES
 Outstanding written options at market (Note 6)  ...........        36
 Payable to Fund shareholders  .............................        21
 Accrued shareholder servicing (Note 2)  ...................        10
 Due to custodian  .........................................         2
 Accrued accounting services fee (Note 2)  .................         1
 Other  ....................................................         7
                                                               -------
    Total liabilities  .....................................        77
                                                               -------
      Total net assets .....................................   $18,690
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    28
   Additional paid-in capital ..............................    27,819
 Accumulated undistributed income (loss):
   Accumulated undistributed net investment income..........         3
   Accumulated undistributed net realized loss
    on investment transactions  ............................    (6,479)
   Net unrealized depreciation in value of investments .....    (2,681)
                                                               -------
    Net assets applicable to outstanding units
      of capital ...........................................   $18,690
                                                               =======
Net asset value per share (net assets divided by shares
 outstanding):
 Class A  ..................................................     $6.67
 Class B  ..................................................     $6.49
 Class C  ..................................................     $6.56
 Class Y  ..................................................     $6.67
Capital shares outstanding:
 Class A  ..................................................     2,056
 Class B  ..................................................       234
 Class C  ..................................................       479
 Class Y  ..................................................        49
Capital shares authorized ..................................   350,000
See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     MID CAP GROWTH FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT LOSS
 Income (Note 1B):
   Dividends ...............................................    $   73
   Interest and amortization ...............................        50
                                                                ------
    Total income  ..........................................       123
 Expenses (Note 2):                                             ------
   Investment management fee ...............................       153
   Shareholder servicing:
    Class A  ...............................................        61
    Class B  ...............................................        20
    Class C  ...............................................        23
    Class Y  ...............................................         1
   Distribution fee:
    Class A  ...............................................         3
    Class B  ...............................................        12
    Class C  ...............................................        25
    Class Y  ...............................................         1
   Service fee:
    Class A  ...............................................        29
    Class B  ...............................................         4
    Class C  ...............................................         8
   Registration fees .......................................        28
   Audit fees ..............................................        16
   Accounting services fee .................................        12
   Custodian fees ..........................................        12
   Other ...................................................        13
                                                               -------
    Total  .................................................       421
      Less expenses in excess of voluntary waiver of
       investment management fee (Note 2)  .................      (153)
                                                               -------
       Total expenses  .....................................       268
                                                               -------
         Net investment loss ...............................      (145)
                                                               -------


See Notes to Financial Statements.



STATEMENT OF OPERATIONS (Continued)

     MID CAP GROWTH FUND**
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1 AND 3)
 Realized net loss on securities  ..........................    (2,769)
 Realized net gain on written options  .....................        69
 Realized net loss on purchased options  ...................       (14)
                                                               -------
   Realized net loss on investments ........................    (2,714)
 Unrealized depreciation in value of securities during         -------
   the period ..............................................   (2,629)
 Unrealized depreciation in value of written
   options during the period ...............................       (19)
 Unrealized depreciation in value of purchased
   options during the period ...............................       (15)
   Unrealized depreciation in value of investments             -------
    during the period  .....................................    (2,663)
                                                               -------
    Net loss on investments ................................    (5,377)
      Net decrease in net assets resulting from                -------
       operations  .........................................   $(5,522)
                                                               =======

See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     MID CAP GROWTH FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations
   Net investment income (loss) ..........   $  (145)      $    5
   Realized net loss on investments ......    (2,714)      (1,919)
   Unrealized appreciation (depreciation)     (2,663)       1,415
                                             -------      -------
    Net decrease in net assets resulting
      from operations ....................    (5,522)        (499)
                                             -------      -------
 Distributions to shareholders from
   net investment income (Note 1E)(1):
    Class A  .............................        (2)         (75)
    Class B  .............................       ---          ---
    Class C  .............................       ---          ---
    Class Y  .............................        (1)          (3)
                                             -------      -------
                                                  (3)         (78)
                                             -------      -------
 Capital share transactions (Note 5)  ....     2,703        4,911
                                             -------      -------
   Total increase (decrease) .............    (2,822)       4,334
NET ASSETS
 Beginning of period  ....................    21,512       17,178
                                             -------      -------
 End of period  ..........................   $18,690      $21,512
                                             =======      =======
   Undistributed net investment income ...   $     3      $     5
                                             =======      =======

(1)  See "Financial Highlights" on pages 127 - 130.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MID CAP GROWTH FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         6-30-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.91  $9.11         $10.00
                              -----  -----         ------
Income (loss) from
 investment operations:
 Net investment
   income (loss) ...          (0.05)  0.02           0.11
 Net realized and unrealized
   loss on investments        (2.19) (0.17)         (0.65)
                              -----  -----         ------
Total from investment
 operations  .......          (2.24) (0.15)         (0.54)
                              -----  -----         ------
Less distributions:
 From net investment
   income ..........          (0.00)*(0.05)         (0.06)
 From capital gains           (0.00) (0.00)         (0.29)
                              -----  -----         ------
Total distributions           (0.00) (0.05)         (0.35)
                              -----  -----         ------
Net asset value,
 end of period  ....          $6.67  $8.91         $ 9.11
                              =====  =====         ======
Total return(2) ....         -25.13% -1.67%         -5.88%
Net assets, end of period
 (in millions)  ....            $14    $15            $11
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.17%  1.17%          1.01%(3)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -0.49%  0.34%          1.85%(3)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           2.02%  1.84%          1.65%(3)
Ratio of net investment
 income (loss) to
 average net assets
 excluding voluntary
 expense waiver  ...          -1.34% -0.33%          1.21%(3)
Portfolio turnover rate       35.89% 39.05%        110.18%

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
  *  Not shown due to rounding.
See Notes to Financial Statements.


FINANCIAL HIGHLIGHTS

     MID CAP GROWTH FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-6-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.81  $9.07         $10.01
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
   income (loss) ...          (0.14) (0.09)          0.02
 Net realized and unrealized
   loss on investments        (2.18) (0.17)         (0.66)
Total from investment         -----  -----         ------
 operations  .......          (2.32) (0.26)         (0.64)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.01)
 From capital gains           (0.00) (0.00)         (0.29)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.30)
Net asset value,              -----  -----         ------
 end of period  ....          $6.49  $8.81         $ 9.07
                              =====  =====         ======
Total return .......         -26.33% -2.87%         -6.85%
Net assets, end of period
 (in millions)  ....             $2     $2             $2
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.73%  2.49%          2.40%(2)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -2.05% -0.95%          0.44%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           3.58%  3.90%          3.93%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -2.90% -2.37%         -1.09%(2)
Portfolio turnover rate       35.89% 39.05%        110.18%
(1) Commencement of operations of the class.
(2) Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MID CAP GROWTH FUND
     Class C Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.85  $9.08         $10.00
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
   income (loss) ...          (0.10) (0.05)          0.04
 Net realized and unrealized
   loss on investments        (2.19) (0.18)         (0.66)
Total from investment         -----  -----         ------
 operations  .......          (2.29) (0.23)         (0.62)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.01)
 From capital gains           (0.00) (0.00)         (0.29)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.30)
Net asset value,              -----  -----         ------
 end of period  ....          $6.56  $8.85         $ 9.08
                              =====  =====         ======
Total return .......         -25.88% -2.53%         -6.58%
Net assets, end of period
 (in millions)  ....             $3     $4             $4
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.18%  2.10%          1.99%(2)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -1.50% -0.55%          0.84%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           3.03%  3.30%          3.26%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -2.35% -1.74%         -0.43%(2)
Portfolio turnover rate       35.89% 39.05%        110.18%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MID CAP GROWTH FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-10-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $8.91  $9.11         $10.23
Income (loss) from            -----  -----         ------
 investment operations:
 Net investment
   income (loss) ...          (0.01)  0.00           0.11
 Net realized and unrealized
   loss on investments        (2.20) (0.14)         (0.88)
Total from investment         -----  -----         ------
 operations  .......          (2.21) (0.14)         (0.77)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.03) (0.06)         (0.06)
 From capital gains           (0.00) (0.00)         (0.29)
                              -----  -----         ------
Total distributions           (0.03) (0.06)         (0.35)
Net asset value,              -----  -----         ------
 end of period  ....          $6.67  $8.91         $ 9.11
                              =====  =====         ======
Total return .......         -24.86% -1.52%         -7.97%
Net assets, end of period (000
 omitted)  .........           $329   $438           $184
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           0.86%  0.83%          1.03%(2)
Ratio of net investment
 income (loss) to
 average net assets
 including voluntary
 expense waiver  ...          -0.18%  0.50%          1.77%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           1.71%  1.30%          1.68%(2)
Ratio of net investment
 income (loss) to average net
 assets excluding
 voluntary expense
  waiver  ..........          -1.03%  0.03%          1.11%(2)
Portfolio turnover rate       35.89% 39.05%        110.18%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Mira Stevovich, portfolio manager of W&R Funds, Inc. - Money
Market Fund


This report relates to the operation of W&R Funds, Inc. -- Money Market Fund for
the fiscal year ended March 31, 2003.  The following discussion and tables
provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
The Fund had a competitive return over the past fiscal year.  However, due to
declining interest rates, the Fund's overall yield declined.  The Federal
Reserve maintained a Federal Funds rate of 1.75 percent throughout most of the
year, and then lowered it further to 1.25 percent in November 2002.  This long
period of historically low money market interest rates has made for a
challenging environment for all money market funds.

What market conditions or events influenced the Fund's performance during the
fiscal year?
As the fiscal year began, interest rates stood at 1.75 percent, having been
lowered by the Federal Reserve a total of 4.75 percent during the previous
fiscal year.  Although rates remained fairly constant until the one-half percent
decrease in November, market sentiment fluctuated throughout the year.  At
times, when the market anticipated a rebound in the economy, interest rates
would occasionally move up with that anticipation.  During these periods, we
would attempt to take advantage of any increase in market rates to increase the
yield of the Fund.

In addition to interest rates, credit quality played a role in the management
and performance of the Fund during the fiscal year.  The weak economy has taken
its toll on the credit quality of many companies.  As a result, we have chosen
to extend our overall maturity with very select securities of the highest
quality, based on our strict credit risk constraints.  We have remained vigilant
in our review of the companies whose securities we purchase, due to the weak
economic environment and risk potential.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
We have maintained a defensive posture during the weak economic period.  We have
maintained the average maturity of the Fund by carefully selecting securities in
which to invest.  Overall, we believe that this strategy helped performance.
However, securities issued by the highest quality companies are issued at
premium rates of interest (lowest-yielding securities).  This ultimately affects
Fund yield.  To attempt to compensate for this, we timed the purchase of our
longer-dated securities during periods in which the overall market anticipated
higher future rates of interest, in an effort to take advantage of temporary
rate increases.

What industries did you emphasize during the fiscal year, and what looks
attractive to you going forward?
We intend to continue to invest in securities of the highest quality companies,
as well as U.S. Treasury and government agency securities, when we feel that
they look attractive on a relative basis.  In light of the current interest rate
climate, and the uncertainties regarding the U.S. economy, we intend to review
security purchases on a case-by-case basis, following closely the developments
in all industries and their effects on each company in which we invest.

Respectfully,




Mira Stevovich

Manager
W&R Money Market Fund

Please remember that an investment in the Fund is neither insured nor guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.



THE INVESTMENTS OF MONEY MARKET FUND

     March 31, 2003

                                           Principal
                                           Amount in
                                           Thousands        Value

CORPORATE OBLIGATIONS
Commercial Paper
 Aluminum - 3.52%
 Alcoa Incorporated,
   1.23%, 4-1-03 .........................    $  750    $   750,000
                                                        -----------

 Banks - 3.99%
 Lloyds TSB Bank PLC,
   1.24%, 4-22-03 ........................       350        349,747
 Wells Fargo & Company,
   1.25%, 4-7-03 .........................       500        499,896
                                                        -----------
                                                            849,643
                                                        -----------

 Beverages - 3.11%
 Coca-Cola Company (The),
   1.24%, 5-5-03 .........................       414        413,515
 Diageo Capital plc,
   1.23%, 4-29-03 ........................       250        249,761
                                                        -----------
                                                            663,276
                                                        -----------

 Chemicals --Petroleum and Inorganic - 1.58%
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................       336        336,000
                                                        -----------

 Containers - 3.28%
 Bemis Company, Inc.,
   1.25%, 4-3-03 .........................       300        299,979
 Florens Container Inc. (Bank of America N.A.),
   1.26%, 4-24-03 ........................       400        399,678
                                                        -----------
                                                            699,657
                                                        -----------

 Finance Companies - 4.11%
 Caterpillar Financial Services Corp.,
   1.21%, 4-14-03 ........................       250        249,891
 PACCAR Financial Corp.:
   1.24%, 4-16-03 ........................       527        526,728
   1.25%, 4-28-03 ........................       100         99,906
                                                        -----------
                                                            876,525
                                                        -----------

 Food and Related - 3.51%
 Golden Peanut Co.:
   1.28%, 4-4-03 .........................       250        249,973
   1.25%, 4-11-03 ........................       250        249,913
   1.22%, 6-12-03 ........................       250        249,390
                                                        -----------
                                                            749,276
                                                        -----------

 Health Care -- Drugs - 7.74%

 Alcon Finance PLC (Nestle S.A.),
   1.25%, 4-11-03 ........................       900        899,688
 GlaxoSmithKline Finance plc,
   1.25%, 4-30-03 ........................       250        249,748
 Pharmacia Corporation,
   1.25%, 4-2-03 .........................       500        499,983
                                                        -----------
                                                          1,649,419
                                                        -----------

 Health Care -- General - 3.73%
 Johnson & Johnson,
   1.1%, 9-18-03 .........................       800        795,844
                                                        -----------

 Household -- General Products - 2.58%
 Kimberly-Clark Worldwide Inc.:
   1.24%, 4-7-03 .........................       300        299,938
   1.25%, 4-7-03 .........................       250        249,948
                                                        -----------
                                                            549,886
                                                        -----------

 Multiple Industry - 1.41%
 BOC Group Inc. (DE),
   1.3%, 4-4-03 ..........................       300        299,967
                                                        -----------

 Publishing - 3.75%
 Gannett Co.,
   1.23%, 4-10-03 ........................       800        799,754
                                                        -----------

 Utilities -- Telephone - 9.38%
 BellSouth Corporation,
   1.24%, 4-28-03 ........................       300        299,721
 SBC International Inc.
   (SBC Communications Inc.):
   1.24%, 4-23-03 ........................       350        349,735
   1.24%, 5-7-03 .........................       450        449,442
 Verizon Network Funding Corporation:
   1.24%, 4-16-03 ........................       750        749,613
   1.24%, 4-23-03 ........................       150        149,886
                                                        -----------
                                                          1,998,397
                                                        -----------

Total Commercial Paper - 51.69%                          11,017,644

Commercial Paper (backed by irrevocable
 bank letter of credit) - 1.13%
 Motor Vehicles
 Hyundai Motor Finance Co.
   (Bank of America N.A.),
   1.4%, 4-1-03 ..........................       240        240,000
                                                        -----------

Notes
 Banks - 5.16%
 Bank One, N.A.,
   1.29%, 5-27-03 ........................       600        599,945
 Wells Fargo & Company,
   1.3275%, 4-1-03 .......................       500        500,000
                                                        -----------
                                                          1,099,945

                                                        -----------

 Business Equipment and Services - 3.61%
 Playworld Systems Incorporated (Wachovia Bank),
   1.41%, 4-2-03 .........................       770        770,000
                                                        -----------

 Health Care -- Drugs - 2.41%
 Merck & Co., Inc.,
   4.489%, 2-22-04 (A) ...................       500        514,382
                                                        -----------

 Hospital Supply and Management - 1.85%
 Autumn House at Powder Mill, Inc. (Suntrust Bank),
   1.35%, 4-3-03 .........................       150        150,000
 Meriter Management Services, Inc. (U.S. Bank
   Milwaukee, National Association),
   1.45%, 4-2-03 .........................       245        245,000
                                                        -----------
                                                            395,000
                                                        -----------

 Retail -- General Merchandise - 2.36%
 Wal-Mart Stores, Inc.,
   4.878%, 6-1-03 ........................       500        501,853
                                                        -----------

 Trucking and Shipping - 2.56%
 Volpe Family Partnership, L.P. (Wachovia Bank),
   1.36%, 4-3-03 .........................       545        545,000
                                                        -----------

 Utilities -- Telephone - 1.64%
 BellSouth Corporation,
   4.105%, 4-26-03 (A) ...................       350        350,321
                                                        -----------

Total Notes - 19.59%                                      4,176,501

TOTAL CORPORATE OBLIGATIONS - 72.41%                    $15,434,145
 (Cost: $15,434,145)

MUNICIPAL OBLIGATIONS
California - 3.99%
 Pollution Control Financing Authority,
   Environmental Improvement Revenue Bonds,
   Air Products Manufacturing Corporation,
   Series 1997A (Taxable),
   1.22%, 5-8-03 .........................       850        850,000
                                                        -----------

Louisiana - 2.81%
 Industrial Development Board of the Parish
   of Calcasieu, Inc., Environmental Revenue
   Bonds (CITGO Petroleum Corporation Project),
   Series 1996 (Taxable), (Westdeutsche
   Landesbank Girozentrale),
   1.275%, 4-30-03 .......................       600        600,000
                                                        -----------

New York - 1.52%
 The City of New York, General Obligation Bonds,
   Fiscal 1995 Series B, Taxable Adjustable Rate
   Bonds (Bayerische Landesbank Girozentrale,
   New York Branch),

   1.33%, 4-2-03 .........................       325        325,000
                                                        -----------

Washington - 1.62%
 Washington State Housing Finance Commission:
   Taxable Variable Rate Demand Multifamily
   Revenue Bonds, Mill Pointe Apartments Project,
   Series 1999B (U.S. Bank, National Association),
   1.35%, 4-1-03 .........................       250        250,000
   Taxable Variable Rate Demand Multifamily
   Revenue Bonds, Brittany Park Project,
   Series 1996B (U.S. Bank of Washington,
   National Association),
   1.35%, 4-3-03 .........................        95         95,000
                                                        -----------
                                                            345,000
                                                        -----------

TOTAL MUNICIPAL OBLIGATIONS - 9.94%                     $ 2,120,000
 (Cost: $2,120,000)

UNITED STATES GOVERNMENT SECURITIES
 Federal Farm Credit Banks,
   1.25%, 3-19-04 ........................       400        400,000
 Federal Home Loan Bank:
   1.45%, 2-24-04.........................       250        250,000
   1.35%, 4-5-04 .........................       370        370,000
   1.3%, 4-12-04 .........................       300        300,000
 Federal Home Loan Mortgage Corporation,
   1.65%, 12-23-03........................       800        800,000
 Student Loan Marketing Association,
   1.4%, 2-20-04 .........................       500        500,000
 United States Treasury Bills:
   1.04%, 8-7-03 .........................       300        298,891
   1.035%, 8-21-03 .......................       350        348,571
 United States Treasury Note,
   5.25%, 8-15-03 ........................       400        405,185

TOTAL UNITED STATES GOVERNMENT SECURITIES - 17.23%      $ 3,672,647
 (Cost: $3,672,647)

TOTAL INVESTMENT SECURITIES - 99.58%                    $21,226,792
 (Cost: $21,226,792)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.42%            89,055

NET ASSETS - 100.00%                                    $21,315,847


Notes to Schedule of Investments

(A)Securities were purchased pursuant to Rule 144A under the Securities Act of
   1933 and may be resold in transactions exempt from registration, normally to
   qualified institutional buyers.  At March 31, 2003, the total value of these
   securities amounted to $864,703 or 4.05% of net assets.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     MONEY MARKET FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities--at value (cost-$21,227)
   (Notes 1 and 3)..........................................   $21,227
 Cash  .....................................................        30
 Receivables:
   Fund shares sold ........................................       214
   Interest ................................................        51
 Prepaid insurance premium  ................................         1
                                                               -------
    Total assets  ..........................................    21,523
                                                               -------
LIABILITIES
 Payable to Fund shareholders  .............................       181
 Accrued shareholder servicing (Note 2)  ...................         3
 Accrued accounting services fee (Note 2)  .................         1
 Dividends payable  ........................................         1
 Other  ....................................................        21
                                                               -------
    Total liabilities  .....................................       207
                                                               -------
      Total net assets .....................................   $21,316
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................  $    213
   Additional paid-in capital ..............................    21,103
                                                               -------
    Net assets applicable to outstanding units
      of capital ...........................................   $21,316
                                                               =======
Net asset value, redemption and offering price
 per share:
 Class A  ..................................................     $1.00
 Class B  ..................................................     $1.00
 Class C  ..................................................     $1.00
Capital shares outstanding:
 Class A  ..................................................    10,548
 Class B  ..................................................     1,188
 Class C  ..................................................     9,580
Capital shares authorized ..................................   300,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     MONEY MARKET FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ...............................      $336
                                                                  ----
 Expenses (Note 2):
   Investment management fee ...............................        76
   Distribution fee:
    Class B  ...............................................         6
    Class C  ...............................................        65
   Registration fees .......................................        30
   Shareholder servicing:
    Class A  ...............................................        10
    Class B  ...............................................         2
    Class C  ...............................................        14
   Service fee:
    Class B  ...............................................         2
    Class C  ...............................................        22
   Accounting services fee .................................        12
   Audit fees ..............................................        12
   Custodian fees ..........................................        12
   Legal fees ..............................................         1
   Other ...................................................        13
                                                                  ----
    Total  .................................................       277
      Less expenses in excess of voluntary waiver of
       investment management fee (Note 2)  .................       (76)
      Less expenses in excess of voluntary reimbursement
       of expenses (Note 2):
       Class B 12b-1 fees  .................................        (3)
       Class C 12b-1 fees  .................................        (1)
                                                                  ----
       Total expenses  .....................................       197
                                                                  ----
         Net investment income .............................       139
                                                                  ----
          Net increase in net assets resulting from
            operations .....................................      $139
                                                                  ====

See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     MONEY MARKET FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment income .................   $   139      $   271
                                             -------      -------
    Net increase in net assets resulting
      from operations ....................       139          271
                                             -------      -------
 Distributions to shareholders from
   net investment income (Note 1E):(1)
   Class A ...............................      (122)        (130)
   Class B ...............................        (1)          (7)
   Class C ...............................       (16)        (134)
                                             -------      -------
                                                (139)        (271)
                                             -------      -------
 Capital share transactions (Note 5)  ....     8,293       (2,179)
                                             -------      -------
   Total increase (decrease) .............     8,293       (2,179)
NET ASSETS
 Beginning of period  ....................    13,023       15,202
                                             -------      -------
 End of period  ..........................   $21,316      $13,023
                                             =======      =======
   Undistributed net investment income ...   $   ---      $   ---
                                             =======      =======

(1) See "Financial Highlights" on pages 141 - 143.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MONEY MARKET FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                     For the
                             For the fiscal          period
                               year ended            from
                                March 31,            6-30-00(1)
                             --------------           to
                              2003     2002          3-31-01
                            -------   -------        -------
Net asset value,
 beginning of period          $1.00   $1.00          $1.00
                              -------  -------       -------
Net investment
 income  ...........           0.0124  0.0259         0.0413
Less dividends
 declared  .........          (0.0124)(0.0259)       (0.0413)
                              ------- -------        -------
Net asset value,
 end of period  ....          $1.00   $1.00          $1.00
                             ======= =======        =======
Total return .......           1.25%   2.70%          4.11%
Net assets, end of period (in
 millions)  ........            $10      $5             $5
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           0.52%   0.81%          0.92%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waiver  ...........           1.26%   2.60%          5.49%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           0.92%   1.03%          1.18%(2)
Ratio of net investment
 income to average net
 assets excluding
 voluntary expense
 waiver  ...........           0.86%   2.38%          5.23%(2)

(1)  Commencement of operations of the class.
(2)  Annualized.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MONEY MARKET FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-12-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $1.00   $1.00          $1.00
                             ------- -------        -------
Net investment income          0.0015  0.0147         0.0299
Less dividends
 declared  .........          (0.0015)(0.0147)       (0.0299)
                             ------- -------        -------
Net asset value,
 end of period  ....          $1.00  $1.00           $1.00
                             ======= =======        =======
Total return .......           0.16%  1.55%           2.97%
Net assets, end of period (000
 omitted)  .........         $1,188   $578            $431
Ratio of expenses to
 average net assets
 including voluntary
 expense waivers  ..           1.59%  1.88%           2.29%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waivers  ..........           0.14%  1.33%           4.05%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waivers  ..           2.06%  2.39%           2.94%(2)
Ratio of net investment
 income (loss) to average net
 assets excluding
 voluntary expense
 waivers  ..........          -0.33%  0.82%           3.41%(2)

(1)  Commencement of operations of the class.
(2)  Annualized.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MONEY MARKET FUND
     Class C Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period          $1.00   $1.00          $1.00
                             ------- -------        -------
Net investment income          0.0019  0.0157         0.0332
Less dividends
 declared  .........          (0.0019)(0.0157)       (0.0332)
                             ------- -------        -------
Net asset value,
 end of period  ....          $1.00   $1.00          $1.00
                             ======= =======        =======
Total return .......           0.20%   1.63%          3.32%
Net assets, end of period (in
 millions)  ........            $10      $7            $10
Ratio of expenses to
 average net assets
 including voluntary
 expense waivers  ..           1.56%   1.81%          1.98%(2)
Ratio of net investment
 income to average net
 assets including
 voluntary expense
 waivers  ..........           0.18%   1.58%          4.34%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waivers  ..           1.99%   2.31%          2.54%(2)
Ratio of net investment
 income (loss) to average net
 assets excluding
 voluntary expense
 waivers  ..........          -0.25%   1.08%          3.78%(2)

(1)  Commencement of operations of the class.
(2)  Annualized.

See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Bryan J. Bailey, portfolio manager of W&R Funds, Inc. -
Municipal Bond Fund

This report relates to the operation of W&R Funds, Inc. -- Municipal Bond Fund
for the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
The Fund showed relatively disappointing performance during the fiscal year,
slightly underperforming its benchmark index.  The Fund's Class C shares
increased 7.75 percent for the fiscal year, compared with the Lehman Brothers
Municipal Bond Index (reflecting the performance of securities that generally
represent the municipal bond market), which increased 9.89 percent for the
period, and the Lipper General Municipal Debt Funds Universe Average (reflecting
the performance of funds with similar investment objectives), which increased
8.32 percent for the period.

Why did the Fund lag its benchmark index during the fiscal year?
An underweight position in Aaa-rated paper, primarily insured bonds, was the
major factor leading to underperformance.  While the overall quality of the Fund
was upgraded significantly during the fiscal year, the Fund underperformed the
highest credit-quality competitors.  (The Fund's weighting in Aaa-rated bonds
was significantly increased during the period, but the top performers tended to
have a higher exposure to Aaa and high Aa-rated municipal bonds.)  However, Fund
performance was enhanced by overweight positions in 10-15 year bonds, which
proved to be the "sweet spot" of the yield curve.  Sector selection also
benefited Fund performance.  Overweight positions in the outperforming education
and hospital sectors and underweight positions in the poorly performing airline,
resource recovery and tobacco securitization sectors all had a positive impact
on the Fund.  Underweight positions in California and New York issuers also
contributed positively to performance.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
The fiscal year was dominated by geopolitical risk, war distractions, corporate
malfeasance issues, declining equity investor confidence, and heightened levels
of uncertainty on almost all fronts.  In this environment, investor risk
aversion was very high, and fear became the emotional driver.  Safety and
preservation of capital became the dominant factor driving most investor
decisions.  Given this backdrop, we observed a large-scale investor flight to
quality fixed-income instruments, which resulted in outperformance in the
highest quality asset classes to the detriment of lower quality asset classes.
This is what occurred in the municipal bond market in the fiscal year, as the
highest quality bonds were the top performers.

Sector-wise, numerous events resulted in severe underperformance in certain
areas.  Accounting fraud and financial statement transparency concerns resulted
in severe markdowns for certain corporate-backed resource recovery issuers.
Many power bonds were negatively pressured by the Enron debacle and the
aftermath of the State of California energy crisis.  Several paper companies
were beaten down on concerns of litigation risk resulting from asbestos
exposure.  Tobacco bonds were also pressured by continued negative litigation
headlines.  The Fund was nimble and avoided many of the aforementioned credit
disasters that plagued the market during this very difficult period.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
Upgrading the credit quality of the Fund, improved diversification between
sectors and states, and smaller positions has dramatically reduced the
volatility of the Fund.  Our management style is essentially top-down with an
emphasis on identifying relative value opportunities between sectors, states,

and different security structures, while simultaneously attempting to exploit
opportunities presented by the shape of the yield curve.  Market timing has been
de-emphasized, and the Fund is typically fully invested.  A diligent approach to
ongoing credit analysis and subsequent surveillance after purchase enabled the
Fund to avoid many of the credit disasters that, we believe, plagued our
competitors.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
Much of our performance can be attributed to what we de-emphasized.  We continue
to feel that we are in an investment environment where the winners will be the
managers who can avoid the credit disasters, and we are therefore proceeding
with extreme caution.  Avoiding most Industrial Development Revenue/Pollution
Control Revenue (IDR/PCR) debt, corporate-backed municipals, airlines, and
tobacco securitization credits proved to be very beneficial.  Going forward, we
expect to slightly increase the credit quality of the Fund from its current AA3
rating to the high end of the AA category, while actively seeking relative value
opportunities between sectors, states, and security structures.  We believe that
positioning and asset distribution across the yield curve will likely continue
to be a vital part of our investment strategy.  We expect to maintain the Fund's
neutral to defensive exposure to interest rate risk and feel that the Fund is
well positioned entering the new fiscal year.  The objective of the Fund remains
the same:  to provide income that is not subject to Federal income taxes, while
maximizing tax-free total return.  To achieve that objective, we intend to
continue investing in short, intermediate and longer-term (when appropriate)
investment-grade municipal bonds with an emphasis on quality and capital
preservation with minimal yield sacrifice.

Respectfully,

Bryan J. Bailey
Manager
W&R Municipal Bond Fund



Comparison of Change in Value of $10,000 Investment


                                W&R                        Lipper
                          Municipal         Lehman        General
                               Bond       Brothers      Municipal
                              Fund,      Municipal     Debt Funds
                            Class C           Bond       Universe
                             Shares          Index        Average
                          ---------      ---------     ----------
     03-31-93                10,000         10,000         10,000
     03-31-94                10,076         10,231         10,185
     03-31-95                10,718         10,991         10,820
     03-31-96                11,521         11,912         11,599
     03-31-97                12,133         12,564         12,151
     03-31-98                13,455         13,910         13,450
     03-31-99                14,079         14,773         14,109
     03-31-00                13,202         14,761         13,774
     03-31-01                14,287         16,374         15,142
     03-31-02                14,915         16,999         15,560
     03-31-03                16,072         18,680         16,854

===== W&R Municipal Bond Fund, Class C Shares (1) -- $16,072
+++++ Lehman Brothers Municipal Bond Index -- $18,680
- ----- Lipper General Municipal Debt Funds Universe Average -- $16,854

(1)  The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03              4.09%     3.81%           7.75%     8.52%
5-year period ended
  3-31-03                ---       ---           3.62%      ---
10-year period ended
  3-31-03                ---       ---           4.86%      ---
Since inception of
  Class through
  3-31-03(4)           5.44%     5.19%            ---      4.09%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 4.25%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)9-15-00 for Class A shares, 8-8-00 for Class B shares and 12-30-98 for Class
   Y shares (the date on which shares were first acquired and continuously held
   by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND

- -----------------------------------------------------------------
Municipal Bond Fund

GOAL
To seek income which is not subject to Federal income tax.  (Income may be
subject to state and local taxes, and a significant portion may be subject to
the Federal alternative minimum tax.)

Strategy
Invests primarily in tax-exempt municipal bonds, mainly of investment grade.
The Fund diversifies its holdings among two main types of municipal bonds:
general obligation bonds and revenue bonds.

Founded
1992

Scheduled Dividend Frequency
Declared daily, paid monthly

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- ----------------------------------------

Dividends paid                    $0.32
                                  =====

Net asset value on
    3-31-03                      $11.10
    3-31-02                       10.61
                                 ------
Change per share                 $ 0.49
                                 ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03         4.09%     8.71%          3.81%          7.81%
 5-year period
  ended 3-31-03          ---       ---            ---            ---
10-year period
  ended 3-31-03          ---       ---            ---            ---
Since inception
  of Class (F)          5.44%     7.26%          5.19%          6.22%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 4.25% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  9-15-00 for Class A shares and 8-8-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period            Class C(B)   Class Y(C)
- ------            ----------   ----------
 1-year period
  ended 3-31-03         7.75%     8.52%
 5-year period
  ended 3-31-03         3.62%      ---
10-year period
  ended 3-31-03         4.86%      ---
Since inception
  of Class (D)          ---       4.09%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  12-30-98 for Class Y shares (the date on which shares were first acquired
     and continuously held by shareholders).



SHAREHOLDER SUMMARY OF MUNICIPAL BOND FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Municipal Bond Fund had net assets totaling $27,844,783
invested in a diversified portfolio.


As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

  $15.05Education Revenue Bonds
   12.80Hospital Revenue Bonds
    9.39City and County General Obligation Bonds
    8.84Water and Sewer Revenue Bonds
    6.96Sales Revenue Bonds
    6.62Public Power Revenue Bonds
    6.39School General Obligation Bonds
    6.30Other Municipal Bonds
    6.04 Airport Revenue Bonds
    5.55Housing Revenue Bonds
    4.98Special Tax Bonds
    4.85Lease/Certificate of Participation Bonds
    4.79Transportation Revenue Bonds
    1.44Cash and Cash Equivalents

                   2003 TAX YEAR TAXABLE EQUIVALENT YIELDS(1)
- ---------------------------------------------------------------------------
If your Taxable Income is:
                                    Your         Equivalent
                                  Marginal    Tax Free Yields
   Joint               Single        Tax---------------------------
   return              Return    Bracket Is  3%    4%    5%    6%

$      0- 12,000  $      0-  6,000          10% 3.33% 4.44% 5.56% 6.67%

$ 12,001- 47,450     6,001- 28,400          15% 3.53% 4.71% 5.88% 7.06%

$ 47,451-114,650  $ 28,401- 68,800          27% 4.11% 5.48% 6.85% 8.22%

$114,651-174,700  $ 68,801-143,500          30% 4.29% 5.71% 7.14% 8.57%

$174,701-311,950  $143,501-311,950          35% 4.62% 6.15% 7.69% 9.23%

$311,951 and above$311,951 and above      38.6% 4.89% 6.51% 8.14% 9.77%

(1)  Table is for illustration only and does not represent the actual
     performance of W&R Funds, Inc. - Municipal Bond Fund.



THE INVESTMENTS OF MUNICIPAL BOND FUND

     March 31, 2003

                                           Principal
                                           Amount in
                                           Thousands        Value

MUNICIPAL BONDS
Arizona - 2.99%
 The Industrial Development Authority of the
   City of Phoenix, Arizona, Single Family
   Mortgage Revenue Bonds, Series 2002-1A,
   3.5%, 3-1-34 ..........................      $500  $   554,055
 City of Bullhead City, Arizona, Bullhead
   Parkway Improvement District,
   Improvement Bonds,
   6.1%, 1-1-13 ..........................       270      278,340
                                                      -----------
                                                          832,395
                                                      -----------

California - 3.92%
 San Mateo County Community College District
   (County of San Mateo, California), 2002
   General Obligation Bonds (Election of 2001),
   Series A (Current Interest Bonds),
   5.375%, 9-1-15 ........................       500      561,805
 Trustees of the California State University
   Systemwide Revenue Bonds, Series 2002A,
   5.5%, 11-1-15 .........................       250      284,922
 State of California Department of Water
   Resources, Power Supply Revenue Bonds,
   Series 2002A,
   5.5%, 5-1-18 ..........................       215      245,025
                                                      -----------
                                                        1,091,752
                                                      -----------

Colorado - 5.38%
 City of Aspen, Colorado, Sales Tax
   Revenue Bonds, Series 1999,
   5.25%, 11-1-15 ........................       500      535,520
 Boulder County, Colorado, Hospital
   Development Revenue Bonds (Longmont United
   Hospital Project), Series 1997,
   5.6%, 12-1-27 .........................       500      493,380
 El Paso County School District No. 12 - Cheyenne
   Mountain, El Paso County, Colorado, General
   Obligation Refunding Bonds, Series 2002,
   0.0%, 9-15-12 .........................       685      468,095
                                                      -----------
                                                        1,496,995
                                                      -----------

Florida - 5.04%
 Polk County, Florida, Capital Improvement
   and Refunding Revenue Bonds, Series 2002,
   5.25%, 12-1-09 ........................       500      571,015
 School District of Hillsborough County,
   Florida, Sales Tax Revenue Bonds,
   Series 2002,
   5.375%, 10-1-13 .......................       500      560,180
 City of Jacksonville, Florida, Better Jacksonville
   Sales Tax Revenue Bonds, Series 2003,
   5.25%, 10-1-19 ........................       250      272,760
                                                      -----------

                                                        1,403,955
                                                      -----------

Georgia - 0.83%
 Hospital Authority of Cobb County (Georgia),
   Revenue Anticipation Refunding and Improvement
   Certificates, Series 2003,
   5.25%, 4-1-20 (A) .....................       210      230,223
                                                      -----------

Illinois - 9.00%
 Village of Bedford Park, Cook County,
   Illinois, Water Revenue Bonds, Series 2000A,
   6.0%, 12-15-12 ........................       955    1,064,615
 School District Number 116, Champaign County,
   Illinois (Urbana), General Obligation School
   Building Bonds, Series 1999C,
   0.0%, 1-1-11 ..........................       850      630,522
 Bloomington-Normal Airport Authority of McLean
   County, Illinois, Central Illinois Regional
   Airport, Passenger Facility Charge Revenue
   Bonds, Series 2001,
   6.05%, 12-15-19 .......................       645      594,658
 Public Building Commission of Chicago,
   Building Revenue Bonds, Series 2003
   (Chicago Transit Authority),
   5.25%, 3-1-19 .........................       200      215,696
                                                      -----------
                                                        2,505,491
                                                      -----------

Indiana - 9.97%
 New Albany-Floyd County School Building
   Corporation, First Mortgage Bonds,
   Series 2002 (Floyd County, Indiana),
   5.75%, 7-15-17 ........................       675      764,687
 Ball State University Board of Trustees,
   Ball State University Student Fee Bonds,
   Series K,
   5.75%, 7-1-18 .........................       500      563,210
 Dyer (Indiana) Redevelopment Authority,
   Economic Development Lease Rental Bonds,
   Series 1999,
   6.5%, 1-15-24 .........................       500      549,305
 Westfield High School 1995 Building
   Corporation (Hamilton County, Indiana),
   First Mortgage Bonds, Series 2002,
   5.5%, 7-15-16 .........................       435      487,000
 East Chicago Elementary School Building
   Corporation (Lake County, Indiana),
   First Mortgage Bonds, Series 1993A,
   5.5%, 1-15-16 .........................       400      411,556
                                                      -----------
                                                        2,775,758
                                                      -----------

Iowa - 1.22%
 Scott County, Iowa, Refunding Certificates
   of Participation (County Golf Course
   Project, Series 1993),
   6.2%, 5-1-13 ..........................       340      340,534
                                                      -----------

Kansas - 4.86%
 Chisholm Creek Utility Authority, Water and

   Wastewater Facilities Revenue Bonds
   (Cities of Bel Aire and Park City,
   Kansas Project), Series 2002,
   5.25%, 9-1-15 .........................       755      839,651
 Sedgwick County, Kansas and Shawnee County,
   Kansas, Single Family Mortgage Revenue
   Bonds (Mortgage-Backed Securities Program),
   2001 Series A-1 (AMT),
   6.3%, 12-1-32 .........................       470      513,362
                                                      -----------
                                                        1,353,013
                                                      -----------

Louisiana - 2.99%
 State of Louisiana, Gasoline and Fuels
   Tax Revenue Bonds, 2002 Series A,
   5.25%, 6-1-13 .........................       500      558,495
 City of New Orleans, Louisiana, Limited
   Tax Certificates of Indebtedness, Series 2003,
   5.0%, 3-1-07 ..........................       250      275,498
                                                      -----------
                                                          833,993
                                                      -----------

Maryland - 1.94%
 Maryland Transportation Authority, Airport
   Parking Revenue Bonds, Series 2002B,
   Baltimore/Washington International Airport
   Projects (Qualified Airport Bonds - AMT),
   5.375%, 3-1-15 ........................       500      541,300
                                                      -----------

Minnesota - 5.62%
 City of Victoria, Minnesota, Private School
   Facility Revenue Bonds (Holy Family
   Catholic High School Project), Series 1999A,
   5.6%, 9-1-19 ..........................       750      712,155
 City of Perham, Minnesota, General Obligation
   Disposal System Revenue Bonds, Series 2001,
   6.0%, 5-1-22 ..........................       500      516,105
 City of Minneapolis, Minnesota, General Obligation
   Convention Center Bonds, Series 2002,
   5.0%, 12-1-10 .........................       300      335,988
                                                      -----------
                                                        1,564,248
                                                      -----------

Missouri - 5.08%
 The City of St. Louis, Missouri, Airport
   Revenue Bonds, Series 2001A (Airport
   Development Program),
   5.0%, 7-1-11 ..........................       500      546,540
 City of Sikeston, Missouri, Electric System
   Revenue Refunding Bonds, 1996 Series,
   6.0%, 6-1-14 ..........................       400      479,416
 City of Kearney, Missouri, General Obligation
   Bonds, Series 2001,
   5.5%, 3-1-16 ..........................       350      388,045
                                                      -----------
                                                        1,414,001
                                                      -----------

Nebraska - 2.01%
 Nebraska Higher Education Loan Program, Inc.,
   Senior Subordinate Bonds, 1993-2,

   Series A-5A,
   6.2%, 6-1-13 ..........................       500      561,295
                                                      -----------

Nevada - 1.00%
 Carson City, Nevada Hospital Revenue Bonds
   (Carson-Tahoe Hospital Project),
   Series 2002,
   6.0%, 9-1-15 ..........................       255      278,761
                                                      -----------

New Jersey - 0.98%
 Garden State Preservation Trust, Open Space
   and Farmland Preservation Bonds, 2003 Series A
   (Current Interest Bonds),
   5.25%, 11-1-19 ........................       250      272,002
                                                      -----------

New Mexico - 2.55%
 New Mexico Hospital Equipment Loan Council,
   Hospital Revenue Bonds (Memorial Medical
   Center, Inc. Project), Series 1998,
   4.85%, 6-1-08 .........................       725      711,348
                                                      -----------

New York - 9.94%
 The Port Authority of New York and New Jersey,
   Consolidated Bonds, One Hundred Twenty-Seventh
   Series,
   5.5%, 12-15-14 ........................       500      561,520
 New York City, Municipal Water Finance Authority,
   Water and Sewer System Revenue Bonds, Fiscal 2003
   Series D,
   5.0%, 6-15-09 .........................       500      557,670
 New York State Thruway Authority, State Personal
   Income Tax Revenue Bonds (Transportation),
   Series 2002A,
   5.25%, 3-15-10 ........................       500      557,475
 The City of New York, General Obligation Bonds,
   Fiscal 2003 Series A Current Interest Bonds,
   5.5%, 8-1-10 ..........................       500      548,865
 Dormitory Authority of the State of New York,
   Third General Resolution Revenue Bonds (State
   University Educational Facilities Issue),
   Series 2002B,
   5.25%, 11-15-23 .......................       500      543,745
                                                      -----------
                                                        2,769,275
                                                      -----------

Oklahoma - 0.88%
 Tulsa Public Facilities Authority (Oklahoma),
   Assembly Center Lease Payment Revenue
   Bonds, Refunding Series 1985,
   6.6%, 7-1-14 ..........................       200      245,040
                                                      -----------

Pennsylvania - 3.14%
 The School District of Philadelphia,
   Pennsylvania, General Obligation Bonds,
   Series A of 2002,
   5.5%, 2-1-18 ..........................       500      550,990
 Schuylkill County Industrial Development Authority,
   Variable Rate Demand Revenue Bonds (Pine Grove
   Landfill, Inc. Project), 1995 Series,

   5.1%, 10-1-19 .........................       320      322,464
                                                      -----------
                                                          873,454
                                                      -----------

Rhode Island - 2.61%
 Rhode Island Health and Educational Building
   Corporation, Hospital Financing Revenue Bonds,
   St. Joseph Health Services of Rhode Island
   Issue, Series 1999,
   5.4%, 10-1-09 .........................       725      725,783
                                                    -------------

South Carolina - 1.99%
 South Carolina Public Service Authority, Santee
   Cooper, Revenue Obligations, 2002 Refunding
   Series D,
   5.0%, 1-1-10 ..........................       500      554,505
                                                      -----------

Texas - 6.34%
 Board of Regents of Texas Tech University
   System, Revenue Financing System Bonds,
   Seventh Series (2001),
   5.5%, 8-15-17 .........................       500      551,180
 Texas Department of Housing and Community
   Affairs, Single Family Mortgage Revenue
   Bonds, 1997 Series D (AMT) TEAMS Structure,
   5.7%, 9-1-29 ..........................       465      477,006
 Lufkin Health Facilities Development
   Corporation, Health System Revenue and
   Refunding Bonds (Memorial Health System
   of East Texas), Series 1995,
   6.875%, 2-15-26 .......................       495      462,879
 Pflugerville Independent School District (Travis
   County, Texas), Unlimited Tax School Building
   Bonds, Series 2001,
   5.5%, 8-15-19 .........................       250      273,268
                                                      -----------
                                                        1,764,333
                                                      -----------

Virginia - 1.98%
 City of Chesapeake, Virginia, General Obligation
   Public Improvement and Refunding Bonds,
   Series of 2001,
   5.5%, 12-1-17 .........................       500      551,220
                                                      -----------

Washington - 2.03%
 Energy Northwest, Project No. 1 Refunding
   Electric Revenue Bonds, Series 2002-A,
   5.75%, 7-1-16 .........................       500      564,145
                                                      -----------

Wisconsin - 2.37%
 Wisconsin Health and Educational Facilities
   Authority, Wheaton Franciscan Services,
   Inc., System Revenue and Refunding Bonds,
   Series 2002,
   6.0%, 8-15-15 .........................       600      660,882
                                                      -----------

Wyoming - 1.90%
 Wyoming Student Loan Corporation, Student

   Loan Revenue Refunding Bonds, Series
   1999A (Non-AMT),
   6.2%, 6-1-24 ..........................       500      528,440
                                                      -----------

TOTAL MUNICIPAL BONDS - 98.56%                        $27,444,141
 (Cost: $26,432,153)

TOTAL SHORT-TERM SECURITIES - 1.65%                   $   459,000
 (Cost: $459,000)

TOTAL INVESTMENT SECURITIES - 100.21%                 $27,903,141
 (Cost: $26,891,153)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.21%)       (58,358)

NET ASSETS - 100.00%                                  $27,844,783


Notes to Schedule of Investments

(A)Purchased on a when-issued basis with settlement subsequent to March 31,
   2003.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     MUNICIPAL BOND FUND
     March 31, 2003
     (In Thousands, Except for Per Share and Share Amounts)

ASSETS
 Investment securities -- at value (cost - $26,891)
   (Notes 1 and 3) .........................................   $27,903
 Cash  .....................................................         1
 Receivables:
   Interest ................................................       338
   Fund shares sold ........................................        40
 Prepaid registration fees  ................................         6
                                                               -------
    Total assets  ..........................................    28,288
                                                               -------
LIABILITIES
 Payable for investment securities purchased  ..............       225
 Payable to Fund shareholders  .............................       194
 Dividends payable  ........................................         9
 Accrued shareholder servicing (Note 2)  ...................         6
 Accrued accounting services fee (Note 2)  .................         2
 Accrued distribution and service fees (Note 2)  ...........         1
 Other  ....................................................         6
                                                               -------
    Total liabilities  .....................................       443
                                                               -------
      Total net assets .....................................   $27,845
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................   $    25
   Additional paid-in capital ..............................    27,701
 Accumulated undistributed income (loss):
   Accumulated undistributed net investment income .........        14
   Accumulated undistributed net realized loss
    on investments  ........................................      (907)
   Net unrealized appreciation in value of investments .....     1,012
                                                               -------
    Net assets applicable to outstanding units
      of capital ...........................................   $27,845
                                                               =======
Net asset value per share (net assets divided by shares
 outstanding):
 Class A  ..................................................    $11.10
 Class B  ..................................................    $11.10
 Class C  ..................................................    $11.10
 Class Y  ..................................................    $11.10
Capital shares outstanding:
 Class A  ..................................................   239,655
 Class B  ..................................................    47,889
 Class C  .................................................. 2,220,429
 Class Y  ..................................................       350
Capital shares authorized .................................200,000,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     MUNICIPAL BOND FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT INCOME
 Income (Note 1B):
   Interest and amortization ...............................    $1,391
                                                                ------
 Expenses (Note 2):
   Distribution fee:
    Class A  ...............................................       ---*
    Class B  ...............................................         3
    Class C  ...............................................       185
    Class Y  ...............................................       ---*
   Investment management fee ...............................       145
   Service fee:
    Class A  ...............................................         6
    Class B  ...............................................         1
    Class C  ...............................................        62
   Shareholder servicing:
    Class A  ...............................................         2
    Class B  ...............................................         1
    Class C  ...............................................        52
    Class Y  ...............................................       ---*
   Accounting services fee .................................        24
   Audit fees ..............................................        13
   Custodian fees ..........................................         4
   Other ...................................................        40
                                                                ------
    Total expenses  ........................................       538
                                                                ------
      Net investment income ................................       853
                                                                ------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3)
 Realized net gain on investments  .........................        42
 Unrealized appreciation in value of investments
   during the period .......................................     1,161
                                                                ------
    Net gain on investments  ...............................     1,203
                                                                ------
      Net increase in net assets resulting from operations .    $2,056
                                                                ======
*Not shown due to rounding.

See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     MUNICIPAL BOND FUND
     (In Thousands)
                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment income .................   $   853      $   944
   Realized net gain (loss) on investments        42         (270)
   Unrealized appreciation ...............     1,161          509
                                             -------      -------
    Net increase in net assets
      resulting from operations ..........     2,056        1,183
                                             -------      -------
 Distributions to shareholders from
   net investment income (Note 1E):(1)
   Class A ...............................       (99)         (70)
   Class B ...............................       (13)          (2)
   Class C ...............................      (727)        (872)
   Class Y ...............................       ---*         ---*
                                             -------      -------
                                                (839)        (944)
                                             -------      -------
 Capital share transactions (Note 5)  ....       119         (748)
                                             -------      -------
   Total increase (decrease) .............     1,336         (509)
NET ASSETS
 Beginning of period  ....................    26,509       27,018
                                             -------      -------
 End of period  ..........................   $27,845      $26,509
                                             =======      =======
   Undistributed net investment income ...   $    14      $   ---
                                             =======      =======
    *Not shown due to rounding.
(1)  See "Financial Highlights" on pages 161 - 164.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MUNICIPAL BOND FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         9-15-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.61 $10.52         $10.33
                             ------ ------         ------
Income from investment
 operations:
 Net investment
   income ..........           0.42   0.47           0.26
 Net realized and
   unrealized gain
   on investments ..           0.49   0.09           0.19
                             ------ ------         ------
Total from investment
 operations  .......           0.91   0.56           0.45
                             ------ ------         ------
Less distributions:
 Declared from net
   investment income          (0.42) (0.47)         (0.26)
 From capital gains           (0.00) (0.00)         (0.00)
                             ------ ------         ------
Total distributions           (0.42) (0.47)         (0.26)
                             ------ ------         ------
Net asset value,
 end of period  ....         $11.10 $10.61         $10.52
                             ====== ======         ======
Total return(2) ....           8.71%  5.38%          4.32%
Net assets, end of
 period (in millions)            $3     $2             $1
Ratio of expenses
 to average net
 assets  ...........           1.15%  1.17%          1.21%(3)
Ratio of net investment
 income to average
 net assets  .......           3.79%  4.37%          4.69%(3)
Portfolio turnover rate       40.03% 36.41%         34.78%(4)

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MUNICIPAL BOND FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          8-8-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.61 $10.52         $10.26
                             ------ ------         ------
Income from investment
 operations:
 Net investment
   income ..........           0.33   0.32           0.22
 Net realized and
   unrealized gain
   on investments ..           0.49   0.09           0.26
                             ------ ------         ------
Total from investment
 operations  .......           0.82   0.41           0.48
                             ------ ------         ------
Less distributions:
 Declared from net
   investment income          (0.33) (0.32)         (0.22)
 From capital gains           (0.00) (0.00)         (0.00)
                             ------ ------         ------
Total distributions           (0.33) (0.32)         (0.22)
                             ------ ------         ------
Net asset value,
 end of period  ....         $11.10 $10.61         $10.52
                             ====== ======         ======
Total return .......           7.81%  3.97%          4.66%
Net assets, end of
 period (000 omitted)          $532   $120            $37
Ratio of expenses to
 average net assets            1.96%  2.44%          2.82%(2)
Ratio of net investment
 income to average
 net assets  .......           2.98%  3.09%          3.11%(2)
Portfolio turnover rate       40.03% 36.41%         34.78%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MUNICIPAL BOND FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........         $10.61 $10.52  $10.11 $11.24  $11.45
                             ------ ------  ------ ------  ------
Income (loss) from
 investment operations:
 Net investment
   income ..........           0.32   0.37    0.40   0.42    0.42
 Net realized and
   unrealized gain
   (loss) on
   investments .....           0.49   0.09    0.41  (1.11)   0.10
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......           0.81   0.46    0.81  (0.69)   0.52
                             ------ ------  ------ ------  ------
Less distributions:
 Declared from net
   investment income          (0.32) (0.37)  (0.40) (0.42)  (0.42)
 From capital gains           (0.00) (0.00)  (0.00) (0.02)  (0.31)
                             ------ ------  ------ ------  ------
Total distributions           (0.32) (0.37)  (0.40) (0.44)  (0.73)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $11.10 $10.61  $10.52 $10.11  $11.24
                             ====== ======  ====== ======  ======
Total return .......           7.75%  4.40%   8.22% -6.21%   4.64%
Net assets, end of
 period (in
 millions)  ........            $25    $24     $26    $28     $43
Ratio of expenses to
 average net assets            2.03%  2.13%   2.13%  1.98%   1.88%
Ratio of net investment
 income to average
 net assets  .......           2.95%  3.44%   3.94%  3.94%   3.68%
Portfolio turnover
 rate  .............          40.03% 36.41%  34.78% 16.95%  41.53%

(1)  See Note 5.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     MUNICIPAL BOND FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                           For the
                                                            period
                                     For the fiscal          from
                                   year ended March 31,    12-30-98(1)
                                ---------------------------    to
                               2003  2002     2001    2000  3-31-99
                               ----  ----     ----    ----  -------
Net asset value,
 beginning of
 period  ...........         $10.61 $10.52  $10.11 $11.24  $11.58
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   income ..........           0.40   0.44    0.47   0.48    0.13
 Net realized and unrealized
   gain (loss) on
   investments .....           0.49   0.09    0.41  (1.11)  (0.03)
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......           0.89   0.53    0.88  (0.63)   0.10
                             ------ ------  ------ ------  ------
Less distributions:
 Declared from net
   investment income          (0.40) (0.44)  (0.47) (0.48)  (0.13)
 From capital gains           (0.00) (0.00)  (0.00) (0.02)  (0.31)
                             ------ ------  ------ ------  ------
Total distributions           (0.40) (0.44)  (0.47) (0.50)  (0.44)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $11.10 $10.61  $10.52 $10.11  $11.24
                             ====== ======  ====== ======  ======
Total return .......           8.52%  5.10%   9.04% -5.69%   0.80%
Net assets, end of period
 (000 omitted)  ....             $4     $2      $2     $2      $2
Ratio of expenses to
 average net assets            1.33%  1.44%   1.47%  1.40%   1.00%(2)
Ratio of net investment
 income to average net
 assets  ...........           3.64%  4.09%   4.61%  4.52%   4.40%(2)
Portfolio turnover rate       40.03% 36.41%  34.78% 16.95%  41.53%(3)

(1)  Recommencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 1999.

See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Zachary H. Shafran, portfolio manager of W&R Funds, Inc. -
Science and Technology Fund


This report relates to the operation of W&R Funds, Inc. -- Science and
Technology Fund for the fiscal year ended March 31, 2003.  The following
discussion, graphs and tables provide you with information regarding the Fund's
performance during that period.

How did the Fund perform during the last fiscal year?
The Fund did relatively well, as it outperformed its benchmark index during the
fiscal year.  Even so, given the very challenging environment for the technology
sector, it had a negative return for the year.  The Class C shares of the Fund
declined 22.76 percent for the fiscal year, compared with the Goldman Sachs
Technology Industry Composite Index (reflecting the performance of securities
that generally represent the technology sector of the stock market), which
declined 35.90 percent for the year, and the Lipper Science & Technology Funds
Universe Average (generally reflecting the performance of the universe of funds
with similar investment objectives), which declined 38.20 percent for the year.

What helped the Fund outperform its benchmark index during the fiscal year?
We feel that we were able to outperform our benchmark due primarily, we believe,
to our relative underweight position in technology and a higher than normal cash
reserve.  Our generally defensive and diversified approach throughout the year
proved to be beneficial.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
The global economy remained soft throughout the fiscal year, yet that softness
was cushioned by strong domestic consumer confidence.  Rising geopolitical
tensions spread beyond the war in Iraq, including the general strike in
Venezuela, growing anti-American sentiment in both North and South Korea and the
increased threat of terrorist attacks around the globe.  Information-technology
(IT) spending by corporations was under pressure for most of the period, and
consumer-related spending began to slow late in 2002.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
The Fund remained well diversified, and we were largely successful in avoiding
the wrong areas during the year.  Our underweight position in technology worked
out well despite the late-year (2002) rally.  We were overweight in health care,
which also was relatively helpful to overall performance.  Higher than normal
cash reserves allowed us to be both defensive and opportunistic.

What industries did you emphasize during the fiscal year, and what looks
attractive to you going forward?
Consistent with our mandate, we continued to focus on science and technology
holdings during the fiscal year.  However, we continue to take a broader view in
two ways.  We are looking more globally for opportunities and for industries
that we feel are benefiting from advances in science and technology.  A good
example of this would be the energy sector, particularly natural gas in North
America.  We believe that supply will remain tight and that a key to new
exploration and production efforts will be new technology.  Science,
particularly health care, likely will remain a focus within the Fund, as we feel
that the opportunities to practice better medicine and address unmet clinical
needs have never been greater.  Overall, we continue to look for companies that
we feel are well positioned to prosper in an ever-changing environment.


Respectfully,



Zachary H. Shafran
Manager
W&R Science and Technology Fund



Comparison of Change in Value of $10,000 Investment


                            Goldman    Lipper
                              Sachs Science &
                      W&RTechnology Technology
               Science and Industry     Funds
               Technology Fund,Composite Universe
               Class C Shares Index   Average
               -------------------------------
     07-31-97      10,000    10,000    10,000
     03-31-98      12,010    10,550    10,982
     03-31-99      17,450    16,689    16,710
     03-31-00      45,325    32,935    39,376
     03-31-01      23,802    12,805    15,341
     03-31-02      24,015    11,704    13,677
     03-31-03      18,549     7,502     8,452

===== W&R Science and Technology Fund, Class C Shares (1) - $18,549
...... Goldman Sachs Technology Industry Composite Index - $7,502
***** Lipper Science & Technology Funds Universe Average - $8,452

 (1) The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03            -26.58%   -26.07%         -22.76%   -21.74%
5-year period ended
  3-31-03              ---       ---             9.08%      ---
Since inception of
  Class through
  3-31-03(4)         -21.91%   -21.66%          11.52%    10.01%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)7-3-00 for Class A and Class B shares, 7-31-97 for Class C shares and 6-9-98
   for Class Y shares (the date on which shares were first acquired by
   shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.


SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND

- ------------------------------------------------------------------------
Science and Technology Fund

GOAL
To seek long-term capital growth.

Strategy
Invests primarily in the equity securities of United States and foreign science
and technology companies.  Science and technology companies have products,
processes or services that are being or are expected to be significantly
benefited by the use or commercial application of scientific or technological
developments or discoveries.  As well, the Fund may invest in companies that
utilize science and/or technology to improve their existing business even though
the business is not within the science and technology industries.

Founded
1997

Scheduled Dividend Frequency
Annually (December)


Performance Summary -- Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- -------------------------------------------

Net asset value on
    3-31-03                     $13.88
    3-31-02                      17.97
                                ------
Change per share                $(4.09)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND

- ------------------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ---------
 1-year period
  ended 3-31-03       -26.58%   -22.10%        -26.07%        -22.99%
 5-year period
  ended 3-31-03       ---       ---            ---            ---
10-year period
  ended 3-31-03       ---       ---            ---            ---
Since inception
  of Class (F)        -21.91%   -20.21%        -21.66%        -21.01%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-3-00 for Class A shares and Class B shares (the date on which shares were
     first acquired by shareholders).

Average Annual Total Return(A)
Period            Class C(B)   Class Y(C)
- ------            ----------   ----------
 1-year period
  ended 3-31-03       -22.76%   -21.74%
 5-year period
  ended 3-31-03         9.08%      ---
10-year period
  ended 3-31-03          ---       ---
Since inception
  of Class (D)         11.52%    10.01%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  7-31-97 for Class C shares and 6-9-98 for Class Y shares (the date on which
     shares were first acquired by shareholders).

Investing in companies involved in one specified sector may involve a greater
degree of risk than an investment with greater diversification.



SHAREHOLDER SUMMARY OF SCIENCE AND TECHNOLOGY FUND

- ------------------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Science and Technology Fund had net assets totaling
$91,734,064 invested in a diversified portfolio of:

   68.07% Common Stocks
   31.93% Cash and Cash Equivalents and Options


As a shareholder of Science and Technology Fund, for every $100 you had invested
on March 31, 2003, your Fund owned:

 $31.93  Cash and Cash Equivalents and Options
  29.28  Health Care Stocks
  11.54  Technology Stocks
  10.24  Energy Stocks
   5.97  Miscellaneous Stocks
   5.62  Raw Materials Stocks
   2.99  Business Equipment and Services Stocks
   2.43  Utilities Stocks



THE INVESTMENTS OF SCIENCE AND TECHNOLOGY FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Aircraft - 3.80%
 Northrop Grumman Corporation  ...........    31,200  $ 2,676,960
 Raytheon Company  .......................    28,500      808,545
                                                     ------------
                                                        3,485,505
                                                     ------------

Broadcasting - 0.03%
 Adelphia Communications Corporation,
   Class A* ..............................   167,000       27,555
                                                     ------------

Business Equipment and Services - 1.82%
 Edison Schools Inc.*  ...................   182,000      165,620
 Euronet Worldwide, Inc.*  ...............   120,800      967,004
 RSA Security Inc.*  .....................    76,100      540,310
                                                     ------------
                                                        1,672,934
                                                     ------------

Capital Equipment - 0.73%
 Cooper Cameron Corporation*  ............    13,600      673,336
                                                     ------------

Chemicals -- Specialty - 2.43%
 Pall Corporation  .......................   111,500    2,230,000
                                                     ------------

Communications Equipment - 0.30%
 ADC Telecommunications, Inc.*  ..........   136,300      280,097
                                                      -----------

Computers -- Main and Mini - 0.30%
 Cray Inc.*  .............................    41,517      274,843
                                                      -----------

Computers -- Peripherals - 5.03%
 Oracle Corporation*  ....................    39,200      424,732
 Palm, Inc.*  ............................    28,400      282,438
 PeopleSoft, Inc. (A)*  ..................   103,200    1,581,540
 Symbol Technologies, Inc.  ..............   270,575    2,329,651
                                                      -----------
                                                        4,618,361
                                                      -----------

Consumer Electronics - 0.88%
 Sony Corporation, ADR  ..................    23,000      807,990
                                                      -----------

Electronic Components - 2.11%
 Agere Systems Inc., Class A*  ...........   385,500      616,800
 IXYS Corporation*  ......................    58,380      301,241
 United Microelectronics Corporation*  ...   336,910    1,014,099
                                                      -----------
                                                        1,932,140
                                                      -----------

Health Care -- Drugs - 14.99%
 Abbott Laboratories  ....................     9,400      353,534
 Alcon, Inc.*  ...........................    71,600    2,937,032

 Amylin Pharmaceuticals, Inc.*  ..........    14,300      230,444
 Biogen, Inc. (A)*  ......................    46,600    1,395,670
 Forest Laboratories, Inc.*  .............    39,000    2,104,830
 Genzyme Corporation
   - General Division (A)* ...............    72,800    2,652,104
 Incyte Corporation*  ....................    45,000      134,775
 IVAX Corporation*  ......................   104,600    1,281,350
 Pfizer Inc.  ............................    62,900    1,959,964
 SICOR Inc.*  ............................    41,945      701,111
                                                     ------------
                                                       13,750,814
                                                     ------------

Hospital Supply and Management - 14.29%
 Anthem, Inc.*  ..........................    36,900    2,444,625
 Cerner Corporation*  ....................    26,000      840,710
 HCA Inc. (A)  ...........................   114,500    4,735,720
 Province Healthcare Company*  ...........   222,500    1,969,125
 United Surgical Partners International,
   Inc.* .................................    11,673      215,892
 UnitedHealth Group Incorporated  ........    23,400    2,145,078
 VCA Antech, Inc.*  ......................    48,700      757,041
                                                     ------------
                                                       13,108,191
                                                     ------------

Mining - 2.80%
 Newmont Mining Corporation  .............    98,200    2,567,930
                                                      -----------

Multiple Industry - 2.17%
 Garmin Ltd. (A)*  .......................    41,600    1,489,488
 Research In Motion Limited*  ............    38,400      501,312
                                                      -----------
                                                        1,990,800
                                                     ------------

Petroleum -- Domestic - 8.94%
 Apache Corporation*  ....................    30,713    1,896,190
 Burlington Resources Inc.  ..............    35,809    1,708,447
 ConocoPhillips  .........................    14,400      771,840
 Newfield Exploration Company*  ..........    28,600      969,254
 Noble Energy, Inc.  .....................    50,800    1,741,932
 Unocal Corporation  .....................    42,200    1,110,282
                                                     ------------
                                                        8,197,945
                                                     ------------

Petroleum -- Services - 1.30%
 Baker Hughes Incorporated  ..............    39,700    1,188,221
                                                     ------------

Publishing - 2.16%
 Getty Images, Inc.*  ....................    72,000    1,977,120
                                                     ------------

Steel - 0.39%
 Lone Star Technologies, Inc.*  ..........    17,100      361,152
                                                     ------------

Timesharing and Software - 1.17%
 Alliance Data Systems Corporation* ......    27,200      462,400
 Manhattan Associates, Inc. (A)*  ........    10,633      186,556
 Micromuse Inc.*  ........................    81,100      422,125
                                                     ------------

                                                        1,071,081
                                                     ------------

Utilities -- Telephone - 2.43%
 Vodafone Group Plc, ADR  ................   122,300    2,228,306
                                                     ------------

TOTAL COMMON STOCKS - 68.07%                          $62,444,321
 (Cost: $81,442,166)

                                           Number of
                                           Contracts

PUT OPTIONS - 0.14%
 Garmin Ltd., May 27.5
   Expires 5-17-03 .......................       138          2,629
 Garmin Ltd., May 27.5
   Expires 5-24-03 .......................        92          1,840
 Garmin Ltd., May 27.5
   Expires 5-31-03 .......................        93          2,232
 Sox Index, April 280,
   Expires 4-19-03 .......................        36         22,680
 Sox Index, April 290
   Expires 4-19-03 .......................        93        102,300
                                                        -----------
                                                        $   131,681
                                                        -----------
 (Cost: $318,890)

                                           Principal
                                           Amount in
                                           Thousands

SHORT-TERM SECURITIES
 Beverages - 3.27%
 Diageo Capital plc,
   1.25%, 4-15-03 ........................    $3,000    2,998,542
                                                     ------------

 Chemicals -- Petroleum and Inorganic - 4.25%
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................     3,894    3,894,000
                                                     ------------

 Chemicals -- Specialty - 1.74%
 Air Products and Chemicals, Inc.,
   1.36%, 4-1-03 .........................     1,597    1,597,000
                                                     ------------

 Containers - 1.77%
 Bemis Company, Inc.,
   1.25%, 4-7-03 .........................     1,628    1,627,661
                                                     ------------

 Finance Companies - 1.63%
 Caterpillar Financial Services Corp.,
   1.22%, 4-7-03 .........................     1,500    1,499,695
                                                     ------------

 Food and Related - 7.84%
 General Mills, Inc.,
   1.45880%, Master Note .................     4,189    4,189,000
 Sara Lee Corporation,
   1.35%, 4-16-03 ........................     3,000    2,998,312
                                                     ------------

                                                        7,187,312
                                                     ------------

 Forest and Paper Products - 2.18%
 Sonoco Products Co.,
   1.44%, 4-1-03 .........................     2,000    2,000,000
                                                     ------------

 Household -- General Products - 6.04%
 Colgate-Palmolive Company,
   1.22%, 5-1-03 .........................     2,550    2,547,408
 Procter & Gamble Company (The),
   1.2%, 4-24-03 .........................     3,000    2,997,700
                                                     ------------
                                                        5,545,108
                                                     ------------

 Retail -- General Merchandise - 2.40%
 May Department Stores Co.,
   1.27%, 4-22-03 ........................     2,200    2,198,370
                                                      -----------

TOTAL SHORT-TERM SECURITIES - 31.12%                  $28,547,688
 (Cost: $28,547,688)

TOTAL INVESTMENT SECURITIES - 99.33%                  $91,123,690
 (Cost: $110,308,744)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.67%         610,374

NET ASSETS - 100.00%                                  $91,734,064


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Securities serve as cover for the following written call options outstanding
   at March 31, 2003.  (See Note 6 to financial statements):

                         Contracts
     Underlying          Subject  Expiration Month/Premium    Market
     Security            to Call  Exercise Price  Received     Value
     ----------          ------------------------ --------  --------
     Biogen, Inc.:
                          402       April/40      $ 75,875  $  2,010
                          25        April/42.5       3,550       ---
     Garmin Ltd.:
                          138       May/37.5         8,878    16,043
                          92        May/37.5         5,428    10,580
                          93        May/37.5         6,603    13,299
     Genzyme Corporation
       - General Division 728       April/35        80,080   183,456
     Manhattan Associates,
       Inc.               106       June/25         11,464     3,880
     PeopleSoft, Inc.:
                          233       April/25        23,999        24
                          472       April/22.5      68,457     2,360
Sox Index:
                          36        April/280       88,092    85,320
                          93        April/290      219,654   181,350
                                                  ------------------
                                                  $592,080  $498,322
                                                  ==================

   In addition to the above written call options, the following written put
   options were outstanding as of March 31, 2003.  (See Note 6 to financial
   statements):

                         Contracts
     Underlying          Subject  Expiration Month/Premium    Market
     Security            to Put   Exercise Price  Received     Value
     ----------          ------------------------ --------  --------
     Genzyme Corporation
       - General Division 728       April/25       $77,168    $7,280
                                                   =======    ======

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     SCIENCE AND TECHNOLOGY FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities -- at value (cost - $110,309)
   (Notes 1 and 3) .........................................   $91,124
 Cash  .....................................................         1
 Receivables:
   Investment securities sold ..............................     1,584
   Fund shares sold ........................................        73
   Dividends and interest ..................................        17
 Prepaid insurance premium .................................         1
                                                               -------
    Total assets  ..........................................    92,800
                                                               -------
LIABILITIES
 Outstanding written options at market (Note 6)  ...........       506
 Payable to Fund shareholders  .............................       474
 Accrued shareholder servicing (Note 2)  ...................        61
 Accrued accounting services fee (Note 2)  .................         3
 Accrued distribution fee (Note 2)  ........................         2
 Accrued management fee (Note 2)  ..........................         2
 Accrued service fee (Note 2) ..............................         1
 Other  ....................................................        17
                                                               -------
    Total liabilities  .....................................     1,066
                                                               -------
      Total net assets .....................................   $91,734
                                                               =======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................  $     66
   Additional paid-in capital...............................   148,963
 Accumulated undistributed income (loss):
   Accumulated undistributed net investment loss ...........        (3)
   Accumulated undistributed net realized loss
    on investment transactions  ............................   (38,271)
   Net unrealized depreciation in value of purchased options      (187)
   Net unrealized appreciation in value of written options .       164
   Net unrealized depreciation in value of securities ......   (18,998)
                                                              --------
    Net assets applicable to outstanding units
      of capital ...........................................  $ 91,734
Net asset value per share (net assets divided by              ========
 shares outstanding):
 Class A  ..................................................    $14.17
 Class B  ..................................................    $13.77
 Class C  ..................................................    $13.88
 Class Y  ..................................................    $14.51
Capital shares outstanding:
 Class A  ..................................................     1,010
 Class B  ..................................................       287
 Class C  ..................................................     5,063
 Class Y  ..................................................       221
Capital shares authorized ..................................   400,000
See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     SCIENCE AND TECHNOLOGY FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)
INVESTMENT LOSS
 Income (Note 1B):
   Interest and amortization ...............................  $    515
   Dividends (net of foreign withholding taxes of $14) .....       390
                                                              --------
    Total income  ..........................................       905
 Expenses (Note 2):                                           --------
   Investment management fee ...............................       856
   Distribution fee:
    Class A  ...............................................         3
    Class B  ...............................................        29
    Class C  ...............................................       618
    Class Y  ...............................................         7
   Shareholder servicing:
    Class A  ...............................................        63
    Class B  ...............................................        38
    Class C  ...............................................       537
    Class Y  ...............................................         5
   Service fee:
    Class A  ...............................................        27
    Class B  ...............................................        10
    Class C  ...............................................       206
   Accounting services fee .................................        39
   Custodian fees ..........................................        26
   Audit fees ..............................................        13
   Legal fees ..............................................         1
   Other ...................................................        88
                                                              --------
    Total expenses  ........................................     2,566
                                                              --------
      Net investment loss ..................................    (1,661)
REALIZED AND UNREALIZED GAIN (LOSS)                           --------
ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities  ..........................   (15,491)
 Realized net gain on written options  .....................       857
 Realized net loss on purchased options  ...................      (220)
 Realized net loss from foreign currency transactions  .....       (12)
                                                              --------
   Realized net loss on investments ........................   (14,866)
 Unrealized depreciation in value of securities               --------
   during the period .......................................   (12,355)
 Unrealized appreciation in value of written
   options during the period ...............................       156
 Unrealized depreciation in value of purchased
   options during the period ...............................      (187)
                                                              --------
   Unrealized depreciation in value of investments
    during the period  .....................................   (12,386)
                                                              --------
    Net loss on investments  ...............................   (27,252)
      Net decrease in net assets resulting                    --------
       from operations  ....................................  $(28,913)
                                                              ========
See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     SCIENCE AND TECHNOLOGY FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
DECREASE IN NET ASSETS
 Operations:
   Net investment loss ...................   $(1,661)   $  (1,922)
   Realized net loss on
    investments  .........................   (14,866)     (22,049)
   Unrealized appreciation (depreciation)    (12,386)      25,014
                                            --------     --------
    Net increase (decrease) in net assets
      resulting from operations ..........   (28,913)       1,043
                                            --------     --------
 Distributions to shareholders from
   realized gains on investment
   transactions (Note 1E):(1)
   Class A ...............................       ---          (12)
   Class B ...............................       ---           (4)
   Class C ...............................       ---         (134)
   Class Y ...............................       ---           (3)
                                            --------     --------
                                                 ---         (153)
                                            --------     --------
 Capital share transactions (Note 5)  ....   (10,197)     (14,291)
                                            --------     --------
   Total decrease.........................   (39,110)     (13,401)
NET ASSETS
 Beginning of period  ....................   130,844      144,245
                                            --------     --------
 End of period  ..........................  $ 91,734     $130,844
                                            ========     ========
 Undistributed net investment loss  ......  $     (3)    $     (2)
                                            ========     ========

(1)  See "Financial Highlights" on pages 179 - 182.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SCIENCE AND TECHNOLOGY FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $18.19 $17.93         $34.91
                             ------ ------         ------
Income (loss) from investment
 operations:
 Net investment
   income (loss) ...          (0.32) (0.45)          0.02
 Net realized and
   unrealized gain (loss)
   on investments ..          (3.70)  0.73          (9.35)
                             ------ ------         ------
Total from investment
 operations  .......          (4.02)  0.28          (9.33)
                             ------ ------         ------
Less distribution
 from capital gains           (0.00) (0.02)         (7.65)
                             ------ ------         ------
Net asset value,
 end of period  ....         $14.17 $18.19         $17.93
                             ====== ======         ======
Total return(2) ....         -22.10%  1.56%        -31.95%
Net assets, end of
 period (in millions)           $14    $12             $6
Ratio of expenses to
 average net assets            1.79%  1.75%          1.70%(3)
Ratio of net investment
 income (loss) to average
 net assets  .......          -0.92% -0.76%          0.26%(3)
Portfolio turnover
 rate  .............          74.48% 90.92%        111.25%(4)

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SCIENCE AND TECHNOLOGY FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $17.88 $17.80         $34.91
                             ------ ------         ------
Income (loss) from investment
 operations:
 Net investment loss          (0.34) (0.38)         (0.06)
 Net realized and
   unrealized gain (loss)
   on investments ..          (3.77)  0.48          (9.40)
                             ------ ------         ------
Total from investment
 operations  .......          (4.11)  0.10          (9.46)
                             ------ ------         ------
Less distribution
 from capital gains           (0.00) (0.02)         (7.65)
                             ------ ------         ------
Net asset value,
 end of period  ....         $13.77 $17.88         $17.80
                             ====== ======         ======
Total return .......         -22.99%  0.56%        -32.37%
Net assets, end of
 period (in millions)            $4     $4             $3
Ratio of expenses to
 average net assets            3.00%  2.75%          2.53%(2)
Ratio of net investment
 loss to average
 net assets  .......          -2.12% -1.73%         -0.55%(2)
Portfolio turnover
 rate  .............          74.48% 90.92%        111.25%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SCIENCE AND TECHNOLOGY FUND
     Class C Shares (1)
     For a Share of Capital Stock Outstanding Throughout Each Period:

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of period         $17.97 $17.83  $45.03 $17.45  $12.01
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   loss ............          (0.25) (0.24)  (0.12) (0.95)  (0.09)
 Net realized and
   unrealized gain (loss)
   on investments ..          (3.84)  0.40  (19.43) 28.77    5.53
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (4.09)  0.16  (19.55) 27.82    5.44
                             ------ ------  ------ ------  ------
Less distribution from
 capital gains  ....          (0.00) (0.02)  (7.65) (0.24)  (0.00)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $13.88 $17.97  $17.83 $45.03  $17.45
                             ====== ======  ====== ======  ======
Total return .......         -22.76%  0.89% -47.49%159.75%  45.30%
Net assets, end of
 period (in millions)           $70   $112    $134   $283     $44
Ratio of expenses to
 average net assets            2.67%  2.45%   2.27%  2.20%   2.57%
Ratio of net investment
 loss to average
 net assets  .......          -1.77% -1.40%  -0.44% -1.68%  -1.26%
Portfolio turnover
 rate  .............          74.48% 90.92% 111.25% 44.19%  51.00%

(1)  See Note 5.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SCIENCE AND TECHNOLOGY FUND
     Class Y Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:

                                                           For the
                                                            period
                                     For the fiscal          from
                                  year ended March 31,     6-9-98(1)
                            -----------------------------      to
                               2003   2002    2001   2000  3-31-99
                            -------------- --------------   ------
Net asset value,
 beginning of period         $18.54 $18.21  $45.36 $17.65  $12.20
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   income (loss) ...          (0.26) (0.51)  (0.01) (6.09)   0.01
 Net realized and
   unrealized gain (loss)
   on investments ..          (3.77)  0.86  (19.49) 34.04    5.44
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (4.03)  0.35  (19.50) 27.95    5.45
                             ------ ------  ------ ------  ------
Less distribution from
 capital gains  ....          (0.00) (0.02)  (7.65) (0.24)  (0.00)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $14.51 $18.54  $18.21 $45.36  $17.65
                             ====== ======  ====== ======  ======
Total return .......         -21.74%  1.92% -47.00%158.67%  44.67%
Net assets, end of
 period (000 omitted)        $3,198 $3,035  $1,466 $2,108     $53
Ratio of expenses to
 average net assets            1.41%  1.39%   1.35%  1.36%   0.62%(2)
Ratio of net investment
 income (loss) to
 average net assets           -0.53% -0.43%   0.47% -0.96%   0.54%(2)
Portfolio turnover
 rate  .............          74.48% 90.92% 111.25% 44.19%  51.00%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 1999.

See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Grant P. Sarris, portfolio manager of W&R Funds, Inc. - Small
Cap Growth Fund


This report relates to the operation of W&R Funds, Inc. -- Small Cap Growth Fund
for the fiscal year ended March 31, 2003.  The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.

How did the Fund perform during the last fiscal year?
In a difficult environment for equities, the Fund showed a negative return for
the fiscal year.  However, the Fund significantly outperformed its benchmark
index.  The Class C shares of the Fund decreased 22.70 percent for the fiscal
year, compared with the Russell 2000 Growth Index (reflecting the performance of
securities that generally represent the small companies sector of the stock
market), which decreased 31.62 percent for the year, and the Lipper Small-Cap
Growth Funds Universe Average (generally reflecting the performance of the
universe of funds with similar investment objectives), which decreased 30.88
percent for the same period.

What helped the Fund outperform its benchmark index during the fiscal year?
We believe that the Fund did better than the index primarily through individual
stock selection.  Although we had less of an emphasis on technology and producer
durables than the benchmark did, and this helped performance a small amount, on
the whole sector weightings had minimal impact on the Fund's relative
performance.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
Obviously, this past fiscal year was a challenging year for equity returns, and
particularly for those of small-cap growth equities.  Economic growth continued
to be weak, with no strong recovery in sight.  In this environment, we took a
somewhat conservative approach, which helped relative performance.

What strategies and techniques did you employ that affected performance during
the fiscal year?
In keeping with our conservative approach, we emphasized companies with solid
balance sheets and consistent, albeit slower, growth prospects.  Cash levels
were kept in the mid-teens as a percentage of the Fund for most of the year.
However, due to the timing of money flows in and out of the Fund, cash levels
had almost no impact on the Fund's performance.

What industries or sectors did you emphasize during the fiscal year, and what
looks attractive to you going forward?
The Fund was slightly overweight in health care, energy, and consumer
discretionary shares throughout the past year.  Producer durables, technology,
and financials were underemphasized versus the benchmark.  Although the
magnitude of these relative weightings was very small, they resulted in a more
balanced portfolio than in the recent past.  At present, we would expect the
above relative weightings to continue until a clear leading sector can be
identified.  We feel this will be more likely when there is greater visibility
of an economic recovery.  Going forward, we believe that individual stock
selection will be of utmost importance in this sideways market.  Our focus
continues to be on companies that we feel have the financial wherewithal to
weather the current storm, while having strong potential to grow when the
economy turns around.


Respectfully,



Grant P. Sarris
Manager
W&R Small Cap Growth Fund



Comparison of Change in Value of $10,000 Investment


                             W&R                   Lipper
                       Small Cap                Small-Cap
                          Growth      Russell      Growth
                           Fund,         2000       Funds
                         Class C       Growth    Universe
                          Shares        Index     Average
                         -------  -----------    --------
     03-31-93             10,000       10,000      10,000
     03-31-94             12,316       11,076      11,329
     03-31-95             15,101       11,859      12,394
     03-31-96             19,113       15,559      17,043
     03-31-97             17,016       14,651      16,983
     03-31-98             28,139       20,687      24,967
     03-31-99             34,219       18,396      23,348
     03-31-00             59,330       29,248      44,795
     03-31-01             38,463       17,624      28,664
     03-31-02             42,810       18,509      30,577
     03-31-03             33,091       12,656      21,134


===== W&R Small Cap Growth Fund, Class C Shares (1) -- $33,091
...... Russell 2000 Growth Index -- $12,656
- ----- Lipper Small-Cap Growth Funds Universe Average -- $21,134

(1)  The value of the investment in the Fund is impacted by the ongoing expenses
     of the Fund and assumes reinvestment of dividends and distributions.

                           Average Annual Total Return(2)
                    Class A     Class B      Class C(3)  Class Y
                    ---------------------------------------------
1-year period ended
  3-31-03            -26.58%   -26.06%         -22.70%   -21.95%
5-year period ended
  3-31-03              ---       ---             3.30%     4.20%
10-year period ended
  3-31-03              ---       ---            12.71%      ---
Since inception of
  Class through
  3-31-03(4)         -17.44%   -16.55%            ---      9.34%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry maximum contingent deferred sales charges (CDSC) of 5% and 1%,
   respectively.  (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)Performance data from 3-24-00 represents the actual performance of Class C
   shares.  Performance data prior to 3-24-00 represents the performance of the
   Fund's original Class B shares.  The original Class B shares were combined
   with Class C shares effective 3-24-00, and redesignated as Class C shares.
   The original Class B's performance has been adjusted to reflect the current
   contingent deferred sales charge (CDSC) structure applicable to Class C
   (1.00% maximum and declining to zero at the end of the first year after
   investment).  Accordingly, these returns reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.  New
   Class B shares, with fees and expenses different from the original Class B
   shares, were added to the Fund on 6-30-00.
(4)7-3-00 for Class A shares, 7-6-00 for Class B shares and 12-29-95 for Class Y
   shares (the date on which shares were first acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND

- -----------------------------------------------------------------
Small Cap Growth Fund

GOAL
To seek growth of capital.

Strategy
Invests primarily in common stocks of United States and foreign companies whose
market capitalizations are within the range of capitalizations of companies
included in the Lipper, Inc. Small Cap Category.  The Fund emphasizes relatively
new or unseasoned companies in the early stages of development or smaller
companies positioned in new or emerging industries where there is an opportunity
for rapid growth.

Founded
1992

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class C Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- -------------------------------------------

Net asset value on
3-31-03                         $ 8.07
3-31-02                          10.44
                                ------
Change per share                $(2.37)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03       -26.58%   -22.10%        -26.06%        -22.98%
 5-year period
  ended 3-31-03          ---       ---            ---            ---
10-year period
  ended 3-31-03          ---       ---            ---            ---
Since inception
  of Class (F)        -17.44%   -15.64%        -16.55%        -15.93%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  7-3-00 for Class A shares and 7-6-00 for Class B shares (the date on which
     shares were first acquired by shareholders).

Average Annual Total Return(A)
Period            Class C(B)   Class Y(C)
- ------            ----------   ----------
 1-year period
  ended 3-31-03       -22.70%   -21.95%
 5-year period
  ended 3-31-03         3.30%     4.20%
10-year period
  ended 3-31-03        12.71%      ---
Since inception
  of Class(D)            ---      9.34%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data from 3-24-00 represents the actual performance of Class C
     shares.  Performance data prior to 3-24-00 represents the performance of
     the Fund's original Class B shares.  The original Class B shares were
     combined with Class C shares effective 3-24-00, and redesignated as Class C
     shares.  The original Class B's performance has been adjusted to reflect
     the current contingent deferred sales charge (CDSC) structure applicable to
     Class C (1.00% maximum and declining to zero at the end of the first year
     after investment).  Accordingly, these returns reflect no CDSC since it

     only applies to Class C shares redeemed within twelve months after
     purchase.  New Class B shares, with fees and expenses different from the
     original Class B shares, were added to the Fund on 6-30-00.
(C)  Performance data does not include the effect of sales charges, as Class Y
     shares are not subject to these charges.
(D)  12-29-95 for Class Y shares (the date on which shares were first acquired
     by shareholders).

Investing in small cap stocks may carry more risk than investing in stocks of
larger, more well-established companies.



SHAREHOLDER SUMMARY OF SMALL CAP GROWTH FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Small Cap Growth Fund had net assets totaling $342,405,986
invested in a diversified portfolio of:

 82.24%  Common Stocks
 17.76%  Cash and Cash Equivalents

As a shareholder of Small Cap Growth Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

 $20.86  Business Equipment and Services Stocks
  21.21  Health Care Stocks
  17.76  Cash and Cash Equivalents
  11.88  Technology Stocks
   6.08  Energy Stocks
   5.32  Miscellaneous Stocks
   3.77  Consumer Nondurables Stocks
   3.20  Consumer Durables Stocks
   2.78  Financial Services Stocks
   2.65  Retail Stocks
   2.58  Raw Materials Stocks
   1.91  Transportation Stocks



THE INVESTMENTS OF SMALL CAP GROWTH FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Business Equipment and Services - 15.52%
 Acxiom Corporation*  ....................   715,200 $ 12,029,664
 Catalina Marketing Corporation*  ........   219,500    4,220,985
 CheckFree Corporation*  .................   538,994   12,108,500
 ITT Educational Services, Inc.*  ........   246,500    6,902,000
 MSC Industrial Direct Co.,
   Inc., Class A* ........................   693,800   11,093,862
 MAXIMUS, Inc.*  .........................   290,500    6,164,410
 MemberWorks Incorporated*  ..............    29,577      615,054
                                                     ------------
                                                       53,134,475
                                                     ------------

Chemicals -- Specialty - 2.58%
 IMC Global Inc.  ........................   580,000    5,579,600
 Minerals Technologies Inc.  .............    85,000    3,239,350
                                                     ------------
                                                        8,818,950
                                                     ------------

Communications Equipment - 3.09%
 Advanced Fibre Communications, Inc.*  ...   410,100    6,206,864
 Tekelec*  ...............................   504,500    4,381,582
                                                     ------------
                                                       10,588,446
                                                     ------------

Computers -- Peripherals - 3.26%
 NetIQ Corporation*  .....................   267,000    2,985,060
 Sanchez Computer Associates, Inc.*  .....   287,000    1,181,005
 Take-Two Interactive Software, Inc.*  ...   226,200    5,047,653
 Transaction Systems Architects, Inc.,
   Class A* ..............................   328,600    1,955,170
                                                     ------------
                                                       11,168,888
                                                     ------------

Electrical Equipment - 0.46%
 Intermagnetics General Corp.*  ..........    87,600    1,559,718
                                                     ------------

Electronic Components - 2.28%
 Cree, Inc.*  ............................   420,300    7,790,261
                                                     ------------

Electronic Instruments - 3.25%
 Lam Research Corporation*  ..............   417,500    4,749,062
 PerkinElmer, Inc.  ......................   422,001    3,751,589
 Plexus Corp.*  ..........................   287,800    2,633,370
                                                     ------------
                                                       11,134,021
                                                     ------------

Finance Companies - 1.08%
 Financial Federal Corporation*  .........   194,200    3,709,220
                                                     ------------

Food and Related - 3.77%
 American Italian Pasta Company,
  Class A* ..............................   230,000    9,947,500

 Smucker (J.M.) Company (The)  ...........    85,000    2,972,450
                                                     ------------
                                                       12,919,950
                                                     ------------

Health Care -- Drugs - 6.04%
 Affymetrix, Inc.*  ......................   199,993    5,198,818
 Cell Therapeutics, Inc.*  ...............   182,600    1,507,363
 Charles River Laboratories
   International, Inc.* ..................   153,400    3,914,768
 Gene Logic Inc.*  .......................   474,400    2,402,836
 Sepracor Inc.*  .........................   564,700    7,640,391
                                                     ------------
                                                       20,664,176
                                                     ------------

Health Care -- General - 11.77%
 Apria Healthcare Group Inc.*  ...........   238,700    5,576,032
 ArthroCare Corporation*  ................   320,000    3,984,000
 Cholestech Corporation*  ................    97,500      792,675
 IDEXX Laboratories, Inc.*  ..............   145,004    5,065,715
 IMPATH Inc.*  ...........................   353,200    4,759,370
 Omnicare, Inc.  .........................   454,700   12,372,387
 Urologix, Inc.*  ........................   225,940      492,549
 VISX, Incorporated*  ....................   685,800    7,269,480
                                                     ------------
                                                       40,312,208
                                                     ------------

Hospital Supply and Management - 3.40%
 Amsurg Corp.*  ..........................   235,309    5,939,199
 Cerner Corporation*  ....................   176,500    5,707,127
                                                     ------------
                                                       11,646,326
                                                     ------------

Motor Vehicle Parts - 3.20%
 Gentex Corporation*  ....................   429,700   10,938,014
                                                     ------------

Petroleum -- Domestic - 6.08%
 Newfield Exploration Company*  ..........   264,000    8,946,960
 Patterson-UTI Energy, Inc.*  ............   170,000    5,495,250
 Stone Energy Corporation*  ..............   190,000    6,380,200
                                                     ------------
                                                       20,822,410
                                                     ------------

Publishing - 2.71%
 Getty Images, Inc.*  ....................   338,000    9,281,480
                                                     ------------

Railroad - 1.91%
 Kansas City Southern*  ..................   583,000    6,547,090
                                                     ------------

Retail -- General Merchandise - 0.83%
 Tuesday Morning Corporation*  ...........   144,100    2,835,167
                                                     ------------

Retail -- Specialty Stores - 1.82%
 O'Reilly Automotive, Inc.*  .............   230,000    6,224,950
                                                     ------------

Security and Commodity Brokers - 1.70%

 Chicago Mercantile Exchange Holdings Inc.   121,097    5,830,820
                                                     ------------

Timesharing and Software - 5.34%
 Digital Insight Corporation*  ...........   525,000    7,326,375
 FactSet Research Systems, Inc.  .........   338,000   10,968,100
                                                     ------------
                                                       18,294,475
                                                     ------------

Utilities -- Telephone - 2.15%
 Commonwealth Telephone
   Enterprises, Inc.* ....................   190,000    7,364,400
                                                     ------------

TOTAL COMMON STOCKS - 82.24%                         $281,585,445
 (Cost: $302,941,448)

                                           Principle
                                           Amount in
                                           Thousands

SHORT-TERM SECURITIES
Commercial Paper
 Aluminum - 0.87%
 Alcoa Incorporated,
   1.25%, 4-10-03 ........................   $ 3,000    2,999,062
                                                     ------------

 Beverages - 0.44%
 Coca-Cola Company (The),
   1.18%, 4-15-03 ........................     1,500    1,499,312
                                                     ------------

 Chemicals - Petroleum and Inorganic - 1.69%
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................     5,776    5,776,000
                                                     ------------

 Containers - 1.26%
 Bemis Company, Inc.,
   1.25%, 4-3-03 .........................     4,318    4,317,700
                                                     ------------

 Cosmetics and Toiletries - 0.64%
 Gillette Company (The),
   1.34%, 4-1-03 .........................     2,208    2,208,000
                                                     ------------

 Electrical Equipment - 1.46%
 Emerson Electric Co.,
   1.23%, 4-11-03 ........................     5,000    4,998,292
                                                     ------------

 Food and Related - 0.11%
 General Mills, Inc.,
   1.45880%, Master Note .................       393      393,000
                                                     ------------

 Forest and Paper Products - 0.48%
 Sonoco Products Co.,
   1.44%, 4-1-03 .........................     1,644    1,644,000
                                                     ------------

 Health Care -- Drugs - 1.46%

 Merck & Co., Inc.,
   1.2%, 5-23-03 .........................     3,000    2,994,800
 Pfizer Inc.,
   1.25%, 4-9-03 .........................     2,000    1,999,444
                                                     ------------
                                                        4,994,244
                                                     ------------

 Household -- General Products - 0.99%
 Kimberly-Clark Worldwide Inc.,
   1.24%, 4-14-03 ........................     3,393    3,391,481
                                                     ------------

 Restaurants - 5.26%
 McDonald's Corporation:
   1.23%, 4-1-03 .........................     8,010    8,010,000
   1.21%, 4-3-03 .........................    10,000    9,999,328
                                                     ------------
                                                       18,009,328
                                                     ------------

 Utilities -- Electric - 0.66%
 Progress Energy Carolinas, Inc.,
   1.35%, 4-23-03 ........................     2,250    2,248,144
                                                     ------------

Total Commercial Paper - 15.32%                        52,478,563

United States Government Securities - 2.33%
 United States Treasury Bills:
   1.24%, 5-8-03 .........................     4,000    3,994,923
   1.04%, 8-7-03 .........................     4,000    3,985,209
                                                     ------------
                                                        7,980,132
                                                     ------------

TOTAL SHORT-TERM SECURITIES - 17.65%                 $ 60,458,695
 (Cost: $60,458,695)

TOTAL INVESTMENT SECURITIES - 99.89%                 $342,044,140
 (Cost: $363,400,143)

CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.11%         361,846

NET ASSETS - 100.00%                                 $342,405,986


Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     SMALL CAP GROWTH FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities--at value (cost - $363,400)
   (Notes 1 and 3) .........................................  $342,044
 Receivables:
   Investment securities sold ..............................     1,694
   Fund shares sold ........................................       380
   Dividends and interest ..................................         6
 Prepaid insurance premium  ................................         3
                                                              --------
    Total assets  ..........................................   344,127
                                                              --------
LIABILITIES
 Payable to Fund shareholders  .............................     1,535
 Accrued shareholder servicing (Note 2)  ...................       122
 Accrued management fee (Note 2)  ..........................         8
 Accrued distribution fee (Note 2)  ........................         6
 Accrued accounting services fee (Note 2)  .................         5
 Accrued service fee (Note 2)  .............................         2
 Other  ....................................................        43
                                                              --------
    Total liabilities  .....................................     1,721
                                                              --------
      Total net assets .....................................  $342,406
                                                              ========
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................  $    419
   Additional paid-in capital ..............................   468,847
 Accumulated undistributed loss:
   Accumulated undistributed net investment loss ...........        (9)
   Accumulated undistributed net realized loss on
    investment transactions  ...............................  (105,495)
   Net unrealized depreciation in value of investments .....   (21,356)
                                                              --------
    Net assets applicable to outstanding units
      of capital ...........................................  $342,406
                                                              ========
Net asset value per share (net assets divided by
 shares outstanding):
 Class A  ..................................................     $8.25
 Class B  ..................................................     $8.01
 Class C  ..................................................     $8.07
 Class Y  ..................................................     $8.89
Capital shares outstanding:
 Class A  ..................................................     2,440
 Class B  ..................................................       870
 Class C  ..................................................    33,834
 Class Y  ..................................................     4,768
Capital shares authorized ..................................   400,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     SMALL CAP GROWTH FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)

INVESTMENT LOSS
 Income (Note 1B):
   Interest and amortization ...............................  $    837
   Dividends ...............................................       381
                                                              --------
    Total income  ..........................................     1,218
                                                              --------
 Expenses (Note 2):
   Investment management fee ...............................     3,163
   Distribution fee:
    Class A  ...............................................         3
    Class B  ...............................................        53
    Class C  ...............................................     2,368
    Class Y  ...............................................        83
   Shareholder servicing:
    Class A  ...............................................        59
    Class B  ...............................................        48
    Class C  ...............................................     1,158
    Class Y  ...............................................        51
   Service fee:
    Class A  ...............................................        39
    Class B  ...............................................        18
    Class C  ...............................................       789
   Accounting services fee .................................        64
   Custodian fees ..........................................        27
   Audit fees ..............................................        18
   Legal fees ..............................................         7
   Other ...................................................       210
                                                             ---------
    Total expenses  ........................................     8,158
                                                             ---------
      Net investment loss ..................................    (6,940)
                                                             ---------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTES 1 AND 3)
 Realized net loss on investments  .........................   (34,938)
 Unrealized depreciation in value of investments
   during the period .......................................   (70,595)
                                                             ---------
    Net loss on investments  ...............................  (105,533)
                                                             ---------
      Net decrease in net assets resulting from
       operations  ......................................... $(112,473)
                                                             =========

See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     SMALL CAP GROWTH FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
INCREASE (DECREASE) IN NET ASSETS
 Operations:
   Net investment loss ...................   $(6,940)     $(8,408)
   Realized net loss on
    investments  .........................   (34,938)     (51,517)
   Unrealized appreciation (depreciation)    (70,595)     111,638
                                            --------     --------
    Net increase (decrease) in net assets
      resulting from operations ..........  (112,473)      51,713
                                            --------     --------
 Distributions to shareholders from
   realized gains on investment
   transactions (Note 1E):(1)
   Class A ...............................       ---          ---
   Class B ...............................       ---          ---
   Class C ...............................       ---          ---
   Class Y ...............................       ---          ---
                                            --------     --------
                                                 ---          ---
                                            --------     --------
 Capital share transactions (Note 5)  ....   (51,670)     (34,621)
                                            --------     --------
   Total increase (decrease) .............  (164,143)      17,092
NET ASSETS
 Beginning of period  ....................   506,549      489,457
                                            --------     --------
 End of period  ..........................  $342,406     $506,549
                                            ========     ========
   Undistributed net investment loss .....  $     (9)    $     (7)
                                            ========     ========

(1)  See "Financial Highlights" on pages 196 - 199.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SMALL CAP GROWTH FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-3-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.59 $ 9.43         $19.64
                             ------ ------         ------
Income (loss) from
 investment operations:
 Net investment
   loss ............          (0.23) (0.59)         (0.02)
 Net realized and unrealized
   gain (loss) on
   investments .....          (2.11)  1.75          (4.74)
                             ------ ------         ------
Total from investment
 operations  .......          (2.34)  1.16          (4.76)
                             ------ ------         ------
Less distribution
 from capital gains           (0.00) (0.00)         (5.45)
                             ------ ------         ------
Net asset value,
 end of period  ....         $ 8.25 $10.59         $ 9.43
                             ====== ======         ======
Total return(2) ....         -22.10% 12.30%        -28.30%
Net assets, end of
 period (in
 millions)  ........            $20    $16             $4
Ratio of expenses to
 average net assets            1.54%  1.39%          1.49%(3)
Ratio of net investment
 loss to average
 net assets  .......          -1.22% -0.93%         -0.39%(3)
Portfolio turnover
 rate  .............          30.63% 28.77%         47.85%(4)

(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
(4)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SMALL CAP GROWTH FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-6-00(1)
                            --------------           to
                              2003   2002          3-31-01
                            ------- -------        -------
Net asset value,
 beginning of period         $10.40 $ 9.36         $19.26
                             ------ ------         ------
Income (loss) from
 investment operations:
 Net investment
   loss ............          (0.21) (0.26)         (0.06)
 Net realized and
   unrealized gain (loss)
   on investments ..          (2.18)  1.30          (4.39)
                             ------ ------         ------
Total from investment
 operations  .......          (2.39)  1.04          (4.45)
                             ------ ------         ------
Less distribution
 from capital gains           (0.00) (0.00)         (5.45)
                             ------ ------         ------
Net asset value,
 end of period  ....         $ 8.01 $10.40         $ 9.36
                             ====== ======         ======
Total return .......         -22.98% 11.11%        -27.29%
Net assets, end of
 period (in
 millions)  ........             $7     $8             $5
Ratio of expenses to
 average net assets            2.64%  2.43%          2.31%(2)
Ratio of net investment
 loss to average
 net assets  .......          -2.31% -1.94%         -1.18%(2)
Portfolio turnover
 rate  .............          30.63% 28.77%         47.85%(3)

(1)  Commencement of operations of the class.
(2)  Annualized.
(3)  For the fiscal year ended March 31, 2001.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     SMALL CAP GROWTH FUND(1)
     Class C Shares(2)
     For a Share of Capital Stock Outstanding Throughout Each
     Period:(3)
                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........         $10.44 $ 9.38  $21.64 $14.74  $14.29
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   loss ............          (0.16) (0.16)  (0.10) (0.18)  (0.11)
 Net realized and
   unrealized gain (loss)
   on investments ..          (2.21)  1.22   (6.71) 10.22    2.91
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (2.37)  1.06   (6.81) 10.04    2.80
                             ------ ------  ------ ------  ------
Less distribution
 from capital gains           (0.00) (0.00)  (5.45) (3.14)  (2.35)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $ 8.07 $10.44  $ 9.38 $21.64  $14.74
                             ====== ======  ====== ======  ======
Total return .......         -22.70% 11.30% -35.17% 73.38%  21.61%
Net assets, end of
 period (in
 millions)  ........           $273   $435    $459   $801    $425
Ratio of expenses to
 average net assets            2.31%  2.20%   2.12%  2.11%   2.10%
Ratio of net investment
 loss to average
 net assets  .......          -1.98% -1.70%  -0.81% -0.90%  -0.90%
Portfolio turnover
 rate  .............          30.63% 28.77%  47.85% 82.24%  51.41%

(1)  Small Cap Growth Fund (formerly Growth Fund) changed its name effective
     June 30, 2000.
(2)  See Note 5.
(3)  Per-share amounts have been adjusted retroactively to reflect the 100%
     stock dividend effected June 26, 1998.

See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

   SMALL CAP GROWTH FUND(1)
   Class Y Shares
   For a Share of Capital Stock Outstanding Throughout Each Period:(2)

                             For the fiscal year ended March 31,
                            -------------------------------------
                               2003   2002    2001   2000    1999
                             ------ ------  ------ ------  ------
Net asset value,
 beginning of
 period  ...........         $11.39 $10.14  $22.65 $15.21  $14.55
                             ------ ------  ------ ------  ------
Income (loss) from investment
 operations:
 Net investment
   income (loss) ...          (0.11) (0.34)  (0.20) (0.15)   0.00
 Net realized and
   unrealized gain (loss)
   on investments ..          (2.39)  1.59   (6.86) 10.73    3.01
                             ------ ------  ------ ------  ------
Total from investment
 operations  .......          (2.50)  1.25   (7.06) 10.58    3.01
                             ------ ------  ------ ------  ------
Less distribution
 from capital gains           (0.00) (0.00)  (5.45) (3.14)  (2.35)
                             ------ ------  ------ ------  ------
Net asset value,
 end of period  ....         $ 8.89 $11.39  $10.14 $22.65  $15.21
                             ====== ======  ====== ======  ======
Total return .......         -21.95% 12.33% -34.67% 74.71%  22.73%
Net assets, end of
 period (in
 millions)  ........            $42    $48     $21    $17      $8
Ratio of expenses to
 average net assets            1.33%  1.31%   1.30%  1.30%   1.18%
Ratio of net investment
 income (loss) to average
 net assets  .......          -1.00% -0.83%  -0.02% -0.09%   0.08%
Portfolio turnover
 rate  .............          30.63% 28.77%  47.85% 82.24%  51.41%

(1)  Small Cap Growth Fund (formerly Growth Fund) changed its name  effective
     June 30, 2000.
(2)  Per-share amounts have been adjusted retroactively to reflect the 100%
     stock dividend effected June 26, 1998.

See Notes to Financial Statements.



MANAGER'S DISCUSSION

- -----------------------------------------------------------------
  March 31, 2003

An interview with Barry M. Ogden, portfolio manager of W&R Funds, Inc. - Tax-
Managed Equity Fund


This report relates to the operation of W&R Funds, Inc. -- Tax-Managed Equity
Fund for the fiscal year ended March 31, 2003.  The following discussion, graphs
and tables provide you with information regarding the Fund's performance during
that period.

How did the Fund perform during the last fiscal year?
In a challenging market environment, the Fund showed a negative return for the
fiscal year.  However, the Fund significantly outperformed its benchmark index.
For the fiscal year, the Fund's Class A shares declined 10.89 percent without
the impact of sales load and, with the sales load impact, declined 16.01
percent.  This compares with the S&P 500 Index (reflecting the performance of
securities that generally represent the stock market), which decreased 24.76
percent during the period, and the Lipper Large-Cap Growth Funds Universe
Average (generally reflecting the performance of the universe of funds with
similar investment objectives), which declined 27.02 percent during the period.
It should be noted that, in the comparison charts, the values for the benchmark
index and the Lipper category do not reflect a sales load.  In addition, please
note that the Fund's performance numbers do not reflect the deduction of taxes
that a shareholder would pay on Fund distributions or on the redemption of Fund
shares.

What helped the Fund outperform its benchmark index during the fiscal year?
We believe the Fund outperformed its benchmark index primarily due to overweight
positions in the health care, biotechnology and energy sectors, relatively
underweight positions in telecommunications and technology, and a relatively
high cash position through the first half of the fiscal year.  These factors
combined to make for a successful year, relative to our peers and the S&P 500.

What other market conditions or events influenced the Fund's performance during
the fiscal year?
The war with Iraq clearly took center stage for most investors toward the end of
the fiscal year.  During the past few months, the broader stock market was
reacting to the ongoing developments in Iraq, with headlines of Saddam Hussein's
demise pushing the markets higher and headlines of U.S. casualties or setbacks
driving the markets lower.  We expect that this correlation between the war and
the markets likely will remain extremely high for the foreseeable future, but
ultimately, we believe that the market will again focus on the underlying
economic and company fundamentals, which, we believe, should determine the
direction of stock prices.

What strategies and techniques did you employ that specifically affected the
Fund's performance?
We made very few significant changes to the Fund during the fiscal year, other
than gradually reducing our cash position.  After starting the year with more
than 25 percent cash, we reduced our cash position throughout the year and
finished the fiscal year at less than 8 percent.  We anticipate remaining around
this level of cash, barring some unforeseen material change to our thinking on
the economic outlook and the broader markets.  Going forward, our strategy
remains focused on investing in what we feel are high quality, growth-oriented
companies.  Generally, these companies are market share leaders in their
industry, are highly profitable and exhibit some sustainable competitive
advantage.  We also target companies that show strong recurring revenue growth
with operating free cash flow and a strong balance sheet.  Additionally,
valuation relative to future growth opportunities is taken into account and
plays a key role in all investment decisions.

What industries or sectors did you emphasize during the fiscal year, and what

looks attractive to you going forward?
We emphasized the health care, biotechnology, defense and energy sectors
throughout the year and remain substantially overweight in each of these areas
as of the fiscal-year end.  We added to our biotechnology weighting throughout
the year and recently began to reduce our exposure in the defense sector, as we
see defense becoming much less visible following the resolution of the war with
Iraq.  We anticipate remaining overweight in the health care, biotechnology and
energy sectors for the rest of 2003, while staying broadly diversified within
other sectors until the economic outlook becomes more certain.

Our current assessment of the economy is one of cautious optimism and we believe
that the likelihood of going back into recession in the coming year is
relatively low.  In our view, housing remains one of the brightest components of
the economy, as individuals are taking advantage of record low mortgage rates
and above-trend housing price appreciation.  We suspect that the strength in
housing price appreciation and activity could slow in the coming year, but
should still remain at relatively high levels.

We remain positive about the long-term outlook for the broader markets and
expect a modest economic recovery in 2003, although we feel it is likely to be
slow and gradual.  In our opinion, higher energy prices, weakening consumer
confidence, rising unemployment rates and an overall difficult labor market are
likely to dampen consumer spending over the near-term.  Mortgage refinancings, a
growth driver for the economy and a catalyst for increased consumer spending
over the past few years, are running at unsustainably high levels and should
slow throughout the year in our opinion, unless mortgage rates move
significantly lower from current levels.  We feel that corporate profits could
potentially grow in 2003, but we suspect that they may disappoint, relative to
current expectations.

We believe that there will need to be an improvement in consumer confidence and
job creation prior to any sustainable improvement in the broader stock markets.
Unfortunately, the economy still is not creating any new jobs as a whole, and
consumer confidence has weakened recently.  Until both the labor markets and
consumer confidence improve, we expect to maintain a high degree of
diversification and adopt a slightly more defensive position, while
opportunistically taking advantage of market opportunities.


Respectfully,



Barry M. Ogden
Manager
W&R Tax-Managed Equity Fund



Comparison of Change in Value of $10,000 Investment


                        W&R                        Lipper
                        Tax-                    Large-Cap
                        Managed                    Growth
                        Equity         S&P          Funds
                        Fund,          500       Universe
                        Class A      Index        Average
                      ---------  ---------     ----------
     06-30-00  Purchase  $9,425    $10,000        $10,000
     03-31-01             6,777      8,043          6,528
     03-31-02             6,060      8,060          6,154
     03-31-03             5,401      6,064          4,491

 ===== W&R Tax-Managed Equity Fund, Class A Shares (1) -- $5,401
 +++++ S&P 500 Index -- $6,064
 ***** Lipper Large-Cap Growth Funds Universe Average -- $4,491

(1)  The value of the investment in the Fund is impacted by the sales load at
     the time of the investment and by the ongoing expenses of the Fund and
     assumes reinvestment of dividends and distributions.

                     Average Annual Total Return(2)
                    Class A     Class B      Class C
                    --------------------------------
1-year period
  ended 3-31-03      -16.01%   -15.11%         -11.87%
Since inception of
  Class through
  3-31-03(3)         -20.07%   -20.41%         -19.30%

(2)Performance data quoted represents past performance and is based on deduction
   of the maximum applicable sales load for each of the periods.  Class A shares
   carry a maximum front-end sales load of 5.75%.  Class B and Class C shares
   carry a maximum contingent deferred sales charge (CDSC) of 5% and 1%,
   respectively. (Accordingly, the Class C shares reflect no CDSC since it only
   applies to Class C shares redeemed within twelve months after purchase.)
   Total returns reflect share price appreciation (depreciation), including
   reinvestment of all income and capital gains distributions.  Investment
   return and principal value will fluctuate and an investor's shares, when
   redeemed, may be worth more or less than their original cost.
(3)6-30-00 for Class A shares, 7-13-00 for Class B shares and 7-6-00 for Class C
   shares (the date on which shares were first acquired by shareholders).

   Past performance is not necessarily indicative of future performance.
   Indexes are unmanaged.  The performance graph and table do not reflect the
   deduction of taxes that a shareholder would pay on Fund distributions or the
   redemption of Fund shares.



SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND

- -----------------------------------------------------------------
Tax-Managed Equity Fund

GOAL
To seek long-term growth of capital while minimizing taxable gains and income to
shareholders.

Strategy
Invests primarily in a diversified portfolio of common stocks issued by large to
medium sized United States and foreign companies. The Fund seeks stocks that are
favorably priced in relation to their fundamental value and that will likely
grow over time.

Founded
2000

Scheduled Dividend Frequency
Annually (December)

Performance Summary - Class A Shares

Per Share Data
For the Fiscal Year Ended March 31, 2003
- -------------------------------------------
Net asset value on
   3-31-03                       $5.73
   3-31-02                        6.43
                                ------
Change per share                $(0.70)
                                ======

Past performance is not necessarily indicative of future results.



SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND

- -----------------------------------------------------------------
Because of ongoing market volatility, the Fund's performance may be subject to
substantial short-term fluctuation and current performance may be less than the
results shown below.  Please check the Waddell & Reed website at www.waddell.com
for more current performance information.

Average Annual Total Return (A)
                         Class A                      Class B
                  -----------------------    ------------------------
                      With      Without         With        Without
Period           Sales Load(B) Sales Load(C)  CDSC(D)        CDSC(E)
- ------            ----------   ----------    -----------    ----------
 1-year period
  ended 3-31-03    -16.01%      -10.89%         -15.11%       -11.57%
 5-year period
  ended 3-31-03      ---          ---             ---           ---
10-year period
  ended 3-31-03      ---          ---             ---           ---
Since inception
  of Class (F)     -20.07%      -18.33%         -20.41%       -19.51%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data is based on deduction of 5.75% sales load on the initial
     purchase in the periods.
(C)  Performance data does not take into account the sales load deducted on an
     initial purchase.
(D)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the
     end of each of the periods.
(E)  Performance data does not reflect the effect of paying the applicable CDSC
     upon redemption at the end of each of the periods.
(F)  6-30-00 for Class A shares and 7-13-00 for Class B shares (the date on
     which shares were first acquired by shareholders).

Average Annual Total Return(A)
Period             Class C(B)
- ------             ---------
 1-year period
  ended 3-31-03      -11.87%
 5-year period
  ended 3-31-03          ---
10-year period
  ended 3-31-03          ---
Since inception
  of Class (C)       -19.30%

(A)  Performance data represents share price appreciation (depreciation),
     including reinvestment of all income and capital gains distributions.
     Performance data represents past performance and is no guarantee of future
     results.  Share price, investment return and principal value of an
     investment will fluctuate so that an investor's shares, when redeemed, may
     be worth more or less than their original cost.
(B)  Performance data reflects the effect of paying the applicable contingent
     deferred sales charge (CDSC) at a maximum of 1.00% which declines to zero
     at the end of the first year after investment.  Accordingly, these returns
     reflect no CDSC since it only applies to Class C shares redeemed within
     twelve months after purchase.
(C)  7-6-00 for Class C shares (the date on which shares were first acquired by
     shareholders).



SHAREHOLDER SUMMARY OF TAX-MANAGED EQUITY FUND

- -----------------------------------------------------------------
Portfolio Highlights

On March 31, 2003, Tax-Managed Equity Fund had net assets totaling $4,464,671
invested in a diversified portfolio of:

   93.30% Common Stocks
    6.70% Cash and Cash Equivalents


As a shareholder of Tax-Managed Equity Fund, for every $100 you had invested on
March 31, 2003, your Fund owned:

 $31.22  Health Care Stocks
  21.66  Technology Stocks
  10.90  Energy Stocks
  10.01  Retail Stocks
  10.00  Financial Services Stocks
   6.70  Cash and Cash Equivalents
   5.78  Business Equipment and Services Stocks
   2.59  Miscellaneous Stocks
   1.14  Consumer Nondurables Stocks



THE INVESTMENTS OF TAX-MANAGED EQUITY FUND

     March 31, 2003

                                              Shares        Value

COMMON STOCKS
Air Transportation - 2.06%
 Southwest Airlines Co.  .................     6,400   $   91,904
                                                       ----------

Aircraft - 6.12%
 Lockheed Martin Corporation (A) .........     3,400      161,670
 Northrop Grumman Corporation (A) ........     1,300      111,540
                                                       ----------
                                                          273,210
                                                       ----------

Business Equipment and Services - 1.96%
 Accenture Ltd, Class A*  ................     4,000       62,000
 BearingPoint, Inc.*  ....................     4,000       25,480
                                                       ----------
                                                           87,480
                                                       ----------

Communications Equipment - 2.77%
 Cisco Systems, Inc.*  ...................     6,300       81,711
 Nokia Corporation, Series A, ADR  .......     3,000       42,030
                                                       ----------
                                                          123,741
                                                       ----------

Computers -- Micro - 3.67%
 Dell Computer Corporation*  .............     6,000      163,980
                                                       ----------

Computers -- Peripherals - 7.93%
 EMC Corporation (A)*  ...................     9,000       65,070
 Intuit Inc.*  ...........................       900       33,439
 Lexmark International, Inc.*  ...........       900       60,255
 Microsoft Corporation  ..................     5,800      140,418
 SAP Aktiengesellschaft, ADR  ............     2,900       54,984
                                                       ----------
                                                          354,166
                                                       ----------

Electronic Components - 1.17%
 Intel Corporation (A)  ..................     3,200       52,096
                                                       ----------

Farm Machinery - 0.53%
 Deere & Company  ........................       600       23,556
                                                       ----------

Health Care -- Drugs - 22.24%
 Abbott Laboratories  ....................     1,300       48,893
 Alcon, Inc.*  ...........................       800       32,816
 AmerisourceBergen Corporation  ..........       700       36,750
 Amgen Inc.*  ............................     3,200      184,272
 Barr Laboratories, Inc. (A)*  ...........       900       51,300
 Biogen, Inc.*  ..........................     2,400       71,880
 Forest Laboratories, Inc.*  .............     4,000      215,880
 Gilead Sciences, Inc. (A)*  .............     1,300       54,581
 Pfizer Inc.  ............................     2,600       81,016
 Pharmacia Corporation  ..................     1,900       82,270
 Teva Pharmaceutical Industries
  Limited, ADR ..........................     3,200      133,248

                                                       ----------
                                                          992,906
                                                       ----------

Health Care -- General - 4.04%
 Johnson & Johnson  ......................     1,000       57,870
 Wyeth  ..................................       800       30,256
 Zimmer Holdings, Inc.*  .................     1,900       92,397
                                                       ----------
                                                          180,523
                                                       ----------

Hospital Supply and Management - 4.94%
 Accredo Health, Incorporated*  ..........     1,000       24,340
 Anthem, Inc.*  ..........................     1,400       92,750
 HCA Inc.  ...............................     1,200       49,632
 WellPoint Health Networks Inc.*  ........       700       53,725
                                                       ----------
                                                          220,447
                                                       ----------

Insurance -- Property and Casualty - 5.40%
 American International Group, Inc.  .....     2,000       98,900
 Berkshire Hathaway Inc., Class B*  ......        50      106,850
 MGIC Investment Corporation (A) .........       900       35,343
                                                       ----------
                                                          241,093
                                                       ----------

Petroleum -- Canada - 1.79%
 Nabors Industries Ltd.*  ................     2,000       79,740
                                                       ----------

Petroleum -- Domestic - 7.78%
 Anadarko Petroleum Corporation  .........     1,900       86,450
 Apache Corporation*  ....................     1,890      116,689
 Burlington Resources Inc.  ..............     1,600       76,336
 Patterson-UTI Energy, Inc.*  ............     2,100       67,882
                                                       ----------
                                                          347,357
                                                       ----------

Petroleum -- International - 1.33%
 Exxon Mobil Corporation  ................     1,700       59,415
                                                       ----------

Retail -- General Merchandise - 7.66%
 Kohl's Corporation*  ....................     1,300       73,554
 Sears, Roebuck and Co.  .................     2,500       60,375
 Wal-Mart Stores, Inc. (A) ...............     4,000      208,120
                                                       ----------
                                                          342,049
                                                       ----------

Retail -- Specialty Stores - 2.35%
 Bed Bath & Beyond Inc. (A)*  ............     2,200       75,988
 Gap, Inc. (The)  ........................     2,000       28,980
                                                       ----------
                                                          104,968
                                                       ----------

Security and Commodity Brokers - 4.60%
 Fannie Mae  .............................     1,000       65,350
 Freddie Mac  ............................     1,100       58,410
 Goldman Sachs Group, Inc. (The)  ........       500       34,040

 Merrill Lynch & Co., Inc.  ..............       700       24,780
 Morgan Stanley  .........................       600       23,010
                                                       ----------
                                                          205,590
                                                       ----------

Timesharing and Software - 3.82%
 eBay Inc. (A)*  .........................     2,000      170,590
                                                       ----------

Tobacco - 1.14%
 Altria Group, Inc.  .....................     1,700       50,932
                                                       ----------

TOTAL COMMON STOCKS -  93.30%                          $4,165,743
 (Cost: $4,140,620)

                                           Principal
                                           Amount in
                                           Thousands

SHORT-TERM SECURITIES
Commercial Paper - 4.12%
 Chemicals -- Petroleum and Inorganic
 du Pont (E.I.) de Nemours and Company,
   1.16315%, Master Note .................      $184      184,000
                                                       ----------

Repurchase Agreement - 3.70%
 Merrill Lynch, Pierce, Fenner &
   Smith Inc., 1.25% Repurchase Agreement
   dated 3-31-03, to be repurchased
   at $165,006 on 4-1-03(B) ..............       165      165,000
                                                       ----------

TOTAL SHORT-TERM SECURITIES - 7.82%                    $  349,000
 (Cost: $349,000)

TOTAL INVESTMENT SECURITIES - 101.12%                  $4,514,743
 (Cost: $4,489,620)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.12%)       (50,072)

NET ASSETS - 100.00%                                   $4,464,671

Notes to Schedule of Investments

  *No income dividends were paid during the preceding 12 months.

(A)Securities serve as cover for the following written call options outstanding
   at March 31, 2003.  (See Note 6 to financial statements):

                         Contracts
     Underlying          Subject  Expiration Month/Premium    Market
     Security            to Call  Exercise Price  Received     Value
- ---------------------    -------  ------------    --------    ------
Barr Laboratories, Inc.    6        May/53.375     $ 2,262   $ 4,140
Bed Bath & Beyond Inc.    22        May/35           2,046     4,400
eBay Inc.:
                          10        May/90           1,350     2,587
                          10        April/80         2,470     6,500
EMC Corporation           90        July/10          4,544     1,800
Gilead Sciences, Inc.     13        May/42.5         1,261     3,380
Intel Corporation         32        April/17.5       2,176     1,120
Lockheed Martin

  Corporation             34        June/50          3,162     7,480
MGIC Investment
  Corporation              9        June/40          1,998     2,790
Northrop Grumman
  Corporation             13        May/90           1,976     2,925
Wal-Mart Stores, Inc.     40        June/55          3,520     6,000
                                                   -------   -------
                                                   $26,765   $43,122
                                                   =======   =======

(B)Collateralized by $169,613 Government National Mortgage Association, 7.0% due
   12-20-30; market value and accrued interest aggregate $172,943.

   See Note 1 to financial statements for security valuation and other
   significant accounting policies concerning investments.

   See Note 3 to financial statements for cost and unrealized appreciation and
   depreciation of investments owned for Federal income tax purposes.



STATEMENT OF ASSETS AND LIABILITIES

     TAX-MANAGED EQUITY FUND
     March 31, 2003
     (In Thousands, Except for Per Share Amounts)

ASSETS
 Investment securities -- at value (cost - $4,490)
   (Notes 1 and 3) .........................................    $4,515
 Cash  .....................................................         1
 Dividends and interest receivable  ........................         3
                                                                ------
    Total assets  ..........................................     4,519
                                                                ------
LIABILITIES
 Outstanding written options at market (Note 6)  ...........        43
 Payable to Fund shareholders  .............................         5
 Accrued shareholder servicing (Note 2)  ...................         1
 Other  ....................................................         5
                                                                ------
    Total liabilities  .....................................        54
                                                                ------
      Total net assets .....................................    $4,465
                                                                ======
NET ASSETS
 $0.01 par value capital stock:
   Capital stock ...........................................    $    8
   Additional paid-in capital ..............................     7,633
 Accumulated undistributed income (loss):
   Accumulated undistributed net realized loss on
    investment transactions  ...............................    (3,185)
   Net unrealized appreciation in value of securities ......        25
   Net unrealized depreciation in value of written options .       (16)
                                                                ------
    Net assets applicable to outstanding units
      of capital ...........................................    $4,465
                                                                ======
Net asset value per share (net assets divided by shares
 outstanding):
 Class A  ..................................................     $5.73
 Class B  ..................................................     $5.58
 Class C  ..................................................     $5.57
Capital shares outstanding:
 Class A  ..................................................       616
 Class B  ..................................................        44
 Class C  ..................................................       123
Capital shares authorized ..................................   350,000

See Notes to Financial Statements.



STATEMENT OF OPERATIONS

     TAX-MANAGED EQUITY FUND
     For the Fiscal Year Ended March 31, 2003
     (In Thousands)
INVESTMENT LOSS
 Income (Note 1B):
   Dividends ...............................................     $  28
   Interest and amortization ...............................        13
                                                                 -----
    Total income  ..........................................        41
 Expenses (Note 2):                                              -----
   Investment management fee ...............................        32
   Registration fees .......................................        27
   Audit fees ..............................................        15
   Service fee:
    Class A  ...............................................         9
    Class B  ...............................................         1
    Class C  ...............................................         2
   Shareholder servicing:
    Class A  ...............................................         5
    Class B  ...............................................         1
    Class C  ...............................................         4
   Custodian fees ..........................................         9
   Distribution fee:
    Class A  ...............................................         1
    Class B  ...............................................         2
    Class C  ...............................................         6
   Other ...................................................         3
                                                                 -----
   Total....................................................       117
    Less expenses in excess of voluntary waiver of
      investment management fee (Note 2) ...................       (32)
                                                                 -----
      Total expenses .......................................        85
                                                                 -----
       Net investment loss  ................................       (44)
                                                                 -----
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3)
 Realized net loss on securities  ..........................      (513)
 Realized net gain on written options  .....................        13
 Realized net loss on purchased options  ...................        (4)
                                                                 -----
   Realized net loss on investments ........................      (504)
 Unrealized depreciation in value of securities                  -----
   during the period .......................................       (76)
 Unrealized depreciation in value of written
   options during the period ...............................       (16)
                                                                 -----
   Unrealized depreciation in value of investments
    during the period  .....................................       (92)
                                                                 -----
    Net loss on investments  ...............................      (596)
      Net decrease in net assets resulting from                  -----
       operations  .........................................     $(640)
                                                                 =====

See Notes to Financial Statements.



STATEMENT OF CHANGES IN NET ASSETS

     TAX-MANAGED EQUITY FUND
     (In Thousands)

                                        For the Fiscal Year Ended
                                                 March 31,
                                         ------------------------
                                                2003         2002
                                         -----------    ---------
DECREASE IN NET ASSETS
 Operations:
   Net investment loss ...................    $  (44)     $   (70)
   Realized net loss on investments ......      (504)      (1,417)
   Unrealized appreciation (depreciation)        (92)         828
                                              ------       ------
    Net decrease in net assets resulting
      from operations ....................      (640)        (659)
                                              ------       ------
 Capital share transactions (Note 5)  ....      (544)         570
                                              ------       ------
   Total decrease ........................    (1,184)         (89)
NET ASSETS
 Beginning of period  ....................     5,649        5,738
                                              ------       ------
 End of period  ..........................    $4,465       $5,649
                                              ======       ======
   Undistributed net investment income....    $  ---       $  ---
                                              ======       ======


See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     TAX-MANAGED EQUITY FUND
     Class A Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         6-30-00(1)
                            --------------           to
                              2003   2002          3-31-01
Net asset value,            ------- -------        -------
 beginning of period          $6.43  $7.19         $10.00
Loss from investment          -----  -----         ------
 operations:
 Net investment loss          (0.03) (0.08)         (0.00)
 Net realized and unrealized
   loss on investments        (0.67) (0.68)         (2.81)
Total from investment         -----  -----         ------
 operations  .......          (0.70) (0.76)         (2.81)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.00)         (0.00)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.00)
Net asset value,              -----  -----         ------
 end of period  ....          $5.73  $6.43         $ 7.19
                              =====  =====         ======
Total return(2) ....         -10.89%-10.57%        -28.10%
Net assets, end of period (in
 millions)  ........             $4     $4             $4
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           1.50%  1.62%          1.27%(3)
Ratio of net investment
 loss to average net
 assets including
 voluntary expense
 waiver  ...........          -0.67% -0.92%         -0.09%(3)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           2.15%  2.17%          1.80%(3)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -1.32% -1.46%         -0.62%(3)
Portfolio turnover rate      145.24% 95.60%         73.46%
(1)  Commencement of operations of the class.
(2)  Total return calculated without taking into account the sales load deducted
     on an initial purchase.
(3)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     TAX-MANAGED EQUITY FUND
     Class B Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,         7-13-00(1)
                            --------------           to
                              2003   2002          3-31-01
Net asset value,            ------- -------        -------
 beginning of period          $6.31  $7.12         $10.06
Loss from investment          -----  -----         ------
 operations:
 Net investment
   loss ............          (0.11) (0.13)         (0.05)
 Net realized and unrealized
   loss on investments        (0.62) (0.68)         (2.89)
Total from investment         -----  -----         ------
 operations  .......          (0.73) (0.81)         (2.94)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.00)         (0.00)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.00)
Net asset value,              -----  -----         ------
 end of period  ....          $5.58  $6.31         $ 7.12
                              =====  =====         ======
Total return .......         -11.57%-11.38%        -29.22%
Net assets, end of period
 (000 omitted)  ....           $247   $358           $296
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.47%  2.56%          2.45%(2)
Ratio of net investment
 loss to average net
 assets including
 voluntary expense
 waiver  ...........          -1.63% -1.86%         -1.74%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           3.12%  3.42%          3.48%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -2.28% -2.71%         -2.77%(2)
Portfolio turnover
 rate  .............         145.24% 95.60%         73.46%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



FINANCIAL HIGHLIGHTS

     TAX-MANAGED EQUITY FUND
     Class C Shares
     For a Share of Capital Stock Outstanding Throughout Each Period:
                                                   For the
                           For the fiscal          period
                              year ended            from
                               March 31,          7-6-00(1)
                            --------------           to
                              2003   2002          3-31-01
Net asset value,            ------- -------        -------
 beginning of period          $6.32  $7.13         $10.01
Loss from investment          -----  -----         ------
 operations:
 Net investment loss          (0.12) (0.19)         (0.06)
 Net realized and unrealized
   loss on investments        (0.63) (0.62)         (2.82)
Total from investment         -----  -----         ------
 operations  .......          (0.75) (0.81)         (2.88)
Less distributions:           -----  -----         ------
 From net investment
   income ..........          (0.00) (0.00)         (0.00)
 From capital gains           (0.00) (0.00)         (0.00)
                              -----  -----         ------
Total distributions           (0.00) (0.00)         (0.00)
Net asset value,              -----  -----         ------
 end of period  ....          $5.57  $6.32         $ 7.13
                              =====  =====         ======
Total return .......         -11.87%-11.36%        -28.77%
Net assets, end of period
(000 omitted) ......           $685   $865             $2
Ratio of expenses to
 average net assets
 including voluntary
 expense waiver  ...           2.64%  2.76%          2.35%(2)
Ratio of net investment
 loss to average net
 assets including
 voluntary expense
 waiver  ...........          -1.81% -2.07%         -1.52%(2)
Ratio of expenses to
 average net assets
 excluding voluntary
 expense waiver  ...           3.29%  3.69%          3.34%(2)
Ratio of net investment
 loss to average net
 assets excluding
 voluntary expense
 waiver  ...........          -2.46% -2.99%         -2.50%(2)
Portfolio turnover rate      145.24% 95.60%         73.46%
(1)  Commencement of operations of the class.
(2)  Annualized.
See Notes to Financial Statements.



NOTES TO FINANCIAL STATEMENTS

     March 31, 2003

Note 1 - Significant Accounting Policies

W&R Funds, Inc. (the "Corporation") is registered under the Investment Company
Act of 1940 as a diversified, open-end management investment company.  The
Corporation issues twelve series of capital shares; each series represents
ownership of a separate mutual fund.  The assets belonging to each Fund are held
separately by the custodian.  The capital shares of each Fund represent a pro
rata beneficial interest in the principal, net income and realized and
unrealized capital gains or losses of its respective investments and other
assets.  The following is a summary of significant accounting policies
consistently followed by the Corporation in the preparation of its financial
statements.  The policies are in conformity with accounting principles generally
accepted in the United States of America.

A.   Security valuation -- Each stock and convertible bond is valued at the
     latest sale price thereof on each business day of the fiscal period as
     reported by the principal securities exchange on which the issue is traded
     or, if no sale is reported for a stock, the average of the latest bid and
     asked prices.  Bonds, other than convertible bonds, are valued using a
     pricing system provided by a pricing service or dealer in bonds.
     Convertible bonds are valued using this pricing system only on days when
     there is no sale reported.  Stocks which are traded over-the-counter are
     priced using the Nasdaq Stock Market, which provides information on bid and
     asked prices quoted by major dealers in such stocks.  Gold bullion is
     valued at the last settlement price for current delivery as calculated by
     the Commodity Exchange, Inc. as of the close of that exchange.  Restricted
     securities and securities for which quotations are not readily available
     are valued as determined in good faith in accordance with procedures
     established by and under the general supervision of the Corporation's Board
     of Directors.  Short-term debt securities are valued at amortized cost,
     which approximates market value.  Short-term debt securities denominated in
     foreign currencies are valued at amortized cost in that currency.

B.   Security transactions and related investment income -- Security
     transactions are accounted for on the trade date (date the order to buy or
     sell is executed).  Securities gains and losses are calculated on the
     identified cost basis.  Premium and discount on the purchase of bonds are
     amortized for both financial and tax reporting purposes over the remaining
     lives of the bonds.  Dividend income is recorded on the ex-dividend date
     except that certain dividends from foreign securities are recorded as soon
     as the Fund is informed of the ex-dividend date.   Interest income is
     recorded on the accrual basis.  See Note 3 -- Investment Securities
     Transactions.

C.   Foreign currency translations -- All assets and liabilities denominated in
     foreign currencies are translated into United States dollars daily.
     Purchases and sales of investment securities and accruals of income and
     expenses are translated at the rate of exchange prevailing on the date of
     the transaction.  For assets and liabilities other than investments in
     securities, net realized and unrealized gains and losses from foreign
     currency translation arise from changes in currency exchange rates.  The
     Corporation combines fluctuations from currency exchange rates and
     fluctuations in market value when computing net realized and unrealized
     gain or loss from investments.

D.   Forward foreign currency exchange contracts -- A forward foreign currency
     exchange contract (Forward Contract) is an obligation to purchase or sell a
     specific currency at a future date at a fixed price.  Forward Contracts are
     "marked-to-market" daily at the applicable translation rates and the
     resulting unrealized gains or losses are reflected in the Corporation's
     financial statements.  Gains or losses are realized by the Corporation at
     the time the forward contract is extinguished.  Contracts may be
     extinguished either by entry into a closing transaction or by delivery of

     the currency.  Risks may arise from the possibility that the other party
     will not complete the obligations of the contract and from unanticipated
     movements in the value of the foreign currency relative to the United
     States dollar.  The Corporation uses forward contracts to attempt to reduce
     the overall risk of its investments.

E.   Federal income taxes -- It is the Corporation's policy to distribute all of
     its taxable income and capital gains to its shareholders and otherwise
     qualify as a regulated investment company under Subchapter M of the
     Internal Revenue Code.  In addition, the Corporation intends to pay
     distributions as required to avoid imposition of excise tax.  Accordingly,
     provision has not been made for Federal income taxes.  See Note 4 --
     Federal Income Tax Matters.

F.   Dividends and distributions -- Dividends and distributions to shareholders
     are recorded by each Fund on the business day following record date.  Net
     investment income dividends and capital gains distributions are determined
     in accordance with income tax regulations which may differ from accounting
     principles generally accepted in the United States of America.  These
     differences are due to differing treatments for items such as deferral of
     wash sales and post-October losses, foreign currency transactions, net
     operating losses and expiring capital loss carryovers.  At March 31, 2003
     the following amounts were reclassified:
                                     Accumulated
                      Accumulated  Undistributed
                         Realized Net Investment        Additional
                    Capital Gains         Income   Paid-in Capital
     -------------------------------------------------------------
     Core Equity Fund     $   ---     $1,475,042      $(1,475,042)
     International
        Growth Fund        (29,298)      599,138         (569,840)
     Large Cap
        Growth Fund           ---        135,458         (135,458)
     Mid Cap Growth Fund      ---        146,163         (146,163)
     Science and Technology
        Fund                  ---      1,672,116       (1,672,116)
     Small Cap
        Growth Fund           ---      6,937,971       (6,937,971)
     Tax-Managed
        Equity Fund           ---         43,950          (43,950)

G.   Change in Accounting Principle -- Effective April 1, 2001, the Corporation
     adopted the new provision in the AICPA Audit and Accounting Guide for
     Investment Companies, as revised, that requires mandatory amortization of
     all premiums and discounts on debt securities.  The cumulative effect of
     this required change had no impact on the total net assets of any fund, but
     for Municipal Bond Fund resulted in a $13,719 increase to the cost of
     securities held and a corresponding increase to accumulated undistributed
     net investment income.  The effect of this change during the period was to
     increase net investment income and decrease unrealized appreciation by
     $13,719.  The Statement of Changes in Net Assets and Financial Highlights
     for prior periods have not been restated to reflect this change in
     presentation.

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements.  Actual results could differ from those estimates.

NOTE 2 -- Investment Management And Payments To Affiliated Persons

Waddell & Reed Investment Management Company ("WRIMCO"), a wholly owned
subsidiary of Waddell & Reed, Inc. ("W&R"), serves as the Corporation's
investment manager.  WRIMCO provides advice and supervises investments for which
                                      228

services it is paid a fee.  The fee is payable by each Fund at the following

annual rates:

                                                              Annual
     Fund                     Net Assets Breakpoints          Rate
     ------------------------------------------------------------
     W&R Asset
       Strategy Fund      Up to $1 Billion                  .700%
                          Over $1 Billion up to
                            $2 Billion                      .650%
                          Over $2 Billion up to
                            $3 Billion                      .600%
                          Over $3 Billion                   .550%

     W&R Core Equity Fund Up to $1 Billion                  .700%
                          Over $1 Billion up to
                            $2 Billion                      .650%
                          Over $2 Billion up to
                            $3 Billion                      .600%
                          Over $3 Billion                   .550%

     W&R High
       Income Fund        Up to $500 Million                .625%
                          Over $500 Million up to
                            $1 Billion                      .600%
                          Over $1 Billion up to
                            $1.5 Billion                    .550%
                          Over $1.5 Billion                 .500%

     W&R International    Up to $1 Billion                  .850%
      Growth Fund         Over $1 Billion up to
                            $2 Billion                      .830%
                          Over $2 Billion up to
                            $3 Billion                      .800%
                          Over $3 Billion                   .760%

     W&R Large Cap Growth Up to $1 Billion                  .700%
      Fund                Over $1 Billion up to
                            $2 Billion                      .650%
                          Over $2 Billion up to
                            $3 Billion                      .600%
                          Over $3 Billion                   .550%

     W&R Limited-Term     Up to $500 Million                .500%
      Bond Fund           Over $500 Million up to
                            $1 Billion                      .450%
                          Over $1 Billion up to
                            $1.5 Billion                    .400%
                          Over $1.5 Billion                 .350%

     W&R Mid Cap Growth   Up to $1 Billion                  .850%
      Fund                Over $1 Billion up to
                            $2 Billion                      .830%
                          Over $2 Billion up to
                            $3 Billion                      .800%
                          Over $3 Billion                   .760%

     W&R Money Market
       Fund               All levels                        .400%

     W&R Municipal Bond

       Fund               Up to $500 Million                .525%
                          Over $500 Million up to
                            $1 Billion                      .500%
                          Over $1 Billion up to
                            $1.5 Billion                    .450%
                          Over $1.5 Billion                 .400%

     W&R Science and      Up to $1 Billion                  .850%
      Technology Fund     Over $1 Billion up to
                            $2 Billion                      .830%
                          Over $2 Billion up to
                            $3 Billion                      .800%
                          Over $3 Billion                   .760%

     W&R Small Cap Growth Up to $1 Billion                  .850%
      Fund                Over $1 Billion up to
                            $2 Billion                      .830%
                          Over $2 Billion up to
                            $3 Billion                      .800%
                          Over $3 Billion                   .760%

     W&R Tax-Managed      Up to $1 Billion                  .650%
      Equity Fund         Over $1 Billion up to
                            $2 Billion                      .600%
                          Over $2 Billion up to
                            $3 Billion                      .550%
                          Over $3 Billion                   .500%

The fee is accrued and paid daily.  However, WRIMCO has agreed to waive a Fund's
management fee on any day that the Fund's net assets are less than $25 million,
subject to WRIMCO's right to change or modify this waiver.  During the period
ended March 31, 2003, WRIMCO voluntarily waived its fee as shown in the
following table:

          High Income Fund .............  $119,466
          Large Cap Growth Fund ........    93,158
          Mid Cap Growth Fund ..........   152,532
          Money Market Fund ............    76,352
          Tax-Managed Equity Fund ......    31,791

The Corporation also reimburses WRIMCO for certain expenses, including
additional Fund-related security costs incurred by WRIMCO as a result of the
September 11, 2001 terrorist activities.  The amount reimbursed represents the
Corporation's share of incremental security-related costs including the cost of
using private transportation for WRIMCO's personnel in lieu of commercial
transportation, certain security-related personnel and facilities costs.  At
March 31, 2003, additional security costs amounted to $66,554, which is included
in other expenses.

The Corporation has an Accounting Services Agreement with Waddell & Reed
Services Company ("WRSCO"), a wholly owned subsidiary of W&R.  Under the
agreement, WRSCO acts as the agent in providing bookkeeping and accounting
services and assistance to the Corporation, including maintenance of Fund
records, pricing of Fund shares, preparation of prospectuses for existing
shareholders, preparation of proxy statements and certain shareholder reports.
For these services, each of the Funds pays WRSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.

                            Accounting Services Fee

        Average Net Asset Level           Annual Fee Rate
             (in millions)                 for Each Level
        -----------------------           ---------------

          From  $    0 to $   10          $      0

          From  $   10 to $   25          $ 11,000
          From  $   25 to $   50          $ 22,000
          From  $   50 to $  100          $ 33,000
          From  $  100 to $  200          $ 44,000
          From  $  200 to $  350          $ 55,000
          From  $  350 to $  550          $ 66,000
          From  $  550 to $  750          $ 77,000
          From  $  750 to $1,000          $ 93,500
                $1,000 and Over           $110,000

In addition, for each class of shares in excess of one, each Fund pays the Agent
a monthly per-class fee equal to 2.5% of the monthly base fee.

Under the Shareholder Servicing Agreement, with respect to Class A, Class B and
Class C shares, for each shareholder account that was in existence at any time
during the prior month:  Asset Strategy Fund pays the Agent a monthly fee of
$1.5792; High Income Fund, Limited-Term Bond Fund and Municipal Bond Fund each
pay the Agent a monthly fee of $1.6958; and Core Equity Fund, International
Growth Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Science and Technology
Fund, Small Cap Growth Fund and Tax-Managed Equity Fund each pay the Agent a
monthly fee of $1.5042.  Money Market Fund pays the Agent a monthly fee of $1.75
for each shareholder account that was in existence at any time during the prior
month plus, for Class A shareholder accounts, $0.75 for each shareholder check
processed in the prior month.  For Class Y shares, each Fund pays the Agent a
monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of
the class for the preceding month.  Each Fund also reimburses W&R and WRSCO for
certain out-of-pocket costs for all classes.

As principal underwriter for the Corporation's shares, W&R receives gross sales
commissions (which are not an expense of the Corporation) for Class A shares.  A
contingent deferred sales charge ("CDSC") may be assessed against a
shareholder's redemption amount of Class B, Class C or certain Class A shares
and is paid to W&R. During the period ended March 31, 2003, W&R received the
following amounts in gross sales commissions and deferred sales charges:

                                                 CDSC
                           Gross Sales  -------------------------
                           Commissions Class A  Class B   Class C
     Asset Strategy Fund....  $ 44,257   $--- $ 7,456      $1,583
     Core Equity Fund ......    57,848    ---  11,967       5,298
     High Income Fund ......    68,060    ---   1,763         607
     International Growth Fund  25,086    ---   3,373         956
     Large Cap Growth Fund..    69,362    ---   5,076         646
     Limited-Term Bond Fund.   304,314    ---   9,546       1,971
     Mid Cap Growth Fund ...    69,276    ---   5,227         895
     Money Market Fund .....       ---    ---   5,068       1,302
     Municipal Bond Fund....     4,102    ---      60       1,459
     Science and Technology
       Fund ................    58,512    ---   6,600       3,203
     Small Cap Growth Fund..   135,333    ---  14,141       6,708
     Tax-Managed Equity Fund    11,805    ---     816          26

With respect to Class A, Class B and Class C shares, W&R pays sales commissions
and all expenses in connection with the sale of the Corporation's shares, except
for registration fees and related expenses. During the period ended March 31,
2003, W&R paid the following amounts:

     Asset Strategy Fund................  $ 58,543
     Core Equity Fund...................   106,467
     High Income Fund...................    62,129
     International Growth Fund..........    36,130
     Large Cap Growth Fund..............    53,742

     Limited-Term Bond Fund.............   246,960
     Mid Cap Growth Fund................    50,177
     Money Market Fund..................       ---
     Municipal Bond Fund................    13,037
     Science and Technology Fund........    81,378
     Small Cap Growth Fund..............   179,933
     Tax-Managed Equity Fund............     8,328

Under a Distribution and Service Plan for Class A shares adopted by the
Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940,
each Fund may pay a distribution and/or service fee to W&R in an amount not to
exceed 0.25% of the Fund's average annual net assets.  The fee is to be paid to
compensate W&R for amounts it expends in connection with the distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.

Under the Distribution and Service Plan adopted by the Corporation for Class B
shares and Class C shares, respectively, each Fund may pay W&R a service fee not
to exceed 0.25% and a distribution fee not to exceed 0.75% of a Fund's average
annual net assets attributable to that class to compensate W&R for its services
in connection with the distribution of shares of that class and/or the service
and/or maintenance of shareholder accounts of that class.  The Class B Plan and
the Class C Plan each permit W&R to receive compensation, through the
distribution fee and service fee, respectively, for its distribution activities
for that class, which are similar to the distribution activities described with
respect to the Class A Plan, and for its activities in providing personal
services to shareholders of that class and/or maintaining shareholder accounts
of that class, which are similar to the corresponding activities for which it is
entitled to compensation under the Class A Plan.  In the current environment of
low interest rates, W&R has voluntarily agreed to reimburse sufficient
distribution and service fees to any class of W&R Money Market Fund in order to
insure the yield of that class remains at or above 0.05%.

Under the Class Y Plan, each Fund may pay W&R a fee of up to 0.25%, on an annual
basis, of the average daily net assets of the Fund's Class Y shares to
compensate W&R for, either directly or through third parties, distributing the
Class Y shares of that Fund, providing personal service to Class Y shareholders
and/or maintaining Class Y shareholder accounts.

The Corporation paid Directors' fees of $53,089, which are included in other
expenses.

W&R is a subsidiary of Waddell & Reed Financial, Inc., a public holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.

NOTE 3 -- Investment Securities Transactions

Investment securities transactions for the period ended March 31, 2003 are
summarized as follows:

                                   Asset           Core           High

                                Strategy         Equity         Income
                                    Fund           Fund           Fund
                             -----------     ----------    -----------
Purchases of investment
 securities, excluding short-
 term and United States Government
 securities  ...............$ 30,180,026 $   97,872,122   $ 19,933,958
Purchases of bullion .......   5,057,300            ---            ---
Purchases of United States Government
 securities  ...............  40,507,773            ---            ---
Purchases of short-term
 securities  ............... 120,375,509  1,189,077,022    277,558,315
Purchases of options .......   4,557,322            ---            ---
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government securities  ....  17,442,836    163,629,331     10,715,087
Proceeds from sales
 of bullion  ...............   1,806,586            ---            ---
Proceeds from maturities
 and sales of United States
 Government securities  ....  40,825,613            ---            ---
Proceeds from maturities
 and sales of short-term
 securities  ............... 121,255,938  1,184,035,194    274,700,328
Proceeds from options ......   4,223,798            ---            ---

                           International      Large Cap       Limited-
                                  Growth         Growth      Term Bond
                                    Fund           Fund           Fund
                             -----------     ----------    -----------
Purchases of investment
 securities, excluding short-
 term and United States Government
 securities  ...............$ 70,344,267   $ 19,027,348   $ 41,981,069
Purchases of United States Government
 securities  ...............         ---            ---     27,197,061
Purchases of short-term
 securities  ............... 688,378,549    294,822,928    144,923,637
Purchases of options .......         ---         81,608            ---
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government securities  ....  85,465,684     15,715,106     13,709,566
Proceeds from maturities
 and sales of United States
 Government securities  ....         ---            ---     10,705,826
Proceeds from maturities
 and sales of short-term
 securities  ............... 681,530,456    293,480,000    139,373,202
Proceeds from options ......         ---         14,454            ---

                                 Mid Cap      Municipal    Science and

                                  Growth           Bond     Technology
                                    Fund           Fund           Fund
                             -----------     ----------     ----------
Purchases of investment
 securities, excluding short-
 term and United States Government
 securities  ...............$  8,998,518    $10,626,876 $   53,565,361
Purchases of United States Government
 securities  ...............         ---            ---            ---
Purchases of short-term
 securities  ............... 352,652,535     17,560,945  1,451,624,954
Purchases of options .......     202,763            ---      3,334,701
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government securities  ....   5,397,806     10,710,951     69,598,943
Proceeds from maturities
 and sales of United States
 Government securities  ....         ---            ---            ---
Proceeds from maturities
 and sales of short-term
 securities  ............... 353,871,000     17,652,000  1,445,451,000
Proceeds from options ......     237,162            ---      4,865,768

                               Small Cap    Tax-Managed
                                  Growth         Equity
                                    Fund           Fund
                             -----------     ----------
Purchases of investment
 securities, excluding short-
 term and United States Government
 securities  ...............$  100,430,036  $ 6,580,949
Purchases of United States Government
 securities  ...............         ---            ---
Purchases of short-term
 securities  ...............1,945,735,927    86,102,349
Purchases of options .......         ---         14,601
Proceeds from maturities
 and sales of investment
 securities, excluding
 short-term and United States
 Government securities  .... 139,285,179      6,061,392
Proceeds from maturities
 and sales of United States
 Government securities  ....         ---            ---
Proceeds from maturities
 and sales of short-term
 securities  ...............1,960,844,329    87,366,000
Proceeds from options ......         ---         50,027

For Federal income tax purposes, cost of investments owned at March 31, 2003 and
the related unrealized appreciation (depreciation) were as follows:

                                                             Aggregate

                                                          Appreciation
                            Cost AppreciationDepreciation(Depreciation)
                     ----------- -------------------------------------
Asset Strategy Fund .$ 65,144,235 $ 1,247,541 $ 1,345,860   $ (98,319)
Core Equity Fund ....204,081,906   36,708,024  17,552,329   19,155,695
High Income Fund .... 30,520,204    1,269,599     492,263      777,336
International Growth
 Fund   .............              70,378,767   1,544,290    5,870,006
 (4,325,716)
Large Cap Growth Fund              28,662,933   1,283,984    2,130,271(846,287)
Limited-Term Bond Fund             77,738,090   1,842,859       30,324
1,812,535
Mid Cap Growth Fund . 21,358,709    1,356,915   4,054,332  (2,697,417)
Money Market Fund ... 21,226,792          ---         ---          ---
Municipal Bond Fund . 26,958,878    1,038,070      93,807      944,263
Science and Technology
 Fund   .............             111,293,574   4,749,588   24,919,472
 (20,169,884)
Small Cap Growth Fund             367,310,196  50,341,016   75,607,072
 (25,266,056)
Tax-Managed Equity Fund             4,523,203     410,613      419,073
 (8,460)

NOTE 4 -- Federal Income Tax Matters

For Federal income tax purposes, the Fund's distributed and undistributed
earnings and profit for the fiscal year ended March 31, 2003 and the related
Capital loss carryover and Post-October activity were as follows:

                                        Asset       Core          High
                                     Strategy     Equity        Income
                                         Fund       Fund          Fund
                                 -------------------------------------
Net ordinary income ............... $ 324,654 $       ---   $1,623,792
Distributed ordinary income .......   374,528         ---    1,619,183
Undistributed ordinary income .....    25,243         ---       35,113

Realized long-term capital gains ..       ---         ---          ---
Distributed long-term capital gains       ---         ---          ---
Undistributed long-term capital gains     ---         ---          ---

Capital loss carryover ............       ---  32,352,928    1,182,962

Post-October losses deferred ......       ---   4,137,423       55,426

                                International  Large Cap      Limited-
                                       Growth     Growth     Term Bond
                                         Fund       Fund          Fund
                                 -------------------------------------
Net ordinary income ...............$       --- $      ---   $1,555,211
Distributed ordinary income .......       ---         ---    1,544,291
Undistributed ordinary income......       ---         ---       24,714

Realized long-term capital gains ..       ---         ---          ---
Distributed long-term capital gains       ---         ---          ---
Undistributed long-term capital gains     ---         ---          ---

Capital loss carryover ............19,460,037   4,727,341      456,813

Post-October losses deferred ...... 5,229,066     835,240          ---

                                      Mid Cap      Money     Municipal

                                       Growth     Market          Bond
                                         Fund       Fund          Fund
                                 -------------------------------------
Net ordinary income ...............$      ---    $138,944     $838,698
Distributed ordinary income .......     3,132     139,244      840,097
Undistributed ordinary income .....       ---       1,179        9,887

Realized long-term capital gains ..       ---         ---          ---
Distributed long-term capital gains       ---         ---          ---
Undistributed long-term capital gains     ---         ---          ---

Capital loss carryover ............ 3,437,031         ---       75,199

Post-October losses deferred ......   244,321         ---          ---

                                  Science and  Small Cap   Tax-Managed
                                   Technology     Growth        Equity
                                         Fund       Fund          Fund
                                 -------------------------------------
Net ordinary income ...............$       ---$       ---   $      ---
Distributed ordinary income .......       ---         ---          ---
Undistributed ordinary income .....       ---         ---          ---

Realized long-term capital gains ..       ---         ---          ---
Distributed long-term capital gains       ---         ---          ---
Undistributed long-term capital gains     ---         ---          ---

Capital loss carryover ............15,864,785  24,660,890    1,005,096

Post-October losses deferred ......       ---  16,385,158      173,190


Internal Revenue Code regulations permit each Fund to defer into its next fiscal
year net capital losses or net long-term capital losses incurred between each
November 1 and the end of its fiscal year ("post-October losses").

Capital loss carryovers are available to offset future realized capital gain net
income for Federal income tax purposes.  The following shows the totals by year
in which the capital loss carryovers will expire if not utilized.


                           Asset         Core       High International
                        Strategy       Equity     Income        Growth
                            Fund         Fund       Fund          Fund
                     ----------- -------------------------------------
March 31, 2007 .......$      ---  $       ---  $  501,692  $       ---
March 31, 2008 .......       ---          ---     472,930          ---
March 31, 2009 .......       ---          ---   2,581,600          ---
March 31, 2010 ....... 2,567,657   28,691,576   1,271,702   31,762,625
March 31, 2011 .......       ---   32,352,928   1,182,962   19,460,037
                      ----------  -----------  ----------  -----------
Total carryover ......$2,567,657  $61,044,504  $6,010,886  $51,222,662
                      ==========  ===========  ==========  ===========

                       Large Cap     Limited-    Mid Cap     Municipal
                          Growth    Term Bond     Growth          Bond
                            Fund         Fund       Fund          Fund
                     ----------- -------------------------------------
March 31, 2005 .......$       ---    $ 72,428  $      ---     $    ---
March 31, 2006 .......       ---       64,500         ---          ---
March 31, 2009 .......       ---      159,953         ---      519,289
March 31, 2010 ....... 7,188,151          ---   2,752,716      230,753
March 31, 2011 ....... 4,727,341      456,813   3,437,031       75,199
                      ----------     --------  ----------  -----------
Total carryover ......$11,915,492    $753,694  $6,189,747     $825,241

                      ==========     ========  ==========  ===========

                                  Science and  Small Cap   Tax-Managed
                                   Technology     Growth        Equity
                                         Fund       Fund          Fund
                                 -------------------------------------
March 31, 2009 .......            $       --- $       ---   $   59,107
March 31, 2010 .......             21,421,176  60,539,358    1,914,377
March 31, 2011 .......             15,864,785  24,660,890    1,005,096
                                  ----------- -----------  -----------
Total carryover ......            $37,285,961 $85,200,248   $2,978,580
                                  =========== ===========  ===========


NOTE 5 -- Multiclass Operations

Each Fund within the Corporation (other than Money Market Fund which offers only
Class A, Class B and Class C shares) currently offers four classes of shares,
Class A, Class B, Class C and Class Y, each of which have equal rights as to
assets and voting privileges.  A comprehensive discussion of the terms under
which shares of each class are offered is contained in the Prospectuses and the
Statement of Additional Information for the Corporation.

Income, non-class specific expenses, and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of their
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.

Class B shares were combined with Class C shares effective March 24, 2000 and
were redesignated Class C shares.


Transactions in capital stock for the fiscal period ended March 31, 2003 are

summarized below.  Amounts are in thousands.

                              Asset          Core          High
                           Strategy        Equity        Income
                               Fund          Fund          Fund
                        -----------    ----------   -----------
Shares issued from sale
  of shares:
 Class A  ............          739         1,940           690
 Class B  ............          119           219           124
 Class C  ............        1,901         2,655           726
 Class Y  ............           62            69           558
Shares issued from
 reinvestment of dividends:
 Class A  ............            8           ---            30
 Class B  ............            1           ---             8
 Class C  ............           23           ---           147
 Class Y  ............            1           ---             3
Shares redeemed:
 Class A  ............         (266)       (1,040)         (167)
 Class B  ............          (46)         (208)          (32)
 Class C  ............       (1,539)      (12,363)         (625)
 Class Y  ............          (15)          (90)         (118)
                                ---         -----           ---
Increase (decrease) in
 outstanding capital shares
                                988        (8,818)        1,344
                                ===        ======         =====
Value issued from sale
 of shares:
 Class A  ............      $ 8,291      $ 13,695       $ 5,535
 Class B  ............        1,333         1,592           988
 Class C  ............       21,310        18,932         5,820
 Class Y  ............          698           520         4,466
Value issued from reinvestment
 of dividends:
 Class A  ............           85           ---           236
 Class B  ............           12           ---            66
 Class C  ............          262           ---         1,174
 Class Y  ............           11           ---            25
Value redeemed:
 Class A  ............       (2,965)       (7,407)       (1,332)
 Class B  ............         (514)       (1,466)         (265)
 Class C  ............      (17,189)      (87,355)       (5,007)
 Class Y  ............         (174)         (699)         (938)
                            -------      --------        ------
Increase (decrease) in
 outstanding capital        $11,160      $(62,188)      $10,768
                            =======      ========        ======

                      International     Large Cap      Limited-

                             Growth        Growth     Term Bond
                               Fund          Fund          Fund
                        -----------    ----------   -----------
Shares issued from sale
  of shares:
 Class A  ............        4,496         2,011         6,921
 Class B  ............           69            88           473
 Class C  ............          616           280         1,711
 Class Y  ............       17,611            49           369
Shares issued from
 reinvestment of dividends:
 Class A  ............          ---           ---            68
 Class B  ............          ---           ---             8
 Class C  ............          ---           ---            63
 Class Y  ............          ---           ---             4
Shares redeemed:
 Class A  ............       (4,449)       (1,270)       (3,784)
 Class B  ............          (38)          (84)          (96)
 Class C  ............       (2,056)         (384)         (866)
 Class Y  ............      (17,027)          (10)         (256)
                              -----           ---         -----
Increase (decrease) in
 outstanding capital shares    (778)          680         4,615
                                ===           ===         =====
Value issued from sale
 of shares:
 Class A  ............     $ 38,377       $14,751       $71,487
 Class B  ............          574           659         4,892
 Class C  ............        5,307         2,093        17,693
 Class Y  ............      153,398           372         3,831
Value issued from reinvestment
 of dividends:
 Class A  ............          ---           ---           702
 Class B  ............          ---           ---            81
 Class C  ............          ---           ---           654
 Class Y  ............          ---           ---            43
Value redeemed:
 Class A  ............      (38,451)       (9,456)      (39,049)
 Class B  ............         (316)         (625)         (995)
 Class C  ............      (17,451)       (2,890)       (8,953)
 Class Y  ............     (149,023)          (75)       (2,662)
                           --------       -------       -------
Increase (decrease)
 in outstanding capital    $ (7,585)      $ 4,829       $47,724
                           ========       =======       =======

                            Mid Cap         Money     Municipal

                             Growth        Market          Bond
                               Fund          Fund          Fund
                        -----------    ----------    ----------
Shares issued from sale
  of shares:
 Class A  ............        1,079        23,939           340
 Class B  ............           72         1,022            36
 Class C  ............          190        12,225           313
 Class Y  ............           50           N/A           ---*
Shares issued from
 reinvestment of dividends:
 Class A  ............          ---*          114             7
 Class B  ............          ---             1             1
 Class C  ............          ---            16            60
 Class Y  ............          ---*          N/A           ---*
Shares redeemed:
 Class A  ............         (681)      (18,823)         (304)
 Class B  ............          (60)         (413)          ---*
 Class C  ............         (204)       (9,788)         (443)
 Class Y  ............          (49)          N/A           ---
                                ---        ------           ---
Increase in
 outstanding capital shares     397         8,293            10
                                ===         =====            ==
Value issued from sale
 of shares:
 Class A  ............       $7,414       $23,939        $3,751
 Class B  ............          508         1,022           390
 Class C  ............        1,373        12,225         3,442
 Class Y  ............          355           N/A             2
Value issued from reinvestment
 of dividends:
 Class A  ............            2           114            73
 Class B  ............          ---             1             8
 Class C  ............          ---            16           658
 Class Y  ............            1           N/A           ---*
Value redeemed:
 Class A  ............       (4,745)      (18,823)       (3,368)
 Class B  ............         (421)         (413)           (3)
 Class C  ............       (1,422)       (9,788)       (4,834)
 Class Y  ............         (362)          N/A           ---
                             ------       -------        ------
Increase in
 outstanding capital         $2,703       $ 8,293        $  119
                             ======       =======        ======
*Not shown due to rounding.

                        Science and     Small Cap   Tax-Managed

                         Technology        Growth        Equity
                               Fund          Fund          Fund
                        -----------    ----------    ----------
Shares issued from sale
  of shares:
 Class A  ............          800         3,910           156
 Class B  ............           99           317             3
 Class C  ............          569         2,885            31
 Class Y  ............          151        10,907           ---
Shares issued from
 reinvestment of dividends:
 Class A  ............          ---           ---           ---
 Class B  ............          ---           ---           ---
 Class C  ............          ---           ---           ---
 Class Y  ............          ---           ---           ---
Shares redeemed:
 Class A  ............         (456)       (2,969)         (228)
 Class B  ............          (53)         (216)          (16)
 Class C  ............       (1,707)      (10,689)          (45)
 Class Y  ............          (94)      (10,368)          ---
                              -----        ------           ---
Decrease in
 outstanding capital
 shares  .............         (691)       (6,223)          (99)
                                ===         =====            ==
Value issued from sale
 of shares:
 Class A  ............      $11,616      $ 32,860          $913
 Class B  ............        1,447         2,669            19
 Class C  ............        8,405        24,235           177
 Class Y  ............        2,271       103,179           ---
Value issued from reinvestment
 of dividends:
 Class A  ............          ---           ---           ---
 Class B  ............          ---           ---           ---
 Class C  ............          ---           ---           ---
 Class Y  ............          ---           ---           ---
Value redeemed:
 Class A  ............       (6,696)      (24,603)       (1,308)
 Class B  ............         (755)       (1,712)          (90)
 Class C  ............      (25,069)      (88,011)         (255)
 Class Y  ............       (1,416)     (100,287)          ---
                            -------      --------        ------
Decrease in
 outstanding capital       $(10,197)     $(51,670)       $ (544)
                           ========      ========        ======

Transactions in capital stock for the fiscal year ended March 31, 2002 are

summarized below.  Amounts are in thousands.

                              Asset          Core          High
                           Strategy        Equity        Income
                               Fund          Fund          Fund
                        -----------    ----------   -----------
Shares issued from sale
  of shares:
 Class A  ............          278           932           216
 Class B  ............          123           343            54
 Class C  ............          807         3,045           371
 Class Y  ............           17           215            11
Shares issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............           13            28            10
 Class B  ............            8            23             7
 Class C  ............          154         1,474           164
 Class Y  ............            2            12           ---*
Shares redeemed:
 Class A  ............         (135)         (335)          (54)
 Class B  ............          (62)         (145)          (28)
 Class C  ............       (1,340)      (10,459)         (661)
 Class Y  ............          (10)          (91)           (5)
                              -----        ------           ---
Increase (decrease) in
 outstanding capital shares
                               (145)       (4,958)           85
                              =====        ======           ===
Value issued from sale
 of shares:
 Class A  ............      $ 3,215      $  8,461        $1,820
 Class B  ............        1,438         3,155           458
 Class C  ............        9,437        27,796         3,139
 Class Y  ............          195         2,087            93
Value issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............          152           243            83
 Class B  ............           86           196            56
 Class C  ............        1,728        12,760         1,380
 Class Y  ............           26           111             2
Value redeemed:
 Class A  ............       (1,530)       (2,990)         (456)
 Class B  ............         (717)       (1,284)         (236)
 Class C  ............      (15,529)      (94,385)       (5,563)
 Class Y  ............         (109)         (864)          (43)
                            -------      --------        ------
Increase (decrease) in
 outstanding capital        $(1,608)     $(44,714)       $  733
                            =======      ========        ======
*Not shown due to rounding.

                      International     Large Cap      Limited-

                             Growth        Growth     Term Bond
                               Fund          Fund          Fund
                        -----------    ----------   -----------
Shares issued from sale
  of shares:
 Class A  ............          647         1,094           664
 Class B  ............           92           106           116
 Class C  ............          519           406           796
 Class Y  ............        1,834           171            15
Shares issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............            2           ---            11
 Class B  ............            1           ---             3
 Class C  ............           26           ---            74
 Class Y  ............            2           ---             8
Shares redeemed:
 Class A  ............         (426)         (965)        (124)
 Class B  ............          (45)          (92)         (21)
 Class C  ............       (3,137)         (390)        (639)
 Class Y  ............       (1,560)         (117)        (115)
                              -----           ---           ---
Increase (decrease) in
 outstanding capital shares  (2,045)          213           788
                              =====           ===           ===
Value issued from sale
 of shares:
 Class A  ............     $  6,829        $9,985        $6,852
 Class B  ............          979           968         1,191
 Class C  ............        5,559         3,717         8,205
 Class Y  ............       19,389         1,580           151
Value issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............           20           ---           115
 Class B  ............            6           ---            31
 Class C  ............          258           ---           756
 Class Y  ............           19           ---            84
Value redeemed:
 Class A  ............       (4,428)       (8,924)      (1,275)
 Class B  ............         (461)         (821)        (220)
 Class C  ............      (32,705)       (3,504)      (6,573)
 Class Y  ............      (16,524)       (1,067)      (1,179)
                           --------        ------        ------
Increase (decrease)
 in outstanding capital    $(21,059)       $1,934        $8,138
                           ========        ======        ======

                            Mid Cap         Money     Municipal

                             Growth        Market          Bond
                               Fund          Fund          Fund
                        -----------    ----------    ----------
Shares issued from sale
  of shares:
 Class A  ............          883         6,770           141
 Class B  ............           98         1,094             8
 Class C  ............          314        18,256           222
 Class Y  ............          150           N/A           ---
Shares issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............            8           128             6
 Class B  ............          ---             7           ---*
 Class C  ............          ---           129            71
 Class Y  ............          ---*          N/A           ---*
Shares redeemed:
 Class A  ............         (507)       (6,390)         (63)
 Class B  ............          (60)         (954)          (1)
 Class C  ............         (232)      (21,219)        (455)
 Class Y  ............         (122)          N/A           ---
                                ---        ------           ---
Increase (decrease) in
 outstanding capital shares     532        (2,179)          (71)
                                ===        ======           ===
Value issued from sale
 of shares:
 Class A  ............       $7,968       $ 6,770        $1,516
 Class B  ............          881         1,094            87
 Class C  ............        2,828        18,256         2,389
 Class Y  ............        1,337           N/A           ---
Value issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............           75           128            61
 Class B  ............          ---             7             2
 Class C  ............          ---           129           758
 Class Y  ............            3           N/A           ---*
Value redeemed:
 Class A  ............       (4,559)       (6,390)        (680)
 Class B  ............         (529)         (954)          (6)
 Class C  ............       (2,047)      (21,219)      (4,875)
 Class Y  ............       (1,046)          N/A           ---
                             ------       -------        ------
Increase (decrease) in
 outstanding capital         $4,911       $(2,179)       $ (748)
                             ======       =======        ======
*Not shown due to rounding.

                        Science and     Small Cap   Tax-Managed

                         Technology        Growth        Equity
                               Fund          Fund          Fund
                        -----------    ----------    ----------
Shares issued from sale
  of shares:
 Class A  ............          566         5,892           248
 Class B  ............          129           396            26
 Class C  ............          720         3,337            63
 Class Y  ............          141        24,633           ---
Shares issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............          ---*          ---           ---
 Class B  ............          ---*          ---           ---
 Class C  ............            7           ---           ---
 Class Y  ............          ---*          ---           ---
Shares redeemed:
 Class A  ............         (224)       (4,819)          (80)
 Class B  ............          (66)         (158)          (11)
 Class C  ............       (2,030)      (10,698)         (164)
 Class Y  ............          (58)      (22,478)          ---
                              -----        ------           ---
Increase (decrease) in
 outstanding capital
 shares  .............         (815)       (3,895)           82
                              =====        ======           ===
Value issued from sale
 of shares:
 Class A  ............     $ 10,531      $ 59,708        $1,672
 Class B  ............        2,365         4,011           181
 Class C  ............       13,288        33,660           441
 Class Y  ............        2,655       273,657           ---
Value issued from
 reinvestment of dividends
 and/or capital gains
 distribution:
 Class A  ............           11           ---           ---
 Class B  ............            4           ---           ---
 Class C  ............          129           ---           ---
 Class Y  ............            3           ---           ---
Value redeemed:
 Class A  ............       (4,148)      (49,068)         (540)
 Class B  ............       (1,191)       (1,578)          (77)
 Class C  ............      (36,830)     (106,518)       (1,107)
 Class Y  ............       (1,108)     (248,493)          ---
                           --------      --------         -----
Increase (decrease) in
 outstanding capital       $(14,291)     $(34,621)        $ 570
                           ========      ========         =====
*Not shown due to rounding.

NOTE 6 -- Options


Options purchased by a Fund are accounted for in the same manner as marketable
portfolio securities.  The cost of portfolio securities acquired through the
exercise of call options is increased by the premium paid to purchase the call.
The proceeds from securities sold through the exercise of put options are
decreased by the premium paid to purchase the put.

When the Fund writes (sells) an option, an amount equal to the premium received
by the Fund is recorded as a liability.  The amount of the liability is
subsequently adjusted to reflect the current market value of the option written.
The current market value of an option is the last sales price on the principal
exchange on which the option is traded or, in the absence of transactions, the
mean between the bid and asked prices or at a value supplied by a broker-dealer.
When an option expires on its stipulated expiration date or the Fund enters into
a closing purchase transaction, the Fund realizes a gain (or loss if the cost of
a closing purchase transaction exceeds the premium received when the call option
was sold) and the liability related to such option is extinguished.  When a call
option is exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has realized a gain or loss.
For the Fund, when a written put is exercised, the cost basis of the securities
purchased by the Fund is reduced by the amount of the premium received.

For Asset Strategy Fund, transactions in call options written were as follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                135     $   48,515
     Options written              10,430      2,745,523
     Options terminated
       in closing purchase
       transactions              (10,565)    (2,794,038)
     Options exercised               ---            ---
     Options expired                 ---            ---
                                   -----     ----------
     Outstanding at
       March 31, 2003                ---     $      ---
                                   =====     ==========

For Asset Strategy Fund, transactions in put options written were as follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                ---       $    ---
     Options written                 516        100,756
     Options terminated
       in closing purchase
       transactions                 (516)      (100,756)
     Options exercised               ---            ---
     Options expired                 ---            ---
                                    ----       --------
     Outstanding at
       March 31, 2003                ---       $    ---
                                    ====       ========

For Mid Cap Growth Fund, transactions in call options written were as follows:


                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                137       $ 25,049
     Options written                 941        162,907
     Options terminated
       in closing purchase
       transactions                 (513)      (106,071)
     Options exercised               ---            ---
     Options expired                (419)       (62,128)
                                    ----       --------
     Outstanding at
       March 31, 2003                146       $ 19,757
                                    ====       ========

For Mid Cap Growth Fund, transactions in put options written were as follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                ---        $   ---
     Options written                 180         45,274
     Options terminated
       in closing purchase
       transactions                 (144)       (30,947)
     Options exercised               (17)        (2,414)
     Options expired                 (19)       (11,913)
                                    ----        -------
     Outstanding at
       March 31, 2003                ---        $   ---
                                    ====        =======

For Science and Technology Fund, transactions in call options written were as
follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                 95     $   28,804
     Options written              12,894      2,996,017
     Options terminated
       in closing purchase
       transactions               (7,831)    (1,676,201)
     Options exercised            (1,851)      (544,253)
     Options expired                (889)      (212,287)
                                   -----     ----------
     Outstanding at
       March 31, 2003              2,418     $  592,080
                                   =====     ==========

For Science and Technology Fund, transactions in put options written were as

follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                ---       $    ---
     Options written               4,995        721,730
     Options terminated
       in closing purchase
       transactions               (2,987)      (491,811)
     Options exercised              (269)       (27,707)
     Options expired              (1,011)      (125,044)
                                   -----       --------
     Outstanding at
       March 31, 2003                728       $ 77,168
                                   =====       ========

For Tax-Managed Equity Fund, transactions in call options written were as
follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                ---        $   ---
     Options written                 369         41,386
     Options terminated
       in closing purchase
       transactions                  (69)       (12,668)
     Options exercised               ---            ---
     Options expired                 (21)        (1,953)
                                    ----        -------
     Outstanding at
       March 31, 2003                279        $26,765
                                    ====        =======

For Tax-Managed Equity Fund, transactions in put options written were as
follows:

                               Number of       Premiums
                               Contracts       Received
                               ---------       --------
     Outstanding at
       March 31, 2002                ---         $  ---
     Options written                  42          5,474
     Options terminated
       in closing purchase
       transactions                  (42)        (5,474)
     Options exercised               ---            ---
     Options expired                 ---            ---
                                   -----         ------
     Outstanding at
       March 31, 2003                ---         $  ---
                                   =====         ======


NOTE 7 -- Futures

The Corporation may engage in buying and selling interest rate futures
contracts, but only Debt Futures and Municipal Bond Index Futures.  Upon
entering into a futures contract, the Corporation is required to deposit, in a
segregated account, an amount of cash or United States Treasury Bills equal to a
varying specified percentage of the contract amount.  This amount is known as
the initial margin.  Subsequent payments ("variation margins") are made or

received by the Corporation each day, dependent on the daily fluctuations in the
value of the underlying debt security or index.  These changes in the variation
margins are recorded by the Corporation as unrealized gains or losses.  Upon the
closing of the contracts, the cumulative net change in the variation margin is
recorded as realized gain or loss.  The Corporation uses futures to attempt to
reduce the overall risk of its investments.


INDEPENDENT AUDITORS' REPORT


The Board of Directors and Shareholders,
W&R Funds, Inc.:


We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Asset Strategy Fund, Core Equity Fund, High
Income Fund, International Growth Fund, Large Cap Growth Fund, Limited-Term Bond
Fund, Mid Cap Growth Fund, Money Market Fund, Municipal Bond Fund, Science and
Technology Fund, Small Cap Growth Fund and Tax-Managed Equity Fund (collectively
the "Funds") comprising W&R Funds, Inc. as of March 31, 2003, and the related
statements of operations for the fiscal year then ended, the statements of
changes in net assets for each of the two fiscal years in the period then ended,
and the financial highlights for the periods presented.  These financial
statements and financial highlights are the responsibility of the Funds'
management.  Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  Our procedures included confirmation
of securities owned as of March 31, 2003, by correspondence with the custodian
and brokers.  An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Funds comprising W&R Funds, Inc., as of March 31, 2003, the
results of their operations for the fiscal year then ended, the changes in their
net assets for each of the two fiscal years in the period then ended, and their
financial highlights for the periods presented, in conformity with accounting
principles generally accepted in the United States of America.



Deloitte & Touche LLP
Kansas City, Missouri
May 9, 2003



INCOME TAX INFORMATION


The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares owned by you in the Funds shown on the record dates, will
give you the total amounts to be reported in your Federal income tax return for
the years in which they were received or reinvested.

                        PER-SHARE AMOUNTS REPORTABLE AS:
          --------------------------------------------------------------------
                    For Individuals               For Corporations
                  ----------------------------------------------------
    Record         OrdinaryLong-Term                    Non-Long-Term
      Date   Total   IncomeCapital Gain  QualifyingQualifyingCapital Gain
  --------   -----  -----------------      ----------------------------
                              Asset Strategy Fund
                                    Class A
   6-12-02 $0.0470  $0.0470     $---        $0.0083  $0.0387     $---
   9-11-02  0.0320   0.0320      ---         0.0092   0.0228      ---
  12-11-02  0.0430   0.0430      ---         0.0123   0.0307      ---
   3-12-03  0.0280   0.0280      ---         0.0081   0.0199      ---
           -------  -------     ----        -------  -------     ----
     Total $0.1500  $0.1500     $---        $0.0379  $0.1121     $---
           =======  =======     ====        =======  =======     ====
                              Asset Strategy Fund
                                    Class B
   6-12-02 $0.0240  $0.0240     $---        $0.0043  $0.0197     $---
   9-11-02  0.0060   0.0060      ---         0.0017   0.0043      ---
  12-11-02  0.0150   0.0150      ---         0.0043   0.0107      ---
   3-12-03  0.0010   0.0010      ---         0.0003   0.0007      ---
           -------  -------     ----        -------  -------     ----
     Total $0.0460  $0.0460     $---        $0.0106  $0.0354     $---
           =======  =======     ====        =======  =======     ====
                              Asset Strategy Fund
                                    Class C
   6-12-02 $0.0250  $0.0250     $---        $0.0044  $0.0206     $---
   9-11-02  0.0100   0.0100      ---         0.0029   0.0071      ---
  12-11-02  0.0210   0.0210      ---         0.0060   0.0150      ---
   3-12-03  0.0050   0.0050      ---         0.0015   0.0035      ---
           -------  -------     ----        -------  -------     ----
     Total $0.0610  $0.0610     $---        $0.0148  $0.0462     $---
           =======  =======     ====        =======  =======     ====
                              Asset Strategy Fund
                                    Class Y
   6-12-02 $0.0500  $0.0500     $---        $0.0089  $0.0411     $---
   9-11-02  0.0340   0.0340      ---         0.0098   0.0242      ---
  12-11-02  0.0450   0.0450      ---         0.0129   0.0321      ---
   3-12-03  0.0300   0.0300      ---         0.0087   0.0213      ---
           -------  -------     ----        -------  -------     ----
     Total $0.1590  $0.1590     $---        $0.0403  $0.1187     $---
           =======  =======     ====        =======  =======     ====
                              Mid Cap Growth Fund
                                    Class A
  12-11-02 $0.0010  $0.0010     $---        $0.0010     $---     $---
           =======  =======     ====        =======     ====     ====
                              Mid Cap Growth Fund
                                    Class Y
  12-11-02 $0.0260  $0.0260     $---        $0.0260     $---     $---
           =======  =======     ====        =======     ====     ====

Dividends are declared and recorded by each of the following Funds on each day

the New York Stock Exchange is open for business.  Dividends are paid monthly
usually on the 27th of the month or on the preceding business day if the 27th is
a weekend or holiday.

Exempt Interest Dividends - The exempt interest portion of dividends paid
represents the distribution of state and municipal bond interest and is exempt
from Federal income taxation.

The table below shows the taxability of dividends and long-term capital gains
paid during the fiscal year ended March 31, 2003:
                        PER-SHARE AMOUNTS REPORTABLE AS:
          --------------------------------------------------------------------
                           For Individuals                 For Corporations
                  --------------------------------------------------------------
  Record         Ordinary      Long-Term                     Non- Long-Term
    Date    Total  Income   Capital Gain     QualifyingQualifyingCapital Gain
- ----------- ------------- ---------------      ----------------------------
                                High Income Fund
                     Class A, Class B, Class C and Class Y
April 2002
  through
  December
  2002    100.0000%100.0000%    ---%        2.3212% 97.6788%     ---%
January 2003
  through
  March
  2003    100.0000%100.0000%    ---%        1.8825% 98.1175%     ---%
                             Limited-Term Bond Fund
                     Class A, Class B, Class C and Class Y
April 2002
  through
  March
  2003    100.0000%100.0000%    ---%           ---%100.0000%     ---%
                               Money Market Fund
                          Class A, Class B and Class C
April 2002
  through
  March
  2003    100.0000%100.0000%    ---%           ---%100.0000%     ---%
                              Municipal Bond Fund
                     Class A, Class B, Class C and Class Y
                     For Individuals          For Corporations
             ------------------------------------------------------------------
 Record      OrdinaryLong-TermExempt      Non-Long-Term  Exempt
  Date  Total  IncomeCapital GainInterestQualifyingCapital GainInterest
- ------------- ------------------------------------------------------
April 2002
through
December
  2002100.0000%1.3546%  ---%98.6454%   1.3546%     ---%98.6454%
January 2003
through
 March
  2003100.0000%0.3330%  ---%99.6670%   0.3330%     ---%99.6670%

CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.

The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.

Income from Municipal Bond Fund may be subject to the alternative minimum tax.

Shareholders are advised to consult with their tax advisors concerning the tax
treatment of dividends and distributions from all the Funds.




The Board of Directors of W&R Funds, Inc.

Each of the individuals listed below serves as a director for each of the
portfolios within the Waddell & Reed Advisors Funds, W&R Funds, Inc., Waddell &
Reed InvestEd Portfolios, Inc. and W&R Target Funds, Inc. (the "Fund Complex")
for a total of 48 portfolios served.  Three of the four interested directors are
"interested" by virtue of their current or former engagement as officers of
Waddell & Reed Financial, Inc. (WDR) or its wholly-owned subsidiaries, including
the funds' investment advisor, Waddell & Reed Investment Management Company
(WRIMCO); the funds' principal underwriter, Waddell & Reed, Inc. (W&R); and the
funds' transfer agent, Waddell & Reed Services Company (WRSCO), as well as by
virtue of their personal ownership of shares of WDR.  The fourth interested
director is a partner in a law firm that has represented W&R within the past two
years.

The other directors (more than a majority of the total number) are
disinterested; that is, they are not employees or officers of, and have no
financial interest in, WDR or any of its wholly-owned subsidiaries, including
W&R, WRIMCO and WRSCO.


Disinterested Directors


James M. Concannon (55)
Washburn Law School, 1700 College, Topeka, KS 66621
Position held with Fund:  Director
Director since:  1997
Principal Occupations During Past 5 Years:  Professor of Law, Washburn Law
School; formerly, Dean, Washburn Law School
Other Directorships held by Director:  Director, Am Vestors CBO II, Inc., a bond
investment firm

John A. Dillingham (64)
4040 Northwest Claymont Drive, Kansas City, MO 64116
Position held with Fund:  Director
Director since:  1997
Principal Occupations During Past 5 Years:  President and Director, JoDill Corp.
and Dillingham Enterprises, Inc., both farming enterprises; formerly, Instructor
at Central Missouri State University; formerly, Consultant and Director,
McDougal Construction Co.
Other Directorships held by Director:  Chairman, Clay Co. IDA and Kansas City
Municipal Assistance Corp., both bonding authorities; Director, American Royal
and Salvation Army

David P. Gardner (70)
2441 Iron Canyon Drive, Park City UT 84060
Position held with Fund:  Director
Director since:  1998
Principal Occupation During Past 5 Years:  formerly, President, William and
Flora Hewlett Foundation
Other Directorships held by Director:  Chairman, J. Paul Getty Trust; Director,
Fluor Corp., Campus Pipeline, John & Karen Huntsman Foundation and Huntsman
Cancer Foundation; formerly, Chairman, George S. and Dolores Dor'e Eccles
Foundation; formerly, Director, First Security Corp., Digital Ventures and
Charitableway

Linda K. Graves (49)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund:  Director
Director since:  1995
Principal Occupation During Past 5 Years:  formerly, First Lady of Kansas
Other Directorships held by Director:  Director, American Guaranty Life
Insurance Company

Joseph Harroz, Jr. (36)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund:  Director
Director since:  1998
Principal Occupations During Past 5 Years:  General Counsel of the University of
Oklahoma, Cameron University and Rogers State University; Vice President of the
University of Oklahoma; Adjunct Professor, University of Oklahoma Law School;
Managing Member, Harroz Investments, LLC, commercial enterprise investments
Other Directorships held by Director:  Director and Treasurer, Oklahoma
Appleseed Center for Law and Justice; Trustee, Ivy Fund

John F. Hayes (83)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund:  Director
Director since:  1988
Principal Occupation During Past 5 Years:  Chairman, Gilliland & Hayes, PA, a
law firm
Other Directorships held by Director:  Director, Central Bank & Trust; Director,
Central Financial Corp.

Glendon E. Johnson (79)
13635 Deering Bay Drive, Unit 284, Miami, FL 33158
Position held with Fund:  Director

Director since:  1971
Principal Occupations During Past 5 Years:  Retired; formerly, Chief Executive
Officer and Director, John Alden Financial Corp.
Other Directorships held by Director:  Manager, Castle Valley Ranches LLC;
Chairman, Wellness Council of America; Chairman, Bank Assurance Partners,
marketing; Executive Board and Advisory Committee, Boy Scouts of America

Eleanor B. Schwartz (66)
1213 W. 95th Ct., Chartwell #4, Kansas City, MO 64114
Position held with Fund:  Director
Director since:  1995
Principal Occupations During Past 5 Years:  Professor Emeritus, formerly
Professor of Business Administration, University of Missouri at Kansas City;
formerly, Chancellor, University of Missouri at Kansas City
Other Directorships held by Director:  Trustee, Ivy Fund

Frederick Vogel III (67)
6300 Lamar Avenue, Overland Park, KS 66202
Position held with Fund:  Director
Director since:  1971
Principal Occupation During Past 5 Years:  Retired
Other Directorships held by Director:  None


Interested Directors


Robert L. Hechler (66)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Director; formerly, President, Principal Financial
Officer
Director since:  1998
Principal Occupations During Past 5 Years:  Consultant of WDR and W&R (2001 to
present); Director of WDR (1998 to present); Executive Vice President and Chief
Operating Officer of WDR (1998 to 2001); Director, Principal Financial Officer
and Treasurer of W&R (1981 to 2001);  Chief Executive Officer and President of
W&R (1993 to 2001); Director, Executive Vice President, Principal Financial
Officer and Treasurer of WRIMCO (1985 to 2001); Director and Treasurer of WRSCO
(1981 to 2001); President of WRSCO (1981 to 1999)
Other Directorships held by Director:  None

Henry J. Herrmann (60)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Director and President; formerly, Vice President
Director since:  1998; President since:  2001
Principal Occupation(s) During Past 5 Years:  Director, President and Chief
Investment Officer of WDR (1998 to present); Treasurer of WDR (1998 to 1999);
Director of W&R (1993 to present); Director of WRIMCO (1992 to present);
President and Chief Executive Officer of WRIMCO (1993 to present); Chief
Investment Officer of WRIMCO (1991 to present); President, Chief Executive
Officer and Director of Waddell & Reed Ivy Investment Company (WRIICO), an
affiliate of WDR (2002 to present); President of each of the Funds in the Fund
Complex (2001 to present); Director of each of the Funds in the Fund Complex
(1998 to present); President of Ivy Fund (2002 to present)
Other Directorships held by Director:  Director, Austin, Calvert & Flavin, an
affiliate of WRIMCO; Director, Ivy Funds Distributor, Inc. (IFDI) and affiliate
of WRIMCO; Trustee, Ivy Fund

Frank J. Ross, Jr. (49)
Polsinelli, Shalton & Welte,700 West 47th Street, Suite 1000, Kansas City, MO
64112
Position held with Fund:  Director
Director since:  1996
Principal Occupation During Past 5 Years:  Shareholder/Director, Polsinelli,
Shalton & Welte, a law firm
Other Directorships held by Director:  Director, Columbian Bank & Trust

Keith A. Tucker (58)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Chairman of the Board of Directors and Director;
formerly, President
Director since:  1993; Chairman of the Board of Directors since:  1998
Principal Occupation(s) During Past 5 Years:  Chairman of the Board of
Directors, Director and Chief Executive Officer of WDR (1998 to present);
Principal Financial Officer of WDR (1998 to 1999); Chairman of the Board of
Directors and Director of W&R, WRIMCO and WRSCO (1993 to present); Chairman of
the Board of Directors of each of the Funds in the Fund Complex (1998 to
present); Director of each of the Funds in the Fund Complex (1993 to present);
Vice Chairman of the Board of Directors of Torchmark Corporation (1991 to 1998);
Other Directorships held by Director:  Chairman of the Board and Trustee, Ivy
Fund


Officers


Theodore W. Howard (60)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Vice President, Treasurer, Principal Accounting
Officer, and Principal Financial Officer
Length of Time Served:  Vice President, Treasurer and Principal Accounting
Officer, 11 years; Principal Financial Officer, 1 year
Principal Occupation(s) During Past 5 Years:  Senior Vice President of WRSCO
(2001 to present); Treasurer and Principal Accounting Officer of each of the
Funds in the Fund Complex (1976 to present); Vice President of each of the Funds
in the Fund Complex (1987 to present); Principal Financial Officer of each of
the Funds in the Fund Complex (2002 to present); Vice President of Ivy Fund
(2002 to present); Treasurer of Ivy Fund (since 2003); Assistant Treasurer of
Ivy Fund (2002 to 2003); Vice President of WRSCO (1988 to 2001)
Directorships held:  None

Kristen A. Richards (35)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Vice President, Secretary and Associate General
Counsel
Length of Time Served:  3 years
Principal Occupation(s) During Past 5 Years:  Vice President, Associate General
Counsel and Chief Compliance Officer of WRIMCO (2000 to present); Vice
President, Associate General Counsel and Chief Compliance Officer of WRIICO
(2002 to present); Vice President and Secretary of each of the Funds in the Fund
Complex (2000 to present); Vice President and Secretary of Ivy Fund (2002 to
present); Assistant Secretary of each of the funds in the Fund Complex (1998 to
2000); Compliance Officer of WRIMCO (1995 to 1998)
Directorships held:  None

Daniel C. Schulte (37)
6300 Lamar Avenue, Overland Park, KS 66202
Positions held with Fund:  Vice President, Assistant Secretary and General
Counsel
Length of Time Served:  3 years
Principal Occupation(s) During Past 5 Years:  Vice President, Secretary and
General Counsel of WDR (2000 to present); Senior Vice President, Secretary and
General Counsel of W&R, WRIMCO and WRSCO (2000 to present); Senior Vice
President, General Counsel and Assistant Secretary of Ivy Services, Inc. (2002
to present); Vice President, General Counsel and Assistant Secretary of WRIICO
(2002 to present); Vice President, General Counsel and Assistant Secretary of
each of the Funds in the Fund Complex (2000 to present); Vice President and
Assistant Secretary of Ivy Fund (2002 to present); Assistant Secretary of WDR
(1998 to 2000); an attorney with Klenda, Mitchell, Austerman & Zuercher, L.L.C.
(1994 to 1998)
Directorships held:  None



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Waddell & Reed, Inc., Waddell & Reed Advisors Group of Mutual Funds, W&R Funds,
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Waddell & Reed may disclose nonpublic personal information about you to the
following types of third parties: selectively chosen financial service
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29220, Shawnee Mission, Kansas 66201.  You may also call 1-888-Waddell and a
Client Services Representative will assist you.

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We restrict access to nonpublic personal information about you to those
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with federal standards to guard your nonpublic personal information.  If you
decide to close your account(s) or become an inactive customer, we will adhere
to the privacy policies and practices as described in this notice.

Householding Notice


If you currently receive one copy of the shareholder reports and prospectus for
your household (even if more than one person in your household owns shares of
the Fund) and you would prefer to receive separate shareholder reports and
prospectuses for each account holder living at your address, you can do either
of the following:

Fax your request to 800-532-2749.

Write to us at the address listed on the inside back cover for Waddell & Reed,
Inc.

Please list each account for which you would like to receive separate
shareholder reports and prospectus mailings.  We will resume sending separate
documents within 30 days of receiving your request.



To all traditional IRA Planholders:


As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld.  The election may be made on the
distribution/withdrawal form provided by Waddell & Reed, Inc. which can be
obtained from your Waddell & Reed financial advisor or by submitting Internal
Revenue Service Form W-4P.  Once made, an election can be revoked by providing
written notice to Waddell & Reed, Inc.  If you elect not to have tax withheld
you may be required to make payments of estimated tax.  Penalties may be imposed
by the IRS if withholding and estimated tax payments are not adequate.



W&R Funds, Inc.


Asset Strategy Fund
Core Equity Fund
High Income Fund
International Growth Fund
Large Cap Growth Fund
Limited-Term Bond Fund
Mid Cap Growth Fund
Money Market Fund
Municipal Bond Fund
Science and Technology Fund
Small Cap Growth Fund
Tax-Managed Equity Fund









- ------------------------------------

FOR MORE INFORMATION:
Contact your financial advisor, or your
local office as listed on your
Account Statement, or contact:
  WADDELL & REED
  CLIENT SERVICES
  6300 Lamar Avenue
  P.O. Box 29217
  Shawnee Mission, KS  66201-9217
  (888) WADDELL
  (888) 923-3355

Our INTERNET address is:
  http://www.waddell.com

WRR3000A(3-03)


For more complete information regarding any of the mutual funds in W&R Funds,
Inc., including charges and expenses, please obtain the Corporation's prospectus
by calling or writing to the number or address listed above.  Please read the
prospectus carefully before investing.

EX-99.(17)(V)

                                                                 Exhibit (17)(v)

                                   IVY FUNDS

                          [PICTURE OF GLOBE IN HANDS]

This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus and current fund performance information.

                        ANNUAL REPORT DECEMBER 31, 2002

  IVY CUNDILL GLOBAL VALUE FUND

  IVY DEVELOPING MARKETS FUND

  IVY EUROPEAN OPPORTUNITIES FUND

  IVY GLOBAL FUND

  IVY GLOBAL NATURAL RESOURCES FUND

  IVY GLOBAL SCIENCE & TECHNOLOGY FUND

  IVY INTERNATIONAL FUND

  IVY INTERNATIONAL SMALL COMPANIES FUND

  IVY INTERNATIONAL VALUE FUND

  IVY PACIFIC OPPORTUNITIES FUND

  IVY GROWTH FUND

  IVY US BLUE CHIP FUND

  IVY US EMERGING GROWTH FUND

  IVY BOND FUND

  IVY MONEY MARKET FUND

[IVY FUNDS LOGO]


                                    TABLE OF
                                    CONTENTS

                                                                       
 Letter from the President ...........................................         1

 Management's Discussion and Analysis

               WORLDWIDE FUNDS

               Ivy Cundill Global Value Fund .........................         2

               Ivy Developing Markets Fund ...........................         4

               Ivy European Opportunities Fund .......................         6

               Ivy Global Fund .......................................         8

               Ivy Global Natural Resources Fund .....................        10

               Ivy Global Science & Technology Fund ..................        12

               Ivy International Fund ................................        14

               Ivy International Small Companies Fund ................        16

               Ivy International Value Fund ..........................        18

               Ivy Pacific Opportunities Fund ........................        20

               DOMESTIC FUNDS

               Ivy Growth Fund .......................................        22

               Ivy US Blue Chip Fund .................................        24

               Ivy US Emerging Growth Fund ...........................        26

               FIXED INCOME FUNDS

               Ivy Bond Fund .........................................        28

               Ivy Money Market Fund .................................        30

Schedules of Investments .............................................        32

Statements of Assets and Liabilities .................................        54

Statements of Operations .............................................        58

Statements of Changes in Net Assets ..................................        62

Financial Highlights .................................................        68

Notes to Financial Statements ........................................        96





January 1, 2003

Dear Shareholder,

(PHOTO)

Henry J.Herrmann

"Ultimately, we believe that it is essential for serious investors to maintain a
long-term perspective and a focus on financial goals. Remember, a financial
strategy that is appropriate for you is appropriate regardless of inevitable
market changes."

As you no doubt have heard, Waddell & Reed Ivy Investment Company, a subsidiary
of Waddell & Reed Financial, Inc., became manager and advisor to the Ivy Funds
in December 2002.(*) As president and chief investment officer of Waddell & Reed
Ivy Investment Company, I want to personally let you know that we are
enthusiastic about our new relationship, and I think there is strong reason for
you to be pleased as well. Waddell & Reed has been in the investment management
business since 1937 and has garnered a reputation as one of the strongest, most
fundamentally focused firms in the industry. We pledge to bring the full
resources of our renowned investment management team to bear on the Ivy Funds
going forward.

Enclosed is our report on your Fund's operations for the 12 months ended
December 31, 2002. While the last 12 months brought a wave of geopolitical
turmoil and corporate accounting scandals that served to dash investor
confidence for most of the year, economic news did turn more positive during the
period. The U.S. economy, in fact, has been quite resilient throughout
2002, after enduring many challenges.

The Federal Reserve reduced short-term interest rates in November to 1.25
percent, the lowest level in many years. By December 31, we recognized numerous
factors that may point to better economic growth prospects in the future.
Consumer spending continues to be the underlying support mechanism, while
inflation remains tame and personal income has increased consistently. With
meager inflation, low interest rates, manageable debt burdens and rising
personal income, we expect the economy to steer clear of the "double dip"
recession that has been predicted by some economists.

While we do expect equity market volatility to continue, the underlying trends
lead us to believe that the prospects for stocks are positive. We anticipate
market support from tax relief and the possible elimination of the double
taxation of dividends. While we do not expect returns similar to those
experienced in the late 1990s, we believe the equity markets have the potential
for positive returns in 2003.

At December 31, virtually all of the primary equity indexes had shown negative
returns, although a slight rally in the fourth quarter did moderate the declines
slightly. For the last 12 months, the Dow Jones Industrial Average declined
14.94 percent. The other two major indexes suffered even more, with the S&P 500
Index declining 22.10 percent over the last 12 months, and the NASDAQ Composite
Index declining 31.53 percent over the period.

In contrast to stocks, bonds did much better during the last 12 months, as
evidenced by the Salomon Brothers Broad Investment Grade Index's increase of
10.09 percent for the period. Skepticism surrounding corporate accounting, along
with geopolitical uncertainty, has brought out some risk aversion among
investors, driving them toward the more conservative fixed income securities.
Bond performance over the period also has been aided by low and declining
inflation rates and an accommodative Federal Reserve.

The very nature of financial markets is one of fluctuation, of bulls and bears.
While ongoing change can be disconcerting, we believe that the best way to
approach a fluctuating market is to develop and maintain a diversified
portfolio. From our experience, those who adhere to a structured and consistent
investment program over time take advantage of opportunities presented by the
market's periodic downdrafts.

Ultimately, we believe that it is essential for serious investors to maintain a
long-term perspective and a focus on financial goals. We believe that it remains
important for all investors to review their investment asset allocation on a
regular basis to ensure that it continues to adhere to individual risk tolerance
and is adaptable to market changes. Remember, a financial strategy that is
appropriate for you is appropriate regardless of inevitable market changes.

Thank you for your investment in the Ivy Funds.

Respectfully,


/s/ Henry J. Herrmann
- ---------------------
Henry J. Herrmann
President

(*)With the exception of Ivy Global Natural Resources Fund, which is advised by
Mackenzie Financial Corporation.



IVY CUNDILL GLOBAL VALUE FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH.

(PHOTO)

Ivy Cundill Global Value Fund is sub-advised by Peter Cundill & Associates,
Inc. The following is an interview with Peter Cundill, management team leader of
the Fund.

                                LIPPER CATEGORY

                                     Global

"As always, our strategy will consist of bottom-up, individual stock selection
using the `deep value' style of investing based on the principles of Benjamin
Graham, the `father of value investing.' This strategy involves seeking out
companies that we believe are trading below their intrinsic value."

Q: PETER, HOW DID IVY CUNDILL GLOBAL VALUE FUND PERFORM IN 2002?

A: For 2002, Ivy Cundill Global Value Fund returned -17.22%, including the
impact of the maximum sales charge, and -12.17% without the sales charge. The
Fund outperformed its benchmark, the MSCI World Index, which returned -19.89%,
and its peer group (as measured by the Lipper Global Funds average), which
returned -19.53%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: Global markets were extremely volatile in 2002. Geopolitical concerns,
corporate accounting scandals and sluggish economic growth worldwide caused the
MSCI World Index, the most common indicator of global market performance, to
show its worst annual decline in quite some time. The Ivy Cundill Global Value
Fund also had a disappointing year. Despite a negative return, however, the Fund
outperformed its index and peer group on a relative basis.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: North American holdings were the bright spot for the Fund in 2002. Exposure
to North America remained consistent throughout the year, and the portfolio's
positions held up well despite the economic slowdown.

During the period, we were fully hedged on international currency exposure. As a
result of foreign currency appreciation, the hedging had a negative effect on
performance. In addition, holdings in Asia ex-Japan were weak in comparison with
its respective regional markets and also had a negative effect.

For most of 2002, the Fund's Japanese holdings limited the downside with strong
performance. Unfortunately, the fourth quarter was not kind to the Japanese
markets. Market sentiment deteriorated rapidly as fear of a hard landing from
banking reform took hold. The Japanese market was hitting 20-year lows, and
sentiment and valuations were rivaling 1998 and 1995 trough levels. Despite the
"margin of safety" (the difference between the underlying value of the company
and the price we are paying for it) and growing business values in the Fund's
Japanese holdings, they were not spared in the sell-off. These declines
negatively impacted performance toward the end of the year.

Q: WHAT CHANGES WERE MADE?

A: During the year, we strove to improve the quality of the portfolio by
switching out of names that we believed no longer offered good value into stocks
that we felt offered more attractive valuations and growth prospects.

As investors rushed for the exits from Japan during the fourth quarter, for
example, we took the opportunity to upgrade the Fund's Japanese holdings. We
took advantage of Shiseido (cosmetics manufacturer) and Fast Retailing
appreciating to our measure of fair value by fully divesting the Fund of these
positions. We redeployed these funds into positions such as Aiful (consumer
finance), Asatsu-DK (advertising agency) and existing positions.

In Asia ex-Japan, we also took advantage of market weakness to upgrade the
quality of the portfolio's holdings and buy more of our existing holdings.

In North America, weak stock market sentiment gave us the opportunity to replace
what we saw as fairly valued positions such as The Limited (US-based retailer)
and IDT (US-based telecommunications company) with undervalued positions such as
Liberty Media (US-based media) during the year.

Q: WHAT IS YOUR STRATEGY FOR 2003?

A: Although we were disappointed with performance in 2002, we are optimistic
about the future. We believe that the "margin of safety" in the portfolio has
improved as the discount to what we think the assets are worth has widened. We
believe that weakness in the Fund's performance and global markets presents
great opportunities for improving the quality of the portfolio. As always, our
strategy will consist of bottom-up, individual stock selection using the "deep
value" style of investing based on the principles of Benjamin Graham, the
"father of value investing." This strategy involves seeking out companies that
we believe are trading below their intrinsic value. In 2003, we will continue to
be opportunistic and diligently search for value globally.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%.The opinions expressed in this report are those of the portfolio
manager and are current only through the end of the period of the report as
stated on the cover. The manager's views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


2


AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002



 SHARE CLASS/                                                                                         SINCE
 NASDAQ SYMBOL                                                1YEAR        5 YEARS     10 YEARS     INCEPTION
 -------------                                                -----        -------     --------     ---------
                                                                                     
 A SHARES              w/Reimb. & 5.75% sales charge         (17.22%)         N/A          N/A        (14.70%)
  ICDAX                w/o Reimb. & 5.75% sales charge       (19.42%)         N/A          N/A        (22.36%)

 B SHARES              w/Reimb. & w/ 5.00% CDSC              (16.99%)         N/A          N/A         (8.28%)
  ICDBX                w/Reimb. & w/o 5.00% CDSC             (12.62%)         N/A          N/A         (5.25%)
                       w/o Reimb. & w/ 5.00% CDSC            (19.21%)         N/A          N/A        (16.71%)
                       w/o Reimb. & w/o 5.00% CDSC           (14.94%)         N/A          N/A        (13.96%)

 C SHARES              w/Reimb. & w/ 1.00% CDSC              (13.75%)         N/A          N/A         (7.57%)
  ICDCX                w/Reimb. & w/o 1.00% CDSC             (12.88%)         N/A          N/A         (7.57%)
                       w/o Reimb. & w/ 1.00% CDSC            (15.97%)         N/A          N/A        (16.09%)
                       w/o Reimb. & w/o 1.00% CDSC           (15.12%)         N/A          N/A        (16.09%)

 I SHARES              w/Reimb.                                N/A           N/A          N/A         (5.23%)
  N/A                  w/o Reimb.                              N/A           N/A          N/A        (21.18%)

 ADVISOR SHARES        w/Reimb.                              (11.86%)        N/A          N/A         (3.72%)

  ICDVX                w/o Reimb.                            (14.21%)        N/A          N/A        (12.48%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Advisor Class commenced operations April 19, 2000. Class A, B and C shares
commenced operations on September 4, 2001, September 26, 2001 and October 19,
2001, respectively. Class I shares commenced operations on November 5, 2002.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Cundill Global Value Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

 PERFORMANCE OVERVIEW

               Performance Comparison of the Fund Since Inception
                         (4/00) of a $10,000 Investment
                             (Advisor Class Shares)

                                    [GRAPH]



                                                    MSCI WORLD
                IVY CUNDILL GLOBAL VALUE FUND         INDEX
                -------------------------------     ----------
                                              
19-Apr-00                    10000                    10000
30-Apr-00                    10120                     9576
31-May-00                     9730                     9332
30-Jun-00                    10260                     9646
31-Jul-00                     9840                     9373
31-Aug-00                    10410                     9677
30-Sep-00                    10240                     9161
31-Oct-00                    10090                     9006
30-Nov-00                    10000                     8458
31-Dec-00                    10466                     8594
31-Jan-01                    10362                     8763
28-Feb-01                    10705                     8022
31-Mar-01                    10404                     7490
30-Apr-01                    10788                     8039
31-May-01                    11027                     7927
30-Jun-01                    10944                     7678
31-Jul-01                    10684                     7585
31-Aug-01                    10549                     7220
30-Sep-01                     9791                     6583
31-Oct-01                     9759                     6708
30-Nov-01                     9905                     7104
31-Dec-01                    10243                     7148
31-Jan-02                    10286                     6931
28-Feb-02                    10243                     6870
31-Mar-02                    10886                     7173
30-Apr-02                    11004                     6929
31-May-02                    11476                     6940
30-Jun-02                    10565                     6518
31-Jul-02                    10028                     5968
31-Aug-02                     9900                     5978
30-Sep-02                     9385                     5320
31-Oct-02                     9385                     5712
30-Nov-02                     9578                     6019
31-Dec-02                     9028                     5727


The Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index of stocks which assumes reinvestment of dividends and, unlike Fund
returns, does not reflect any fees or expenses. It is not possible to invest in
an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

COUNTRY BREAKDOWN     12/31/02



                                    % of Total Net Assets
                                    ---------------------
                                 
1.  Japan                                             35%
2.  Canada                                            13%
3.  US                                                 8%
4.  Hong Kong                                          5%
5.  South Korea                                        4%
6. Switzerland                                         3%
7. India                                               2%


SECTOR BREAKDOWN      12/31/02



                                    % of Total Net Assets
                                    ---------------------
                                 
1. Consumer Discretionary                             20%
2. Financials                                         15%
3. Healthcare                                         11%
4. Consumer Staples                                    9%
5. Industrials                                         8%
6. Materials                                           3%
7. Information Technology                              3%
8. Telecommunication Services                          2%


TOP 10 HOLDINGS       12/31/02



 Security                                % of Total Net Assets
 --------                                ---------------------
                                      
 1. Asatsu-DK                                             5.0%
 2. Sankyo Company, Limited                               4.8%
 3. Nikko Cordial Corporation                             4.7%
 4. Nippon Broadcasting System, Inc.                      4.4%
 5. Aiful Corporation                                     4.1%
 6. Tokyo Broadcasting System, Inc.                       3.9%
 7. Torstar Corporation                                   3.7%
 8. Lion Corporation                                      3.5%
 9. QLT Inc.                                              3.4%
10. First Pacific Company Ltd.                            3.3%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                               3


IVY DEVELOPING MARKETS FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH
INVESTMENT IN EQUITY SECURITIES OF COMPANIES THAT SHOULD BENEFIT FROM THE
DEVELOPMENT AND GROWTH OF EMERGING MARKETS.

(PHOTO)

Note: Ivy Developing Markets Fund was managed by Moira McLachlan and the Ivy
International Equities team until December 16th, 2002. At right, she discusses
factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice
President of Waddell & Reed Ivy Investment Company, assumed management of Ivy
Developing Markets Fund on December 17th, 2002. He discusses how the Fund is
positioned going forward.

                                 LIPPER CATEGORY

                                Emerging Markets

"We intend to concentrate on developing countries that possess unique
opportunities of competitive advantage or niche strategies in an
investor-friendly sovereign structure."

Q: MOIRA, HOW DID IVY DEVELOPING MARKETS FUND PERFORM IN 2002?

A: For 2002, Ivy Developing Markets Fund returned -17.32%, including the impact
of the maximum sales charge, and -12.28% without the sales charge. The Fund
underperformed its benchmark, the MSCI Emerging Markets Free Index, which
returned -6.00%, and its peer group (as measured by the Lipper Emerging Markets
Funds average), which returned -5.10%. It should be noted that the benchmark
index and Lipper category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: Emerging markets fared considerably better than the world's major developed
markets in 2002. At the beginning of the year, ample liquidity and hopes for a
global recovery contributed to strong absolute performance. However, while the
asset class continued to outperform on a relative basis, emerging equity markets
were unable to shake-off turmoil in the rest of the world as the year
progressed. Latin American markets suffered from a combination of global events
and local crises. Stock markets in developing Asia posted mixed performance,
with Hong Kong, Singapore and Taiwan all posting double-digit declines while
smaller, more speculative markets such as Indonesia and Thailand posted gains.
All the volatility caused the MSCI EMF Index to give up its first-quarter gains,
and to end the year in negative territory.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: The Fund's exposure to Taiwanese technology stocks had the largest negative
effect on performance. These stocks performed strongly in the last quarter of
2001 and into the first quarter of 2002. However, they then sold off sharply as
investors began to worry that the increased demand seen in the first quarter
would decline as inventories were rebuilt.

An overweight position in Brazil also hurt performance. Socialist rhetoric from
the leading presidential candidate compounded fears that problems in Argentina
would spill over to the Brazilian economy. This led to a sharp sell-off in both
the Brazilian equity market and its currency, the real. While the Fund's
export-oriented holdings did well as a result of the weakening real, its more
domestically oriented names took a hit.

Indonesia, Pakistan and Thailand were among the world's best performing markets
in 2002. Performance suffered from lack of exposure to these high-risk markets.
However, while the Fund missed out in those markets, it benefited from staying
out of harm's way in Argentina, which fell 50% in dollar terms, and Venezuela,
where trading has been suspended since the end of November due to a general
strike designed to oust the President.

Q: THOMAS, HOW WILL YOU POSITION THE FUND FOR 2003?

A: Going forward, the Fund's emerging market exposure will likely be less
broadly dispersed. We intend to concentrate on developing countries that possess
unique opportunities of competitive advantage or niche strategies in an
investor-friendly sovereign structure. We will closely monitor developments in
these areas in an effort to limit risk and take advantage of exciting new
investment opportunities that can emerge as these countries increase the size
and efficiency of private business, often through a pro-business public policy
and privatization of government-owned industry. In turn, the relative size and
cost of the government sector should shrink, while the consumer and business
sectors grow. In terms of stock selection, there will be an increased emphasis
on strong growth characteristics as a basic requirement rather than the prior
selection process that heavily favored undervalued stocks. Strong fundamental
equity analysis will be the basis of our stock selection process, within the
framework of our global asset allocation strategy and with important input
regarding economic, financial and political issues for each specific region or
country.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%.The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


4


AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002



 SHARE CLASS/                                                                                         SINCE
 NASDAQ SYMBOL                                                1 YEAR        5 YEARS     10 YEARS     INCEPTION
 -------------                                                ------        -------     --------     ---------
                                                                                       
 A SHARES              w/Reimb. & 5.75% sales charge         (17.32%)        (4.86%)        N/A        (6.40%)
  IVCAX                w/o Reimb. & 5.75% sales charge       (19.41%)        (6.54%)        N/A        (8.11%)

 B SHARES              w/Reimb. & w/ 5.00% CDSC              (17.32%)        (5.01%)        N/A        (6.53%)
  IVCBX                w/Reimb. & w/o 5.00% CDSC             (12.96%)        (4.63%)        N/A        (6.53%)
                       w/o Reimb. & w/ 5.00% CDSC            (19.50%)        (6.74%)        N/A        (8.25%)
                       w/o Reimb. & w/o 5.00% CDSC           (15.25%)        (6.36%)        N/A        (8.25%)

 C SHARES              w/Reimb. & w/ 1.00% CDSC              (13.93%)        (4.60%)        N/A        (7.87%)
  IVCCX                w/Reimb. & w/o 1.00% CDSC             (13.06%)        (4.60%)        N/A        (7.87%)
                       w/o Reimb. & w/ 1.00% CDSC            (16.19%)        (6.43%)        N/A        (9.23%)
                       w/o Reimb. & w/o 1.00% CDSC           (15.34%)        (6.43%)        N/A        (9.23%)

 ADVISOR SHARES        w/Reimb.                              (11.96%)           N/A         N/A        (5.66%)
  IVCVX                w/o Reimb.                            (14.17%)           N/A         N/A        (7.35%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A and Class B commenced operations November 1, 1994; Class C commenced
operations April 30, 1996; Advisor Class commenced operations April 30, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Developing Markets Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW

    Performance Comparison of the Fund Since Inception (11/94) of a $10,000
        Investment (Class A shares including 5.75% maximum sales charge)

                                    [GRAPH]



                                IVY                          MSCI
                             DEVELOPING                EMERGING MARKETS
                            MARKETS FUND                  FREE INDEX
                            ------------               ----------------
                                                 
  01-Nov-94                     9425                        10000
  30-Nov-94                     8845                         9480
  31-Dec-94                     8152                         8719
  31-Jan-95                     7459                         7791
  28-Feb-95                     7567                         7591
  31-Mar-95                     7874                         7639
  30-Apr-95                     8059                         7982
  31-May-95                     8518                         8407
  30-Jun-95                     8362                         8432
  31-Jul-95                     8775                         8621
  31-Aug-95                     8705                         8418
  30-Sep-95                     8748                         8378
  31-Oct-95                     8431                         8057
  30-Nov-95                     8389                         7914
  31-Dec-95                     8675                         8265
  31-Jan-96                     9480                         8852
  29-Feb-96                     9317                         8711
  31-Mar-96                     9211                         8779
  30-Apr-96                     9508                         9130
  31-May-96                     9700                         9089
  30-Jun-96                     9786                         9146
  31-Jul-96                     9135                         8521
  31-Aug-96                     9336                         8739
  30-Sep-96                     9432                         8815
  31-Oct-96                     9326                         8580
  30-Nov-96                     9537                         8724
  31-Dec-96                     9701                         8763
  31-Jan-97                    10161                         9361
  28-Feb-97                    10497                         9762
  31-Mar-97                    10257                         9505
  30-Apr-97                    10248                         9522
  31-May-97                    10708                         9794
  30-Jun-97                    11177                        10319
  31-Jul-97                    11149                        10473
  31-Aug-97                     9701                         9140
  30-Sep-97                     9682                         9393
  31-Oct-97                     7861                         7852
  30-Nov-97                     7276                         7565
  31-Dec-97                     7041                         7748
  31-Jan-98                     6710                         7140
  28-Feb-98                     7753                         7885
  31-Mar-98                     7939                         8228
  30-Apr-98                     7722                         8138
  31-May-98                     6649                         7023
  30-Jun-98                     5936                         6286
  31-Jul-98                     6081                         6485
  31-Aug-98                     4419                         4610
  30-Sep-98                     4821                         4903
  31-Oct-98                     5678                         5419
  30-Nov-98                     6359                         5870
  31-Dec-98                     6219                         5784
  31-Jan-99                     5620                         5691
  28-Feb-99                     5444                         5747
  31-Mar-99                     6157                         6504
  30-Apr-99                     7645                         7309
  31-May-99                     7614                         7266
  30-Jun-99                     8358                         8091
  31-Jul-99                     8037                         7871
  31-Aug-99                     8017                         7942
  30-Sep-99                     7676                         7674
  31-Oct-99                     7872                         7837
  30-Nov-99                     8378                         8540
  31-Dec-99                     9124                         9626
  31-Jan-00                     9061                         9683
  29-Feb-00                     8999                         9811
  31-Mar-00                     9197                         9859
  30-Apr-00                     8239                         8924
  31-May-00                     7855                         8555
  30-Jun-00                     8510                         8857
  31-Jul-00                     8427                         8401
  31-Aug-00                     8500                         8443
  30-Sep-00                     7834                         7705
  31-Oct-00                     7199                         7147
  30-Nov-00                     6523                         6522
  31-Dec-00                     6953                         6679
  31-Jan-01                     7684                         7597
  28-Feb-01                     7016                         7000
  31-Mar-01                     6337                         6315
  30-Apr-01                     6723                         6619
  31-May-01                     6869                         6698
  30-Jun-01                     6598                         6561
  31-Jul-01                     6347                         6155
  31-Aug-01                     6118                         6094
  30-Sep-01                     5126                         5151
  31-Oct-01                     5523                         5470
  30-Nov-01                     6159                         6041
  31-Dec-01                     6640                         6521
31-Jan-2002                     6671                         6742
28-Feb-2002                     6723                         6853
31-Mar-2002                     7078                         7265
30-Apr-2002                     7162                         7312
31-May-2002                     7047                         7196
30-Jun-2002                     6462                         6656
31-Jul-2002                     5888                         6150
31-Aug-2002                     5992                         6244
30-Sep-2002                     5272                         5571
31-Oct-2002                     5648                         5932
30-Nov-2002                     6076                         6340
31-Dec-2002                     5825                         6130


The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is
an unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.

Past performance does not guarantee future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

COUNTRY BREAKDOWN     12/31/02



                                                % of Total Net Assets
                                                ---------------------
                                             
 1. South Korea                                                  23%
 2. Mexico                                                       19%
 3. Hong Kong                                                    10%
 4. Brazil                                                        9%
 5. Taiwan                                                        9%
 6. South Africa                                                  6%
 7. Poland                                                        5%
 8. Hungary                                                       4%
 9. United Kingdom                                                4%
10. Peru                                                          3%
11. India                                                         2%
12. Russia                                                        2%
13. Luxembourg                                                    2%
14. Chile                                                         1%
15. Israel                                                        1%


SECTOR BREAKDOWN      12/31/02



                                                % of Total Net Assets
                                                ---------------------
                                             
1. Telecommunication Services                                    21%
2. Financials                                                    21%
3. Materials                                                     16%
4. Information Technology                                        13%
5. Consumer Discretionary                                        10%
6. Consumer Staples                                               7%
7. Energy                                                         7%
8. Industrials                                                    5%


TOP 10 HOLDINGS       12/31/02



Security                                        % of Total Net Assets
- --------                                        ---------------------
                                             
 1. Samsung Electronics                                          3.7%
 2. Fomento Economico Mexicano                                   3.6%
 3. POSCO                                                        3.6%
 4. Telefonos de Mexico S.A                                      3.5%
 5. Kookmin Bank                                                 3.5%
 6. Korea Telecom Corporation                                    3.4%
 7. Standard Bank Group Limited                                  3.2%
 8. LG Chem Limited                                              3.0%
 9. Grupo Financiero BBVA Banc                                   2.9%
10. Embraer Brasileira de Aeronautica                            2.9%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                               5

IVY EUROPEAN OPPORTUNITIES FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN COMPANIES
LOCATED IN OR DOING BUSINESS IN EUROPE.

[PHOTO]

Ivy European Opportunities Fund is sub-advised by London-based Henderson
Investment Management Limited. The following is an interview with Stephen Peak,
head of Henderson's Continental European Equities Team and portfolio manager of
Ivy European Opportunities Fund.

LIPPER CATEGORY

European Region

"We expect to retain a relatively cautious approach over the short- to
medium-term while continuing our focus on opportunities to purchase companies
that have been heavily oversold."

Q: STEPHEN, HOW DID IVY EUROPEAN OPPORTUNITIES FUND PERFORM IN 2002?

A: For 2002, Ivy European Opportunities Fund returned -8.86%, including the
impact of the maximum sales charge, and -3.30% without the sales charge. The
Fund outperformed its benchmark, the MSCI Europe Index, which returned -18.38%,
and its peer group (as measured by the Lipper European Region Funds average),
which returned -17.36%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: The year was difficult for European equity investors. Concerns initially
centered on questions about when company earnings would start to improve.
However, these concerns were soon eclipsed by fears that the US economic
recovery was slowing down rapidly, as well as the growing threat of war between
the US and Iraq. Many investors abandoned equities in favor of the safer havens
offered by government bonds. European markets did rally strongly in the fourth
quarter and were boosted further as the euro rose above parity with the US
dollar and hit a three-year high. Following poor economic newsflow, particularly
in Germany, the European Central Bank was persuaded to cut interest rates by
0.50% to 2.75% in early December, and this gave markets an added boost.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: We made some significant changes to the portfolio over 2002 that contributed
positively to performance. For example, financials experienced heavy losses
during the first three quarters, which led to some woeful performance within the
sector. However, this financial distress also created interesting buying
opportunities. As a result, we increased exposure to the sector. This strategy
had a large positive effect on performance when financials proved to be one of
the key sectors that underpinned the market advance in the fourth quarter.

Conversely, tobacco stocks held up well throughout the year as the defensive
European tobacco sector consistently outperformed the MSCI Europe Index. Our
decision to sell and take profits from tobacco stocks, made during the fourth
quarter of the year, proved beneficial to Fund performance. At the time, a
significant move was made to shift into more attractively valued sectors with
higher growth potential.

Following a period of sustained underperformance for most of 2002, the European
technology sector produced some good performance during the fourth quarter as
investors took advantage of compelling valuations. However, it was
technology-related and traditional cyclical stocks that suffered the largest
losses in December as investors, increasingly cautious about the global economic
and political prospects, took profits from November's gains. We retained our
cautious approach toward technology, while at the same time continuing to focus
on opportunities to purchase stocks that were overly hit by negative sentiment
or that had resorted to fund raising to shore up their debts. We also
established positions in companies with relatively stable businesses that we
felt had been ignored by overly cautious investors.

Q: WHAT IS OUR OUTLOOK AND STRATEGY GOING FORWARD?

A: Because of ongoing political uncertainties and sluggish economic growth
prospects, the outlook for European equities in 2003 remains uncertain.
Valuations are no longer at the extremely distressed levels seen last September,
but they are also not at the technically overbought levels reached at the end of
November. In addition, risks abound over the potential war with Iraq and
inflated oil prices. However, in our opinion European valuations remain
relatively attractive, and we expect the region to perform well as the recovery
gathers pace. Consequently, we believe the equity market will trade within a
range until greater clarity -- on the economic, political and military fronts --
emerges. We expect to retain a relatively cautious approach over the short- to
medium-term while continuing our focus on opportunities to purchase companies
that have been heavily oversold.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
manager and are current only through the end of the period of the report as
stated on the cover. The manager's views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


6




      AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002



 SHARE CLASS/                                                                                   SINCE
 NASDAQ SYMBOL                                             1 YEAR    5 YEARS   10 YEARS       INCEPTION
 -------------                                             ------    -------   --------       ---------
                                                                               
A SHARES           w/Reimb. & 5.75% sales charge           (8.86)%     N/A        N/A           26.80%
 IEOAX             w/o Reimb. & 5.75% sales charge         (8.86)%     N/A        N/A           26.68%

B SHARES           w/Reimb. & w/ 5.00% CDSC                (9.28)%     N/A        N/A           27.23%
 IEOBX             w/Reimb. & w/o 5.00% CDSC               (4.51)%     N/A        N/A           27.71%
                   w/o Reimb. & w/ 5.00% CDSC              (9.28)%     N/A        N/A           27.13%
                   w/o Reimb. & w/o 5.00% CDSC             (4.51)%     N/A        N/A           27.57%

C SHARES           w/Reimb. & w/ 1.00% CDSC                (5.44)%     N/A        N/A            5.50%
 IEOCX             w/Reimb. & w/o 1.00% CDSC               (4.49)%     N/A        N/A            5.50%
                   w/o Reimb. & w/ 1.00% CDSC              (5.44)%     N/A        N/A            5.41%
                   w/o Reimb. & w/o 1.00% CDSC             (4.49)%     N/A        N/A            5.41%

I SHARES           w/Reimb.                                (3.34)%     N/A        N/A          (19.93)%
 N/A               w/o Reimb.                              (3.34)%     N/A        N/A          (19.93)%

ADVISOR SHARES     w/Reimb.                                (3.33)%     N/A        N/A           29.21%
 IEOVX             w/o Reimb.                              (3.33)%     N/A        N/A           28.96%


CDSC = Contingent Deferred Sales Charge

Advisor Class and I Class Shares are not subject to an initial sales charge or a
CDSC.

Class A commenced operations May 4, 1999; Class B commenced operations May
24, 1999; Class C commenced operations October 24, 1999; Class I commenced
operations March 16, 2000; Advisor Class commenced operations May 4, 1999.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy European Opportunities Fund
will fluctuate and at redemption shares may be worth more or less than the
amount of the original investment.

PERFORMANCE OVERVIEW

           Performance Comparison of the Fund Since Inception (5/99)
                            of a $10,000 Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                              Ivy
                            European                     MSCI
                          Opportunities                 Europe
                              Fund                      Index
                          -------------                 ------
                                                  
             05-May-99        9,425                     10,000
             30-May-99       10,969                      9,520
             30-Jun-99       16,119                      9,680
             31-Jul-99       17,890                      9,770
             31-Aug-99       18,812                      9,870
             30-Sep-99       18,671                      9,793
             31-Oct-99       19,534                     10,154
             30-Nov-99       26,034                     10,428
             31-Dec-99       29,743                     11,496
           31-Jan-2000       31,844                     10,678
           29-Feb-2000       42,748                     11,234
           31-Mar-2000       43,078                     11,506
           30-Apr-2000       39,362                     10,998
           31-May-2000       38,182                     10,908
           30-Jun-2000       40,404                     11,142
           31-Jul-2000       39,067                     10,964
           31-Aug-2000       38,702                     10,835
           30-Sep-2000       36,167                     10,328
           31-Oct-2000       34,171                     10,249
           30-Nov-2000       29,569                      9,853
           31-Dec-2000       31,084                     10,532
           31-Jan-2001       31,751                     10,546
           28-Feb-2001       30,652                      9,621
           31-Mar-2001       27,156                      8,896
           30-Apr-2001       27,210                      9,517
           31-May-2001       27,318                      9,030
           30-Jun-2001       24,975                      8,685
           31-Jul-2001       24,435                      8,741
           31-Aug-2001       24,957                      8,514
           30-Sep-2001       20,741                      7,664
           31-Oct-2001       21,876                      7,908
           30-Nov-2001       23,642                      8,225
           31-Dec-2001       24,661                      8,436
           31-Jan-2002       23,758                      7,995
           28-Feb-2002       23,993                      7,994
           31-Mar-2002       26,631                      8,427
           30-Apr-2002       27,335                      8,363
           31-May-2002       28,419                      8,337
           30-Jun-2002       27,245                      8,048
           31-Jul-2002       24,246                      7,152
           31-Aug-2002       24,481                      7,151
           30-Sep-2002       21,445                      6,210
           31-Oct-2002       22,493                      6,810
           30-Nov-2002       24,246                      7,145
           31-Dec-2002       23,848                      6,886


If the Fund had not invested in IPOs, the one-year and since-inception average
annual returns would have been (3.30)% and 1.03% respectively. The
since-inception cumulative return with sales charge was 138.48%. If the Fund had
not invested in IPOs, the since-inception cumulative return would have been
(3.82)%.

The Morgan Stanley Capital International (MSCI) Europe Index is an unmanaged
index of stocks which assumes reinvestment of dividends and, unlike Fund
returns, does not reflect any fees or expenses. It is not possible to invest in
an index.

The Ivy European Opportunities Fund was initially seeded on April 26, 1999,
commenced operations on May 4, 1999 and received initial subscriptions on May 5,
1999, the date proceeds from share sales were invested according to Ivy European
Opportunities Fund's investment objective. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or redemptions.

 COUNTRY BREAKDOWN                12/31/02



                                     % of Total Net Assets
                                  
 1.  United Kingdom                           33%
 2.  Netherlands                              18%
 3.  France                                   16%
 4.  Switzerland                               8%
 5.  Greece                                    6%
 6.  Germany                                   5%
 7.  Spain                                     4%
 8.  South Africa                              3%
 9.  Finland                                   2%
10.  Italy                                     2%
11.  Denmark                                   1%
12.  Austria                                   1%
13.  Belgium                                   1%



 SECTOR BREAKDOWN                 12/31/02



                                     % of Total Net Assets
                                  
 1.  Consumer Discretionary                   25%
 2.  Industrials                              25%
 3.  Financials                               22%
 4.  Information Technology                    7%
 5.  Consumer Staples                          7%
 6.  Materials                                 5%
 7.  Energy                                    5%
 8.  Telecommunication Services                3%
 9.  Utilities                                 1%


  TOP 10 HOLDINGS                 12/31/02





 Security                              % of Total Net Assets
                                    
 1.  IHC Caland NV                            3.8%
 2.  Sagem SA                                 3.5%
 3.  Nasper Limited                           3.3%
 4.  Fugro NV                                 3.2%
 5.  Aegon NV                                 3.0%
 6.  Zurich Financial Services AG             2.9%
 7.  Shell Transport & Trading Co.            2.8%
 8.  Hellenic Telecommunications Org.         2.8%
 9.  PHS Group plc                            2.7%
10.  easyJet plc                              2.5%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                               7



IVY GLOBAL FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN STOCKS OF
COMPANIES WORLDWIDE -- INCLUDING THE US.


[PHOTO]

Note: Ivy Global Fund utilized a dual management approach until December 16th,
2002. The international portion was managed by Moira McLachlan and the Ivy
International Equities team, while the US portion was managed by Paul Baran. At
right, they discuss factors relating to Fund performance in 2002. Thomas A.
Mengel, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed
management of Ivy Global Fund on December 17th, 2002. He discusses how the Fund
is positioned going forward.

LIPPER CATEGORY

Global

"Our basic stock selection approach will focus on what we feel are stable
companies with impressive corporate management, in sectors best positioned for
the current market environment."

Q: HOW DID IVY GLOBAL FUND PERFORM IN 2002?

A: For 2002, Ivy Global Fund returned -25.01%, including the impact of the
maximum sales charge, and -20.44% without the sales charge. The Fund
underperformed its benchmark, the MSCI World Index, which returned -19.89%,
and its peer group (as measured by the Lipper Global Funds average), which
returned -19.53%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: International markets were extremely volatile in 2002, and this contributed
to the Fund's negative return. Equities around the world were dragged down by
sluggish economic growth, poor corporate profits and the Iraq situation. The
performance of the Fund's international portion was particularly hurt by an
underweight in Japan, a market that was relatively resilient in 2002. Stock
selection in Japan was another negative. A number of Japanese holdings were
impacted as investors became concerned about the pace of the global recovery and
the strength of external demand. Poor stock selection in the UK also had a
negative impact. Stock selection in France had the most significant positive
impact on performance.

In the US, 2002 saw a continuation of the bear market that began in early 2000.
In this challenging environment, the performance of the US portion was
positively affected by our avoidance of "disaster stocks" in high-profile
companies that experienced financial scandals. Performance also benefited from
holdings in the banking sector, many of which rose in price during the period.
Certain consumer stocks also increased in price, while others declined but still
outperformed the market. In addition, underexposure to the troubled electricity
merchant-area helped performance, as did our stock picks in the general energy
area. Performance was negatively impacted by investments in the technology
sector. AOL Time Warner also hurt performance, as did Home Depot,
Schering-Plough and Bristol-Myers.

Q: THOMAS, WHAT IS YOUR STRATEGY FOR IVY GLOBAL FUND GOING FORWARD?

A: We intend to focus more on stocks with strong growth characteristics and less
on stocks that appear to be undervalued. Strong fundamental equity analysis will
be the basis of our stock selection process, within the framework of our
global asset allocation strategy and with important input regarding economic,
financial and political issues for each region. Our basic stock selection
approach will focus on what we feel are stable companies with impressive
corporate management, in sectors best positioned for the current market
environment.

Q: WHAT IS YOUR OUTLOOK FOR 2003?

A: We expect global equity markets to remain volatile as investors continue to
monitor corporate, financial, economic and geopolitical issues. Despite a high
level of financial market uncertainty early in the year, we feel that consensus
earnings expectations need to be reduced further. Corporations are facing higher
operating costs, but generally cannot raise output prices. In this environment
of little or no corporate pricing power, we will seek investments in companies
that we feel are best able to thrive.

Our North American focus will be on companies with earnings that we believe are
sustainable despite the risk of an Iraqi war and the possibility of weaker U.S.
consumer spending. In Continental Europe, we believe that the best opportunities
are likely in growth companies with defensive characteristics such as consumer
product focus, impressive management, strong balance sheets, attractive dividend
yields and solid competitive market position. In Britain, growth stocks should,
in our opinion, still be able to benefit from the relatively strong domestic
economy. Despite continuing imbalances in Japan's economy, we feel that there
are still quality companies with good growth prospects, especially some of the
larger exporters. In Asia, we prefer to concentrate our holdings in industry
leaders that benefit from continued Chinese dominance of business demand in the
region.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


8



      AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002



 SHARE CLASS/                                                                                 SINCE
 NASDAQ SYMBOL                                              1 YEAR    5 YEARS   10 YEARS    INCEPTION
 -------------                                             -------    -------   --------    ---------
                                                                             
A SHARES           w/Reimb. & 5.75% sales charge           (25.01)%   (6.19)%     0.66%       1.41%
MCGLX              w/o Reimb. & 5.75% sales charge         (26.80)%   (7.43)%    (0.09)%      0.44)%

B SHARES           w/Reimb. & w/ 5.00% CDSC                (26.14)%   (6.54)%      N/A       (2.09)%
IVGBX              w/Reimb. & w/o 5.00% CDSC               (22.25)%   (6.17)%      N/A       (2.09)%
                   w/o Reimb. & w/ 5.00% CDSC              (27.90)%   (7.78)%      N/A       (2.86)%
                   w/o Reimb. & w/o 5.00% CDSC             (24.10)%   (7.41)%      N/A       (2.86)%

C SHARES           w/Reimb. & w/ 1.00% CDSC                (23.51)%   (6.45)%      N/A       (5.89)%
IVGCX              w/Reimb. & w/o 1.00% CDSC               (22.73)%   (6.45)%      N/A       (5.89)%
                   w/o Reimb. & w/ 1.00% CDSC              (25.30)%   (7.71)%      N/A       (6.84)%
                   w/o Reimb. & w/o 1.00% CDSC             (24.54)%   (7.71)%      N/A       (6.84)%

ADVISOR SHARES     w/Reimb.                                (21.36)%     N/A        N/A       (9.29)%
IVGVX              w/o Reimb.                              (23.23)%     N/A        N/A      (10.84)%


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A commenced operations April 18, 1991; Class B commenced operations April
1, 1994; Class C commenced operations April 30, 1996; Advisor Class commenced
operations April 30, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Global Fund will fluctuate and
at redemption shares may be worth more or less than the amount of the original
investment.

 PERFORMANCE OVERVIEW

         Performance Comparison of the Fund Since Inception (4/91) of a
                               $10,000 Investment
             (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                              Ivy                        MSCI
                             Global                     World
                              Fund                      Index
                             ------                    ------
                                                 
            15-Apr-91         9,425                    10,000
            01-May-91         9,331                    10,075
            31-May-91         9,472                    10,300
            28-Jun-91         8,871                     9,661
            31-Jul-91         9,258                    10,114
            30-Aug-91         9,465                    10,079
            30-Sep-91         9,531                    10,340
            31-Oct-91         9,692                    10,505
            30-Nov-91         9,277                    10,044
            31-Dec-91        10,113                    10,772
            31-Jan-92        10,444                    10,569
            29-Feb-92        10,614                    10,384
            31-Mar-92        10,330                     9,891
            29-Apr-92        10,595                    10,026
            29-May-92        10,880                    10,422
            30-Jun-92        10,637                    10,069
            31-Jul-92        10,627                    10,092
            31-Aug-92        10,445                    10,334
            30-Sep-92        10,274                    10,236
            31-Oct-92        10,163                     9,955
            30-Nov-92        10,213                    10,130
            31-Dec-92        10,389                    10,209
            31-Jan-93        10,492                    10,240
            28-Feb-93        10,441                    10,480
            31-Mar-93        10,800                    11,084
            30-Apr-93        11,015                    11,595
            31-May-93        11,241                    11,859
            30-Jun-93        11,120                    11,756
            31-Jul-93        11,120                    11,995
            31-Aug-93        11,737                    12,542
            30-Sep-93        11,601                    12,308
            31-Oct-93        12,334                    12,644
            30-Nov-93        12,470                    11,926
            31-Dec-93        13,467                    12,506
            31-Jan-94        14,240                    13,328
            28-Feb-94        13,800                    13,153
            31-Mar-94        13,006                    12,583
            30-Apr-94        13,312                    12,969
            31-May-94        13,492                    12,999
            30-Jun-94        12,977                    12,960
            31-Jul-94        13,729                    13,204
            31-Aug-94        14,301                    13,598
            30-Sep-94        13,881                    13,238
            31-Oct-94        13,913                    13,611
            30-Nov-94        13,232                    13,018
            31-Dec-94        12,848                    13,141
            31-Jan-95        12,283                    12,941
            28-Feb-95        12,451                    13,126
            31-Mar-95        12,826                    13,756
            30-Apr-95        13,281                    14,232
            31-May-95        13,714                    14,350
            30-Jun-95        13,654                    14,343
            31-Jul-95        14,249                    15,057
            31-Aug-95        14,108                    14,718
            30-Sep-95        14,370                    15,144
            31-Oct-95        13,976                    14,902
            30-Nov-95        14,227                    15,416
            31-Dec-95        14,400                    15,864
            31-Jan-96        15,254                    16,148
            29-Feb-96        15,327                    16,243
            31-Mar-96        15,447                    16,509
            30-Apr-96        16,048                    16,894
            31-May-96        16,133                    16,906
            30-Jun-96        16,084                    16,988
            31-Jul-96        15,230                    16,384
            31-Aug-96        15,724                    16,569
            30-Sep-96        16,000                    17,214
            31-Oct-96        16,145                    17,331
            30-Nov-96        16,626                    18,299
            31-Dec-96        16,734                    18,002
            31-Jan-97        17,242                    18,216
            28-Feb-97        17,484                    18,422
            31-Mar-97        17,319                    18,054
            30-Apr-97        17,281                    18,641
            31-May-97        18,157                    19,788
            30-Jun-97        18,831                    20,771
            31-Jul-97        19,466                    21,725
            31-Aug-97        17,674                    20,268
            30-Sep-97        18,500                    21,366
            31-Oct-97        16,061                    20,238
            30-Nov-97        15,400                    20,592
            31-Dec-97        15,276                    20,840
            31-Jan-98        15,485                    21,417
            28-Feb-98        17,288                    22,862
            31-Mar-98        18,392                    23,824
            30-Apr-98        18,532                    24,054
            31-May-98        17,875                    23,749
            30-Jun-98        16,799                    24,309
            31-Jul-98        16,841                    24,266
            31-Aug-98        13,487                    21,026
            30-Sep-98        13,361                    21,395
            31-Oct-98        14,982                    23,325
            30-Nov-98        16,296                    24,709
            31-Dec-98        16,588                    25,912
            31-Jan-99        16,441                    26,476
            28-Feb-99        16,017                    25,767
            31-Mar-99        16,808                    26,837
            30-Apr-99        18,640                    27,891
            31-May-99        18,039                    26,868
            30-Jun-99        19,563                    28,117
            31-Jul-99        19,314                    28,029
            31-Aug-99        19,402                    27,975
            30-Sep-99        18,815                    27,700
            31-Oct-99        19,226                    29,136
            30-Nov-99        19,621                    29,952
            31-Dec-99        20,985                    32,373
            31-Jan-00        19,515                    30,515
            29-Feb-00        19,421                    30,594
            31-Mar-00        20,625                    32,705
            30-Apr-00        19,875                    31,318
            31-May-00        19,703                    30,522
            30-Jun-00        20,844                    31,546
            31-Jul-00        20,719                    30,654
            31-Aug-00        21,141                    31,647
            30-Sep-00        19,421                    29,961
            31-Oct-00        19,093                    29,455
            30-Nov-00        17,748                    27,663
            31-Dec-00        18,066                    28,107
            31-Jan-01        18,423                    28,660
            28-Feb-01        16,655                    26,236
            31-Mar-01        15,449                    24,494
            30-Apr-01        16,621                    26,293
            31-May-01        16,366                    25,925
            30-Jun-01        15,823                    25,111
            31-Jul-01        15,636                    24,807
            31-Aug-01        14,871                    23,612
            30-Sep-01        13,256                    21,529
            31-Oct-01        13,732                    21,940
            30-Nov-01        14,684                    23,233
            31-Dec-01        14,803                    23,378
          31-Jan-2002        14,412                    22,667
          28-Feb-2002        14,378                    22,468
          31-Mar-2002        14,956                    23,458
          30-Apr-2002        14,412                    22,660
          31-May-2002        14,327                    22,698
          30-Jun-2002        13,562                    21,317
          31-Jul-2002        12,407                    19,518
          31-Aug-2002        12,322                    19,552
          30-Sep-2002        10,911                    17,399
          31-Oct-2002        11,897                    18,681
          30-Nov-2002        12,542                    19,686
          31-Dec-2002        11,778                    18,729


The Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index of stocks which assumes reinvestment of dividends and, unlike Fund
returns, does not reflect any fees or expenses. It is not possible to invest in
an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.


  COUNTRY BREAKDOWN                               12/31/02



                                              % of Total Net Assets
                                              ---------------------
                                           
 1. US                                                 55%
 2. United Kingdom                                     10%
 3. Japan                                               7%
 4. France                                              6%
 5. Netherlands                                         5%
 6. Switzerland                                         4%
 7. Germany                                             3%
 8. Mexico                                              2%
 9. Australia                                           2%
10. Italy                                               2%
11. Spain                                               1%
12. South Korea                                         1%
13. Finland                                             1%
14. Hong Kong                                           1%


 SECTOR BREAKDOWN                                 12/31/02




                                              % of Total Net Assets
                                              ---------------------
                                           
 1. Financials                                         23%
 2. Consumer Discretionary                             14%
 3. Information Technology                             12%
 4. Industrials                                        11%
 5. Healthcare                                         10%
 6. Consumer Staples                                   10%
 7. Materials                                           6%
 8. Telecommunication Services                          6%
 9. Energy                                              5%
10. Utilities                                           3%



  TOP 10 HOLDINGS                                  12/31/02





  Security                                    % of Total Net Assets
  --------                                    ---------------------
                                           
 1.  Microsoft Corporation                             2.1%
 2.  S&P 500 Depository Receipts                       1.9%
 3.  Exxon Mobil Corporation                           1.9%
 4.  General Electric Company                          1.8%
 5.  Wal-Mart Stores, Inc.                             1.8%
 6.  Unilever plc                                      1.4%
 7.  HBOS plc                                          1.4%
 8.  Citigroup Inc.                                    1.4%
 9.  Pfizer Inc.                                       1.3%
10.  Vodafone AirTouch plc                             1.3%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                               9


IVY GLOBAL NATURAL RESOURCES FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN EQUITY
SECURITIES OF COMPANIES THAT EXPLORE, DEVELOP, PRODUCE AND/OR DISTRIBUTE NATURAL
RESOURCES AND OTHER BASIC COMMODITIES, OR IN THOSE THAT SUPPLY GOODS AND
SERVICES TO SUCH COMPANIES.

[PHOTO]

The following is an interview with Fred Sturm, portfolio manager of Ivy Global
Natural Resources Fund and member of the Mackenzie Financial Corporation
investment team, the Fund's investment advisor.

LIPPER CATEGORY

Natural Resources

"Looking at the resources sector as a whole, we believe that while stronger
performance from other sectors may hold back resource stocks, economic activity
should support commodity prices going forward."

Q: FRED, HOW DID IVY GLOBAL NATURAL RESOURCES FUND PERFORM IN 2002?

A: For 2002, Ivy Global Natural Resources Fund returned -1.35%, including the
impact of the maximum sales charge, and 4.66% without the sales charge. The Fund
outperformed its benchmark, the MSCI Commodities-Related Index, which returned
- -5.26%, and its peer group (as measured by the Lipper Natural Resources Funds
average), which returned -6.25%. It should be noted that the benchmark index and
Lipper category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: The natural resources sector held up better than the broader stock market,
but it still showed disappointing results for the year. The third quarter was
particularly volatile as investors worried about a possible double dip recession
and the resultant downward revision in earnings expectations. However, both the
market and the sector rallied in the fourth quarter.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: Although the Fund performed well relative
to its benchmark and peer group, absolute performance was disappointing. This
was due to two factors: broader market fears of a double-dip recession, and our
somewhat early entry into the more depressed areas of the market. For
example, although the Fund successfully bypassed the carnage in independent
energy producers, we made some initial purchases in that area -- to take
advantage of depressed prices, which in our view offered good buying
opportunities -- during the year that have yet to bear fruit.

However, our three-part investment strategy led to some strong relative
performance throughout the year. The first part of the strategy involves
anchoring the portfolio with international low-cost leaders. This led to gains
in 2002 as we emphasized leading low-cost Canadian energy and Brazilian pulp
producers over their US counterparts. Strong performance from world-class nickel
producer Inco, a Canadian company, also helped the Fund.

Augmenting the portfolio with companies adding value through exploration and
development is the second part of the strategy, and this, too, helped
performance. For example, our stock selection in energy services and gold
focused on growth-oriented smaller companies, many of which outperformed the
larger-cap producers.

Finally, we seek to take advantage of commodity price trends by making subsector
shifts when necessary. This yielded positive results in the precious metals and
energy areas. The Fund had a proportionally larger weighting in gold (which
performed strongly) than its competitors, but as gold became more expensive we
reduced the Fund's gold weighting and increased exposure to energy, a move that
helped performance in the first half of 2002.

Q: DID THE FUND BENEFIT FROM CONSOLIDATION IN THE RESOURCES SECTOR?

A: Yes. Undervalued companies often become takeover targets, and the initial
benefits accrue to the target, rather than the acquirer. We were fortunate over
the year to identify acquisition targets and to benefit from this trend. For
example, we invested in Fording, a leading producer of metallurgical coal, and
later sold at meaningful gains into a takeover bid.

Q: WHAT IS YOUR STRATEGY GOING FORWARD?

A: We believe that both gold and oil prices, having risen in anticipation of war
with Iraq, may trade lower once this issue gets more clarity. With this in mind,
we reduced exposure to gold, using the proceeds to increase the Fund's
weightings in forest products, but have maintained a significant energy exposure
because we believe that energy stocks still have room to advance after a
pullback in oil prices. Looking at the resources sector as a whole, we believe
that while stronger performance from other sectors may hold back resource
stocks, economic activity should support commodity prices going forward.
Resource sectors also tend to perform well when currencies are under pressure.
For reasons of inflation protection, portfolio diversification and return
opportunities, we believe that the Fund continues to merit attention.


Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
manager and are current only through the end of the period of the report as
stated on the cover. The manager's views are subject to change at any time
based on market and other conditions, and no forecasts can be guaranteed.



10



      AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002




 SHARE CLASS/                                                                                   SINCE
 NASDAQ SYMBOL                                             1 YEAR    5 YEARS   10 YEARS       INCEPTION
 -------------                                             ------    -------   --------       ---------
                                                                               
A SHARES           w/Reimb. & 5.75% sales charge           (1.35)%    4.49%       N/A           4.90%
IGNAX              w/o Reimb. & 5.75% sales charge         (1.52)%    2.19%       N/A           2.96%

B SHARES           w/Reimb. & w/ 5.00% CDSC                (1.48)%    4.63%       N/A           5.05%
IGNBX              w/Reimb. & w/o 5.00% CDSC                3.52%     4.96%       N/A           5.18%
                   w/o Reimb. & w/ 5.00% CDSC              (1.66)%    2.45%       N/A           3.22%
                   w/o Reimb. & w/o 5.00% CDSC              3.34%     2.78%       N/A           3.35%

C SHARES           w/Reimb. & w/ 1.00% CDSC                 2.46%     4.63%       N/A           4.87%
IGNCX              w/Reimb. & w/o 1.00% CDSC                3.46%     4.63%       N/A           4.87%
                   w/o Reimb. & w/ 1.00% CDSC               2.28%     2.01%       N/A           2.67%
                   w/o Reimb. & w/o 1.00% CDSC              3.28%     2.01%       N/A           2.67%

ADVISOR SHARES     w/Reimb.                                 4.46%     N/A         N/A          15.14%
IGNVX              w/o Reimb.                               4.29%     N/A         N/A          12.99%


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class
commenced operations April 8, 1999.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Global Natural Resources Fund
will fluctuate and at redemption shares may be worth more or less than the
amount of the original investment.

 PERFORMANCE OVERVIEW

         Performance Comparison of the Fund Since Inception (1/97) of a
                               $10,000 Investment
             (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                                 Ivy
                                Global                     MSCI
                                Natural                  Commodity-
                               Resources                  Related
                                 Fund                      Index
                                                   
               02-Jan-97         9,425                    10,000
               31-Jan-97        10,151                    10,053
               28-Feb-97        11,112                     9,916
               31-Mar-97        10,264                     9,709
               30-Apr-97        10,452                     9,621
               31-May-97        11,546                    10,326
               30-Jun-97        10,980                    10,416
               31-Jul-97        11,376                    11,218
               31-Aug-97        11,810                    11,093
               30-Sep-97        13,138                    11,617
               31-Oct-97        11,536                    10,788
               30-Nov-97         9,368                    10,041
               31-Dec-97        10,080                     9,778
               31-Jan-98        10,315                     9,714
               28-Feb-98        10,359                    10,012
               31-Mar-98        10,527                    10,357
               30-Apr-98        11,232                    10,600
               31-May-98         9,722                     9,662
               30-Jun-98         8,581                     9,216
               31-Jul-98         7,865                     8,359
               31-Aug-98         5,940                     6,937
               30-Sep-98         6,947                     8,609
               31-Oct-98         7,719                     9,126
               30-Nov-98         7,384                     8,569
               31-Dec-98         7,122                     8,349
               31-Jan-99         7,279                     7,937
               28-Feb-99         6,975                     7,921
               31-Mar-99         8,102                     8,554
               30-Apr-99         9,668                    10,152
               31-May-99         8,823                     9,416
               30-Jun-99         9,296                    10,067
               31-Jul-99         9,657                     9,815
               31-Aug-99         9,905                    10,043
               30-Sep-99        10,649                    10,140
               31-Oct-99         9,815                     9,761
               30-Nov-99         9,634                     9,634
               31-Dec-99        10,040                    10,140
             31-Jan-2000         9,725                     9,308
             29-Feb-2000         9,522                     8,700
             31-Mar-2000         9,837                     9,748
             30-Apr-2000         9,849                     9,752
             31-May-2000        10,232                    10,435
             30-Jun-2000        10,694                     9,553
             31-Jul-2000        10,198                     9,286
             31-Aug-2000        11,088                     9,970
             30-Sep-2000        10,773                     9,574
             31-Oct-2000         9,995                     9,845
             30-Nov-2000         9,556                    10,072
             31-Dec-2000        11,030                    11,715
             31-Jan-2001        11,404                    11,050
             28-Feb-2001        11,958                    11,062
             31-Mar-2001        11,494                    10,378
             30-Apr-2001        13,125                    11,476
             31-May-2001        13,861                    11,778
             30-Jun-2001        13,034                    11,217
             31-Jul-2001        11,845                    11,547
             31-Aug-2001        11,607                    11,433
             30-Sep-2001        10,248                    10,398
             31-Oct-2001        11,460                    10,825
             30-Nov-2001        11,664                    11,275
             31-Dec-2001        12,728                    11,540
             31-Jan-2002        13,165                    11,860
             28-Feb-2002        14,248                    12,217
             31-Mar-2002        15,665                    12,796
             30-Apr-2002        15,964                    12,583
             31-May-2002        16,575                    13,055
             30-Jun-2002        14,928                    12,597
             31-Jul-2002        12,532                    10,806
             31-Aug-2002        13,016                    11,021
             30-Sep-2002        12,014                    10,281
             31-Oct-2002        12,509                    10,430
             30-Nov-2002        12,831                    11,025
             31-Dec-2002        13,322                    10,933


The Morgan Stanley Capital International (MSCI) Commodity-Related Index is an
unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.



 COUNTRY BREAKDOWN                                12/31/02




                                                  % of Total Net Assets
                                                  ---------------------
                                               
 1. US                                                      40%
 2. Canada                                                  32%
 3. South Africa                                             8%
 4. Brazil                                                   7%
 5. Finland                                                  4%
 6. Mexico                                                   4%
 7. Peru                                                     2%
 8. Australia                                                1%
 9. France                                                   1%
10. Norway                                                   1%



 SECTOR BREAKDOWN                                 12/31/02




                                               % of Total Net Assets
                                               ---------------------
                                            
1.  Materials                                          48%
2.  Energy                                             44%
3.  Industrials                                         3%
4.  Utilities                                           2%
5.  Consumer Staples                                    1%



 TOP 10 HOLDINGS                                  12/31/02





 Security                                       % of Total Net Assets
 --------                                       ---------------------
                                             
 1.  Impala Platinum Holdings Limited                   5.1%
 2.  Trican Well Service Ltd.                           4.9%
 3.  NQL Drilling Tools Inc.                            4.3%
 4.  National-Oilwell,  Inc.                            4.2%
 5.  Cemex S.A. De C.V                                  4.1%
 6.  Votorantim Celulose e Papel                        3.1%
 7.  Outokumpu Oyj                                      3.0%
 8.  Noble Corporation                                  3.0%
 9.  Stelmar Shipping Ltd.                              2.9%
10   Canadian Natural Resources Ltd.                    2.8%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                              11



IVY GLOBAL SCIENCE & TECHNOLOGY FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING PRIMARILY IN
THE COMMON STOCK OF COMPANIES THAT ARE EXPECTED TO BENEFIT FROM THE DEVELOPMENT,
ADVANCEMENT AND/OR USE OF SCIENCE AND TECHNOLOGY.


[PHOTO]

Note: Ivy Global Science & Technology Fund was managed by James W. Broadfoot
until December 16th, 2002. At right, he discusses factors relating to Fund
performance in 2002. Zachary H. Shafran, Senior Vice President of Waddell & Reed
Ivy Investment Company, assumed management of Ivy Global Science & Technology
Fund on December 17th, 2002. He discusses how the Fund is positioned going
forward.

LIPPER CATEGORY

Science &
Technology

"We intend to continue to scan the global markets in search of investments to
construct a diverse investment portfolio within the science and technology
areas."

Q: JIM, HOW DID IVY GLOBAL SCIENCE & TECHNOLOGY FUND PERFORM IN 2002?

A: For 2002, Ivy Global Science & Technology Fund returned -49.44%, including
the impact of the maximum sales charge, and -46.36% without the sales charge.
The Fund underperformed its benchmark, the Russell 3000 Technology Index, which
returned -39.06%, as well as its peer group (as measured by the Lipper Science
and Technology Funds average), which returned -43.01%. It should be noted that
the benchmark index and Lipper category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: Economic weakness, threats of war, accounting scandals and large declines in
the broader market all took their toll on the technology sector in 2002. These
issues made investors extremely nervous, leading them to shun higher-risk
stocks. It was no surprise, then, to see that technology and telecom were the
two worst performing equity sectors in 2002. Investors did not want to hold
risky assets.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: The Fund's small- and mid-cap bias had a negative impact on performance as
smaller-cap, higher-risk stocks significantly underperformed larger-cap names.
Performance was also negatively impacted by holdings in the semiconductor area,
which tends to be one of the more volatile technology sectors. These stocks
rallied in the fourth quarter, but experienced difficult second and third
quarters.

In 2002, corporate IT departments continued to hold back on spending, and this
negatively affected some of the Fund's software holdings. For example, software
companies that sell their products to retailers suffered as consumer spending
declined toward the end of the period. Firm-specific issues in certain videogame
holdings also hurt performance, as did an underweight in large technology
companies such as Microsoft and Dell. Both comprise a large portion of the
Russell 3000 Technology Index and showed better relative performance than the
Fund's smaller technology holdings.

On the positive side, some of the Fund's healthcare names did well. Stocks such
as Teva Pharmaceutical Industries, a leading manufacturer of generic drugs, and
Varian Medical Systems, a manufacturer of X-ray and oncology products, showed
positive returns for the period. Consumer-related holdings also did well,
despite a pullback in the fourth quarter. In addition, a number of the Fund's
government- and defense-related stocks showed positive returns.

Q: ZACK, WHAT IS YOUR OUTLOOK FOR 2003?

A: Following three years of poor equity market performance, with the global
science and technology sectors being particularly hard hit, many expect 2003 to
be a year of recovery. But while we believe there are signs of economic recovery
and market stabilization, the potential for a sharp sustained rise in corporate
profits is, in our view, unlikely in the near term. The lingering effects of
overcapacity, particularly in technology, have created an especially difficult
competitive environment. Healthcare, particularly in the developed world is
suffering from just the opposite: inflation. It is in this type of a slow
growth, competitive environment that companies with the potential to grow
through execution and innovation will be rewarded.

Q: HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD?

A: Upon commencing management of the Fund in late December 2002, we repositioned
for increased exposure in healthcare and decreased exposure in technology. We
also raised the cash reserve position. In light of our 2003 outlook, we are
unable to identify a broad based "market moving" theme. We are therefore working
diligently to identify individual companies that meet our investment criteria.
We will likely not position the Fund to track a particular index, either by
industry, subsector, or geography. Rather, we intend to continue to scan the
global markets in search of investments to construct a diverse investment
portfolio within the science and technology areas.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.



12



 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002




 SHARE CLASS/                                                                                       SINCE
 NASDAQ SYMBOL                                             1 YEAR      5 YEARS     10 YEARS       INCEPTION
 -------------                                             -------     --------    --------       ---------
                                                                                   
A SHARES           w/Reimb. & 5.75% sales charge           (49.44)%     (15.95)%     N/A            (4.67)%
IVTAX              w/o Reimb. & 5.75% sales charge         (50.13)%     (16.23)%     N/A            (4.94)%

B SHARES           w/Reimb. & w/ 5.00% CDSC                (49.55)%     (15.97)%     N/A            (4.64)%
IVTBX              w/Reimb. & w/o 5.00% CDSC               (46.89)%     (15.63)%     N/A            (4.50)%
                   w/o Reimb. & w/ 5.00% CDSC              (50.26)%     (16.26)%     N/A            (4.91)%
                   w/o Reimb. & w/o 5.00% CDSC             (47.64)%     (15.92)%     N/A            (4.76)%

C SHARES           w/Reimb. & w/ 1.00% CDSC                (47.32)%     (15.58)%     N/A            (4.42)%
IVTCX              w/Reimb. & w/o 1.00% CDSC               (46.79)%     (15.58)%     N/A            (4.42)%
                   w/o Reimb. & w/ 1.00% CDSC              (48.06)%     (15.87)%     N/A            (4.68)%
                   w/o Reimb. & w/o 1.00% CDSC             (47.54)%     (15.87)%     N/A            (4.68)%

ADVISOR SHARES     w/Reimb.                                (46.25)%         N/A      N/A           (18.23)%
IVTVX              w/o Reimb.                              (46.98)%         N/A      N/A           (18.49)%


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.
Class A, Class B and Class C commenced operations July 22, 1996; Advisor Class
commenced operations April 15, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Global Science & Technology
Fund will fluctuate and at redemption shares may be worth more or less than the
amount of the original investment.

 PERFORMANCE OVERVIEW

            Performance Comparison of the Fund Since Inception (7/96)
                             of a $10,000 Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                             Ivy
                            Global
                            Science                    Russell
                              &                         3000
                          Technology                 Technology
                             Fund                       Index
                          ----------                 ----------
                                               
            22-Jul-96        9,425                     10,000
            31-Jul-96        9,491                     10,000
            31-Aug-96       11,084                     10,484
            30-Sep-96       14,081                     11,633
            31-Oct-96       14,467                     11,610
            30-Nov-96       14,995                     13,242
            31-Dec-96       15,489                     12,845
            31-Jan-97       15,905                     14,233
            28-Feb-97       14,186                     12,957
            31-Mar-97       12,523                     12,309
            30-Apr-97       12,420                     13,241
            31-May-97       15,017                     14,569
            30-Jun-97       15,716                     14,665
            31-Jul-97       16,821                     17,413
            31-Aug-97       16,981                     17,143
            30-Sep-97       18,322                     17,630
            31-Oct-97       17,132                     16,075
            30-Nov-97       16,764                     16,331
            31-Dec-97       16,500                     15,396
            31-Jan-98       16,566                     16,334
            28-Feb-98       18,030                     17,994
            31-Mar-98       18,644                     18,021
            30-Apr-98       18,956                     19,160
            31-May-98       17,501                     17,769
            30-Jun-98       18,634                     19,304
            31-Jul-98       18,030                     19,752
            31-Aug-98       14,158                     16,342
            30-Sep-98       16,037                     18,784
            31-Oct-98       16,642                     20,041
            30-Nov-98       19,126                     22,510
            31-Dec-98       22,318                     25,902
            31-Jan-99       24,745                     29,831
            28-Feb-99       22,129                     26,049
            31-Mar-99       24,736                     27,671
            30-Apr-99       24,679                     28,225
            31-May-99       24,443                     28,242
            30-Jun-99       27,446                     31,857
            31-Jul-99       26,625                     31,885
            31-Aug-99       28,391                     33,866
            30-Sep-99       30,025                     33,402
            31-Oct-99       33,774                     34,060
            30-Nov-99       40,216                     38,494
            31-Dec-99       49,670                     46,166
          31-Jan-2000       49,791                     44,255
          29-Feb-2000       64,926                     52,588
          31-Mar-2000       60,792                     55,212
          30-Apr-2000       49,781                     50,105
          31-May-2000       43,382                     44,724
          30-Jun-2000       51,681                     50,287
          31-Jul-2000       48,481                     47,823
          31-Aug-2000       55,876                     54,322
          30-Sep-2000       50,767                     45,821
          31-Oct-2000       42,153                     42,792
          30-Nov-2000       27,659                     32,980
          31-Dec-2000       28,316                     30,187
          31-Jan-2001       31,247                     34,751
          28-Feb-2001       20,540                     24,913
          31-Mar-2001       15,583                     21,268
          30-Apr-2001       19,728                     25,013
          31-May-2001       18,843                     23,910
          30-Jun-2001       18,329                     24,066
          31-Jul-2001       15,963                     22,513
          31-Aug-2001       13,700                     19,690
          30-Sep-2001       10,697                     15,727
          31-Oct-2001       11,952                     18,578
          30-Nov-2001       13,165                     21,686
          31-Dec-2001       13,690                     21,341
          31-Jan-2002       13,104                     21,510
          28-Feb-2002       10,934                     18,316
          31-Mar-2002       12,271                     19,588
          30-Apr-2002       10,903                     17,277
          31-May-2002        9,977                     16,648
          30-Jun-2002        8,969                     14,477
          31-Jul-2002        7,550                     13,129
          31-Aug-2002        7,251                     13,009
          30-Sep-2002        6,490                     10,672
          31-Oct-2002        7,385                     12,864
          30-Nov-2002        8,383                     15,175
          31-Dec-2002        7,344                     13,004



The Russell 3000 Technology Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.


  COUNTRY BREAKDOWN                                12/31/02



                              % of Total Net Assets
                              ---------------------
                           
 1.  US                                89%
 2.  Japan                              4%
 3.  Switzerland                        4%
 4.  United Kingdom                     3%




  SECTOR BREAKDOWN                                 12/31/02




                               % of Total Net Assets
                               ---------------------
                            
 1.  Healthcare                       38%
 2.  Information Technology           12%
 3.  Energy                           12%
 4.  Industrials                      12%
 5.  Consumer Discretionary            3%
 6.  Telecommunication Services        2%
 7.  Materials                         2%



  TOP 10 HOLDINGS                                 12/31/02



 Security                           % of Total Net Assets
                                    ---------------------
                                 
 1.  Forest Laboratories, Inc.           6.4%
 2.  Concord EFS, Inc.                   4.9%
 3.  HCA Inc.                            4.7%
 4.  Guidant Corporation                 3.9%
 5.  Biogen, Inc.                        3.5%
 6.  Northrop Gruman Corporation         3.4%
 7.  Alcon, Inc.                         3.3%
 8.  Abbott Laboratories                 2.6%
 9.  Pfizer Inc.                         2.5%
10.   Vodafone Group plc                 2.5%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.

                                                                              13

IVY INTERNATIONAL FUND


THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING
IN EQUITY SECURITIES TRADED IN EUROPEAN, PACIFIC BASIN AND LATIN AMERICAN
MARKETS.

[PHOTO]

Note: Ivy International Fund was managed by Moira McLachlan and the Ivy
International Equities team until December 16th, 2002. At right, she discusses
factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice
President of Waddell & Reed Ivy Investment Company, assumed management of Ivy
International Fund on December 17th, 2002. He discusses how the Fund is
positioned going forward.

LIPPER CATEGORY

International

"Strong fundamental equity analysis will be the basis of our stock selection
process, within the framework of our global asset allocation strategy and with
important input regarding economic, financial and political issues for each
region or country."

Q:   MOIRA, HOW DID IVY INTERNATIONAL FUND PERFORM IN 2002?

A:   For 2002, Ivy International Fund returned -25.51%, including the impact of
the maximum sales charge, and -20.96% without the sales charge. The Fund
underperformed its benchmark, the MSCI EAFE index, which returned -15.94%, and
its peer group (as measured by the Lipper International Funds average), which
returned -16.67%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q:   HOW WERE MARKET CONDITIONS?

A:   International markets were extremely volatile in 2002. Fears of a
double-dip recession and global deflation contributed to sharp declines
interspersed with equally sharp rallies. Despite ample global liquidity and
much-improved valuations, markets were impacted by sluggish economic growth,
poor corporate profits and the Iraq situation.

Q:   WHAT FACTORS AFFECTED PERFORMANCE?

A:   Performance suffered from an underweight position in Japan, a market that
was relatively resilient in 2002. Our stock selection in Japan was another
negative. A number of Japanese holdings were impacted as investors became
concerned about the pace of the global recovery and the strength of external
demand. Poor stock selection in the UK also had a negative impact. While we
limited losses by eliminating exposure to "problem stocks" early in the year,
we did not do so soon enough.

In addition, overweights in Germany and the Netherlands hurt performance. In the
third quarter, increased concerns about the solvency of European insurers
contributed to sharp sell-offs in both markets, and in France. Poor equity
market performance, in turn, led to forced selling by the insurers, reinforcing
the downdraft. While the Fund fared better than most in France, its German and
Dutch holdings took the brunt of the downturn.

Stock selection in France had the most significant positive impact on
performance. In contrast to the money-center banks and European insurers, French
banks performed well. As a result of their domestic focus, they were insulated
from problem loans to Argentina and the corporate collapses in the US that
plagued more globally oriented banks.

Q:   THOMAS, WHAT IS YOUR STRATEGY FOR IVY INTERNATIONAL FUND GOING FORWARD?

A:   Strong fundamental equity analysis will be the basis of our stock
selection process, within the framework of our global asset allocation strategy
and with important input regarding economic, financial and political issues for
each region or country. Our basic stock selection approach will focus on what
we believe are stable companies with impressive corporate management, in
sectors we feel are best positioned for the current market environment.

Q:   WHAT ARE YOUR EXPECTATIONS FOR 2003?

A:   We expect global equity markets to remain volatile as investors continue
to monitor corporate, financial, economic and geopolitical issues. Despite a
high level of financial market uncertainty early in the year, we feel that
consensus earnings expectations need to be reduced further. Corporations are
facing higher operating costs, but generally cannot raise output prices. In
this environment of little or no corporate pricing power, we will seek
investments in companies that we feel are best able to thrive.

In Continental Europe, we believe that the best opportunities are likely in
companies with defensive characteristics such as consumer product focus,
impressive management, strong balance sheets, attractive dividend yields and
solid competitive market position. In Britain, growth stocks should, in our
opinion, still be able to benefit from the relatively strong domestic economy.
Despite continuing imbalances in Japan's economy, we feel that there are still
quality companies with good prospects, especially some of the larger exporters.
In Asia, we prefer to concentrate our holdings in industry leaders that benefit
from continued Chinese dominance of business demand in the region.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


14


AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002



SHARE CLASS/                                                                                 SINCE
NASDAQ SYMBOL                                        1 YEAR        5 YEARS     10 YEARS    INCEPTION
- -------------                                       --------       -------     --------    ---------
                                                                            
A SHARES          w/Reimb. & 5.75% sales charge     (25.51)%       (8.76)%       3.80%       7.35%
IVINX             w/o Reimb. & 5.75% sales charge   (25.51)%       (8.75)%       3.79%       7.34%

B SHARES          w/Reimb. & w/ 5.00% CDSC          (25.90)%       (8.93)%        N/A        0.31%
IVIBX             w/Reimb. & w/o 5.00% CDSC         (22.00)%       (8.56)%        N/A        0.31%
                  w/o Reimb. & w/ 5.00% CDSC        (25.90)%       (8.92)%        N/A        0.30%
                  w/o Reimb. & w/o 5.00% CDSC       (22.00)%       (8.57)%        N/A        0.30%

C SHARES          w/Reimb. & w/ 1.00% CDSC          (22.78)%       (8.54)%        N/A       (3.64)%
IVNCX             w/Reimb. & w/o 1.00% CDSC         (22.00)%       (8.54)%        N/A       (3.64)%
                  w/o Reimb. & w/ 1.00% CDSC        (22.78)%       (8.55)%        N/A       (3.65)%
                  w/o Reimb. & w/o 1.00% CDSC       (22.00)%       (8.55)%        N/A       (3.65)%

I SHARES          w/Reimb.                          (20.95)%      (7.39)%        N/A        1.31%
IVIIX             w/o Reimb.                        (20.95)%      (7.40)%        N/A        1.30%

ADVISOR SHARES    w/Reimb.                          (18.71)%         N/A         N/A      (21.83)%
N/A               w/o Reimb.                        (18.71)%         N/A         N/A      (21.86)%


CDSC = Contingent Deferred Sales Charge

Advisor Class and I Class Shares are not subject to an initial sales charge or a
CDSC.

Class A commenced operations November 15, 1985 (performance here is calculated
based on the date the Fund first became available for sale to the public, April
30, 1986); Class B commenced operations October 22, 1993; Class C commenced
operations April 30, 1996; Class I commenced operations October 6, 1994; Advisor
Class commenced operations August 31, 2000.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW


       10-Year Performance Comparison of a $10,000 Investment in the Fund
              (Class A shares including 5.75% maximum sales charge)


                                    (GRAPH)



                             Ivy          MSCI
                         International    EAFE
                             Fund         Index
                         -------------    -----
                                    
            31-Dec-92        9425         10000
            31-Jan-93        9545          9999
            28-Feb-93        9779         10301
            31-Mar-93       10458         11199
            30-Apr-93       10818         12261
            31-May-93       11317         12520
            30-Jun-93       11232         12325
            31-Jul-93       11317         12757
            31-Aug-93       12241         13445
            30-Sep-93       12385         13143
            31-Oct-93       12996         13548
            30-Nov-93       12560         12363
            31-Dec-93       13984         13256
            31-Jan-94       14900         14377
            28-Feb-94       14290         14337
            31-Mar-94       13573         13720
            30-Apr-94       13988         14302
            31-May-94       13928         14220
            30-Jun-94       13711         14420
            31-Jul-94       14391         14559
            31-Aug-94       15112         14904
            30-Sep-94       14890         14434
            31-Oct-94       15339         14915
            30-Nov-94       14663         14198
            31-Dec-94       14532         14287
            31-Jan-95       13806         13738
            28-Feb-95       14137         13699
            31-Mar-95       14622         14553
            30-Apr-95       15003         15101
            31-May-95       15326         14866
            30-Jun-95       15348         14659
            31-Jul-95       15980         15572
            31-Aug-95       15425         14978
            30-Sep-95       15888         15270
            31-Oct-95       15720         14860
            30-Nov-95       15875         15273
            31-Dec-95       16369         15888
            31-Jan-96       16636         15954
            29-Feb-96       16839         16008
            31-Mar-96       17010         16348
            30-Apr-96       17490         16823
            31-May-96       17746         16513
            30-Jun-96       18365         16606
            31-Jul-96       17506         16121
            31-Aug-96       18093         16156
            30-Sep-96       18221         16585
            31-Oct-96       18371         16416
            30-Nov-96       19230         17069
            31-Dec-96       19597         16849
            31-Jan-97       19876         16260
            28-Feb-97       20307         16525
            31-Mar-97       20307         16585
            30-Apr-97       20258         16673
            31-May-97       21568         17758
            30-Jun-97       22650         18738
            31-Jul-97       23201         19041
            31-Aug-97       21629         17619
            30-Sep-97       23168         18606
            31-Oct-97       21159         17176
            30-Nov-97       21143         17000
            31-Dec-97       21632         17149
            31-Jan-98       21499         17933
            28-Feb-98       22990         19084
            31-Mar-98       24314         19671
            30-Apr-98       24730         19827
            31-May-98       24059         19731
            30-Jun-98       23655         19880
            31-Jul-98       24259         20082
            31-Aug-98       20390         17594
            30-Sep-98       19947         17054
            31-Oct-98       21937         18832
            30-Nov-98       23217         19797
            31-Dec-98       23220         20578
            31-Jan-99       23186         20517
            28-Feb-99       22746         20028
            31-Mar-99       23885         20864
            30-Apr-99       25130         21710
            31-May-99       24093         20592
            30-Jun-99       24865         21394
            31-Jul-99       25012         22030
            31-Aug-99       25091         22111
            30-Sep-99       25017         22333
            31-Oct-99       25203         23170
            30-Nov-99       25908         23975
            31-Dec-99       28107         26127
            31-Jan-00       25827         24467
            29-Feb-00       26555         25125
            31-Mar-00       27099         26099
            30-Apr-00       25976         24726
            31-May-00       26036         24122
            30-Jun-00       27194         25065
            31-Jul-00       25977         24014
            31-Aug-00       26413         24223
            30-Sep-00       24098         23043
            31-Oct-00       23390         22499
            30-Nov-00       22418         21655
            31-Dec-00       23257         22425
            31-Jan-01       23345         22433
            28-Feb-01       21330         20755
            30-Mar-01       19555         19346
            30-Apr-01       20958         20674
            31-May-01       20425         19909
            30-Jun-01       19670         19091
            31-Jul-01       19298         18801
            31-Aug-01       18765         18324
            30-Sep-01       16306         16468
            31-Oct-01       17052         16890
            30-Nov-01       18037         17513
            31-Dec-01       18366         17617
          31-Jan-2002       17505         16680
          28-Feb-2002       17567         16798
          31-Mar-2002       18454         17706
          30-Apr-2002       18321         17823
          31-May-2002       18250         18049
          30-Jun-2002       17469         17331
          31-Jul-2002       15498         15620
          31-Aug-2002       15348         15584
          30-Sep-2002       13448         13911
          31-Oct-2002       14487         14658
          30-Nov-2002       15454         15324
          31-Dec-2002       14516         14808



The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East
(EAFE) Index is an unmanaged index of stocks which assumes reinvestment of
dividends and, unlike Fund returns, does not reflect any fees or expenses. It is
not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

COUNTRY BREAKDOWN          12/31/02




                              % of Total Net Assets
                           
1.  United Kingdom                     22%
2.  Japan                              16%
3.  France                             14%
4.  Netherlands                         9%
5.  Switzerland                         7%
6.  Germany                             5%
7.  Spain                               4%
8.  Mexico                              4%
9.  Hong Kong                           4%
10. Australia                           4%
11. Finland                             3%
12. South Korea                         3%
13. Italy                               3%
14. Taiwan                              1%
15. Norway                              1%


SECTOR BREAKDOWN           12/31/02




                                        % of Total Net Assets

                                     
1.  Financials                                  22%
2.  Industrials                                 13%
3.  Consumer Discretionary                      12%
4.  Materials                                   11%
5.  Telecommunication Services                  10%
6.  Consumer Staples                             9%
7.  Information Technology                       8%
8.  Energy                                       6%
9.  Healthcare                                   5%
10. Utilities                                    3%


TOP 10 HOLDINGS             12/31/02




Security                       % of Total Net Assets
                            
1.  Vodafone AirTouch plc                2.6%
2.  GlaxoSmithKline plc                  2.4%
3.  Societe Generale                     2.3%
4.  HBOS plc                             2.3%
5.  BHP Ltd.                             2.2%
6.  UBS AG                               2.2%
7.  TotalFinaElf                         2.1%
8.  Unilever                             2.0%
9.  Rio Tinto plc                        2.0%
10. BP Amoco plc                         2.0%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.

                                                                              15






IVY INTERNATIONAL SMALL COMPANIES FUND


THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH
INVESTMENT IN FOREIGN EQUITY SECURITIES OF COMPANIES WITH A TOTAL MARKET
CAPITALIZATION OF LESS THAN $2 BILLION.

[PHOTO]

Ivy International Small Companies Fund is sub-advised by Henderson Investment
Management Limited's smaller companies team. The following is an interview with
Simon Chisholm, Henderson's Associate Director of European Equities. He has led
the team since September of 2002 and is responsible for the Fund's regional
allocations.

LIPPER CATEGORY

International
Small-Cap

"Looking to the medium-term, we are still broadly positive but continue to be
cautious about the outlook for smaller-capitalization stocks, as we believe that
an improving global economic outlook will initially favor larger, more liquid
stocks. In the longer term, however, we are optimistic about the chances for
solid performance from the sector."

Q:   SIMON, HOW DID IVY INTERNATIONAL SMALL COMPANIES FUND PERFORM IN 2002?

A:   For 2002, Ivy International Small Companies Fund returned -29.51%,
including the impact of the maximum sales charge, and -25.21% without the sales
charge. The Fund underperformed its benchmark, the Salomon Smith Barney EMI
World ex-US index, which returned -7.29%, and its peer group (as measured by
the Lipper International Small-Cap Funds average), which returned -12.13%. It
should be noted that the benchmark index and Lipper category do not reflect
sales charges.

Q:   HOW WERE MARKET CONDITIONS?

A:   It was another difficult year for global equity markets, as concerns about
global growth prospects and increasing political tensions between the US and
Iraq encouraged investors to seek safety in government bonds. Throughout the
year, smaller companies generally outperformed their larger counterparts, but
performance was still largely negative.

Q:   WHAT FACTORS AFFECTED PERFORMANCE?

A:   Continental Europe continued to be the Fund's largest exposure throughout
the year, and the region again proved to be a difficult environment for equity
investors. In particular, growth stocks in Europe, an area in which the Fund
has significant positions, performed poorly as valuations continued to decline.

The Fund also suffered from its exposure to growth stocks in the UK, despite
retaining an underweight position in this market. Following a period of strong
performance in the early part of the year, the Fund's holding in Alliance
Unichem, a UK pharmaceutical retailer, suffered as investors switched away from
defensive sectors. Two other big negative contributors were Fitness First and
the software company, Game Group, which fell sharply following unexpected
profit warnings.

In addition, holdings in Japan, a market in which we maintained an overweight
throughout the year, also negatively impacted performance. Japan enjoyed a
period of outperformance in the early part of the year, but ended 2002 with a
difficult quarter that eroded much of this performance. Financial and cyclical
stocks were hit hard as investors fled to the safety of more defensive sectors.
Although Japanese smaller company stocks outperformed the overall market, the
Fund suffered from a number of stock-specific events. For example, Konami
Sports, Japan's largest fitness group and a Fund holding, saw persistent poor
performance due to ongoing weak data for the stock. We later sold the stock and
added to Tokyo Style, a cash-rich apparel maker that has recently become more
shareholder-friendly.

Q:   WHAT CHANGES WERE MADE TO THE PORTFOLIO OVER THE YEAR?

A:   In an effort to increase the diversification of the portfolio, we entered
into the Austrian market via Telekom Austria and took positions in Greece based
on the expectation that the region will benefit from hosting the 2004 Olympic
Games. We also took positions in the Scandinavian market via Swedish Match
(tobacco) and Instrumentarium, a Finnish medical technology company. In
addition, we established an exposure to what we see as a relatively low-risk
and attractively valued market in New Zealand, purchasing a stake in Fisher &
Paykel Appliances, a household appliance distributor.

Q:   WHAT IS YOUR OUTLOOK FOR 2003?

A:   Moving into 2003, our short-term outlook is that equities may be weaker as
concerns continue to grow about the growing threat of war with Iraq. Looking to
the medium-term, we are still broadly positive but continue to be cautious
about the outlook for smaller-capitalization stocks, as we believe that an
improving global economic outlook will initially favor larger, more liquid
stocks. In the longer term, however, we are optimistic about the chances for
solid performance from the sector.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
manager and are current only through the end of the period of the report as
stated on the cover. The manager's views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


16




AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002



SHARE CLASS/                                                                                SINCE
NASDAQ SYMBOL                                         1 YEAR      5 YEARS      10 YEARS   INCEPTION
- -------------                                        --------     -------      --------   ---------
                                                                           
A SHARES          w/Reimb. & 5.75% sales charge      (29.51)%     (6.93)%        N/A       (7.88)%
IYSAX             w/o Reimb. & 5.75% sales charge    (31.24)%     (9.66)%        N/A      (10.41)%

B SHARES          w/Reimb. & w/ 5.00% CDSC           (29.46)%     (6.88)%        N/A       (7.81)%
IYSBX             w/Reimb. & w/o 5.00% CDSC          (25.75)%     (6.50)%        N/A       (7.65)%
                  w/o Reimb. & w/ 5.00% CDSC         (31.24)%     (9.58)%        N/A      (10.25)%
                  w/o Reimb. & w/o 5.00% CDSC        (27.61)%     (9.21)%        N/A      (10.10)%

C SHARES          w/Reimb. & w/ 1.00% CDSC           (26.37)%     (6.45)%        N/A       (7.60)%
IYSCX             w/Reimb. & w/o 1.00% CDSC          (25.62)%     (6.45)%        N/A       (7.60)%
                  w/o Reimb. & w/ 1.00% CDSC         (28.20)%     (9.33)%        N/A      (10.24)%
                  w/o Reimb. & w/o 1.00% CDSC        (27.47)%     (9.33)%        N/A      (10.24)%

ADVISOR SHARES    w/Reimb.                           (24.91)%        N/A         N/A      (11.85)%
IYSVX             w/o Reimb.                         (26.72)%        N/A         N/A      (14.05)%


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A, Class B and Class C commenced operations January 1, 1997; Advisor Class
commenced operations July 1, 1999.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Small Companies
Fund will fluctuate and at redemption shares may be worth more or less than the
amount of the original investment.

PERFORMANCE OVERVIEW



          Performance Comparison of the Fund Since Inception (1/97) of
                              a $10,000 Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                                         Ivy                   Salomon
                                     International          Smith Barney
                                        Small                 EMI World
                                      Companies                ex-US
                                        Fund                   Index
                                     -------------          ------------
                                                        
             02-Jan-97                   9425                   10000
             31-Jan-97                   9585                    9784
             28-Feb-97                   9566                    9948
             31-Mar-97                   9510                    9817
             30-Apr-97                   9331                    9670
             31-May-97                   9548                   10290
             30-Jun-97                   9783                   10522
             31-Jul-97                   9849                   10363
             31-Aug-97                   9274                    9921
             30-Sep-97                   9472                   10097
             31-Oct-97                   8803                    9698
             30-Nov-97                   8369                    9265
             31-Dec-97                   8245                    9060
             31-Jan-98                   8369                    9438
             28-Feb-98                   8997                   10142
             31-Mar-98                   9682                   10619
             30-Apr-98                   9701                   10700
             31-May-98                   9502                   10899
             30-Jun-98                   9102                   10581
             31-Jul-98                   8873                   10508
             31-Aug-98                   7674                    9220
             30-Sep-98                   7740                    8980
             31-Oct-98                   8092                    9614
             30-Nov-98                   8616                    9922
             31-Dec-98                   8677                   10162
             31-Jan-99                   8124                   10131
             28-Feb-99                   8502                    9934
             31-Mar-99                   8764                   10307
             30-Apr-99                   9385                   10864
             31-May-99                   9162                   10580
             30-Jun-99                   9540                   10941
             31-Jul-99                   9782                   11350
             31-Aug-99                   9695                   11525
             30-Sep-99                   9559                   11498
             31-Oct-99                   9588                   11383
             30-Nov-99                  10596                   11772
             31-Dec-99                  12100                   12548
           31-Jan-2000                  12547                   12238
           29-Feb-2000                  14481                   12751
           31-Mar-2000                  14491                   12802
           30-Apr-2000                  13733                   12022
           31-May-2000                  13130                   11814
           30-Jun-2000                  13898                   12579
           31-Jul-2000                  14190                   12148
           31-Aug-2000                  14977                   12522
           30-Sep-2000                  14666                   11918
           31-Oct-2000                  13743                   11262
           30-Nov-2000                  12732                   10801
           31-Dec-2000                  12697                   11254
           31-Jan-2001                  12967                   11364
           28-Feb-2001                  12048                   10925
           31-Mar-2001                  10579                   10061
           30-Apr-2001                  10969                   10779
           31-May-2001                  11069                   10754
           30-Jun-2001                   9620                   10369
           31-Jul-2001                   8971                   10097
           31-Aug-2001                   8761                   10062
           30-Sep-2001                   7463                    8770
           31-Oct-2001                   8002                    9131
           30-Nov-2001                   8202                    9481
           31-Dec-2001                   8170                    9494
           31-Jan-2002                   7800                    9276
           28-Feb-2002                   7590                    9449
           31-Mar-2002                   8060                   10064
           30-Apr-2002                   8270                   10267
           31-May-2002                   8480                   10650
           30-Jun-2002                   7890                   10265
           31-Jul-2002                   7200                    9368
           31-Aug-2002                   6900                    9303
           30-Sep-2002                   6050                    8457
           31-Oct-2002                   5890                    8614
           30-Nov-2002                   6140                    8926
           31-Dec-2002                   6110                    8801


The Salomon Smith Barney EMI World ex-US Index is an unmanaged index of stocks
which assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

COUNTRY BREAKDOWN          12/31/02




                           % of Total Net Assets
                        
1.  Japan                           22%
2.  United Kingdom                  11%
3.  Spain                           11%
4.  Switzerland                      7%
5.  France                           6%
6.  Netherlands                      5%
7.  Italy                            5%
8.  Australia                        4%
9.  Austria                          4%
10. Germany                          4%
11. Belgium                          4%
12. Hong Kong                        3%
13. Ireland                          3%
14. Finland                          3%
15. South Korea                      2%
16. Greece                           2%
17. Sweden                           2%
18. New Zealand                      1%


SECTOR BREAKDOWN           12/31/02




                                % of Total Net Assets
                             
1.  Consumer Discretionary               24%
2.  Industrials                          18%
3.  Consumer Staples                     13%
4.  Healthcare                           11%
5.  Information Technology               11%
6.  Financials                           10%
7.  Materials                             7%
8.  Utilities                             4%
9.  Energy                                1%


TOP 10 HOLDINGS            12/31/02




Security                                % of Total Net Assets
                                        ---------------------
                                     
1.  Baron de Ley, S.A.                          2.6%
2.  Kobayashi Pharmaceutical Co.                2.6%
3.  OBIC Co., Ltd.                              2.5%
4.  KOA Corporation                             2.5%
5.  Mitsubishi Securities Co., Ltd.             2.5%
6.  Tokyo Style Co., Ltd.                       2.5%
7.  ASATSU-DK Inc.                              2.4%
8.  Taiyo Ink Mfg. Co., Ltd.                    2.4%
9.  Enterprise Inns plc                         2.3%
10. Tokyo Steel Manufacturing Co.               2.1%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                              17






IVY INTERNATIONAL VALUE FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH PRIMARILY THROUGH INVESTING
IN EQUITY SECURITIES TRADED IN EUROPE, THE FAR EAST AND LATIN AMERICA.

[PHOTO]

Note: Ivy International Value Fund was managed by Moira McLachlan and the Ivy
International Equities team until December 16th, 2002. At right, she discusses
factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice
President of Waddell & Reed Ivy Investment Company, assumed management of Ivy
International Value Fund on December 17th, 2002. He discusses how the Fund is
positioned going forward.

LIPPER CATEGORY

International

"We will continue to focus on what we believe are companies with impressive
management, good cash flow, attractive dividend yields and strong balance sheets
in situations where we believe the companies' underlying assets are
undervalued."

Q:   MOIRA, HOW DID IVY INTERNATIONAL VALUE FUND PERFORM IN 2002?

A:   For 2002, Ivy International Value Fund returned -20.77%, including the
impact of the maximum sales charge, and -15.93% without the sales charge. This
compares to the Fund's benchmark, the MSCI EAFE Index, which returned -15.94%,
and its peer group (as measured by the Lipper International Funds average),
which returned -16.67%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q:   HOW WERE MARKET CONDITIONS?

A:   Market conditions were exceptionally volatile. Value stocks continued to
outperform the broader market through the first half of the year. However, in
the third quarter, market leadership shifted, with value stocks underperforming
for the first time since the beginning of the bear market. This shift in
leadership was largely due to the predominance of financials and industrials
(both sectors that performed particularly poorly during the quarter) in the
value universe.

Q:   WHAT FACTORS AFFECTED PERFORMANCE?

A:   The Fund's French holdings made the largest positive contribution. In
addition to consumer holdings, which performed strongly, performance benefited
from outsized exposure to French banks. In contrast to the money-center banks
and the European insurers, French banks performed well.

An overweight position in basic materials also made a positive contribution.
Commodity prices changed course in 2002 after sharp declines in 2001,
contributing to strong performance for many stocks in this sector. The Fund's
positions in commodity producers realized solid gains. To help offset
volatility, we also maintained a substantial overweight in consumer staples,
which helped performance.

Unfortunately, what we got right in 2002 was largely offset by what we got
wrong. A combination of poor stock selection in Japan and an underweight in that
market hurt performance. Throughout the year, we maintained the underweight
position in Japan based on our belief that periodic market rallies would be
short-lived, as we felt little was being done to address the country's
underlying structural problems. Despite the host of problems the Japanese
economy faces, its stock market proved considerably more resilient than other
major markets in 2002.

Q:   THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD?

A:   In mid-2002, the Fund responded to higher financial market uncertainties
by focusing on higher quality companies that were still reasonably priced.
Going forward, we will continue to focus on what we believe are companies with
impressive management, good cash flow, attractive dividend yields and strong
balance sheets in situations where we believe the companies' underlying assets
are undervalued.

Q:   What is your outlook for 2003?

A:   Global equity markets are expected to remain volatile as investors
continue to monitor corporate, financial, economic and geopolitical issues.
Despite a high level of financial market uncertainty early in the year, we feel
that consensus earnings expectations need to be reduced further. Corporations
are facing higher operating costs, but generally cannot raise output prices.
Questions remain regarding U.S. employment and consumer sentiment, which is a
critical end-market for much of the world's exports.

Consumer demand is extremely weak in core Europe, and appears to be finally
moderating in the faster-pace economies of Britain, Canada, South Korea and
Australia where, as in the United States, spectacular housing demand has been a
significant economic boost. We believe there is some potential for further
interest rate cuts, especially in Continental Europe where economic growth has
stalled and inflation trends could potentially improve before mid-year. Asian
economies are relatively better positioned for domestic growth, and regional
trade remains impressive. Weak capital spending plans are restraining global
growth, a combined result of excess high-tech capacity and Iraqi war concerns.
There is hope that visibility will soon improve for these two important
business and sentiment issues.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.

18





AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002



SHARE CLASS/                                                                                 SINCE
NASDAQ SYMBOL                                          1 YEAR      5 YEARS     10 YEARS    INCEPTION
- -------------                                         -------      -------     --------    ---------
                                                                            
A SHARES          w/Reimb. & 5.75% sales charge       (20.77%)     (3.67%)        N/A       (5.11%)
IVIAX             w/o Reimb. & 5.75% sales charge     (21.26%)     (3.97%)        N/A       (5.37%)

B SHARES          w/Reimb. & w/ 5.00% CDSC            (22.48%)     (4.07%)        N/A       (5.38%)
IIFBX             w/Reimb. & w/o 5.00% CDSC           (18.39%)     (3.68%)        N/A       (5.21%)
                  w/o Reimb. & w/ 5.00% CDSC          (22.97%)     (4.37%)        N/A       (5.64%)
                  w/o Reimb. & w/o 5.00% CDSC         (18.91%)     (3.99%)        N/A       (5.48%)

C SHARES          w/Reimb. & w/ 1.00% CDSC            (19.21%)     (3.69%)        N/A       (5.22%)
IVIFX             w/Reimb. & w/o 1.00% CDSC           (18.39%)     (3.69%)        N/A       (5.22%)
                  w/o Reimb. & w/ 1.00% CDSC          (19.72%)     (4.00%)        N/A       (5.49%)
                  w/o Reimb. & w/o 1.00% CDSC         (18.91%)     (4.00%)        N/A       (5.49%)

ADVISOR SHARES    w/Reimb.                            (17.51%)       N/A          N/A       (4.08%)
IVIVX             w/o Reimb.                          (18.02%)       N/A          N/A       (4.45%)



CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A, Class B and Class C commenced operations May 13, 1997; Advisor Class
commenced operations February 23, 1998. Total returns in some periods were
higher due to reimbursement of certain Fund expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Value Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW

           Performance Comparison of the Fund Since Inception (5/97)
                             of a $10,000 Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                                            Ivy
                                        International               MSCI
                                            Value                   EAFE
                                            Fund                    Index
                                        -------------               -----
                                                              
             13-May-97                      9425                    10000
             31-May-97                      9538                    10651
             30-Jun-97                      9660                    11238
             31-Jul-97                      9896                    11420
             31-Aug-97                      9001                    10567
             30-Sep-97                      9604                    11159
             31-Oct-97                      8615                    10301
             30-Nov-97                      8427                    10196
             31-Dec-97                      8455                    10285
             31-Jan-98                      8540                    10756
             28-Feb-98                      9256                    11446
             31-Mar-98                      9783                    11798
             30-Apr-98                      9868                    11892
             31-May-98                      9783                    11834
             30-Jun-98                      9472                    11923
             31-Jul-98                      9434                    12044
             31-Aug-98                      7806                    10552
             30-Sep-98                      7740                    10229
             31-Oct-98                      8427                    11295
             30-Nov-98                      9001                    11874
             31-Dec-98                      9016                    12342
             31-Jan-99                      8940                    12305
             28-Feb-99                      8854                    12012
             31-Mar-99                      9225                    12514
             30-Apr-99                     10062                    13021
             31-May-99                      9700                    12350
             30-Jun-99                     10043                    12832
             31-Jul-99                     10224                    13213
             31-Aug-99                     10290                    13261
             30-Sep-99                     10138                    13395
             31-Oct-99                     10185                    13896
             30-Nov-99                     10490                    14379
             31-Dec-99                     11521                    15670
           31-Jan-2000                     10599                    14674
           29-Feb-2000                     10676                    15069
           31-Mar-2000                     11127                    15653
           30-Apr-2000                     10695                    14830
           31-May-2000                     10551                    14467
           30-Jun-2000                     11050                    15033
           31-Jul-2000                     10791                    14403
           31-Aug-2000                     10877                    14528
           30-Sep-2000                     10301                    13821
           31-Oct-2000                     10157                    13494
           30-Nov-2000                     10022                    12988
           31-Dec-2000                     10686                    13450
           31-Jan-2001                     10647                    13454
           28-Feb-2001                     10016                    12448
           31-Mar-2001                      9181                    11603
           30-Apr-2001                      9706                    12399
           31-May-2001                      9618                    11941
           30-Jun-2001                      9346                    11450
           31-Jul-2001                      9123                    11276
           31-Aug-2001                      9094                    10990
           30-Sep-2001                      7929                     9877
           31-Oct-2001                      8182                    10130
           30-Nov-2001                      8648                    10503
           31-Dec-2001                      8851                    10566
           31-Jan-2002                      8423                    10004
           28-Feb-2002                      8432                    10075
           31-Mar-2002                      8860                    10620
           30-Apr-2002                      8929                    10690
           31-May-2002                      9036                    10825
           30-Jun-2002                      8763                    10394
           31-Jul-2002                      7761                     9368
           31-Aug-2002                      7791                     9347
           30-Sep-2002                      6769                     8343
           31-Oct-2002                      7188                     8792
           30-Nov-2002                      7703                     9191
           31-Dec-2002                      7440                     8882


The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East
(EAFE) Index is an unmanaged index of stocks which assumes reinvestment of
dividends and, unlike Fund returns, does not reflect any fees or expenses. It is
not possible to invest in an index.

Past performance does not guarantee future results. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

COUNTRY BREAKDOWN          12/31/02



                          % of Total Net Assets
                                 
1.  United Kingdom                  20%
2.  Japan                           15%
3.  France                          10%
4.  Switzerland                      9%
5.  Germany                          9%
6.  Netherlands                      6%
7.  South Korea                      4%
8.  Australia                        4%
9.  Hong Kong                        4%
10. Spain                            4%
11. Italy                            4%
12. Mexico                           3%
13. Brazil                           2%
14. Ireland                          2%
15. Finland                          2%


SECTOR BREAKDOWN           12/31/02



                                   % of Total Net Assets
                                
1.  Financials                              26%
2.  Industrials                             13%
3.  Consumer Discretionary                  11%
4.  Materials                               10%
5.  Consumer Staples                         9%
6.  Energy                                   8%
7.  Telecommunication Services               8%
8.  Information Technology                   5%
9.  Utilities                                4%
10. Healthcare                               4%


TOP 10 HOLDINGS            12/31/02



Security                             % of Total Net Assets
                                  
1.  Vodafone AirTouch plc                     2.9%
2.  ENI S.p.A.                                2.6%
3.  Rio Tinto plc                             2.5%
4.  Canon Inc.                                2.5%
5.  BHP Ltd.                                  2.4%
6.  Schneider SA                              2.3%
7.  Novartis AG                               2.2%
8.  Bank of Ireland                           2.2%
9.  Societe Generale                          2.2%
10. UBS AG                                    2.1%


The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.

                                                                              19

IVY PACIFIC OPPORTUNITIES FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH BY INVESTING IN SECURITIES
TRADED IN PACIFIC REGION MARKETS. EXAMPLES OF PACIFIC REGION COUNTRIES INCLUDE
AUSTRALIA, CHINA, HONG KONG, INDIA, KOREA, SINGAPORE, SRI LANKA AND TAIWAN.

[PHOTO]  Note: Ivy Pacific Opportunities Fund was managed by Moira McLachlan and
the Ivy International Equities team until December 16th, 2002. At right, she
discusses factors relating to Fund performance in 2002. Thomas A. Mengel, Senior
Vice President of Waddell & Reed Ivy Investment Company, assumed management of
Ivy Pacific Opportunities Fund on December 17th, 2002. He discusses how the Fund
is positioned going forward.

LIPPER CATEGORY

Pacific ex-Japan

"We feel that Asian economies are better positioned for domestic growth than
many other markets, and regional trade remains impressive. We believe that our
refocusing of the Fund will allow us to take better advantage of investment
opportunities in the region as we move forward."

Q:  MOIRA, HOW DID IVY PACIFIC OPPORTUNITIES FUND PERFORM IN 2002?

A:  For 2002, Ivy Pacific Opportunities Fund returned -16.41%, including the
impact of the maximum sales charge, and -11.31% without the sales charge. The
Fund underperformed its benchmark, the MSCI Asia Pacific Free Ex-Japan index,
which returned -5.09%, and its peer group (as measured by the Lipper Pacific
Ex-Japan Funds average), which returned -7.98%. It should be noted that the
benchmark index and Lipper category do not reflect sales charges.

Q:  HOW WERE MARKET CONDITIONS?

A:  While ex-Japan Asia was a relative outperformer in 2002, most regional stock
markets finished the year in negative territory. Stocks were depressed by
sluggish economic growth and turmoil in the US and European markets. The major
Asian markets fell heavily, with Hong Kong, Singapore and Taiwan all posting
double-digit declines. However, a number of the smaller, more speculative
markets posted gains. Despite a sharp sell-off after the Bali disco bombing, the
Indonesia market ended the year in positive territory. The Thai market gained
around 17% and the Pakistani market was up over 100%.

Q:  WHAT FACTORS AFFECTED PERFORMANCE?

A:  An overweight position in Taiwanese technology stocks had a negative impact
on performance. These stocks performed strongly in the last quarter of 2001 and
into the first quarter of 2002. However, they then sold off sharply as investors
worried about a recovery in end-user demand. While we locked in some gains early
in the year, performance suffered from not cutting the Fund's exposure further
than we did.

The Fund's exposure to Hong Kong financials also hurt performance. Interest rate
sensitive stocks in Hong Kong -- banks and property stocks -- came under
pressure as investors worried that an Argentine-style default in Brazil would
prove the final blow to the Hong Kong dollar's peg to the US currency.

Stock selection in Australia made the most significant positive contribution to
performance. As commodity prices recovered from the sharp declines of 2001, the
Fund benefited from overweight positions in commodity producers. The Fund also
benefited from exposure to Australian banks, which did not suffer the
credit-quality problems plaguing other developed-market banks.

In South Korea, performance benefited from both an overweight position and good
stock selection. The Korean market performed well due to financial sector
reform, attractive valuations and strong growth in domestic consumption. Korean
exporters also posted solid gains as a result, in part, of strong demand from
China.

Q:  THOMAS, WHAT IS YOUR STRATEGY GOING FORWARD?

A:  The Fund will likely be less concentrated in the future, as we increase the
number of holdings and thereby reduce the average weighting of each stock. Along
with this broader dispersion, we will reduce exposure to the technology sector
in an effort to reduce volatility. We intend to concentrate on the core Asian
markets of Hong Kong, China, South Korea, Australia and Taiwan, with particular
focus on industry leaders that we believe benefit most from the continued
Chinese dominance of business demand in the region. During our gradual process
of restructuring this Fund its cash position may be slightly higher than what we
would consider normal, but only until the transition is completed.

Q:  WHAT IS YOUR OUTLOOK FOR THE REGION?

A:  Global equity markets are expected to remain volatile as investors continue
to monitor corporate, financial, economic and geopolitical issues. However, we
feel that Asian economies are better positioned for domestic growth than many
other markets, and regional trade remains impressive. We believe that our
refocusing of the Fund will allow us to take better advantage of investment
opportunities in the region as we move forward.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


20


AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002





SHARE CLASS/                                                                                     SINCE
NASDAQ SYMBOL                                             1 YEAR        5 YEARS     10 YEARS     INCEPTION
- -------------                                             ------        -------     --------     ---------
                                                                                     
A SHARES          w/Reimb. & 5.75% sales charge          (16.41%)      (6.29%)        N/A        (5.41%)
 IPOAX              w/o Reimb. & 5.75% sales charge      (17.56%)      (7.25%)        N/A        (6.10%)

B SHARES          w/Reimb. & w/ 5.00% CDSC               (16.73%)      (6.43%)        N/A        (5.60%)
 IPOBX              w/Reimb. & w/o 5.00% CDSC            (12.35%)      (6.05%)        N/A        (5.60%)
                    w/o Reimb. & w/ 5.00% CDSC           (17.92%)      (7.36%)        N/A        (6.27%)
                    w/o Reimb. & w/o 5.00% CDSC          (13.59%)      (6.98%)        N/A        (6.27%)

C SHARES          w/Reimb. & w/ 1.00% CDSC               (13.09%)      (5.97%)        N/A        (6.84%)
 IPOCX              w/Reimb. & w/o 1.00% CDSC            (12.21%)      (5.97%)        N/A        (6.84%)
                    w/o Reimb. & w/ 1.00% CDSC           (14.33%)      (6.90%)        N/A        (7.56%)
                    w/o Reimb. & w/o 1.00% CDSC          (13.46%)      (6.90%)        N/A        (7.56%)

ADVISOR SHARES    w/Reimb.                               (11.84%)       N/A           N/A        (5.41%)
 IPOVX              w/o Reimb.                           (13.08%)       N/A           N/A        (6.18%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A and Class B commenced operations October 22, 1993; Class C commenced
operations April 30, 1996; Advisor Class commenced operations February 10, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Pacific Opportunities Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW

    Performance Comparison of the Fund Since Inception (10/93) of a $10,000
                                   Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)



                          IVY  PACIFIC     MSCI ASIA PACIFIC FREE
                       OPPORTUNITIES FUND  (EXCLUDING JAPAN) INDEX



           25-Oct-93         9425                   10000
           31-Oct-93         9652                   10000
           30-Nov-93         9685                    9788
           31-Dec-93        10900                   11878
           31-Jan-94        10426                   11493
           28-Feb-94         9837                   10977
           31-Mar-94         9011                    9872
           30-Apr-94         9111                   10255
           31-May-94         9392                   10669
           30-Jun-94         8905                   10269
           31-Jul-94         9309                   10799
           31-Aug-94         9647                   11597
           30-Sep-94         9624                   11303
           31-Oct-94         9431                   11519
           30-Nov-94         8620                   10622
           31-Dec-94         8188                   10419
           31-Jan-95         7289                    9471
           28-Feb-95         7760                   10150
           31-Mar-95         7927                   10137
           30-Apr-95         7732                   10191
           31-May-95         8452                   11021
           30-Jun-95         8352                   10858
           31-Jul-95         8825                   11218
           31-Aug-95         8506                   10843
           30-Sep-95         8722                   10937
           31-Oct-95         8545                   10753
           30-Nov-95         8244                   10600
           31-Dec-95         8318                   11053
           31-Jan-96         9247                   11792
           29-Feb-96         9189                   11969
           31-Mar-96         9044                   12035
           30-Apr-96         9160                   12486
           31-May-96         9209                   12342
           30-Jun-96         9121                   12136
           31-Jul-96         8782                   11341
           31-Aug-96         8966                   11758
           30-Sep-96         9063                   11924
           31-Oct-96         9131                   11840
           30-Nov-96         9731                   12378
           31-Dec-96        10023                   12339
           31-Jan-97         9935                   12457
           28-Feb-97        10081                   12588
           31-Mar-97         9682                   12006
           30-Apr-97        10198                   11926
           31-May-97        10967                   12413
           30-Jun-97        11356                   12866
           31-Jul-97        11736                   12930
           31-Aug-97        11463                   10924
           30-Sep-97        11210                   11004
           31-Oct-97         8495                    8795
           30-Nov-97         7970                    8296
           31-Dec-97         7824                    8119
           31-Jan-98         6529                    7750
           28-Feb-98         7989                    8924
           31-Mar-98         7795                    8829
           30-Apr-98         7191                    8238
           31-May-98         6267                    7209
           30-Jun-98         5498                    6634
           31-Jul-98         5060                    6527
           31-Aug-98         4350                    5596
           30-Sep-98         4953                    6071
           31-Oct-98         6053                    7133
           30-Nov-98         6286                    7668
           31-Dec-98         6215                    7760
           31-Jan-99         5732                    7832
           28-Feb-99         5653                    7672
           31-Mar-99         6176                    8377
           30-Apr-99         7320                    9700
           31-May-99         7162                    9294
           30-Jun-99         8692                   10464
           31-Jul-99         8366                   10302
           31-Aug-99         8484                   10335
           30-Sep-99         7991                    9796
           31-Oct-99         8090                    9974
           30-Nov-99         8800                   10812
           31-Dec-99         9119                   11627
           31-Jan-00         9009                   11467
           29-Feb-00         8631                   11219
           31-Mar-00         9488                   11404
           30-Apr-00         8969                   10538
           31-May-00         8551                    9750
           30-Jun-00         9189                   10454
           31-Jul-00         9448                    9969
           31-Aug-00         9169                    9928
           30-Sep-00         8312                    8948
           31-Oct-00         7485                    8276
           30-Nov-00         7116                    8083
           31-Dec-00         7455                    8143
           31-Jan-01         8198                    9021
           28-Feb-01         7565                    8599
           31-Mar-01         6932                    7646
           30-Apr-01         6993                    7870
           31-May-01         6832                    7858
           30-Jun-01         6731                    7786
           31-Jul-01         6450                    7477
           31-Aug-01         6219                    7407
           30-Sep-01         5174                    6306
           31-Oct-01         5566                    6707
           30-Nov-01         6279                    7499
           31-Dec-01         6762                    7945
         31-Jan-2002         6883                    8178
         28-Feb-2002         6984                    8234
         31-Mar-2002         7225                    8710
         30-Apr-2002         7346                    8744
         31-May-2002         7316                    8765
         30-Jun-2002         6994                    8339
         31-Jul-2002         6611                    7910
         31-Aug-2002         6460                    7893
         30-Sep-2002         5847                    7188
         31-Oct-2002         6128                    7565
         30-Nov-2002         6420                    7891
         31-Dec-2002         5998                    7541



The Morgan Stanley Capital International (MSCI) Asia Pacific Free
(Excluding-Japan) Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

  COUNTRY BREAKDOWN                       12/31/02

                             % of Total Net Assets

 1.  Australia                                 27%
 2.  South Korea                               22%
 3.  Hong Kong                                 21%
 4.  Taiwan                                    11%
 5.  Singapore                                  7%
 6.  India                                      7%

 SECTOR BREAKDOWN                         12/31/02

                             % of Total Net Assets

 1.  Financials                                27%
 2.  Materials                                 16%
 3.  Information Technology                    15%
 4.  Consumer Discretionary                    13%
 5.  Consumer Staples                           9%
 6. Telecommunication Services                  8%
 7. Industrials                                 7%

 TOP 10 HOLDINGS                          12/31/02

 Security                    % of Total Net Assets

 1.  POSCO                                    5.8%
 2.  BHP Limited                              4.9%
 3.  Rio Tinto Ltd.                           4.9%
 4.  Westpac Banking Corp. Ltd.               4.6%
 5.  Samsung Electronics                      4.4%
 6.  Hyundai Motor Co., Ltd.                  4.4%
 7.  Australia & New Zealand Banking          4.3%
 8.  Hero Honda Motors Ltd.                   4.1%
 9.  Cathay Pacific Airways                   4.0%
10.  Sun Hung Kai Properties Ltd.             3.7%

The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.

                                                                              21



IVY GROWTH FUND

The Fund's goal: to provide long-term capital growth by investing in US
companies of any size.

[PHOTO]  Note: Ivy Growth Fund utilized a dual management approach until
         December 16th, 2002. The large-cap portion was managed by Paul Baran,
         while the small/mid-cap portion was managed by James W. Broadfoot. At
         right, they discuss factors relating to Fund performance in 2002.
         Antonio Intagliata, Senior Vice President of Waddell & Reed Ivy
         Investment Company, assumed management of Ivy Growth Fund on December
         17th, 2002. He discusses how the Fund is positioned going forward.

LIPPER CATEGORY

Multi-Cap Growth

"After a detailed analysis of the portfolio, we decided to: (1)
significantly reduce the number of holdings so that each stock would have more
of an impact on the Fund, and (2) select fewer small-cap stocks and a greater
amount of medium- and large-cap stocks."

Q:  HOW DID IVY GROWTH FUND PERFORM IN 2002?

A: For 2002, Ivy Growth Fund returned -32.78%,including the impact of the
maximum sales charge, and -28.68% without the sales charge. The Fund
underperformed its bench-mark, the Russell 3000 Growth Index, which returned
- -28.03%,and its peer group (as measured by the Lipper Multi-Cap Growth Funds
average), which returned -29.92%. It should be noted that the benchmark index
and Lipper category do not reflect sales charges.

Q:  WHAT FACTORS AFFECTED PERFORMANCE OVER THE PERIOD?

A:  Until mid-December, the Fund was divided into two portions: one consisting
of small/mid-cap stocks, and the other consisting of large-cap stocks.

Performance in the large-cap portion was negatively affected by holdings in the
technology sector. However, losses in technology were offset to a degree by
exposure to banks and other financial stocks, many of which rose in price during
the period. Certain consumer stocks also increased in price, while others
declined but still outperformed the market. This had a large positive impact on
relative performance. Our stock picks in the general energy area also had a
positive effect on performance.

Performance in the small/mid-cap portion was negatively affected by our focus on
stocks with higher expected growth rates and price-to-earnings ratios, which
underperformed more conservative, slower-growth stocks last year. Specifically,
minimal exposure to slower-growth areas such as finance, consumer staples and
materials, all of which outperformed, hurt the portfolio. An underweight in the
top-performing financials sector had the largest negative effect. Holdings in
healthcare and business services also negatively affected performance.

The portfolio's consumer-related holdings did well as they benefited from strong
consumer demand throughout most of the year. In addition, select holdings in
network security, waste management and natural gas contributed positively to
relative performance.

Q:  TONY, HOW ARE YOU POSITIONING THE PORTFOLIO GOING FORWARD?

A:   After a detailed analysis of the portfolio, we decided to: (1)
significantly reduce the number of holdings so that each stock would have more
of an impact on the Fund, and (2) select fewer small-cap stocks and a greater
amount of medium- and large-cap stocks.

In terms of sectors, while geopolitical considerations continue to make gold and
energy the two focus areas, we believe the next leadership will come from the
cyclical groups. Due to our economic and market outlook -- a weak economy,
sluggish capital spending, and modest GDP growth and equity returns -- we favor
a large exposure to healthcare, based on the sector's demographics and pricing
power. We also favor defense stocks. We believe that defense spending will
likely continue at a lower pace than 2002. However, the defense cycle is a
long-term cycle and we believe the stocks are attractive fundamentally and on a
price basis. They have visible earnings growth and have corrected recently.

We have underweighted technology, but not by a huge amount. In technology,
fundamentals are still poor, but the sector seems over-sold on a technical
basis. Oil is a risky area, but we believe that an average weight makes sense,
based on a tight supply and, eventually, an increasing global demand. Particular
emphasis should be in the natural gas area. Financials will continue to be
de-emphasized as, if expected, interest rates move up later in the year. We
believe that these strategies have the Fund well-positioned for the year ahead.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


22



AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002




SHARE CLASS/                                                                                     SINCE
NASDAQ SYMBOL                                          1 YEAR        5 YEARS     10 YEARS      INCEPTION
- -------------                                          ------        -------     --------      ---------
                                                                                
A SHARES        w/Reimb.& 5.75% sales charge          (32.78%)      (9.44%)       1.02%        8.26%
 IVYFX             w/o Reimb.& 5.75% sales charge     (32.78%)      (9.44%)       1.00%        8.26%

B SHARES        w/Reimb.& w/5.00% CDSC                (32.96%)      (9.62%)        N/A        (0.22%)
 IVYBX             w/Reimb.& w/o 5.00% CDSC           (29.43%)      (9.26%)        N/A        (0.22%)
                   w/o Reimb.& w/5.00% CDSC           (32.96%)      (9.62%)        N/A        (0.24%)
                   w/o Reimb.& w/o 5.00% CDSC         (29.43%)      (9.26%)        N/A        (0.24%)

C SHARES        w/Reimb.& w/ 1.00% CDSC               (30.29%)      (9.23%)        N/A        (4.97%)
 IVYCX             w/Reimb.& w/o 1.00% CDSC           (29.59%)      (9.23%)        N/A        (4.97%)
                   w/o Reimb.& w/1.00% CDSC           (30.29%)      (9.23%)        N/A        (4.97%)
                   w/o Reimb.& w/o 1.00% CDSC         (29.59%)      (9.23%)        N/A        (4.97%)

ADVISOR SHARES  w/Reimb.                              (28.67%)       N/A           N/A       (11.55%)
 IVYVX             w/o Reimb.                         (28.67%)       N/A           N/A       (11.55%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A commenced operations January 12,1960; Class B commenced operations
October 22,1993; Class C commenced operations April 30,1996;Advisor Class
commenced operations April 30,1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Growth Fund will fluctuate and
at redemption shares may be worth more or less than the amount of the original
investment.

PERFORMANCE OVERVIEW

          10-Year Performance Comparison of a $10,000 Investment in the Fund
           (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)

                      Ivy Growth Fund-- $11,066
                Russell 3000 Growth Index-- $18,414

                                 Ivy
                                Growth    Russell 3000
                                 Fund     Growth Index

               31-Dec-92         9425        10000
               31-Jan-93         9469         9902
               28-Feb-93         9356         9718
               31-Mar-93         9677         9910
               30-Apr-93         9381         9519
               31-May-93         9683         9869
               30-Jun-93         9670         9787
               31-Jul-93         9658         9634
               31-Aug-93        10186        10034
               30-Sep-93        10066         9994
               31-Oct-93        10363        10272
               30-Nov-93        10207        10174
               31-Dec-93        10583        10369
               31-Jan-94        11033        10612
               28-Feb-94        10824        10432
               31-Mar-94        10210         9915
               30-Apr-94        10315         9960
               31-May-94        10380        10077
               30-Jun-94         9890         9767
               31-Jul-94        10320        10082
               31-Aug-94        10925        10662
               30-Sep-94        10646        10535
               31-Oct-94        10739        10769
               30-Nov-94        10156        10416
               31-Dec-94        10269        10598
               31-Jan-95        10189        10779
               28-Feb-95        10596        11236
               31-Mar-95        10849        11564
               30-Apr-95        11087        11810
               31-May-95        11451        12197
               30-Jun-95        11772        12703
               31-Jul-95        12390        13277
               31-Aug-95        12452        13308
               30-Sep-95        12833        13885
               31-Oct-95        12442        13823
               30-Nov-95        12898        14367
               31-Dec-95        13076        14473
               31-Jan-96        13482        14896
               29-Feb-96        13779        15208
               31-Mar-96        13966        15256
               30-Apr-96        14466        15735
               31-May-96        14575        16312
               30-Jun-96        14341        16218
               31-Jul-96        13295        15161
               31-Aug-96        13896        15624
               30-Sep-96        14646        16727
               31-Oct-96        14568        16745
               30-Nov-96        15309        17926
               31-Dec-96        15328        17640
               31-Jan-97        15932        18800
               28-Feb-97        15406        18578
               31-Mar-97        14689        17546
               30-Apr-97        14767        18591
               31-May-97        16251        20051
               30-Jun-97        16761        20843
               31-Jul-97        17831        22612
               31-Aug-97        17184        21475
               30-Sep-97        18107        22599
               31-Oct-97        17020        21708
               30-Nov-97        16968        22482
               31-Dec-97        17120        22710
               31-Jan-98        17024        23295
               28-Feb-98        18428        25075
               31-Mar-98        19322        26079
               30-Apr-98        19582        26421
               31-May-98        19034        25562
               30-Jun-98        19361        27011
               31-Jul-98        18688        26648
               31-Aug-98        15225        22472
               30-Sep-98        16062        24240
               31-Oct-98        17014        26135
               30-Nov-98        18515        28126
               31-Dec-98        19526        30663
               31-Jan-99        20076        32432
               28-Feb-99        18838        30841
               31-Mar-99        19654        32428
               30-Apr-99        20371        32664
               31-May-99        19889        31739
               30-Jun-99        21156        33920
               31-Jul-99        20764        32844
               31-Aug-99        20960        33252
               30-Sep-99        20970        32644
               31-Oct-99        22247        34995
               30-Nov-99        23474        37004
               31-Dec-99        25748        41034
               31-Jan-00        25039        39221
               29-Feb-00        27910        41671
               31-Mar-00        29038        44028
               30-Apr-00        26050        41763
               31-May-00        24214        39554
               30-Jun-00        27085        42692
               31-Jul-00        25667        40781
               31-Aug-00        28201        44513
               30-Sep-00        25667        40436
               31-Oct-00        23621        38427
               30-Nov-00        19099        32675
               31-Dec-00        20004        31836
               31-Jan-01        21059        34062
               28-Feb-01        18015        28358
               31-Mar-01        16425        25309
               30-Apr-01        18429        28502
               31-May-01        18242        28162
               30-Jun-01        17841        27621
               31-Jul-01        17026        26813
               31-Aug-01        15678        24654
               30-Sep-01        13634        22091
               31-Oct-01        14316        23310
               30-Nov-01        15437        25530
               31-Dec-01        15517        25588
             31-Jan-2002        15103        25104
             28-Feb-2002        14140        24023
             31-Mar-2002        14982        24937
             30-Apr-2002        13940        23005
             31-May-2002        13512        22391
             30-Jun-2002        12483        20331
             31-Jul-2002        11414        19075
             31-Aug-2002        11481        19128
             30-Sep-2002        10532        17182
             31-Oct-2002        11280        18712
             30-Nov-2002        11788        19781
             31-Dec-2002        11066        18414

The Russell 3000 Growth Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

 SECTOR BREAKDOWN                                  12/31/02

                                      % of Total Net Assets

 1.  Healthcare                                         16%
 2.  Information Technology                             14%
 3.  Financials                                         12%
 4.  Consumer Discretionary                             10%
 5.  Industrials                                        10%
 6.  Energy                                              6%
 7.  Consumer Staples                                    6%
 8.  Telecommunication Services                          1%

 TOP 10 HOLDINGS                                   12/31/02

 Security                              % of Total Net Assets

 1.  S&P 500 Depository Receipts                       3.0%
 2.  Microsoft Corporation                             2.2%
 3.  General Electric Company                          1.9%
 4.  Wal-Mart Stores, Inc.                             1.9%
 5.  Cisco Systems, Inc.                               1.6%
 6.  Pfizer Inc.                                       1.6%
 7.  Exxon Mobil Corporation                           1.5%
 8.  American International Group                      1.3%
 9.  International Business Machines                   1.1%
10.  Merck & Co., Inc.                                 1.1%

The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be
representative of the Fund's current or future investments.


                                                                              23




IVY US BLUE CHIP FUND

The Fund's goal: to provide long-term capital growth primarily by investing in
common stocks of established domestic companies that either hold a leading
industry position or that are expected to do so in the future.

[PHOTO]   An interview with Paul Baran, portfolio manager of the Ivy US Blue
          Chip Fund.

NOTE: EFFECTIVE FEBRUARY 2003, IVY US BLUE CHIP FUND WILL BE MANAGED BY JIM
WINELAND OF WADDELL & Reed Ivy Investment Company.

LIPPER CATEGORY

Large-Cap Core

"We believe that most, if not all, of the corporate excesses have been wrung out
after three years of declines. We think we'll see higher earnings growth and
modest GDP growth in the year ahead."

Q:  PAUL, HOW DID IVY US BLUE CHIP FUND PERFORM IN 2002?

A: For 2002, Ivy US Blue Chip Fund returned -26.29%,including the impact of the
maximum sales charge, and -21.79% without the sales charge. This compares to the
Fund's benchmark, the S&P 500 Index, which returned -22.10%,and its peer group
(as measured by the Lipper Large-Cap Core Funds average), which returned
- -23.48%. It should be noted that the benchmark index and the Lipper category do
not reflect sales charges.

Q:  HOW WERE MARKET CONDITIONS?

A: Last year saw a continuation of the bear market that began in early 2000, and
it also marked the first time since 1939 that the US experienced three
consecutive years of declining markets. Weak economic conditions and the boom in
financial fraud negatively affected corporate earnings, which, in turn, caused
the market to reprice itself lower.

Q:  WHAT FACTORS AFFECTED PERFORMANCE?

A: Given the challenging market environment, we took steps to help reduce risk
and improve performance. First, we increased the number of holdings in an effort
to minimize the effect of any individual stock. Second, we actively traded by
taking gains when appropriate and making purchases when we felt stocks were
unfairly punished. These strategies, combined with our avoidance of "disaster
stocks" in high-profile companies that experienced financial scandals, were the
primary factors driving performance.

Unfortunately, the Fund still showed a negative return for the year, with
performance impacted by a few factors. Investments in the technology sector had
the largest negative effect. Holdings such as Texas Instruments, Applied
Materials and Intel all declined further than the market. AOL Time Warner also
hurt performance, as did Home Depot, Schering-Plough and Bristol Myers.

On the positive side, performance benefited from holdings in the banking sector,
many of which rose in price during the period. Certain consumer stocks, such as
Procter & Gamble and Anheuser Busch, also increased in price, while others --
Wal-Mart, PepsiCo and Philip Morris -- declined but still outperformed the
market. This had a large positive impact on performance relative to the
benchmark. In addition, underexposure to the troubled electricity merchant-area
helped performance, as did our stock picks in the general energy area.

Q:  WHAT CHANGES WERE MADE TO THE PORTFOLIO?

A: Throughout the year, we increased exposure to defense-related companies, many
of which did well in anticipation of a possible war with Iraq. Lockheed Martin
and United Technologies both outperformed the market and contributed positively
to performance. In terms of general strategy, we adhered to our long-term
approach of staying fully invested and sector-neutral. Our focus remained on
stock selection and, unlike many of the Fund's competitors, Ivy US Blue Chip
Fund did not hold large amounts of cash.

Q:  WHAT IS YOUR OUTLOOK GOING FORWARD?

A: We are optimistic as we enter 2003. Interest rates are unlikely to rise, and
we believe that most, if not all, of the corporate excesses have been wrung out
after three years of declines. We think we'll see higher earnings growth and
modest GDP growth in the year ahead. In our opinion, all of these factors, as
well as recent government proposals for tax reform, could lead to better equity
returns in 2003. As markets settle during the year, we may reduce the number of
holdings and increase our weightings on attractive stocks. We also intend to
continue to stay fully invested, sector-neutral and focused on stock selection.
In our view, these steps have the Fund well positioned for 2003.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
manager and are current only through the end of the period of the report as
stated on the cover. The manager's views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


24

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002




 SHARE CLASS/                                                                                   SINCE
 NASDAQ SYMBOL                                         1 YEAR     5 YEARS       10 YEARS      INCEPTION
 -------------                                         ------     -------       --------      ---------
                                                                              
 A SHARES         w/Reimb.& 5.75% sales charge        (26.29%)       N/A          N/A        (8.07%)
  IBCAX             w/o Reimb.& 5.75% sales charge    (26.67%)       N/A          N/A        (8.79%)

 B SHARES         w/Reimb.& w/ 5.00% CDSC             (26.27%)       N/A          N/A        (8.53%)
  IBCBX             w/Reimb.& w/o 5.00% CDSC          (22.39%)       N/A          N/A        (8.08%)
                    w/o Reimb.& w/ 5.00% CDSC         (26.66%)       N/A          N/A        (9.27%)
                    w/o Reimb.& w/o 5.00% CDSC        (22.79%)       N/A          N/A        (8.80%)

 C SHARES         w/Reimb.& w/ 1.00% CDSC             (23.19%)       N/A          N/A        (8.11%)
  IBCCX             w/Reimb.& w/o 1.00% CDSC          (22.42%)       N/A          N/A        (8.11%)
                    w/o Reimb.& w/ 1.00% CDSC         (23.59%)       N/A          N/A        (8.85%)
                    w/o Reimb.& w/o 1.00% CDSC        (22.82%)       N/A          N/A        (8.85%)

 ADVISOR SHARES   w/Reimb.                            (21.50%)       N/A          N/A        (6.44%)
  IBCVX             w/o Reimb.                        (21.90%)       N/A          N/A        (7.28%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A and Advisor Class commenced operations November 2,1998; Class B and
Class C commenced operations November 6, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy US Blue Chip Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW

    Performance Comparison of the Fund Since Inception (11/98) of a $10,000
                                   Investment
             (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH)

                    Ivy US Blue Chip Fund                     S&P 500 Index

             02-Nov-98        9425                                10000
             30-Nov-98        9906                                10606
             31-Dec-98       10122                                11217
             31-Jan-99       10377                                11686
             28-Feb-99       10094                                11323
             31-Mar-99       10358                                11776
             30-Apr-99       10763                                12232
             31-May-99       10518                                11943
             30-Jun-99       11140                                12606
             31-Jul-99       10763                                12213
             31-Aug-99       10735                                12152
             30-Sep-99       10368                                11819
             31-Oct-99       11131                                12567
             30-Nov-99       11225                                12822
             31-Dec-99       11676                                13578
           31-Jan-2000       11069                                12895
           29-Feb-2000       11259                                12651
           30-Mar-2000       12301                                13889
           30-Apr-2000       11761                                13471
           31-May-2000       11278                                13195
           30-Jun-2000       11894                                13520
           31-Jul-2000       11638                                13309
           30-Aug-2000       12311                                14135
           30-Sep-2000       11297                                13389
           31-Oct-2000       11212                                13332
           30-Nov-2000       10074                                12281
           31-Dec-2000       10194                                12341
           30-Jan-2001       10579                                12779
           28-Feb-2001        9530                                11614
           31-Mar-2001        9000                                10878
           30-Apr-2001        9713                                11724
           31-May-2001        9751                                11802
           30-Jun-2001        9482                                11519
           31-Jul-2001        9434                                11406
           31-Aug-2001        8817                                10692
           30-Sep-2001        8134                                 9828
           31-Oct-2001        8336                                10016
           30-Nov-2001        8971                                10784
           31-Dec-2001        9010                                10878
           31-Jan-2002        8923                                10720
           28-Feb-2002        8769                                10513
           31-Mar-2002        9010                                10908
           30-Apr-2002        8461                                10247
           31-May-2002        8375                                10171
           30-Jun-2002        7855                                 9447
           31-Jul-2002        7335                                 8710
           31-Aug-2002        7325                                 8768
           30-Sep-2002        6526                                 7815
           31-Oct-2002        7171                                 8503
           30-Nov-2002        7499                                 9003
           31-Dec-2002        7046                                 8474





The S&P 500 Index is an unmanaged index of stocks which assumes reinvestment of
dividends and, unlike Fund returns, does not reflect any fees or expenses. It is
not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

  SECTOR BREAKDOWN       12/31/02

                    % of Total Net Assets

 1. Financials                         24%
 2. Information Technology             14%
 3. Healthcare                         14%
 4. Consumer Discretionary             13%
 5. Industrials                        11%
 6. Consumer Staples                    9%
 7. Energy                              6%
 8. Telecommunication Services          4%
 9. Utilities                           3%
10. Materials                           2%

 TOP 10 HOLDINGS           12/31/02

 Security            % of Total Net Assets

 1.  S&P 500 Depository Receipts         4.6%
 2.  Microsoft Corporation               3.9%
 3.  Exxon Mobil Corporation             3.4%
 4.  General Electric Company            3.3%
 5.  Wal-Mart Stores, Inc.               3.2%
 6.  Citigroup Inc.                      2.5%
 7.  Pfizer Inc.                         2.4%
 8.  American International Group        2.3%
 9.  Johnson & Johnson                   2.1%
10.  International Business Machines     1.9%

The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be
representative of the Fund's current or future investments.


                                                                              25

IVY US EMERGING GROWTH FUND

THE FUND'S GOAL: TO PROVIDE LONG-TERM CAPITAL GROWTH THROUGH INVESTMENT IN THE
COMMON STOCKS OF SMALL- AND MEDIUM-SIZED COMPANIES THAT ARE IN THE EARLY STAGES
OF THEIR LIFECYCLES AND THAT HAVE THE POTENTIAL FOR RAPID GROWTH.

[PHOTO]

Note: Ivy US Emerging Growth Fund was managed by James W. Broadfoot until
December 16th, 2002. At right, he discusses factors relating to Fund performance
in 2002. Kimberly A. Scott, Vice President of Waddell & Reed Ivy Investment
Company, assumed management of Ivy US Emerging Growth Fund on December 17th,
2002. She discusses how the Fund is positioned going forward.

LIPPER CATEGORY

Mid-Cap Growth

"In a market in which no one sector is likely to lead for a prolonged period of
time, we believe that balance across sectors and holding more rather than fewer
names is the best approach."

Q: JIM, HOW DID IVY US EMERGING GROWTH FUND PERFORM IN 2002?

A: For 2002, Ivy US Emerging Growth Fund returned -41.28%, including the impact
of the maximum sales charge, and -37.70% without the sales charge. The Fund
underperformed its benchmark, the Russell 2500 Growth Index, which returned
- -29.09%, as well as its peer group (as measured by the Lipper Mid-Cap Growth
Funds average), which returned -28.33%. It should be noted that the benchmark
index and Lipper category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: It was a difficult year for growth stocks, particularly for those with higher
expected growth rates and price-to-earnings ratios. As the year ended, these
stocks were weighed down by uncertain economic conditions, continuing threats of
terrorism and a potential war with Iraq. In this environment, investors were not
willing to give as much credit for future growth expectations as they might have
in more stable times.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: Performance was negatively affected by our focus on high-beta (higher risk
and expected growth) stocks, which underperformed last year. Specifically, lack
of exposure to slower-growth areas such as finance, consumer staples and
materials hurt the Fund as many of these sectors outperformed. An underweight in
the top-performing financials sector had the largest negative effect.

Holdings in the healthcare sector also negatively impacted performance. We added
these stocks for their defensive qualities, but many underperformed in 2002,
mostly for political reasons. Pharmaceuticals suffered as government scrutiny of
the industry increased, and biotechnology companies had problems with the Food &
Drug Administration's slow approval process and continued absence of leadership.
Some healthcare holdings, such as Varian Medical Systems, did well, but the
overall effect was negative.

In addition, holdings in the business services sector hurt performance. As
geopolitical concerns mounted, most corporations became hesitant to spend. On
the positive side, consumer spending remained strong throughout most of the
year, and this had a positive impact on the Fund's consumer-related holdings.
Consumer stocks that did well included The University of Phoenix Online and
Weight Watchers International. Outside the consumer area, holdings in certain
network security, waste management and natural gas companies also did well.

Q: KIM, WHAT IS YOUR OUTLOOK FOR 2003?

A: We believe that stable to rising earnings in the context of a much more
reasonably valued stock market should produce moderate gains in stocks over the
course of 2003. While geopolitical issues should lead to continued volatility,
we think that a combination of low interest rates and benign inflation will
likely provide stock market valuation support. However, we believe that
corporate operating earnings must continue to strengthen, preferably as a result
of renewed revenue growth, to allow the stock market to move appreciably higher.

Q: WHAT IS YOUR STRATEGY GOING FORWARD?

A: In a market in which no one sector is likely to lead for a prolonged period
of time, we believe that balance across sectors and holding more rather than
fewer names is the best approach. We think the current environment requires a
keen focus on specific stocks, as we feel it is those companies that have strong
management teams, strong balance sheets, and real and sustainable earnings
profiles that investors will continue to favor. In terms of sectors, we intend
to emphasize those that we believe to have greater potential for growth,
including healthcare, technology, and consumer and related areas, but we are
unlikely to deviate significantly from the sector weightings in the mid-cap
growth index. We believe that these strategies will have the Fund
well-positioned for the year ahead.

Performance cited is for Class A shares at net asset value and maximum sales
load of 5.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


26

 AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2002



SHARE CLASS/                                                                                            SINCE
NASDAQ SYMBOL                                                     1 YEAR      5 YEARS     10 YEARS   INCEPTION
- -------------                                                     ------      -------     --------   ---------
                                                                                      
A SHARES                    w/Reimb. & 5.75% sales charge       (41.28%)     (11.09%)       N/A         4.02%
IVEGX                       w/o Reimb. & 5.75% sales charge     (41.28%)     (11.09%)       N/A         4.00%

B SHARES                    w/Reimb. & w/ 5.00% CDSC            (41.29%)     (11.09%)       N/A        (0.03%)
IVEBX                       w/Reimb. & w/o 5.00% CDSC           (38.20%)     (10.73%)       N/A        (0.03%)
                            w/o Reimb. & w/ 5.00% CDSC          (41.29%)     (11.09%)       N/A        (0.02%)
                            w/o Reimb. & w/o 5.00% CDSC         (38.20%)     (10.73%)       N/A        (0.02%)

C SHARES                    w/Reimb. & w/ 1.00% CDSC            (38.83%)     (10.72%)       N/A        (8.29%)
IVGEX                       w/Reimb. & w/o 1.00% CDSC           (38.22%)     (10.72%)       N/A        (8.29%)
                            w/o Reimb. & w/ 1.00% CDSC          (38.83%)     (10.72%)       N/A        (8.29%)
                            w/o Reimb. & w/o 1.00% CDSC         (38.22%)     (10.72%)       N/A        (8.29%)

ADVISOR SHARES              w/Reimb.                            (37.57%)        N/A         N/A       (10.83%)
IVEVX                       w/o Reimb.                          (37.57%)        N/A         N/A       (10.83%)


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A commenced operations March 3, 1993 (performance here is calculated based
on the date the Fund first became available for sale to the public, April
30, 1993); Class B commenced operations October 22, 1993; Class C commenced
operations April 30, 1996; Advisor Class commenced operations February 18, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy US Emerging Growth Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.

PERFORMANCE OVERVIEW

         Performance Comparison of the Fund Since Inception (4/93) of a
                               $10,000 Investment
              (Class A shares including 5.75% maximum sales charge)

                                    (GRAPH]

- - Ivy US Emerging Growth Fund - $14,460
- - Russell 2500 Growth Index - $17,465

                           Ivy US
                          Emerging              Russell 2500
                        Growth Fund             Growth Index

           30-Apr-93        9425                    10000
           31-May-93       10304                    10616
           30-Jun-93       11176                    10642
           31-Jul-93       11492                    10650
           31-Aug-93       12785                    11211
           30-Sep-93       13574                    11499
           31-Oct-93       13786                    11726
           30-Nov-93       13377                    11300
           31-Dec-93       13698                    11797
           31-Jan-94       14181                    12137
           28-Feb-94       14137                    12158
           31-Mar-94       13465                    11451
           30-Apr-94       13113                    11438
           31-May-94       12723                    11208
           30-Jun-94       11811                    10710
           31-Jul-94       11949                    10943
           31-Aug-94       13285                    11747
           30-Sep-94       13792                    11742
           31-Oct-94       14123                    11944
           30-Nov-94       13601                    11415
           31-Dec-94       14148                    11646
           31-Jan-95       14165                    11532
           28-Feb-95       14682                    12159
           31-Mar-95       15385                    12631
           30-Apr-95       15217                    12774
           31-May-95       15520                    12970
           30-Jun-95       16719                    13757
           31-Jul-95       18144                    14842
           31-Aug-95       18782                    14966
           30-Sep-95       19877                    15286
           31-Oct-95       19278                    14746
           30-Nov-95       19987                    15349
           31-Dec-95       20101                    15553
           31-Jan-96       20034                    15601
           29-Feb-96       20917                    16287
           31-Mar-96       21649                    16641
           30-Apr-96       24772                    17780
           31-May-96       25571                    18415
           30-Jun-96       24031                    17491
           31-Jul-96       20975                    15753
           31-Aug-96       22757                    16838
           30-Sep-96       24897                    17732
           31-Oct-96       23490                    17180
           30-Nov-96       23290                    17810
           31-Dec-96       23824                    17897
           31-Jan-97       24784                    18432
           28-Feb-97       22387                    17624
           31-Mar-97       20027                    16465
           30-Apr-97       19237                    16539
           31-May-97       22585                    18521
           30-Jun-97       23267                    19141
           31-Jul-97       24766                    20356
           31-Aug-97       24883                    20852
           30-Sep-97       26992                    22325
           31-Oct-97       25170                    20932
           30-Nov-97       24658                    20611
           31-Dec-97       24838                    20538
           31-Jan-98       24461                    20269
           28-Feb-98       26481                    22009
           31-Mar-98       27621                    22827
           30-Apr-98       28141                    23034
           31-May-98       26095                    21555
           30-Jun-98       27208                    21713
           31-Jul-98       25772                    20096
           31-Aug-98       19928                    15530
           30-Sep-98       22360                    16891
           31-Oct-98       23474                    18032
           30-Nov-98       26517                    19315
           31-Dec-98       29308                    21174
           31-Jan-99       30996                    21787
           28-Feb-99       26687                    20019
           31-Mar-99       27657                    20951
           30-Apr-99       27800                    22623
           30-May-99       27432                    22857
           30-Jun-99       30260                    24472
           31-Jul-99       29227                    23973
           31-Aug-99       29649                    23455
           30-Sep-99       31472                    23623
           31-Oct-99       34371                    24773
           30-Nov-99       39936                    27698
           31-Dec-99       47618                    32922
           31-Jan-00       47175                    32739
           29-Feb-00       58010                    41136
           31-Mar-00       55593                    37909
           30-Apr-00       46309                    34215
           31-May-00       42261                    31169
           30-Jun-00       49521                    35290
           31-Jul-00       45725                    32398
           31-Aug-00       50629                    36621
           30-Sep-00       48142                    34252
           31-Oct-00       41536                    32134
           30-Nov-00       30752                    26012
           31-Dec-00       35330                    27625
           31-Jan-01       36275                    29414
           28-Feb-01       31052                    24875
           31-Mar-01       27264                    22123
           30-Apr-01       31880                    25495
           31-May-01       31554                    26234
           30-Jun-01       31146                    26847
           31-Jul-01       28150                    24850
           31-Aug-01       25096                    23197
           30-Sep-01       20189                    19564
           31-Oct-01       21634                    21494
           30-Nov-01       23010                    23351
           31-Dec-01       23499                    24632
         31-Jan-2002       21996                    23579
         28-Feb-2002       19932                    22123
         31-Mar-2002       21646                    23905
         30-Apr-2002       19956                    23111
         31-May-2002       18953                    21947
         30-Jun-2002       17426                    19929
         31-Jul-2002       15095                    17453
         31-Aug-2002       15258                    17450
         30-Sep-2002       14489                    16130
         31-Oct-2002       14990                    17057
         30-Nov-2002       15689                    18643
         31-Dec-2002       14640                    17465


The Russell 2500 Growth Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.

 SECTOR BREAKDOWN                                    12/31/02

                                        % of Total Net Assets

 1.  Consumer Discretionary                               28%
 2.  Healthcare                                           18%
 3.  Technology                                           13%
 4.  Financials                                            8%
 5.  Energy                                                5%
 6.  Producer Durables                                     4%

 TOP 10 HOLDINGS                                      12/31/02

 Security                               % of Total Net Assets

 1.  Lamar Advertising Company                           2.5%
 2.  Concord EFS, Inc.                                   2.4%
 3.  Weight Watchers International                       2.4%
 4.  AmSurg Corp.                                        2.2%
 5.  Network Appliance, Inc.                             2.1%
 6.  Waste Connections, Inc.                             2.1%
 7.  Biomet, Inc.                                        2.0%
 8.  Convergys Corporation                               2.0%
 9.  Synovus Financial Corp.                             2.0%
10.  Cox Radio, Inc.                                     2.0%

The top 10 holdings and the sector breakdown are as of 12/31/02 and may not be
representative of the Fund's current or future investments.


                                                                              27


IVY BOND FUND

THE FUND'S GOAL: TO PROVIDE A HIGH LEVEL OF CURRENT INCOME BY INVESTING AT LEAST
80% OF THE FUND'S TOTAL ASSETS IN BONDS RATED IN THE FOUR HIGHEST RATINGS
CATEGORIES USED BY MOODY'S INVESTOR SERVICES AND STANDARD AND POOR'S
CORPORATION.

[PHOTO]

Note: Ivy Bond Fund was managed by Richard Gluck until December 16th, 2002. At
right, he discusses factors relating to Fund performance in 2002. James C.
Cusser, Senior Vice President of Waddell & Reed Ivy Investment Company, assumed
management of Ivy Bond Fund on December 17th, 2002. He discusses how the Fund
is positioned going forward.

LIPPER CATEGORY

Corporate Debt
BBB-Rated

"We believe that the government will join the household sector in spending and
boosting economic prospects, and that corporations will begin to spend hand in
hand with their prospects for profitability."

Q: RICHARD, HOW DID IVY BOND FUND PERFORM IN 2002?

A: For 2002,Ivy Bond Fund returned 4.30%, including the impact of the maximum
sales charge,and 9.49% without the sales charge. This compares to the Fund's
benchmark,the Lehman Brothers US Credit Index, which returned 10.53%, and its
peer group (as measured by the Lipper Corporate Debt BBB-Rated Funds average),
which returned 7.35%. It should be noted that the benchmark index and Lipper
category do not reflect sales charges.

Q: HOW WERE MARKET CONDITIONS?

A: The past year was extremely difficult for the corporate bond market.
Accounting scandals at some of the country's largest companies shook investor
confidence and diminished their faith in corporate America. As more and more
corporations came out with disturbing revelations, the merest hint of any
problem, real or perceived, could destroy a company's bonds in a matter of days,
if not hours. Volatility was also caused by the realization that US corporations
had over-leveraged themselves during the 1990s, borrowing to buy back stock and
to invest in businesses (fixed and wireless telecom companies, merchant power
generators and others) perceived to have enormous future returns -- returns
that, for many, never materialized.

Q: WHAT FACTORS AFFECTED PERFORMANCE?

A: Performance was hurt by light exposure to noncorporate holdings, an area that
outperformed. In addition, the Fund was concentrated in BBB-rated corporate
bonds, which underperformed higher-rated corporate bonds in 2002. This helps to
explain why the Fund underperformed its benchmark, which contains a more diverse
range of debt issues.

On the positive side, the Fund's focus on value situations helped it avoid
companies involved in the over-leveraging and excessive capital-spending trend.
The Fund did not hold troubled names involved in financial scandals, and this
significantly helped performance. The Fund also did not hold many electric
utilities, which were the worst performing sector in the bond market. However,
the Fund did hold CalPine, which had a negative effect on performance. In
addition,the Fund was not exposed to the hardest-hit telecom names,focusing
instead on companies with stronger fundamentals such as Verizon and Poland's
TPSA.

Performance also benefited from an overweight in the consumer sector, which
showed resilience for most of the year despite uncertain economic conditions,
and from large healthcare holdings such as McKesson and Health Care Corporation
of America. In addition, holdings in REITS (real estate investment trusts),
energy and home construction benefited performance. Holdings in Delta Airlines,
which announced higher-than-expected losses in the third quarter, and Ford
Motors hurt performance.

Q: JIM, WHAT IS YOUR STRATEGY FOR 2003?

A: In the past, Ivy Bond Fund has been comprised almost entirely of corporate
bonds. Corporate bonds will still play a major role, but we will most likely add
a greater number of mortgage-backed securities, Treasury bonds and other types
of debt securities. However, much depends on market conditions.

Q: WHAT IS YOUR OUTLOOK FOR 2003?

A: The Federal Reserve reduced interest rates to a historically low 1.25% in the
fourth quarter. Of course, the Fed can only bring the "horse to water"; making
the economy "drink" is up to the economy's investors -- households,
corporations, and governments. We believe that the government will join the
household sector in spending and boosting economic prospects,and that
corporations will begin to spend hand in hand with their prospects for
profitability. We also believe that the household's continued spending,
governmental deficits, and the return of corporate confidence bode: higher
interest rates in 2003, higher corporate profitability, tighter corporate
spreads and a continuing steep yield curve. We will closely monitor these
factors as we position the Fund for the year ahead.

Performance cited is for Class A shares at net asset value and at maximum sales
load of 4.75%. The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.


28



AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31,2002




 SHARE CLASS/                                                                               SINCE
 NASDAQ SYMBOL                                        1 YEAR     5 YEARS     10 YEARS     INCEPTION
 -------------                                        ------     -------     --------     ---------
                                                                           
 A Shares         w/Reimb.  4.75% sales charge         4.30%       1.62%        5.47%        7.11%
 MCFIX            w/o Reimb. & 4.75% sales charge      4.30%       1.62%        5.47%        2.34%

 B Shares         w/Reimb. & w/ 5.00% CDSC             2.65%       1.17%         N/A         4.48%
 IVBBX            w/Reimb. & w/o 5.00% CDSC            7.65%       1.55%         N/A         4.48%
                  w/o Reimb. & w/ 5.00% CDSC           2.65%       1.17%         N/A         4.48%
                  w/o Reimb. & w/o 5.00% CDSC          7.65%       1.55%         N/A         4.48%

 C Shares         w/Reimb. & w/ 1.00% CDSC             6.79%       1.60%         N/A         4.11%
 IVBCX            w/Reimb. & w/o 1.00% CDSC            7.79%       1.60%         N/A         4.11%
                  w/o Reimb. & w/ 1.00% CDSC           6.79%       1.60%         N/A         4.11%
                  w/o Reimb. & w/o 1.00% CDSC          7.79%       1.60%         N/A         4.11%

 Advisor Shares   w/Reimb.                             8.52%        2.50         N/A         2.53%
 IVBVX            w/o Reimb.                           8.52%        0.65         N/A         0.66%


CDSC = Contingent Deferred Sales Charge

Advisor Class Shares are not subject to an initial sales charge or a CDSC.

Class A commenced operations September 6, 1985; Class B commenced operations
April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class
commenced operations January 20, 1998.

Total returns in some periods were higher due to reimbursement of certain Fund
expenses.

All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Bond Fund will fluctuate and at
redemption shares may be worth more or less than the amount of the original
investment.

 PERFORMANCE OVERVIEW

      10-Year Performance Comparison of a $10,000 Investment in the Fund
              (Class A shares including 4.75% maximum sales charge)


                                    (GRAPH)



                                                    LEHMAN
                             IVY                   BROTHERS
                             BOND                 US CREDIT
                             FUND                   INDEX
                            -----                 ---------
                                            
      31-Dec-92              9525                   10000
      31-Jan-93              9771                   10233
      28-Feb-93              9990                   10468
      31-Mar-93             10085                   10504
      30-Apr-93             10123                   10585
      31-May-93             10219                   10598
      30-Jun-93             10499                   10855
      31-Jul-93             10570                   10934
      31-Aug-93             10855                   11206
      30-Sep-93             10885                   11232
      31-Oct-93             10991                   11289
      30-Nov-93             10890                   11150
      31-Dec-93             10996                   11216
      31-Jan-94             11268                   11434
      28-Feb-94             11066                   11164
      31-Mar-94             10722                   10821
      30-Apr-94             10593                   10717
      31-May-94             10574                   10677
      30-Jun-94             10500                   10651
      31-Jul-94             10660                   10920
      31-Aug-94             10743                   10932
      30-Sep-94             10609                   10729
      31-Oct-94             10590                   10704
      30-Nov-94             10558                   10686
      31-Dec-94             10545                   10775
      31-Jan-95             10560                   11003
      28-Feb-95             10765                   11320
      31-Mar-95             10780                   11413
      30-Apr-95             11094                   11605
      31-May-95             11519                   12152
      30-Jun-95             11594                   12262
      31-Jul-95             11659                   12208
      31-Aug-95             11811                   12404
      30-Sep-95             11958                   12551
      31-Oct-95             12031                   12715
      30-Nov-95             12168                   12958
      31-Dec-95             12381                   13172
      31-Jan-96             12519                   13257
      29-Feb-96             12324                   12942
      31-Mar-96             12258                   12832
      30-Apr-96             12238                   12725
      31-May-96             12363                   12703
      30-Jun-96             12517                   12889
      31-Jul-96             12566                   12914
      31-Aug-96             12553                   12874
      30-Sep-96             12887                   13147
      31-Oct-96             13151                   13506
      30-Nov-96             13447                   13795
      31-Dec-96             13379                   13604
      31-Jan-97             13496                   13623
      28-Feb-97             13695                   13681
      31-Mar-97             13471                   13468
      30-Apr-97             13636                   13672
      31-May-97             13827                   13826
      30-Jun-97             14080                   14022
      31-Jul-97             14646                   14535
      31-Aug-97             14445                   14321
      30-Sep-97             14736                   14571
      31-Oct-97             14845                   14756
      30-Nov-97             14886                   14839
      31-Dec-97             14968                   14996
      31-Jan-98             15124                   15174
      28-Feb-98             15124                   15170
      31-Mar-98             15172                   15226
      30-Apr-98             15221                   15322
      31-May-98             15276                   15504
      30-Jun-98             15312                   15618
      31-Jul-98             15278                   15603
      31-Aug-98             14864                   15676
      30-Sep-98             14919                   16184
      31-Oct-98             14578                   15935
      30-Nov-98             15081                   16235
      31-Dec-98             14968                   16282
      31-Jan-99             14902                   16443
      28-Feb-99             14448                   16053
      31-Mar-99             14669                   16166
      30-Apr-99             14715                   16214
      31-May-99             14560                   15997
      30-Jun-99             14490                   15914
      31-Jul-99             14421                   15825
      31-Aug-99             14255                   15787
      30-Sep-99             14298                   15958
      31-Oct-99             14205                   16032
      30-Nov-99             14175                   16049
      31-Dec-99             14045                   15964
      31-Jan-00             14025                   15908
      29-Feb-00             14181                   16055
      31-Mar-00             14434                   16192
      30-Apr-00             13894                   16050
      31-May-00             13600                   15990
      30-Jun-00             13854                   16391
      31-Jul-00             14042                   16590
      30-Aug-00             14227                   16806
      30-Sep-00             14218                   16894
      31-Oct-00             14193                   16911
      30-Nov-00             14198                   17130
      31-Dec-00             14310                   16938
      31-Jan-01             14600                   17402
      28-Feb-01             14739                   17554
      31-Mar-01             14815                   17663
      30-Apr-01             14705                   17599
      31-May-01             14836                   17761
      30-Jun-01             14928                   17850
      31-Jul-01             15324                   18316
      31-Aug-01             15548                   18561
      30-Sep-01             15378                   18533
      31-Oct-01             15696                   18993
      30-Nov-01             15577                   18828
      31-Dec-01             15554                   18698
      31-Jan-2002           15705                   18857
      28-Feb-2002           15798                   19000
      31-Mar-2002           15589                   18648
      30-Apr-2002           15921                   18908
      31-May-2002           16042                   19157
      30-Jun-2002           16122                   19188
      31-Jul-2002           16105                   19178
      31-Aug-2002           16442                   19675
      30-Sep-2002           16799                   20049
      31-Oct-2002           16296                   19816
      30-Nov-2002           16577                   20074
      31-Dec-2002           17031                   20666


The Lehman Brothers US Credit Index is an unmanaged index which assumes
reinvestment of dividends and unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.


CREDIT QUALITY (S&P)                         12/31/02

                               % of Total Investments

 1.  BBB                                          64%
 2.  A                                            16%
 3.  BB                                            7%
 4.  AAA                                           7%
 5.  AA                                            6%

 TOP 10 HOLDINGS                             12/31/02

 Security                       % of Total Net Assets

 1.  Storage USA Partnership L.P.                5.4%
 2.  Northrop Grumman Corp.                      4.4%
 3.  BRE Properties Inc.                         4.3%
 4.  Spieker Properties                          4.0%
 5.  Tele Communications Inc.                    4.0%
 6.  RJ Reynolds Tobacco Holdings Inc.           4.0%
 7.  TE Products Pipeline Co.                    3.7%
 8.  Time Warner Inc.                            3.4%
 9.  Indiantown Cogeneration                     3.2%
10.  Pulte Corp.                                 3.1%

The top 10 holdings and the credit quality distribution are as of 12/31/02 and
may not be representative of the Fund's current or future investments.


                                                                              29



IVY MONEY MARKET FUND

THE FUND'S GOAL: TO OBTAIN AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT
WITH THE PRESERVATION OF CAPITAL AND LIQUIDITY BY INVESTING IN HIGH QUALITY,
SHORT-TERM SECURITIES.

[PHOTO]

Note: Ivy Money Market Fund was managed by Richard Gluck until December 16th,
2002. Mira Stevovich, Senior Vice President of Waddell & Reed Ivy Investment
Company, assumed management of Ivy Money Market Fund on December 17th, 2002.

         The Fund's manager actively monitors the portfolio on a daily basis,
         while searching out attractive investments within the money market
         universe to provide investors with a competitive yield.

INVESTMENT STRATEGY

In pursuit of its objective, Ivy Money Market Fund invests in money market
instruments maturing within 13 months or less and maintains a portfolio with a
dollar-weighted average maturity of 90 days or less.

While there are no guarantees, the Fund's emphasis on securities with relatively
short-term maturities is designed to enable the Fund to maintain a constant net
asset value of $1.00 per share. However, it is important to note that the Fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Thus, although the Fund manager seeks to preserve the
value of an investment at $1.00 per share, it is possible to lose money by
investing in the Fund.

PORTFOLIO HOLDINGS

The Fund is invested in U.S. dollar-denominated, high-quality money market
obligations and instruments, including debt securities issued or guaranteed by
the U.S.government.

CREDIT QUALITY

The value of Ivy Money Market Fund's investments and the income they generate
will vary daily and generally reflect market conditions, interest rates and
other issue specific, political or economic developments. The Fund's debt
investments are required to present minimal credit risk and be included in one
of the two highest short-term rating categories that apply to debt securities.

Within this environment,the Fund's manager actively monitors the portfolio on a
daily basis, while searching out attractive investments within the money market
universe to provide investors with a competitive yield.

The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions,and no forecasts can be guaranteed.


30


                                  [PHOTOGRAPH]





                      "See first that the design is wise

                      and just; that ascertained, pursue it

                      resolutely."

                                   - William Shakespeare






                                                                              31

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY CUNDILL GLOBAL VALUE FUND
NAME OF SECURITY                    SHARES                 VALUE
                                          
EQUITY SECURITIES - 70.5%
- ------------------------------
EUROPE - 2.5%
- ------------------------------
SWITZERLAND - 2.5%
Sulzer AG (a)                        1,000      $        135,967
                                                ----------------
FAR EAST - 46.8%
- ------------------------------
HONG KONG - 5.4%
First Pacific Company Ltd. (a)   2,010,000               180,422
Jardine Strategic Holdings
  Limited                           46,000               116,380
                                                ----------------
                                                         296,802
                                                ----------------
INDIA - 2.4%
Videsh Sanchar Nigam Ltd.           32,000               131,200
                                                ----------------
JAPAN - 35.3%
Aiful Corporation                    6,000               225,499
Asatsu-DK Inc.                      15,500               274,943
Coca-Cola West Japan Company
  Limited                            8,000               119,660
Lion Corporation                    49,000               194,068
Nikko Cordial Corporation           76,000               256,172
Nippon Broadcasting System,
  Incorporated                       8,000               239,319
NIPPONKOA Insurance Company,
  Limited                           41,000               154,437
Sankyo Company, Ltd.                21,000               263,495
Tokyo Broadcasting System,
  Inc.                              17,000               213,736
                                                ----------------
                                                       1,941,329
                                                ----------------
SOUTH KOREA - 3.7%
Korea Tobacco & Ginseng
  Corporation (KT & G)              11,400               157,632
Korea Tobacco & Ginseng
  Corporation (KT & G) - GDR
  (f)                                7,000                46,550
                                                ----------------
                                                         204,182
                                                ----------------
NORTH AMERICA - 21.2%
- ------------------------------
CANADA - 12.7%
Brascan Corporation                  8,000               160,782
QLT Inc. (a)                        22,000               186,608





NAME OF SECURITY                    SHARES                 VALUE
                                          
Teck Cominco Limited CL B           20,000      $        146,856
Torstar Corporation CL B            12,700               204,997
                                                ----------------
                                                         699,243
                                                ----------------
UNITED STATES - 8.5%
Alderwoods Group, Inc. (a)          30,400               144,096
Apple Computer, Inc. (a)             7,500               107,475
Liberty Media Corporation (a)       18,720               167,357
Sun Microsystems, Inc. (a)          15,000                46,650
                                                ----------------
                                                         465,578
                                                ----------------
TOTAL INVESTMENTS - 70.5%
  (Cost - $4,055,193)                           $      3,874,301
  (Cost on Federal income tax
    basis - $4,220,924)
OTHER ASSETS, LESS LIABILITIES - 29.5%                 1,620,299
                                                ----------------
NET ASSETS - 100%                               $      5,494,600
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $        132,905
  Gross unrealized depreciation                         (313,797)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                      (180,892)
  Less: tax basis adjustments                           (165,731)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (346,623)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $6,552,426 and $3,755,784, respectively, for the period ended
December 31, 2002.

    Forward foreign currency contracts at December 31, 2002 were:



                                                 CONTRACTS TO BUY
                                       -------------------------------------
                      SETTLEMENT         LOCAL        VALUE      IN EXCHANGE      UNREALIZED
    CURRENCY             DATE           CURRENCY     IN U.S.$     FOR U.S.$      APPRECIATION
- ----------------------------------------------------------------------------------------------
                                                                 
British Pound       January 8, 2003         8,887     14,000        14,299         $    299
British Pound       January 8, 2003        64,770    103,385       104,214              829
Hong Kong Dollar    January 8, 2003       429,033     55,000        55,013               13
Hong Kong Dollar    January 8, 2003       522,747     67,000        67,030               30
Hong Kong Dollar    January 8, 2003       507,124     65,000        65,027               27
Hong Kong Dollar    January 8, 2003       265,190     34,000        34,004                4
Japanese Yen        January 8, 2003    29,375,500    245,000       247,601            2,601
Swiss Franc         January 8, 2003        10,388      7,000         7,514              514
Swiss Franc         January 8, 2003       123,463     84,000        89,301            5,301
                                                                                --------------
                                                                                   $  9,618
                                                                                ==============


 32         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)



                                                 CONTRACTS TO SELL
                                       -------------------------------------      UNREALIZED
                      SETTLEMENT         LOCAL        VALUE      IN EXCHANGE    APPRECIATION/
    CURRENCY             DATE           CURRENCY     IN U.S.$     FOR U.S.$     (DEPRECIATION)
- ----------------------------------------------------------------------------------------------
                                                                 
Japanese Yen        January 8, 2003    53,505,560    457,000       450,989         $  6,011
Japanese Yen        January 8, 2003    44,655,800    382,000       376,396            5,604
                                                                                   --------
                                                                                   $ 11,615
                                                                                   --------
British Pound       January 8, 2003        35,874     52,000        57,722         $ (5,722)
British Pound       January 8, 2003        25,540     39,000        41,094           (2,094)
British Pound       January 8, 2003        12,242     19,000        19,698             (698)
Hong Kong Dollar    January 8, 2003       554,943     71,000        71,158             (158)
Hong Kong Dollar    January 8, 2003        39,091      5,000         5,013              (13)
Hong Kong Dollar    January 8, 2003       156,236     20,000        20,034              (34)
Hong Kong Dollar    January 8, 2003       125,024     16,000        16,031              (31)
Hong Kong Dollar    January 8, 2003       132,697     17,000        17,015              (15)
Hong Kong Dollar    January 8, 2003       374,376     48,000        48,005               (5)
Hong Kong Dollar    January 8, 2003     1,170,150    150,000       150,044              (44)
Hong Kong Dollar    June 11, 2003         476,087     61,000        61,002               (2)
Japanese Yen        January 8, 2003    63,760,770    513,000       537,429          (24,429)
Japanese Yen        January 8, 2003    21,156,660    174,000       178,326           (4,326)
Japanese Yen        June 11, 2003      36,086,910    291,000       305,858          (14,858)
South Korean Won    January 8, 2003    82,236,000     66,000        69,278           (3,278)
South Korean Won    January 8, 2003    49,101,000     39,000        41,364           (2,364)
South Korean Won    January 8, 2003    58,512,000     48,000        49,292           (1,292)
Swiss Franc         January 8, 2003        61,035     39,000        44,146           (5,146)
Swiss Franc         January 8, 2003       193,323    130,000       139,830           (9,830)
Swiss Franc         January 8, 2003        42,572     29,000        30,792           (1,792)
                                                                                --------------
                                                                                   $(76,131)
                                                                                --------------
Net unrealized depreciation on forward foreign currency contracts                  $(54,898)
                                                                                ==============




IVY DEVELOPING MARKETS FUND
NAME OF SECURITY                    SHARES                 VALUE
                                          
EQUITY SECURITIES - 100.3%
- ------------------------------
AFRICA - 5.8%
- ------------------------------
SOUTH AFRICA - 5.8%
Nedcor Limited                       8,400      $        108,763
Standard Bank Group Limited         38,067               133,759
                                                ----------------
                                                         242,522
                                                ----------------
EASTERN EUROPE - 10.5%
- ------------------------------
HUNGARY - 4.2%
Magyar Tavkozlesi Rt                23,600                85,557
OTP Bank Rt                          9,000                88,475
                                                ----------------
                                                         174,032
                                                ----------------
POLAND - 4.6%
Bank Pekao S.A. (a)                  4,000                98,578
Telekomunikacja Polska S.A.
  (a)                               28,200                93,767
                                                ----------------
                                                         192,345
                                                ----------------
RUSSIA - 1.7%
LUKOIL                               1,200                73,455
                                                ----------------
EUROPE - 6.1%
- ------------------------------
LUXEMBOURG - 1.8%
Tenaris S.A. (a)                     3,861                74,208
                                                ----------------
UNITED KINGDOM - 4.3%
Anglo American plc                   4,850                72,069
South African Breweries plc         15,500               109,984
                                                ----------------
                                                         182,053
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
FAR EAST - 44.1%
- ------------------------------
HONG KONG - 9.6%
Cathay Pacific Airways              67,000      $         91,500
China Mobile (Hong Kong) Ltd.
  (a)                               38,300                91,104
Esprit Holdings Limited             60,000               101,175
Sun Hung Kai Properties Ltd.        20,000               118,486
                                                ----------------
                                                         402,265
                                                ----------------
INDIA - 2.4%
Hero Honda Motors Ltd.              17,600                99,617
                                                ----------------
SOUTH KOREA - 22.7%
Hyundai Motor Co., Ltd.              4,800               112,306
Kookmin Bank                         4,140               146,604
Korea Telecom Corporation            3,300               141,065
LG Chem Limited                      3,600               123,233
POSCO                                1,490               148,240
Samsung Electronics                    590               156,199
SK Telecom Co., Ltd.                   620               119,708
                                                ----------------
                                                         947,355
                                                ----------------
TAIWAN - 9.4%
Asustek Computer Inc.               24,000                42,105
Formosa Plastic Corporation         44,940                58,938
Hon Hai Precision Industry
  Co., Ltd.                         30,360               104,780
Taiwan Semiconductor
  Manufacturing Company (a)         96,360               118,060
United Microelectronics
  Corporation (a)                  113,763                69,036
                                                ----------------
                                                         392,919
                                                ----------------


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          33

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY DEVELOPING MARKETS FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
LATIN AMERICA - 32.3%
- ------------------------------
BRAZIL - 9.2%
Cia Brasileira de Distribuicao
  Grupo Pao de Acucar            3,498,100      $         53,854
Cia Vale do Rio Doce (c)            13,300                    --
Embraer Brasileira de
  Aeronautica S.A. (Embraer)         7,553               120,093
Petroleo Brasileiro S.A. -
  Petrobras                          9,143               119,839
Tele Norte Leste Participacoes
  S.A.                              12,406                91,184
Telesp Celular Participacoes
  S.A.                                   1                    --
                                                ----------------
                                                         384,970
                                                ----------------
CHILE - 1.3%
Antofagasta plc                      5,363                53,962
                                                ----------------
MEXICO - 19.2%
America Movil S.A. de C.V.           6,900                99,084
Cemex S.A. De C.V.                  22,955                98,563
Fomento Economico Mexicano,
  S.A. Sponsored ADR                 4,100               149,322
Grupo Financiero Banorte S.A.
  de C.V.                           30,580                74,521
Grupo Financiero BBVA
  Bancomer, S.A. de C.V. (GFB)
  (a)                              160,000               120,948
Grupo Televisa S.A. Sponsored
  GDR (a)                            4,000               111,720
Telefonos de Mexico S.A. Class
  L - ADR                            4,600               147,108
                                                ----------------
                                                         801,266
                                                ----------------
PERU - 2.6%
Cia de Minas Buenaventura S.A.
  Sponsored ADR                      4,200               110,838
                                                ----------------
MIDDLE EAST - 1.5%
- ------------------------------
ISRAEL - 1.5%
Check Point Software
  Technologies Ltd. (a)              4,700                60,959
                                                ----------------
TOTAL INVESTMENTS - 100.3%
  (Cost - $4,866,013)                           $      4,192,766
  (Cost on Federal income tax
    basis - $4,913,737)
LIABILITIES, IN EXCESS OF OTHER
  ASSETS - 0.3%                                          (12,352)
                                                ----------------
NET ASSETS - 100%                               $      4,180,414
                                                ================





NAME OF SECURITY                    SHARES                 VALUE
                                          
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $        473,293
  Gross unrealized depreciation                       (1,146,540)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                      (673,247)
  Less: tax basis adjustments                            (47,724)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (720,971)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $2,461,048 and $3,079,883, respectively, for the period ended
December 31, 2002.



IVY EUROPEAN OPPORTUNITIES FUND
                                          
EQUITY SECURITIES -100.3%
- ------------------------------
AFRICA - 3.3%
- ------------------------------
SOUTH AFRICA - 3.3%
Nasper Limited (a)                  84,700      $      2,286,900
                                                ----------------
EUROPE - 97.0%
- ------------------------------
AUSTRIA - 1.4%
Telecom Austria AG (a)             100,000             1,012,624
Yline Internet Business
  Services AG (a)(c)                26,940                    --
                                                ----------------
                                                       1,012,624
                                                ----------------
BELGIUM - 0.8%
Agfa Gevaert NV                     25,000               557,468
                                                ----------------
DENMARK - 1.1%
ISS A/S (a)                         22,000               792,561
                                                ----------------
FINLAND - 2.1%
M-real Oyj                         175,000             1,469,091
                                                ----------------
FRANCE - 16.1%
AXA                                120,000             1,610,544
BNP Paribas SA                      37,000             1,507,613
Cie Francaise d'Etudes et de
  Construction (Technip SA)         21,500             1,538,663
Essilor International SA            32,000             1,317,985
JC Decaux SA (a)                   135,000             1,629,117
Sagem SA - Preferred                50,000             2,486,962
Wanadoo (a)                        274,400             1,229,512
                                                ----------------
                                                      11,320,396
                                                ----------------
GERMANY - 4.7%
Continental AG (a)                  50,000               768,650
Deutsche Boerse AG                  26,000             1,036,759
Porsche AG                           3,600             1,495,955
                                                ----------------
                                                       3,301,364
                                                ----------------


 34         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
GREECE - 6.3%
Folli-Follie SA                     90,000      $      1,522,398
Hellenic Telecommunications
  Organization SA (OTE)            175,000             1,928,182
Public Power Corporation (PPC)      68,000               941,897
                                                ----------------
                                                       4,392,477
                                                ----------------
ITALY - 2.0%
Telecom Italia SpA                 150,000               757,107
Tod's SpA (a)                       20,000               640,314
                                                ----------------
                                                       1,397,421
                                                ----------------
NETHERLANDS - 18.3%
Aegon NV                           165,000             2,122,732
Buhrmann NV                        325,000             1,418,723
Fugro NV                            50,000             2,262,925
Hagemeyer NV                       100,000               724,052
IHC Caland NV                       51,000             2,691,900
Koninklijke Ahold NV                72,780               924,098
Van der Moolen Holding NV           60,000             1,290,702
Vedior NV                          250,000             1,427,117
                                                ----------------
                                                      12,862,249
                                                ----------------
SPAIN - 4.0%
Altadis, S.A.                       42,000               958,141
Compania Espanola De
  Petroleos, S.A.                   89,615             1,635,314
Telepizza, S.A. (a)                229,667               180,751
                                                ----------------
                                                       2,774,206
                                                ----------------
SWITZERLAND - 7.9%
Credit Suisse Group                 50,000             1,084,842
Credit Suisse Group Rights (a)      50,000                    --
Kaba Holdings AG                     8,267             1,536,584
Lonza Group AG                      13,791               837,819
Zurich Financial Services AG        22,000             2,052,521
                                                ----------------
                                                       5,511,766
                                                ----------------
UNITED KINGDOM - 32.3%
Aberdeen Asset Management PLC    1,500,000             1,714,562
British American Tobacco plc       100,000               998,953
British Sky Broadcasting Group
  plc ("BSkyB")                    150,000             1,543,105
Chubb Security                   1,000,000             1,416,727
easyJet plc (a)                    400,000             1,783,788
Filtronic plc (a)                  700,000               974,805
HBOS plc                           100,000             1,054,496
Imperial Tobacco Group plc         100,000             1,693,633
Johnston Press plc                 263,600             1,563,819
Kidde plc                          893,250             1,006,641
PHS Group plc                    1,500,000             1,883,603
Punch Taverns plc                  490,816             1,493,427
Royal Bank of Scotland Group
  plc                               70,000             1,674,636
Shell Transport & Trading Co.
  plc                              300,000             1,974,161
The Berkeley Group plc              68,000               649,730
Xstrata plc (a)                    120,000             1,253,803
                                                ----------------
                                                      22,679,889
                                                ----------------
NORTH AMERICA - 0.0%
- ------------------------------
UNITED STATES OF AMERICA -0.0%
Global TeleSystems Group, Inc.
  (a)(c)                         3,400,000                    --
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
TOTAL INVESTMENTS - 100.3%
  (Cost - $101,136,872) (b)                     $     70,358,412
LIABILITIES, IN EXCESS OF OTHER
  ASSETS - 0.3%                                         (196,735)
                                                ----------------
NET ASSETS - 100%                               $     70,161,677
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $      8,457,994
  Gross unrealized depreciation                      (39,236,454)
                                                ----------------
    Net unrealized depreciation                 $    (30,778,460)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $59,378,318 and $84,374,539, respectively, for the period ended
December 31, 2002.

IVY GLOBAL FUND




                                          
EQUITY SECURITIES - 99.3%
- ------------------------------
EUROPE - 31.5%
- ------------------------------
FINLAND - 1.2%
Nokia Oyj                            1,750      $         27,821
Stora Enso Oyj                       2,600                27,419
                                                ----------------
                                                          55,240
                                                ----------------
FRANCE - 6.0%
Aventis SA                             600                32,614
AXA                                  2,400                32,211
Cie Francaise d'Etudes et de
  Construction (Technip SA)            226                16,174
LVMH Moet Hennessy Louis
  Vuitton SA                           645                26,498
Schneider SA                           700                33,121
Societe Generale                       700                40,767
Societe Television Francaise 1       1,200                32,060
Thomson Multimedia (a)               1,300                22,181
TotalFinaElf - B Shares                270                38,560
                                                ----------------
                                                         274,186
                                                ----------------
GERMANY - 2.8%
Adidas-Salomon AG                      500                42,499
Deutsche Lufthansa AG (a)            1,700                16,073
Medion AG                              600                20,777
Siemens AG                             422                17,934
Volkswagen AG Pfd                    1,200                31,103
                                                ----------------
                                                         128,386
                                                ----------------
ITALY - 1.7%
Assicurazioni Generali S.p.A.        1,300                26,738
ENEL S.p.A.                          9,500                49,445
                                                ----------------
                                                          76,183
                                                ----------------
NETHERLANDS - 4.7%
Akzo Nobel NV                        1,174                37,241
ING Groep NV                         1,344                22,763
Koninklijke (Royal) KPN NV (a)       5,200                33,831


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          35

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY GLOBAL FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
Koninklijke (Royal) Philips
  Electronicas NV                    1,534      $         26,882
Koninklijke Ahold NV                 2,520                31,997
Royal Dutch Petroleum Company        1,000                44,020
TPG NV                               1,200                19,455
                                                ----------------
                                                         216,189
                                                ----------------
NORWAY - 0.7%
Norsk Hydro A.S. Sponsored ADR         750                33,307
                                                ----------------
SPAIN - 0.9%
Amadeus Global Travel
  Distribution S.A.                  2,350                 9,691
Iberdrola S.A.                       2,200                30,820
                                                ----------------
                                                          40,511
                                                ----------------
SWITZERLAND - 3.5%
Credit Suisse Group                    950                20,612
Holcim Ltd.                            190                34,491
Novartis AG                            580                21,162
STMicroelectronics NV                1,454                28,368
UBS AG                               1,200                58,321
                                                ----------------
                                                         162,954
                                                ----------------
UNITED KINGDOM - 10.0%
Abbey National plc                   2,900                24,137
Amvescap plc                         4,000                25,485
BAE Systems plc                      8,580                17,094
BT Group plc                        11,072                34,759
Diageo plc                           3,436                37,366
GlaxoSmithKline plc                  2,573                49,376
HBOS plc                             6,100                64,324
Rio Tinto plc Sponsored ADR            639                50,820
Royal Bank of Scotland Group
  plc                                2,037                 1,795
Unilever plc                         6,900                65,651
Vodafone AirTouch plc               33,779                61,723
WPP Group plc                        3,600                27,356
                                                ----------------
                                                         459,886
                                                ----------------
FAR EAST - 11.6%
- ------------------------------
AUSTRALIA - 1.7%
BHP Ltd.                             8,385                47,924
National Australia Bank Ltd.         1,700                30,394
                                                ----------------
                                                          78,318
                                                ----------------
HONG KONG - 1.2%
Hang Seng Bank                       3,000                31,930
Sun Hung Kai Properties Ltd.         4,000                23,697
                                                ----------------
                                                          55,627
                                                ----------------
JAPAN - 7.0%
Asahi Glass Company, Ltd.            4,300                26,343
Canon Inc.                             930                35,031
Kirin Brewery Company, Limited       5,000                31,811
Murata Manufacturing Company,
  Ltd.                                 400                15,674
Nintendo Co., Ltd.                     400                37,381
Nissan Motor Co., Ltd.               5,000                39,016
Nomura Holdings, Inc.                2,600                29,227
NTT DoCoMo, Inc.                        10                18,454
Sharp Corporation                    2,600                24,692
SMC Corporation                        300                28,162
Sony Corporation                       900                37,617
                                                ----------------
                                                         323,408
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
SOUTH KOREA - 1.3%
POSCO                                  300      $         29,847
Samsung Electronics                    110                29,122
                                                ----------------
                                                          58,969
                                                ----------------
TAIWAN - 0.4%
Taiwan Semiconductor
  Manufacturing Company (a)         13,200                16,173
                                                ----------------
LATIN AMERICA - 1.6%
- ------------------------------
MEXICO - 1.6%
Fomento Economico Mexicano,
  S.A. Sponsored ADR                   600                21,852
Grupo Financiero BBVA
  Bancomer, S.A. de C.V. (GFB)
  (a)                               26,500                20,032
Telefonos de Mexico S.A. Class
  L - ADR                            1,050                33,579
                                                ----------------
                                                          75,463
                                                ----------------
NORTH AMERICA - 54.6%
- ------------------------------
UNITED STATES - 54.6%
3M Co.                                 195                24,044
Abbott Laboratories                    565                22,600
Air Products and Chemicals,
  Inc.                                 245                10,474
Alcoa Inc.                             675                15,377
ALLTEL Corporation                     175                 8,925
American Express Company               670                23,685
American International Group,
  Inc.                               1,010                58,429
Amgen Inc. (a)                         520                25,137
Anadarko Petroleum Corporation         205                 9,820
Analog Devices, Inc. (a)               150                 3,581
Anheuser-Busch Companies,
  Inc.                                 445                21,538
AOL Time Warner Inc. (a)             1,500                19,650
Applied Materials, Inc. (a)          1,055                13,747
AT&T Corp.                             256                 6,684
Automatic Data Processing,
  Inc.                                 425                16,681
Bank of America Corporation            630                43,829
Bank One Corporation                   595                21,747
BB&T Corporation                       440                16,276
Bed Bath & Beyond Inc. (a)             330                11,395
BellSouth Corporation                  615                15,910
Bristol-Myers Squibb Company           850                19,678
Carnival Corp                          555                13,847
Chevron Texaco Corporation             495                32,908
Cisco Systems, Inc. (a)              2,925                38,318
Citigroup Inc.                       1,760                61,934
Colgate-Palmolive Company              325                17,040
Comcast Corporation (a)              1,154                27,200
ConocoPhillips                         325                15,727
Dell Computer Corporation (a)        1,135                30,350
DTE Energy Company                     270                12,528
Du Pont E.I. du Pont de
  Nemours and Company                  485                20,564
Eli Lilly and Company                  460                29,210
Exelon Corporation                     290                15,303
Exxon Mobil Corporation              2,505                87,525
Fannie Mae                             455                29,270
Fifth Third Bancorp                    295                17,272
First Data Corporation                 480                16,997
FPL Group, Inc.                        210                12,627
Freddie Mac                            290                17,125
Gannett Co., Inc.                      210                15,078
General Dynamics Corporation           165                13,096


 36         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
General Electric Company             3,465      $         84,373
General Motors Corporation             270                 9,952
Gillette Company                       575                17,457
Harley-Davidson Inc.                   250                11,550
Hewlett-Packard Company              1,375                23,870
Home Depot, Inc.                       955                22,882
Honeywell International Inc.           605                14,520
Intel Corporation                    2,440                37,991
International Business
  Machines Corp.                       615                47,663
International Paper Company            380                13,289
ITT Industries, Inc.                   175                10,621
J.P. Morgan Chase and Co.              775                18,600
Johnson & Johnson                    1,065                57,201
Kimberly-Clark Corporation             215                10,206
Kohl's Corporation (a)                 185                10,351
Lehman Brothers Holdings Inc.          185                 9,859
Linear Technology Corporation          145                 3,729
Lockheed Martin Corporation            330                19,058
Lowe's Companies, Inc.                 485                18,188
Maxim Integrated Products,
  Inc.                                 155                 5,121
McDonald's Corporation                 595                 9,568
Medtronic, Inc.                        540                24,624
Merck & Co., Inc.                      825                46,703
Merrill Lynch & Co., Inc.              455                17,267
Microsoft Corporation (a)            1,875                96,938
Morgan Stanley                         425                16,966
Motorola, Inc.                       1,230                10,640
Nike, Inc.                             120                 5,336
Noble Corporation (a)                   85                 2,988
Oracle Corporation (a)               2,445                26,406
PepsiCo, Inc.                          760                32,087
Pfizer Inc.                          2,025                61,904
Pharmacia Corporation                  570                23,826
Philip Morris Companies Inc.           895                36,274
Pulte Homes, Inc.                      200                 9,574
S&P 500 Depository Receipts          1,000                88,290
SBC Communications Inc.              1,110                30,092
Schering-Plough Corporation            695                15,429
State Street Corporation               370                14,430
SunTrust Banks, Inc.                   250                14,230
Sysco Corporation                      470                14,001
Target Corporation                     570                17,100
Texas Instruments Inc.               1,020                15,310
The Boeing Company                     535                17,650
The Coca-Cola Company                  805                35,275
The Goldman Sachs Group, Inc.          200                13,620
The Procter & Gamble Company           505                43,400
The Southern Company                   545                15,473
The Walt Disney Company                990                16,147
Tyco International Ltd.                955                16,312
U.S. Bancorp                         1,085                23,024
United Parcel Service, Inc.            440                27,755
United Technologies
  Corporation                          285                17,653
UnitedHealth Group
  Incorporated                         175                14,613
Verizon Communications                 910                35,263
Viacom Inc. Cl B (a)                   795                32,404
Wachovia Corporation                   720                26,237
Walgreen Co.                           385                11,238
Wal-Mart Stores, Inc.                1,620                81,826
Washington Mutual, Inc.                605                20,891
Wells Fargo & Company                  745                34,918





NAME OF SECURITY                    SHARES                 VALUE
                                          
Wyeth                                  575      $         21,505
                                                ----------------
                                                       2,514,784
                                                ----------------
TOTAL INVESTMENTS - 99.3%
  (Cost - $5,277,698)                           $      4,569,584
  (Cost on Federal income tax
    basis - $5,388,293)
OTHER ASSETS, LESS LIABILITIES - 0.7%                     33,159
                                                ----------------
NET ASSETS - 100%                               $      4,602,743
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal Income tax purposes
is as follows:
  Gross unrealized appreciation                 $        300,320
  Gross unrealized depreciation                       (1,008,434)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                      (708,114)
  Less: tax basis adjustments                           (110,595)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (818,709)
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $3,693,509 and $5,275,807, respectively,
for the period ended December 31, 2002.



IVY GLOBAL NATURAL RESOURCES FUND
                                          
EQUITY SECURITIES - 98.1%
- ------------------------------
ENERGY UTILITIES - 4.1%
Duke Energy Corporation             10,000      $        195,400
El Paso Corporation                 75,000               522,000
Mirant Corporation (a)             300,000               567,000
                                                ----------------
                                                       1,284,400
                                                ----------------
INTEGRATED OIL & GAS - 2.9%
Hurricane Hydrocarbons Ltd.
  (a)                               50,000               521,592
Petroleo Brasileiro S.A. -
  Petrobras                         25,000               373,500
                                                ----------------
                                                         895,092
                                                ----------------
OIL & GAS DRILLING - 13.5%
ENSCO International
  Incorporated                      30,000               883,500
GlobalSantaFe Corporation           35,000               851,200
Noble Corporation (a)               27,000               949,050
Precision Drilling Corporation
  (a)                               22,500               725,655
Pride International, Inc. (a)       55,000               819,500
                                                ----------------
                                                       4,228,905
                                                ----------------
OIL & GAS EQUIPMENT &
  SERVICES - 18.5%
BJ Services Company (a)             10,000               323,100
National-Oilwell, Inc. (a)          60,000             1,310,400
NQL Drilling Tools Inc. (a)        250,000             1,345,124
Pason Systems Inc. (a)              30,000               226,930
Smith International, Inc. (a)       22,000               717,640
Trican Well Service Ltd. (a)       120,000             1,534,391
Weatherford International Ltd.
  (a)                                9,000               359,370
                                                ----------------
                                                       5,816,955
                                                ----------------


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          37

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY GLOBAL NATURAL RESOURCES FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
OIL & GAS EXPLORATION &
  PRODUCTION - 4.9%
Canadian Natural Resources
  Ltd.                              30,000      $        888,731
Compton Petroleum Corporation
  (a)                               50,000               161,099
Ocean Energy, Inc.                  10,800               215,676
Talisman Energy Inc.                 8,000               287,888
                                                ----------------
                                                       1,553,394
                                                ----------------
OIL & GAS REFINING &
  TRANSPORT - 5.2%
Stelmar Shipping Ltd. (a)           60,000               903,600
Valero Energy Corporation           20,000               738,800
                                                ----------------
                                                       1,642,400
                                                ----------------
ALTERNATE ENERGY - 4.7%
CONSOL Energy Inc.                  35,000               604,800
Peabody Energy Corporation          30,000               876,900
                                                ----------------
                                                       1,481,700
                                                ----------------
INDUSTRIAL MATERIALS - 5.7%
Cemex S.A. De C.V.                  60,000             1,290,600
Slater Steel, Inc. (a)              80,000               189,900
Steel Dynamics, Inc. (a)            25,000               300,750
                                                ----------------
                                                       1,781,250
                                                ----------------
DIVERSIFIED METALS &
  MINING - 8.5%
Cameco Corporation                  15,000               355,872
Freeport-McMoRan Copper &
  Gold, Inc. (a)                    18,000               302,040
Inco Limited (a)                    40,000               845,181
Outokumpu Oyj                      109,375               952,614
Pechiney SA                          6,500               228,087
                                                ----------------
                                                       2,683,794
                                                ----------------
PAPER & FOREST PRODUCTS -12.1%
Aracruz Celulose S.A.               46,000               853,760
Cascades Inc.                       45,000               445,790
Domtar, Inc.                        20,000               198,762
Norske Skogindustrier ASA           27,000               381,942
Sappi Limited                       10,000               133,441
Sino-Forest Corp. (a)              400,000               296,244
Smurfit-Stone Container
  Corporation (a)                   18,000               277,038
UPM-Kymmene Oyj                      7,400               243,534
Votorantim Celulose e Papel
  S.A.                              60,000               986,400
                                                ----------------
                                                       3,816,911
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
PRECIOUS METALS &
  MINERALS - 16.5%
Anglo American Platinum
  Corporation Limited               10,000      $        368,275
Cia de Minas Buenaventura S.A.
  Sponsored ADR                     25,000               659,750
Gabriel Resources Ltd. (a)         225,000               662,276
Gold Fields Limited                 22,500               314,404
Gold Fields Limited ADR              2,500                34,900
Impala Platinum Holdings
  Limited                           25,000             1,587,897
Newmont Mining Corp                 20,000               580,600
Repadre Capital Corporation
  (a)                               82,500               638,681
Sons of Gwalia Limited             225,364               328,678
                                                ----------------
                                                       5,175,461
                                                ----------------
AGRICULTURAL PRODUCTS - 1.4%
Agricore United Ltd.               125,000               435,187
                                                ----------------
WARRANTS - 0.1%
Harmony Gold Warrants (a)            2,800                36,711
                                                ----------------
TOTAL INVESTMENTS - 98.1%                       $     30,832,160
  (Cost - $30,207,560)
  (Cost on Federal income tax
    basis - $31,332,104)
OTHER ASSETS, LESS LIABILITIES - 1.9%                    596,969
                                                ----------------
NET ASSETS - 100%                               $     31,429,129
                                                ================
Other Information:
At December 31, 2002, net unrealized
appreciation (depreciation) based on cost
for financial statement and Federal Income
tax purposes, respectively, is as follows:
  Gross unrealized appreciation                 $      4,355,835
  Gross unrealized depreciation                       (3,731,235)
                                                ----------------
    Net unrealized appreciation for
      financial statement purposes                       624,600
  Less: tax basis adjustments                         (1,124,544)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (499,944)
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $37,189,952 and $18,801,227, respectively,
for the period ended December 31, 2002.

 38         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)



IVY GLOBAL SCIENCE & TECHNOLOGY FUND
NAME OF SECURITY                    SHARES                 VALUE
                                          
EQUITY SECURITIES - 81.4%
- ------------------------------
CONSUMER DISCRETIONARY - 1.3%
- ------------------------------
EDUCATION SERVICES - 0.3%
Edison Schools Inc. (a)             20,850      $         33,777
                                                ----------------
SERVICES: COMMERCIAL - 1.0%
Getty Images Inc. (a)                3,400               103,870
                                                ----------------
FINANCIAL SERVICES - 5.8%
- ------------------------------
DIVERSIFIED FINANCIAL
  SERVICES - 0.9%
Euronet Worldwide Inc. (a)          11,800                88,618
                                                ----------------
FINANCIAL DATA PROCESSING
  SERVICES & SYSTEMS - 4.9%
Concord EFS Inc. (a)                31,600               497,384
                                                ----------------
HEALTH CARE - 38.5%
- ------------------------------
BIOTECHNOLOGY RESEARCH &
  PRODUCTION - 6.1%
Biogen Inc. (a)(g)                   3,450               354,531
Genzyme Corp. (a)                    7,200               212,904
Incyte Genomics Inc. (a)            11,250                51,300
                                                ----------------
                                                         618,735
                                                ----------------
DRUGS & PHARMACEUTICALS -13.8%
Abbott Laboratories                  6,650               266,000
Forest Laboratories Inc.
  (a)(g)                             4,600               648,252
IVAX Corp. (a)                      12,150               147,380
Pfizer Inc.                          8,400               256,788
SICOR Inc. (a)                       4,850                76,872
                                                ----------------
                                                       1,395,292
                                                ----------------
HEALTH CARE FACILITIES - 4.7%
HCA Inc.                            11,350               471,025
                                                ----------------
HEALTH CARE MANAGEMENT
  SERVICES - 2.6%
Cerner Corp. (a)                     1,400                43,764
UnitedHealth Group Inc.              2,650               221,275
                                                ----------------
                                                         265,039
                                                ----------------
HEALTH CARE SERVICES - 4.1%
Anthem Inc. (a)                      3,750               235,875
Province Healthcare Co. (a)         18,800               182,924
                                                ----------------
                                                         418,799
                                                ----------------
MEDICAL & DENTAL INSTRUMENTS &
  SUPPLIES - 7.2%
Alcon Inc. (a)                       8,350               329,407
Guidant Corp. (a)                   12,850               396,423
                                                ----------------
                                                         725,830
                                                ----------------
INTEGRATED OILS - 2.2%
- ------------------------------
OIL: INTEGRATED DOMESTIC -2.2%
ConocoPhillips                       1,550                75,004
Unocal Corp.                         4,750               145,255
                                                ----------------
                                                         220,259
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
MATERIALS AND
  PROCESSING - 2.5%
- ------------------------------
GOLD - 2.2%
Newmont Mining Corp.                 7,650      $        222,080
                                                ----------------
METAL FABRICATING - 0.3%
Lone Star Technologies Inc.
  (a)                                1,950                29,035
                                                ----------------
OTHER ENERGY - 9.7%
- ------------------------------
MACHINERY: OIL WELL EQUIP &
  SERV - 2.2%
Baker Hughes Inc.                    4,500               144,855
Cooper Cameron Corp. (a)             1,600                79,712
                                                ----------------
                                                         224,567
                                                ----------------
OIL: CRUDE PRODUCERS - 7.5%
Apache Corp.                         3,950               225,111
Burlington Resources Inc.            4,000               170,600
Newfield Exploration Co. (a)         4,000               144,200
Noble Energy Inc.                    5,700               214,035
                                                ----------------
                                                         753,946
                                                ----------------
PRODUCER DURABLES - 6.9%
- ------------------------------
AEROSPACE - 3.4%
Northrop Grumman Corp.               3,550               344,350
                                                ----------------
IDENTIFICATION CONTROL &
  FILTER DEVICES - 3.5%
Garmin Ltd. (a)                      4,800               140,640
Pall Corp.                          13,000               216,840
                                                ----------------
                                                         357,480
                                                ----------------
TECHNOLOGY - 12.0%
- ------------------------------
COMMUNICATIONS
  TECHNOLOGY - 3.7%
ADC Telecommunications Inc.
  (a)                               15,500                32,395
Cisco Systems Inc. (a)               8,150               106,765
Symbol Technologies Inc.            28,000               230,160
                                                ----------------
                                                         369,320
                                                ----------------
COMPUTER SERVICES SOFTWARE &
  SYSTEMS - 2.6%
Manhattan Associates Inc. (a)          550                13,013
Micromuse Inc. (a)                   9,400                35,908
PeopleSoft Inc. (a)                 11,750               215,025
                                                ----------------
                                                         263,946
                                                ----------------
COMPUTER TECHNOLOGY - 0.5%
RSA Security Inc. (a)                8,700                52,113
                                                ----------------
ELECTRONICS - 1.8%
Sony Corp.                           4,450               183,830
                                                ----------------
ELECTRONICS: SEMI-CONDUCTORS/
  COMPONENTS - 2.4%
Agere Systems Inc (a)               44,450                64,008
IXYS Corp. (a)                       6,700                47,302
United Microelectronics Corp.
  (a)                               39,000               131,040
                                                ----------------
                                                         242,350
                                                ----------------
ELECTRONICS: TECHNOLOGY - 1.0%
Raytheon Co.                         3,300               101,475
                                                ----------------


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          39

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY GLOBAL SCIENCE & TECHNOLOGY FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
UTILITIES - 2.5%
- ------------------------------
UTILITIES:
  TELECOMMUNICATIONS - 2.5%
Vodafone Group PLC                  14,100      $        255,492
                                                ----------------
TOTAL INVESTMENTS - 81.4%
  (Cost - $8,325,263)                           $      8,238,612
  (Cost on Federal income tax
    basis - $8,378,157)
OTHER ASSETS, LESS LIABILITIES - 18.6%                 1,873,426
                                                ----------------
NET ASSETS - 100%                               $     10,112,038
                                                ================





NAME OF SECURITY                    SHARES                 VALUE
                                          
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $         81,573
  Gross unrealized depreciation                         (168,224)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                       (86,651)
  Less: tax basis adjustments                            (52,894)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (139,545)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $24,888,259 and $32,068,111, respectively, for the period ended
December 31, 2002.

Call options written at December 31, 2002 were:



                                                                        SHARES
                                          EXPIRATION        EXERCISE    SUBJECT     FAIR
                                             DATE            PRICE      TO CALL     VALUE
- ------------------------------------------------------------------------------------------
                                                                       
Biogen, Inc.                           February 15, 2003      $ 43       3,400     $ 6,120
Biogen, Inc.                           April 19, 2003           45       5,400      11,070
Forest Laboratories                    February 15, 2003       105       4,400      11,000
                                                                                   -------
  Total (premiums received $28,823)                                                $28,190
                                                                                   =======


Put options purchased at December 31, 2002 were:



                                          EXPIRATION        EXERCISE     SHARES       FAIR
                                             DATE            PRICE      PURCHASED     VALUE
- --------------------------------------------------------------------------------------------
                                                                         
Biogen, Inc.                           February 15, 2003      $ 38        3,400      $ 5,270
Forest Laboratories                    February 15, 2003        90        2,400        6,000
                                                                                     -------
  Total (premiums paid $12,294)                                                      $11,270
                                                                                     =======




IVY INTERNATIONAL FUND
NAME OF SECURITY                    SHARES                 VALUE
                                          
EQUITY SECURITIES - 98.5%
- ------------------------------
EUROPE - 67.8%
- ------------------------------
BELGIUM - 0.9%
Fortis                             103,000      $      1,800,665
                                                ----------------
FINLAND - 2.6%
Nokia Oyj                          170,417             2,709,233
Stora Enso Oyj                     263,000             2,773,592
                                                ----------------
                                                       5,482,825
                                                ----------------
FRANCE - 13.7%
Aventis SA                          50,529             2,746,574
AXA                                251,664             3,377,633
Cie Francaise d'Etudes et de
  Construction (Technip SA)         24,829             1,776,906
LVMH Moet Hennessy Louis
  Vuitton SA (d)                    60,056             2,467,226
Schneider SA                        72,404             3,425,812
Societe Generale                    84,025             4,893,530
Societe Television Francaise 1
  (d)                              138,637             3,703,892
Thomson Multimedia (a)(d)          111,000             1,893,932
TotalFinaElf - B Shares             31,174             4,452,167
                                                ----------------
                                                      28,737,672
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
GERMANY - 5.1%
Adidas-Salomon AG                   35,450      $      3,013,159
Deutsche Lufthansa AG (a)          196,094             1,854,001
Siemens AG (d)                      57,462             2,442,061
Volkswagen AG Pfd                  130,600             3,385,017
                                                ----------------
                                                      10,694,238
                                                ----------------
ITALY - 3.3%
Assicurazioni Generali S.p.A.      147,593             3,035,587
ENEL S.p.A. (d)                    750,650             3,906,969
                                                ----------------
                                                       6,942,556
                                                ----------------
NETHERLANDS - 8.8%
Akzo Nobel NV                      110,049             3,490,961
ING Groep NV                       154,080             2,609,580
Koninklijke (Royal) KPN NV (a)     500,400             3,255,590
Koninklijke Ahold NV               228,745             2,904,409
Royal Dutch Petroleum Company       90,869             4,000,078
TPG NV                             137,000             2,221,109
                                                ----------------
                                                      18,481,727
                                                ----------------
NORWAY - 1.2%
Norsk Hydro A.S. Sponsored ADR
  (d)                               55,500             2,464,755
                                                ----------------


 40         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
SPAIN - 3.6%
Amadeus Global Travel
  Distribution S.A.                548,700      $      2,262,811
Iberdrola S.A. (d)                 215,000             3,011,900
Telefonica S.A. Sponsored ADR
  (a)                               85,000             2,258,450
                                                ----------------
                                                       7,533,161
                                                ----------------
SWITZERLAND - 6.9%
Credit Suisse Group                106,700             2,315,052
Holcim Ltd.                         20,281             3,681,614
Novartis AG                         61,000             2,225,698
STMicroelectronics NV               86,215             1,682,055
UBS AG                              94,190             4,577,720
                                                ----------------
                                                      14,482,139
                                                ----------------
UNITED KINGDOM - 21.7%
Abbey National plc                 329,000             2,738,356
Amvescap plc                       368,000             2,344,619
BAE Systems plc                    851,948             1,697,312
BP Amoco plc                       612,369             4,214,565
BT Group plc                     1,210,690             3,800,765
Diageo plc                         377,141             4,101,404
GlaxoSmithKline plc                258,078             4,952,571
HBOS plc                           455,787             4,806,254
Rio Tinto plc                      212,596             4,240,625
Unilever plc                       450,690             4,288,139
Vodafone AirTouch plc            3,023,062             5,523,908
WPP Group plc                      378,000             2,872,349
                                                ----------------
                                                      45,580,867
                                                ----------------
FAR EAST - 26.8%
- ------------------------------
AUSTRALIA - 3.6%
BHP Ltd. (d)                       805,259             4,602,438
National Australia Bank Ltd.       169,800             3,035,762
                                                ----------------
                                                       7,638,200
                                                ----------------
HONG KONG - 3.6%
Hang Seng Bank                     262,900             2,798,110
Hutchison Whampoa Ltd.             401,000             2,509,345
Sun Hung Kai Properties Ltd.       395,000             2,340,104
                                                ----------------
                                                       7,647,559
                                                ----------------
JAPAN - 15.8%
Asahi Glass Company, Ltd.          518,700             3,177,676
Canon Inc.                          91,970             3,464,277
Kirin Brewery Company, Limited
  (d)                              434,000             2,761,186
Murata Manufacturing Company,
  Ltd.                              43,000             1,684,924
Nintendo Co., Ltd.                  33,000             3,083,929
Nissan Motor Co., Ltd.             535,000             4,174,685
Nomura Holdings, Inc.              181,300             2,038,039
NTT DoCoMo, Inc.                     1,200             2,214,544
Sharp Corporation                  351,800             3,341,017
SMC Corporation                     39,500             3,708,013
Sony Corporation                    85,300             3,565,247
                                                ----------------
                                                      33,213,537
                                                ----------------
SOUTH KOREA - 2.9%
POSCO                               33,200             3,303,065
Samsung Electronics                 10,770             2,851,296
                                                ----------------
                                                       6,154,361
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
TAIWAN - 0.9%
Taiwan Semiconductor
  Manufacturing Company (a)      1,528,560      $      1,872,781
                                                ----------------
LATIN AMERICA - 3.9%
- ------------------------------
MEXICO - 3.9%
Fomento Economico Mexicano,
  S.A. Sponsored ADR                66,700             2,429,214
Grupo Financiero BBVA
  Bancomer, S.A. de C.V. (GFB)
  (a)                            2,780,000             2,101,472
Telefonos de Mexico S.A. Class
  L - ADR                          110,900             3,546,582
                                                ----------------
                                                       8,077,268
                                                ----------------
TOTAL INVESTMENTS - 98.5%
  (Cost - $260,333,316)                         $    206,804,311
  (Cost on Federal income tax
    basis - $264,892,714)
OTHER ASSETS, LESS LIABILITIES - 1.5%                  3,227,291
                                                ----------------
NET ASSETS - 100%                               $    210,031,602
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $     15,901,651
  Gross unrealized depreciation                      (69,430,656)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                   (53,529,005)
  Less: tax basis adjustments                         (4,559,398)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $    (58,088,403)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $107,347,300 and $319,490,022, respectively, for the period ended
December 31, 2002.



IVY INTERNATIONAL SMALL COMPANIES FUND
                                          
EQUITY SECURITIES - 99.4%
- ------------------------------
EUROPE - 66.0%
- ------------------------------
AUSTRIA - 4.4%
OMV AG                                 550      $         54,009
Telecom Austria AG (a)               6,979                70,671
Voest-Alpine AG (a)                  2,335                56,723
                                                ----------------
                                                         181,403
                                                ----------------
BELGIUM - 3.5%
Agfa Gevaert NV                      3,000                66,896
Omega Pharma S.A.                    2,794                80,099
                                                ----------------
                                                         146,995
                                                ----------------
FINLAND - 2.7%
Instrumentarium Corporation          1,400                56,090
Kone Corporation                     1,840                55,240
                                                ----------------
                                                         111,330
                                                ----------------
FRANCE - 6.3%
Carbone Lorraine SA                  2,432                56,808


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          41

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY INTERNATIONAL SMALL COMPANIES FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
Financiere Marc de Lacharriere
  SA (Fimalac)                       2,149      $         57,120
Medidep SA (a)                       3,550                57,182
Pinguely-Haulotte                    8,000                31,732
Unibail (Union du Credit-Bail
  Immobilier)                          800                56,917
                                                ----------------
                                                         259,759
                                                ----------------
GERMANY - 4.1%
Continental AG (a)                   2,000                30,746
Fraport AG                           2,997                53,463
GfK AG                               2,890                37,908
Medion AG                            1,409                48,792
                                                ----------------
                                                         170,909
                                                ----------------
GREECE - 2.2%
Coca-Cola Hellenic Bottling
  Company S.A.                       3,300                45,848
Public Power Corporation (PPC)       3,100                42,940
                                                ----------------
                                                          88,788
                                                ----------------
IRELAND - 2.9%
Irish Life & Permanent plc           5,000                54,041
Jurys Doyle Hotel Group plc          9,107                67,373
                                                ----------------
                                                         121,414
                                                ----------------
ITALY - 5.3%
Amplifon S.p.A.                      3,349                59,462
Campari Group                        1,500                46,859
Italgas S.p.A.                       3,950                53,718
Permasteelisa S.p.A.                 3,900                61,346
                                                ----------------
                                                         221,385
                                                ----------------
NETHERLANDS - 4.9%
CSM NV                               2,200                46,125
IHC Caland NV                        1,089                57,480
United Services Group NV             3,336                37,317
Van der Moolen Holding NV            2,880                61,954
                                                ----------------
                                                         202,876
                                                ----------------
SPAIN - 10.6%
ACS Actividades de
  Construccion y Servicios,
  S.A.                               2,536                81,564
Aldeasa, S.A.                        4,187                61,643
Aurea Concesions de
  Infraestructuras del Estado
  S.A.                               3,287                82,057
Baron de Ley, S.A. (a)               3,737               107,447
Grupo Auxiliar Metalurgico,
  S.A. (Gamesa) (a)                  3,148                51,566
Metrovacesa, S.A.                    2,637                55,896
                                                ----------------
                                                         440,173
                                                ----------------
SWEDEN - 1.6%
Swedish Match AB                     8,500                66,823
                                                ----------------
SWITZERLAND - 6.9%
Lonza Group AG                         954                57,957
PubliGroupe S.A. (a)                   150                23,866
Schindler Holding AG                   345                64,874





NAME OF SECURITY                    SHARES                 VALUE
                                          
SEZ Holding AG (a)                     814      $         13,246
Swisslog Holdings AG                 3,121                28,666
Unilabs SA                           3,420                66,041
Unique Zurich Airport (a)            1,062                33,027
                                                ----------------
                                                         287,677
                                                ----------------
UNITED KINGDOM - 10.6%
Cattles plc                         10,000                46,446
Dairy Crest Group plc               11,100                61,116
Eidos plc (a)                       27,909                57,175
Enterprise Inns plc                 10,534                96,750
HIT Entertainment plc               13,059                44,676
HMV Group plc (a)                   14,000                26,821
Luminar plc                          4,000                25,211
Man Group plc (a)                    2,000                28,528
Sanctuary Group plc                 37,126                23,908
SSL International plc                7,000                29,019
                                                ----------------
                                                         439,650
                                                ----------------
FAR EAST - 33.4%
- ------------------------------
AUSTRALIA - 4.1%
Billabong International Ltd.        13,000                50,876
Foodland Associated Limited          4,164                41,619
Hills Motorway Group                 8,000                22,749
Toll Holdings Limited (a)           15,000                53,636
                                                ----------------
                                                         168,880
                                                ----------------
HONG KONG - 3.1%
Cafe De Coral Holdings Limited      64,000                43,086
Convenience Retail Asia
  Limited (a)                      116,000                30,680
Techtronic Industries               58,248                55,272
                                                ----------------
                                                         129,038
                                                ----------------
JAPAN - 22.7%
Asatsu-Dk Inc.                       5,700               101,108
Koa Corporation                     16,700               103,293
Kobayashi Pharmaceutical Co.,
  Ltd.                               3,100               106,059
Mitsubishi Securities Co.,
  Ltd.                              25,000               102,595
Moshi Moshi Hotline, Inc             2,050                64,953
OBIC Co., Ltd.                         600               104,407
Otsuka Kagu. Ltd.                    4,600                72,487
Taiyo Ink Mfg. Co., Ltd.             3,500                98,803
Tokyo Steel Manufacturing Co.,
  Ltd.                              26,500                87,537
Tokyo Style Co., Ltd                12,000               101,728
                                                ----------------
                                                         942,970
                                                ----------------
NEW ZEALAND - 1.2%
Fisher & Paykel Appliances
  Holdings Ltd.                      9,178                48,246
                                                ----------------
SOUTH KOREA - 2.3%
Lotte Chilsung Beverage                110                51,937
Lotte Confectionery Co., Ltd.          110                44,239
                                                ----------------
                                                          96,176
                                                ----------------


 42         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
TOTAL INVESTMENTS - 99.4%
  (Cost - $4,680,734)                           $      4,124,492
  (Cost on Federal income tax
    basis - $4,690,986)
OTHER ASSETS, LESS LIABILITIES - 0.6%                     25,414
                                                ----------------
NET ASSETS - 100.0%                             $      4,149,906
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal Income tax purposes
is as follows:
  Gross unrealized appreciation                 $        282,386
  Gross unrealized depreciation                         (838,628)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                      (556,242)
  Less: tax basis adjustments                            (10,252)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (566,494)
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $10,495,156 and $14,630,598, respectively,
for the period ended December 31, 2002.



IVY INTERNATIONAL VALUE FUND
                                          
EQUITY SECURITIES - 98.5%
- ------------------------------
EUROPE - 66.5%
- ------------------------------
BELGIUM - 1.0%
Fortis                              26,910      $        470,445
                                                ----------------
FINLAND - 1.6%
Metso Oyj                           65,382               706,669
                                                ----------------
FRANCE - 10.3%
AXA                                 52,100               699,244
Cie Francaise d'Etudes et de
  Construction (Technip SA)
  (d)                                3,000               214,697
Credit Lyonnais SA (d)              16,000               894,887
Schneider SA                        22,009             1,041,361
Societe Generale                    16,900               984,239
TotalFinaElf - B Shares              5,921               845,617
                                                ----------------
                                                       4,680,045
                                                ----------------
GERMANY - 8.5%
Adidas-Salomon AG                    6,900               586,482
Deutsche Lufthansa AG (a)           55,000               520,006
Merck KGaA                          33,555               884,148
Muenchener Rueckversicherungs-
  Gesellschaft AG                    3,000               358,563
RWE AG                              15,500               398,491
Siemens AG                           9,650               410,113
Volkswagen AG                       12,740               461,221
Volkswagen AG Pfd                    9,000               233,271
                                                ----------------
                                                       3,852,295
                                                ----------------
IRELAND - 2.2%
Bank of Ireland                     97,982             1,006,583
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
ITALY - 3.7%
ENEL S.p.A.                         91,700      $        477,278
ENI S.p.A.                          74,000             1,176,428
                                                ----------------
                                                       1,653,706
                                                ----------------
NETHERLANDS - 5.7%
Akzo Nobel NV                       26,802               850,210
ING Groep NV                        28,000               474,223
Koninklijke Ahold NV                60,300               765,638
TPG NV                              31,600               512,314
                                                ----------------
                                                       2,602,385
                                                ----------------
NORWAY - 1.0%
Norsk Hydro A.S. Sponsored ADR       9,900               439,659
                                                ----------------
SPAIN - 3.9%
Amadeus Global Travel
  Distribution S.A.                 41,500               171,144
Iberdrola S.A. (d)                  60,700               850,336
Telefonica S.A. Sponsored ADR
  (a)                                  725                19,263
Union Electrica Fenosa, S.A.
  (d)                               55,880               735,904
                                                ----------------
                                                       1,776,647
                                                ----------------
SWITZERLAND - 8.6%
Credit Suisse Group                 27,900               605,342
Holcim Ltd.                          4,835               877,699
Nestle SA                            2,080               440,764
Novartis AG                         27,800             1,014,334
UBS AG                              19,500               947,718
                                                ----------------
                                                       3,885,857
                                                ----------------
UNITED KINGDOM - 20.0%
Abbey National plc                  63,000               524,366
Amvescap plc                       122,500               780,478
BAE Systems plc                    248,100               494,283
BP Amoco plc                        87,000               598,768
BT Group plc                       242,650               761,761
Diageo plc                          61,904               673,205
Pilkington plc                     618,829               580,323
Rio Tinto plc                       57,412             1,145,190
Shell Transport & Trading Co.
  plc                              127,539               839,275
Unilever plc                        81,800               778,295
Vodafone AirTouch plc              719,337             1,314,413
WPP Group plc                       78,000               592,707
                                                ----------------
                                                       9,083,064
                                                ----------------
FAR EAST - 27.4%
- ------------------------------
AUSTRALIA - 3.8%
BHP Ltd.                           186,244             1,064,473
Westpac Banking Corp. Ltd.          85,381               661,074
                                                ----------------
                                                       1,725,547
                                                ----------------
HONG KONG - 4.3%
Cathay Pacific Airways             395,000               539,439
Hang Seng Bank                      72,000               766,314
Sun Hung Kai Properties Ltd.       107,000               633,902
                                                ----------------
                                                       1,939,655
                                                ----------------
JAPAN - 14.8%
Canon Inc. (a)                      30,000             1,130,024
Fuji Photo Film Co., Ltd. (a)       11,000               358,726
Kirin Brewery Company, Limited
  (a)(d)                           100,000               636,218
Matsushita Electric Industrial
  Co.                               25,000               246,482


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          43

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY INTERNATIONAL VALUE FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
Nikko Exchange Traded Index          8,410      $        606,637
Nintendo Co., Ltd. (a)               8,000               747,619
Nissan Motor Co., Ltd. (a)         115,000               897,362
Nomura Holdings, Inc.               55,000               618,269
Sharp Corporation (a)               66,000               626,797
Sony Corporation                    20,500               856,829
                                                ----------------
                                                       6,724,963
                                                ----------------
SOUTH KOREA - 4.5%
KT Corporation (a)(d)               40,000               862,000
POSCO                                7,000               696,429
Samsung Electronics                  1,780               471,245
                                                ----------------
                                                       2,029,674
                                                ----------------
LATIN AMERICA - 4.5%
- ------------------------------
BRAZIL - 1.8%
Embraer Brasileira de
  Aeronautica S.A. (Embraer)        20,000               318,000
Tele Norte Leste Participacoes
  S.A. (a)                          70,000               514,500
                                                ----------------
                                                         832,500
                                                ----------------
MEXICO - 2.7%
Fomento Economico Mexicano,
  S.A. Sponsored ADR                18,000               655,560
Grupo Financiero BBVA
  Bancomer, S.A. de C.V. (GFB)
  (a)                              737,500               557,495
                                                ----------------
                                                       1,213,055
                                                ----------------
TOTAL INVESTMENTS - 98.4%
  (Cost - $49,376,967)                          $     44,622,749
  (Cost on Federal income tax
    basis - $49,560,018)
OTHER ASSETS, LESS LIABILITIES - 1.6%                    701,750
                                                ----------------
NET ASSETS - 100%                               $     45,324,499
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $      4,092,371
  Gross unrealized depreciation                       (8,846,589)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                    (4,754,218)
  Less: tax basis adjustments                           (183,051)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $     (4,937,269)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $27,937,651 and $44,893,995, respectively, for the period ended
December 31, 2002.



IVY PACIFIC OPPORTUNITIES FUND
                                          
AUSTRALIA - 26.7%
Australia & New Zealand
  Banking Group Ltd.                38,005      $        371,301
BHP Ltd.                            73,748               421,505





NAME OF SECURITY                    SHARES                 VALUE
                                          
Foster's Brewing Group Ltd.        110,849      $        280,886
Qantas Airways Limited              62,519               134,833
Rio Tinto Ltd.                      21,827               417,273
Westpac Banking Corp. Ltd.          51,040               395,184
Woolsworths Ltd.                    41,445               266,050
                                                ----------------
                                                       2,287,032
                                                ----------------
HONG KONG - 21.2%
Cathay Pacific Airways             250,000               341,418
China Mobile (Hong Kong) Ltd.
  (a)                               92,200               219,316
Hang Lung Properties Ltd.          273,500               264,789
Hang Seng Bank                      26,600               283,111
Henderson Land Development
  Company Ltd.                      82,000               246,052
Hutchison Whampoa Ltd.              24,000               150,185
Sun Hung Kai Properties Ltd.        53,000               313,989
                                                ----------------
                                                       1,818,860
                                                ----------------
INDIA - 6.6%
Hero Honda Motors Ltd.              62,715               354,971
ITC Ltd.                            15,300               210,722
                                                ----------------
                                                         565,693
                                                ----------------
SINGAPORE - 7.4%
Capitaland Limited                 237,000               151,668
Haw Par Corporation Limited          1,551                 2,915
Singapore Press Holdings Ltd.       21,000               220,350
United Overseas Bank Limited        38,000               258,517
                                                ----------------
                                                         633,450
                                                ----------------
SOUTH KOREA - 22.2%
Hyundai Motor Co., Ltd.             16,030               375,054
Kookmin Bank                         6,141               217,463
Korea Telecom Corporation            4,000               170,988
POSCO                                4,980               495,460
Samsung Electronics                  1,430               378,584
SK Telecom Co., Ltd.                 1,378               266,061
                                                ----------------
                                                       1,903,610
                                                ----------------
TAIWAN - 10.7%
Asustek Computer Inc.               54,150                95,000
Hon Hai Precision Industry
  Co., Ltd.                         83,808               289,242
Quanta Computer Inc.                65,550               107,459
Taiwan Semiconductor
  Manufacturing Company (a)        243,637               298,502
United Microelectronics
  Corporation                      211,858               128,565
                                                ----------------
                                                         918,768
                                                ----------------
TOTAL INVESTMENTS - 94.8%
  (Cost - $8,502,983)                           $      8,127,413
  (Cost on Federal income tax
    basis - $8,828,989)


 44         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
OTHER ASSETS, LESS LIABILITIES - 5.2%           $        441,284
                                                ----------------
NET ASSETS - 100%                               $      8,568,697
                                                ================
Other Information:
At December 31, 2002, net unrealized
depreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $      1,033,235
  Gross unrealized depreciation                       (1,408,805)
                                                ----------------
    Net unrealized depreciation for
      financial statement purposes                      (375,570)
  Less: tax basis adjustments                           (326,006)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $       (701,576)
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $1,562,302 and $3,408,651, respectively, for the period ended
December 31, 2002.



IVY GROWTH FUND
                                          
EQUITY SECURITIES - 75.4%
- -------------------------------
AUTOS AND TRANSPORTATION - 1.3%
- -------------------------------
AIR TRANSPORT - 0.4%
JetBlue Airways Corp. (a)           18,600      $        502,200
                                                ----------------
RECREATIONAL VEHICLES &
  BOATS - 0.3%
Harley-Davidson Inc.                 6,570               303,534
                                                ----------------
TRANSPORTATION MISC - 0.6%
United Parcel Service Inc.          11,135               702,396
                                                ----------------
CONSUMER DISCRETIONARY - 14.4%
- ------------------------------
CONSUMER ELECTRONICS - 1.0%
Harman International
  Industries Inc.                    9,900               589,050
Take-Two Interactive Software
  Inc. (a)                          25,700               603,693
                                                ----------------
                                                       1,192,743
                                                ----------------
CONSUMER PRODUCTS - 0.6%
Gillette Co.                        15,245               462,838
Yankee Candle Co. Inc. (a)          18,100               289,600
                                                ----------------
                                                         752,438
                                                ----------------
EDUCATION SERVICES - 2.1%
Apollo Group Inc. - University
  of Phoenix Online (a)             29,766             1,066,813
Career Education Corp. (a)          20,700               828,000
Education Management Corp. (a)      13,400               503,840
                                                ----------------
                                                       2,398,653
                                                ----------------
ENTERTAINMENT - 1.3%
The Walt Disney Company             26,225               427,730
Viacom Inc. Cl B (a)                26,430             1,077,287
                                                ----------------
                                                       1,505,017
                                                ----------------
LEISURE TIME - 0.5%
Carnival Corp.                      22,355               557,757
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
PUBLISHING: NEWSPAPERS - 0.6%
Gannett Co. Inc.                     9,680      $        695,024
                                                ----------------
RADIO & TV BROADCASTERS - 0.8%
Hispanic Broadcasting Corp.
  (a)                               19,300               396,615
Radio One Inc. Cl D (a)             37,100               535,353
                                                ----------------
                                                         931,968
                                                ----------------
RESTAURANTS - 0.6%
Panera Bread Co. (a)                18,900               657,909
                                                ----------------
RETAIL - 4.0%
A.C. Moore Arts & Crafts Inc.
  (a)                               34,400               437,224
Kohl's Corp. (a)                     5,380               301,011
Lowe's Companies, Inc.              13,665               512,437
Home Depot, Inc.                    25,185               603,433
Pacific Sunwear of California
  Inc. (a)                           7,550               133,559
Target Corporation                  15,350               460,500
Wal-Mart Stores, Inc.               43,480             2,196,175
                                                ----------------
                                                       4,644,339
                                                ----------------
SERVICES: COMMERCIAL - 2.9%
Advisory Board Co. (a)              13,600               406,640
BearingPoint Inc. (a)               23,600               162,840
Coinstar Inc. (a)                   14,600               330,690
Copart Inc. (a)                     60,150               712,176
eBay Inc. (a)                        7,500               508,650
Robert Half International Inc.      22,500               362,475
Waste Connections Inc. (a)          24,300               938,223
                                                ----------------
                                                       3,421,694
                                                ----------------
CONSUMER STAPLES - 5.2%
- ------------------------------
BEVERAGE: BREWERS
  (WINERIES) - 0.6%
Anheuser-Busch Companies, Inc.      14,440               698,896
                                                ----------------
BEVERAGE: SOFT DRINKS - 1.6%
The Coca-Cola Company               21,945               961,630
PepsiCo, Inc.                       22,450               947,839
                                                ----------------
                                                       1,909,469
                                                ----------------
FOODS - 0.4%
Sysco Corp.                         15,232               453,761
                                                ----------------
SOAPS & HOUSEHOLD
  CHEMICALS - 1.6%
Colgate-Palmolive Co.               11,875               622,606
Procter & Gamble Co.                14,490             1,245,271
                                                ----------------
                                                       1,867,877
                                                ----------------
TOBACCO - 1.0%
Philip Morris Cos. Inc.             28,390             1,150,647
                                                ----------------
FINANCIAL SERVICES - 10.2%
- ------------------------------
BANKS: OUTSIDE NEW YORK
  CITY - 4.9%
Bank of America Corp.               16,645             1,157,993
Bank One Corp.                      15,775               576,576
BB&T Corp.                          12,650               467,924
Fifth Third Bancorp                  7,830               458,446
State Street Corp.                  11,800               460,200
SunTrust Banks Inc.                  6,810               387,625
U.S. Bancorp                        26,165               555,221


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          45

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY GROWTH FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
Wachovia Corp.                      19,665      $        716,593
Wells Fargo & Co.                   20,540               962,710
                                                ----------------
                                                       5,743,288
                                                ----------------
DIVERSIFIED FINANCIAL
  SERVICES - 1.6%
American Express Company            17,930               633,825
The Goldman Sachs Group, Inc.        5,375               366,037
Merrill Lynch & Co., Inc.           10,735               407,393
Morgan Stanley                      12,840               512,573
                                                ----------------
                                                       1,919,828
                                                ----------------
FINANCIAL DATA PROCESSING
  SERVICES & SYSTEMS - 1.6%
Affiliated Computer Services
  Inc. (a)                          16,400               863,460
Automatic Data Processing Inc.      13,885               544,986
First Data Corp.                    14,285               505,832
                                                ----------------
                                                       1,914,278
                                                ----------------
INSURANCE: MULTI-LINE - 1.3%
American International Group
  Inc.                              27,035             1,563,975
                                                ----------------
SAVINGS & LOAN - 0.5%
Washington Mutual, Inc.             17,300               597,369
                                                ----------------
SECURITIES BROKERAGE &
  SERVICES - 0.3%
Lehman Brothers Holdings Inc.        5,845               311,480
                                                ----------------
HEALTH CARE - 16.4%
- ------------------------------
BIOTECHNOLOGY RESEARCH &
  PRODUCTION - 2.0%
Amgen Inc. (a)                      17,400               841,116
Cephalon Inc. (a)                    3,700               180,072
Charles River Laboratories
  International Inc. (a)            11,300               434,824
ICOS Corp. (a)                       9,700               227,077
Integra LifeSciences Holdings
  Corp. (a)                         37,100               654,815
                                                ----------------
                                                       2,337,904
                                                ----------------
DRUGS & PHARMACEUTICALS - 6.9%
Abbott Laboratories                 15,685               627,400
Bristol-Myers Squibb Co.            25,470               589,630
Eli Lilly & Co.                     13,165               835,978
Gilead Sciences Inc. (a)            10,400               353,600
Medicis Pharmaceutical Corp.
  (a)                               15,100               750,017
Merck & Co., Inc.                   22,940             1,298,633
Pfizer Inc.                         59,420             1,816,469
Pharmacia Corporation               19,270               805,486
Schering-Plough Corporation         18,400               408,480
Wyeth                               15,325               573,155
                                                ----------------
                                                       8,058,848
                                                ----------------
ELECTRONICS: MEDICAL
  SYSTEMS - 0.9%
Intuitive Surgical Inc. (a)         55,500               341,880
Medtronic, Inc.                     16,125               735,300
                                                ----------------
                                                       1,077,180
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
HEALTH CARE FACILITIES - 1.1%
Pharmaceutical Product
  Development Inc. (a)              16,000      $        468,320
United Surgical Partners
  International Inc. (a)            50,900               795,109
                                                ----------------
                                                       1,263,429
                                                ----------------
HEALTH CARE MANAGEMENT
  SERVICES - 3.5%
AMERIGROUP Corp. (a)                20,900               633,479
Amsurg Inc. (a)                     47,700               974,511
Centene Corp. (a)                   16,900               567,671
Cerner Corp. (a)                     9,700               303,222
Community Health Systems Inc.
  (a)                               31,800               654,762
Orthodontic Centers of America
  Inc. (a)                          26,900               293,479
UnitedHealth Group Inc.              8,480               708,080
                                                ----------------
                                                       4,135,204
                                                ----------------
HEALTH CARE SERVICES - 1.4%
Accredo Health Inc. (a)             22,050               777,263
Odyssey HealthCare Inc. (a)         13,100               454,570
Province Healthcare Co. (a)         38,200               371,686
                                                ----------------
                                                       1,603,519
                                                ----------------
MEDICAL & DENTAL INSTRUMENTS &
  SUPPLIES - 0.6%
Cytyc Corp. (a)                     33,400               340,680
SonoSite Inc. (a)                   27,700               362,039
                                                ----------------
                                                         702,719
                                                ----------------
INTEGRATED OILS - 2.6%
- ------------------------------
OIL: INTEGRATED DOMESTIC -0.3%
ConocoPhillips                       8,420               407,444
                                                ----------------
OIL: INTEGRATED
  INTERNATIONAL - 2.3%
ChevronTexaco Corp.                 12,827               852,739
Exxon Mobil Corp.                   51,480             1,798,711
                                                ----------------
                                                       2,651,450
                                                ----------------
OTHER - 6.6%
- ------------------------------
MULTI-SECTOR COMPANIES - 6.6%
3M Co.                               5,240               646,092
General Electric Company            91,920             2,238,252
ITT Industries Inc.                  8,515               516,775
Gen-Probe Inc. (a)                   9,500               226,090
MTC Technologies Inc. (a)           20,900               528,770
Standard & Poor's Depositary
  Receipts                          39,695             3,504,672
                                                ----------------
                                                       7,660,651
                                                ----------------
OTHER ENERGY - 3.7%
- ------------------------------
MACHINERY: OIL WELL EQUIP &
  SERV - 1.2%
BJ Services Co. (a)                  9,800               316,638
Key Energy Services Inc. (a)        39,000               349,830
National-Oilwell Inc. (a)           14,300               312,312


 46         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
Noble Corp. (a)                      3,350      $        117,753
Weatherford International Ltd.
  (a)                                7,200               287,496
                                                ----------------
                                                       1,384,029
                                                ----------------
OFFSHORE DRILLING - 0.5%
GlobalSantaFe Corp.                 12,200               296,704
Rowan Companies, Inc.               14,500               329,150
                                                ----------------
                                                         625,854
                                                ----------------
OIL: CRUDE PRODUCERS - 2.0%
Anadarko Petroleum Corp.             6,875               329,313
Chesapeake Energy Corp.             38,200               295,668
PetroQuest Energy Inc. (a)          46,600               193,390
Pioneer Natural Resources Co.       18,900               477,225
Remington Oil & Gas Corp. (a)       14,900               244,509
XTO Energy Inc.                     30,000               741,000
                                                ----------------
                                                       2,281,105
                                                ----------------
PRODUCER DURABLES - 2.5%
- ------------------------------
AEROSPACE - 1.6%
Lockheed Martin Corporation          9,580               553,245
United Technologies
  Corporation                       12,725               788,186
Veridian Corp. (a)                  27,000               576,180
                                                ----------------
                                                       1,917,611
                                                ----------------
PRODUCTION TECHNOLOGY
  EQUIPMENT - 0.9%
Applied Materials, Inc. (a)         55,000               716,650
KLA-Tencor Corp. (a)                10,000               353,700
                                                ----------------
                                                       1,070,350
                                                ----------------
TECHNOLOGY - 10.7%
- ------------------------------
COMMUNICATIONS
  TECHNOLOGY - 3.2%
Cisco Systems, Inc. (a)            143,370             1,878,147
L-3 Communications Holdings
  Inc. (a)                          14,800               664,668
Motorola, Inc.                      38,539               333,362
UTStarcom Inc. (a)                  18,000               356,940
Verisity Ltd. (a)                   23,100               440,286
                                                ----------------
                                                       3,673,403
                                                ----------------
COMPUTER SERVICES SOFTWARE &
  SYSTEMS - 4.3%
Caci International Inc-Cl A
  (a)                               22,900               816,156
ManTech International Corp.
  (a)                               11,700               223,119
Microsoft Corporation (a)           49,765             2,572,851
NetScreen Technologies Inc.
  (a)                               39,400               663,496
PEC Solutions Inc. (a)              10,300               307,970
Symantec Corp. (a)                  10,300               416,635
                                                ----------------
                                                       5,000,227
                                                ----------------
COMPUTER TECHNOLOGY - 2.5%
Dell Computer Corporation (a)       35,000               935,900
Hewlett-Packard Company             38,580               669,749
International Business
  Machines Corp.                    16,880             1,308,200
                                                ----------------
                                                       2,913,849
                                                ----------------
ELECTRONICS - 0.4%
Flir Systems Inc. (a)               10,600               517,280
                                                ----------------
ELECTRONICS: TECHNOLOGY - 0.3%
General Dynamics Corporation         4,450               353,197
                                                ----------------





NAME OF SECURITY                    SHARES                 VALUE
                                          
UTILITIES - 1.8%
- ------------------------------
UTILITIES: CABLE TV &
  RADIO - 0.7%
Comcast Corp. (a)                   33,810      $        796,902
                                                ----------------
UTILITIES:
  TELECOMMUNICATIONS - 1.1%
Alltel Corp.                         6,000               306,000
Intrado Inc. (a)                    35,700               354,465
Verizon Communications              15,000               581,250
                                                ----------------
                                                       1,241,715
                                                ----------------
TOTAL INVESTMENTS - 75.4%
  (Cost - $86,180,907)                          $     88,070,410
  (Cost on Federal income tax
    basis - $87,694,767)
OTHER ASSETS, LESS LIABILITIES - 24.6%                28,720,204
                                                ----------------
NET ASSETS - 100%                               $    116,790,614
                                                ================
Other Information:
At December 31, 2002, net unrealized
appreciation based on cost for financial
statement and Federal Income tax purposes
is as follows:
  Gross unrealized appreciation                 $     10,563,116
  Gross unrealized depreciation                       (8,673,613)
                                                ----------------
    Net unrealized appreciation for
      financial statement purposes                     1,889,503
  Less: tax basis adjustments                         (1,513,860)
                                                ----------------
    Net unrealized appreciation for
      Federal income tax purposes               $        375,643
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $122,934,339 and $164,263,943,
respectively, for the period ended December 31, 2002.




                                          
IVY US BLUE CHIP FUND
EQUITY SECURITIES - 99.7%
- ------------------------------
CONSUMER DISCRETIONARY - 12.8%
- ------------------------------
AOL Time Warner Inc. (a)            21,320      $        279,292
Bed Bath & Beyond Inc. (a)           4,535               156,594
Carnival Corp                        7,820               195,109
Comcast Corporation (a)             16,166               381,033
eBay Inc. (a)                        1,250                84,775
Gannett Co., Inc.                    2,995               215,041
General Motors Corporation           3,845               141,727
Harley-Davidson Inc.                 3,535               163,317
Home Depot, Inc.                    13,575               325,257
Kohl's Corporation (a)               2,655               148,547
Lowe's Companies, Inc.               6,575               246,563
Pulte Homes, Inc.                    2,815               134,754
Target Corporation                   8,125               243,750
The Walt Disney Company             13,955               227,606
Viacom Inc. Cl B (a)                10,970               447,137
Wal-Mart Stores, Inc.               22,730             1,148,092
                                                ----------------
                                                       4,538,594
                                                ----------------
CONSUMER STAPLES - 9.3%
- ------------------------------
Anheuser-Busch Companies, Inc.       6,125               296,450
Colgate-Palmolive Company            4,415               231,478
Gillette Company                     8,165               247,889


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          47

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY US BLUE CHIP FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
Kimberly-Clark Corporation           2,930      $        139,087
PepsiCo, Inc.                       10,520               444,154
Philip Morris Companies Inc.        12,430               503,788
Sysco Corporation                    6,650               198,104
The Coca-Cola Company               11,405               499,767
The Procter & Gamble Company         7,065               607,166
Walgreen Co.                         4,915               143,469
                                                ----------------
                                                       3,311,352
                                                ----------------
ENERGY - 5.8%
- ------------------------------
Anadarko Petroleum Corporation       2,865               137,234
ChevronTexaco Corporation            7,050               468,684
ConocoPhillips                       4,255               205,899
Exxon Mobil Corporation             34,585             1,208,400
Noble Corporation (a)                1,175                41,301
                                                ----------------
                                                       2,061,518
                                                ----------------
FINANCIALS - 19.8%
- ------------------------------
American Express Company             9,425               333,174
American International Group,
  Inc.                              14,245               824,073
Bank of America Corporation          8,855               616,042
Bank One Corporation                 8,535               311,954
BB&T Corporation                     6,200               229,338
Citigroup Inc.                      24,715               869,721
Fannie Mae                           6,565               422,326
Fifth Third Bancorp                  4,080               238,884
Freddie Mac                          4,195               247,715
J.P. Morgan Chase and Co.           10,880               261,120
Lehman Brothers Holdings Inc.        2,685               143,084
Merrill Lynch & Co., Inc.            6,375               241,931
Morgan Stanley                       5,990               239,121
State Street Corporation             4,885               190,515
SunTrust Banks, Inc.                 3,500               199,220
The Goldman Sachs Group, Inc.        2,820               192,042
U.S. Bancorp                        15,245               323,499
Wachovia Corporation                10,130               369,137
Washington Mutual, Inc.              8,515               294,023
Wells Fargo & Company               10,480               491,198
                                                ----------------
                                                       7,038,117
                                                ----------------
HEALTH CARE - 14.1%
- ------------------------------
Abbott Laboratories                  8,115               324,600
Amgen Inc. (a)                       7,470               361,100
Bristol-Myers Squibb Company        12,005               277,916
Eli Lilly and Company                6,330               401,955
Johnson & Johnson                   14,155               760,265
Medtronic, Inc.                      7,470               340,632
Merck & Co., Inc.                   11,465               649,034
Pfizer Inc.                         27,855               851,527
Pharmacia Corporation                7,985               333,773
Schering-Plough Corporation          9,600               213,120
UnitedHealth Group
  Incorporated                       2,445               204,158
Wyeth                                8,060               301,444
                                                ----------------
                                                       5,019,524
                                                ----------------
INDUSTRIALS - 10.9%
- ------------------------------
3M Co.                               2,750               339,075
Automatic Data Processing,
  Inc.                               6,005               235,696
First Data Corporation               6,745               238,841
General Dynamics Corporation         2,335               185,329
General Electric Company            48,225             1,174,279





NAME OF SECURITY                    SHARES                 VALUE
                                          
Honeywell International Inc.         8,520      $        204,480
ITT Industries, Inc.                 2,360               143,229
Lockheed Martin Corporation          4,505               260,164
The Boeing Company                   7,490               247,095
Tyco International Ltd.             13,530               231,092
United Parcel Service, Inc.          5,855               369,333
United Technologies
  Corporation                        3,780               234,133
                                                ----------------
                                                       3,862,746
                                                ----------------
INFORMATION TECHNOLOGY - 13.9%
- ------------------------------
Analog Devices, Inc. (a)             2,100                50,127
Applied Materials, Inc. (a)         14,910               194,277
Cisco Systems, Inc. (a)             40,765               534,021
Dell Computer Corporation (a)       15,705               419,952
Hewlett-Packard Company             19,295               334,961
Intel Corporation                   34,410               535,764
International Business
  Machines Corp.                     8,665               671,538
Linear Technology Corporation        2,060                52,983
Maxim Integrated Products,
  Inc.                               2,210                73,018
Microsoft Corporation (a)           26,460             1,367,982
Motorola, Inc.                      17,450               150,943
Oracle Corporation (a)              33,960               366,768
Texas Instruments Inc.              13,845               207,813
                                                ----------------
                                                       4,960,147
                                                ----------------
MATERIALS - 2.4%
- ------------------------------
Air Products and Chemicals,
  Inc.                               3,430               146,632
Alcoa Inc.                           9,710               221,194
Du Pont E.I. du Pont de
  Nemours and Company                6,995               296,588
International Paper Company          5,505               192,510
                                                ----------------
                                                         856,924
                                                ----------------
MISCELLANEOUS - 4.6%
- ------------------------------
S&P 500 Depository Receipts         18,395             1,624,095
                                                ----------------
TELECOMMUNICATION
  SERVICES - 3.9%
- ------------------------------
Alltel Corporation                   2,490               126,990
AT&T Corp.                           3,523                91,985
BellSouth Corporation                8,825               228,303
SBC Communications Inc.             15,910               431,320
Verizon Communications              13,120               508,400
                                                ----------------
                                                       1,386,998
                                                ----------------
UTILITIES - 2.2%
- ------------------------------
DTE Energy Company                   3,815               177,016
Exelon Corporation                   4,175               220,315
FPL Group, Inc.                      3,010               180,991
The Southern Company                 7,865               223,287
                                                ----------------
                                                         801,609
                                                ----------------
TOTAL INVESTMENTS - 99.7%
  (Cost - $34,893,096)                          $     35,461,624
  (Cost on Federal income tax
    basis - $37,030,200)
OTHER ASSETS, LESS LIABILITIES - 0.3%                     92,539
                                                ----------------
NET ASSETS - 100%                               $     35,554,163
                                                ================


 48         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                    SHARES                 VALUE
                                          
Other Information:
At December 31, 2002, net unrealized
appreciation (depreciation) based on cost
for financial statement and Federal Income
tax purposes, respectively, is as follows:
  Gross unrealized appreciation                 $      3,348,563
  Gross unrealized depreciation                       (2,780,035)
                                                ----------------
    Net unrealized appreciation for
      financial statement purposes                       568,528
  Less: tax basis adjustments                         (2,137,104)
                                                ----------------
    Net unrealized depreciation for
      Federal income tax purposes               $     (1,568,576)
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $39,743,614 and $51,310,230, respectively,
for the period ended December 31, 2002.



IVY US EMERGING GROWTH FUND
                                          
EQUITY SECURITIES - 76.2%
- ------------------------------
AUTOS AND TRANSPORTATION -0.7%
- ------------------------------
TRANSPORTATION MISC - 0.7%
C.H. Robinson Worldwide Inc.         6,400      $        199,680
                                                ----------------
CONSUMER DISCRETIONARY - 28.2%
- ------------------------------
ADVERTISING AGENCIES - 2.5%
Lamar Advertising Co. (a)           21,400               720,110
                                                ----------------
CONSUMER ELECTRONICS - 3.6%
Electronic Arts Inc. (a)             5,600               278,712
Harman International
  Industries Inc.                    6,100               362,950
Take-Two Interactive Software
  Inc. (a)                          16,026               376,451
                                                ----------------
                                                       1,018,113
                                                ----------------
COSMETICS - 1.4%
Estee Lauder Cos.                   14,900               393,360
                                                ----------------
EDUCATION SERVICES - 2.6%
Apollo Group Inc. - University
  of Phoenix Online (a)             11,749               421,084
Education Management Corp. (a)       8,317               312,719
                                                ----------------
                                                         733,803
                                                ----------------
RADIO & TV BROADCASTERS - 4.2%
Cox Radio Inc. (a)                  24,950               569,109
Hispanic Broadcasting Corp.
  (a)                               13,400               275,370
Radio One Inc. Cl D (a)             23,800               343,434
                                                ----------------
                                                       1,187,913
                                                ----------------
RESTAURANTS - 2.4%
Krispy Kreme Doughnuts Inc.
  (a)                                8,000               270,160
Panera Bread Co. (a)                12,000               417,720
                                                ----------------
                                                         687,880
                                                ----------------
SERVICES: COMMERCIAL - 11.5%
Advisory Board Co. (a)               8,500               254,150
BearingPoint Inc. (a)               17,500               120,750





NAME OF SECURITY                    SHARES                 VALUE
                                          
Convergys Corp. (a)                 38,000      $        575,700
Copart Inc. (a)                     37,150               439,856
Corporate Executive Board Co.
  (a)                                8,900               284,088
eBay Inc. (a)                        4,600               311,972
Waste Connections Inc. (a)          15,200               586,872
Weight Watchers International
  Inc. (a)                          14,650               673,461
                                                ----------------
                                                       3,246,849
                                                ----------------
FINANCIAL SERVICES - 7.9%
- ------------------------------
BANKS: OUTSIDE NEW YORK
  CITY - 2.0%
Synovus Financial Corp.             29,650               575,210
                                                ----------------
FINANCIAL DATA PROCESSING
  SERVICES & SYSTEMS - 4.3%
Affiliated Computer Services
  Inc. (a)                          10,421               548,666
Concord EFS Inc. (a)                42,900               675,246
                                                ----------------
                                                       1,223,912
                                                ----------------
SAVINGS & LOAN - 1.6%
Charter One Financial Inc.          16,150               463,989
                                                ----------------
HEALTH CARE - 17.8%
- ------------------------------
BIOTECHNOLOGY RESEARCH &
  PRODUCTION - 4.2%
Cephalon Inc. (a)                    4,400               214,139
Charles River Laboratories
  International Inc. (a)             7,500               288,600
Integra LifeSciences Holdings
  Corp. (a)                         22,822               402,808
Neurocrine Biosciences Inc.
  (a)                                3,150               143,829
NPS Pharmaceuticals Inc. (a)         5,750               144,728
                                                ----------------
                                                       1,194,104
                                                ----------------
DRUGS & PHARMACEUTICALS - 2.6%
Gilead Sciences Inc. (a)             6,300               214,200
Medicis Pharmaceutical Corp.
  (a)                               10,369               515,028
                                                ----------------
                                                         729,228
                                                ----------------
HEALTH CARE FACILITIES - 1.3%
Laboratory Corp. of America
  Holdings (a)                      15,850               368,354
                                                ----------------
HEALTH CARE MANAGEMENT
  SERVICES - 2.2%
Amsurg Inc. (a)                     30,223               617,456
                                                ----------------
HEALTH CARE SERVICES - 4.3%
Accredo Health Inc. (a)             13,516               476,439
Odyssey HealthCare Inc. (a)          8,600               298,420
Stericycle Inc. (a)                 13,400               433,879
                                                ----------------
                                                       1,208,738
                                                ----------------
MEDICAL & DENTAL INSTRUMENTS &
  SUPPLIES - 3.2%
Biomet Inc.                         20,150               577,499
Henry Schein Inc. (a)                7,200               324,000
                                                ----------------
                                                         901,499
                                                ----------------


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          49

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY US EMERGING GROWTH FUND (CONTINUED)
NAME OF SECURITY                    SHARES                 VALUE
                                          
OTHER ENERGY - 4.8%
- ------------------------------
MACHINERY: OIL WELL EQUIP &
  SERV - 1.4%
BJ Services Co. (a)                  6,000      $        193,860
National-Oilwell Inc. (a)            9,200               200,928
                                                ----------------
                                                         394,788
                                                ----------------
OFFSHORE DRILLING - 0.7%
  GlobalSantaFe Corp.                7,500               182,400
                                                ----------------
OIL: CRUDE PRODUCERS - 2.7%
Pioneer Natural Resources Co.
  (a)                               12,300               310,575
XTO Energy Inc.                     18,557               458,358
                                                ----------------
                                                         768,933
                                                ----------------
PRODUCER DURABLES - 3.7%
- ------------------------------
ELECTRICAL EQUIPMENT &
  COMPONENTS - 1.4%
Molex Inc.                          20,200               401,778
                                                ----------------
IDENTIFICATION CONTROL &
  FILTER DEVICES - 1.5%
IDEX Corp.                          12,800               418,560
                                                ----------------
MANUFACTURING - 0.8%
Federal Signal Corp.                11,350               220,417
                                                ----------------
TECHNOLOGY - 13.1%
- ------------------------------
COMMUNICATIONS
  TECHNOLOGY - 2.3%
L-3 Communications Holdings
  Inc. (a)                           9,200               413,172
UTStarcom Inc. (a)                  11,200               222,096
                                                ----------------
                                                         635,268
                                                ----------------
COMPUTER SERVICES SOFTWARE &
  SYSTEMS - 3.9%
CACI International Inc-Cl A
  (a)                                8,434               300,588
Mercury Interactive Corp. (a)        8,600               254,990
NetScreen Technologies Inc.
  (a)                               24,900               419,316
Siebel Systems Inc. (a)             18,450               136,530
                                                ----------------
                                                       1,111,424
                                                ----------------
COMPUTER TECHNOLOGY - 2.8%
McDATA Corp. (a)                    29,150               206,965
Network Appliance Inc. (a)          59,050               590,500
                                                ----------------
                                                         797,465
                                                ----------------
ELECTRONICS: SEMI-CONDUCTORS/
  COMPONENTS - 4.1%
Analog Devices Inc. (a)              9,050               216,023
Intersil Corp. (a)                  23,650               329,681
Marvell Technology Group Ltd.
  (a)                                9,700               182,942
Microchip Technology Inc. (a)       17,450               426,653
                                                ----------------
                                                       1,155,299
                                                ----------------
TOTAL INVESTMENTS - 76.2%
  (Cost $20,161,386)                            $     21,556,530
  (Cost on Federal income tax
    basis - $20,358,490)
OTHER ASSETS, LESS LIABILITIES - 23.8%                 6,746,877
                                                ----------------
NET ASSETS - 100%                               $     28,303,407
                                                ================





NAME OF SECURITY                    SHARES                 VALUE
                                          
Other Information:
At December 31, 2002, net unrealized
appreciation based on cost for financial
statement and Federal Income tax purposes
is as follows:
  Gross unrealized appreciation                 $      2,607,017
  Gross unrealized depreciation                       (1,211,873)
                                                ----------------
    Net unrealized appreciation for
      financial statement purposes                     1,395,144
  Less: tax basis adjustments                           (197,104)
                                                ----------------
    Net unrealized appreciation for
      Federal income tax purposes               $      1,198,040
                                                ================


Purchases and sale proceeds of securities other than short-term obligations
aggregated $49,467,304 and $74,354,189, respectively, for the period ended
December 31, 2002.



IVY BOND FUND
NAME OF SECURITY                 PRINCIPAL                 VALUE
                                          
U.S. CORPORATE BONDS - 91.5%
- ------------------------------
Allied Waste, 7.625%,
  01/01/2006(e)                 $  250,000      $        248,750
American Standard, 7.375%,
  04/15/2005(e)                    480,000               499,200
BRE Properties Inc., 7.125%,
  02/15/2013                     2,000,000             2,197,500
Calpine Corp, 8.5%,
  02/15/2011(e)                  1,000,000               435,000
CBS Corp., 7.125%, 11/01/2023    1,000,000             1,102,500
Citigroup Inc, 6.50%,
  01/18/2011                     1,000,000             1,122,500
Coca-Cola Enterprises, 5.38%,
  08/15/2006                       500,000               541,875
Countrywide Home, 5.50%,
  08/01/2006                       500,000               531,875
Daimlerchrysler, 7.75%,
  01/18/2011                       500,000               571,250
Darden Restaurants Inc.,
  7.125%, 02/01/2016             1,250,000             1,404,687
Dean Foods Co 6.75%,
  06/15/2005(e)                    650,000               651,625
Dell Computer Corporation,
  6.55%, 04/15/2008                500,000               561,875
Delta Air Lines, 9.59%,
  01/12/2017                     1,500,000             1,066,530
Ford Motor Credit Company,
  7.375%, 10/28/2009             1,000,000               991,250
Grupo Televisa 8.000%
  09/13/2011                       625,000               651,562
HCA Inc. 6.30%, 10/01/2012       1,000,000             1,008,750
Heller Financial, 6.375%,
  03/15/2006                       425,000               471,219
Hertz Corp, 7.4%, 03/01/2011     1,000,000               945,000
Household Financial Corp,
  6.50%, 01/24/2006              1,000,000             1,065,000
Indiantown Cogeneration,
  9.77%, 12/15/2020              1,500,000             1,618,125
International Paper Company,
  7.625%, 01/15/2007             1,000,000             1,142,500


 50         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                               December 31, 2002

                                            SCHEDULES OF INVESTMENTS (continued)




NAME OF SECURITY                 PRINCIPAL                 VALUE
                                          
Kansas Gas & El Wr, 7.6%,
  12/15/2003(e)                 $  500,000      $        506,875
Key Energy Services, Inc.
  8.375%, 03/01/2008(e)            500,000               522,500
McKesson Corporation, 7.75%,
  02/01/2012                       500,000               574,375
Meritor Automotive, 6.80%,
  02/15/2009                     1,000,000               988,750
News America Holdings, 7.70%,
  10/30/2025                     1,000,000             1,028,750
Northrop Grumman Corp.,
  9.375%, 10/15/2024             2,000,000             2,225,000
Pulte Corp., 7.625%,
  10/15/2017                     1,500,000             1,580,625
RJ Reynolds Tobacco Holdings
  Inc., 7.375%, 05/15/2003       2,000,000             2,025,000
Spieker Properties, 7.35%,
  12/01/2017                     1,950,000             2,064,563
Storage USA Partnership L.P.,
  8.20%, 06/01/2017              2,240,000             2,769,200
TE Products Pipeline Co.,
  7.51%, 01/15/2028              2,000,000             1,862,500
Tele Communications Inc.,
  9.25%, 01/15/2023              2,000,000             2,050,000
Telefonos de Mexico SA de CV
  (Telmex), 8.25%, 01/26/2006      500,000               547,500
Tenet Healthcare Corporation,
  6.375%, 12/01/2011               750,000               675,000
Time Warner Inc., 9.125%,
  01/15/2013                     1,000,000             1,172,500
Time Warner Inc., 9.15%,
  02/01/2023                     1,500,000             1,723,125
Transocean Sedco Forex Inc.
  6.50% 04/15/2003                 647,000               653,470
Unisys Corporation, 7.875%,
  04/01/2008(e)                    550,000               561,000
US Bank NA, 6.30%, 02/04/2014    1,000,000             1,125,000
Verizon Global Fdg Corp 7.25%,
  12/01/2010                     1,000,000             1,136,250
Wal-Mart Stores, Inc., 6.55%,
  08/10/2004                       500,000               537,500
Watson Pharmaceuticals,
  7.125%, 05/15/2008             1,500,000             1,573,125
                                                ----------------
  (Cost $45,499,753)                                  46,731,181
                                                ----------------
U.S. DOLLAR DENOMINATED
  FOREIGN CORPORATE
  BONDS - 3.2%
- ------------------------------
Abitibi Consold, 7.50%,
  04/01/2028                     1,000,000               946,250
Corp Durango Sa 13.125%,
  08/01/2006(e)                    978,000               347,190
PEMEX Master Trust, 8.00%,
  11/15/2011 (f)                   300,000               322,500
                                                ----------------
  (Cost $2,279,607)                                    1,615,940
                                                ----------------


                                    SHARES                 VALUE
                                          
WARRANTS - 0.0%
- ------------------------------
Chesapeake Energy Warrants -
  144A (f)                           2,671      $             --
Chesapeake Energy Warrants -
  144A (f)                           1,324                    --
Gothic Energy Restricted
  Warrants (f)                       4,767                    --
                                                ----------------
  (Cost $0)                                                   --
                                                ----------------
TOTAL INVESTMENTS - 94.7%
  (Cost - $47,779,360) (b)                      $     48,347,121
OTHER ASSETS, LESS LIABILITIES - 5.3%                  2,718,838
                                                ----------------
NET ASSETS - 100%                               $     51,065,959
                                                ================
Other Information:
At December 31, 2002, net unrealized
appreciation based on cost for financial
statement and Federal income tax purposes
is as follows:
  Gross unrealized appreciation                 $      2,698,351
  Gross unrealized depreciation                       (2,130,590)
                                                ----------------
    Net unrealized appreciation                 $        567,761
                                                ================


Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $7,993,342 and $17,732,005, respectively,
for the period ended December 31, 2002.



IVY MONEY MARKET FUND
NAME OF SECURITY                 PRINCIPAL                 VALUE
                                          
U.S. GOVERNMENT AGENCY
  OBLIGATIONS - 88.9%
- ------------------------------
Federal Home Loan Bank, 1.28%,
  01/08/2003                    $2,000,000      $      1,999,573
Federal Home Loan Bank, 1.30%,
  01/17/2003                     5,209,000             5,206,179
Federal Home Loan Mortgage
  Corp., 1.28%, 01/07/2003       2,000,000             1,999,644
Federal National Mortgage
  Association Discount Note,
  1.26%, 01/03/2003              2,000,000             1,999,930
Federal National Mortgage
  Association Discount Note,
  1.27%, 01/02/2003              2,000,000             2,000,000
Federal National Mortgage
  Association Discount Note,
  1.28%, 01/22/2003              2,000,000             1,998,578
Federal National Mortgage
  Association Discount Note,
  1.28%, 01/03/2003              2,000,000             1,999,929
Federal National Mortgage
  Association Discount Note,
  1.28%, 01/06/2003              2,000,000             1,999,716
                                                ----------------
                                                      19,203,549
                                                ----------------
COMMERCIAL PAPER - 11.2%
- ------------------------------
Anheuser-Busch Companies,
  Inc., 1.3%, 01/16/2003           500,000               499,747
BellSouth Corporation, 1.32%,
  01/13/2003                       500,000               499,798


                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          51

December 31, 2002

SCHEDULES OF INVESTMENTS



IVY MONEY MARKET FUND (CONTINUED)
NAME OF SECURITY                PRINCIPAL                  VALUE
                                          
BOC Group plc, 1.2%,
  01/02/2003                    $  483,000      $        483,000
Emerson Electric Co., 1.4%,
  01/06/2003                       434,000               433,933
USAA Capital Corporation,
  1.35%, 01/10/2003                500,000               499,850
                                                ----------------
                                                       2,416,328
                                                ----------------
TOTAL INVESTMENTS - 100.1%
  (Cost - $21,619,877) (b)                      $     21,619,877
OTHER LIABILITIES, LESS ASSETS - (0.1%)                  (18,028)
                                                ----------------
NET ASSETS - 100%                               $     21,601,849
                                                ================


Footnotes
- ---------
(a)  Non-income producing security
(b)  Cost is approximately the same for Federal income tax
     purposes.
(c)  Security valued in good faith by the Valuation Sub-Committee
     of the Board of Trustees. See Note 1 to the Financial Statements.
(d)  As of December 31, 2002, a portion of the securities are on
     loan. The market value at December 31, 2002 of all securities on loan for
     Ivy International Fund and Ivy International Value Fund is $12,844,759 and
     $2,554,332, respectively. See Note 1 to the Financial Statements.
(e)  Below investment grade security.
(f)  144A restricted security.
(g)  Security used as collateral for call options written at
     December 31, 2002.

ADR - American Depository Receipt

GDR - Global Depository Receipt

 52         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                      (This page intentionally left blank)

                    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
                                                         STATEMENTS.          53


STATEMENTS OF ASSETS AND LIABILITIES

December 31, 2002



                                                     IVY CUNDILL GLOBAL    IVY DEVELOPING      IVY EUROPEAN       IVY GLOBAL
                                                         VALUE FUND         MARKETS FUND    OPPORTUNITIES FUND       FUND
                                                                                                     
ASSETS
 Investments, at value (a)                                $3,874,301        $  4,192,766       $ 70,358,412      $ 4,569,584
 Investments of cash collateral for securities
   loaned at identified cost and value                           -                   -                  -                -
 Cash                                                      1,593,596               6,910                -             39,376
 Receivables
   Put options purchased, at value
   Investments sold                                              -                   -                1,405              -
   Premiums on call options written                              -                   -                  -                -
   Fund shares sold                                          203,468               2,400                100              -
   Dividends, interest and tax reclaims                        5,703              12,266            110,305           14,619
   Manager for expense reimbursement                           9,692               3,658                -                -
 Unrealized appreciation on forward foreign
   currency contracts                                         21,233                 -                  -                -
 Other assets                                                 11,643              13,713             15,690           20,058
                                                    --------------------------------------------------------------------------
   Total assets                                            5,719,636           4,231,713         70,485,912        4,643,637
                                                    --------------------------------------------------------------------------
LIABILITIES
 Payables
   Call options written, at value                                -                   -                  -                -
   Distributions to shareholders                                 -                    92                -                -
   Investments purchased                                     126,238                 -                  -              2,531
   Collateral for securities loaned, at value                    -                   -                  -                -
   Premiums on put options purchased                             -                   -                  -                -
   Fund shares repurchased                                       -                28,048            142,422            6,588
   Management fee                                              2,197               1,782             28,517            1,909
   12b-1 service and distribution fees                         1,158               1,064             20,032              842
   Transfer agent fee                                          1,059               3,348             28,959            3,039
   Other payables to related parties                             808                 769              5,212              781
 Unrealized depreciation on open forward foreign
   currency contracts                                         76,131                 -                  -                -
 Due to custodian                                                -                   -               18,390              -
 Accrued expenses                                             17,445              16,196             80,703           25,204
                                                    --------------------------------------------------------------------------
   Total liabilities                                         225,036              51,299            324,235           40,894
                                                    --------------------------------------------------------------------------
NET ASSETS                                                $5,494,600        $  4,180,414       $ 70,161,677      $ 4,602,743
                                                    ==========================================================================
CLASS A
 Net Assets                                               $1,402,718        $  2,210,078       $ 20,451,607      $ 3,339,028
 Outstanding Shares                                          167,278             398,056          1,549,179          482,150
 Net asset value and redemption price per share           $     8.39        $       5.55       $      13.20      $      6.93
 Maximum offering price per share*                        $     8.90        $       5.89       $      14.01      $      7.35
                                                    --------------------------------------------------------------------------
CLASS B
 Net Assets                                               $2,089,392        $  1,490,261       $ 24,627,281      $ 1,123,622
 Outstanding Shares                                          251,198             282,330          1,904,191          172,929
 Net asset value, offering price and redemption
   price** per share                                      $     8.32        $       5.28       $      12.93      $      6.50
                                                    --------------------------------------------------------------------------
CLASS C
 Net Assets                                               $  445,672        $    433,339       $ 19,324,187      $    71,937
 Outstanding Shares                                           53,962              81,731          1,488,760           11,565
 Net asset value, offering price and redemption
   price*** per share                                     $     8.26        $       5.30       $      12.98      $      6.22
                                                    --------------------------------------------------------------------------
CLASS ADVISOR
 Net Assets                                               $1,515,161        $     46,736       $  5,728,759      $    68,156
 Outstanding Shares                                          181,587               8,395            429,567            9,851
 Net asset value, offering price and redemption
   price per share                                        $     8.34        $       5.57       $      13.34      $      6.92
                                                    --------------------------------------------------------------------------
CLASS I
 Net Assets                                               $   41,657        $         na       $     29,843      $        na
 Outstanding Shares                                            5,013                  na              2,241               na
 Net asset value, offering price and redemption
   price per share                                        $     8.31        $         na       $      13.32      $        na
                                                    --------------------------------------------------------------------------
NET ASSETS CONSIST OF
Capital paid-in                                           $6,269,783        $ 16,874,392       $157,296,907      $ 8,169,576
Accumulated net realized gain/(loss) on
 investments and foreign currency transactions              (539,887)        (11,984,839)       (56,367,674)      (2,858,914)
Undistributed (accumulated) net investment
 income (loss)                                                  (261)            (36,083)               -             (1,266)
Net unrealized appreciation (depreciation) on
 investments and foreign currency transactions              (235,035)           (673,056)       (30,767,556)        (706,653)
                                                    --------------------------------------------------------------------------
NET ASSETS                                                $5,494,600        $  4,180,414       $ 70,161,677      $ 4,602,743
                                                    ==========================================================================
     (a) Investments, identified cost                     $4,055,193        $  4,866,013       $101,136,872      $ 5,277,698
                                                    --------------------------------------------------------------------------
      * On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75% for all Funds except
        Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%; Ivy Money Market Fund does not have a
        sales charge.
     ** Subject to a maximum deferred sales charge of 5%.
    *** Subject to a maximum deferred sales charge of 1%.


 54         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                STATEMENTS OF ASSETS AND LIABILITIES (continued)


                                                      December 31, 2002



 IVY GLOBAL NATURAL    IVY GLOBAL SCIENCE   IVY INTERNATIONAL     IVY INTERNATIONAL
   RESOURCES FUND      & TECHNOLOGY FUND          FUND           SMALL COMPANIES FUND
                                                       
     $30,832,160          $  8,238,612        $ 206,804,311         $  4,124,492
             -                     -             13,597,770                  -
         573,676             1,975,273            1,888,965                  -
                                11,270
             -                     -                    -                164,424
             -                  28,823                  -                    -
          40,860                     8                7,677                  -
          33,418                   660            2,480,146               10,962
           5,908                   -                    -                  3,823
             -                     -                    -                    -
          23,584                12,971               51,155               21,700
- --------------------------------------------------------------------------------------
      31,509,606            10,267,617          224,830,024            4,325,401
- --------------------------------------------------------------------------------------
             -                  28,190                  -                    -
              52                   -                    136                  -
             -                  17,792              360,803                  -
             -                     -             13,597,770                  -
             -                  12,294                  -                    -
          19,164                50,725              413,706                5,645
          12,856                 4,241               87,213                1,696
           7,375                 2,599               43,861                1,138
          10,222                15,727               64,742                3,526
           2,466                 1,605               11,730                  760
             -                     -                    -                    -
             -                     -                    -                135,466
          28,342                22,406              218,461               27,264
- --------------------------------------------------------------------------------------
          80,477               155,579           14,798,422              175,495
- --------------------------------------------------------------------------------------
     $31,429,129          $ 10,112,038        $ 210,031,602         $  4,149,906
======================================================================================
     $17,052,725          $  4,967,601        $ 126,732,527         $  1,434,748
       1,482,867               696,198            7,751,142              234,809
     $     11.50          $       7.14        $       16.35         $       6.11
     $     12.20          $       7.57        $       17.36         $       6.48
- --------------------------------------------------------------------------------------
     $ 8,617,404          $  3,982,677        $  68,429,651         $  1,474,803
         770,248               582,737            4,381,450              248,114
     $     11.19          $       6.83        $       15.62         $       5.94
- --------------------------------------------------------------------------------------
     $ 5,189,159          $    987,501        $  13,563,252         $    944,721
         472,901               143,826              874,083              157,986
     $     10.97          $       6.87        $       15.52         $       5.98
- --------------------------------------------------------------------------------------
     $   569,841          $    174,259        $       2,477         $    295,634
          49,871                24,304                  147               47,802
     $     11.43          $       7.17        $       16.85         $       6.18
- --------------------------------------------------------------------------------------
     $        na          $        -          $   1,303,695         $        -
              na                   -                 79,108                  -
     $        na          $        -          $       16.48         $        -
- --------------------------------------------------------------------------------------
     $40,620,087          $ 59,027,157        $ 546,124,414         $ 16,028,386
      (9,311,633)          (48,828,077)        (282,705,831)         (11,327,326)
        (503,705)                  -               (182,407)                 -
         624,380               (87,042)         (53,204,574)            (551,154)
- --------------------------------------------------------------------------------------
     $31,429,129          $ 10,112,038        $ 210,031,602         $  4,149,906
======================================================================================
     $30,207,560          $  8,325,263        $ 260,333,316         $  4,680,734
- --------------------------------------------------------------------------------------


                                                                              55


STATEMENTS OF ASSETS AND LIABILITIES

December 31, 2002



                                                     IVY INTERNATIONAL       IVY PACIFIC         IVY GROWTH
                                                        VALUE FUND        OPPORTUNITIES FUND        FUND
                                                                                      
ASSETS
  Investments, at value (a)                           $   44,622,749         $  8,127,413      $ 88,070,410
  Investments of cash collateral for securities
    loaned at identified cost and value                    2,670,997                  -                 -
  Cash                                                       684,536            1,364,809         9,848,471
  Receivables
    Investments sold                                             -                    -          18,945,870
    Fund shares sold                                           7,148                1,071             5,796
    Dividends, interest and tax reclaims                     215,693                7,555           124,103
    Manager for expense reimbursement                          2,356                  -                 -
  Other assets                                                16,317               12,235            38,042
                                                    ---------------------------------------------------------
    Total assets                                          48,219,796            9,513,083       117,032,692
                                                    ---------------------------------------------------------
LIABILITIES
  Payables
    Distributions to shareholders                                -                    -                 -
    Investments purchased                                     53,347                  -                 -
    Collateral for securities loaned, at value             2,670,997                  -                 -
    Fund shares repurchased                                   65,878              902,479            35,033
    Management fee                                            18,553                3,944            41,434
    12b-1 service and distribution fees                       16,073                1,923             3,781
    Transfer agent fee                                        12,030                5,985            57,143
    Other payables to related parties                          4,216                  985             7,944
    Due to custodian                                             -                    -                 -
  Accrued expenses                                            54,203               29,070            96,743
                                                    ---------------------------------------------------------
    Total liabilities                                      2,895,297              944,386           242,078
                                                    ---------------------------------------------------------
NET ASSETS                                            $   45,324,499         $  8,568,697      $116,790,614
                                                    =========================================================
CLASS A
  Net Assets                                          $    7,853,999         $  5,317,520      $113,984,697
  Outstanding Shares                                       1,026,858              891,803        13,767,403
  Net asset value and redemption price per share      $         7.65         $       5.96      $       8.28
  Maximum offering price per share*                   $         8.12         $       6.33      $       8.78
                                                    ---------------------------------------------------------
CLASS B
  Net Assets                                          $   28,123,301         $  2,678,409      $  2,510,639
  Outstanding Shares                                       3,842,278              465,920           320,145
  Net asset value, offering price and redemption
    price** per share                                 $         7.32         $       5.75      $       7.84
                                                    ---------------------------------------------------------
CLASS C
  Net Assets                                          $    9,223,440         $    539,131      $    157,481
  Outstanding Shares                                       1,259,980               93,819            20,619
  Net asset value, offering price and redemption
    price*** per share                                $         7.32         $       5.75      $       7.64
                                                    ---------------------------------------------------------
CLASS ADVISOR
  Net Assets                                          $      123,759         $     33,637      $    137,797
  Outstanding Shares                                          16,417                5,791            16,678
  Net asset value, offering price and redemption
    price per share                                   $         7.54         $       5.81      $       8.26
                                                    ---------------------------------------------------------
NET ASSETS CONSIST OF
Capital paid-in                                       $   66,382,807         $ 19,671,575      $191,106,164
Accumulated net realized gain/(loss) on
  investments and foreign currency transactions          (16,306,552)         (10,726,338)      (76,206,011)
Undistributed (accumulated) net investment
  income (loss)                                              (19,958)                (464)              -
Net unrealized appreciation (depreciation) on
  investments and foreign currency transactions           (4,731,798)            (376,076)        1,890,461
                                                    ---------------------------------------------------------
NET ASSETS                                            $   45,324,499         $  8,568,697      $116,790,614
                                                    =========================================================
      (a) Investments, identified cost                $   49,376,967         $  8,502,983      $ 86,180,907
                                                    ---------------------------------------------------------
      *  On sales of more than $50,000 the offering price is reduced. Maximum sales charge (load) is 5.75%
         for all Funds except Ivy Bond Fund and Ivy Money Market Fund. Ivy Bond Fund's sales charge is 4.75%;
         Ivy Money Market Fund does not have a sales charge.
     **  Subject to a maximum deferred sales charge of 5%.
    ***  Subject to a maximum deferred sales charge of 1%.


 56         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                STATEMENTS OF ASSETS AND LIABILITIES (continued)


                                                      December 31, 2002



 IVY US BLUE     IVY US EMERGING     IVY BOND       IVY MONEY
  CHIP FUND        GROWTH FUND         FUND        MARKET FUND
                                         
  $ 35,461,624    $ 21,556,530     $ 48,347,121   $21,619,877
           -               -                -             -
           -         7,968,028        1,741,275         1,323
       289,935             -                -             -
           -               -                -             -
        58,964             934        1,059,245           -
        17,433             -                -          16,915
        18,696          17,442           24,098        13,265
- ---------------------------------------------------------------
    35,846,652      29,542,934       51,171,739    21,651,380
- ---------------------------------------------------------------
           -               -                -           7,736
        30,260       1,115,703              -             -
           -               -                -             -
        65,046          47,305           35,483         1,100
        11,182          10,092           10,515         3,816
         6,315           6,487           11,093           -
        18,053          22,503           10,141         8,530
         2,671           2,368            2,811         1,908
       120,406             -                -             -
        38,556          35,069           35,737        26,441
- ---------------------------------------------------------------
       292,489       1,239,527          105,780        49,531
- ---------------------------------------------------------------
  $ 35,554,163    $ 28,303,407     $ 51,065,959   $21,601,849
===============================================================
  $ 24,949,718    $ 16,481,481     $ 31,148,484   $14,684,422
     3,410,038       1,312,166        3,728,556    14,684,422
  $       7.32    $      12.56     $       8.35   $      1.00
  $       7.76    $      13.33     $       8.77   $       -
- ---------------------------------------------------------------
  $  9,437,836    $ 10,103,899     $ 17,170,631   $ 6,104,362
     1,322,723         852,045        2,083,270     6,104,362
  $       7.14    $      11.86     $       8.24   $      1.00
- ---------------------------------------------------------------
  $    447,908    $  1,237,746     $  2,186,109   $   813,065
        62,845         104,413          264,243       813,065
  $       7.13    $      11.85     $       8.27   $      1.00
- ---------------------------------------------------------------
  $    718,701    $    480,281     $    560,735   $       -
        96,953          37,773           67,652           -
  $       7.41    $      12.71     $       8.29   $       -
- ---------------------------------------------------------------
  $ 51,491,882    $ 69,487,371     $ 79,113,243   $21,601,849
   (16,506,247)    (42,579,107)     (28,615,045)          -
           -               -                -             -
       568,528       1,395,143          567,761           -
- ---------------------------------------------------------------
  $ 35,554,163    $ 28,303,407     $ 51,065,959   $21,601,849
===============================================================
  $ 34,893,096    $ 20,161,386     $ 47,779,360   $21,619,877
- ---------------------------------------------------------------


                                                                              57


STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2002



                                                                                             IVY EUROPEAN
                                                     IVY CUNDILL GLOBAL    IVY DEVELOPING    OPPORTUNITIES
                                                         VALUE FUND         MARKETS FUND         FUND
                                                                                   
INVESTMENT INCOME
  Dividends, net of foreign taxes withheld (a)            $  80,086          $  93,433      $  1,855,458
  Interest                                                    8,176              1,787            87,006
                                                    -------------------------------------------------------
                                                             88,262             95,220         1,942,464
                                                    -------------------------------------------------------
EXPENSES
  Management fee                                             37,970             53,057           785,647
  Transfer agent                                              9,304             39,217           375,315
  Administrative services fee                                 3,792              5,306            87,624
  Custodian fees                                             25,083             28,666           108,254
  Blue Sky fees                                              37,529             35,372            38,152
  Auditing and accounting fees                                8,187             16,204            42,458
  Shareholder reports                                         1,080              4,599            48,585
  Fund accounting                                            16,676             17,176           110,283
  Trustees' fees                                              4,883              4,971            14,734
  12b-1 service and distribution fees                        13,813             32,441           589,326
  Legal                                                      30,340             24,532            29,511
  Other                                                       2,353              4,923            26,200
                                                    -------------------------------------------------------
                                                            191,010            266,464         2,256,089
  Expenses reimbursed by Manager                           (103,157)          (130,561)              -
                                                    -------------------------------------------------------
    Net expenses                                             87,853            135,903         2,256,089
                                                    -------------------------------------------------------
NET INVESTMENT INCOME (LOSS)                                    409            (40,683)         (313,625)
                                                    -------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY
  AND WRITTEN CALL OPTION TRANSACTIONS
  Net realized gain (loss)                                 (502,286)          (100,522)      (20,869,819)
  Net realized gain (loss) on written call
    options                                                     -                  -                 -
  Net change in unrealized appreciation
    (depreciation) on written call options                      -                  -                 -
  Net change in unrealized appreciation
    (depreciation)                                         (297,214)          (529,684)       17,645,789
                                                    -------------------------------------------------------
  Net gain (loss) on investment, foreign
    currency and written call option
    transactions                                           (799,500)          (630,206)       (3,224,030)
                                                    -------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
  FROM OPERATIONS                                         $(799,091)         $(670,889)     $ (3,537,655)
                                                    =======================================================
  (a) Foreign taxes withheld                              $   6,544          $   9,827      $    217,458
                                                    -------------------------------------------------------


 58         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                            STATEMENTS OF OPERATIONS (continued)


                                   For the Year Ended December 31, 2002



                  IVY GLOBAL       IVY GLOBAL            IVY
 IVY GLOBAL        NATURAL          SCIENCE &       INTERNATIONAL
    FUND        RESOURCES FUND   TECHNOLOGY FUND        FUND
                                          
  $   113,093    $   365,676      $    126,088     $   6,395,759
        3,064         19,251            10,357           598,006
- ------------------------------------------------------------------
      116,157        384,927           136,445         6,993,765
- ------------------------------------------------------------------
       61,356        293,992           167,880         3,178,450
       32,709        107,432           170,051         1,052,425
        6,136         29,399            16,788           309,037
       47,461         35,933            12,751           270,699
       33,713         34,726            38,164            39,375
       19,445         19,119            17,749           145,522
        4,012         12,260            21,670           123,223
       17,570         44,775            36,906           211,731
        5,076          7,322             6,418            44,481
       29,335        158,759           104,123         1,556,179
       24,590         25,607            25,109            48,071
        5,530          8,428            11,864            78,936
- ------------------------------------------------------------------
      286,933        777,752           629,473         7,058,129
     (137,953)       (45,707)         (197,902)              -
- ------------------------------------------------------------------
      148,980        732,045           431,571         7,058,129
- ------------------------------------------------------------------
      (32,823)      (347,118)         (295,126)          (64,364)
- ------------------------------------------------------------------
   (1,134,688)    (1,362,580)       (8,505,195)     (124,650,724)
        4,595            -                 -             972,561
        1,564            -                 -             (84,026)
     (374,665)       268,841        (3,019,899)       49,772,411
- ------------------------------------------------------------------
   (1,503,194)    (1,093,739)      (11,525,094)      (73,989,778)
- ------------------------------------------------------------------
  $(1,536,017)   $(1,440,857)     $(11,820,220)    $ (74,054,142)
==================================================================
  $     6,077    $    18,757      $        700     $     648,268
- ------------------------------------------------------------------


                                                                              59


STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2002




                                                    IVY INTERNATIONAL                        IVY PACIFIC
                                                          SMALL         IVY INTERNATIONAL   OPPORTUNITIES     IVY GROWTH
                                                     COMPANIES FUND        VALUE FUND           FUND             FUND
                                                                                                
INVESTMENT INCOME
  Dividends, net of foreign taxes withheld (a)          $   103,608       $  1,500,654       $   247,520    $  1,107,805
  Interest                                                    3,133             92,977             5,799          83,008
                                                    ----------------------------------------------------------------------
                                                            106,741          1,593,631           253,319       1,190,813
                                                    ----------------------------------------------------------------------
EXPENSES
  Management fee                                             71,997            595,781           105,358       1,232,314
  Transfer agent                                             42,502            244,778            66,761         627,178
  Administrative services fee                                 7,200             59,578            10,536         144,978
  Custodian fees                                             70,718             76,968            29,138          30,354
  Blue Sky fees                                              38,974             37,297            32,694          35,317
  Auditing and accounting fees                               15,162             35,399            23,316          70,172
  Shareholder reports                                         5,165             25,898             7,927          76,491
  Amortization of organization expenses                         -                3,240               -               -
  Fund accounting                                            19,290             86,488            30,611         138,319
  Trustees' fees                                              5,234             11,406             5,615          21,698
  12b-1 service and distribution fees                        46,068            515,176            57,130         118,837
  Legal                                                      24,640             27,193            24,802          32,197
  Other                                                       5,581             19,764             7,124          39,470
                                                    ----------------------------------------------------------------------
                                                            352,531          1,738,966           401,012       2,567,325
  Expenses reimbursed by Manager                           (166,048)          (329,958)         (138,434)            -
                                                    ----------------------------------------------------------------------
    Net expenses                                            186,483          1,409,008           262,578       2,567,325
                                                    ----------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)                                (79,742)           184,623            (9,259)     (1,376,512)
                                                    ----------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY
  AND WRITTEN CALL OPTION TRANSACTIONS
  Net realized gain (loss)                               (4,056,208)        (6,096,478)           75,568     (29,141,392)
  Net realized gain (loss) on written call
    options                                                     -               78,077               -               -
  Net change in unrealized appreciation
    (depreciation) on written call options                      -               38,366               -           (44,156)
  Net change in unrealized appreciation
    (depreciation)                                        2,105,794         (5,965,738)       (1,130,497)    (20,603,572)
                                                    ----------------------------------------------------------------------
  Net gain (loss) on investment, foreign
    currency and written call option
    transactions                                         (1,950,414)       (11,945,773)       (1,054,929)    (49,789,120)
                                                    ----------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
  FROM OPERATIONS                                       $(2,030,156)      $(11,761,150)      $(1,064,188)   $(51,165,632)
                                                    ======================================================================
  (a) Foreign taxes withheld                            $    13,174       $    153,049       $    18,745    $      3,071
                                                    ----------------------------------------------------------------------


 60         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                            STATEMENTS OF OPERATIONS (continued)


                                   For the Year Ended December 31, 2002



                    IVY US
 IVY US BLUE       EMERGING      IVY BOND      IVY MONEY
  CHIP FUND      GROWTH FUND       FUND       MARKET FUND
                                    
  $    746,044   $      9,633   $      -      $     -
        11,079         19,621    3,996,416      336,721
- ----------------------------------------------------------
       757,123         29,254    3,996,416      336,721
- ----------------------------------------------------------
       355,192        397,693      270,234       81,621
       232,254        256,383      158,464      100,635
        47,359         46,787       54,047       20,405
        19,221         17,798        8,366       28,033
        38,832         34,326       38,851       27,928
        28,936         31,017       33,104        9,908
        26,016         32,825       16,606        9,541
           -              -            -            -
        72,248         68,748       46,704       28,899
        10,018         10,016       10,939        6,815
       216,110        255,655      282,809          -
        27,398         27,396       28,120       26,470
        15,972         19,480       15,381        6,814
- ----------------------------------------------------------
     1,089,556      1,198,124      963,625      347,069
      (238,824)           -            -       (173,624)
- ----------------------------------------------------------
       850,732      1,198,124      963,625      173,445
- ----------------------------------------------------------
       (93,609)    (1,168,870)   3,032,791      163,276
- ----------------------------------------------------------
    (8,301,051)   (14,815,732)     730,591          -
           -          256,259          -            -
           -          (22,465)         -            -
    (4,146,746)    (9,059,324)     446,120          -
- ----------------------------------------------------------
   (12,447,797)   (23,641,262)   1,176,711          -
- ----------------------------------------------------------
  $(12,541,406)  $(24,810,132)  $4,209,502    $ 163,276
==========================================================
  $      2,046   $        -     $      -      $     -
- ----------------------------------------------------------


                                                                              61


STATEMENTS OF CHANGES IN NET ASSETS




                                                    IVY CUNDILL GLOBAL VALUE FUND     IVY DEVELOPING MARKETS FUND
                                                      YEAR ENDED       YEAR ENDED     YEAR ENDED      YEAR ENDED
                                                     DECEMBER 31,     DECEMBER 31,   DECEMBER 31,    DECEMBER 31,
                                                         2002             2001           2002            2001
                                                                                        
INCREASE (DECREASE) IN NET ASSETS
Operations
  Net investment income (loss)                         $      409      $    4,208    $   (40,683)   $   (18,659)
  Net realized gain (loss) on investments,
    foreign currency and option transactions             (502,286)        (11,053)      (100,522)      (839,162)
  Net change in unrealized appreciation
    (depreciation) on investments, foreign
    currency and written call option
    transactions                                         (297,214)         31,902       (529,684)       413,420
                                                    --------------------------------------------------------------
         Net increase (decrease) resulting from
           operations                                    (799,091)         25,057       (670,889)      (444,401)
                                                    --------------------------------------------------------------
Class A distributions
  Dividends from net investment income                        -              (483)           -              -
  Distributions from realized gains                       (12,598)         (5,550)       (12,058)           -
                                                    --------------------------------------------------------------
         Total distributions to Class A
           shareholders                                   (12,598)         (6,033)       (12,058)           -
                                                    --------------------------------------------------------------
Class B distributions
  Dividends from net investment income                        -            (1,954)           -              -
  Distributions from realized gains                       (17,782)        (22,475)        (8,904)           -
                                                    --------------------------------------------------------------
         Total distributions to Class B
           shareholders                                   (17,782)        (24,429)        (8,904)           -
                                                    --------------------------------------------------------------
Class C distributions
  Dividends from net investment income                        -               -              -              -
  Distributions from realized gains                        (5,319)           (850)        (2,490)           -
                                                    --------------------------------------------------------------
         Total distributions to Class C
           shareholders                                    (5,319)           (850)        (2,490)           -
                                                    --------------------------------------------------------------
Class Advisor distributions
  Dividends from net investment income                        -            (2,320)           -              -
  Distributions from realized gains                       (13,199)        (26,675)          (254)           -
                                                    --------------------------------------------------------------
         Total distributions to Advisor Class
           shareholders                                   (13,199)        (28,995)          (254)           -
                                                    --------------------------------------------------------------
Class I distributions
  Dividends from net investment income                       (379)            -              -              -
  Distributions from realized gains                           -               -              -              -
                                                    --------------------------------------------------------------
         Total distributions to Class I
           shareholders                                      (379)            -              -              -
                                                    --------------------------------------------------------------
Fund share transactions (Note 4)
  Class A                                               1,296,061         211,494        157,759     (1,737,612)
  Class B                                               1,461,220         859,802       (748,738)    (1,738,699)
  Class C                                                 460,178          29,498       (101,441)      (480,164)
  Class Advisor                                         1,006,438         262,419        (31,028)       (31,672)
  Class I                                                  44,206             -              -              -
                                                    --------------------------------------------------------------
  Net increase (decrease) resulting from Fund
    share transactions                                  4,268,103       1,363,213       (723,448)    (3,988,147)
                                                    --------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS                 3,419,735       1,327,963     (1,418,043)    (4,432,548)
  Net assets beginning of period                        2,074,865         746,902      5,598,457     10,031,005
                                                    --------------------------------------------------------------
  NET ASSETS END OF PERIOD                             $5,494,600      $2,074,865    $ 4,180,414    $ 5,598,457
                                                    ==============================================================
UNDISTRIBUTED NET INVESTMENT INCOME                    $      -        $    2,077    $       -      $       -
                                                    --------------------------------------------------------------


 62         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                 STATEMENTS OF CHANGES IN NET ASSETS (continued)





          IVY EUROPEAN                                                     IVY GLOBAL NATURAL
       OPPORTUNITIES FUND                 IVY GLOBAL FUND                    RESOURCES FUND
  YEAR ENDED         YEAR ENDED     YEAR ENDED        YEAR ENDED     YEAR ENDED         YEAR ENDED
 DECEMBER 31,       DECEMBER 31,   DECEMBER 31,      DECEMBER 31,   DECEMBER 31,       DECEMBER 31,
     2002               2001           2002              2001           2002               2001
                                                                       
  $   (313,625)     $ (1,108,594)  $   (32,823)      $   (87,678)   $  (347,118)      $    17,480
   (20,869,819)      (32,949,388)   (1,130,093)       (1,707,991)    (1,362,580)         (129,942)
    17,645,789        (2,857,973)     (373,101)         (357,083)       268,841           939,703
- ----------------------------------------------------------------------------------------------------
    (3,537,655)      (36,915,955)   (1,536,017)       (2,152,752)    (1,440,857)          827,241
- ----------------------------------------------------------------------------------------------------
           -                 -             -                 -              -            (123,220)
           -             (79,656)          -                 -          (97,855)              -
- ----------------------------------------------------------------------------------------------------
           -             (79,656)          -                 -          (97,855)         (123,220)
- ----------------------------------------------------------------------------------------------------
           -                 -             -                 -              -             (72,803)
           -             (89,127)          -                 -              -                 -
- ----------------------------------------------------------------------------------------------------
           -             (89,127)          -                 -              -             (72,803)
- ----------------------------------------------------------------------------------------------------
           -                 -             -                 -              -             (25,855)
           -             (65,137)          -                 -           (3,161)              -
- ----------------------------------------------------------------------------------------------------
           -             (65,137)          -                 -           (3,161)          (25,855)
- ----------------------------------------------------------------------------------------------------
           -                 -             -                 -              -             (10,125)
           -             (22,555)          -                 -           (4,055)              -
- ----------------------------------------------------------------------------------------------------
           -             (22,555)          -                 -           (4,055)          (10,125)
- ----------------------------------------------------------------------------------------------------
           -                 -             -                 -              -                 -
           -                 (33)          -                 -              -                 -
- ----------------------------------------------------------------------------------------------------
           -                 (33)          -                 -              -                 -
- ----------------------------------------------------------------------------------------------------
    (9,398,115)      (12,356,980)   (1,184,488)       (1,292,078)    10,315,109         1,944,691
    (7,902,090)      (11,307,942)     (821,826)       (1,559,669)     3,579,421         1,647,979
    (4,696,091)      (14,959,642)      (52,999)            2,801      3,896,774         1,087,331
    (2,988,959)       (6,208,579)       (6,502)          (30,156)         5,039           461,155
        30,709                33           -                 -              -                 -
- ----------------------------------------------------------------------------------------------------
   (24,954,546)      (44,833,110)   (2,065,815)       (2,879,102)    17,796,343         5,141,156
- ----------------------------------------------------------------------------------------------------
   (28,492,201)      (82,005,573)   (3,601,832)       (5,031,854)    16,250,415         5,736,394
    98,653,878       180,659,451     8,204,575        13,236,429     15,178,714         9,442,320
- ----------------------------------------------------------------------------------------------------
  $ 70,161,677      $ 98,653,878   $ 4,602,743       $ 8,204,575    $31,429,129       $15,178,714
====================================================================================================
  $        -        $        -     $       -         $       -      $       -         $       -
- ----------------------------------------------------------------------------------------------------


                                                                              63


STATEMENTS OF CHANGES IN NET ASSETS





                                                          IVY GLOBAL SCIENCE                IVY INTERNATIONAL
                                                          & TECHNOLOGY FUND                        FUND
                                                      YEAR ENDED       YEAR ENDED     YEAR ENDED        YEAR ENDED
                                                     DECEMBER 31,     DECEMBER 31,   DECEMBER 31,      DECEMBER 31,
                                                         2002             2001           2002              2001
                                                                                          
INCREASE (DECREASE) IN NET ASSETS
Operations
  Net investment income (loss)                        $   (295,126)   $   (850,970)  $     (64,364)   $    (803,812)
  Net realized gain (loss) on investments,
    foreign currency and option transactions            (8,505,195)    (34,588,967)   (123,678,163)    (117,343,526)
  Net change in unrealized appreciation
    (depreciation) on investments, foreign
    currency and written call option
    transactions                                        (3,019,899)       (736,843)     49,688,385      (65,204,565)
                                                    -----------------------------------------------------------------
         Net increase (decrease) resulting from
           operations                                  (11,820,220)    (36,176,780)    (74,054,142)    (183,351,903)
                                                    -----------------------------------------------------------------
Class A distributions
  Dividends from net investment income                         -               -               -                -
  Distributions from realized gains                            -               -           (22,133)             -
                                                    -----------------------------------------------------------------
         Total distributions to Class A
           shareholders                                        -               -           (22,133)             -
                                                    -----------------------------------------------------------------
Class B distributions
  Dividends from net investment income                         -               -               -                -
  Distributions from realized gains                            -               -           (12,413)             -
                                                    -----------------------------------------------------------------
         Total distributions to Class B
           shareholders                                        -               -           (12,413)             -
                                                    -----------------------------------------------------------------
Class C distributions
  Dividends from net investment income                         -               -               -                -
  Distributions from realized gains                            -               -            (2,440)             -
                                                    -----------------------------------------------------------------
         Total distributions to Class C
           shareholders                                        -               -            (2,440)             -
                                                    -----------------------------------------------------------------
Class Advisor distributions
  Dividends from net investment income                         -               -               -                -
  Distributions from realized gains                            -               -               -                -
                                                    -----------------------------------------------------------------
         Total distributions to Advisor Class
           shareholders                                        -               -               -                -
                                                    -----------------------------------------------------------------
Class I distributions
  Dividends from net investment income                         -               -               -                -
  Distributions from realized gains                            -               -              (343)             -
                                                    -----------------------------------------------------------------
         Total distributions to Class I
           shareholders                                        -               -              (343)             -
                                                    -----------------------------------------------------------------
Fund share transactions (Note 4)
  Class A                                               (2,822,473)     (2,017,011)   (174,708,492)    (130,688,855)
  Class B                                               (2,960,646)     (2,241,470)    (44,486,381)     (90,315,247)
  Class C                                                 (731,553)     (2,535,725)     (8,318,805)     (20,256,233)
  Class Advisor                                            (36,495)        (38,620)         (2,162)           1,566
  Class I                                                      -               -       (13,329,840)     (10,732,630)
                                                    -----------------------------------------------------------------
  Net increase (decrease) resulting from Fund
    share transactions                                  (6,551,167)     (6,832,826)   (240,845,680)    (251,991,399)
                                                    -----------------------------------------------------------------
TOTAL (DECREASE) INCREASE IN NET ASSETS                (18,371,387)    (43,009,606)   (314,937,151)    (435,343,302)
  Net assets beginning of period                        28,483,425      71,493,031     524,968,753      960,312,055
                                                    -----------------------------------------------------------------
  NET ASSETS END OF PERIOD                            $ 10,112,038    $ 28,483,425   $ 210,031,602    $ 524,968,753
                                                    =================================================================
UNDISTRIBUTED NET INVESTMENT INCOME                   $        -      $        -     $         -      $         -
                                                    -----------------------------------------------------------------


 64         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                 STATEMENTS OF CHANGES IN NET ASSETS (continued)





    IVY INTERNATIONAL SMALL
         COMPANIES FUND             IVY INTERNATIONAL VALUE FUND     IVY PACIFIC OPPORTUNITIES FUND
  YEAR ENDED         YEAR ENDED     YEAR ENDED        YEAR ENDED     YEAR ENDED         YEAR ENDED
 DECEMBER 31,       DECEMBER 31,   DECEMBER 31,      DECEMBER 31,   DECEMBER 31,       DECEMBER 31,
     2002               2001           2002              2001           2002               2001
                                                                       
  $   (79,742)      $   (244,285)  $    184,623      $    (10,164)  $    (9,259)      $  (108,619)
   (4,056,208)        (6,817,197)    (6,018,401)       (5,500,755)       75,568        (2,117,974)
    2,105,794         (1,290,455)    (5,927,372)      (15,899,870)   (1,130,497)          755,091
- ----------------------------------------------------------------------------------------------------
   (2,030,156)        (8,351,937)   (11,761,150)      (21,410,789)   (1,064,188)       (1,471,502)
- ----------------------------------------------------------------------------------------------------
          -                  -              -             (27,423)          -              (8,050)
          -               (3,531)           -                 -             -              (1,649)
- ----------------------------------------------------------------------------------------------------
          -               (3,531)           -             (27,423)          -              (9,699)
- ----------------------------------------------------------------------------------------------------
          -                  -              -             (97,290)          -              (5,214)
          -               (3,188)           -                 -             -              (1,068)
- ----------------------------------------------------------------------------------------------------
          -               (3,188)           -             (97,290)          -              (6,282)
- ----------------------------------------------------------------------------------------------------
          -                  -              -             (34,090)          -              (1,203)
          -               (2,267)           -                 -             -                (246)
- ----------------------------------------------------------------------------------------------------
          -               (2,267)           -             (34,090)          -              (1,449)
- ----------------------------------------------------------------------------------------------------
          -                  -              -                (773)          -                  (4)
          -                 (942)           -                 -             -                  (1)
- ----------------------------------------------------------------------------------------------------
          -                 (942)           -                (773)          -                  (5)
- ----------------------------------------------------------------------------------------------------
          -                  -              -                 -             -                 -
          -                  -              -                 -             -                 -
- ----------------------------------------------------------------------------------------------------
          -                  -              -                 -             -                 -
- ----------------------------------------------------------------------------------------------------
   (1,356,976)        (2,382,665)    (3,478,391)       (6,604,271)     (214,260)       (2,223,328)
   (1,094,512)           (69,144)   (10,675,076)      (16,393,092)     (997,562)       (1,762,254)
     (891,987)          (541,670)    (4,469,914)       (8,894,349)     (333,108)         (461,062)
     (539,730)        (1,796,577)      (212,063)         (184,624)          625           (26,101)
          -                  -              -                 -             -                 -
- ----------------------------------------------------------------------------------------------------
   (3,883,205)        (4,790,056)   (18,835,444)      (32,076,336)   (1,544,305)       (4,472,745)
- ----------------------------------------------------------------------------------------------------
   (5,913,361)       (13,151,918)   (30,596,594)      (53,646,701)   (2,608,493)       (5,961,682)
   10,063,267         23,215,185     75,921,093       129,567,794    11,177,190        17,138,872
- ----------------------------------------------------------------------------------------------------
  $ 4,149,906       $ 10,063,267   $ 45,324,499      $ 75,921,093   $ 8,568,697       $11,177,190
====================================================================================================
  $       -         $        -     $        -        $        -     $       -         $       -
- ----------------------------------------------------------------------------------------------------


                                                                              65


STATEMENTS OF CHANGES IN NET ASSETS






                                                           IVY GROWTH FUND               IVY US BLUE CHIP FUND
                                                      YEAR ENDED       YEAR ENDED     YEAR ENDED       YEAR ENDED
                                                     DECEMBER 31,     DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
                                                         2002             2001           2002             2001
                                                                                         
INCREASE (DECREASE) IN NET ASSETS
Operations
  Net investment income (loss)                        $ (1,376,512)   $ (1,271,936)  $    (93,609)   $   (273,384)
  Net realized gain (loss) on investments,
    foreign currency and option transactions           (29,141,392)    (46,425,575)    (8,301,051)     (7,653,606)
  Net change in unrealized appreciation
    (depreciation) on investments, foreign
    currency and written call option
    transactions                                       (20,647,728)    (10,892,142)    (4,146,746)     (1,306,669)
                                                    ---------------------------------------------------------------
         Net increase (decrease) resulting from
           operations                                  (51,165,632)    (58,589,653)   (12,541,406)     (9,233,659)
                                                    ---------------------------------------------------------------
Class A distributions
  Dividends from net investment income                         -               -              -               -
  Distributions from realized gains                            -          (150,031)           -               -
  Return of capital                                            -               -              -               -
                                                    ---------------------------------------------------------------
         Total distributions to Class A
           shareholders                                        -          (150,031)           -               -
                                                    ---------------------------------------------------------------
Class B distributions
  Dividends from net investment income                         -               -              -               -
  Distributions from realized gains                            -            (4,963)           -               -
  Return of capital                                            -               -              -               -
                                                    ---------------------------------------------------------------
         Total distributions to Class B
           shareholders                                        -            (4,963)           -               -
                                                    ---------------------------------------------------------------
Class C distributions
  Dividends from net investment income                         -               -              -               -
  Distributions from realized gains                            -              (306)           -               -
  Return of capital                                            -               -              -               -
                                                    ---------------------------------------------------------------
         Total distributions to Class C
           shareholders                                        -              (306)           -               -
                                                    ---------------------------------------------------------------
Class Advisor distributions
  Dividends from net investment income                         -               -              -               -
  Distributions from realized gains                            -              (246)           -               -
  Return of capital                                            -               -              -               -
                                                    ---------------------------------------------------------------
         Total distributions to Advisor Class
           shareholders                                        -              (246)           -               -
                                                    ---------------------------------------------------------------
Fund share transactions (Note 4)
  Class A                                              (17,230,199)    (24,244,560)    (5,583,778)    (13,083,890)
  Class B                                               (1,832,126)         39,091     (6,026,613)     (1,937,914)
  Class C                                                 (117,794)       (219,317)      (467,317)     (1,480,938)
  Class Advisor                                            (78,349)         21,369        113,195        (127,958)
  Class I                                                      -               -              -               -
                                                    ---------------------------------------------------------------
  Net increase (decrease) resulting from Fund
    share transactions                                 (19,258,468)    (24,403,417)   (11,964,513)    (16,630,700)
                                                    ---------------------------------------------------------------
  TOTAL INCREASE (DECREASE) IN NET ASSETS              (70,424,100)    (83,148,616)   (24,505,919)    (25,864,359)
  Net assets beginning of period                       187,214,714     270,363,330     60,060,082      85,924,441
                                                    ---------------------------------------------------------------
  NET ASSETS END OF PERIOD                            $116,790,614    $187,214,714   $ 35,554,163    $ 60,060,082
                                                    ===============================================================
  UNDISTRIBUTED NET INVESTMENT INCOME                 $        -      $        -     $        -      $        -
                                                    ---------------------------------------------------------------


 66         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                 STATEMENTS OF CHANGES IN NET ASSETS (continued)






  IVY US EMERGING GROWTH FUND              IVY BOND FUND                 IVY MONEY MARKET FUND
  YEAR ENDED         YEAR ENDED     YEAR ENDED        YEAR ENDED     YEAR ENDED         YEAR ENDED
 DECEMBER 31,       DECEMBER 31,   DECEMBER 31,      DECEMBER 31,   DECEMBER 31,       DECEMBER 31,
     2002               2001           2002              2001           2002               2001
                                                                       
  $ (1,168,870)     $ (1,761,414)  $  3,032,791      $  3,819,656   $   163,276       $   728,899
   (14,559,473)      (25,941,075)       730,591        (1,814,351)          -                 -
    (9,081,789)      (18,236,680)       446,120         3,250,094           -                 -
- ----------------------------------------------------------------------------------------------------
   (24,810,132)      (45,939,169)     4,209,502         5,255,399       163,276           728,899
- ----------------------------------------------------------------------------------------------------
           -                 -       (1,995,695)       (2,485,231)     (104,700)         (513,765)
           -                 -              -                 -             -                 -
           -                 -              -             (75,056)          -                 -
- ----------------------------------------------------------------------------------------------------
           -                 -       (1,995,695)       (2,560,287)     (104,700)         (513,765)
- ----------------------------------------------------------------------------------------------------
           -                 -         (909,043)         (968,691)      (53,398)         (188,742)
           -                 -              -                 -             -                 -
           -                 -              -             (29,256)          -                 -
- ----------------------------------------------------------------------------------------------------
           -                 -         (909,043)         (997,947)      (53,398)         (188,742)
- ----------------------------------------------------------------------------------------------------
           -                 -         (105,075)         (130,441)       (5,178)          (26,392)
           -                 -              -                 -             -                 -
           -                 -              -              (3,939)          -                 -
- ----------------------------------------------------------------------------------------------------
           -                 -         (105,075)         (134,380)       (5,178)          (26,392)
- ----------------------------------------------------------------------------------------------------
           -                 -          (22,896)          (10,247)          -                 -
           -                 -              -                 -             -                 -
           -                 -              -                (309)          -                 -
- ----------------------------------------------------------------------------------------------------
           -                 -          (22,896)          (10,556)          -                 -
- ----------------------------------------------------------------------------------------------------
   (13,056,371)       (9,332,403)    (5,990,673)      (16,994,627)    1,780,289        (7,489,724)
    (8,023,668)      (12,090,864)    (2,507,083)       (1,183,399)     (575,556)          808,338
    (1,477,554)       (2,343,242)       (48,003)         (585,610)      293,770        (1,456,010)
      (146,978)         (386,693)       371,156           (26,727)          -                 -
           -                 -              -                 -             -                 -
- ----------------------------------------------------------------------------------------------------
   (22,704,571)      (24,153,202)    (8,174,603)      (18,790,363)    1,498,503        (8,137,396)
- ----------------------------------------------------------------------------------------------------
   (47,514,703)      (70,092,371)    (6,997,810)      (17,238,134)    1,498,503        (8,137,396)
    75,818,110       145,910,481     58,063,769        75,301,903    20,103,346        28,240,742
- ----------------------------------------------------------------------------------------------------
  $ 28,303,407      $ 75,818,110   $ 51,065,959      $ 58,063,769   $21,601,849       $20,103,346
====================================================================================================
  $        -        $        -     $        -        $        -     $       -         $       -
- ----------------------------------------------------------------------------------------------------


                                                                              67


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM        OF PERIOD
                                                                                         
IVY CUNDILL GLOBAL VALUE FUND                                   A         01/01 to 12/31/2002      $ 9.64
                                                                       09/04(e) to 12/31/2001       10.15
                                                                B         01/01 to 12/31/2002        9.61
                                                                       09/26(e) to 12/31/2001        9.26
                                                                C         01/01 to 12/31/2002        9.57
                                                                       10/19(e) to 12/31/2001        9.44
                                                                I      11/05(e) to 12/31/2002        8.85
                                                             ADVISOR      01/01 to 12/31/2002        9.55
                                                                          01/01 to 12/31/2001       10.07
                                                                       04/19(e) to 12/31/2000       10.00
                                                            -------------------------------------------------
IVY DEVELOPING MARKETS FUND                                     A         01/01 to 12/31/2002        6.36
                                                                          01/01 to 12/31/2001        6.66
                                                                          01/01 to 12/31/2000        8.77
                                                                          01/01 to 12/31/1999        6.02
                                                                          01/01 to 12/31/1998        6.82
                                                                B         01/01 to 12/31/2002        6.10
                                                                          01/01 to 12/31/2001        6.49
                                                                          01/01 to 12/31/2000        8.63
                                                                          01/01 to 12/31/1999        5.93
                                                                          01/01 to 12/31/1998        6.77
                                                                C         01/01 to 12/31/2002        6.13
                                                                          01/01 to 12/31/2001        6.52
                                                                          01/01 to 12/31/2000        8.67
                                                                          01/01 to 12/31/1999        5.96
                                                                          01/01 to 12/31/1998        6.79
                                                             ADVISOR      01/01 to 12/31/2002        6.36
                                                                          01/01 to 12/31/2001        6.70
                                                                          01/01 to 12/31/2000        8.80
                                                                          01/01 to 12/31/1999        6.05
                                                                       04/30(e) to 12/31/1998        7.48
                                                            -------------------------------------------------
IVY EUROPEAN OPPORTUNITIES FUND                                 A         01/01 to 12/31/2002       13.65
                                                                          01/01 to 12/31/2001       17.25
                                                                          01/01 to 12/31/2000       17.13
                                                                       05/04(e) to 12/31/1999       10.01
                                                                B         01/01 to 12/31/2002       13.54
                                                                          01/01 to 12/31/2001       17.26
                                                                          01/01 to 12/31/2000       17.13
                                                                       05/24(e) to 12/31/1999       10.21
                                                                C         01/01 to 12/31/2002       13.59
                                                                          01/01 to 12/31/2001       17.32
                                                                          01/01 to 12/31/2000       17.13
                                                                       10/24(e) to 12/31/1999       11.57
                                                                I         01/01 to 12/31/2002       13.78
                                                                          01/01 to 12/31/2001       17.37
                                                                       03/16(e) to 12/31/2000       26.00
                                                             ADVISOR      01/01 to 12/31/2002       13.80
                                                                          01/01 to 12/31/2001       17.39
                                                                          01/01 to 12/31/2000       17.23
                                                                       05/03(e) to 12/31/1999       10.01


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
na -- not applicable
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total return
    for Developing Markets and European Opportunities excluding redemption fees
    would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%)
    and (20.78%) for the year ended 12/31/01, respectively.

 68         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $ .00 (c)(d)      $(1.17)        $(1.17)           $-            $ .08            $ .08
        .01 (c)           (.23)          (.22)            .02            .27              .29
       (.05)(c)(d)       (1.16)         (1.21)            -              .08              .08
        .01 (c)            .62            .63             .02            .26              .28
       (.07)(c)(d)       (1.16)         (1.23)            -              .08              .08
        .01 (c)            .40            .41             .02            .26              .28
        .26               (.72)          (.46)            -              .08              .08
        .04 (c)(d)       (1.17)         (1.13)            -              .08              .08
        .03 (c)           (.25)          (.22)            .02            .28              .30
        .05 (c)            .41            .46             .19            .20              .39
- ---------------------------------------------------------------------------------------------------
       (.02)(c)(d)        (.76)          (.78)            -              .03              .03
        .01 (c)           (.31)(h)       (.30)            -              -                -
       (.02)(c)          (2.07)         (2.09)            -              .02              .02
        .01 (c)           2.80           2.81             .01            .05              .06
        .06 (c)(d)        (.86)          (.80)            -              -                -
       (.07)(c)(d)        (.72)          (.79)            -              .03              .03
       (.05)(c)           (.34)          (.39)            -              -                -
       (.10)(c)          (2.02)         (2.12)            -              .02              .02
       (.04)(c)           2.76           2.72             -              .02              .02
        .01 (c)(d)        (.85)          (.84)            -              -                -
       (.07)(c)(d)        (.73)          (.80)            -              .03              .03
       (.05)(c)           (.34)          (.39)            -              -                -
       (.14)(c)          (1.99)         (2.13)            -              .02              .02
       (.03)(c)           2.76           2.73             -              .02              .02
        .01 (c)(d)        (.84)          (.83)            -              -                -
      (0.01)(c)(d)        (.75)          (.76)            -              .03              .03
        .04 (c)           (.38)          (.34)            -              -                -
        .02 (c)          (2.10)         (2.08)            -              .02              .02
        .03 (c)           2.83           2.86             .06            .05              .11
        .04 (c)(d)       (1.47)         (1.43)            -              -                -
- ---------------------------------------------------------------------------------------------------
        .01 (c)(d)        (.46)(h)       (.45)            -              -                -
       (.08)(c)          (3.49)(h)      (3.57)            -              .03              .03
       (.07)               .82            .75             -              .63              .63
        -   (c)          16.35          16.35             .01           9.22             9.23
       (.10)(c)(d)        (.51)          (.61)            -              -                -
       (.20)(c)          (3.49)         (3.69)            -              .03              .03
       (.18)               .83            .65             -              .52              .52
       (.01)(c)          16.15          16.14             -             9.22             9.22
       (.10)(c)(d)        (.51)          (.61)            -              -                -
       (.22)(c)          (3.48)         (3.70)            -              .03              .03
       (.22)               .88            .66             -              .47              .47
       (.01)(c)           6.00           5.99             .01            .42              .43
        .07 (c)(d)        (.53)          (.46)            -              -                -
       (.01)(c)          (3.55)         (3.56)            -              .03              .03
       (.01)             (7.92)         (7.93)            -              .70              .70
        .06 (c)(d)        (.52)          (.46)            -              -                -
       (.02)(c)          (3.54)         (3.56)            -              .03              .03
       (.02)               .85            .83             -              .67              .67
        -   (c)          16.46          16.46             .02           9.22             9.24


                                                                              69


FINANCIAL HIGHLIGHTS



                                                                   SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT        TOTAL
                                                              SHARE     END OF         RETURN
FUND NAME                                                     CLASS     PERIOD       (%)(A)(F)
                                                                          
IVY CUNDILL GLOBAL VALUE FUND                                   A       $ 8.39       (12.17)
                                                                          9.64        (2.07)
                                                                B         8.32       (12.62)
                                                                          9.61         6.91
                                                                C         8.26       (12.88)
                                                                          9.57         4.44
                                                                I         8.31        (5.23)
                                                             ADVISOR      8.34       (11.86)
                                                                          9.55        (2.13)
                                                                         10.07         4.66
                                                            -------------------------------------
IVY DEVELOPING MARKETS FUND                                     A         5.55       (12.28)
                                                                          6.36        (4.50)(h)
                                                                          6.66       (23.79)
                                                                          8.77        46.70
                                                                          6.02       (11.67)
                                                                B         5.28       (12.96)
                                                                          6.10        (6.01)
                                                                          6.49       (24.53)
                                                                          8.63        45.82
                                                                          5.93       (12.35)
                                                                C         5.30       (13.06)
                                                                          6.13        (5.98)
                                                                          6.52       (24.53)
                                                                          8.67        45.84
                                                                          5.96       (12.16)
                                                             ADVISOR      5.57       (11.96)
                                                                          6.36        (5.07)
                                                                          6.70       (23.60)
                                                                          8.80        47.38
                                                                          6.05       (19.06)
                                                            -------------------------------------
IVY EUROPEAN OPPORTUNITIES FUND                                 A        13.20        (3.30)(h)
                                                                         13.65       (20.67)(h)
                                                                         17.25         4.51
                                                                         17.13       215.58
                                                                B        12.93        (4.51)
                                                                         13.54       (21.35)
                                                                         17.26         4.12
                                                                         17.13       209.41
                                                                C        12.98        (4.49)
                                                                         13.59       (21.32)
                                                                         17.32         3.98
                                                                         17.13        51.80
                                                                I        13.32        (3.34)
                                                                         13.78       (20.46)
                                                                         17.37       (30.40)
                                                             ADVISOR     13.34        (3.33)
                                                                         13.80       (20.44)
                                                                         17.39         5.01
                                                                         17.23       217.16


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.
(d) Based on average shares outstanding.
(e) Commencement.

na -- not applicable
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total return
    for Developing Markets and European Opportunities excluding redemption fees
    would have been (12.28%) and (3.44%) for the year ended 12/31/02 and (5.41%)
    and (20.78%) for the year ended 12/31/01, respectively.

 70         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
      $ 1,403             2.28                   4.97                 .02 (c)      122
          213             4.47(g)               31.77(g)              .94 (c)(g)    57
        2,089             2.84                   5.53                (.54)(c)      122
          867             6.04(g)               39.53(g)              .60 (c)(g)    57
          446             3.10                   5.79                (.80)(c)      122
           30             7.71(g)               51.61(g)              .99 (c)(g)    57
           42            11.51(g)               28.44(g)             2.96 (c)(g)   122
        1,515             1.83                   4.52                 .47 (c)      122
          964             1.40                  10.30                 .37 (c)       57
          747             1.95(g)               19.15(g)              .70 (c)(g)    53
- -------------------------------------------------------------------------------------------
        2,210             2.18                   4.64                (.39)(c)       48
        2,390             2.19                   4.35                 .17 (c)       14
        4,213             2.12                   3.50                (.27)(c)       76
        5,652             2.30                   3.28                 .13 (c)       37
        5,487             2.18                   3.47                 .88 (c)       47
        1,490             2.98                   5.44               (1.18)(c)       48
        2,506             2.96                   5.12                (.59)(c)       14
        4,525             2.90                   4.28               (1.04)(c)       76
        7,676             2.92                   3.90                (.49)(c)       37
        6,145             2.96                   4.25                 .10 (c)       47
          433             2.95                   5.41               (1.16)(c)       48
          619             3.01                   5.17                (.65)(c)       14
        1,173             2.85                   4.23               (1.00)(c)       76
        3,474             2.85                   3.83                (.43)(c)       37
        2,641             2.96                   4.25                 .10 (c)       47
           47             1.88                   4.34                (.09)(c)       48
           83             1.84                   4.00                 .52 (c)       14
          120             1.71                   3.09                 .14 (c)       76
          337             1.74                   2.72                 .69 (c)       37
           82             1.68(g)                2.97(g)             1.38 (c)(g)    47
- -------------------------------------------------------------------------------------------
       20,452             2.15                   2.15                 .06 (c)       69
       30,833             2.15                   2.17                (.44)(c)       66
       54,655               na                   1.83                (.36)          46
       13,932             2.22(g)                6.10(g)             (.15)(c)(g)   108
       24,627             2.92                   2.92                (.70)(c)       69
       33,705             2.89                   2.91               (1.18)(c)       66
       57,283               na                   2.59               (1.12)          46
        5,900             2.96(g)                6.84(g)             (.89)(c)(g)   108
       19,324             2.92                   2.92                (.70)(c)       69
       24,918             2.91                   2.93               (1.20)(c)       66
       49,527               na                   2.58               (1.11)          46
        8,076             2.96(g)                6.84(g)             (.89)(c)(g)   108
           30             1.65                   1.65                 .56 (c)       69
           13             1.80                   1.82                (.08)(c)       66
           17               na                   1.54(g)             (.07)(g)       46
        5,729             1.81                   1.81                 .40 (c)       69
        9,186             1.72                   1.74                (.00)(c)       66
       19,178               na                   1.55                (.09)          46
        5,246             1.93(g)                5.81(g)              .14 (c)(g)   108


                                                                              71


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM        OF PERIOD
                                                                                         
IVY GLOBAL FUND                                                 A         01/01 to 12/31/2002      $ 8.71
                                                                          01/01 to 12/31/2001       10.63
                                                                          01/01 to 12/31/2000       13.42
                                                                          01/01 to 12/31/1999       11.32
                                                                          01/01 to 12/31/1998       10.93
                                                                B         01/01 to 12/31/2002        8.36
                                                                          01/01 to 12/31/2001       10.30
                                                                          01/01 to 12/31/2000       13.14
                                                                          01/01 to 12/31/1999       11.19
                                                                          01/01 to 12/31/1998       10.90
                                                                C         01/01 to 12/31/2002        8.05
                                                                          01/01 to 12/31/2001        9.93
                                                                          01/01 to 12/31/2000       12.75
                                                                          01/01 to 12/31/1999       10.90
                                                                          01/01 to 12/31/1998       10.67
                                                             ADVISOR      01/01 to 12/31/2002        8.80
                                                                          01/01 to 12/31/2001       10.73
                                                                          01/01 to 12/31/2000       13.50
                                                                          01/01 to 12/31/1999       11.36
                                                                 04/30(e) to 12/31/1998             13.26
                                                            -------------------------------------------------
IVY GLOBAL NATURAL RESOURCES FUND                               A         01/01 to 12/31/2002       11.05
                                                                          01/01 to 12/31/2001        9.74
                                                                          01/01 to 12/31/2000        8.91
                                                                          01/01 to 12/31/1999        6.32
                                                                          01/01 to 12/31/1998        9.01
                                                                B         01/01 to 12/31/2002       10.81
                                                                          01/01 to 12/31/2001        9.56
                                                                          01/01 to 12/31/2000        8.77
                                                                          01/01 to 12/31/1999        6.27
                                                                          01/01 to 12/31/1998        9.00
                                                                C         01/01 to 12/31/2002       10.61
                                                                          01/01 to 12/31/2001        9.40
                                                                          01/01 to 12/31/2000        8.63
                                                                          01/01 to 12/31/1999        6.21
                                                                          01/01 to 12/31/1998        9.00
                                                             ADVISOR      01/01 to 12/31/2002       11.02
                                                                          01/01 to 12/31/2001        9.74
                                                                          01/01 to 12/31/2000        8.90
                                                                 04/08(e) to 12/31/1999              7.00


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return for Global and Global Natural Resources excluding redemption fees
    would have been (21.28%) and 4.40% for the year ended 12/31/02.

 72         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $(.02)(c)(d)      $(1.76)(h)     $(1.78)           $-            $ -              $ -
       (.06)(c)          (1.86)         (1.92)            -              -                -
         02 (c)          (1.91)         (1.89)            -              .90              .90
        .01 (c)           2.98           2.99             -              .89              .89
        .02 (c)            .91            .93             -              .54              .54
       (.09)(c)(d)       (1.77)         (1.86)            -              -                -
       (.17)(c)          (1.77)         (1.94)            -              -                -
       (.09)(c)          (1.85)         (1.94)            -              .90              .90
       (.10)(c)           2.94           2.84             -              .89              .89
       (.09)(c)            .92            .83             -              .54              .54
       (.09)(c)(d)       (1.74)         (1.83)            -              -                -
       (.13)(c)          (1.75)         (1.88)            -              -                -
       (.11)(c)          (1.81)         (1.92)            -              .90              .90
       (.16)(c)           2.90           2.74             -              .89              .89
       (.16)(c)            .93            .77             -              .54              .54
        -   (c)(d)       (1.88)         (1.88)            -              -                -
       (.05)(c)          (1.88)         (1.93)            -              -                -
         05 (c)          (1.92)         (1.87)            -              .90              .90
        .08 (c)           2.95           3.03             -              .89              .89
        .05 (c)          (1.41)         (1.36)            -              .54              .54
- ---------------------------------------------------------------------------------------------------
       (.11)(c)(d)         .63 (h)        .52             -              .07              .07
        .04 (c)(d)        1.45           1.49             .18            -                .18
       (.07)(c)            .95            .88             .05            -                .05
        -   (c)(d)        2.59           2.59             -              -                -
        .03 (c)          (2.68)         (2.65)            .04            -                .04
       (.19)(c)(d)         .57            .38             -              -                -
       (.02)(c)(d)        1.42           1.40             .15            -                .15
       (.09)(c)            .90            .81             .02            -                .02
       (.04)(c)(d)        2.54           2.50             -              -                -
       (.04)(c)          (2.65)         (2.69)            .04            -                .04
       (.18)(c)(d)         .55            .37             -              .01              .01
       (.02)(c)(d)        1.39           1.37             .16            -                .16
       (.07)(c)            .89            .82             .05            -                .05
       (.04)(c)(d)        2.46           2.42             -              -                -
       (.14)(c)          (2.61)         (2.75)            .04            -                .04
       (.07)(c)            .56            .49             -              .08              .08
        .09 (c)(d)        1.43           1.52             .24            -                .24
       (.05)(c)            .95            .90             .06            -                .06
        .02 (c)(d)        1.88           1.90             -              -                -


                                                                              73


FINANCIAL HIGHLIGHTS



                                                                  SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT       TOTAL
                                                              SHARE     END OF        RETURN
FUND NAME                                                     CLASS     PERIOD      (%)(A)(F)
                                                                          
IVY GLOBAL FUND                                                 A       $ 6.93      (20.44)(h)
                                                                          8.71      (18.06)
                                                                         10.63      (13.91)
                                                                         13.42       26.51
                                                                         11.32        8.59
                                                                B         6.50      (22.25)
                                                                          8.36      (18.83)
                                                                         10.30      (14.58)
                                                                         13.14       25.31
                                                                         11.19        7.69
                                                                C         6.22      (22.73)
                                                                          8.05      (18.93)
                                                                          9.93      (14.88)
                                                                         12.75       25.24
                                                                         10.90        7.30
                                                             ADVISOR      6.92      (21.36)
                                                                          8.80      (17.99)
                                                                         10.73      (13.67)
                                                                         13.50       26.77
                                                                         11.36      (10.19)
                                                            -----------------------------------
IVY GLOBAL NATURAL RESOURCES FUND                               A        11.50        4.66(h)
                                                                         11.05       15.40
                                                                          9.74        9.86
                                                                          8.91       40.98
                                                                          6.32      (29.35)
                                                                B        11.19        3.52
                                                                         10.81       14.73
                                                                          9.56        9.27
                                                                          8.77       39.87
                                                                          6.27      (29.82)
                                                                C        10.97        3.46
                                                                         10.61       14.62
                                                                          9.40        9.49
                                                                          8.63       38.97
                                                                          6.21      (30.49)
                                                             ADVISOR     11.43        4.46
                                                                         11.02       15.71
                                                                          9.74       10.17
                                                                          8.90       27.14


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return for Global and Global Natural Resources excluding redemption fees
    would have been (21.28%) and 4.40% for the year ended 12/31/02.

 74         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
      $ 3,339             2.13                   4.38                (.23)(c)       61
        5,542             2.14                   4.21                (.58)(c)       72
        8,135             2.17                   3.11                 .16 (c)      102
       11,828             2.17                   2.77                 .09 (c)       50
       14,660             2.18                   2.54                 .16 (c)       17
        1,124             3.12                   5.37               (1.23)(c)       61
        2,421             3.05                   5.12               (1.49)(c)       72
        4,769             2.99                   3.93                (.66)(c)      102
        7,316             2.99                   3.59                (.72)(c)       50
        7,495             2.97                   3.33                (.63)(c)       17
           72             3.19                   5.44               (1.30)(c)       61
          148             3.20                   5.27               (1.64)(c)       72
          178             3.36                   4.30               (1.03)(c)      102
          267             3.23                   3.83                (.96)(c)       50
          428             3.30                   3.66                (.96)(c)       17
           68             1.95                   4.20                (.06)(c)       61
           94             2.02                   4.09                (.45)(c)       72
          155             1.95                   2.89                 .38 (c)      102
          179             1.96                   2.56                 .31 (c)       50
          321             1.75(g)                2.11(g)              .59 (c)(g)    17
- -------------------------------------------------------------------------------------------
       17,053             2.22                   2.38                (.91)(c)       67
        7,695             2.25                   3.71                 .38 (c)      169
        5,549             2.29                   4.54                (.69)(c)      134
        5,823             2.16                   4.53                 .02 (c)      157
        1,345             2.22                   5.75                 .29 (c)       98
        8,617             2.93                   3.09               (1.62)(c)       67
        5,231             2.87                   4.33                (.24)(c)      169
        3,157             2.80                   5.05               (1.20)(c)      134
        2,520             2.71                   5.08                (.53)(c)      157
        1,320             2.90                   6.43                (.39)(c)       98
        5,189             2.94                   3.10               (1.64)(c)       67
        1,788             2.86                   4.32                (.23)(c)      169
          715             2.70                   4.95               (1.10)(c)      134
          472             2.73                   5.10                (.55)(c)      157
           41             3.57                   7.10               (1.06)(c)       98
          570             1.82                   1.98                (.51)(c)       67
          465             1.78                   3.24                 .85 (c)      169
           22             2.02                   4.27                (.42)(c)      134
           26             1.87(g)                4.24(g)              .31 (c)(g)   157


                                                                              75


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM        OF PERIOD
                                                                                         
IVY GLOBAL SCIENCE & TECHNOLOGY FUND                            A         01/02 to 12/31/2002      $13.31
                                                                          01/01 to 12/31/2001       27.53
                                                                          01/01 to 12/31/2000       48.90
                                                                          01/01 to 12/31/1999       23.63
                                                                          01/01 to 12/31/1998       17.47
                                                                B         01/02 to 12/31/2002       12.86
                                                                          01/01 to 12/31/2001       26.80
                                                                          01/01 to 12/31/2000       47.97
                                                                          01/01 to 12/31/1999       23.31
                                                                          01/01 to 12/31/1998       17.37
                                                                C         01/02 to 12/31/2002       12.91
                                                                          01/01 to 12/31/2001       26.93
                                                                          01/01 to 12/31/2000       48.19
                                                                          01/01 to 12/31/1999       23.38
                                                                          01/01 to 12/31/1998       17.40
                                                             ADVISOR      01/02 to 12/31/2002       13.34
                                                                          01/01 to 12/31/2001       27.54
                                                                          01/01 to 12/31/2000       48.82
                                                                          01/01 to 12/31/1999       23.62
                                                                 04/15(e) to 12/31/1998             20.19
                                                            -------------------------------------------------
IVY INTERNATIONAL FUND                                          A         01/02 to 12/31/2002       20.69
                                                                          01/01 to 12/31/2001       26.20
                                                                          01/01 to 12/31/2000       47.09
                                                                          01/01 to 12/31/1999       41.20
                                                                          01/01 to 12/31/1998       39.03
                                                                B         01/02 to 12/31/2002       20.03
                                                                          01/01 to 12/31/2001       25.64
                                                                          01/01 to 12/31/2000       46.78
                                                                          01/01 to 12/31/1999       40.97
                                                                          01/01 to 12/31/1998       38.82
                                                                C         01/02 to 12/31/2002       19.90
                                                                          01/01 to 12/31/2001       25.46
                                                                          01/01 to 12/31/2000       46.57
                                                                          01/01 to 12/31/1999       40.79
                                                                          01/01 to 12/31/1998       38.64
                                                                I         01/02 to 12/31/2002       20.85
                                                                          01/01 to 12/31/2001       26.35
                                                                          01/01 to 12/31/2000       47.09
                                                                          01/01 to 12/31/1999       41.21
                                                                          01/01 to 12/31/1998       39.06
                                                             ADVISOR      01/01 to 12/31/2002(i)    20.67
                                                                          01/01 to 12/31/2001       26.25
                                                                 08/31(e) to 12/31/2000             40.05


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.
(d) Based on average shares outstanding.
(e) Commencement.

na -- not applicable

(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return would have been (21.10%) as of 12/31/02 and (21.15%) as of 12/31/01.
(i) Advisor Class shares were outstanding for the period from 01/01/02
    through 06/11/02 and from 07/03/02 through 12/31/02.

 76         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $(.13)(c)(d)      $ (6.04)      $ (6.17)          $ -            $ -              $ -
       (.31)(c)          (13.91)       (14.22)            -              -                -
       (.64)             (20.38)       (21.02)            -              .35              .35
       (.43)              29.27         28.84             -             3.57             3.57
       (.36)(d)            6.52          6.16             -              -                -
       (.20)(c)(d)        (5.83)        (6.03)            -              -                -
       (.45)(c)          (13.49)       (13.94)            -              -                -
       (.93)             (19.89)       (20.82)            -              .35              .35
       (.62)              28.67         28.05             -             3.39             3.39
       (.50)(d)            6.44          5.94             -              -                -
       (.20)(c)(d)        (5.84)        (6.04)            -              -                -
       (.53)(c)          (13.49)       (14.02)            -              -                -
      (1.10)             (19.81)       (20.91)            -              .35              .35
       (.70)              28.87         28.17             -             3.36             3.36
       (.48)(d)            6.46          5.98             -              -                -
       (.10)(c)(d)        (6.07)        (6.17)            -              -                -
       (.27)(c)          (13.93)       (14.20)            -              -                -
       (.43)             (20.50)       (20.93)            -              .35              .35
       (.24)              29.07         28.83             -             3.63             3.63
       (.20)(d)            3.63          3.43             -              -                -
- ---------------------------------------------------------------------------------------------------
        .06 (c)(d)        (4.40)(h)     (4.34)            -              -                -
        .05 (c)           (5.56)(h)     (5.51)            -              -                -
        .19              (12.44)       (12.25)            .04           8.60             8.64
        .30                8.31          8.61             .24           2.48             2.72
        .37                2.50          2.87             .35            .35              .70
       (.12)(c)(d)        (4.29)        (4.41)            -              -                -
       (.21)(c)           (5.40)        (5.61)            -              -                -
       (.17)             (12.33)       (12.50)            .04           8.60             8.64
       (.06)               8.27          8.21             -             2.40             2.40
        -                  2.50          2.50             -              .35              .35
       (.11)(c)(d)        (4.27)        (4.38)            -              -                -
       (.21)(c)           (5.35)        (5.56)            -              -                -
       (.19)             (12.28)       (12.47)            .04           8.60             8.64
       (.05)               8.23          8.18             -             2.40             2.40
        -                  2.50          2.50             -              .35              .35
        .14 (c)(d)        (4.51)        (4.37)            -              -                -
        .15 (c)           (5.65)        (5.50)            -              -                -
        .64              (12.74)       (12.10)            .04           8.60             8.64
        .52                8.34          8.86             .42           2.56             2.98
        .55                2.48          3.03             .53            .35              .88
       (.24)              (3.58)        (3.82)            -              -                -
        .01 (c)           (5.59)        (5.58)            -              -                -
        .02               (5.18)        (5.16)            .04           8.60             8.64


                                                                              77


FINANCIAL HIGHLIGHTS



                                                                SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT      TOTAL
                                                              SHARE     END OF      RETURN
FUND NAME                                                     CLASS     PERIOD     (%)(A)(F)
                                                                          
IVY GLOBAL SCIENCE & TECHNOLOGY FUND                            A       $ 7.14     (46.36)
                                                                         13.31     (51.65)
                                                                         27.53     (42.99)
                                                                         48.90     122.56
                                                                         23.63      35.26
                                                                B         6.83     (46.89)
                                                                         12.86     (52.01)
                                                                         26.80     (43.41)
                                                                         47.97     120.82
                                                                         23.31      34.20
                                                                C         6.87     (46.79)
                                                                         12.91     (52.06)
                                                                         26.93     (43.40)
                                                                         48.19     120.98
                                                                         23.38      34.37
                                                             ADVISOR      7.17     (46.25)
                                                                         13.34     (51.56)
                                                                         27.54     (42.88)
                                                                         48.82     122.56
                                                                         23.62      16.99
                                                            --------------------------------
IVY INTERNATIONAL FUND                                          A        16.35     (20.96)(h)
                                                                         20.69     (21.03)(h)
                                                                         26.20     (17.26)
                                                                         47.09      21.05
                                                                         41.20       7.34
                                                                B        15.62     (22.00)
                                                                         20.03     (21.88)
                                                                         25.64     (17.95)
                                                                         46.78      20.15
                                                                         40.97       6.43
                                                                C        15.52     (22.00)
                                                                         19.90     (21.84)
                                                                         25.46     (17.97)
                                                                         46.57      20.16
                                                                         40.79       6.46
                                                                I        16.48     (20.95)
                                                                         20.85     (20.87)
                                                                         26.35     (16.92)
                                                                         47.09      21.66
                                                                         41.21       7.75
                                                             ADVISOR     16.85     (18.71)
                                                                         20.67     (21.26)
                                                                         26.25     (12.09)


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been (21.10%) for the year ended
    12/31/02 and (21.15%) for the year ended 12/31/01.

 78         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
    $    4,968            2.19                   3.37               (1.37)(c)      153
        13,472            2.20                   2.46               (1.65)(c)      135
        32,016              na                   1.82               (1.53)          69
        41,516              na                   1.98               (1.80)          62
        17,888              na                   2.16               (1.88)          73
         3,983            2.97                   4.15               (2.15)(c)      153
        11,731            2.96                   3.22               (2.41)(c)      135
        28,675              na                   2.55               (2.26)          69
        35,879              na                   2.74               (2.55)          62
        10,197              na                   2.95               (2.67)          73
           987            3.02                   4.20               (2.20)(c)      153
         2,918            2.98                   3.24               (2.43)(c)      135
         9,977              na                   2.53               (2.23)          69
        18,769              na                   2.68               (2.49)          62
         8,431              na                   2.84               (2.56)          73
           174            1.95                   3.13               (1.13)(c)      153
           361            2.01                   2.27               (1.46)(c)      135
           826              na                   1.64               (1.34)          69
           431              na                   1.89               (1.71)          62
            15              na                   2.18(g)            (1.91)(g)       73
- -------------------------------------------------------------------------------------------
       126,733            1.89                   1.89                 .32           34
       344,641            1.60                   1.66                 .18 (c)       43
       588,282              na                   1.66                 .37           91
     1,573,615              na                   1.66                 .63            7
     1,613,797              na                   1.58                 .83           15
        68,430            2.85                   2.85                (.64)          34
       136,831            2.54                   2.60                (.76)(c)       43
       280,782              na                   2.50                (.47)          91
       540,514              na                   2.42                (.13)           7
       542,997              na                   2.41                (.01)          15
        13,563            2.83                   2.83                (.62)          34
        26,430            2.54                   2.60                (.76)(c)       43
        57,337              na                   2.49                (.46)          91
       143,320              na                   2.42                (.13)           7
       154,378              na                   2.40                 .01           15
         1,304            1.51                   1.51                 .70           34
        17,062            1.24                   1.30                 .54 (c)       43
        33,907              na                   1.24                 .79           91
       166,816              na                   1.18                1.11            7
       156,999              na                   1.18                1.23           15
             2            3.46(g)                3.46(g)            (1.24)(g)       34
             5            1.69                   1.75                 .09 (c)       43
             4              na                   2.10(g)             (.08)(g)       91


                                                                              79


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM         PERIOD
                                                                                         
IVY INTERNATIONAL SMALL COMPANIES FUND                          A         01/01 to 12/31/2002      $ 8.17
                                                                          01/01 to 12/31/2001       12.71
                                                                          01/01 to 12/31/2000       12.45
                                                                          01/01 to 12/31/1999        8.95
                                                                          01/01 to 12/31/1998        8.66
                                                                B         01/01 to 12/31/2002        8.00
                                                                          01/01 to 12/31/2001       12.53
                                                                          01/01 to 12/31/2000       12.30
                                                                          01/01 to 12/31/1999        8.92
                                                                          01/01 to 12/31/1998        8.63
                                                                C         01/01 to 12/31/2002        8.04
                                                                          01/01 to 12/31/2001       12.60
                                                                          01/01 to 12/31/2000       12.38
                                                                          01/01 to 12/31/1999        8.97
                                                                          01/01 to 12/31/1998        8.65
                                                             ADVISOR      01/01 to 12/31/2002        8.23
                                                                          01/01 to 12/31/2001       12.76
                                                                          01/01 to 12/31/2000       12.48
                                                                       07/01(e) to 12/31/1999        9.94
                                                            -------------------------------------------------
IVY INTERNATIONAL VALUE FUND                                    A         01/01 to 12/31/2002        9.10
                                                                          01/01 to 12/31/2001       11.01
                                                                          01/01 to 12/31/2000       11.99
                                                                          01/01 to 12/31/1999        9.48
                                                                          01/01 to 12/31/1998        8.98
                                                                B         01/01 to 12/31/2002        8.97
                                                                          01/01 to 12/31/2001       10.94
                                                                          01/01 to 12/31/2000       11.91
                                                                          01/01 to 12/31/1999        9.42
                                                                          01/01 to 12/31/1998        8.93
                                                                C         01/01 to 12/31/2002        8.97
                                                                          01/01 to 12/31/2001       10.94
                                                                          01/01 to 12/31/2000       11.92
                                                                          01/01 to 12/31/1999        9.42
                                                                          01/01 to 12/31/1998        8.93
                                                             ADVISOR      01/01 to 12/31/2002        9.14
                                                                          01/01 to 12/31/2001       11.03
                                                                          01/01 to 12/31/2000       11.99
                                                                          01/01 to 12/31/1999        9.48
                                                                       02/23(e) to 12/31/1998        9.63


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been (16.24%) for the year ended
    12/31/02 and (17.26%) for the year ended 12/31/01.

 80         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $(.06)(c)(d)       $(2.0)        $(2.06)          $ -            $ -              $ -
       (.12)(c)(d)       (4.41)         (4.53)            -              .01              .01
       (.03)(c)(d)         .64            .61             -              .35              .35
       (.05)(c)           3.58           3.53             -              .03              .03
        .04 (c)            .41            .45             .15            .01              .16
       (.10)(c)(d)       (1.96)         (2.06)            -              -                -
       (.18)(c)(d)       (4.34)         (4.52)            -              .01              .01
       (.13)(c)            .65            .52             -              .29              .29
       (.13)(c)           3.54           3.41             -              .03              .03
       (.03)(c)            .41            .38             .08            .01              .09
       (.10)(c)(d)       (1.96)         (2.06)            -              -                -
       (.18)(c)(d)       (4.37)         (4.55)            -              .01              .01
       (.12)(c)            .64            .52             -              .30              .30
       (.12)(c)           3.56           3.44             -              .03              .03
       (.03)(c)            .42            .39             .06            .01              .07
       (.03)(c)(d)       (2.02)         (2.05)            -              -                -
       (.08)(c)(d)       (4.44)         (4.52)            -              .01              .01
        .02 (c)(d)         .64            .66             -              .38              .38
        -   (c)           2.57           2.57             -              .03              .03
- ---------------------------------------------------------------------------------------------------
        .08 (c)(d)       (1.53)(h)      (1.45)            -              -                -
        .07 (c)          (1.96)(h)      (1.89)            .02            -                .02
        .14 (c)          (1.01)          (.87)            .04            .07              .11
        .09 (c)           2.54           2.63             .10            .02              .12
        .08 (c)            .52            .60             .08            .02              .10
        .01 (c)(d)       (1.66)         (1.65)            -              -                -
       (.02)(c)          (1.93)         (1.95)            .02            -                .02
        .02 (c)           (.96)          (.94)            .01            .02              .03
        .01 (c)           2.51           2.52             .01            .02              .03
        .01 (c)            .51            .52             .01            .02              .03
        .01 (c)(d)       (1.66)         (1.65)            -              -                -
       (.02)(c)          (1.93)         (1.95)            .02            -                .02
        .02 (c)           (.97)          (.95)            .01            .02              .03
        .02 (c)           2.51           2.53             .01            .02              .03
        .01 (c)            .51            .52             .01            .02              .03
        .10 (c)(d)       (1.70)         (1.60)            -              -                -
        .11 (c)          (1.98)         (1.87)            .02            -                .02
        .50 (c)          (1.33)          (.83)            .05            .08              .13
        .04 (c)           2.64           2.68             .10            .07              .17
        .11 (c)           (.13)          (.02)            .11            .02              .13


                                                                              81


FINANCIAL HIGHLIGHTS



                                                                  SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT       TOTAL
                                                              SHARE     END OF        RETURN
FUND NAME                                                     CLASS     PERIOD      (%)(A)(F)
                                                                          
IVY INTERNATIONAL SMALL COMPANIES FUND                          A        $6.11       (25.21)
                                                                          8.17       (35.65)
                                                                         12.71         4.94
                                                                         12.45        39.45
                                                                          8.95         5.24
                                                                B         5.94       (25.75)
                                                                          8.00       (36.09)
                                                                         12.53         4.27
                                                                         12.30        38.24
                                                                          8.92         4.46
                                                                C         5.98       (25.62)
                                                                          8.04       (36.13)
                                                                         12.60         4.25
                                                                         12.38        38.36
                                                                          8.97         4.55
                                                             ADVISOR      6.18       (24.91)
                                                                          8.23       (35.44)
                                                                         12.76         5.32
                                                                         12.48        25.87
                                                            -----------------------------------
IVY INTERNATIONAL VALUE FUND                                    A         7.65       (15.93)(h)
                                                                          9.10       (17.17)(h)
                                                                         11.01        (7.25)
                                                                         11.99        27.79
                                                                          9.48         6.63
                                                                B         7.32       (18.39)
                                                                          8.97       (17.84)
                                                                         10.94        (7.94)
                                                                         11.91        26.81
                                                                          9.42         5.84
                                                                C         7.32       (18.39)
                                                                          8.97       (17.84)
                                                                         10.94        (7.97)
                                                                         11.92        26.91
                                                                          9.42         5.79
                                                             ADVISOR      7.54       (17.51)
                                                                          9.14       (17.03)
                                                                         11.03        (6.90)
                                                                         11.99        28.30
                                                                          9.48         (.15)


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been (16.24%) for the year ended
    12/31/02 and (17.26%) for the year ended 12/31/01.

 82         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
     $  1,435             2.28                   4.59                (.79)(c)      146
        3,583             2.24                   3.15               (1.15)(c)      118
        8,976             2.24                   3.77                (.21)(c)      124
        1,069             2.33                   8.56                (.47)(c)       98
          980             2.47                   6.38                 .39 (c)       18
        1,475             2.93                   5.24               (1.44)(c)      146
        3,190             2.95                   3.86               (1.85)(c)      118
        5,553             2.96                   4.49                (.93)(c)      124
        1,238             3.10                   9.33               (1.23)(c)       98
        1,027             3.24                   7.15                (.38)(c)       18
          945             2.92                   5.23               (1.43)(c)      146
        2,308             2.96                   3.87               (1.87)(c)      118
        4,522             2.96                   4.49                (.93)(c)      124
        1,196             3.04                   9.27               (1.18)(c)       98
        1,125             3.16                   7.07                (.30)(c)       18
          296(g)          1.84                   4.15                (.35)(c)      146
          982             1.87                   2.78                (.78)(c)      118
        4,165             1.89                   3.42                 .15 (c)      124
          291             1.83(g)                8.06(g)              .03 (c)(g)    98
- -------------------------------------------------------------------------------------------
        7,854             1.77                   2.32                 .91 (c)       48
       13,238             1.77                   2.15                 .58 (c)       39
       23,565             1.74                   1.92                 .96 (c)       36
       32,624             1.72                   1.87                 .92 (c)       21
       24,993             1.74                   1.88                 .80 (c)       16
       28,123             2.50                   3.05                 .18 (c)       48
       46,210             2.50                   2.88                (.15)(c)       39
       75,609             2.51                   2.69                 .20 (c)       36
       95,363             2.51                   2.66                 .12 (c)       21
       80,938             2.49                   2.63                 .05 (c)       16
        9,223             2.50                   3.05                 .18 (c)       48
       16,096             2.51                   2.89                (.16)(c)       39
       29,726             2.51                   2.69                 .19 (c)       36
       43,995             2.49                   2.64                 .14 (c)       21
       40,408             2.52                   2.66                 .03 (c)       16
          124             1.50                   2.05                1.18 (c)       48
          377             1.47                   1.85                 .89 (c)       39
          668             1.35                   1.53                1.36 (c)       36
        2,748             1.38                   1.53                1.25 (c)       21
          510             1.32(g)                1.45(g)             1.23 (c)(g)    16


                                                                              83


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM         PERIOD
                                                                                         
IVY PACIFIC OPPORTUNITIES FUND                                  A         01/02 to 12/31/2002      $ 6.72
                                                                          01/01 to 12/31/2001        7.42
                                                                          01/01 to 12/31/2000        9.15
                                                                          01/01 to 12/31/1999        6.30
                                                                          01/01 to 12/31/1998        8.04
                                                                B         01/01 to 12/31/2002        6.56
                                                                          01/01 to 12/31/2001        7.33
                                                                          01/01 to 12/31/2000        9.04
                                                                          01/01 to 12/31/1999        6.24
                                                                          01/01 to 12/31/1998        7.96
                                                                C         01/01 to 12/31/2002        6.55
                                                                          01/01 to 12/31/2001        7.31
                                                                          01/01 to 12/31/2000        9.07
                                                                          01/01 to 12/31/1999        6.25
                                                                          01/01 to 12/31/1998        7.94
                                                             ADVISOR      01/01 to 12/31/2002        6.59
                                                                          01/01 to 12/31/2001        7.30
                                                                          01/01 to 12/31/2000        9.03
                                                                          01/01 to 12/31/1999        6.27
                                                                       02/10(e) to 12/31/1998        7.89
                                                            -------------------------------------------------
IVY GROWTH FUND                                                 A         01/01 to 12/31/2002       11.61
                                                                          01/01 to 12/31/2001       14.98
                                                                          01/01 to 12/31/2000       22.15
                                                                          01/01 to 12/31/1999       19.88
                                                                          01/01 to 12/31/1998       17.80
                                                                B         01/02 to 12/31/2002       11.11
                                                                          01/01 to 12/31/2001       14.48
                                                                          01/01 to 12/31/2000       21.72
                                                                          01/01 to 12/31/1999       19.60
                                                                          01/01 to 12/31/1998       17.72
                                                                C         01/01 to 12/31/2002       10.85
                                                                          01/01 to 12/31/2001       14.14
                                                                          01/01 to 12/31/2000       21.28
                                                                          01/01 to 12/31/1999       19.27
                                                                          01/01 to 12/31/1998       17.47
                                                             ADVISOR      01/01 to 12/31/2002       11.58
                                                                          01/01 to 12/31/2001       14.99
                                                                          01/01 to 12/31/2000       22.18
                                                                          01/01 to 12/31/1999       19.91
                                                                       04/30(e) to 12/31/1998       20.36


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been (11.58%) for the year ended
    12/31/02 and (9.83%) for the year ended 12/31/01.

 84         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $ .01 (c)(d)      $ (.77)(h)     $ (.76)          $ -            $ -              $ -
       (.03)(c)(d)        (.66)(h)       (.69)            .01            -                .01
        .07 (c)          (1.74)         (1.67)            .06            -                .06
        .08 (c)           2.86           2.94             .08            .01              .09
        .13 (c)          (1.78)         (1.65)            .09            -                .09
       (.04)(c)(d)        (.77)          (.81)            -              -                -
       (.08)(c)(d)        (.68)          (.76)            .01            -                .01
        .01 (c)          (1.71)         (1.70)            .01            -                .01
        .02 (c)           2.81           2.83             .02            .01              .03
        .05 (c)          (1.73)         (1.68)            .04            -                .04
       (.03)(c)(d)        (.77)          (.80)            -              -                -
       (.08)(c)(d)        (.67)          (.75)            .01            -                .01
        .01 (c)          (1.71)         (1.70)            .06            -                .06
        .02 (c)           2.82           2.84             .01            .01              .02
        .08 (c)          (1.75)         (1.67)            .02            -                .02
        .04 (c)(d)        (.82)          (.78)            -              -                -
       (.02)(c)(d)        (.68)          (.70)            .01            -                .01
        .12 (c)(d)       (1.82)         (1.70)            .03            -                .03
        .04 (c)           2.86           2.90             .13            .01              .14
        .08 (c)          (1.62)         (1.54)            .08            -                .08
- ---------------------------------------------------------------------------------------------------
       (.09)(c)(d)       (3.24)         (3.33)            -              -                -
       (.07)(d)          (3.29)         (3.36)            -              .01              .01
       (.15)             (4.84)         (4.99)            -             2.18             2.18
       (.32)              6.61           6.29             -             4.02             4.02
        .01               2.49           2.50             .02            .40              .42
       (.18)(c)(d)       (3.09)         (3.27)            -              -                -
       (.19)(d)          (3.17)         (3.36)            -              .01              .01
       (.30)             (4.76)         (5.06)            -             2.18             2.18
       (.21)              6.17           5.96             -             3.84             3.84
       (.16)              2.46           2.30             .02            .40              .42
       (.20)(c)(d)       (3.01)         (3.21)            -              -                -
       (.19)(d)          (3.09)         (3.28)            -              .01              .01
       (.26)             (4.70)         (4.96)            -             2.18             2.18
       (.25)              6.08           5.83             -             3.82             3.82
       (.16)              2.38           2.22             .02            .40              .42
       (.06)(c)(d)       (3.26)         (3.32)            -              -                -
       (.08)(d)          (3.32)         (3.40)            -              .01              .01
       (.15)             (4.86)         (5.01)            -             2.18             2.18
       (.04)              6.33           6.29             -             4.02             4.02
        .03               (.06)          (.03)            .02            .40              .42


                                                                              85


FINANCIAL HIGHLIGHTS



                                                                   SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT        TOTAL
                                                              SHARE     END OF         RETURN
FUND NAME                                                     CLASS     PERIOD       (%)(A)(F)
                                                                          
IVY PACIFIC OPPORTUNITIES FUND                                  A       $ 5.96      $(11.31)(h)
                                                                          6.72        (9.29)(h)
                                                                          7.42       (18.25)
                                                                          9.15        46.72
                                                                          6.30       (20.56)
                                                                B         5.75       (12.35)
                                                                          6.56       (10.35)
                                                                          7.33       (18.80)
                                                                          9.04        45.33
                                                                          6.24       (21.04)
                                                                C         5.75       (12.21)
                                                                          6.55       (10.25)
                                                                          7.31       (18.79)
                                                                          9.07        45.41
                                                                          6.25       (21.02)
                                                             ADVISOR      5.81       (11.84)
                                                                          6.59        (9.58)
                                                                          7.30       (18.77)
                                                                          9.03        46.29
                                                                          6.27       (19.56)
                                                            -------------------------------------
IVY GROWTH FUND                                                 A         8.28       (28.68)
                                                                         11.61       (22.43)
                                                                         14.98       (22.31)
                                                                         22.15        31.87
                                                                         19.88        14.05
                                                                B         7.84       (29.43)
                                                                         11.11       (23.21)
                                                                         14.48       (23.07)
                                                                         21.72        30.63
                                                                         19.60        12.99
                                                                C         7.64       (29.59)
                                                                         10.85       (23.20)
                                                                         14.14       (23.08)
                                                                         21.28        30.43
                                                                         19.27        12.72
                                                             ADVISOR      8.26       (28.67)
                                                                         11.58       (22.68)
                                                                         14.99       (22.37)
                                                                         22.18        31.78
                                                                         19.91         (.14)


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been (11.58%) for the year ended
    12/31/02 and (9.83%) for the year ended 12/31/01.

 86         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
     $  5,318             2.21                   3.52                 .20 (c)       16
        6,291             2.21                   3.57                (.49)(c)       82
        9,096             2.16                   3.10                 .83 (c)      108
       12,738             2.19                   2.84                1.01 (c)       23
        9,061             2.30                   2.86                1.60 (c)       56
        2,678             2.96                   4.27                (.55)(c)       16
        3,966             2.95                   4.31               (1.22)(c)       82
        6,462             2.92                   3.86                 .07 (c)      108
        7,508             2.97                   3.62                 .24 (c)       23
        6,080             3.08                   3.64                 .82 (c)       56
          539             2.94                   4.25                (.53)(c)       16
          917             2.90                   4.26               (1.18)(c)       82
        1,539             3.03                   3.97                (.03)(c)      108
          776             3.03                   3.68                 .18 (c)       23
          704             2.98                   3.54                 .92 (c)       56
           34             1.74                   3.05                 .67 (c)       16
            3             2.03                   3.39                (.31)(c)       82
           42             1.77                   2.71                1.23 (c)      108
          313             1.79                   2.44                1.42 (c)       23
           10             2.92(g)                3.48(g)              .98 (c)(g)    56
- -------------------------------------------------------------------------------------------
      113,985             1.75                   1.75                (.92)          89
      180,806               na                   1.51                (.55)         114
      261,744               na                   1.34                (.73)          94
      363,723               na                   1.38                (.13)          51
      318,444               na                   1.38                 .03           59
        2,511             2.75                   2.75               (1.93)          89
        5,763               na                   2.50               (1.54)         114
        7,517               na                   2.31               (1.70)          94
        8,070               na                   2.34               (1.09)          51
        4,889               na                   2.32                (.90)          59
          157             2.99                   2.99               (2.17)          89
          350               na                   2.55               (1.59)         114
          744               na                   2.33               (1.72)          94
          576               na                   2.47               (1.22)          51
          263               na                   2.53               (1.11)          59
          138             1.68                   1.68                (.86)          89
          296               na                   1.58                (.62)         114
          359               na                   1.41                (.80)          94
          438               na                   1.42                (.17)          51
          347               na                   1.18(g)              .24 (g)       59


                                                                              87


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM        OF PERIOD
                                                                                         
IVY US BLUE CHIP FUND                                           A         01/01 to 12/31/2002      $ 9.36
                                                                          01/01 to 12/31/2001       10.59
                                                                          01/01 to 12/31/2000       12.32
                                                                          01/01 to 12/31/1999       10.74
                                                                       11/02(e) to 12/31/1998       10.00
                                                                B         01/01 to 12/31/2002        9.20
                                                                          01/01 to 12/31/2001       10.48
                                                                          01/01 to 12/31/2000       12.29
                                                                          01/01 to 12/31/1999       10.72
                                                                       11/06(e) to 12/31/1998       10.30
                                                                C         01/01 to 12/31/2002        9.19
                                                                          01/01 to 12/31/2001       10.49
                                                                          01/01 to 12/31/2000       12.30
                                                                          01/01 to 12/31/1999       10.72
                                                                       11/06(e) to 12/31/1998       10.30
                                                             ADVISOR      01/01 to 12/31/2002        9.44
                                                                          01/01 to 12/31/2001       10.65
                                                                          01/01 to 12/31/2000       12.35
                                                                          01/01 to 12/31/1999       10.74
                                                                       11/02(e) to 12/31/1998       10.00
                                                            -------------------------------------------------
IVY US EMERGING GROWTH FUND                                     A         01/01 to 12/31/2002       20.16
                                                                          01/01 to 12/31/2001       30.31
                                                                          01/01 to 12/31/2000       47.29
                                                                          01/01 to 12/31/1999       32.65
                                                                          01/01 to 12/31/1998       27.67
                                                                B         01/01 to 12/31/2002       19.19
                                                                          01/01 to 12/31/2001       29.10
                                                                          01/01 to 12/31/2000       46.01
                                                                          01/01 to 12/31/1999       31.93
                                                                          01/01 to 12/31/1998       27.26
                                                                C         01/01 to 12/31/2002       19.18
                                                                          01/01 to 12/31/2001       29.08
                                                                          01/01 to 12/31/2000       45.98
                                                                          01/01 to 12/31/1999       31.91
                                                                          01/01 to 12/31/1998       27.23
                                                             ADVISOR      01/01 to 12/31/2002       20.36
                                                                          01/01 to 12/31/2001       30.57
                                                                          01/01 to 12/31/2000       47.57
                                                                          01/01 to 12/31/1999       32.79
                                                                       02/18(e) to 12/31/1998       28.82


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    returns for US Blue Chip and US Emerging Growth were not affected as
    redemption fees were less than 0.01 per share.

 88         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $ .00 (c)(d)      $(2.04)(h)     $(2.04)          $ -            $ -              $ -
       (.02)(c)(d)       (1.21)         (1.23)            -              -                -
       (.03)(c)          (1.54)         (1.57)            -              .16              .16
       (.01)(c)           1.66           1.65             .07            -                .07
          - (c)(d)         .74            .74             -              -                -
       (.06)(c)(d)       (2.00)         (2.06)            -              -                -
       (.09)(c)(d)       (1.19)         (1.28)            -              -                -
       (.09)(c)          (1.56)         (1.65)            -              .16              .16
       (.07)(c)           1.65           1.58             .01            -                .01
       (.01)(c)(d)         .43            .42             -              -                -
       (.07)(c)(d)       (1.99)         (2.06)            -              -                -
       (.09)(c)(d)       (1.21)         (1.30)            -              -                -
       (.12)(c)          (1.53)         (1.65)            -              .16              .16
       (.07)(c)           1.66           1.59             .01            -                .01
       (.01)(c)(d)         .43            .42             -              -                -
        .04 (c)(d)       (2.07)         (2.03)            -              -                -
        .01 (c)(d)       (1.22)         (1.21)            -              -                -
       (.01)(c)          (1.53)         (1.54)            -              .16              .16
        .02 (c)           1.69           1.71             .10            -                .10
        .01 (c)(d)         .73            .74             -              -                -
- ---------------------------------------------------------------------------------------------------
       (.34)(c)(d)       (7.26)(h)      (7.60)            -              -                -
       (.37)             (9.78)(h)     (10.15)            -              -                -
       (.50)            (11.94)        (12.44)            -             4.54             4.54
       (.49)             20.70          20.21             -             5.57             5.57
       (.44)(d)           5.42           4.98             -              -                -
       (.45)(c)(d)       (6.88)         (7.33)            -              -                -
       (.58)             (9.33)         (9.91)            -              -                -
       (.81)            (11.56)        (12.37)            -             4.54             4.54
       (.77)             20.15          19.38             -             5.30             5.30
       (.65)(d)           5.32           4.67             -              -                -
       (.45)(c)(d)       (6.88)         (7.33)            -              -                -
       (.61)             (9.29)         (9.90)            -              -                -
       (.92)            (11.44)        (12.36)            -             4.54             4.54
       (.80)             20.19          19.39             -             5.32             5.32
       (.63)(d)           5.31           4.68             -              -                -
       (.31)(c)(d)       (7.34)         (7.65)            -              -                -
       (.34)             (9.87)        (10.21)            -              -                -
       (.40)            (12.06)        (12.46)            -             4.54             4.54
       (.44)             20.85          20.41             -             5.63             5.63
       (.23)(d)           4.20           3.97             -              -                -


                                                                              89


FINANCIAL HIGHLIGHTS



                                                                  SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT       TOTAL
                                                              SHARE     END OF        RETURN
FUND NAME                                                     CLASS     PERIOD      (%)(A)(F)
                                                                          
IVY US BLUE CHIP FUND                                           A       $ 7.32      (21.79)(h)
                                                                          9.36      (11.61)
                                                                         10.59      (12.69)
                                                                         12.32       15.35
                                                                         10.74        7.40
                                                                B         7.14      (22.39)
                                                                          9.20      (12.21)
                                                                         10.48      (13.37)
                                                                         12.29       14.74
                                                                         10.72        4.08
                                                                C         7.13      (22.42)
                                                                          9.19      (12.39)
                                                                         10.49      (13.36)
                                                                         12.30       14.84
                                                                         10.72        4.08
                                                             ADVISOR      7.41      (21.50)
                                                                          9.44      (11.36)
                                                                         10.65      (12.42)
                                                                         12.35       15.89
                                                                         10.74        7.40
                                                            -----------------------------------
IVY US EMERGING GROWTH FUND                                     A        12.56      (37.70)(h)
                                                                         20.16      (33.49)(h)
                                                                         30.31      (25.81)
                                                                         47.29       62.47
                                                                         32.65       18.00
                                                                B        11.86      (38.20)
                                                                         19.19      (34.05)
                                                                         29.10      (26.38)
                                                                         46.01       61.27
                                                                         31.93       17.13
                                                                C        11.85      (38.22)
                                                                         19.18      (34.04)
                                                                         29.08      (26.37)
                                                                         45.98       61.32
                                                                         31.91       17.19
                                                             ADVISOR     12.71      (37.57)
                                                                         20.36      (33.40)
                                                                         30.57      (25.70)
                                                                         47.57       62.85
                                                                         32.79       13.78


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.

na -- not applicable

(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    returns for US Blue Chip and US Emerging Growth were not affected as
    redemption fees were less than $0.01 per share.

 90         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
     $ 24,950             1.57                   2.08                 .03 (c)       85
       38,754             1.56                   1.83                (.16)(c)       74
       57,584             1.57                   1.81                (.47)(c)       69
        3,353             1.46                   3.49                (.12)(c)       80
          726             1.43(g)                6.34(g)              .02 (c)(g)     3
        9,438             2.31                   2.82                (.71)(c)       85
       19,379             2.31                   2.58                (.90)(c)       74
       24,314             2.31                   2.55               (1.21)(c)       69
        8,742             2.15                   4.18                (.81)(c)       80
        1,047             2.13(g)                7.04(g)             (.68)(c)(g)     3
          448             2.40                   2.91                (.80)(c)       85
        1,119             2.36                   2.63                (.96)(c)       74
        2,965             2.30                   2.54               (1.20)(c)       69
        2,497             2.08                   4.11                (.74)(c)       80
          110             2.22(g)                7.13(g)             (.77)(c)(g)     3
          719             1.16                   1.67                 .43 (c)       85
          808             1.26                   1.53                 .14 (c)       74
        1,061             1.24                   1.48                (.13)(c)       69
          920             1.10                   3.13                 .24 (c)       80
          537             1.08(g)                5.99(g)              .37 (c)(g)     3
- -------------------------------------------------------------------------------------------
       16,481             2.24                   2.24               (2.17)         109
       43,974               na                   1.80               (1.33)         133
       78,840               na                   1.55               (1.23)          83
      101,798               na                   1.69               (1.53)         107
       62,961               na                   1.70               (1.48)          67
       10,104             3.08                   3.08               (3.01)         109
       26,856               na                   2.61               (2.14)         133
       56,036               na                   2.31               (2.00)          83
       79,659               na                   2.43               (2.27)         107
       52,940               na                   2.45               (2.23)          67
        1,238             3.06                   3.06               (3.00)         109
        3,998               na                   2.61               (2.14)         133
        9,048               na                   2.30               (1.98)          83
       15,438               na                   2.39               (2.23)         107
        9,664               na                   2.40               (2.18)          67
          480             2.04                   2.04               (1.98)         109
          991               na                   1.63               (1.16)         133
        1,987               na                   1.36               (1.04)          83
        1,432               na                   1.46               (1.30)         107
          740               na                   1.22 (g)           (1.00)(g)       67


                                                                              91


FINANCIAL HIGHLIGHTS



                                                                         SELECTED PER SHARE DATA
                                                                                                   NET ASSET
                                                                                                     VALUE
                                                              SHARE                                BEGINNING
FUND NAME                                                     CLASS     FOR THE PERIOD FROM        OF PERIOD
                                                                                         
IVY BOND FUND                                                   A         01/01 to 12/31/2002      $ 8.09
                                                                          01/01 to 12/31/2001        7.89
                                                                          01/01 to 12/31/2000        8.29
                                                                          01/01 to 12/31/1999        9.54
                                                                          01/01 to 12/31/1998       10.22
                                                                B         01/01 to 12/31/2002        8.06
                                                                          01/01 to 12/31/2001        7.88
                                                                          01/01 to 12/31/2000        8.28
                                                                          01/01 to 12/31/1999        9.53
                                                                          01/01 to 12/31/1998       10.22
                                                                C         01/01 to 12/31/2002        8.08
                                                                          01/01 to 12/31/2001        7.91
                                                                          01/01 to 12/31/2000        8.31
                                                                          01/01 to 12/31/1999        9.55
                                                                          01/01 to 12/31/1998       10.24
                                                             ADVISOR      01/01 to 12/31/2002        8.12
                                                                          01/01 to 12/31/2001        7.90
                                                                          01/01 to 12/31/2000        8.28
                                                                          01/01 to 12/31/1999        9.54
                                                                       01/20(e) to 12/31/1998       10.28
                                                            -------------------------------------------------
IVY MONEY MARKET FUND                                           A         01/01 to 12/31/2002        1.00
                                                                          01/01 to 12/31/2001        1.00
                                                                          01/01 to 12/31/2000        1.00
                                                                          01/01 to 12/31/1999        1.00
                                                                          01/01 to 12/31/1998        1.00
                                                                B         01/01 to 12/31/2002        1.00
                                                                          01/01 to 12/31/2001        1.00
                                                                          01/01 to 12/31/2000        1.00
                                                                          01/01 to 12/31/1999        1.00
                                                                          01/01 to 12/31/1998        1.00
                                                                C         01/01 to 12/31/2002        1.00
                                                                          01/01 to 12/31/2001        1.00
                                                                          01/01 to 12/31/2000        1.00
                                                                          01/01 to 12/31/1999        1.00
                                                                          01/01 to 12/31/1998        1.00


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.
(d) Based on average shares outstanding.
(e) Commencement.
(f) Total return represents aggregate total return.

na -- not applicable

(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been 8.83% for the year ended
    12/31/102 and 8.55% for the year ended 12/31/01.
(i) Dividend includes a return of capital distribution of $0.01 per average
    share.
(j) The seven day and thirty day yield for Class A shares at December 31,
    2002 was 0.45% and 0.40%, respectively. The seven day yield for Class B
    shares at December 31, 2002 was 0.46% and the thirty day yield was 0.42%.
    The seven day yield for Class C shares at December 31, 2002 was 0.55% and
    the thirty day yield was 0.46%.

 92         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                                      SELECTED PER SHARE DATA
 INCREASE (DECREASE) FROM INVESTMENT OPERATIONS
                     NET GAINS OR                                 LESS DISTRIBUTIONS
       NET            (LOSSES) ON                    DIVIDENDS
    INVESTMENT        SECURITIES      TOTAL FROM      FROM NET     DISTRIBUTIONS
      INCOME         (REALIZED AND    INVESTMENT     INVESTMENT         FROM             TOTAL
      (LOSS)          UNREALIZED)     OPERATIONS       INCOME      REALIZED GAINS    DISTRIBUTIONS
                                                                  
      $ .48 (d)         $  .26 (h)     $  .74           $ .48          $ -              $ .48
        .49 (d)            .18 (h)        .67             .47(i)         -                .47
        .55               (.40)           .15             .55            -                .55
        .67              (1.24)          (.57)            .68            -                .68
        .69               (.69)           -               .68            -                .68
        .41 (d)            .19            .60             .42            -                .42
        .42 (d)            .17            .59             .41(i)         -                .41
        .48               (.40)           .08             .48            -                .48
        .59              (1.24)          (.65)            .60            -                .60
        .59               (.67)          (.08)            .61            -                .61
        .42 (d)            .19            .61             .42            -                .42
        .42 (d)            .16            .58             .41(i)         -                .41
        .48               (.40)           .08             .48            -                .48
        .62              (1.25)          (.63)            .61            -                .61
        .60               (.68)          (.08)            .61            -                .61
        .51 (d)            .16            .67             .50            -                .50
        .49 (d)            .21            .70             .48(i)         -                .48
        .56               (.38)           .18             .56            -                .56
        .67              (1.24)          (.57)            .69            -                .69
        .69               (.72)          (.03)            .71            -                .71
- ---------------------------------------------------------------------------------------------------
        .01 (c)(d)         -              .01             .01            -                .01
        .03 (c)            -              .03             .03            -                .03
        .05 (c)            -              .05             .05            -                .05
        .04 (c)            -              .04             .04            -                .04
        .05 (c)            -              .05             .05            -                .05
        .01 (c)(d)         -              .01             .01            -                .01
        .03 (c)            -              .03             .03            -                .03
        .05 (c)            -              .05             .05            -                .05
        .04 (c)            -              .04             .04            -                .04
        .05 (c)            -              .05             .05            -                .05
        .01 (c)(d)         -              .01             .01            -                .01
        .03 (c)            -              .03             .03            -                .03
        .05 (c)            -              .05             .05            -                .05
        .04 (c)            -              .04             .04            -                .04
        .05 (c)            -              .05             .05            -                .05


                                                                              93


FINANCIAL HIGHLIGHTS



                                                                SELECTED PER SHARE DATA
                                                                       NET ASSET
                                                                       VALUE AT      TOTAL
                                                              SHARE     END OF      RETURN
FUND NAME                                                     CLASS     PERIOD      (%)(A)
                                                                          
IVY BOND FUND                                                   A       $ 8.35       9.49(h)
                                                                          8.09       8.70(h)
                                                                          7.89       1.89
                                                                          8.29      (6.17)
                                                                          9.54        -
                                                                B         8.24       7.64
                                                                          8.06       7.61
                                                                          7.88       1.03
                                                                          8.28      (6.97)
                                                                          9.53       (.81)
                                                                C         8.27       7.79
                                                                          8.08       7.51
                                                                          7.91       1.07
                                                                          8.31      (6.81)
                                                                          9.55       (.81)
                                                             ADVISOR      8.29       8.52
                                                                          8.12       9.07
                                                                          7.90       2.26
                                                                          8.28      (6.21)
                                                                          9.54       (.30)
                                                            --------------------------------
IVY MONEY MARKET FUND                                           A         1.00        .78
                                                                          1.00       3.12
                                                                          1.00       5.37
                                                                          1.00       4.16
                                                                          1.00       4.51
                                                                B         1.00        .85
                                                                          1.00       3.19
                                                                          1.00       5.35
                                                                          1.00       4.30
                                                                          1.00       4.59
                                                                C         1.00        .74
                                                                          1.00       3.10
                                                                          1.00       5.65
                                                                          1.00       4.14
                                                                          1.00       4.55


(a) Total return does not reflect a sales charge.
(b) For 1997, total expenses include fees paid indirectly, if any, through an
    expense offset arrangement.
(c) Net investment income (loss) is net of expenses reimbursed by Manager.
(d) Based on average shares outstanding.

na -- not applicable

(e) Commencement.
(f) Total return represents aggregate total return.
(g) Annualized.
(h) Includes redemption fees added to capital paid-in (see Note 1). Total
    return excluding redemption fees would have been 8.83% for the year ended
    12/31/02 and 8.55% for the year ended 12/31/01.
(i) Dividend includes a return of capital distribution of $0.01 per average
    share.
(j) See page 92 for yields.

 94         THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.


                                                FINANCIAL HIGHLIGHTS (continued)



                               RATIOS AND SUPPLEMENTAL DATA
                        RATIO OF               RATIO OF            RATIO OF
    NET ASSETS,       EXPENSES TO            EXPENSES TO        NET INVESTMENT
      END OF          AVERAGE NET            AVERAGE NET        INCOME (LOSS)    PORTFOLIO
      PERIOD          ASSETS WITH           ASSETS WITHOUT        TO AVERAGE      TURNOVER
       (000)      REIMBURSEMENT (%)(B)   REIMBURSEMENT (%)(B)   NET ASSETS (%)    RATE (%)
                                                                  
     $ 31,148             1.48                   1.48(g)             5.91 (g)       15
       36,401               na                   1.41                6.03           22
       52,305               na                   1.62                6.71           26
       69,249               na                   1.52                7.40           28
      109,445               na                   1.39                6.88           43
       17,171             2.31                   2.31(g)             5.09 (g)       15
       19,305               na                   2.25                5.19           22
       20,079               na                   2.45                5.88           26
       27,550               na                   2.36                6.55           28
       42,166               na                   2.13                6.13           43
        2,186             2.26                   2.26(g)             5.14 (g)       15
        2,188               na                   2.18                5.25           22
        2,726               na                   2.40                5.93           26
        3,928               na                   2.26                6.65           28
       11,266               na                   2.12                6.15           43
          561             1.27                   1.27(g)             6.13 (g)       15
          170               na                   1.32                6.12           22
          192               na                   1.49                6.84           26
          332               na                   1.43                7.49           28
          347               na                   1.11 (g)            7.16 (g)       43
- -------------------------------------------------------------------------------------------
       14,684              .88(g)                1.73(g)              .78 (c)(g)    na
       12,904              .87                   1.59                3.12 (c)       na
       20,394              .85                   1.52                5.38 (c)       na
       18,524              .88                   1.40                4.17 (c)       na
       19,103              .87                   1.42                4.50 (c)       na
        6,104              .80(g)                1.65(g)              .85 (c)(g)    na
        6,680              .80                   1.52                3.19 (c)       na
        5,872              .87                   1.54                5.36 (c)       na
        7,486              .77                   1.29                4.28 (c)       na
        6,636              .76                   1.31                4.61 (c)       na
          813              .84(g)                1.69(g)              .82 (c)(g)    na
          519              .88                   1.60                3.10 (c)       na
        1,975              .72                   1.39                5.51 (c)       na
          372              .87                   1.39                4.18 (c)       na
          423              .81                   1.36                4.56 (c)       na


                                                                              95

December 31, 2002

NOTES TO FINANCIAL STATEMENTS

Ivy Cundill Global Value Fund ("Cundill"), Ivy Developing Markets Fund
("Developing Markets"), Ivy European Opportunities Fund ("European
Opportunities"), Ivy Global Fund ("Global"), Ivy Global Natural Resources Fund
("Natural Resources"), Ivy Global Science & Technology Fund ("Science &
Technology"), Ivy International Fund ("International"), Ivy International Small
Companies Fund ("Small Companies"), Ivy International Value Fund ("International
Value"), Ivy Pacific Opportunities Fund ("Pacific Opportunities"), Ivy Growth
Fund ("Growth"), Ivy US Blue Chip Fund ("Blue Chip"), Ivy US Emerging Growth
Fund ("Emerging Growth"), Ivy Bond Fund ("Bond"), and Ivy Money Market Fund
("Money Market"), (the "Funds"), are each a diversified series of shares of Ivy
Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C, and (except for Money
Market) Advisor Class are authorized. Cundill, European Opportunities, Science &
Technology, International, Small Companies, International Value, Blue Chip and
Bond also have an unlimited number of shares of Class I authorized. Ivy Fund was
organized as a Massachusetts business trust under a Declaration of Trust dated
December 21, 1983 and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of their financial statements. The policies are
in conformity with accounting principles generally accepted in the United States
of America. Preparation of the financial statements includes the use of
management estimates. Actual results could differ from those estimates.

SECURITY VALUATION -- Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market, Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the market on which
the security is traded most extensively. If there were no sales on the market on
which the security is traded most extensively and the security is traded on more
than one market, or on one or more exchanges in the over-the-counter market, the
market reflecting the last quoted sale will be used. Otherwise, the security is
valued at the calculated mean between the last bid and asked price on the market
on which the security is traded most extensively. Securities not traded on an
exchange or Nasdaq, but traded in another over-the-counter market are valued at
the calculated mean between the last bid and the last asked price in such
markets. Short-term obligations and commercial paper are valued at amortized
cost, which approximates market. Debt securities (other than short-term
obligations and commercial paper) are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees (the
"Board"), which determines valuations based upon market transactions for normal,
institutional-size trading units of such securities, or on the basis of dealer
quotes. All other securities or groups of securities are valued at their fair
value as determined in good faith by the Valuation Committee of the Board.

SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income, net of foreign withholding
taxes, is recorded on the ex-dividend date, and interest income is accrued on a
daily basis. Corporate actions on foreign securities, including dividends, are
recorded on the ex-dividend date. Realized gains and losses from security
transactions are calculated on an identified cost basis.

CASH -- The Funds classify as cash amounts on deposit with the Funds' custodian.
These amounts earn interest at variable interest rates. At December 31, 2002,
the interest rate was 0.60%. Amounts classified as Due to Custodian at period
end represent bank overdrafts.

FEDERAL INCOME TAXES -- The Funds intend to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"), and distribute all of its taxable income to its
shareholders. Therefore, no provision has been recorded for Federal income or
excise taxes.

The following funds earned foreign source dividends that were subject to foreign
withholding tax in the amounts noted below. The funds intend to elect to pass
through to their shareholders their proportionate share of such taxes.
Shareholders may report their share of foreign taxes paid as either a tax credit
or itemized deduction.



                                FOREIGN SOURCE       FOREIGN
FUND                              DIVIDENDS      WITHHOLDING TAX
                                           
Cundill                           $   86,007        $  6,544
European Opportunities             2,072,916         217,458
International                      7,044,026         648,268
Small Companies                      116,782          13,174
International Value                1,653,703         153,049


The following Funds have net tax-basis capital loss carryovers as of December
31, 2002 which may be applied against any realized net taxable gain of each
succeeding fiscal year until fully utilized or until the expiration date,
whichever occurs first. The approximate carryover amounts and expiration dates
are as follows.

 96


                                                               December 31, 2002

                                       NOTES TO FINANCIAL STATEMENTS (continued)



                                 CAPITAL LOSS
FUND                              CARRYOVER            EXPIRATION DATES
                                          
Cundill                          $   294,000    $79,000 in 2009 and
                                                 215,000 in 2010.
- ------------------------------------------------------------------------------
Developing Markets                11,599,000    $529,000 in 2005,
                                                 6,822,000 in 2006,
                                                 1,314,000 in 2007,
                                                 1,669,000 in 2008,
                                                 1,015,000 in 2009 and
                                                 250,000 in 2010.
- ------------------------------------------------------------------------------
European Opportunities            53,741,000    $34,091,000 in 2009 and
                                                 19,650,000 in 2010.
- ------------------------------------------------------------------------------
Global                             2,625,000    $1,490,000 in 2009 and
                                                 1,135,000 in 2010.
- ------------------------------------------------------------------------------
Natural Resources                  8,693,000    $430,000 in 2005,
                                                 1,920,000 in 2006,
                                                 5,086,000 in 2007 and
                                                 1,257,000 in 2010.
- ------------------------------------------------------------------------------
Science & Technology              47,348,000    $1,283,000 in 2008,
                                                 39,009,000 in 2009 and
                                                 7,056,000 in 2010.
- ------------------------------------------------------------------------------
International                    266,204,000    $141,106,000 in 2009 and
                                                 125,098,000 in 2010.
- ------------------------------------------------------------------------------
Small Companies                   10,693,000    $4,695,000 in 2009 and
                                                 5,998,000 in 2010.
- ------------------------------------------------------------------------------
International Value               15,693,000    $3,103,000 in 2006,
                                                 1,065,000 in 2008,
                                                 3,397,000 in 2009 and
                                                 8,128,000 in 2010.
- ------------------------------------------------------------------------------
Pacific Opportunities             10,379,000    $203,000 in 2003,
                                                 1,033,000 in 2004,
                                                 1,937,000 in 2005,
                                                 4,238,000 in 2006,
                                                 129,000 in 2007,
                                                 852,000 in 2008,
                                                 1,867,000 in 2009 and
                                                 120,000 in 2010.
- ------------------------------------------------------------------------------
Growth                            71,194,000    $39,979,000 in 2009 and
                                                 31,215,000 in 2010.
- ------------------------------------------------------------------------------
Blue Chip                         13,979,000    $6,919,000 in 2009 and
                                                 7,060,000 in 2010.
- ------------------------------------------------------------------------------
Emerging Growth                   39,369,000    $24,758,000 in 2009 and
                                                 14,611,000 in 2010.
- ------------------------------------------------------------------------------
Bond                              28,615,000    $1,484,000 in 2003,
                                                 366,000 in 2006,
                                                 12,226,000 in 2007,
                                                10,317,000 in 2008 and
                                                 4,222,000 in 2009.
- ------------------------------------------------------------------------------


The following funds have elected to treat net capital and currency losses
incurred in the two-month period ended December 31, 2002, as having been
incurred in the following fiscal year for federal income tax purposes. The
amounts are as follows:



FUND                                                             AMOUNT
                                                            
Cundill                                                        $   134,859
- --------------------------------------------------------------------------
European Opportunities                                           2,627,020
- --------------------------------------------------------------------------
Global                                                             124,291
- --------------------------------------------------------------------------
Natural Resources                                                  281,940
- --------------------------------------------------------------------------
Science & Technology                                             1,479,825
- --------------------------------------------------------------------------
International                                                   12,125,005
- --------------------------------------------------------------------------
Small Companies                                                    623,915
- --------------------------------------------------------------------------
International Value                                                450,043
- --------------------------------------------------------------------------
Pacific Opportunities                                               17,312
- --------------------------------------------------------------------------
Growth                                                           3,497,497
- --------------------------------------------------------------------------
Blue Chip                                                          389,873
- --------------------------------------------------------------------------
Emerging Growth                                                  3,012,650
- --------------------------------------------------------------------------


Distributions during the year ended December 31, 2002 were characterized as
follows for tax purposes:



                          ORDINARY     LONG-TERM     RETURN OF      TOTAL
FUND                       INCOME     CAPITAL GAIN    CAPITAL    DISTRIBUTION
                                                     
Cundill                  $   49,277     $     --     $     --     $   49,277
- -----------------------------------------------------------------------------
Developing Markets           23,706           --           --         23,706
- -----------------------------------------------------------------------------
Natural Resources           105,071           --           --        105,071
- -----------------------------------------------------------------------------
International                37,329           --           --         37,329
- -----------------------------------------------------------------------------
Bond                      3,032,709           --           --      3,032,709
- -----------------------------------------------------------------------------
Money Market                163,276           --           --        163,276
- -----------------------------------------------------------------------------


Distributions during the year ended December 31, 2001 were characterized as
follows for tax purposes:



                          ORDINARY     LONG-TERM     RETURN OF      TOTAL
FUND                       INCOME     CAPITAL GAIN    CAPITAL    DISTRIBUTION
                                                     
Cundill                  $   60,307     $     --     $     --     $   60,307
- -----------------------------------------------------------------------------
European Opportunities      253,993        2,515           --        256,508
- -----------------------------------------------------------------------------
Natural Resources           232,003           --           --        232,003
- -----------------------------------------------------------------------------
Small Companies               9,928           --           --          9,928
- -----------------------------------------------------------------------------
International Value         159,576           --           --        159,576
- -----------------------------------------------------------------------------
Pacific Opportunities        17,435           --           --         17,435
- -----------------------------------------------------------------------------
Growth                           --      155,546           --        155,546
- -----------------------------------------------------------------------------
Bond                      3,594,609           --      108,561      3,703,170
- -----------------------------------------------------------------------------
Money Market                728,899           --           --        728,899
- -----------------------------------------------------------------------------


                                                                              97

December 31, 2002

NOTES TO FINANCIAL STATEMENTS

The net unrealized appreciation (depreciation) for U.S. Federal income tax
purposes at December 31, 2002 were comprised of the following:



                                                      NET UNREALIZED
                         UNREALIZED     UNREALIZED    APPRECIATION/
FUND                    APPRECIATION   DEPRECIATION   (DEPRECIATION)
                                             
Cundill                 $   132,905    $   (479,528)   $   (346,623)
- --------------------------------------------------------------------
Developing Markets          473,293      (1,194,264)       (720,971)
- --------------------------------------------------------------------
European
  Opportunities           8,457,994     (39,236,454)    (30,778,460)
- --------------------------------------------------------------------
Global                      300,320      (1,119,029)       (818,709)
- --------------------------------------------------------------------
Natural Resources         4,355,835      (4,855,779)       (499,944)
- --------------------------------------------------------------------
Science & Technology         82,980        (222,525)       (139,545)
- --------------------------------------------------------------------
International            15,901,651     (73,990,054)    (58,088,403)
- --------------------------------------------------------------------
Small Companies             282,386        (848,880)       (566,494)
- --------------------------------------------------------------------
International Value       4,092,371      (9,029,640)     (4,937,269)
- --------------------------------------------------------------------
Pacific Opportunities     1,033,235      (1,734,811)       (701,576)
- --------------------------------------------------------------------
Growth                   10,187,473      (9,811,830)        375,643
- --------------------------------------------------------------------
Blue Chip                 3,348,563      (4,917,139)     (1,568,576)
- --------------------------------------------------------------------
Emerging Growth           2,607,017      (1,408,977)      1,198,040
- --------------------------------------------------------------------
Bond                      2,698,351      (2,130,590)        567,761
- --------------------------------------------------------------------




                                        UNDISTRIBUTED   UNDISTRIBUTED
                                          ORDINARY        LONG-TERM
FUND                                       INCOME       CAPITAL GAIN
                                                  
Natural Resources                         $276,704        $      -
- ---------------------------------------------------------------------


DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are
declared and paid monthly for Bond. Distributions from net investment income are
declared daily and paid monthly for Money Market. Distributions from net
investment income for all other Funds and distributions from realized gains for
all Funds, if any, are declared in December.

FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities and dividends and interest receivable, are translated
at the closing daily rate of exchange; and (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions. Foreign
transactions may involve risks not typically associated with domestic
transactions including, but not limited to, unanticipated movements in exchange
rates, the degree of government supervision and regulation of security markets
and the possibility of political and economic instability.

For foreign securities, the Funds do not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.

For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.

FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts are
agreements to exchange one currency for another at a future date and at a
specified price. The Funds (excluding Money Market) may use forward foreign
currency contracts to facilitate transactions in foreign securities and to
manage the Fund's foreign currency exposure. The U.S. dollar market value,
contract value and the foreign currencies that each fund has committed to buy or
sell are shown in the Schedule of Investments, as applicable. These amounts
represent the aggregate exposure to each foreign currency acquired or hedged
through forward foreign currency contracts at December 31, 2002. Forward foreign
currency contracts are reflected as both a forward foreign currency contract to
buy and a forward foreign currency contract to sell. Forward foreign currency
contracts to buy generally are used to acquire exposure to foreign currencies,
while forward foreign currency contracts to sell are used to hedge investments
against currency fluctuations. Also, a forward foreign currency contract to buy
or sell can offset a previously acquired opposite forward foreign currency
contract.

Forward foreign currency contracts are marked-to-market daily. The change in a
contract's market value is recorded by a fund as an unrealized gain or loss.
When the contract is closed or delivery is taken, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.

The use of forward foreign currency contracts does not eliminate fluctuations in
the underlying prices of the Fund's securities, but it does establish a rate of
exchange that can be achieved in the future. These forward foreign currency
contracts involve market risk in excess of unrealized appreciation
(depreciation) of forward foreign currency contracts reflected in the Fund's
Statement of Assets and Liabilities. Although forward foreign currency contracts
used for hedging purposes limit the risk of loss due to a decline in the value
of the hedged currency, they also limit any potential gain that might result
should the value of the currency increase. In addition, the Fund could be
exposed to risks if the counterparties to the contracts are unable to meet the
terms of their contracts.

OPTIONS -- An option is a right to buy or sell a particular security at a
specified price within a limited period of time. The buyer of the option, in
return for a premium paid to the seller, has the right to buy, in the case of a
call option, or sell, in the case of a put option, the underlying security of
the contract. An option on a stock index gives the purchaser the right to
receive from the seller cash equal to the difference between the closing price
of the index and the exercise price of the option. The Fund, as writer of a
covered call option, has no control over whether the underlying securities may
be sold (called) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the securities underlying the written option.
By writing a covered call option, the Fund is obligated to own or have the right
to acquire, through exchange or conversion, the underlying security during the
option period.

 98


                                                               December 31, 2002

                                       NOTES TO FINANCIAL STATEMENTS (continued)


Certain Funds may invest in option contracts for the purpose of increasing or
decreasing the exposure to changing security prices, interest rates, currency
exchange rates, commodity prices, or other factors that affect the value of the
Fund's securities.

When the fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset or a liability. The asset or liability is subsequently
marked-to-market daily to reflect the current market value of the option
written. Premiums received or paid from writing or purchasing options which
expire on the stipulated expiration date or as a result of the Fund entering
into a closing purchase transaction are treated by the Fund on the expiration
date as realized gains (or losses if the cost of the closing transaction exceeds
the premium received upon the original sale) without regard to any unrealized
gain or loss on the underlying security. If an option is exercised, the premium
paid or received is added to the cost of purchase or proceeds of the sale of the
underlying security in determining whether the Fund has realized a gain or loss
on the transaction. Exchange traded written options are valued daily at the last
sale price or, in the absence of a sale, at the calculated mean of the last bid
and the last asked price. Transactions in written covered call options or
purchased put options, if any, are reflected in the Schedules of Investments.

Transactions in call options written for the year ended December 31, 2002 were:



                                              NUMBER
                                                OF        PREMIUMS
                                             CONTRACTS    RECEIVED
                                                   
GLOBAL
Options outstanding at December 31, 2001           40    $    4,883
Options written                                   -             -
Options terminated in closing purchase
  transactions                                    (10)         (875)
Options expired                                   (30)       (4,008)
Options exercised                                 -             -
                                             ----------------------
Options outstanding at December 31, 2002          -      $      -
                                             ======================
SCIENCE & TECHNOLOGY
Options outstanding at December 31, 2001          -      $      -
Options written                                   132        28,823
Options terminated in closing purchase
  transactions                                    -             -
Options expired                                   -             -
Options exercised                                 -             -
                                             ----------------------
Options outstanding at December 31, 2002          132    $   28,823
                                             ======================
INTERNATIONAL
Options outstanding at December 31, 2001      401,110    $1,041,190
Options written                                   -             -
Options terminated in closing purchase
  transactions                                 (2,378)     (208,027)
Options expired                              (398,732)     (833,163)
Options exercised                                 -             -
                                             ----------------------
Options outstanding at December 31, 2002          -      $      -
                                             ======================




                                              NUMBER
                                                OF        PREMIUMS
                                             CONTRACTS    RECEIVED
                                                   
INTERNATIONAL VALUE
Options outstanding at December 31, 2001       43,650    $   78,077
Options written                                   -             -
Options terminated in closing purchase
  transactions                                    -             -
Options expired                               (43,650)      (78,077)
Options exercised                                 -             -
                                             ----------------------
Options outstanding at December 31, 2002          -      $      -
                                             ======================
GROWTH
Options outstanding at December 31, 2001          790    $  274,091
Options written                                   546       111,606
Options terminated in closing purchase
  transactions                                   (182)      (79,091)
Options expired                                  (918)     (237,674)
Options exercised                                (236)      (68,932)
                                             ----------------------
Options outstanding at December 31, 2002          -      $      -
                                             ======================
EMERGING GROWTH
Options outstanding at December 31, 2001          943    $  333,190
Options written                                   483        97,986
Options terminated in closing purchase
  transactions                                   (199)      (87,030)
Options expired                                  (962)     (258,636)
Options exercised                                (265)      (85,510)
                                             ----------------------
Options outstanding at December 31, 2002          -      $      -
                                             ======================
Transactions in put options purchased for the year ended December
31, 2002 were:
SCIENCE & TECHNOLOGY
Options outstanding at December 31, 2001          -      $      -
Options purchased                                  58        12,294
Options terminated in closing purchase
  transactions                                    -             -
Options expired                                   -             -
Options exercised                                 -             -
                                             ----------------------
Options outstanding at December 31, 2002           58    $   12,294
                                             ======================


SECURITIES LENDING -- Boston Global Advisors ("BGA") as lending agent, may loan
the securities of designated Funds to certain qualified institutions approved by
the Funds. For securities loaned, collateral values for domestic and foreign
securities are maintained at not less than 102% and 105%, respectively, of the
value of the securities on loan by pricing both the securities on loan and the
collateral daily. The collateral consists of cash invested in the Quality
Portfolio of the Boston Global Investment Trust ("Trust") which consists
predominantly of collateral pledged by borrowers in securities lending
transactions arranged by BGA. The Trust invests in money market instruments,
U.S. Treasury Bills, U.S. agency obligations, commercial paper and other highly
rated, liquid investments. Securities' lending, as with other extensions of
credit, involves the risk that the borrower may default. Although securities
loaned will be fully collateralized at all times, the Funds may experience
delays in, or may be prevented from, recovering the collateral. During the
period that the Funds seek to enforce their rights against the borrower, the
collateral and securities loaned remain subject to fluctuation in market value.
For the year ended December 31, 2002, International and International Value
received $245,916 and $51,834, respectively, in income, net of related expenses,
resulting from securities lending activities which is included in interest
income on the Statement of Operations. Securities on loan as of December 31,
2002 are indicated in the Schedule of Investments.

                                                                              99

December 31, 2002

NOTES TO FINANCIAL STATEMENTS

DEFERRED ORGANIZATION EXPENSES -- Organization expenses incurred prior to the
effectiveness of Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" for International Value have been deferred and are being amortized
on a straight-line basis over a five year period.

REDEMPTION FEES -- Each Fund (other than Money Market) may deduct a redemption
or exchange fee of 2.00% from any redemption or exchange proceeds if a
shareholder sells or exchanges Class A shares after holding them less than 30
days. These fees are paid to the Fund rather than the investment adviser or
transfer agent and are designed to offset the brokerage commissions, market
impact, and other costs associated with fluctuations in fund asset levels and
cash flow caused by short-term shareholder trading. Fees collected by the Fund
are recorded as additions to capital paid-in and are included in the Class A
fund share transactions on the Statement of Changes in Net Assets. As presented
in gross dollars and per average shares outstanding for the year ended December
31, 2002, the Funds received the following redemption fees:



                                            YEAR ENDING   PER SHARE
FUND                                         12/31/02     12/31/02
                                                    
Cundill                                      $     62       $ -
- -------------------------------------------------------------------
Developing Markets                                 30         -
- -------------------------------------------------------------------
European Opportunities                        128,514        0.02
- -------------------------------------------------------------------
Global                                         66,770        0.08
- -------------------------------------------------------------------
Natural Resources                              67,653        0.03
- -------------------------------------------------------------------
Science & Technology                            2,538         -
- -------------------------------------------------------------------
International                                 585,021        0.03
- -------------------------------------------------------------------
Small Companies                                    96         -
- -------------------------------------------------------------------
International Value                           216,857        0.03
- -------------------------------------------------------------------
Pacific Opportunities                          26,064        0.02
- -------------------------------------------------------------------
Growth                                          2,113         -
- -------------------------------------------------------------------
Blue Chip                                         105         -
- -------------------------------------------------------------------
Emerging Growth                                 1,569         -
- -------------------------------------------------------------------
Bond                                          307,897        0.05
- -------------------------------------------------------------------


RECLASSIFICATIONS -- The timing and characterization of certain income and
capital gain distributions are determined annually in accordance with Federal
tax regulations which may differ from accounting principles generally accepted
in the United States of America. These differences primarily relate to net
operating losses, capital loss carryovers, wash sales, option transactions,
foreign denominated securities, passive foreign investment companies and
non-deductible organization expenses, if applicable. As a result, Net investment
income (loss) and Net realized gain (loss) on investments and foreign currency
transactions for a reporting period may differ significantly in amount and
character from distributions during such period. Accordingly, each of the Funds
may make reclassifications among certain of their capital accounts without
impacting the net asset value of each respective Fund.

2. RELATED PARTIES

Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business
management services to the Funds and was the Investment Adviser to all Funds
other than Natural Resources. Effective December 16, 2002, Waddell & Reed
Financial, Inc. ("Waddell & Reed"), a U.S. mutual fund firm, completed its
acquisition of the entire operation of Mackenzie Investment Management Inc.
("MIMI"). At this time, Ivy Acquisition Corporation ("IAC") was formed as a
registered investment adviser. On December 31, 2002, IMI merged into IAC and IAC
changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the Funds'
current investment adviser. WRIICO and Ivy Mackenzie Distributors, Inc.
("IMDI"), the Funds' distributor, are now indirect subsidiaries of Waddell &
Reed. For its services, WRIICO receives a fee paid monthly based on average
daily net assets ("ANA") at the following annual rates:

                                              
Cundill (1)             1.00%  International Value     1.00%
Developing Markets      1.00%  Pacific Opportunities   1.00%
Natural Resources (2)   1.00%  Blue Chip               0.75%
Science & Technology    1.00%  Emerging Growth         0.85%
Small Companies (3)     1.00%  Money Market            0.40%



For certain funds, the annual rates decrease as overall ANA increases. The
following chart summarizes those funds and relevant rate and asset sizes:

                               
European Opportunities (3)   1.00%   of the first $250
                                     million ANA
                             0.85%   next $250 million ANA
                             0.75%   excess
- ------------------------------------------------------------
Global                       1.00%   of the first $500
                                     million ANA
                             0.75%   excess
- ------------------------------------------------------------
International                1.00%   of the first $2.5
                                     billion ANA
                             0.90%   next $500 million
                             0.80%   next $500 million
                             0.70%   excess
- ------------------------------------------------------------
Growth                       0.85%   of the first $350
                                     million ANA
                             0.75%   excess
- ------------------------------------------------------------
Bond                         0.50%   of the first $500
                                     million ANA
                             0.40%   excess



(1)  Peter Cundill & Associates, Inc. is the sub-advisor of the Fund.
     WRIICO, not the Fund, is obligated to compensate the sub-advisor.
(2)  For Natural Resources, Mackenzie Financial Corporation
     ("MFC") is the investment advisor of the Fund. MFC receives a fee monthly
     at the annual rate of 0.50% of ADNA. The fee is collected from the Fund and
     remitted to MFC by WRIICO.
(3)  Henderson Investment Management Limited is the sub-advisor of
     the Funds. WRIICO, not the Funds, is obligated to compensate the
     sub-advisor.

For the year ended December 31, 2002, with respect to Cundill, Developing
Markets, Global, Natural Resources, Science & Technology, Small Companies, and
Pacific Opportunities, WRIICO contractually limited each Fund's total operating
expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of
1.95% of each Fund's ANA. For the year ended December 31, 2002 with respect to
International Value, Blue Chip and Money Market, WRIICO voluntarily limits each
Fund's total operating expenses (excluding 12b-1 fees and certain other
expenses) to annual rates of 1.50%, 1.34% and .85%, respectively.

 100


                                                               December 31, 2002

                                       NOTES TO FINANCIAL STATEMENTS (continued)

Effective November 1, 2001 through the one-year period ended October 31, 2002,
IMI, now WRIICO had contractually agreed to waive 12% of the 1.00% annual
management fee for European Opportunities.

MIMI provided certain administrative, accounting and pricing services for each
Fund. Effective December 17, 2002, IAC, now WRIICO assumed all of MIMI's duties
under the Fund Accounting Services Agreement and the Administrative Services
Agreement. For those services, each Fund pays WRIICO fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in each Fund's Statement of Operations. At
December 31, 2002, WRIICO owned approximately 9% of Cundill's shares
outstanding.

IMDI, a wholly owned subsidiary of WRIICO, is the underwriter and distributor of
each Fund's shares, and as such, purchases shares from each Fund at net asset
value to settle orders from investment dealers. For the year ended December 31,
2002, the net amount of underwriting discount retained by IMDI is listed below.



FUND                                                AMOUNT
                                                 
Cundill                                             $ 4,568
Developing Markets                                      233
European Opportunities                                5,485
Global                                                  301
Natural Resources                                    23,194
Science & Technology                                  4,494
International                                         8,489
Small Companies                                         347
International Value                                     377
Pacific Opportunities                                   287
Growth                                                6,343
Blue Chip                                             1,846
Emerging Growth                                       5,499
Bond                                                  2,856


Under Service and Distribution Plans, each Fund except Growth, Blue Chip and
International, reimburses IMDI for service fee payments made to brokers at an
annual rate of .25% of its average net assets, excluding Class I and Advisor
Class. For Growth, Blue Chip and International, each Fund reimburses IMDI at an
annual rate not to exceed .25% of its average net assets of shares issued after
December 31, 1991, excluding Class I and Advisor Class. Class B and Class C
shares are also subject to an ongoing distribution fee at an annual rate of .75%
of the average net assets attributable to Class B and Class C. IMDI may use such
distribution fee for purposes of advertising and marketing shares of each Fund.
Such fees, detailed below, are reflected as 12b-1 service and distribution fees
in the Statement of Operations.



FUND                      CLASS A     CLASS B     CLASS C
                                         
Cundill                   $  1,421   $   10,916   $  1,476
Developing Markets           6,667       20,152      5,622
European Opportunities      68,690      297,574    223,062
Global                      10,405       17,747      1,183
Natural Resources           38,138       79,517     41,104
Science & Technology        20,504       66,839     16,780
International              378,397      986,230    191,552
Small Companies              6,573       22,835     16,660
International Value         26,116      366,679    122,381
Pacific Opportunities       15,765       33,518      7,847
Growth                      79,323       37,410      2,104
Blue Chip                   66,022      142,492      7,596
Emerging Growth             68,411      163,675     23,569
Bond                        84,849      177,437     20,523


3. BOARD'S COMPENSATION

Trustees who are not affiliated with WRIICO receive compensation from the Fund,
which is reflected as Trustees' fees in the Statement of Operations.

                                                                             101


NOTES TO FINANCIAL STATEMENTS

4. FUND SHARE TRANSACTIONS

Fund share transactions for Class A, Class B, Class C, Advisor Class, and Class
I were as follows:



                                                                                        CLASS A
                                                                   FOR THE PERIOD                    FOR THE PERIOD
                                                                   JANUARY 1, 2002                   JANUARY 1, 2001
                                                                TO DECEMBER 31, 2002              TO DECEMBER 31, 2001
CUNDILL (A)                                                    SHARES         AMOUNT             SHARES         AMOUNT
- -----------                                                  -----------   -------------       -----------   -------------
                                                                                                 
  Sold                                                           157,980   $   1,414,301            21,522   $     205,778
  Issued on reinvestment of dividends                              1,442          11,998               615           5,756
  Repurchased                                                    (14,277)       (130,238)               (4)            (40)
                                                             -----------   -------------       -----------   -------------
Net increase                                                     145,145       1,296,061            22,133         211,494
                                                             ===========   =============       ===========   =============
DEVELOPING MARKETS
- ----------------------------------------------------------
  Sold                                                           153,271         980,500           339,521       2,182,850
  Issued on reinvestment of dividends                              1,956          11,289               -               -
  Repurchased                                                   (132,675)       (834,030)         (597,013)     (3,920,462)
                                                             -----------   -------------       -----------   -------------
Net increase/(decrease)                                           22,552         157,759          (257,492)     (1,737,612)
                                                             ===========   =============       ===========   =============
EUROPEAN OPPORTUNITIES
- ----------------------------------------------------------
  Sold                                                           780,914      10,573,221         3,394,170      52,939,002
  Issued on reinvestment of dividends                                -               -                 -               -
  Repurchased                                                 (1,490,408)    (19,971,336)       (4,303,990)    (65,295,982)
                                                             -----------   -------------       -----------   -------------
Net decrease                                                    (709,494)     (9,398,115)         (909,820)    (12,356,980)
                                                             ===========   =============       ===========   =============
GLOBAL
- ----------------------------------------------------------
  Sold                                                           216,701       1,830,792           924,949       8,866,381
  Issued on reinvestment of dividends                                -               -                   1              11
  Repurchased                                                   (370,983)     (3,015,280)       (1,053,590)    (10,158,470)
                                                             -----------   -------------       -----------   -------------
Net increase/(decrease)                                         (154,282)     (1,184,488)         (128,640)     (1,292,078)
                                                             ===========   =============       ===========   =============
NATURAL RESOURCES
- ----------------------------------------------------------
  Sold                                                         1,993,532      25,084,977           936,310      10,453,386
  Issued on reinvestment of dividends                              7,271          84,787             9,409         100,865
  Repurchased                                                 (1,214,071)    (14,854,655)         (819,044)     (8,609,560)
                                                             -----------   -------------       -----------   -------------
Net increase                                                     786,732      10,315,109           126,675       1,944,691
                                                             ===========   =============       ===========   =============
SCIENCE & TECHNOLOGY
- ----------------------------------------------------------
  Sold                                                           324,013       2,683,766           599,749      11,715,938
  Issued on reinvestment of dividends                                -               -                 -               -
  Repurchased                                                   (640,157)     (5,506,239)         (750,211)    (13,732,949)
                                                             -----------   -------------       -----------   -------------
Net decrease                                                    (316,144)     (2,822,473)         (150,462)     (2,017,011)
                                                             ===========   =============       ===========   =============
INTERNATIONAL
- ----------------------------------------------------------
  Sold                                                         4,966,625      90,325,388        11,954,096     272,548,928
  Issued on reinvestment of dividends                                941          15,328             4,608         116,485
  Repurchased                                                (13,872,768)   (265,049,208)      (17,756,706)   (403,354,268)
                                                             -----------   -------------       -----------   -------------
Net decrease                                                  (8,905,202)   (174,708,492)       (5,798,002)   (130,688,855)
                                                             ===========   =============       ===========   =============
SMALL COMPANIES
- ----------------------------------------------------------
  Sold                                                            51,397         396,014           409,940       4,536,884
  Issued on reinvestment of dividends                                -               -                 341           2,724
  Repurchased                                                   (255,122)     (1,752,990)         (677,820)     (6,922,273)
                                                             -----------   -------------       -----------   -------------
Net decrease                                                    (203,725)     (1,356,976)         (267,539)     (2,382,665)
                                                             ===========   =============       ===========   =============


(a) For the period 11/06/2002 to 12/31/2002 for Class I.

 102


                                       NOTES TO FINANCIAL STATEMENTS (continued)



                             CLASS B                                                     CLASS C
         FOR THE PERIOD                  FOR THE PERIOD              FOR THE PERIOD                  FOR THE PERIOD
         JANUARY 1, 2002                 JANUARY 1, 2001             JANUARY 1, 2002                 JANUARY 1, 2001
      TO DECEMBER 31, 2002            TO DECEMBER 31, 2001        TO DECEMBER 31, 2002            TO DECEMBER 31, 2001
      SHARES        AMOUNT            SHARES        AMOUNT        SHARES        AMOUNT            SHARES        AMOUNT
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
                                                                                     
       175,815   $  1,595,946           91,196   $    870,058       71,858   $    632,564            3,540   $     33,617
         1,879         15,505            2,435         22,746          583          4,771               91            850
       (16,729)      (150,231)          (3,398)       (33,002)     (21,597)      (177,157)            (513)        (4,969)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
       160,965      1,461,220           90,233        859,802       50,844        460,178            3,118         29,498
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

        14,934         92,201           28,545        186,235       33,382        194,332            6,257         40,979
         1,033          5,672              -              -            276          1,522              -              -
      (144,323)      (846,611)        (314,894)    (1,924,934)     (53,011)      (297,295)         (84,939)      (521,143)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
      (128,356)      (748,738)        (286,349)    (1,738,699)     (19,353)      (101,441)         (78,682)      (480,164)
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

       280,262      3,645,449          269,607      4,333,792      231,057      3,089,090          508,103      8,429,668
           -              -              4,642         61,040          -              -              2,609         34,419
      (865,969)   (11,547,539)      (1,103,861)   (15,702,774)    (576,456)    (7,785,181)      (1,535,966)   (23,423,729)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
      (585,707)    (7,902,090)        (829,612)   (11,307,942)    (345,399)    (4,696,091)      (1,025,254)   (14,959,642)
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

        21,391        152,554           34,789        302,014      183,237      1,200,074            4,580         38,984
           -              -                -              -            -              -                -              -
      (138,031)      (974,380)        (208,290)    (1,861,683)    (190,086)    (1,253,073)          (4,077)       (36,183)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
      (116,640)      (821,826)        (173,501)    (1,559,669)      (6,849)       (52,999)             503          2,801
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

       482,442      5,824,547          295,482      3,085,399      559,393      6,863,314          329,847      3,600,692
             1             15            5,059         53,020          228          2,540            2,191         22,541
      (195,981)    (2,245,141)        (146,873)    (1,490,440)    (255,224)    (2,969,080)        (239,652)    (2,535,902)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
       286,462      3,579,421          153,668      1,647,979      304,397      3,896,774           92,386      1,087,331
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

        38,169        365,275          200,295      3,660,997       15,690        163,533           30,632        540,875
           -              -                -              -            -              -                -              -
      (368,020)    (3,325,921)        (357,536)    (5,902,467)     (97,853)      (895,086)        (175,152)    (3,076,600)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
      (329,851)    (2,960,646)        (157,241)    (2,241,470)     (82,163)      (731,553)        (144,520)    (2,535,725)
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

       138,342      2,449,545          262,059      5,828,882      550,585      9,231,191          560,914     12,092,051
           430          6,691              -              -             60            928              -              -
    (2,586,978)   (46,942,617)      (4,384,509)   (96,144,129)  (1,004,565)   (17,550,924)      (1,484,846)   (32,348,284)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
    (2,448,206)   (44,486,381)      (4,122,450)   (90,315,247)    (453,920)    (8,318,805)        (923,932)   (20,256,233)
    ==========   ============       ==========   ============   ==========   ============       ==========   ============

         7,897         54,949          139,814      1,584,972        8,483         60,812           84,341        956,399
           -              -                276          2,153          -              -                110            866
      (158,698)    (1,149,461)        (184,316)    (1,656,269)    (137,467)      (952,799)        (156,289)    (1,498,935)
    ----------   ------------       ----------   ------------   ----------   ------------       ----------   ------------
      (150,801)    (1,094,512)         (44,226)       (69,144)    (128,984)      (891,987)         (71,838)      (541,670)
    ==========   ============       ==========   ============   ==========   ============       ==========   ============


                                                                             103


NOTES TO FINANCIAL STATEMENTS



                                                                                     ADVISOR CLASS
                                                                    FOR THE PERIOD                  FOR THE PERIOD
                                                                    JANUARY 1, 2002                 JANUARY 1, 2001
                                                                 TO DECEMBER 31, 2002            TO DECEMBER 31, 2001
CUNDILL (A)                                                      SHARES        AMOUNT            SHARES        AMOUNT
- -----------                                                    ----------   ------------       ----------   ------------
                                                                                                
  Sold                                                            655,616   $  6,312,901           29,622   $    294,347
  Issued on reinvestment of dividends                               1,581         13,076            3,128         28,995
  Repurchased                                                    (576,628)    (5,319,539)          (5,933)       (60,923)
                                                               ----------   ------------       ----------   ------------
Net increase                                                       80,569      1,006,438           26,817        262,419
                                                               ==========   ============       ==========   ============
DEVELOPING MARKETS
- ------------------------------------------------------------
  Sold                                                              1,755         11,179            2,696         17,117
  Issued on reinvestment of dividends                                  44            254              -              -
  Repurchased                                                      (6,508)       (42,461)          (7,536)       (48,789)
                                                               ----------   ------------       ----------   ------------
Net decrease                                                       (4,709)       (31,028)          (4,840)       (31,672)
                                                               ==========   ============       ==========   ============
EUROPEAN OPPORTUNITIES
- ------------------------------------------------------------
  Sold                                                          1,032,746     14,305,755          757,364     11,699,008
  Issued on reinvestment of dividends                                 -              -                459          5,789
  Repurchased                                                  (1,268,855)   (17,294,714)      (1,194,671)   (17,913,376)
                                                               ----------   ------------       ----------   ------------
Net increase/(decrease)                                          (236,111)    (2,988,959)        (436,848)    (6,208,579)
                                                               ==========   ============       ==========   ============
GLOBAL
- ------------------------------------------------------------
  Sold                                                                680          5,318            4,763         49,819
  Issued on reinvestment of dividends                                 -              -                -              -
  Repurchased                                                      (1,519)       (11,820)          (8,537)       (79,975)
                                                               ----------   ------------       ----------   ------------
Net decrease                                                         (839)        (6,502)          (3,774)       (30,156)
                                                               ==========   ============       ==========   ============
NATURAL RESOURCES
- ------------------------------------------------------------
  Sold                                                            612,019      7,969,518          234,198      2,522,781
  Issued on reinvestment of dividends                                 296          3,428              439          4,689
  Repurchased                                                    (604,618)    (7,967,907)        (194,697)    (2,066,315)
                                                               ----------   ------------       ----------   ------------
Net increase                                                        7,697          5,039           39,940        461,155
                                                               ==========   ============       ==========   ============
SCIENCE & TECHNOLOGY
- ------------------------------------------------------------
  Sold                                                              7,828         76,027           14,893        260,748
  Issued on reinvestment of dividends                                 -              -                -              -
  Repurchased                                                     (10,595)      (112,522)         (17,796)      (299,368)
                                                               ----------   ------------       ----------   ------------
Net decrease                                                       (2,767)       (36,495)          (2,903)       (38,620)
                                                               ==========   ============       ==========   ============
INTERNATIONAL
- ------------------------------------------------------------
  Sold                                                                397          7,865               77          1,566
  Issued on reinvestment of dividends                                 -              -                -              -
  Repurchased                                                        (491)       (10,027)             -              -
                                                               ----------   ------------       ----------   ------------
Net increase/(decrease)                                               (94)        (2,162)              77          1,566
                                                               ==========   ============       ==========   ============
SMALL COMPANIES
- ------------------------------------------------------------
  Sold                                                              3,744         30,080           43,715        520,230
  Issued on reinvestment of dividends                                 -              -                  7             54
  Repurchased                                                     (75,245)      (569,810)        (250,868)    (2,316,861)
                                                               ----------   ------------       ----------   ------------
Net decrease                                                      (71,501)      (539,730)        (207,146)    (1,796,577)
                                                               ==========   ============       ==========   ============


 104


                                       NOTES TO FINANCIAL STATEMENTS (continued)



                            CLASS 1
         FOR THE PERIOD                 FOR THE PERIOD
         JANUARY 1, 2002                JANUARY 1, 2001
      TO DECEMBER 31, 2002           TO DECEMBER 31, 2001
      SHARES        AMOUNT           SHARES       AMOUNT
    ----------   ------------       --------   ------------
                                   
         4,967   $     43,827            -     $        -
            46            379            -              -
           -              -              -              -
    ----------   ------------       --------   ------------
         5,013         44,206            -              -
    ==========   ============       ========   ============

           -              -              -              -
           -              -              -              -
           -              -              -              -
    ----------   ------------       --------   ------------
           -              -              -              -
    ==========   ============       ========   ============

         5,773         89,250            -              -
           -              -                2             33
        (4,496)       (58,541)           -              -
    ----------   ------------       --------   ------------
         1,277         30,709              2             33
    ==========   ============       ========   ============

           -              -              -              -
           -              -              -              -
           -              -              -              -
    ----------   ------------       --------   ------------
           -              -              -              -
    ==========   ============       ========   ============

           -              -              -              -
           -              -              -              -
           -              -              -              -
    ----------   ------------       --------   ------------
           -              -              -              -
    ==========   ============       ========   ============

           -              -              -              -
           -              -              -              -
           -              -              -              -
    ----------   ------------       --------   ------------
           -              -              -              -
    ==========   ============       ========   ============

       948,949     16,230,972        333,205      7,717,070
            13            212            -              -
    (1,688,192)   (29,561,024)      (801,870)   (18,449,700)
    ----------   ------------       --------   ------------
      (739,230)   (13,329,840)      (468,665)   (10,732,630)
    ==========   ============       ========   ============

           -              -              -              -
           -              -              -              -
           -              -              -              -
    ----------   ------------       --------   ------------
           -              -              -              -
    ==========   ============       ========   ============


                                                                             105


NOTES TO FINANCIAL STATEMENTS



                                                                                         CLASS A
                                                                     FOR THE PERIOD                   FOR THE PERIOD
                                                                    JANUARY 1, 2002                  JANUARY 1, 2001
                                                                  TO DECEMBER 31, 2002             TO DECEMBER 31, 2001
INTERNATIONAL VALUE                                              SHARES         AMOUNT            SHARES         AMOUNT
- -------------------                                            -----------   ------------       -----------   ------------
                                                                                                  
  Sold                                                           1,425,171   $ 11,972,367         3,063,414   $ 31,144,482
  Issued on reinvestment of dividends                                    2             15             1,680         14,902
  Repurchased                                                   (1,852,546)   (15,450,773)       (3,751,978)   (37,763,655)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                      (427,373)    (3,478,391)         (686,884)    (6,604,271)
                                                               ===========   ============       ===========   ============
PACIFIC OPPORTUNITIES
- ------------------------------------------------------------
  Sold                                                           1,019,807      6,632,147         1,098,100      7,131,564
  Issued on reinvestment of dividends                                    4             25             1,307          8,415
  Repurchased                                                   (1,063,853)    (6,846,432)       (1,389,038)    (9,363,307)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                       (44,042)      (214,260)         (289,631)    (2,223,328)
                                                               ===========   ============       ===========   ============
GROWTH
- ------------------------------------------------------------
  Sold                                                             411,236      4,049,840           592,667      7,832,934
  Issued on reinvestment of dividends                                  -              -              12,132        140,733
  Repurchased                                                   (2,213,773)   (21,280,039)       (2,509,722)   (32,218,227)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                    (1,802,537)   (17,230,199)       (1,904,923)   (24,244,560)
                                                               ===========   ============       ===========   ============
US BLUE CHIP
- ------------------------------------------------------------
  Sold                                                             720,972      6,367,977           833,406      8,155,869
  Issued on reinvestment of dividends                                  -              -                  22            235
  Repurchased                                                   (1,451,618)   (11,951,755)       (2,130,483)   (21,239,994)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                      (730,646)    (5,583,778)       (1,297,055)   (13,083,890)
                                                               ===========   ============       ===========   ============
EMERGING GROWTH
- ------------------------------------------------------------
  Sold                                                             253,447      4,065,017           871,969     23,179,206
  Issued on reinvestment of dividends                                  -              -                  96          2,773
  Repurchased                                                   (1,122,518)   (17,121,388)       (1,292,259)   (32,514,382)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                      (869,071)   (13,056,371)         (420,194)    (9,332,403)
                                                               ===========   ============       ===========   ============
BOND
- ------------------------------------------------------------
  Sold                                                           2,428,422     20,179,062         4,966,912     40,051,473
  Issued on reinvestment of dividends                              158,621      1,293,289           195,980      1,582,587
  Repurchased                                                   (3,358,936)   (27,463,024)       (7,289,189)   (58,628,687)
                                                               -----------   ------------       -----------   ------------
Net decrease                                                      (771,893)    (5,990,673)       (2,126,297)   (16,994,627)
                                                               ===========   ============       ===========   ============
MONEY MARKET
- ------------------------------------------------------------
  Sold                                                          18,445,179     18,445,179        54,208,886     54,208,886
  Issued on reinvestment of dividends                              104,986        104,986           443,340        443,340
  Repurchased                                                  (16,769,876)   (16,769,876)      (62,141,950)   (62,141,950)
                                                               -----------   ------------       -----------   ------------
Net increase/(decrease)                                          1,780,289      1,780,289        (7,489,724)    (7,489,724)
                                                               ===========   ============       ===========   ============


 106


                                       NOTES TO FINANCIAL STATEMENTS (continued)



                             CLASS B                                                     CLASS C
         FOR THE PERIOD                  FOR THE PERIOD               FOR THE PERIOD                  FOR THE PERIOD
         JANUARY 1, 2002                 JANUARY 1, 2001             JANUARY 1, 2002                  JANUARY 1, 2001
      TO DECEMBER 31, 2002            TO DECEMBER 31, 2001         TO DECEMBER 31, 2002            TO DECEMBER 31, 2001
      SHARES        AMOUNT            SHARES        AMOUNT        SHARES         AMOUNT            SHARES        AMOUNT
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
                                                                                      
       287,436   $  2,317,711          543,615   $  5,251,194       528,192   $  3,794,521          252,194   $  2,573,097
           -              -              4,222         36,979           -              -              1,509         13,215
    (1,598,762)   (12,992,787)      (2,308,387)   (21,681,265)   (1,063,044)    (8,264,435)      (1,176,870)   (11,480,661)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
    (1,311,326)   (10,675,076)      (1,760,550)   (16,393,092)     (534,852)    (4,469,914)        (923,167)    (8,894,349)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

       586,472      3,598,141           32,021        226,228       235,902      1,391,308           30,974        223,503
           -              -                706          4,434           -              -                162          1,015
      (725,610)    (4,595,703)        (309,174)    (1,992,916)     (282,074)    (1,724,416)        (101,540)      (685,580)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (139,138)      (997,562)        (276,447)    (1,762,254)      (46,172)      (333,108)         (70,404)      (461,062)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

        94,997        885,213          209,874      2,581,690        86,266        678,725           16,220        196,718
           -              -                355          3,919           -              -                 25            267
      (293,492)    (2,717,339)        (210,613)    (2,546,518)      (97,882)      (796,519)         (36,607)      (416,302)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (198,495)    (1,832,126)            (384)        39,091       (11,616)      (117,794)         (20,362)      (219,317)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

       314,507      2,688,872          432,235      4,111,397        22,903        195,806           80,026        780,897
           -              -                  2             29           -              -                -              -
    (1,099,072)    (8,715,485)        (644,289)    (6,049,340)      (81,786)      (663,123)        (240,991)    (2,261,835)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (784,565)    (6,026,613)        (212,052)    (1,937,914)      (58,883)      (467,317)        (160,965)    (1,480,938)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

        72,752      1,146,087          149,165      3,458,298         6,579         95,750           24,889        593,383
           -              -                -              -             -              -                -              -
      (620,327)    (9,169,755)        (675,205)   (15,549,162)     (110,606)    (1,573,304)        (127,619)    (2,936,625)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (547,575)    (8,023,668)        (526,040)   (12,090,864)     (104,027)    (1,477,554)        (102,730)    (2,343,242)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

       619,731      5,035,721          870,263      7,031,320       511,687      4,179,508          304,343      2,462,017
        40,558        328,252           46,068        371,395         4,911         39,908            5,444         44,017
      (972,491)    (7,871,056)      (1,067,501)    (8,586,114)     (523,042)    (4,267,419)        (383,769)    (3,091,644)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (312,202)    (2,507,083)        (151,170)    (1,183,399)       (6,444)       (48,003)         (73,982)      (585,610)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============

     8,740,535      8,740,535        5,996,965      5,996,965    14,599,769     14,599,769        8,411,592      8,411,592
        51,921         51,921          165,171        165,171         3,667          3,667           13,876         13,876
    (9,368,012)    (9,368,012)      (5,353,798)    (5,353,798)  (14,309,666)   (14,309,666)      (9,881,478)    (9,881,478)
    ----------   ------------       ----------   ------------   -----------   ------------       ----------   ------------
      (575,556)      (575,556)         808,338        808,338       293,770        293,770       (1,456,010)    (1,456,010)
    ==========   ============       ==========   ============   ===========   ============       ==========   ============


                                                                             107


NOTES TO FINANCIAL STATEMENTS



                                                                                 ADVISOR CLASS
                                                                   FOR THE PERIOD              FOR THE PERIOD
                                                                  JANUARY 1, 2002              JANUARY 1, 2001
                                                                TO DECEMBER 31, 2002        TO DECEMBER 31, 2001
INTERNATIONAL VALUE                                             SHARES      AMOUNT           SHARES      AMOUNT
- -------------------                                            --------   -----------       --------   ----------
                                                                                           
  Sold                                                            2,719   $    23,457        10,877    $ 105,206
  Issued on reinvestment of dividends                               -             -              74          658
  Repurchased                                                   (27,527)     (235,520)      (30,252)    (290,488)
                                                               --------   -----------       -------    ---------
Net decrease                                                    (24,808)     (212,063)      (19,301)    (184,624)
                                                               ========   ===========       =======    =========
PACIFIC OPPORTUNITIES
- ------------------------------------------------------------
  Sold                                                          413,311     2,523,230        16,889      114,000
  Issued on reinvestment of dividends                                                           -            -
  Repurchased                                                  (408,049)   (2,522,605)      (22,075)    (140,101)
                                                               --------   -----------       -------    ---------
Net increase/(decrease)                                           5,262           625        (5,186)     (26,101)
                                                               ========   ===========       =======    =========
GROWTH
- ------------------------------------------------------------
  Sold                                                           20,873       221,354        13,685      169,233
  Issued on reinvestment of dividends                               -             -              21          242
  Repurchased                                                   (29,725)     (299,703)      (12,107)    (148,106)
                                                               --------   -----------       -------    ---------
Net increase/(decrease)                                          (8,852)      (78,349)        1,599       21,369
                                                               ========   ===========       =======    =========
US BLUE CHIP
- ------------------------------------------------------------
  Sold                                                           21,899       193,930        15,651      151,766
  Issued on reinvestment of dividends                               -             -             -            -
  Repurchased                                                   (10,547)      (80,735)      (29,636)    (279,724)
                                                               --------   -----------       -------    ---------
Net increase/(decrease)                                          11,352       113,195       (13,985)    (127,958)
                                                               ========   ===========       =======    =========
US EMERGING GROWTH
- ------------------------------------------------------------
  Sold                                                            5,514        87,021        12,721      298,722
  Issued on reinvestment of dividends                               -             -             -            -
  Repurchased                                                   (16,402)     (233,999)      (29,054)    (685,415)
                                                               --------   -----------       -------    ---------
Net decrease                                                    (10,888)     (146,978)      (16,333)    (386,693)
                                                               ========   ===========       =======    =========
BOND
- ------------------------------------------------------------
  Sold                                                          727,682     5,961,554         9,742       79,018
  Issued on reinvestment of dividends                             1,883        15,411           914        7,391
  Repurchased                                                  (682,852)   (5,605,809)      (14,021)    (113,136)
                                                               --------   -----------       -------    ---------
Net increase/(decrease)                                          46,713       371,156        (3,365)     (26,727)
                                                               ========   ===========       =======    =========


5. CHANGE IN INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP ("PwC") previously served as the independent
accountants of Ivy Fund (the "Fund"). On December 16, 2002, PwC resigned as the
Fund's independent accountants on the basis that it was no longer "independent"
of the Fund within the meaning of the professional standards applicable to
independent accountants. This loss of independence was caused by the change of
control of the Fund's investment adviser, which took place on December 16, 2002.
The decision to change independent accountants was recommended by the Audit
Committee of the Fund's Board of Trustees and approved by the Board.

PwC's reports on the Fund's financial statements for the two fiscal years prior
to their resignation contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audits for those two periods and through PwC's
resignation on December 16, 2002, there have been no disagreements with PwC on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of PwC, would have caused PwC to make reference thereto in its
reports on the Fund's financial statements for such years.

On December 17, 2002, the Audit Committee of the Fund's Board of Trustees
recommended and the Board approved Deloitte & Touche LLP as the Fund's new
independent accountants, effective as of December 16, 2002, for the Fund's
fiscal year ending December 31, 2002.

 108


    INDEPENDENT AUDITORS' REPORT




To the Board of Trustees and
Shareholders of Ivy Fund:


We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Ivy Cundill Global Value Fund, Ivy Developing
Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International
Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy
Pacific Opportunities Fund, Ivy Growth Fund, Ivy US Blue Chip Fund, Ivy US
Emerging Growth Fund, Ivy Bond Fund and Ivy Money Market Fund (collectively the
"Funds") comprising Ivy Fund, as of December 31, 2002, and the related
statements of operations, the statements of changes in net assets and the
financial highlights for the fiscal year then ended. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial statements and the
financial highlights of the Funds for each of the periods presented in the
four-year period ended December 31, 2001 were audited by other auditors whose
report, dated February 8, 2002, expressed an unqualified opinion on those
statements and financial highlights.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Funds comprising Ivy Fund as of December 31, 2002, the results
of their operations, the changes in their net assets and their financial
highlights for the fiscal year then ended, in conformity with accounting
principles generally accepted in the United States of America.

Deloitte & Touche LLP

Kansas City, Missouri
February 7, 2003

                                                                             109


OFFICERS AND NON-INDEPENDENT TRUSTEES

The address for each Trustee and Executive Officer in the following tables is
925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee
and Officer serves an indefinite term, until he or she dies, resigns or becomes
disqualified. The non-Independent Trustees (as defined below) and Executive
Officers of the Trust and their principal occupations during the past five years
are:



                                                     TERM OF
                                                    OFFICE AND                  PRINCIPAL                    TOTAL
                                POSITION(S)         LENGTH OF                 OCCUPATION(S)                NUMBER OF
                                 HELD WITH             TIME                   DURING PAST 5                IVY FUNDS
      NAME AND AGE                 TRUST              SERVED                      YEARS                    OVERSEEN
                                                                                               
Keith A. Tucker* (58)       Trustee and Chairman   Trustee        Chairman of the Board, Director and         16
                                                   since          CEO of Waddell & Reed; Chairman of the
                                                   December 16,   Board of Waddell & Reed, Inc. ("WRI")
                                                   2002           (underwriter); Chairman of the Board
                                                                  and Director of Waddell & Reed
                                                                  Investment Management Co. ("WRIMCO");
                                                                  Chairman of the Board and Director of
                                                                  Waddell & Reed Services Co.; President
                                                                  and CEO of Waddell & Reed Financial
                                                                  Services, Inc.; Chairman of the Board
                                                                  of Waddell & Reed Development, Inc.;
                                                                  Chairman of the Board of Waddell &
                                                                  Reed Distributors, Inc.
Henry J. Herrmann* (60)     Trustee and            Trustee        Chairman of the Board, CEO and              16
                            President              since          President of Waddell & Reed Ivy
                                                   December 16,   Investment Company ("WRIICO");
                                                   2002           President, Chief Investment Officer
                                                                  and Director of Waddell & Reed;
                                                                  President and CEO of WRIMCO; Chief
                                                                  Investment Officer of WRIMCO; Chief
                                                                  Investment Officer of Waddell & Reed
                                                                  Financial Services, Inc.; Executive
                                                                  Vice President of Waddell & Reed
                                                                  Financial Services, Inc.; formerly,
                                                                  Chairman of the Board of Austin,
                                                                  Calvert & Flavin, Inc.
Kristen A. Richards* (35)   Secretary and Vice     Appointed      Vice President, Associate General           16
                            President              December 17,   Counsel and Chief Compliance Officer
                                                   2002           of WRIICO and WRIMCO; Vice President,
                                                                  Secretary and Associate General
                                                                  Counsel of each of the Waddell & Reed
                                                                  Advisors Funds, W&R Funds, Inc., W&R
                                                                  Target Funds, Inc. and W&R InvestEd
                                                                  Portfolios, Inc.; formerly Assistant
                                                                  Secretary of each of those funds;
                                                                  formerly, Compliance Officer of
                                                                  WRIMCO.
Beverly J. Yanowitch*       Treasurer              1 year         Senior Vice President, Chief Financial      16
(52)                                                              Officer and Treasurer of WRIICO and
                                                                  Ivy Services Inc.; Senior Vice
                                                                  President, Treasurer and Director,
                                                                  IMDI; formerly, Vice President, Chief
                                                                  Financial Officer and Treasurer of
                                                                  MIMI.



                                           OTHER
                                       DIRECTORSHIPS
      NAME AND AGE                          HELD
                        
Keith A. Tucker* (58)      Chairman of the Board and Director of
                           Waddell & Reed Advisors Funds (20
                           portfolios overseen); Chairman of the
                           Board and Director of W&R Funds, Inc.
                           (12 portfolios overseen); Chairman of
                           the Board and Director of W&R Target
                           Funds, Inc. (12 portfolios overseen);
                           Chairman of the Board and Director of
                           Waddell & Reed InvestEd Portfolios,
                           Inc. (3 portfolios overseen).
Henry J. Herrmann* (60)    Chairman of the Board and Director,
                           Ivy Mackenzie Services Corporation;
                           Director of WRI; Director of Waddell &
                           Reed Development, Inc.; Director of
                           Waddell & Reed Services Co.; Director
                           of Austin Calvert & Flavin, Inc.;
                           Director and President of Waddell &
                           Reed Advisors Funds (20 portfolios
                           overseen); Director and President of
                           W&R Funds, Inc. (12 portfolios
                           overseen); Director and President of
                           W&R Target Funds, Inc. (12 portfolios
                           overseen); Director and President of
                           Waddell & Reed InvestEd Portfolios,
                           Inc. (3 portfolios overseen).
Kristen A. Richards* (35)  None.
Beverly J. Yanowitch*      None.
(52)


* Trustees considered by the Trust and its counsel to be "interested persons"
  (as defined in the 1940 Act) of the Funds or of their investment manager
  because of their employment by Waddell & Reed or its subsidiaries.

 110


DISINTERESTED TRUSTEES

The Trustees who are not "interested persons" of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their principal
occupations during the past five years are:



                                               TERM OF
                                              OFFICE AND                    PRINCIPAL                     TOTAL
                               POSITION(S)    LENGTH OF                   OCCUPATION(S)                 NUMBER OF
                                HELD WITH        TIME                     DURING PAST 5                 IVY FUNDS
        NAME AND AGE              TRUST         SERVED                        YEARS                     OVERSEEN
                                                                                            
Jarold W. Boettcher (62)         Trustee     Trustee        President of Boettcher Enterprises, Inc.       16
                                             since          (diversified agricultural products and
                                             December 16,   services); President of Boettcher Supply,
                                             2002           Inc. (electrical and plumbing supplies
                                                            distributor).
James D. Gressett (52)           Trustee     Trustee        CEO of PacPizza, Inc.; Secretary of            16
                                             since          Street Homes, LLP; formerly, President of
                                             December 16,   Alien, Inc. (real estate development).
                                             2002
Joseph Harroz, Jr. (35)          Trustee     Trustee        General Counsel, University of Oklahoma,       16
                                             since          Cameron University and Rogers State
                                             December 16,   University; University-wide Vice
                                             2002           President of the University of Oklahoma;
                                                            Adjunct Professor of Law, University of
                                                            Oklahoma College of Law; Managing Member,
                                                            Harroz Investment, LLC (commercial real
                                                            estate); Managing Member, JHJ
                                                            Investments, LLC (commercial real
                                                            estate).
Glendon E. Johnson, Jr. (51)     Trustee     Trustee        Of Counsel, Lee & Smith, PC (law firm);        16
                                             since          Member/Manager, Castle Valley Ranches,
                                             December 16,   LLC, formerly Partner, Kelley, Drye &
                                             2002           Warren LLP (law firm).
Eleanor B. Schwartz (65)         Trustee     Trustee        Professor of Business Administration,          16
                                             since          University of Missouri -- Kansas City;
                                             December 16,   formerly, Chancellor of University of
                                             2002           Missouri -- Kansas City.
Michael G. Smith (58)            Trustee     Trustee        Associated with Graue Mill Partners, LLC;      16
                                             since          formerly, Managing
                                             December 16,   Director -- Institutional Sales, Merrill
                                             2002           Lynch.
Edward M. Tighe (60)             Trustee     4 years        Chairman, CEO and Director of JBE              16
                                                            Technology Group, Inc.
                                                            (telecommunications and computer network
                                                            consulting); President of Global Mutual
                                                            Fund Services; President and CEO of
                                                            Global Technology.



                                                OTHER
                                            DIRECTORSHIPS
        NAME AND AGE                            HELD
                           
Jarold W. Boettcher (62)      Director of Guaranty State Bank & Trust
                              Co.; Director of Guaranty, Inc.
James D. Gressett (52)        Director of Collins Financial Services.
Joseph Harroz, Jr. (35)       Co-Lead Independent Director of Waddell &
                              Reed Advisors Funds (20 portfolios
                              overseen); Co-Lead Independent Director
                              of W&R Target Funds, Inc. (12 portfolios
                              overseen); Co-Lead Independent Director
                              of W&R Funds, Inc. (12 portfolios
                              overseen); Co-Lead Independent Director
                              of Waddell & Reed InvestEd Portfolios,
                              Inc. (3 portfolios overseen).
Glendon E. Johnson, Jr. (51)  None.
Eleanor B. Schwartz (65)      Director of Waddell & Reed Advisors Funds
                              (20 portfolios overseen); Director of W&R
                              Target Funds, Inc. (12 portfolios
                              overseen); Director of W&R Funds, Inc.
                              (12 portfolios overseen); Director of
                              Waddell & Reed InvestEd Portfolios, Inc.
                              (3 portfolios overseen).
Michael G. Smith (58)         None.
Edward M. Tighe (60)          Director of Hansberger Institutional
                              Funds (2 portfolios overseen); Director
                              of Asgard Holding, LLC.


Each fund's statement of additional information ("SAI") contains additional
information about the Trustees and is available without charge, upon request, by
calling 1-800-456-5111.

                                                                             111


                           SHAREHOLDER MEETING RESULTS
                                   (unaudited)

         On December 10, 2002 a special shareholder meeting (the "Meeting") was
held at the offices of Mackenzie Investment Management Inc., Boca Raton,
Florida, for the following purposes (and with the following results):


PROPOSAL 1: For shareholders of all Funds, except for Ivy Global Natural
Resources Fund, to approve or disapprove a new Master Business Management and
Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy
Management, Inc. ("IMI"); and


       FOR                       AGAINST                      ABSTAIN
 ------------------------------------------------------------------------
   51,498,803.247              1,377,315.682               1,493,850.977
 ------------------------------------------------------------------------



PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or
disapprove a new Master Business Management Agreement between the Trust, on
behalf of the Fund, and IMI; and
- ---------------------------------------------------------
        FOR             AGAINST            ABSTAIN
   2,121,469.663       27,123.541        10,068.003
- ---------------------------------------------------------


PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy
International Small Companies Fund, to approve or disapprove a new Subadvisory
Agreement between IMI and Henderson Global Investors (North America) Inc.
("HGINA"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
   5,488,037.381         89,305.745         85,262.146
- ------------------------------------------------------------

PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy
International Small Companies Fund, to approve or disapprove a new Subadvisory
Agreement between HGINA and Henderson Investment Management Limited
("Henderson"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
   5,489,481.210         93,343.546         80,135.834
- ------------------------------------------------------------


PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or
disapprove a new Subadvisory Agreement between IMI and Peter Cundill &
Associates, Inc. ("Cundill"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
    251,879.738          7,112.670           7,527.179
- ------------------------------------------------------------


PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election
of eight nominees to serve as Trustees on the Board of Trustees.

- -----------------------------------------------------------------------------
NOMINEE:                          FOR                      AGAINST

KEITH A. TUCKER                   54,459,082.827           2,069,192.008
HENRY J. HERRMANN                 54,455,836.913           2,073,536.552
JAMES D. GRESSETT                 54,480,456.334           2,047,818.501
JAROLD W. BOETTCHER               54,484,155.922           2,044,118.913
MICHAEL G. SMITH                  54,473,248.468           2,052,569.367
JOSEPH HARROZ, JR.                53,859,972.525           2,051,162.062
ELEANOR B. SCHWARTZ               53,853,424.194           2,057,551.889
GLENDON E. JOHNSON, JR.           53,901,560.595           2,008,266.240
- -----------------------------------------------------------------------------

Edward M. Tighe, who was elected by shareholders, continued his term of office
after the meeting.







This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.

Annual Report  December 31, 2002

Ivy International Growth Fund




IVY INTERNATIONAL GROWTH FUND
The Fund's goal: to provide long-term capital growth by investing at least 65%
of its assets in equity securities principally traded in European, Pacific and
Latin American markets.

Ivy International Growth Fund was managed by Moira McLachlan and the Ivy
International Equities Team until December 16th, 2002. At right, she discusses
factors relating to Fund performance in 2002. Thomas A. Mengel, Senior Vice
President of Waddell & Reed Ivy Investment Company, assumed management of Ivy
International Growth Fund on December 17th, 2002. The Fund was liquidated in
February, 2003.

LIPPER CATEGORY

International

"Market conditions were extremely volatile in 2002, continuing a trend seen in
the previous two years."

Q: Moira, how did Ivy International Growth Fund perform in 2002? A:
For 2002, Ivy International Growth Fund returned -28.46%.* The Fund
underperformed its benchmark, the MSCI EAFE Growth Index, which returned
- -16.02%, and its peer group (as measured by the Lipper International Funds
average), which returned -16.67%. Q: How were market conditions? A: Market
conditions were extremely volatile in 2002, continuing a trend seen in the
previous two years. Fears of a double-dip recession and global deflation
contributed to sharp declines periodically interspersed with equally sharp
rallies. Despite ample global liquidity and much-improved valuations, sluggish
economic growth, poor corporate profits and fears about the possible fallout
from potential military action in Iraq all contributed to a significant drop in
international markets over the course of the year. Q: What factors affected
performance? A: Two growth-oriented sectors were particularly hard hit by market
volatility: information technology, which was affected by the slowdown in
corporate spending, and consumer electronics, which suffered from downward
pressure on pricing. Unfortunately, the Fund was overweight in both of these
sectors, and this had a significantly negative effect on performance. Holdings
in the consumer electronics area suffered the worst declines and had the single
largest negative effect. The Fund was also negatively impacted by lack of
exposure to traditional defensive sectors such as consumer staples and
utilities. Minimal exposure to energy, which was one of the few bright spots
last year as oil stocks and oil prices rallied in response to the Iraq
situation, also hurt performance. And while the Fund had some exposure to basic
materials, a sector that did well, it was not enough to offset the losses
experienced in consumer electronics and information technology.




On the positive side, an underweight in Sweden and in the financials sector
helped performance. The latter helped the Fund avoid dramatic declines in
European insurers and banks.

Performance cited is for Advisor Class shares at net asset value. (The Fund has
no A, B or C shares outstanding. Advisor Class shares do not carry a sales
charge.) The opinions expressed in this report are those of the portfolio
managers and are current only through the end of the period of the report as
stated on the cover. The managers' views are subject to change at any time based
on market and other conditions, and no forecasts can be guaranteed.

Average annual total returns For the periods ended 12/31/02



                                                        1        5        10      Since
                                                      Year     Years     Years  Inception
                                                                 
A Shares             w/Reimb. & 5.75% sales charge     N/A       N/A      N/A       N/A
                     w/o Reimb. & 5.75% sales charge   N/A       N/A      N/A       N/A
B Shares             w/Reimb. & w/ 5.00% CDSC          N/A       N/A      N/A       N/A
                     w/Reimb. & w/o 5.00% CDSC         N/A       N/A      N/A       N/A
                     w/o Reimb. & w/ 5.00% CDSC        N/A       N/A      N/A       N/A
                     w/o Reimb. & w/o 5.00% CDSC       N/A       N/A      N/A       N/A
C Shares             w/Reimb. & w/ 1.00% CDSC          N/A       N/A      N/A       N/A
                     w/Reimb. & w/o 1.00% CDSC         N/A       N/A      N/A       N/A
                     w/o Reimb. & w/ 1.00% CDSC        N/A       N/A      N/A       N/A
                     w/o Reimb. & w/o 1.00% CDSC       N/A       N/A      N/A       N/A
Advisor Shares       w/Reimb.                       (28.46%)     N/A      N/A     (27.25%)
                     w/o Reimb.                     (45.77%)     N/A      N/A     (44.35%)


CDSC = Contingent Deferred Sales Charge
Advisor Class Shares are not subject to an initial sales charge or a CDSC.
Advisor Class commenced operations December 29, 2000. As of December 31, 2001,
the Fund had no A, B or C shares outstanding.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Growth Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.




Performance overview
Performance Comparison of the Fund Since Inception (12/00) of a $10,000
Investment
(Advisor Class Shares)



                                IVY INTERNATIONAL       MSC I
                                  GROWTH FUND      EAFE GROWTH INDEX
                                            
NO SALES CHARGES ON ADVISOR SHARES
             29-Dec-2000             10000              10000
             30-Jan-2001             10230               9978
             28-Feb-2001              9191               8961
             31-Mar-2001              8202               8325
             30-Apr-2001              8751               8890
             31-May-2001              8322               8527
             30-Jun-2001              7812               8114
             31-Jul-2001              7682               7939
             31-Aug-2001              7403               7577
             30-Sep-2001              6663               6860
             31-Oct-2001              6923               7132
             30-Nov-2001              7273               7499
             31-Dec-2001              7398               7542
             31-Jan-2002              6948               7135
             28-Feb-2002              6887               7232
             31-Mar-2002              7398               7506
             30-Apr-2002              7112               7546
             31-May-2002              6866               7561
             30-Jun-2002              6539               7366
             31-Jul-2002              5812               6581
             31-Aug-2002              5710               6530
             30-Sep-2002              5075               5962
             31-Oct-2002              5413               6299
             30-Nov-2002              5853               6484
             31-Dec-2002              5292               6334


The Morgan Stanley Capital International (MSCI) EAFE Growth Index is an
unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.
Past performance does not guarantee future results.The graph and table do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or redemptions.




COUNTRY BREAKDOWN  12/31/02
% of Total Investments

                              
1.       United Kingdom             28%
2.       Japan                      17%
3.       Switzerland                12%
4.       Netherlands                 8%
5.       Germany                     6%
6.       France                      5%
7.       Spain                       4%
8.       Italy                       4%
9.       South Korea                 4%
10.      Finland                     3%
11.      Brazil                      3%
12.      Norway                      3%
13.      Taiwan                      2%
14.      Israel                      1%




SECTOR BREAKDOWN  12/31/02
% of Total Net Assets

                              
1.       Consumer Discretionary     20%
2.       Information Technology     15%
3.       Healthcare                 14%
4.       Telecommunication Services 11%
5.       Consumer Staples           11%
6.       Financials                 10%
7.       Industrials                10%
8.       Materials                   6%
9.       Energy                      3%



TOP 10 HOLDINGS  12/31/02
Security % of Total Net Assets

                              
1.       Vodafone AirTouch plc      6.1%
2.       Nestle SA                  5.6%
3.       GlaxoSmithKline plc        4.5%
4.       Diageo plc                 4.2%
5.       Rio Tinto plc              4.0%
6.       NTT DoCoMo, Inc.           3.5%
7.       WPP Group plc              3.2%
8.       Nokia Oyj                  3.1%
9.       Nomura Holdings, Inc.      3.0%
10.      Nissan Motor Co., Ltd.     2.9%



The top 10 holdings and the country and sector breakdowns are as of 12/31/02 and
may not be representative of the Fund's current or future investments.




IVY INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002



                                                                                    SHARES     VALUE
                                                                                    
EQUITY SECURITIES - 93.8%
- -----------------------------------------------------------
EUROPE - 68.5%
- -----------------------------------------------------------
FINLAND - 3.1%
Nokia Oyj                                                                              518     $  8,235
                                                                                          -------------

FRANCE - 5.1%
Aventis SA                                                                              73        3,968
STMicroelectronics N.V.                                                                110        2,156
Thomson Multimedia (a)                                                                 440        7,508
                                                                                          -------------
                                                                                                 13,632
                                                                                          -------------

GERMANY - 5.9%
Fresenius AG                                                                            80        2,997
Hugo Boss AG                                                                           300        3,025
Medion AG                                                                              200        6,926
Merck KGaA                                                                             100        2,635
                                                                                          -------------
                                                                                                 15,583
                                                                                          -------------

ITALY - 3.7%
IntesaBci S.p.A.                                                                     2,000        4,218
Mondadori (Arnoldo) Editora S.p.A.                                                     900        5,572
                                                                                          -------------
                                                                                                  9,790
                                                                                          -------------

NETHERLANDS - 7.1%
ING Groep NV                                                                           203        3,438
Koninklijke (Royal) Philips Electronicas NV                                            373        6,537
Koninklijke Ahold NV                                                                   190        2,412
TPG NV                                                                                 400        6,485
                                                                                          -------------
                                                                                                 18,872
                                                                                          -------------

NORWAY - 2.4%
Norsk Hydro ASA                                                                        140        6,275
                                                                                          -------------

SPAIN - 3.9%
Amadeus Global Travel Distribution S.A.                                              1,493        6,157
Prosegur, Compania de Seguridad SA                                                     422        4,296
                                                                                          -------------
                                                                                                 10,453
                                                                                          -------------

SWITZERLAND - 11.5%
Credit Suisse Group                                                                    140        3,038
Nestle SA                                                                               70       14,833
Novartis AG                                                                            140        5,108
UBS AG                                                                                 155        7,533
                                                                                          -------------
                                                                                                 30,512
                                                                                          -------------





                                                                                    
UNITED KINGDOM - 25.8%
AstraZeneca PLC                                                                        200        7,125
BT Group plc                                                                         1,000        3,139
Diageo plc                                                                           1,019       11,082
GlaxoSmithKline plc                                                                    621       11,917
Rio Tinto plc                                                                          525       10,472
Vodafone AirTouch plc                                                                8,871       16,210
WPP Group plc                                                                        1,100        8,359
                                                                                          -------------
                                                                                                 68,304
                                                                                          -------------

FAR EAST - 21.1%
- -----------------------------------------------------------
JAPAN - 16.1%
Mitsubishi Electric Corporation                                                      1,000        2,309
Nintendo Co., Ltd.                                                                      70        6,542
Nissan Motor Co., Ltd.                                                               1,000        7,803
Nomura Holdings, Inc.                                                                  700        7,869
NTT DoCoMo, Inc.                                                                         5        9,227
Sharp Corporation                                                                      500        4,748
Sony Corporation                                                                       100        4,180
                                                                                          -------------
                                                                                                 42,678
                                                                                          -------------

SOUTH KOREA - 3.5%
POSCO                                                                                   40        3,980
Samsung Electronics                                                                     20        5,295
                                                                                          -------------
                                                                                                  9,275
                                                                                          -------------

TAIWAN - 1.5%
Taiwan Semiconductor Manufacturing Company (a)                                       3,300        4,043
                                                                                          -------------

LATIN AMERICA - 2.7%
- -----------------------------------------------------------
BRAZIL - 2.7%
Embraer Brasileira de Aeronautica S.A. (Embraer)                                       456        7,250
                                                                                          -------------

MIDDLE EAST - 1.5%
- -----------------------------------------------------------
ISRAEL - 1.5%
Check Point Software Technologies Ltd. (a)                                             300        3,891
                                                                                          -------------

Total Investments - 93.8%                                                                 $     248,793
(Cost - $310,578)
(Cost on Federal income tax basis - $319,556)
Other Assets, Less Liabilities - 6.2%                                                            16,449
                                                                                          -------------
Net Assets - 100.0%                                                                       $     265,242
                                                                                          =============

Other Information:
At December 31, 2002, net unrealized depreciation based on cost for financial
statement and Federal Income tax purposes is as follows:


Gross unrealized appreciation                                                             $       5,803
Gross unrealized depreciation                                                                   (67,588)
                                                                                          -------------
Net unrealized depreciation for financial statement purposes                                    (61,785)
Less:  tax basis adjustments                                                                     (8,978)
                                                                                          -------------
Net unrealized depreciation for Federal income tax purposes                               $     (70,763)
                                                                                          =============






Purchases and sales proceeds of securities other than U.S. Government securities
and short-term obligations aggregated $175,036 and $168,225, respectively, for
the year ended December 31, 2002.

(a)      Non-income producing security.

    The accompanying notes are an integral part of the financial statements.


Ivy International Growth Fund
Statement of Assets and Liabilities
December 31, 2002

                                                                    
ASSETS
Investments, at value (identified cost - $310,578 ) ..........         $ 248,793
Cash .........................................................            35,482
Receivables
  Dividends and Interest .....................................               663
Other assets .................................................                15
                                                                       ---------

  Total assets ...............................................           284,953
                                                                       ---------

LIABILITIES
Payables
   Investments purchased .....................................               336
   Management fee ............................................               109
   Transfer agent fee ........................................                 6
   Other payables to related parties .........................               601
Accrued expenses .............................................            18,659
                                                                       ---------

  Total liabilities ..........................................            19,711
                                                                       ---------

NET ASSETS ...................................................         $ 265,242
                                                                       =========

ADVISOR CLASS
Net asset value, offering price and redemption price per share
  ($265,242/51,692 shares outstanding) .......................         $    5.13
                                                                       =========


NET ASSETS CONSIST OF
  Capital paid-in ............................................         $ 522,748
  Accumulated net realized loss on investments and
    foreign currency transactions ............................          (195,738)
  Accumulated net investment loss ............................              (315)
  Net unrealized depreciation on investments and
    foreign currency transactions ............................           (61,453)
                                                                       ---------

NET ASSETS ...................................................         $ 265,242
                                                                       =========



    The accompanying notes are an integral part of the financial statements.




Ivy International Growth Fund
Statement of Operations
For the Year Ended December 31, 2002

                                                                    
INVESTMENT INCOME
 Dividends, net of $709 foreign taxes withheld ...............         $   5,014
  Interest ...................................................               320
                                                                       ---------
                                                                           5,334
                                                                       ---------

EXPENSES
  Management fee .............................................             3,155
  Transfer agent .............................................               294
  Administrative services fee ................................               315
  Custodian fees .............................................            20,546
  Auditing and accounting fees ...............................            16,694
  Fund accounting ............................................            15,129
  Trustees' fees .............................................             4,385
  Legal ......................................................            25,417
  Other ......................................................               150
                                                                       ---------
                                                                          86,085
  Expenses reimbursement by Manager ..........................           (81,332)
                                                                       ---------
    Net expenses .............................................             4,753
                                                                       ---------

NET INVESTMENT INCOME ........................................               581
                                                                       ---------

NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
  Net realized loss on investments and
     foreign currency transactions ...........................           (34,736)
  Net change in unrealized depreciation on investments
    and foreign currency transactions ........................           (71,254)
                                                                       ---------

     Net loss on investments .................................          (105,990)
                                                                       ---------

NET DECREASE IN NET ASSETS RESULTING
  FROM OPERATIONS ............................................         $(105,409)
                                                                       =========



    The accompanying notes are an integral part of the financial statements.




Ivy International Growth Fund
Statement of Changes in Net Assets



                                                                   For the                For the
                                                                  year ended             year ended
                                                              -----------------      -----------------
                                                              December 31, 2002      December 31, 2001
                                                              -----------------      -----------------
                                                                               
DECREASE IN NET ASSETS
Operations
  Net investment income .................................         $     581              $     821
  Net realized loss on
    investments and foreign currency transactions .......           (34,736)              (165,918)
  Net change in unrealized (depreciation) appreciation on
    investments and foreign currency transactions .......           (71,254)                 9,299
                                                                  ---------              ---------

       Net decrease resulting from operations ...........          (105,409)              (155,798)
                                                                  ---------              ---------

Advisor Class distributions
  Dividends from net investment income ..................            (2,148)                (8,620)
                                                                  ---------              ---------

       Total distributions to Advisor Class shareholders             (2,148)                (8,620)
                                                                  ---------              ---------

Fund share transactions (Note 3)
  Advisor Class .........................................             2,148                 34,608
                                                                  ---------              ---------

      Net increase resulting from
         Fund share transactions ........................             2,148                 34,608
                                                                  ---------              ---------

TOTAL DECREASE IN NET ASSETS ............................          (105,409)              (129,810)


NET ASSETS AT BEGINNING OF PERIOD .......................           370,651                500,461
                                                                  ---------              ---------

NET ASSETS AT END OF PERIOD .............................           265,242                370,651
                                                                  =========              =========



UNDISTRIBUTED NET INVESTMENT INCOME .....................         $      --              $   1,477
                                                                  =========              =========


    The accompanying notes are an integral part of the financial statements.





Ivy International Growth Fund
Financial Highlights



                                                                                                                  FOR THE PERIOD
                                                                    FOR THE YEAR         FOR THE YEAR           DECEMBER 29, 2000
ADVISOR CLASS                                                          ENDED                 ENDED                (COMMENCEMENT)
                                                                    DECEMBER 31,          DECEMBER 31,           TO DECEMBER 31,
SELECTED PER SHARE DATA                                                2002                  2001                      2000
                                                                   ------------          -------------          -----------------
                                                                                                       
Net asset value, beginning of period ..................               $  7.23                $ 10.01                $ 10.00
                                                                      -------                -------                -------

  Income from investment operations
  Net investment income(a) ............................                  0.01                   0.02                     --
  Net (loss) gain on securities (both
    realized and unrealized) ..........................                 (2.07)                 (2.63)                  0.01
                                                                      -------                -------                -------
  Total from investment operations ....................                 (2.06)                 (2.61)                  0.01
                                                                      -------                -------                -------

  Less distributions
  Dividends
    From net investment income ........................                  0.04                   0.17                     --
                                                                      -------                -------                -------
      Total distributions .............................                  0.04                   0.17                     --
                                                                      -------                -------                -------

Net asset value, end of period ........................               $  5.13                $  7.23                $ 10.01
                                                                      =======                =======                =======

Total return (%)(b) ...................................                (28.46)                (26.02)                  0.10

Ratios and Supplemental Data
Net assets, end of period (in thousands) ..............               $   265                $   371                $   500
Ratio of expenses to average
  net assets (%)
  With expense reimbursement (%) ......................                  1.50                   1.50                   1.50 (c)
  Without expense reimbursement (%) ...................                 27.30                  26.08                 443.30 (c)
Ratio of net investment income (loss) to
  average net assets (%)(a) ...........................                  0.18                   0.16                  (1.50) c)
Portfolio turnover rate (%) ...........................                    55                    252                     --


(a) Net investment income is net of expenses reimbursed by Manager.
(b) Total return represents aggregate total return and does not reflect a sales
    charge.
(c) Annualized.

    The accompanying notes are an integral part of the financial statements.





IVY INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002

Ivy International Growth Fund (the "Fund"), is a diversified series of shares of
Ivy Fund. The shares of beneficial interest are assigned no par value and an
unlimited number of shares of Class A, Class B, Class C, Class I and Advisor
Class are authorized. As of December 31, 2002, only Advisor Class shares have
been issued. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with accounting principles generally accepted in the United States of
America. Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.

SECURITY VALUATION - Securities traded on a U.S. or foreign stock exchange, or
The Nasdaq Stock Market Inc. ("Nasdaq") system, are valued at the last quoted
sale price reported as of the close of regular trading on the market on which
the security is traded most extensively. If there were no sales on the market on
which the security is traded most extensively and the security is traded on more
than one market, or on one or more exchanges in the over-the-counter market, the
market reflecting the last quoted sale will be used. Otherwise, the security is
valued at the calculated mean between the last bid and asked price on the market
on which the security is traded most extensively. Securities not traded on an
exchange or Nasdaq, but traded in another over-the-counter market are valued at
the calculated mean between the last bid and the last asked price in such
markets. Short-term obligations and commercial paper are valued at amortized
cost, which approximates market. Debt securities (other than short-term
obligations and commercial paper) are valued on the basis of valuations
furnished by a pricing service authorized by the Board of Trustees (the
"Board"), which determines valuations based upon market transactions for normal,
institutional-size trading units of such securities, or on the basis of dealer
quotes. All other securities are valued at their fair value as determined in
good faith by the Valuation Committee of the Board; as of December 31, 2002,
there were no Board valued securities.

SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the trade date. Dividend income, net of foreign taxes withheld,
is recorded on the ex-dividend date, and interest income is accrued on a daily
basis. Corporate actions on foreign securities, including dividends, are
recorded on the ex-dividend date. Realized gains and losses from security
transactions are calculated on an identified cost basis.

CASH - The Fund classifies as cash amounts on deposit with the Fund's custodian.
These amounts earn interest at variable interest rates. At December 31, 2002,
the interest rate was 0.60%.

FEDERAL INCOME TAXES - The Fund intends to qualify for tax treatment applicable
to regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"), and


IVY INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002

distribute all of its taxable income to its shareholders. Therefore, no
provision has been recorded for Federal income or excise taxes.

Because Federal income tax regulations differ from accounting principles
generally accepted in the United States of America, income and capital gain
distributions determined in accordance with tax regulations may differ from net
investment income and realized gains recognized for financial reporting
purposes. These differences are primarily attributed to wash sales and
non-deductible deferred offering costs. Accordingly, the character of
distributions for tax purposes differ from those reflected in the accompanying
financial statements.

Distributions of $2,148 during the year ended December 31, 2002 were
characterized as ordinary income for tax purposes.

The net unrealized depreciation for U.S. Federal income tax purposes at December
31, 2002 was as follows:

                                         
   Unrealized appreciation                  $   5,803
   Unrealized depreciation                    (76,566)
                                            ----------
   Net unrealized depreciation                (70,763)
                                            ==========



There was no undistributed ordinary income at December 31, 2002 for U.S. Federal
income tax purposes.

The Fund earned $5,723 in foreign source dividends that were subject to $709 in
foreign withholding tax. The Fund intends to elect to pass through to the
shareholders their proportionate share of such taxes. Shareholders may report
their share of foreign taxes paid as either a tax credit or itemized deduction.

The Fund has a net tax-basis capital loss carryover of approximately $177,000 as
of December 31, 2002, which may be applied against any realized net taxable gain
of each succeeding fiscal year until fully utilized or until the expiration
date, whichever occurs first. Approximately $123,000 of the carryover expires in
2009 and approximately $54,000 expires in 2010.

DISTRIBUTIONS TO SHAREHOLDERS - Distributions from net investment income and
realized gain, if any, are declared in December.

FOREIGN CURRENCY TRANSLATIONS - Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities and dividends and interest receivable are translated
at the closing daily rate of exchange; and (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a



IVY INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002


separate component of Net realized and unrealized gain (loss) on investment
transactions. Foreign transactions may involve risks not typically associated
with domestic transactions including, but not limited to, unanticipated
movements in exchange rates, the degree of government supervision and
regulation of security markets and the possibility of political and economic
instability.

For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.

For tax reporting purposes, Code Section 988 provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.

2.       RELATED PARTIES

Until December 31, 2002, Ivy Management, Inc. ("IMI") provided business
management services and was the Investment Adviser to the Fund. Effective
December 16, 2002, Waddell & Reed Financial, Inc. ("Waddell & Reed"), a U.S.
mutual fund firm, completed its acquisition of the entire operations of
Mackenzie Investment Management Inc. ("MIMI"), of which IMI is a wholly owned
subsidiary. At this time, Ivy Acquisition Corporation ("IAC") was formed as a
registered investment adviser. On December 31, 2002, IMI merged into IAC and
IAC changed its name to Waddell & Reed Ivy Investment Company ("WRIICO"), the
Fund's current investment adviser. For its services, WRIICO receives a fee
monthly at the annual rate of 1.00% of the Fund's average net assets. For the
year ended December 31, 2002, WRIICO limited the Fund's total operating
expenses (excluding 12b-1 fees and certain other expenses) to an annual rate of
1.50% of the Fund's average net assets.

MIMI provided certain administrative, accounting and pricing services for the
Fund. Effective December 17, 2002, IAC, now WRIICO, assumed all of MIMI's
duties under the Fund Accounting Services Agreement and the Administrative
Services Agreement. For those services, the Fund pays WRIICO fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Fund accounting
and Administrative services fee in the Fund's Statement of Operations.

At December 31, 2002, WRIICO owned approximately 99% of the Fund's shares
outstanding.

3.       FUND SHARE TRANSACTIONS

Fund share transactions for Advisor Class were as follows:



IVY INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002



                                             FOR THE YEAR ENDED                  FOR THE YEAR ENDED
                                              DECEMBER 31, 2002                   DECEMBER 31, 2001
                                            ----------------------            ---------------------------
ADVISOR CLASS                               SHARES         AMOUNT             SHARES             AMOUNT
                                            ------         -------            -------           ---------

                                                                                    
Sold                                                       $    --             24,567           $ 200,498
Issued on reinvestment of dividends           419            2,148              1,216               8,620
Repurchased                                    --               --            (24,510)           (174,510)
                                              ---          -------            -------           ---------
Net increase                                  419          $ 2,148              1,273           $  34,608
                                              ===          =======            =======           =========


4.       GEOGRAPHIC RISK FACTORS

There are certain risks involved in investing in foreign securities. These
risks include those resulting from future adverse political and economic
developments and the possible imposition of currency exchange restrictions or
other foreign laws or restrictions.

5.     CHANGE IN INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP ("PwC") previously served as the independent
accountants of the Fund. On December 16, 2002, PwC resigned as the Fund's
independent accountants on the basis that it was no longer "independent" of the
Fund within the meaning of the professional standards applicable to independent
accountants. This loss of independence was caused by the change of control of
the Fund's investment adviser, which took place on December 16, 2002. The
decision to change accountants was recommended by the audit committee of the
Fund's Board of Trustees and approved by the Board.

PwC's reports on the Fund's financial statements for the past two fiscal years
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle. In connection
with its audits for the Fund's two most recent fiscal years and through PwC's
resignation on December 16, 2002, there have been no disagreements with PwC on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of PwC, would have caused PwC to make reference thereto in its
reports on the Fund's financial statements for such years.

On December 17, 2002, the audit committee of the Fund's Board of Trustees
recommended and the Board approved Deloitte & Touche LLP as the Fund's new
independent accountants, effective as of December 16, 2002, for the Fund's
fiscal year ending December 31, 2002.



INDEPENDENT AUDITORS' REPORT

To the Board of Trustees and Shareholders of
Ivy International Growth Fund:


We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Ivy International Growth Fund (the "Fund") as
of December 31, 2002, and the related statement of operations, statement of
changes in net assets and the financial highlights for the fiscal year then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The financial statements and the financial highlights of the Fund for
each of the periods presented in the two-year period ended December 31, 2001
were audited by other auditors whose report, dated February 8, 2002, expressed
an unqualified opinion on those statements and financial highlights.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of December 31, 2002, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ivy
International Growth Fund as of December 31, 2002, the results of its
operations, the changes in its net assets and the financial highlights for the
fiscal year then ended in conformity with accounting principles generally
accepted in the United States of America.


Deloitte & Touche LLP
Kansas City, Missouri
February 7, 2003



OFFICERS AND NON-INDEPENDENT TRUSTEES

The address for each Trustee and Executive Officer in the following tables is
925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. Each Trustee
and Officer serves an indefinite term, until he or she dies, resigns or becomes
disqualified. The non-Independent Trustees (as defined below) and Executive
Officers of the Trust and their principal occupations during the past five
years are:



                          Position(s)               Term of Office
                             Held                    and Length of
Name and Age              with Trust                  Time Served
- ------------             -----------           -----------------------

                                         
Keith A. Tucker*         Trustee and                Trustee since
(58)                     Chairman                  December 16, 2002

Henry J. Herrmann*       Trustee and                Trustee since
(60)                     President                 December 16, 2002


                                                                              Total
                                                                            Number of                     Other
                               Principal Occupation(s)                      Ivy Funds                  Directorships
Name and Age                     During Past 5 Years                         Overseen                      Held
- ------------                   -----------------------                      ---------                  ------------

                                                                                    
Keith A. Tucker*         Chairman of the Board, Director and CEO of             16           Chairman of the Board and Director
(58)                     Waddell & Reed; Chairman of the Board of                            of Waddell & Reed Advisors Funds
                         Waddell & Reed, Inc. ("WRI") (underwriter);                         (20 portfolios overseen); Chairman
                         Chairman of the Board and Director of                               of the Board and Director of W&R
                         Waddell & Reed Investment Management Co.                            Funds, Inc. (12 portfolios
                         ("WRIMCO"); Chairman of the Board and                               overseen); Chairman of the Board
                         Director of Waddell & Reed Services Co.;                            and Director of W&R Target Funds,
                         President and CEO of Waddell & Reed                                 Inc. (12 portfolios overseen);
                         Financial Services, Inc.; Chairman of the                           Chairman of the Board and Director
                         Board of Waddell & Reed Development, Inc.;                          of Waddell & Reed InvestEd
                         Chairman of the Board of Waddell & Reed                             Portfolios, Inc. (3 portfolios
                         Distributors, Inc.                                                  overseen).

Henry J. Herrmann*       Chairman of the Board, CEO and President of            16           Chairman of the Board and Director,
(60)                     IMI and IAC; President, Chief Investment                            Ivy Mackenzie Services Corporation;
                         Officer and Director of Waddell & Reed;                             Director of WRI; Director of Waddell
                         President and CEO of WRIMCO; Chief                                  & Reed Development, Inc.; Director of
                         Investment Officer of WRIMCO; Chief                                 Waddell & Reed Services Co.; Director
                         Investment Officer of Waddell & Reed                                of Austin Calvert & Flavin, Inc.;
                         Financial Services, Inc.; Executive Vice                            Director and President of Waddell &
                         President of Waddell & Reed Financial                               Reed Advisors Funds (20 portfolios
                         Services, Inc.; formerly, Chairman of the                           overseen); Director and President of
                         Board of Austin, Calvert & Flavin, Inc.                             W&R Funds, Inc. (12 portfolios
                                                                                             overseen); Director and President of
                                                                                             W&R Target Funds, Inc. (12 portfolios
                                                                                             overseen); Director and President of
                                                                                             Waddell & Reed InvestEd Portfolios,
                                                                                             Inc. (3 portfolios overseen).






                          Position(s)               Term of Office
                             Held                    and Length of
Name and Age              with Trust                  Time Served
- ------------             -----------           -----------------------

                                         
Kristen A. Richards      Secretary and          Appointed December 17,
(35)                     Vice President                  2002

Beverly J. Yanowitch     Treasurer                      1 year
(52)



                                                                              Total
                                                                            Number of                     Other
                               Principal Occupation(s)                      Ivy Funds                  Directorships
Name and Age                     During Past 5 Years                         Overseen                      Held
- ------------                   -----------------------                      ---------                  ------------

                                                                                    
Kristen A. Richards      Vice President, Associate General Counsel              16           None.
(35)                     and Chief Compliance Officer of IAC, IMI
                         and WRIMCO; Vice President, Secretary and
                         Associate General Counsel of each of the
                         Waddell & Reed Advisors Funds, W&R Funds,
                         Inc., W&R Target Funds, Inc. and W&R
                         Invested Portfolios, Inc.; formerly
                         Assistant Secretary of each of those funds;
                         formerly, Compliance Officer of WRIMCO.

Beverly J. Yanowitch     Senior Vice President, Chief Financial                 16           None.
(52)                     Officer and Treasurer of WRIICO and Ivy
                         Services Inc.; Senior Vice President,
                         Treasurer and Director, IMDI; formerly,
                         Vice President, Chief Financial Officer and
                         Treasurer of MIMI.


- ---------
*        Trustees considered by the Trust and its counsel to be "interested
         persons" (as defined in the 1940 Act) of the Funds or of their
         investment manager because of their employment by Waddell & Reed or
         its subsidiaries.



DISINTERESTED TRUSTEES

The Trustees who are not "interested persons" of the Trust within the meaning
of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and their
principal occupations during the past five years are:




                           Position(s)              Term of Office
                              Held                   and Length of
Name and Age               with Trust                 Time Served
- ------------              -----------              -----------------

                                             
Jarold W. Boettcher         Trustee                  Trustee since
(62)                                               December 16, 2002

James D. Gressett           Trustee                  Trustee since
(52)                                               December 16, 2002

Joseph Harroz, Jr.          Trustee                  Trustee since
(35)                                               December 16, 2002

Glendon E. Johnson, Jr.     Trustee                  Trustee since
(51)                                               December 16, 2002


                                                                              Total
                                                                            Number of                   Other
                             Principal Occupation(s)                        Ivy Funds                Directorships
Name and Age                   During Past 5 Years                           Overseen                    Held
- ------------                 -----------------------                        ---------                ------------

                                                                                   
Jarold W. Boettcher     President of Boettcher Enterprises, Inc.               16           Director of Guaranty State Bank
(62)                    (diversified agricultural products and                              & Trust Co.; Director of
                        services); President of Boettcher Supply,                           Guaranty, Inc.
                        Inc. (electrical and plumbing supplies
                        distributor).

James D. Gressett       CEO of PacPizza, Inc.; Secretary of Street             16           Director of Collins Financial
(52)                    Homes, LLP; formerly, President of Alien,                           Services.
                        Inc. (real estate development).

Joseph Harroz, Jr.      General Counsel, University of Oklahoma,               16           Co-Lead Independent Director of
(35)                    Cameron University and Rogers State                                 Waddell & Reed Advisors Funds
                        University; University-wide Vice President                          (20 portfolios overseen);
                        of the University of Oklahoma; Adjunct                              Co-Lead Independent Director of
                        Professor of Law, University of Oklahoma                            W&R Target Funds, Inc. (12
                        College of Law; Managing Member, Harroz                             portfolios overseen); Co-Lead
                        Investment, LLC (commercial real estate);                           Independent Director of W&R
                        Managing Member, JHJ Investments, LLC                               Funds, Inc. (12 portfolios
                        (commercial real estate).                                           overseen); Co-Lead Independent
                                                                                            Director of Waddell & Reed
                                                                                            InvestEd Portfolios, Inc. (3
                                                                                            portfolios overseen).

Glendon E. Johnson, Jr. Of Counsel, Lee & Smith, PC (law firm);                16           None.
(51)                    Member/Manager, Castle Valley Ranches, LLC,
                        formerly Partner, Kelley, Drye & Warren LLP
                        (law firm).






                           Position(s)               Term of Office
                              Held                    and Length of
Name and Age               with Trust                  Time Served
- ------------              -----------               -----------------

                                              
Eleanor B. Schwartz         Trustee                   Trustee since
(65)                                                December 16, 2002








Michael G. Smith            Trustee             Trustee since December
(58)                                                   16, 2002

Edward M. Tighe             Trustee                    4 years
(60)


                                                                              Total
                                                                            Number of                   Other
                             Principal Occupation(s)                        Ivy Funds                Directorships
Name and Age                   During Past 5 Years                           Overseen                    Held
- ------------                 -----------------------                        ---------                ------------

                                                                                  
Eleanor B. Schwartz    Professor of Business Administration,                  16           Director of Waddell & Reed
(65)                   University of Missouri--Kansas City;                                Advisors Funds (20 portfolios
                       formerly, Chancellor of University of                               overseen); Director of W&R
                       Missouri--Kansas City.                                              Target Funds, Inc. (12
                                                                                           portfolios overseen); Director
                                                                                           of W&R Funds, Inc. (12
                                                                                           portfolios overseen); Director
                                                                                           of Waddell & Reed InvestEd
                                                                                           Portfolios, Inc. (3 portfolios
                                                                                           overseen).

Michael G. Smith       Associated with Graue Mill Partners, LLC;              16           None.
(58)                   formerly, Managing Director--Institutional
                       Sales, Merrill Lynch.

Edward M. Tighe        Chairman, CEO and Director of JBE                      16           Director of Hansberger
(60)                   Technology Group, Inc. (telecommunications                          Institutional Funds (2
                       and computer network consulting); President                         portfolios overseen); Director
                       of Global Mutual Fund Services.; President                          of Asgard Holding, LLC.
                       and CEO of Global Technology.



Each fund's statement of additional information ("SAI") contains additional
information about the Trustees and is available without charge, upon request,
by calling 1-800-456-5111.



                           SHAREHOLDER MEETING RESULTS
                                   (unaudited)

         On December 10, 2002 a special shareholder meeting (the "Meeting") was
held at the offices of Mackenzie Investment Management Inc., Boca Raton,
Florida, for the following purposes (and with the following results):


PROPOSAL 1: For shareholders of all Funds, except for Ivy Global Natural
Resources Fund, to approve or disapprove a new Master Business Management and
Investment Advisory Agreement between the Trust, on behalf of the Funds, and Ivy
Management, Inc. ("IMI"); and


       FOR                       AGAINST                      ABSTAIN
 ------------------------------------------------------------------------
   51,498,803.247              1,377,315.682               1,493,850.977
 ------------------------------------------------------------------------



PROPOSAL 2: For shareholders of Ivy Global Natural Resources Fund, to approve or
disapprove a new Master Business Management Agreement between the Trust, on
behalf of the Fund, and IMI; and
- ---------------------------------------------------------
        FOR             AGAINST            ABSTAIN
   2,121,469.663       27,123.541        10,068.003
- ---------------------------------------------------------


PROPOSAL 3A: For shareholders of Ivy European Opportunities Fund and Ivy
International Small Companies Fund, to approve or disapprove a new Subadvisory
Agreement between IMI and Henderson Global Investors (North America) Inc.
("HGINA"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
   5,488,037.381         89,305.745         85,262.146
- ------------------------------------------------------------

PROPOSAL 3B: For shareholders of Ivy European Opportunities Fund and Ivy
International Small Companies Fund, to approve or disapprove a new Subadvisory
Agreement between HGINA and Henderson Investment Management Limited
("Henderson"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
   5,489,481.210         93,343.546         80,135.834
- ------------------------------------------------------------


PROPOSAL 4: For shareholders of Ivy Cundill Global Value Fund, to approve or
disapprove a new Subadvisory Agreement between IMI and Peter Cundill &
Associates, Inc. ("Cundill"); and

- ------------------------------------------------------------
        FOR               AGAINST             ABSTAIN
    251,879.738          7,112.670           7,527.179
- ------------------------------------------------------------


PROPOSAL 5: For shareholders of all Funds, to approve or disapprove the election
of eight nominees to serve as Trustees on the Board of Trustees.

- -----------------------------------------------------------------------------
NOMINEE:                          FOR                      AGAINST

KEITH A. TUCKER                   54,459,082.827           2,069,192.008
HENRY J. HERRMANN                 54,455,836.913           2,073,536.552
JAMES D. GRESSETT                 54,480,456.334           2,047,818.501
JAROLD W. BOETTCHER               54,484,155.922           2,044,118.913
MICHAEL G. SMITH                  54,473,248.468           2,052,569.367
JOSEPH HARROZ, JR.                53,859,972.525           2,051,162.062
ELEANOR B. SCHWARTZ               53,853,424.194           2,057,551.889
GLENDON E. JOHNSON, JR.           53,901,560.595           2,008,266.240
- -----------------------------------------------------------------------------

Edward M. Tighe, who was elected by shareholders, continued his term of office
after the meeting.



BOARD OF TRUSTEES

Jarold W. Boettcher
James D. Gressett
Joseph Harroz, Jr.
Henry J. Herrmann
Glendon E. Johnson,Jr.
Eleanor B. Schwartz
Michael G. Smith
Edward M. Tighe
Keith A. Tucker

OFFICERS

Keith A. Tucker, Chairman of the Board
Henry J. Herrmann, President
Beverly J. Yanowitch, Treasurer
Kristen Richards, Secretary & Vice President

LEGAL COUNSEL

Bell, Boyd & Lloyd
Chicago, Illinois

CUSTODIAN

Brown Brothers Harriman & Co.
Boston, Massachusetts

TRANSFER AGENT

PFPC Inc.
4400 Computer Drive
Westborough, MA 01581

AUDITORS

Deloitte & Touche LLP
Kansas City, Missouri

DISTRIBUTOR

Ivy Mackenzie Distributors, Inc.
925 South Federal Highway, Suite 600
Boca Raton, Florida 33432
800.456.5111

INVESTMENT MANAGER

Waddell & Reed Ivy Investment Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL

EX-99.(17)(W)

                                                                 Exhibit (17)(w)

[GRAPHIC]

ADVANTUS FIXED INCOME
AND BLENDED FUNDS

[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]


ANNUAL REPORT TO SHAREHOLDERS
DATED SEPTEMBER 30, 2002


ADVANTUS BOND FUND, INC.
AN AGGREGATE BOND FUND

ADVANTUS INTERNATIONAL BALANCED FUND, INC.
AN INTERNATIONAL STOCK AND BOND FUND

ADVANTUS MONEY MARKET FUND, INC.
A MONEY MARKET SECURITIES FUND

ADVANTUS MORTGAGE SECURITIES FUND, INC.
A MORTGAGE - RELATED SECURITIES FUND

ADVANTUS SPECTRUM FUND, INC.
AN ASSET ALLOCATION FUND

CUT DOWN PAPERWORK, NOT TREES

ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS.
TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005.



ADVANTUS Fixed Income and Blended Funds

TABLE OF CONTENTS

                                                                   
PERFORMANCE UPDATES
   Bond Fund                                                            3
   International Balanced Fund                                          9
   Money Market Fund                                                   16
   Mortgage Securities Fund                                            19
   Spectrum Fund                                                       26
INVESTMENTS IN SECURITIES
   Bond Fund                                                           32
   International Balanced Fund                                         39
   Money Market Fund                                                   48
   Mortgage Securities Fund                                            51
   Spectrum Fund                                                       58
FINANCIAL STATEMENTS
   Statements of Assets and Liabilities                                70
   Statements of Operations                                            72
   Statements of Changes in Net Assets                                 74
   Notes to Financial Statements                                       78
INDEPENDENT AUDITORS' REPORT                                          102
FEDERAL INCOME TAX INFORMATION                                        103
DIRECTORS AND EXECUTIVE OFFICERS                                      110
SHAREHOLDER SERVICES                                                  112





LETTER FROM THE PRESIDENT

[PHOTO of DIANNE ORBISON]

Dear Shareholders:

Although economic growth has slowed dramatically, we feel it has not stopped,
and that is reason for optimism. Growth drives our economy and markets. In the
first six months of the year, growth, as measured by the Gross National Product,
dropped from 5 percent to 1.3 percent. The slowing economy has had a profound
effect on business spending. Stimulative fiscal and monetary policies --
together with low inflation -- are in place. We believe these are powerful tools
to help mend an ailing economy, but progress has been slow.

STOCK MARKET: The S&P 500 Index(1) recorded a 20.48 percent loss for the one
year period ended September 30, 2002. The stock market responds to earnings.
When companies reduce or miss their forecasted earnings, investor sentiment
sinks lower (i.e., more uncertainty is unleashed in the market). At the end of
this reporting period (September 30, 2002), more than two stocks fell for every
one that rose on the New York Stock Exchange and NASDAQ Stock Market.

FIXED INCOME MARKET: The Lehman Brothers Aggregate Bond Index(2) returned 8.60
percent for the one year period ended September 30, 2002. Quality (i.e.,
investment grade) bonds have been strong performers in this economic cycle.

MARKET OUTLOOK: The capital markets are facing some solemn issues. The threat of
war with Iraq has contributed to lower investor confidence and higher oil
prices, which, we feel, will likely crimp further economic growth into next
year.

We believe that double-digit returns in the stock market are not feasible in
light of the economic and market environment. Investors need to adjust
expectations to align with the current reality. Consider dollar cost
averaging(3) into stock funds. This is an easy-to-implement strategy that can
help smooth out the lows and highs of a volatile stock market.

CHANGES AT ADVANTUS. You will notice that 5 of the 11 Advantus Funds are
included in this report. The other six Advantus Funds were published in an
equities annual report dated July 31, 2002. We have divided the 11 reports for
the funds into two mailings to achieve economies of scale in report preparation
and mailing. We are also moving forward with plans to combine Advantus Funds'
prospectuses in the same way and for the same reasons.

                                        1


I have been President of the Advantus Funds since July. Bill Westhoff, former
President and investment management veteran, retired in late July after 31 years
of service to shareholders. I look forward to communicating with you on a
regular basis and bringing you news of the economy, markets, and Advantus.

Sincerely,

/s/ Dianne Orbison

Dianne Orbison
President, Advantus Funds


(1) The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

(2) The LEHMAN BROTHERS AGGREGATE BOND INDEX is a market-weighted index that
covers the U.S. investment grade fixed rate bond market. The index includes
government and corporate securities, agency mortgage pass-through securities and
asset backed securities.

(3) Dollar cost averaging does not ensure a profit or protect against loss in
declining markets. Also, since such a program involves regular purchases,
regardless of price level, consider your financial ability to continue purchases
through periods of low price levels.

                                        2


ADVANTUS BOND FUND, INC.

PERFORMANCE UPDATE

WAYNE SCHMIDT, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The Fund's performance for the year ended September 30, 2002, for each class of
shares offered was as follows:

                            
      Class A                        7.90 percent*
      Class B                        6.99 percent*
      Class C                        7.11 percent*

      

The Fund's benchmark, the Lehman Brothers Aggregate Bond Index,** returned 8.60
percent for the same period.

PERFORMANCE ANALYSIS

The U.S. bond market has been rediscovered by investors as they seek a safe
haven from the equity market and explore ways to earn incremental returns over
low money market yields. The demand for fixed income combined with global
economic weakness, declining equity markets, and worldwide tension has generated
a tremendous rally in the fixed income market. Yields on U.S. Treasury
securities fell to 40-year lows as the five-year U.S. Treasury Note declined 146
basis points (1.46 percent) to yield just 2.57 percent. The ten-year note
declined 120 basis points (1.20 percent) during the quarter, bringing its yield
down to 3.60 percent.

The decline in interest rates paved the way for record mortgage refinancing as
every homeowner enjoyed the opportunity to lower their mortgage interest cost.
This refinancing wave has taken a toll on the mortgage sector of the fixed
income market as loans are rapidly being paid off at a par dollar price. Over
the past twelve months, mortgages were the weakest sector in the investment
grade fixed income market returning 7.63 percent. We feel the corporate bond
market continues to be a dangerous place in the wake of Enron and Worldcom. The
volatility in the equity markets is reflected daily in the corporate bond
market. Corporate bonds were the next weakest performing sector, but still
returned a positive 8.19 percent. U.S. Treasuries were the star performers as
investors opted for quality. U.S. Treasuries returned an attractive 10.45
percent for the period.

The Fund's solid performance is attributable to a variety of factors. The Fund
has been overweight in mortgage-backed securities, but the prepayment risk of
the securities held was actively managed through the use of commercial mortgage
backed securities, structured mortgages and low loan balance pools of
mortgages. The Fund did not experience the rapid prepayment speeds of the

                                        3


overall market. The Fund was also overweight in the corporate bond sector. We
have maintained a diversified portfolio of corporate bonds and avoided the
numerous credit disasters in this sector. While the Fund owns less U.S. Treasury
securities than the index, the dollars invested in treasuries have been in the
best performing securities: 30-year bonds and TIPS (treasury inflation
protection securities).

OUTLOOK

We view yield and principal preservation as the key drivers to future returns in
the bond market. The Fund will continue to overweight corporate bonds and
mortgage-backed securities while staying conservative with our duration
exposure. Within the corporate sector, we will selectively look for
opportunities to add yield to the Fund.

We believe the fixed income market can not continue producing double-digit
returns indefinitely. We feel this could be the third consecutive year of annual
fixed income returns near 10 percent. We expect the party in bonds will end when
the equity market finds a bottom and begins to recover. Investors have been
re-educated on the need for diversification and stability that fixed income
brings to their portfolio. With interest rates at 40-year lows, we think
investors need to bring their fixed income return expectations in line with the
realities of today's market. We believe low single digit returns in an
environment where rates move higher seems inevitable.


*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 4.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Lehman Brothers Aggregate Bond Index is an unmanaged benchmark which
includes all publicly issued fixed rate, nonconvertible domestic corporate debt.

                                        4


                        COMPARISON OF CHANGE IN VALUE OF
            A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS BOND FUND,
         LEHMAN BROTHERS AGGREGATE BOND INDEX AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Bond Fund compared to the Lehman Brothers
Aggregate Bond Index and the Consumer Price Index. The lines in the Class A
graph represent the cumulative total return of a hypothetical $10,000 investment
made on September 30, 1992 through September 30, 2002. The lines in the Class B
and Class C graphs represent the cumulative total return of a hypothetical
$10,000 investment made on the inception date of Class B and Class C shares of
the Advantus Bond Fund (August 19, 1994 and March 1, 1995 for Class B and C,
respectively) through September 30, 2002.

[CHART]

                                     CLASS A

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                          
One year                                     3.05%
Five year                                    5.49%
Ten year                                     6.13%



(Thousands)




                         LEHMAN BROTHERS
                            AGGREGATE
             CLASS A        BOND INDEX        CPI
                                 
9/30/92     $    9,546      $   10,000    $   10,000
9/30/93     $   10,661      $   10,985    $   10,402
9/30/94     $   10,009      $   10,579    $   10,761
9/30/95     $   11,516      $   12,044    $   10,998
9/30/96     $   11,979      $   12,628    $   11,328
9/30/97     $   13,246      $   13,846    $   11,579
9/30/98     $   14,405      $   15,411    $   11,744
9/30/99     $   14,064      $   15,334    $   12,053
9/30/00     $   14,773      $   16,406    $   12,462
9/30/01     $   16,794      $   18,647    $   12,793
9/30/02     $   18,121      $   20,252    $   12,979


                                        5


[CHART]

                                     CLASS B

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                   
One year                              1.99%
Five year                             5.46%
Since inception (8/19/94)             6.60%



(Thousands)



                           LEHMAN BROTHERS
                              AGGREGATE
               CLASS B        BOND INDEX          CPI
                                     
8/19/94      $   10,000       $   10,000      $   10,000
9/30/94      $    9,876       $    9,957      $   10,067
9/30/95      $   10,801       $   11,337      $   10,289
9/30/96      $   11,252       $   11,886      $   10,598
9/30/97      $   12,480       $   13,033      $   10,833
9/30/98      $   13,610       $   14,506      $   10,987
9/30/99      $   13,200       $   14,434      $   11,276
9/30/00      $   13,905       $   15,443      $   11,659
9/30/01      $   15,702       $   17,443      $   11,968
9/30/02      $   16,800       $   18,945      $   12,142


                                        6


[CHART]

                                     CLASS C

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                   
One year                              7.11%
Five year                             5.67%
Since inception (3/1/95)              6.62%



(Thousands)



                         LEHMAN BROTHERS
                            AGGREGATE
              CLASS C       BOND INDEX        CPI
                                 
 3/1/95     $   10,000     $   10,000     $   10,000
9/30/95     $   10,925     $   10,808     $   10,146
9/30/96     $   11,265     $   11,332     $   10,450
9/30/97     $   12,348     $   12,426     $   10,682
9/30/98     $   13,372     $   13,830     $   10,834
9/30/99     $   12,909     $   13,761     $   11,119
9/30/00     $   13,459     $   14,722     $   11,497
9/30/01     $   15,187     $   16,629     $   11,801
9/30/02     $   16,266     $   18,062     $   11,974


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 4.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost. The graphs and tables do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.

                                        7


TEN LARGEST BOND HOLDINGS



                                                  MARKET      % OF BOND
SECURITY DESCRIPTION                              VALUE       PORTFOLIO
- --------------------                           -----------    ---------
                                                             
Federal Home Loan Mortgage Corporation
   6.500%, 09/01/32                            $   726,604          3.1%
U.S. Treasury Bond
   6.000%, 02/15/26                                699,398          3.0%
U.S. Treasury Bond
   5.250%, 02/15/29                                638,695          2.7%
Federal National Mortgage Association
   7.500%, 05/01/31                                540,884          2.3%
Anheuser-Busch Companies, Inc.
   7.100%, 06/15/07                                540,760          2.3%
St. George Funding Company - 144A Issue
   8.485%, 12/29/49                                513,510          2.2%
Federal National Mortgage Association
   7.000%, 02/01/32                                496,418          2.1%
Federal National Mortgage Association
   7.000%, 11/01/31                                478,621          2.0%
Metropolitan Asset Funding - 144A Issue
   7.525%, 04/20/27                                435,961          1.8%
National Collegiate
   7.240%, 09/20/14                                433,089          1.8%
                                               -----------      -------
                                               $ 5,503,940         23.3%
                                               ===========      =======


[CHART]

                                  
U.S. Treasury                         7.6%
U.S. Government Agencies             26.2%
AAA Rated                            13.6%
AA Rated                             11.3%
A Rated                              15.0%
BBB Rated                            21.6%
D Rated                               0.3%
Cash and Other Assets/Liabilities     4.4%



                                        8


Advantus International Balanced Fund, Inc.

PERFORMANCE UPDATE

GARY CLEMONS
AND TUCKER SCOTT III,
CFA, PORTFOLIO MANAGERS
TEMPLETON INVESTMENT COUNSEL, INC.
ALEXANDER CALVO, PORTFOLIO MANAGER
FRANKLIN ADVISORS, INC.

PERFORMANCE

The Advantus International Balanced Fund's performance for the year ended
September 30, 2002 for each class of shares offered was as follows:

                             
     Class A                         - 4.62 percent*
     Class B                         - 5.52 percent*
     Class C                         - 5.52 percent*

     

By comparison, an international equity index, the MSCI EAFE Index,** returned
- -15.14 percent, an international bond index, the J.P. Morgan Non-U.S. Government
Bond Index+ returned 10.48 percent, and a blended index comprised of 60% MSCI
EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index returned -5.26%
for the same period.

PERFORMANCE ANALYSIS

During the 12 months under review, global equity markets experienced
uncertainty, and the U.S. market in particular was the focus of worldwide
attention. The terrorist attacks of September 11, 2001, exacerbated what had
begun earlier in 2001: declines in employment, corporate earnings and gross
domestic product (GDP) growth in Asia, Europe and the Americas. Paradoxically,
we believe the attacks may have contributed to economic recovery. The U.S.
Federal Reserve Board continued its efforts to stimulate the economy through
cuts in short-term interest rates. The Fed made eleven cuts during 2001, four
after September 11th. Most nations' central banks followed the U.S. lead and
sought economic stimulus through cutting their own interest rates.

In the U.S., the effects of monetary easing became apparent during the fourth
quarter of 2001, as GDP grew at a 2.70 percent annualized rate. This trend
continued in the first and second quarters of 2002, with annualized growth rates
of 5.00 percent and 1.10 percent. However, relatively healthy consumer-related
economic data contrasted with negative news on the corporate side. The Enron
scandal raised concerns about other potential pitfalls, and as more corporate
deception and fraudulent accounting came to light, investors became increasingly
suspicious about corporate management credibility and companies' financial
statements. Partly as a result, global market volatility spiked to levels not
seen since the terrorist attacks and led to general stock price declines. Also
contributing to the drop in stock prices were gloomy industry outlooks, led by

                                        9


the Information Technology and Telecommunications Services sectors. In addition,
ongoing U.S. terrorist fears and geopolitical conflicts added uncertainty to
global financial markets. All considered, outside the U.S., equity markets
generally declined during the reporting period.

The Fund allocation at September 30, 2002 was 52 percent equity, 45 percent
fixed income with the remaining portion in short-term instruments and cash.

From an equity perspective, industry sectors that declined sharply in the broad
market, such as Financials, Health Care, Information Technology and
Telecommunications Services negatively affected the Fund's performance. However,
in a couple of these cases, the negative effect to overall performance was
proportionally less severe for the Fund than for the MSCI EAFE Index. This was
especially true in the Financial and Telecommunications sectors. On the positive
side, based on strong stock selection, our Consumer-related sectors delivered
solid investment results. This was not the case for the Index, as media, hotel
and leisure-related stocks faced challenges during the period and generated
negative returns within the Index.

Geographically, the Fund benefited from our exposure in Latin America, despite
the fact that Latin America was battered by such unfavorable events as
Argentina's currency devaluation, Brazils' political uncertainty and Mexico's
economic jitters. In Asia, the Fund's relatively overweight positions in Hong
Kong and South Korea drove much of the Fund's outperformance in the region. On a
relative basis, our holdings in Japan also contributed to the Fund's overall
performance. During the period, we remained unconvinced about the prospects of
measurable corporate reforms in Japan.

Turning to the fixed income portion of the Fund, during the twelve months ending
September 30, 2002, the JP Morgan Global Government Bond Index ex. U.S.--a
benchmark index for the fixed income portion of the Fund--posted a positive
return of 10.48 percent in U.S. dollar terms, versus a return of 10.74 percent
for the JPM U.S. Government Bond Index--a benchmark index for U.S. Treasuries.
The Fund did not hold any U.S. Treasury bonds during the year ended September
30, 2002. While the U.S. dollar depreciated against most major currencies during
the period, the slightly lower returns of the non U.S. index is in part due to
the underperformance of Japanese bonds and 1.85 percent depreciation of the Yen
relative to the U.S. dollar during the period. In addition to the strong returns
of global government bonds during the period, the fixed income allocation of the
Fund also benefited from its underweight position in Japan and overweight
position in Europe and the Dollar bloc.

The U.S. Treasury yield curve shifted down during the period, driven by the
Federal Reserve's easing of monetary policy earlier in the fiscal year and the
slower than previously anticipated recovery of the U.S. economy. The Fed reduced
the Fed funds rate by 125 basis points (1.25 percent) from 3.00 to 1.75 percent.
Meanwhile, the Euroland benchmark yield curve also shifted down during the
period as the European Central Bank lowered its reference interest rate by 50
basis points (.50 percent) from 3.75 to 3.25 percent.

                                       10


European bonds rose 17.59 percent in US dollar terms, as European bond markets
offered positive returns in local currency terms and the Euro appreciated by
8.25 percent against the dollar. Performance was consistent across the region.
Euro Area bonds, including German, Italian, French and Spanish bonds rose
approximately 17.64 percent in U.S. dollar terms. The U.K. index outperformed as
well, rising 17.02 percent in U.S. dollar terms as the Bank of England reduced
its official interest rate by 75 basis points (.75 percent) from 4.75 to 4.00
percent during the fiscal year. The British Pound appreciated 6.38 percent
against the dollar. The Japanese Index increased only 0.33 percent in U.S.
dollar terms due to the weakness in the Japanese yen, as mentioned above. The
Dollar-bloc bond markets posted mixed performance with Canadian bonds returning
7.60 percent, while Australian and New Zealand bonds outperformed, returning
16.55% percent and 24.44 percent, respectively. The Australian and New Zealand
currencies appreciated 10.44 percent and 15.35 percent against the U.S. dollar
versus the 0.48 percent depreciation of the Canadian dollar.

OUTLOOK

Periods such as the last year are disconcerting to investors. The outlook for
the global economy and for equity markets was expected to improve, but it
actually deteriorated, leaving investors with more questions than answers about
their investments in equities. We believe, however, that these periods are
similar to periods of extreme confidence, such as the first quarter of 2000. In
both cases, emotion, not logical thinking guided investors' decisions and led
them to irrational behavior. Another similarity that we believe exists in these
kinds of periods is that they tend to be temporary, lasting only as long as the
emotion persists.

While there are a number of uncertainties going forward, particularly the
direction of consumer spending, we believe the extreme volatility of equity
markets continues to provide us with the opportunity to identify quality
companies with good operating prospects, often with attractive dividend yields,
at prices that we find compelling. In the longer term, we believe our investment
philosophy of buying when others are blindly selling should benefit our
investors and we remain comfortable with the Fund's long-term holdings.

We thank you for your continued confidence in Templeton.

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The MSCI EAFE Index is an unmanaged index of common stocks from European,
Australian, and Far Eastern markets.

+The J.P. Morgan Non-U.S. Government Bond Index includes all liquid foreign
government issues of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden and United Kingdom.

                                       11


                COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL
           $10,000 INVESTMENT IN ADVANTUS INTERNATIONAL BALANCED FUND,
          MSCI EAFE INDEX, J.P. MORGAN NON-U.S. GOVERNMENT BOND INDEX,
                    BLENDED INDEX, AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus International Balanced Fund compared to the
EAFE Index, the J.P. Morgan Non-U.S. Government Bond Index, Blended Index of 60%
EAFE Index and 40% J.P. Morgan Non-U.S. Government Bond Index and the Consumer
Price Index. The four lines in each graph represent the cumulative total return
of a hypothetical $10,000 investment made on the inception date of each class of
shares of the Advantus International Balanced Fund (September 16, 1994 for Class
A, January 31, 1997 for Class B, and March 1, 1995 for Class C) through
September 30, 2002.

[CHART]

                                     CLASS A

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -9.86%
Five year                            -2.76%
Since inception (9/16/94)             2.80%



(Thousands)



                                    J.P. MORGAN               BLENDED
             CLASS A    EAFE INDEX     INDEX        CPI        INDEX
                                              
9/16/94     $  10,000   $  10,000    $  10,000   $  10,000   $  10,000
9/30/94     $   9,274   $   9,845    $  10,094   $  10,054   $   9,944
9/30/95     $   9,961   $  10,460    $  11,972   $  10,275   $  11,056
9/30/96     $  11,030   $  11,399    $  12,605   $  10,584   $  11,890
9/30/97     $  13,576   $  12,819    $  12,639   $  10,818   $  12,783
9/30/98     $  11,809   $  11,782    $  14,133   $  10,973   $  12,783
9/30/99     $  13,775   $  15,472    $  14,256   $  11,261   $  15,189
9/30/00     $  14,639   $  16,466    $  13,087   $  11,643   $  15,304
9/30/01     $  13,092   $  11,809    $  13,693   $  11,952   $  13,693
9/30/02     $  12,488   $   9,739    $  15,128   $  12,126   $  12,973


                                       12


[CHART]

                                     CLASS B

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                 
One year                            -10.25%
Five year                            -2.74%
Since inception (1/31/97)             -.40%



(Thousands)



                                    J.P. MORGAN               BLENDED
             CLASS B    EAFE INDEX     INDEX        CPI        INDEX
                                              
1/31/97     $  10,000   $  10,000    $  10,000   $  10,000   $  10,000
9/30/97     $  10,730   $  11,246    $  10,027   $  10,094   $  10,751
9/30/98     $   9,264   $  10,336    $  11,212   $  10,238   $  10,752
9/30/99     $  10,887   $  13,573    $  11,310   $  10,507   $  12,775
9/30/00     $  11,589   $  14,445    $  10,382   $  10,864   $  12,872
9/30/01     $  10,353   $  10,360    $  10,862   $  11,151   $  10,862
9/30/02     $   9,776   $   8,544    $  12,000   $  11,314   $  10,291


                                       13


[CHART]

                                     CLASS C

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -5.52%
Five year                            -2.47%
Since inception (3/1/95)              3.56%



(Thousands)



                                    J.P. MORGAN               BLENDED
             CLASS C    EAFE INDEX     INDEX        CPI        INDEX
                                              
 3/1/95     $  10,000   $  10,000    $  10,000   $  10,000   $  10,000
9/30/95     $  11,026   $  11,175    $  11,198   $  10,146   $  11,192
9/30/96     $  12,120   $  12,179    $  11,791   $  10,450   $  12,036
9/30/97     $  14,780   $  13,696    $  11,822   $  10,682   $  12,940
9/30/98     $  12,759   $  12,588    $  13,219   $  10,834   $  12,940
9/30/99     $  14,763   $  16,530    $  13,335   $  11,119   $  15,375
9/30/00     $  15,555   $  17,592    $  12,241   $  11,497   $  15,492
9/30/01     $  13,801   $  12,617    $  12,807   $  11,801   $  12,807
9/30/02     $  13,039   $  10,406    $  14,150   $  11,974   $  12,133


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost. The graphs and tables do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.

                                       14


FIVE LARGEST STOCK HOLDINGS



                                                  MARKET     % OF STOCK
COMPANY                                SHARES      VALUE      PORTFOLIO
- -------                               -------   -----------  ----------
                                                       
Nippon Telegraph &
   Telephone Corporation                  158   $   525,628      2.5%
Korea Telecom ADR                      21,900       485,742      2.3%
BHP Billiton PLC                      100,220       464,938      2.2%
Checkpoint Software                    33,700       463,038      2.2%
Iberdrola SA                           35,072       454,068      2.2%
                                                -----------     ----
                                                $ 2,393,414     11.4%
                                                ===========     ====


FIVE LARGEST BOND HOLDINGS



                                                   MARKET    % OF BOND
ISSUER                                             VALUE     PORTFOLIO
- ------                                          -----------  ---------
                                                          
Canadian Government
   6.00%, 06/01/11                              $ 2,114,324     11.8%
United Kingdom
   7.50%, 12/07/06                                1,638,662      9.1%
Buoni Poliennali del Tesoro
   7.75%, 11/01/06                                1,575,217      8.7%
Government of France
   4.00%, 10/25/09                                1,468,351      8.2%
Federal Republic of Germany
   5.00%, 07/04/11                                1,281,373      7.1%
                                                -----------     ----
                                                $ 8,077,927     44.9%
                                                ===========     ====


[CHART]

                                            
Health Care                                     1.8%
Consumer Staples                                2.5%
Technology                                      2.7%
Utilities                                       3.1%
Consumer Cyclical                               3.1%
Communication Services                          4.9%
Energy                                          5.9%
Basic Materials                                 7.1%
Capital Goods                                   8.3%
Financial                                      10.2%
Foreign Government Bonds                       43.8%
Cash and Other Assets/Liabilities               6.6%



                                       15


Advantus Money Market Fund, Inc.

PERFORMANCE UPDATE

STEVEN S. NELSON, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

For the year ended September 30, 2002, the Advantus Money Market Fund earned a
total return of 1.27 percent.* This compares to the three-month U.S. Treasury
Bill, which earned 2.0 percent for the same period. The seven-day compound yield
of the Fund was .99 percent* at September 30, 2002.

PERFORMANCE ANALYSIS

With the U.S. economy showing few signs of improving and in the face of
continued global economic weakness, equity market turmoil, and the prospect of
war, U.S. Treasury rates fell significantly across the entire yield curve. As a
result of such low rates, the yields offered in the commercial paper market were
correspondingly lower, with most issuers offering well below 2.00 percent yields
over much of the past year.

The negative economic backdrop during the past year kept the Federal Reserve
maintaining a very easy stance with respect to monetary policy. Market
sentiment, which was increasingly positive at the beginning of 2002, definitely
shifted again toward the negative during the past two quarters. Early in 2002,
many investors were anticipating a stronger economy and the Federal Reserve to
raise key short-term interest rates sometime later this year. However, such
expectations have now been pushed well into the future, another reason for the
rally in interest rates.


*Historical performance is not an indication of future performance. Investment
returns will fluctuate. Investments in the Money Market Account are neither
insured nor guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.

                                       16


OUTLOOK

The investment approach applied to the Fund remained essentially unchanged over
the past year. In other words, despite a dearth of attractive yields, the Fund's
safety and liquidity was not compromised to marginally enhance returns. As
always, principal preservation and minimal credit risk remained our primary
focus.

Three-quarters of the way through 2002, we feel high-quality U.S. corporate
commercial paper remains a sound, albeit low-yielding, alternative for investors
seeking a high degree of safety and liquidity for a portion of their portfolios.
We believe this is particularly true given the current state of the global
economy and the potential for further volatility with the growing probability of
war with Iraq. The Advantus Money Market Fund has over 90 percent of its assets
invested in high quality corporate commercial paper (i.e., commercial paper that
is rated A-1 or higher by Standard and Poor's or P-1 by Moody's) or federal
discount notes. In addition, the Fund's holdings are well diversified over a
variety of stable industries. While we believe money market returns will remain
low over the next several months, we think investors should consider the Fund's
benefits of excellent liquidity and principal preservation as they make their
asset allocation decisions.

[CHART]

                            AVERAGE DAYS TO MATURITY



             NUMBER OF DAYS
                     
 10/2/01                40
 10/9/01                40
10/16/01                47
10/23/01                48
 11/6/01                45
11/13/01                45
11/20/01                40
11/27/01                52
 12/4/01                48
12/11/01                51
12/18/01                52
12/25/01                57
  1/1/02                53
  1/8/02                48
 1/22/02                49
 1/29/02                48
  2/5/02                46
 2/12/02                52
 2/19/02                54
 2/26/02                47
  3/5/02                43
 3/12/02                36
 3/19/02                35
 3/26/02                31
  4/2/02                34
  4/9/02                35
 4/16/02                36
 4/23/02                40
  5/7/02                45
 5/14/02                44
 5/21/02                46
 5/28/02                39
  6/4/02                33
 6/11/02                47
 6/18/02                54
 6/25/02                47
  7/2/02                55
  7/9/02                56
 7/16/02                53
 7/23/02                48
 7/30/02                53
  8/6/02                48
 8/13/02                49
 8/20/02                54
 8/27/02                53
  9/3/02                49
 9/10/02                49
 9/17/02                47
 9/24/02                48


                                       17


[CHART]

                            SEVEN-DAY COMPOUND YIELD*



               PERCENTAGE
                  
 10/2/01             2.62%
 10/9/01             2.74%
10/16/01             2.33%
10/23/01             1.98%
 11/6/01             1.60%
11/13/01             1.64%
11/20/01             1.76%
11/27/01             1.78%
 12/4/01             1.61%
12/11/01             1.64%
12/18/01             1.32%
12/25/01             1.38%
  1/1/02             1.39%
  1/8/02             1.29%
 1/22/02             1.16%
 1/29/02             1.24%
  2/5/02             1.18%
 2/12/02             1.24%
 2/19/02             1.18%
 2/26/02             1.23%
  3/5/02             1.18%
 3/12/02             1.22%
 3/19/02             1.23%
 3/26/02             1.24%
  4/2/02             1.19%
  4/9/02             1.19%
 4/16/02             1.07%
 4/23/02             0.87%
  5/7/02             1.00%
 5/14/02             1.14%
 5/21/02             1.03%
 5/28/02             0.99%
  6/4/02             1.08%
 6/11/02             1.02%
 6/18/02             1.06%
 6/25/02             1.02%
  7/2/02             0.99%
  7/9/02             1.08%
 7/16/02             1.00%
 7/23/02             1.05%
 7/30/02             1.01%
  8/6/02             1.02%
 8/13/02             1.00%
 8/20/02             1.00%
 8/27/02             0.99%
  9/3/02             0.93%
 9/10/02             1.05%
 9/17/02             0.98%
 9/24/02             0.98%


The yield quotation more closely represents the current earnings of the Money
Market Fund than the total return quotation.

The seven-day compound yield is computed by determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a seven calendar day period, dividing that change by seven, adding one to the
quotient, raising the sum to the 365th power and subtracting one from the
result.

*Historical performance is not an indication of future performance. Investment
returns will fluctuate. The graphs and tables do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.

                                       18


Advantus Mortgage Securities Fund, Inc.

PERFORMANCE UPDATE

KENT WEBER, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The performance of the Fund for the year ended September 30, 2002 was as follows
for the three classes of shares currently outstanding:

                             
     Class A                         7.88 percent*
     Class B                         6.99 percent*
     Class C                         6.99 percent*

     

The Fund's benchmark, the Lehman Brothers Mortgage-Backed Securities Index**,
returned 7.36 percent for the same period.

PERFORMANCE ANALYSIS

The fixed income markets have been volatile over the last twelve months as
prepayment and credit uncertainty ran high and investors continued to push yield
premiums on mortgages and corporates wider and wider. Mortgages, which had
performed admirably up through the third quarter of this year, did lag their
duration-matched treasuries during the most recent quarter as interest rates
pushed lower. Commercial mortgage-backed securities (CMBS) actually turned in
the best performance during the period, as they remained relatively unaffected
by the credit problems lurking in the corporate market and sheltered from the
prepayment waves pounding the shores of the residential mortgage market.

Over the course of the year, we have managed the duration of your Fund both
shorter and longer than the index. Recently it has grown longer as the mortgage
index has shortened dramatically relative to the Fund as interest rates reach
new generation lows. We typically manage our duration within a range of +/- 20
percent of the mortgage index. We expect to see the index start to

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 4.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged benchmark
composite which includes all fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC) and Federal National Mortgage Association (FNMA).

The risks incurred by mortgage securities include, but are not limited to,
reinvestment of prepaid loans at lower rates of return. In addition, the net
asset value of mortgage securities may fluctuate in response to changes in
interest rates and are not guaranteed.

                                       19


extend back out as it becomes repopulated with low coupon/longer duration
mortgages and its rates begin to drift moderately higher. We do not plan to
chase the index shorter or longer, but stay the course and let the index bounce
around until the markets settle down and interest rates become more stable.

While we want to be on the right side of the duration fence, security selection
truly offers us the greatest opportunity to consistently add value to your Fund.
Therefore, we continued to pursue strategies that work to strengthen your
overall diversification, reduce your prepayment risk (both fast and slow) and
increase your total return opportunities while generating competitive yields.
Securities that meet these criteria include specific mortgage pools backed by
new low loan balances, seasoned AAA or AA-rated asset-backed securities, as well
as select additions to the credit portions of your residential and commercial
mortgage holdings. Additional income and returns have been generated throughout
the year by embracing broad ownership of these prepayment-challenged sectors and
by riding the improving credit ratings on our non-agency mortgage holdings.
Solid security selection helps reduce your overall prepayment and credit
volatility during challenging times like these, but does not completely immunize
your Fund from spread volatility that continues to roll across different markets
at different times.

OUTLOOK

We feel that the general level of interest rates is low and likely to remain low
relative to our historical perspectives. Fortunately, mortgages are a large,
diverse market of securities that, in our opinion, offer features specifically
designed to address our current environment where prepayment and credit
uncertainty runs high.

Given the historically low level of interest rates, we believe it's likely that
the fixed income markets will remain quite volatile and over the short term the
mortgage market could even give back some of it's near double-digit year to date
returns. We feel that investors would be wise to adjust lower their
forward-looking return expectations on their fixed income holdings and remember
that bond prices do move inversely with the direction of interest rates. Even at
these low rate levels, we believe mortgages continue to offer attractive,
consistently competitive levels of income and low volatility.

We feel mortgages remain an attractive fixed income asset class, especially for
those who pursue them opportunistically and on all available fronts. You deserve
all the mortgage market has to offer and that's what we continue to offer you at
Advantus; a unique, holistic, active, total return investment style that
incorporates selective securities from numerous sectors of the mortgage market.
We remain committed to building your Fund one bond at a time. We thank you for
your business and trust in Advantus, and look forward to helping you meet your
investment goals.

                                       20


                       COMPARISON OF CHANGE IN VALUE OF A
     HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS MORTGAGE SECURITIES FUND,
                LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
                            AND CONSUMER PRICE INDEX

On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Mortgage Securities Fund compared to the
Lehman Brothers Mortgage-Backed Securities Index and the Consumer Price Index.
The lines in the Class A graph represent the cumulative total return of a
hypothetical $10,000 investment made on September 30, 1992 through September 30,
2002. The lines in the Class B and Class C graphs represent the cumulative total
return of a hypothetical $10,000 investment made on the inception date of Class
B and Class C shares (August 19, 1994 and March 1, 1995, respectively) through
September 30, 2002.

[CHART]

                                     CLASS A

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                   
One year                              3.03%
Five year                             7.04%
Ten year                              6.81%



(Thousands)



                        LEHMAN BROTHERS
                        MORTGAGE-BACKED
           CLASS A      SECURITIES INDEX      CPI
                                 
9/30/92   $    9,548      $   10,000      $   10,000
9/30/93   $   10,379      $   10,664      $   10,269
9/30/94   $   10,000      $   10,524      $   10,624
9/30/95   $   11,353      $   11,947      $   10,858
9/30/96   $   11,901      $   12,640      $   11,184
9/30/97   $   13,135      $   13,908      $   11,432
9/30/98   $   14,283      $   15,108      $   11,595
9/30/99   $   14,605      $   15,449      $   11,899
9/30/00   $   15,729      $   16,599      $   12,303
9/30/01   $   17,916      $   18,646      $   12,629
9/30/02   $   19,335      $   20,017      $   12,814


                                       21


[CHART]

                                     CLASS B

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:
Class B:

                                   
One year                              1.99%
Five year                             6.98%
Since inception (8/19/94)             7.57%



(Thousands)



                       LEHMAN BROTHERS
                       MORTGAGE-BACKED
           CLASS B     SECURITIES INDEX       CPI
                                
8/19/94   $   10,000      $   10,000     $   10,000
9/30/94   $    9,928      $    9,874     $   10,067
9/30/95   $   10,742      $   11,209     $   10,289
9/30/96   $   11,297      $   11,859     $   10,598
9/30/97   $   12,521      $   13,049     $   10,833
9/30/98   $   13,633      $   14,175     $   10,987
9/30/99   $   13,840      $   14,495     $   11,276
9/30/00   $   14,955      $   15,573     $   11,659
9/30/01   $   16,906      $   17,494     $   11,968
9/30/02   $   18,087      $   18,781     $   12,142


                                       22


[CHART]

                                     CLASS C

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:
Class C:

                                   
One year                              6.99%
Five year                             7.21%
Since inception (3/1/95)              7.61%



(Thousands)



                      LEHMAN BROTHERS
                      MORTGAGE-BACKED
           CLASS C    SECURITIES INDEX       CPI
                                
 3/1/95   $   10,000     $   10,000      $   10,000
9/30/95   $   10,791     $   10,793      $   10,146
9/30/96   $   11,230     $   11,419      $   10,450
9/30/97   $   12,314     $   12,565      $   10,682
9/30/98   $   13,290     $   13,649      $   10,834
9/30/99   $   13,489     $   13,957      $   11,119
9/30/00   $   14,419     $   14,995      $   11,497
9/30/01   $   16,301     $   16,845      $   11,801
9/30/02   $   17,440     $   18,084      $   11,974


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 4.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost. The graphs and tables do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.

                                       23


TEN LARGEST BOND HOLDINGS



                                                     MARKET      % OF BOND
SECURITY DESCRIPTION                                 VALUE       PORTFOLIO
- --------------------                              ------------   ---------
                                                              
Federal National Mortgage Association
   6.000%, 10/01/32                               $  5,554,313       5.2%
Federal Home Loan Mortgage Corporation
   6.500%, 09/01/32                                  4,411,525       4.2%
Federal National Mortgage Association
   7.000%, 06/01/32                                  3,938,398       3.7%
Federal National Mortgage Association
   6.500%, 09/01/32                                  3,305,680       3.1%
Federal National Mortgage Association
   6.500%, 08/01/32                                  3,235,702       3.0%
Paine Webber Mortgage Acceptance
   Corporation 7.655%, 01/02/12                      2,695,407       2.6%
Federal National Mortgage Association
   6.500%, 03/01/32                                  2,388,390       2.3%
Federal National Mortgage Association
   6.500%, 07/01/32                                  2,300,745       2.2%
BankAmerica Manufactured Housing Contract
   7.800%, 10/10/26                                  2,161,824       2.0%
Federal Home Loan Mortgage Corporation
   6.000%, 09/01/32                                  2,134,202       2.0%
                                                  ------------      ----
                                                  $ 32,126,186      30.3%
                                                  ============      ====


[CHART]

                                              
FHLMC                                             6.1%
FNMA                                             29.6%
GNMA                                              4.0%
Vendee Mortgage Trust                             1.2%
Non-Agency Subprime Residential MBS               0.4%
Non-Agency Prime Residential MBS                 33.2%
Non-Agency Commercial MBS                        22.9%
Other Agency Obligations                          0.9%
Cash and Other Assets/Liabilities                 1.7%



                                       24


[CHART]

                                         
Public Issues                               81.6%
Liquid 144A Issues                          12.9%
Illiquid 144A Issues and Other
 Private Placement Illiquid Issues           3.8%
Cash and Other Assets/Liabilities            1.7%



[CHART]

                                         
AAA Rated                                   57.5%
AA Rated                                    17.9%
A Rated                                      9.0%
BBB Rated                                   13.1%
BB Rated                                     0.4%
D Rated                                      0.4%
Cash and Other Assets/Liabilities            1.7%



                                       25


Advantus Spectrum Fund, Inc.

MATT FINN, ALLEN STEINKOPF AND WAYNE SCHMIDT, PORTFOLIO MANAGERS
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The Fund's performance for the year ended September 30, 2002, for each class of
shares offered was as follows:

                            
          Class A                        - 5.91 percent*
          Class B                        - 6.56 percent*
          Class C                        - 6.54 percent*

          

This compares to the Fund's benchmark, a blend of 60 percent S&P 500 Index** and
40 percent Lehman Brothers Aggregate Bond Index+, which returned -9.35 percent
over the same period. The S&P 500 Index and the Lehman Brothers Aggregate Bond
Index returned -20.48% and 8.60%, respectively, for the same period.

PERFORMANCE ANALYSIS

Stock selection has been the largest contributor to the Fund's performance,
helping the equity portion of the Fund to outperform the S&P 500 by over 800
basis points (8.00 percent) over the last year. As growth stocks rebounded
strongly in the fourth quarter and first quarter of this year, the Fund was able
to take advantage of these higher prices to exit from some of our positions and
buy other stocks at good values that helped to reposition the Fund. This
transition was completed in the first quarter of this year and the equity
performance has continued to beat the benchmark every month this year.

The solid performance from the fixed income portion of the Fund is attributable
to a variety of factors. The Fund was overweighted in mortgage-backed
securities, but the prepayment risk of the securities held was actively managed
through the use of commercial mortgage-backed securities, structured mortgages
and low loan balance pools of mortgages. The Fund maintained a diversified
portfolio of corporate bonds and avoided the numerous credit

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

+The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities
Index and the Lehman Brothers Asset-Backed Securities Index.

                                       26


disasters in this sector. While the Fund owns less U.S. Treasury securities than
the index, the dollars invested in treasuries have been in one of the better
performing securities: 30-year bonds and TIPS (treasury inflation protection
securities).

OUTLOOK

We feel the Fund is positioned to perform well in up and down markets. We have
positioned the Fund to be slightly biased towards equity (as measured by a 60/40
stock/bond index) with a 61 percent weight in equities vs. a 35 percent weight
in bonds and 4 percent cash. The equity portion is broadly diversified with no
larger than a 3 percent overweight in any one sector and no more than 3 percent
in one security. No one can predict were the market will go in the short run,
but currently we believe the market is discounting very near zero percent growth
for our economy into the future. We do not believe this to be the case and thus
think that equities should be overweighted. We are being careful not to increase
our weighting too much in order to avoid being disappointed in our performance.

                                       27


                       COMPARISON OF CHANGE IN VALUE OF A
    HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS SPECTRUM FUND, S&P 500 INDEX,
               LEHMAN BROTHERS AGGREGATE BOND INDEX, BLENDED INDEX
                            AND CONSUMER PRICE INDEX

On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Spectrum Fund compared to the Lehman
Brothers Aggregate Bond Index, the S&P 500 Index, blended index of 60 percent
S&P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index, and the
Consumer Price Index. The lines in the Class A graph represent the cumulative
total return of a hypothetical $10,000 investment made on September 30, 1992
through September 30, 2002. The lines in the Class B and Class C graph represent
the cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class B and Class C shares of the Advantus Spectrum Fund
(August 19, 1994 and March 1, 1995, respectively) through September 30, 2002.

[CHART]

                                     CLASS A

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                 
One year                            -11.08%
Five year                            -2.01%
Ten year                              4.27%



(Thousands)



                                                     LEHMAN BROTHERS
                           BLENDED      S&P 500         AGGREGATE
               CLASS A      INDEX        INDEX          BOND INDEX        CPI
                                                       
 9/30/92     $   10,000   $   10,000   $   10,000       $   10,000    $   10,000
10/31/92     $    9,492   $   10,941   $   10,772       $    9,867    $   10,043
10/31/93     $   10,316   $   12,007   $   11,832       $   11,038    $   10,312
 9/30/94     $   10,118   $   12,224   $   11,936       $   10,641    $   10,624
 9/30/95     $   11,978   $   14,553   $   15,075       $   12,138    $   10,858
 9/30/96     $   13,621   $   16,372   $   17,729       $   12,733    $   11,184
 9/30/97     $   15,889   $   20,713   $   24,435       $   13,969    $   11,432
 9/30/98     $   17,687   $   22,556   $   26,234       $   15,578    $   11,595
 9/30/99     $   20,531   $   26,127   $   33,087       $   15,520    $   11,899
 9/30/00     $   23,859   $   28,737   $   37,055       $   16,621    $   12,303
 9/30/01     $   16,141   $   25,633   $   27,187       $   18,774    $   12,629
 9/30/02     $   15,188   $   23,618   $   21,467       $   20,390    $   12,814


                                       28


[CHART]

                                     CLASS B

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                 
One year                            -11.24%
Five year                            -1.89%
Since inception (8/19/94)             4.45%



(Thousands)



                                                    LEHMAN BROTHERS
                           BLENDED      S&P 500        AGGREGATE
              CLASS B       INDEX        INDEX         BOND INDEX        CPI
                                                     
8/19/94      $   10,000   $   10,000   $   10,000      $   10,000   $   10,000
9/30/94      $   10,003   $   10,181   $    9,863      $    9,860   $   10,067
9/30/95      $   11,316   $   12,121   $   12,457      $   11,343   $   10,289
9/30/96      $   12,953   $   13,636   $   14,651      $   11,872   $   10,598
9/30/97      $   15,184   $   17,251   $   20,192      $   13,005   $   10,833
9/30/98      $   16,913   $   18,786   $   21,678      $   14,425   $   10,987
9/30/99      $   19,524   $   21,760   $   27,342      $   14,401   $   11,276
9/30/00      $   22,712   $   23,934   $   30,620      $   14,688   $   11,659
9/30/01      $   15,258   $   21,349   $   22,466      $   17,369   $   11,968
9/30/02      $   14,257   $   19,353   $   17,864      $   18,865   $   12,142


                                       29


[CHART]

                                     CLASS C

SEC STANDARD AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -6.54%
Five year                            -1.61%
Since inception (3/1/95)              4.12%



(Thousands)



                                                   LEHMAN BROTHERS
                           BLENDED      S&P 500       AGGREGATE
               CLASS C      INDEX        INDEX        BOND INDEX        CPI
                                                      
 3/1/95      $   10,000   $   10,000   $   10,000      $   10,000    $   10,000
9/30/95      $   11,263   $   11,905   $   12,999      $   10,818    $   10,146
9/30/96      $   12,713   $   13,393   $   15,288      $   11,323    $   10,450
9/30/97      $   14,731   $   16,944   $   21,070      $   12,404    $   10,682
9/30/98      $   16,288   $   18,452   $   22,621      $   13,757    $   10,834
9/30/99      $   18,778   $   21,373   $   28,531      $   13,708    $   11,119
9/30/00      $   21,653   $   23,508   $   31,952      $   14,667    $   11,497
9/30/01      $   14,536   $   20,969   $   23,443      $   16,566    $   11,801
9/30/02      $   13,585   $   19,008   $   18,642      $   17,993    $   11,974


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost. The graphs and tables do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.

                                       30


FIVE LARGEST STOCK HOLDINGS



                                              MARKET      % OF STOCK
COMPANY                           SHARES      VALUE        PORTFOLIO
- -------                           ------   ------------   ----------
                                                        
Exxon Mobil Corporation           35,200   $  1,122,880          3.6%
Wachovia Corporation              33,400      1,091,846          3.5%
Pfizer, Inc.                      34,725      1,007,720          3.3%
Bank of America Corporation       11,800        752,840          2.5%
Brunswick Corporation             34,400        723,776          2.4%
                                           ------------   ----------
                                           $  4,699,062         15.3%
                                           ============   ==========


[CHART]

                                     
Common Stocks                           60.6%
Bonds                                   35.4%
Cash and Other Assets/Liabilities        4.0%



BOND PORTFOLIO CHARACTERISTICS-QUALITY BREAKDOWN



                                  % OF BOND
RATING                            PORTFOLIO
- ------                            ---------
                                   
U.S. Treasury                           5.7%
U.S. Government Agencies               35.1%
AAA rated                              16.2%
AA rated                                5.1%
A rated                                17.7%
BBB rated                              19.6%
D rated                                 0.6%
                                      -----
                                      100.0%
                                      =====


                                       31


Advantus Bond Fund
Investments in Securities
SEPTEMBER 30, 2002

(Percentages of each investment category relate to total net assets.)



                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
LONG-TERM DEBT SECURITIES (95.6%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (34.8%)
     Federal Home Loan Mortgage Corporation
      (FHLMC) (2.9%)
       $  700,000                                           6.500%     09/01/32    $   726,604
                                                                                   -----------
     Federal National Mortgage Association
      (FNMA) (21.6%)
          325,000                                           6.000%     09/01/17        337,724
          625,000(f)                                        6.000%     10/01/32        642,401
          147,480                                           6.230%     01/01/08        164,248
          214,972                                           6.500%     12/01/31        222,938
           92,564                                           6.500%     04/01/32         95,995
           98,191                                           6.500%     05/01/32        102,321
          207,061                                           6.500%     07/01/32        214,736
          169,857                                           6.500%     08/01/32        176,153
          404,214                                           6.500%     09/01/32        419,197
          330,000(f)                                        6.500%     10/01/32        341,860
          204,610                                           7.000%     09/01/31        213,684
          458,295                                           7.000%     11/01/31        478,621
          472,228                                           7.000%     02/01/32        496,418
          375,526                                           7.000%     03/01/32        394,766
          224,407                                           7.000%     06/01/32        234,368
          244,975                                           7.000%     07/01/32        255,848
          508,743                                           7.500%     05/01/31        540,884
                                                                                   -----------
                                                                                     5,332,162
                                                                                   -----------
     Government National Mortgage Association
      (GNMA) (1.7%)
          219,563                                           6.500%     07/15/32        229,194
          196,537                                           6.000%     02/17/30        199,304
                                                                                   -----------
                                                                                       428,498
                                                                                   -----------
     State and Local Government Obligations (1.0%)
          205,000   City of Eden Prairie, Minnesota         7.350%     02/20/09        243,829
                                                                                   -----------
     U.S. Treasury (7.6%)
          170,440   Inflationary Index Bond(g)              3.375%     01/15/07        185,724
          600,000   Bond                                    5.250%     02/15/29        638,695


              See accompanying notes to investments in securities.

                                       32




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
         $600,000   Bond                                    6.000%     02/15/26    $   699,398
          300,000   Bond                                    6.125%     08/15/29        359,051
                                                                                   -----------
                                                                                     1,882,868
                                                                                   -----------
Total U.S. government and agencies obligations
 (cost: $8,256,136)                                                                  8,613,961
                                                                                   -----------

CORPORATE OBLIGATIONS (60.8%)
   BASIC MATERIALS (6.2%)
     Agriculture Products (2.1%)
          250,000   Archer-Daniels-Midland
                     Company                                7.000%     02/01/31        289,136
          200,000   Cargill, Inc. -- 144A
                     Issue(d)                               6.375%     06/01/12        225,587
                                                                                   -----------
                                                                                       514,723
                                                                                   -----------
     Aluminum (.6%)
          150,000   Alcoa, Inc.                             4.250%     08/15/07        155,805
                                                                                   -----------
     Construction (1.3%)
          300,000   Vulcan Materials, Inc.                  6.400%     02/01/06        330,904
                                                                                   -----------
     Paper and Forest (2.2%)
          300,000   International Paper
                     Company                                8.000%     07/08/03        311,805
          200,000   Weyerhaeuser Company --
                     144A Issue(d)                          7.375%     03/15/32        215,346
                                                                                   -----------
                                                                                       527,151
                                                                                   -----------
   CONSUMER CYCLICAL (3.8%)
     Publishing (1.7%)
          200,000   Gannett Company, Inc.                   5.500%     04/01/07        218,239
          200,000   Scholastic Corporation                  5.750%     01/15/07        212,184
                                                                                   -----------
                                                                                       430,423
                                                                                   -----------
     Service (1.0%)
          250,000   Hertz Corp                              7.625%     06/01/12        234,020
                                                                                   -----------
     Textiles (1.1%)
          250,000   Mohawk Industries, Inc.                 6.500%     04/15/07        275,565
                                                                                   -----------


              See accompanying notes to investments in securities.

                                       33




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
   CONSUMER STAPLES (4.5%)
     Beverage (2.2%)
         $500,000   Anheuser-Busch
                     Companies, Inc.                        7.100%     06/15/07    $   540,760
                                                                                   -----------
     Broadcasting (.8%)
          200,000   TCI Communications Inc                  6.375%     05/01/03        197,241
                                                                                   -----------
     Food (.9%)
          200,000   General Mills, Inc.                     6.000%     02/15/12        215,419
                                                                                   -----------
     Retail (.6%)
          150,000   Safeway, Inc.                           4.800%     07/16/07        155,875
                                                                                   -----------
   ENERGY (2.5%)
     Oil (1.7%)
          250,000   Chevron Corporation                     3.500%     09/17/07        253,771
          150,000   Husky Energy, Inc.                      6.250%     06/15/12        164,296
                                                                                   -----------
                                                                                       418,067
                                                                                   -----------
     Oil & Gas (.8%)
          200,000   Canadian Natural
                     Resources, Ltd.                        5.450%     10/01/12        208,017
                                                                                   -----------
   FINANCIAL (38.7%)
     Asset-Backed Securities (2.4%)
          300,000   Caterpillar Financial
                     Services                               4.875%     06/15/07        317,824
          250,000   Fortress CBO Investments I,
                     Ltd. -- 144A Issue(b)(c)               7.850%     07/25/09        277,402
                                                                                   -----------
                                                                                       595,226
                                                                                   -----------
     Auto Finance (1.0%)
          250,000   General Motors Acceptance
                     Corporation                            6.125%     08/28/07        251,735
                                                                                   -----------
     Banks (3.3%)
          153,448   Banco Hipotecario Nacional --
                     144A Issue(b)(c)(h)                    7.916%     07/25/09         61,379
          500,000   St. George Funding Company --
                     144A Issue (b)(c)                      8.485%     12/29/49        513,510
          200,000   Wells Fargo & Company                   7.550%     06/21/10        239,980
                                                                                   -----------
                                                                                       814,869
                                                                                   -----------


              See accompanying notes to investments in securities.

                                       34




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
     Collateralized Mortgage Obligations/Mortgage
       Revenue Bonds (16.2%)
         $226,307   Chase Mortgage Finance
                     Corporation                            6.500%     09/25/13    $   238,156
          158,704   Countrywide Mortgage
                     Backed Securities, Inc.                6.750%     03/25/24        162,065
          381,743   GE Capital Mortgage
                     Services, Inc.                         6.750%     11/25/28        397,238
          200,053   GE Capital Mortgage
                     Services, Inc. -- 144A
                     Issue(d)                               6.500%     04/25/24        204,342
          248,506   GMAC Commercial
                     Mortgage Securities --
                     144A Issue(d)                          7.350%     10/15/11        275,786
          240,893   Green Tree Financial
                     Corporation                            6.400%     10/15/18        249,080
          250,000   Green Tree Financial
                     Corporation                            8.300%     05/15/19        268,717
          250,000   GS Mortgage Securities
                     Corporation                            7.289%     07/13/30        277,451
          280,035   Mellon Residential
                     Funding                                6.750%     06/26/28        289,970
          400,000   Metropolitan Asset
                     Funding -- 144A Issue(d)               7.525%     04/20/27        435,961
          213,211   Norwest Asset Securities
                     Corporation                            7.000%     06/25/12        219,225
          250,000   Paine Webber Mortgage
                     Acceptance Corporation --
                     144A Issue(d)                          7.655%     01/02/12        275,042
          199,331   Park Avenue Finance
                     Corporation -- 144A
                     Issue(d)                               7.580%     05/12/07        223,618
          300,000   Park Avenue Finance
                     Corporation --
                     144A Issue(d)                          7.680%     05/12/07        344,310
          156,894   Prudential Home Mortgage
                     Security Company --
                     144A Issue(d)                          6.770%     04/28/24        159,910
                                                                                   -----------
                                                                                     4,020,871
                                                                                   -----------


              See accompanying notes to investments in securities.

                                       35




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  -------     --------    -----------
                                                                          
     Commercial Finance (.7%)
         $150,000   General Electric Capital
                     Corporation                            6.750%     03/15/32    $   160,883
                                                                                   -----------
     Commercial Mortgage-Backed Securities (1.5%)
               --   Asset Securitization
                     Corporation(e)                         7.500%     04/14/29        178,385
               --   Asset Securitization
                     Corporation -- 144A
                     Issue(d)(e)                            7.500%     10/13/26        197,313
                                                                                   -----------
                                                                                       375,698
                                                                                   -----------
     Consumer Finance (3.0%)
         250,000 American Express Credit
                 Corporation(i)                             1.963%     03/15/10        249,985
         250,000 Chase Credit Card Master
                 Trust(i)                                   1.953%     03/16/09        250,088
         250,000 Citibank Credit Card
                 Issuance Trust(i)                          1.856%     12/15/05        249,849
                                                                                   -----------
                                                                                       749,922
                                                                                   -----------
     Equipment Finance (.6%)
          150,000  Boeing Capital Corporation               5.800%     01/15/13        153,029
                                                                                   -----------
     Finance -- Diversified (1.8%)
          406,955  National Collegiate                      7.240%     09/20/14        433,089
                                                                                   -----------
     Insurance (2.8%)
          150,000   Principal Life Global --
                     144A Issue(d)                          6.250%     02/15/12        161,448
          250,000   Safeco Corporation                      7.250%     09/01/12        269,030
          250,000   Stancorp Financial
                     Group, Inc.                            6.875%     10/01/12        254,232
                                                                                   -----------
                                                                                       684,710
                                                                                   -----------
     Investment Bankers/Brokers (.7%)
          150,000   Morgan Stanley                          6.750%     04/15/11        163,985
                                                                                   -----------
     Real Estate Investment Trust (3.6%)
          150,000   New Plan Excel Realty
                     Trust                                  5.875%     06/15/07        158,150
          200,000   Prologis                                6.700%     04/15/04        209,876


       See accompanying notes to investments in securities.

                                       36




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
         $200,000   Reckson Operating
                     Partnership LP                         7.400%     03/15/04    $   210,662
          300,000   Vornado Realty Trust                    5.625%     06/15/07        310,778
                                                                                   -----------
                                                                                       889,466
                                                                                   -----------
     Savings and Loans (1.1%)
          250,000   Washington Mutual, Inc.                 6.875%     05/15/11        285,017
                                                                                   -----------
   TRANSPORTATION (2.1%)
     Airlines (1.0%)
          250,000   American Airlines, Inc.(i)              2.420%     09/24/12        250,000
                                                                                   -----------
     Railroads (1.1%)
          250,000   CSX Corporation                         7.250%     05/01/04        267,294
                                                                                   -----------
   UTILITIES (3.0%)
     Electric Companies (3.0%)
          200,000   Entergy Louisiana, Inc.                 8.500%     06/01/03        206,972
          250,000   Hydro-Quebec(b)                         8.000%     02/01/13        322,895
          200,000   Public Service Company
                     of Colorado -- 144A
                     Issue(d)                               7.875%     10/01/12        200,190
                                                                                   -----------
                                                                                       730,057
                                                                                   -----------
Total corporate obligations (cost: $14,339,747)                                     15,029,821
                                                                                   -----------
Total long-term debt securities (cost: $22,595,883)                                 23,643,782
                                                                                   -----------




PAR/SHARES
- ----------
                                                                          
SHORT-TERM SECURITIES (7.1%)
   300,000    H.J. Heinz Company --
               144A Issue(d)                                6.490%     11/15/02         301,511
       840    Blackrock Provident Institutional
               TempFund, current rate 1.690%                                                840
 1,350,653    Dreyfus Funds -- Cash Management
               Plus Fund, current rate 1.780%                                         1,350,653
   112,753    Federated Prime Obligation Fund,
               current rate 1.720%                                                      112,753
                                                                                   ------------
              Total short-term securities
               (cost: $1,765,413)                                                     1,765,757
                                                                                   ------------
              Total investments in securities
               (cost: $24,361,296)(j)                                              $ 25,409,539
                                                                                   ============


              See accompanying notes to investments in securities.

                                       37


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  The Fund held 4.8% of net assets in foreign securities as of September 30,
     2002.
(c)  Represents ownership in an illiquid security. (See note 7 to the financial
     statements) Information concerning the illiquid securities held at
     September 30, 2002, which includes acquisition date and cost, is as
     follows:



                                        ACQUISITION
         SECURITY                           DATE            COST
         --------                       -----------      ----------
                                                   
         St. George Funding Company
          144A Issue*                     06/12/97       $  500,169
         Banco Hipotecario Nacional
          144A Issue*                     01/08/01          151,249
         Fortress CBO
          Investments I, Ltd.
          144A Issue*                     01/16/01          247,534
                                                         ----------
                                                         $  898,952
                                                         ==========


*    A 144A issue represents a security which has not been registered with the
     Securities and Exchange Commisssion under the Securities Act of 1933.
(d)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933
     as amended, and may be sold only to dealers in that program or other
     accredited investors. These securities have been determined to be liquid
     under guidelines established by the board of directors.
(e)  Interest-only security that entitles holders to receive only interest on
     the underlying mortgages. The principal amount of the underlying pool
     represents the notional amount on which current interest is calculated. The
     yield to maturity of an interest-only security is sensitive to the rate of
     principal payments on the underlying mortgage assets. The rate disclosed
     represents the market yield based upon the current cost basis and estimated
     timing and amount of future cash flows.
(f)  At September 30, 2002, the total cost of investments purchased on a
     when-issued or forward commitment basis is $983,576.
(g)  U.S. Treasury inflation-protection securities (TIPS) are securities in
     which the principal amount is adjusted for inflation and the semi-annual
     interest payments equal a fixed percentage of the inflation-adjusted
     principal amount.
(h)  Income is not being accrued on this security and any payments received are
     being treated as a reduction of principal.
(i)  Floating rate bond
(j)  At September 30, 2002, the cost of securities for federal income tax
     purposes was $24,428,864. The aggregate unrealized appreciation and
     depreciation of investments in securities based on this cost were:

                                                    
     Gross unrealized appreciation                          $ 1,147,665
     Gross unrealized depreciation                             (166,990)
                                                            -----------
     Net unrealized appreciation                            $   980,675
                                                            ===========

     

                 See accompanying notes to financial statements.

                                       38


                                            Advantus International Balanced Fund
                                                       Investments in Securities
                                                              SEPTEMBER 30, 2002

           (Percentages of each investment category relate to total net assets.)



                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                           -------------
                                                              
COMMON STOCK (51.7%)
   AUSTRALIA (.6%)
     Mining (.6%)
    91,000    Iluka Resources, Ltd.                              $     229,940
                                                                 -------------
   BERMUDA (.8%)
     Insurance (.6%)
     3,500    XL Capital, Ltd. Class A                                 257,250
     Service (.2%)
     6,000    Accenture Limited(b)                                      85,680
                                                                 -------------
                                                                       342,930
                                                                 -------------
   BRAZIL (.7%)
     Mining (.7%)
    12,360    Vale Rio Doce ADR                                        267,594
                                                                 -------------
   CANADA (2.7%)
     Electrical Equipment (1.2%)
   223,000    Nortel Networks Corporation                              120,420
    17,000    BCE, Inc.                                                301,160
    97,000    Nortel Networks Corporation                               48,310
     Oil & Gas (1.5%)
    26,750    Husky Energy, Inc.                                       281,632
    21,500    Transcanada Pipelines, Ltd.                              306,330
                                                                 -------------
                                                                     1,057,852
                                                                 -------------
   DENMARK (.6%)
     Telecommunication (.6%)
    11,000    Tele Danmark `B'                                         238,570
                                                                 -------------
   FINLAND (1.5%)
     Insurance (.7%)
    40,525    Sampo Insurance                                          266,338
     Paper and Forest (.3%)
    13,000    Stora Enso                                               125,909
     Telecommunication (.5%)
    21,000    Metso Corporation                                        182,638
                                                                 -------------
                                                                       574,885
                                                                 -------------
   FRANCE (4.5%)
     Chemicals (1.0%)
     7,498    Aventis                                                  392,745
     Electrical Equipment (.3%)
    44,000    Alcatel A                                                102,190


              See accompanying notes to investments in securities.

                                       39




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                           -------------
                                                              
     Houseware (.8%)
     9,570    BIC                                                $     316,844
     Investment Bankers/Brokers (.6%)
    24,000    AXA-UAP                                                  235,532
     Machinery (.2%)
    21,534    Alstom                                                    81,297
     Mining (.6%)
     9,320    Pechiney                                                 247,775
     Oil & Gas (1.0%)
     3,110    Total Fina ELF                                           409,405
                                                                 -------------
                                                                     1,785,788
                                                                 -------------
   GERMANY (3.4%)
     Banks (.5%)
     4,000    Deutsche Bank Ag                                         183,033
     Chemicals (.6%)
    15,000    Bayer                                                    258,539
     Electric Companies (.8%)
     6,860    E.On Ag                                                  323,394
     Manufacturing (.6%)
     3,600    Adidas-Salomon                                           238,378
     Technology (.3%)
     3,200    SAP                                                      142,315
     Transport Services (.6%)
    28,200    Deutsche Post Ag                                         232,715
                                                                 -------------
                                                                     1,378,374
                                                                 -------------
   HONG KONG (3.7%)
     Chemicals (--)
     1,880    CK Life Sciences International (b)                           342
     Electric Companies (.7%)
    72,500    CLP Holdings, Ltd.                                       301,169
     Investment Bankers/Brokers (--)
    28,000    Peregrine Investments Holdings                                 0
     Oil & Gas (.8%)
 1,687,345    Petrochina                                               341,813
     Real Estate (1.4%)
    47,000    Cheung Kong                                              296,477
    46,000    Hutchison Whampoa                                        266,578
     Telecommunication (.8%)
    16,000    China Mobile ADR(b)                                      180,800
   205,900    Swire Pacific Class B                                    129,354
                                                                 -------------
                                                                     1,516,533
                                                                 -------------



              See accompanying notes to investments in securities.

                                       40




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                           -------------
                                                              
   INDIA (.3%)
     Office Equipment (.3%)
    12,000    Satyam Computer ADR                                $     106,800
                                                                 -------------
   ISRAEL (1.1%)
     Technology (1.1%)
    33,700    Checkpoint Software(b)                                   463,038
                                                                 -------------
   ITALY (.3%)
     Banks (.3%)
    25,000    San Paolo-IMI                                            140,586
                                                                 -------------
   JAPAN (6.1%)
     Drugs (1.1%)
    14,000    Ono Pharmaceutical                                       425,497
     Electrical Equipment (1.6%)
    34,000    Hitachi                                                  170,363
    37,000    NEC                                                      178,405
     7,100    Sony Corporation                                         298,020
     Investment Bankers/Brokers (.8%)
    23,600    Nomura Securities                                        310,169
     Machinery (.5%)
    66,000    Komatsu                                                  221,735
     Telecommunication (1.3%)
       158    Nippon Telegraph & Telephone Corporation                 525,628
     Water Utilities (.8%)
    37,000    Kurita Water Industries                                  332,799
                                                                 -------------
                                                                     2,462,616
                                                                 -------------
   MEXICO (.9%)
     Mining (.5%)
    86,560    Grupo Carso S.A.(b)                                      220,007
     Telecommunication (.4%)
     5,700    Telefonos de Mexico ADR                                  160,455
                                                                 -------------
                                                                       380,462
                                                                 -------------
   NETHERLANDS (3.2%)
     Chemicals (.7%)
     8,180    Akzo Nobel                                               263,548
     Electrical Equipment (.8%)
    21,100    Philips Electronics                                      306,541
     Investment Bankers/Brokers (1.7%)
    27,960    ING Group                                                387,137
     7,350    Rodamco Europe                                           281,117
                                                                 -------------
                                                                     1,238,343
                                                                 -------------


              See accompanying notes to investments in securities.

                                       41




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                           -------------
                                                              
   NEW ZEALAND (.5%)
     Telecommunication (.5%)
    87,000    Telecom Corporation of New Zealand                 $     200,751
                                                                 -------------
   SOUTH KOREA (2.5%)
     Electric Companies (.4%)
    18,200    Korea Electric Power                                     169,806
     Electrical Equipment (.9%)
     3,000    Samsung Electronics GDR                                  355,500
     Technology (1.2%)
    21,900    Korea Telecom ADR                                        485,742
                                                                 -------------
                                                                     1,011,048
                                                                 -------------
   SPAIN (1.7%)
     Electric Companies (1.1%)
    35,072    Iberdrola SA                                             454,068
     Oil & Gas (.6%)
    20,550    Repsol                                                   243,512
     Telecommunication ( -- )
       528    Telefonica SA(b)                                           3,786
                                                                 -------------
                                                                       701,366
                                                                 -------------
   SWEDEN (4.0%)
     Banks (2.0%)
    35,600    Foreningssparbanken                                      355,136
   113,190    Nordic                                                   453,056
     Machinery (.4%)
    10,000    Atlas Copco                                              166,622
     Trucks and Parts (1.6%)
    17,200    Autoliv                                                  362,576
    20,800    Volvo Free `B'                                           301,709
                                                                 -------------
                                                                     1,639,099
                                                                 -------------
   SWITZERLAND (1.8%)
     Banks (.6%)
     6,000    UBS AG(b)                                                249,661
     Food (.7%)
     1,300    Nestle SA                                                284,143
     Insurance (.5%)
     3,520    Swiss Reinsurance                                        197,958
                                                                 -------------
                                                                       731,762
                                                                 -------------
   UNITED KINGDOM (10.8%)
     Chemicals (1.5%)
    76,909    Imperial Chemical Industries                             246,732


              See accompanying notes to investments in securities.

                                       42




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                           -------------
                                                              
    44,000    Shire Pharmaceuticals(b)                           $     356,351
     Electrical Equipment (1.1%)
    17,000    BAE Systems PLC                                           51,330
   137,200    Kidde PLC                                                135,929
    37,000    WPP Group                                                248,164
     Food (.9%)
    57,100    J Sainsbury PLC                                          251,427
    12,750    Unilever PLC                                             115,692
     Investment Bankers/Brokers (.5%)
    24,000    Abbey National                                           194,373
     Manufacturing (.9%)
   218,600    Rolls-Royce PLC                                          343,770
     Medical Products/Supplies (.7%)
    34,850    Nycomed Amersham                                         298,615
     Mining (1.2%)
   100,220    BHP Billiton PLC                                         464,938
     Oil & Gas (2.0%)
    54,100    LLoyds TSB Group PLC                                     399,440
    69,300    Shell Transportation & Trading Company PLC               413,039
     Publishing (.3%)
    33,415    United Business Media PLC                                112,979
     Retail (.9%)
    75,544    Marks & Spencer Group                                    381,350
     Telecommunication (.8%)
   177,990    Cable & Wireless PLC                                     323,293
                                                                 -------------
                                                                     4,337,422
                                                                 -------------
Total common stock (cost: $28,474,681)                              20,805,759
                                                                 -------------
PREFERRED STOCK (.6%)
   GERMANY (.6%)
     Trucks and Parts (.6%)
     9,430    Volkswagen                                               242,311
                                                                 -------------
Total preferred stock (cost: $247,426)                                 242,311
                                                                 -------------


              See accompanying notes to investments in securities.

                                       43




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
LONG-TERM DEBT SECURITIES (43.8%) (c)
   AUSTRALIA (1.2%)
     Government (1.2%)
          550,000   New South Wales Treasury
                     Corporation
                     (Australian Dollar)                    6.500%     05/01/06    $   310,756
          314,000   Queensland Treasury
                     Corporation (Australian
                     Dollar)                                6.500%     06/14/05        176,398
                                                                                   -----------
                                                                                       487,154
                                                                                   -----------
   BELGIUM (2.8%)
     Government (2.8%)
          100,000   Belgium Government
                     (European Currency Unit)               4.750%     09/28/06        103,230
          100,000   Belgium Government
                     (European Currency Unit)               5.000%     09/28/12        102,714
          775,000   Belgium Government
                     (European Currency Unit)               7.500%     07/29/08        904,107
                                                                                   -----------
                                                                                     1,110,051
                                                                                   -----------
   CANADA (5.3%)
     Government (5.3%)
        3,098,000   Canadian Government
                     (Canadian Dollar)                      6.000%     06/01/11      2,114,324
                                                                                   -----------
   DENMARK (1.5%)
     Government (1.5%)
        2,864,000   Kingdom of Denmark
                     (Danish Kroner)                        5.000%     08/15/05        394,640
        1,400,000   Kingdom of Denmark
                     (Danish Kroner)                        5.000%     11/15/13        192,464
                                                                                   -----------
                                                                                       587,104
                                                                                   -----------
   FRANCE (5.1%)
     Government (5.1%)
          297,000   Government of France
                     (European Currency Unit)               4.000%     01/12/04        297,047
        1,492,000   Government of France
                     (European Currency Unit)               4.000%     10/25/09      1,468,351


              See accompanying notes to investments in securities.

                                       44




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
          299,000   Government of France
                     (European Currency Unit)               6.750%     10/25/03    $   306,674
                                                                                   -----------
                                                                                     2,072,072
                                                                                   -----------
   GERMANY (5.2%)
     Government (5.2%)
          731,000   Bundesrepublic (European
                     Currency Unit)                         6.000%     07/04/07        795,704
        1,230,000   Bundesrepublic (European
                     Currency Unit)                         5.000%     07/04/11      1,281,373
                                                                                   -----------
                                                                                     2,077,077
                                                                                   -----------
   ITALY (5.1%)
     Government (5.1%)
          447,000   Buoni Poliennali del Tesoro
                     (European Currency Unit)               5.500%     11/01/10        478,790
        1,379,001   Buoni Poliennali del Tesoro
                     (European Currency Unit)               7.750%     11/01/06      1,575,217
                                                                                   -----------
                                                                                     2,054,007
                                                                                   -----------
   JAPAN (2.6%)
     Government (2.6%)
      125,800,000   International Bank of
                     Reconstruction and
                     Development (Japanese Yen)             4.500%     03/20/03      1,054,232
                                                                                   -----------
   NETHERLANDS (2.5%)
     Government (2.5%)
          930,000   Netherlands Government
                     (European Currency Unit)               5.750%     02/15/07        999,173
                                                                                   -----------
   NEW ZEALAND (1.6%)
     Government (1.6%)
        1,310,000   Government of New
                     Zealand (New Zealand Dollar)           7.000%     07/15/09        647,647
                                                                                   -----------


              See accompanying notes to investments in securities.

                                       45




                                                                                        MARKET
PRINCIPAL                                                  COUPON      MATURITY       VALUE(a)
- ---------                                                  ------      --------    -----------
                                                                          
   SPAIN (4.2%)
     Government (4.2%)
          100,000   Government of Spain
                     (European Currency Unit)               4.800%     10/31/06    $   103,406
          720,000   Government of Spain
                     (European Currency Unit)               5.000%     07/30/12        739,942
          350,000   Government of Spain
                     (European Currency Unit)               6.000%     01/31/08        381,348
          404,000   Government of Spain
                     (European Currency Unit)              10.150%     01/31/06        480,767
                                                                                   -----------
                                                                                     1,705,463
                                                                                   -----------
   SWEDEN (2.6%)
     Government (2.6%)
        1,000,000   Sweden Kingdom
                     (Swedish Krona)                        3.500%     04/20/06        104,868
        4,880,000   Sweden Kingdom
                     (Swedish Krona)                        5.500%     10/08/12        550,620
        3,650,000   Sweden Kingdom
                     (Swedish Krona)                        6.000%     02/09/05        408,319
                                                                                   -----------
                                                                                     1,063,807
                                                                                   -----------
   UNITED KINGDOM (4.1%)
     Government (4.1%)
          923,000   United Kingdom (British
                     Sterling Pound)                        7.500%     12/07/06      1,638,662
                                                                                   -----------
Total long-term debt securities (cost: $16,598,713)                                 17,610,773
                                                                                   -----------


              See accompanying notes to investments in securities.

                                       46




                                                                                        MARKET
SHARES/PAR                                                   RATE      MATURITY       VALUE(a)
- ----------                                                  -----      --------   ------------
                                                                         
SHORT-TERM SECURITIES (2.7%)
   820,000    New Zealand Treasury
               Bill (New Zealand Dollar)(c)                 4.780%     10/09/02   $    384,082
   693,032    Bankers Trust Institutional
               Liquid Assets, current
               rate 1.760 %                                                            693,032
                                                                                  ------------
              Total short-term securities
               (cost: $1,084,301)                                                    1,077,114
                                                                                  ------------
              Total investments in securities
               (cost: $46,405,121)(d)                                             $ 39,735,957
                                                                                  ============


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  Principal amounts for foreign debt securities are denominated in the
     currencies indicated parenthetically.
(d)  At September 30, 2002 the cost of securities for federal income tax
     purposes was $46,465,604. The aggregate unrealized appreciation and
     depreciation of investments in securities based on their cost were:

                                                          
     Gross unrealized appreciation                                $  2,468,143
     Gross unrealized depreciation                                  (9,197,790)
                                                                  ------------
     Net unrealized depreciation                                  $ (6,729,647)
                                                                  ============

     

                 See accompanying notes to financial statements.

                                       47


ADVANTUS MONEY MARKET FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 2002

(Percentages of each investment category relate to total net assets.)



PRINCIPAL                                              RATE     MATURITY           VALUE(a)
- ---------                                             -----     --------        -----------
                                                                       
COMMERCIAL PAPER (78.3%)
   BASIC MATERIALS (2.6%)
     Chemicals (2.6%)
  $1,099,000  EI Dupont De Nemours & Company          1.750%    12/04/02        $ 1,095,637
                                                                                -----------
   CAPITAL GOODS (2.4%)
     Electric Companies (2.4%)
   1,000,000  Emerson Electric Company(c)             1.711%    11/22/02            997,569
                                                                                -----------
   COMMUNICATION SERVICES (2.4%)
     Technology (2.4%)
   1,000,000  Verizon Net Fund                        1.994%    11/15/02            997,548
                                                                                -----------
   CONSUMER CYCLICAL (4.8%)
     Manufacturing (2.4%)
   1,000,000  The Stanley Works(c)                    1.711%    11/07/02            998,269
                                                                                -----------
     Publishing (2.4%)
   1,000,000  McGraw-Hill Companies, Inc.             1.782%    10/02/02            999,951
                                                                                -----------
   CONSUMER STAPLES (15.5%)
     Beverage (2.4%)
   1,000,000  The Coca-Cola Company                   1.670%    11/12/02            998,082
                                                                                -----------
     Food (10.7%)
   1,000,000  Cargill, Inc.                           1.782%    10/01/02          1,000,000
   2,000,000  H.J. Heinz Company(c)                   6.490%    11/15/02          2,007,781
   1,500,000  Nestle SA(c)                            1.692%    12/13/02          1,494,940
                                                                                -----------
                                                                                  4,502,721
                                                                                -----------
     Household Products (2.4%)
   1,000,000  Gillette Company(c)                     1.718%    02/14/03            993,641
                                                                                -----------
   FINANCIAL (36.4%)
     Banks (2.4%)
   1,000,000  Wells Fargo & Company                   1.710%    11/14/02            997,943
                                                                                -----------
     Commercial Finance (7.1%)
   1,000,000  Ciesco Limited Partnership              1.769%    10/25/02            998,839
   1,000,000  General Electric Capital Corporation    1.709%    10/18/02            999,205
   1,000,000  Receivables Capital Corporation(c)      1.759%    11/07/02            998,220
                                                                                -----------
                                                                                  2,996,264
                                                                                -----------
     Commercial Mortgage-Backed Securities (2.4%)
   1,000,000  Asset Securitization Corporation(c)     1.758%    11/08/02            998,173
                                                                                -----------
     Consumer Finance (22.1%)
   1,000,000  AIG Sunamerica Global Financing II      1.719%    11/25/02            997,417
   1,000,000  American General Finance Corporation    2.059%    01/06/03            994,557
   1,000,000  American International Group            1.795%    10/30/02            998,576


              See accompanying notes to investments in securities.

                                       48




PRINCIPAL                                              RATE     MATURITY             VALUE(a)
- ---------                                             -----     --------        ------------
                                                                       
  $1,000,000  Atlantis One Funding(c)                 1.930%    10/17/02        $    999,155
   1,000,000  Beethoven Funding Company(c)            1.814%    12/20/02             996,039
   1,000,000  Corp Rec Corporation(c)                 1.759%    11/21/02             997,548
   1,200,000  CXC, Inc.(c)                            1.731%    11/06/02           1,197,955
     850,000  Edison International(c)                 1.783%    12/13/02             846,980
   1,250,000  Enterprise Fund(c)                      1.803%    10/15/02           1,249,136
                                                                                ------------
                                                                                   9,277,363
                                                                                ------------
     Investment Bankers/Brokers (2.4%)
   1,000,000  Merrill Lynch & Company, Inc.           1.740%    12/09/02             996,721
                                                                                ------------
   HEALTH CARE (14.2%)
     Drugs (9.5%)
   1,000,000  Abbott Laboratories(c)                  1.729%    11/12/02             998,014
   1,000,000  Pfizer, Inc.(c)                         1.727%    10/04/02             999,858
   1,000,000  Pfizer, Inc.(c)                         1.727%    10/09/02             999,622
   1,000,000  Schering-Plough Corporation             1.741%    12/12/02             996,577
                                                                                ------------
                                                                                   3,994,071
                                                                                ------------
     Health Care- Diversified (4.7%)
   1,000,000  Johnson & Johnson (c)                   1.774%    10/28/02             998,690
   1,000,000  Johnson & Johnson (c)                   1.712%    01/10/03             995,285
                                                                                ------------
                                                                                   1,993,975
                                                                                ------------
Total commercial paper (cost: $32,837,928)                                        32,837,928
                                                                                ------------
U.S. GOVERNMENT OBLIGATIONS (13.1%)
   2,000,000  Federal Home Loan Mortgage
                 Corporation                          1.709%    12/05/02           1,993,932
   1,500,000  Federal National Mortgage Association   1.710%    12/18/02           1,494,540
   1,000,000  Federal National Mortgage Association   1.778%    01/08/03             995,200
   1,000,000  Federal National Mortgage Association   1.744%    01/29/03             994,300
                                                                                ------------
Total U.S. government obligations (cost: $5,477,972)                               5,477,972
                                                                                ------------

              See accompanying notes to investments in securities.

                                       49




SHARES                                                                              VALUE(a)
- ------                                                                          -----------
                                                                             
   MONEY MARKET FUNDS (8.4%)
   1,812,610  Dreyfus Cash Management Plus Funds,
               current rate 1.780%                                              $  1,812,610
   1,622,314  Federated Money Market Obligation Trust -- Prime
               Obligation Fund, current rate 1.720%                                1,622,314
      79,506  Wells Fargo & Company -- Cash Investment Fund,
               current rate 1.630%                                                    79,506
                                                                                ------------
              Total short-term securities
               (cost: $3,514,430)                                                  3,514,430
                                                                                ------------
              Total investments in securities
               (cost: $41,830,330)(b)                                           $ 41,830,330
                                                                                ============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Also represents the cost of securities for federal income tax purposes at
     September 30, 2002.
(c)  Commercial paper sold within terms of a private placement memorandum,
     exempt from registration under Section 4(2) of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors." This security has been determined to be liquid
     under guidelines established by the Board of Directors. Such securities
     represent 43.6% of the Fund's net assets as of September 30, 2002.

                 See accompanying notes to financial statements.

                                       50


                                               ADVANTUS MORTGAGE SECURITIES FUND
                                                       INVESTMENTS IN SECURITIES
                                                              SEPTEMBER 30, 2002

           (Percentages of each investment category relate to total net assets.)



                                                                                                     MARKET
PRINCIPAL                                                       COUPON         MATURITY            VALUE(a)
- ---------                                                       ------         --------        ------------
                                                                                      
LONG-TERM DEBT SECURITIES (98.3%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.8%)
     Federal Home Loan Mortgage Corporation (FHLMC) (6.1%)
     $  2,070,000(g)                                             6.000%        09/01/32        $  2,134,202
     4,250,000                                                   6.500%        09/01/32           4,411,525
                                                                                               ------------
                                                                                                  6,545,727
                                                                                               ------------
     Federal National Mortgage Association (FNMA) (29.6%)
          600,000                                                6.000%        09/01/32             617,192
        5,405,000(g)                                             6.000%        10/01/32           5,554,313
          503,024                                                6.500%        10/01/28             524,988
        1,398,194                                                6.500%        12/01/31           1,450,005
        1,836,992                                                6.500%        02/01/32           1,910,628
        2,303,020                                                6.500%        03/01/32           2,388,390
          316,666                                                6.500%        04/01/32             328,404
          490,955                                                6.500%        05/01/32             511,606
        2,218,507                                                6.500%        07/01/32           2,300,745
        3,120,045                                                6.500%        08/01/32           3,235,702
        3,187,522                                                6.500%        09/01/32           3,305,680
          320,511                                                7.000%        02/01/29             336,685
          966,938                                                7.000%        06/01/31           1,016,437
          403,500                                                7.000%        09/01/31             424,164
          458,295                                                7.000%        11/01/31             478,621
        1,799,789                                                7.000%        02/01/32           1,882,904
        1,606,682                                                7.000%        03/01/32           1,688,997
        3,771,017                                                7.000%        06/01/32           3,938,398
                                                                                               ------------
                                                                                                 31,893,859
                                                                                               ------------
     Government National Mortgage Association (GNMA) (4.0%)
               --(e)                                             7.700%        07/16/40             619,735
        2,015,011                                                6.500%        06/15/32           2,103,400
          638,719                                                6.500%        07/15/32             666,736
          793,712                                                7.875%        05/15/17             917,307
                                                                                               ------------
                                                                                                  4,307,178
                                                                                               ------------
     Other Agency Obligations (.9%)
          138,652   Collateralized Mortgage Trust                5.000%        07/01/18             138,660
          746,000   Pleasant Hill California                     7.950%        09/20/15             815,117
                                                                                               ------------
                                                                                                    953,777
                                                                                               ------------


              See accompanying notes to investments in securities.

                                       51




                                                                                                     MARKET
PRINCIPAL                                                       COUPON         MATURITY            VALUE(a)
- ---------                                                       ------         --------        ------------
                                                                                      
     Vendee Mortgage Trust (1.2%)
     $    759,667   U.S. Department of
                     Veteran Affairs(c)                          7.210%        02/15/25        $    842,029
          372,419   U.S. Department of
                     Veteran Affairs(c)                          7.793%        02/15/25             416,059
                                                                                               ------------
                                                                                                  1,258,088
                                                                                               ------------
Total U.S. government and agencies obligations
 (cost: $44,150,130)                                                                             44,958,629
                                                                                               ------------
   OTHER MORTGAGE-BACKED SECURITIES (56.5%)
     Non-Agency Commercial Mortgage-Backed Securities (22.9%)
           65,707   Advanta Mortgage Loan Trust                  7.750%        03/25/22              65,773
               --   Asset Securitization
                     Corporation(e)                              7.500%        04/14/29             936,608
               --   Asset Securitization
                     Corporation(e)                              7.500%        01/13/15           1,157,788
               --   Asset Securitization
                     Corporation --
                     144A Issue(e)(f)                            7.500%        10/13/26             853,906
          325,000   BankAmerica Manufactured
                     Housing Contract                            7.015%        01/10/28             345,984
        2,000,000   BankAmerica Manufactured
                     Housing Contract                            7.800%        10/10/26           2,161,824
          500,000   Covenant Retirement
                     Community                                   6.750%        06/01/04             525,118
          750,000   Covenant Retirement
                     Community                                   7.000%        06/01/06             818,341
        1,000,000   CS Mortgage Securities
                     Corporation                                 7.289%        07/13/30           1,109,806
        1,350,000   Fortress CBO Investments I
                     Limited -- 144A Issue(b)(d)                 7.850%        07/25/09           1,497,973
        1,250,000   Green Tree Financial
                     Corporation                                 8.300%        05/15/19           1,343,582
          600,000   Green Tree Financial
                     Corporation                                 8.300%        11/15/19             645,204
          463,112   Green Tree Financial
                     Corporation                                 9.100%        04/15/25             466,213
        1,100,000   Lehman ABS Manufactured
                     Housing Contract                            5.873%        05/15/22           1,147,985
          524,929   Metropolitan Asset Funding,
                     Inc. -- 144A Issue(f)                       6.980%        05/20/12             540,924
        1,284,640   Mid-State Trust                              7.340%        07/01/35           1,418,172
          360,011   Mid-State Trust                              7.400%        07/01/35             394,317
        1,035,032   Mid-State Trust                              7.790%        07/01/35           1,107,200
        1,000,000   Nomura Asset Securities
                     Corporation                                 7.710%        04/13/36           1,129,083


              See accompanying notes to investments in securities.

                                       52




                                                                                                     MARKET
PRINCIPAL                                                       COUPON         MATURITY            VALUE(a)
- ---------                                                       ------         --------        ------------
                                                                                       
      $   203,572   Park Avenue Finance
                     Corporation -- 144A Issue(f)                7.580%        05/12/07        $    228,376
        1,700,000   Park Avenue Finance
                     Corporation -- 144A Issue(f)                7.680%        05/12/07           1,951,090
          911,333   Securitized Asset Sales,
                     Inc. -- 144A Issue(f)                       6.783%        11/28/23             934,071
          742,818   Structured Multiple Asset
                     Receivable -- 144A Issue(f)                 2.620%        01/18/05             721,064
          545,464   Structured Multiple Asset
                     Receivable -- 144A Issue(d)                 7.800%        07/25/11             598,258
        1,250,000   Structured Multiple Asset
                     Receivable -- 144A Issue(f)                 8.910%        06/25/14           1,446,561
        1,000,000   Vanderbilt Mortgage
                     and Finance, Inc                            7.955%        12/07/24           1,125,338
                                                                                               ------------
                                                                                                 24,670,559
                                                                                               ------------
     Non-Agency Prime Residential Mortgage-Backed
      Securities (33.2%)
        1,800,000   Associates Manufactured
                     Housing                                     7.900%        03/15/27           1,931,240
        1,696,700   Bear Stearns Mortgage
                     Securities, Inc.                            6.750%        04/30/30           1,777,208
          789,035   Bear Stearns Mortgage
                     Securities, Inc.                            6.750%        04/30/30             822,900
          615,374   Bear Stearns Mortgage
                     Securities, Inc.                            8.000%        11/25/29             643,072
        1,106,230   Chase Mortgage
                     Finance Corporation                         6.750%        11/25/24           1,130,678
        1,148,901   Chase Mortgage
                     Finance Corporation                         6.750%        02/25/25           1,175,016
          763,628   Chase Mortgage
                     Finance Corporation -- 144A
                     Issue(f)                                    6.641%        03/28/25             786,063
          842,991   CitiCorporation Mortgage
                     Securities, Inc. --
                     144A Issue (f)                              7.250%        08/25/27             865,642
          588,490   Countrywide Funding
                     Corporation                                 6.625%        02/25/24             605,645
        2,025,000   Countrywide Funding
                     Corporation                                 7.000%        06/25/24           2,079,472
        1,204,988   Countrywide Home Loan                        7.250%        02/25/28           1,227,233
          343,697   Countrywide Mortgage
                     Backed Securities, Inc.                     6.500%        03/25/24             349,416
          833,115   DLJ Mortgage Acceptance
                     Corporation                                 6.750%        01/25/24             874,845


              See accompanying notes to investments in securities.

                                       53




                                                                                                     MARKET
PRINCIPAL                                                       COUPON         MATURITY            VALUE(a)
- ---------                                                       ------         --------        ------------
                                                                                      
     $    236,451   FBS Mortgage
                     Corporation -- 144A Issue(f)                7.032%        08/25/24        $    235,933
          304,159   First Union Corporation                      6.850%        09/25/26             321,268
          291,089   GE Capital Mortgage
                     Services, Inc.                              6.000%        04/25/09             295,071
          564,156   GE Capital Mortgage
                     Services, Inc.                              6.250%        04/25/14             591,472
          878,423   GE Capital Mortgage
                     Services, Inc.                              7.000%        03/25/26             891,125
          386,390   GE Capital Mortgage
                     Services, Inc.-- 144A Issue(f)              6.000%        11/25/08             390,513
          379,321   GE Capital Mortgage
                     Services, Inc.-- 144A Issue(f)              6.500%        01/25/24             384,048
          597,406   General Electric
                     Capital Corporation                         6.750%        09/25/12             609,796
          734,566   GMAC Commercial
                     Mortgage Securities(d)                      5.940%        07/01/13             741,223
          296,779   Housing Securities, Inc.                     7.000%        06/25/23             305,508
          630,749   Norwest Asset Securities
                     Corporation                                 6.250%        04/25/14             637,366
        1,013,032   Norwest Asset Securities
                     Corporation                                 6.750%        08/25/29           1,042,693
          467,721   Norwest Mortgage, Inc.                       7.500%        12/25/26             466,374
          548,205   Paine Webber Mortgage
                     Acceptance Corporation                      6.941%        02/25/24             553,555
        2,450,000   Paine Webber Mortgage
                     Acceptance Corporation(f)                   7.655%        01/02/12           2,695,407
          421,527   Paine Webber Mortgage
                     Acceptance Corporation                      8.125%        07/25/09             425,793
          447,363   Paine Webber Mortgage
                     Acceptance Corporation --
                     144A Issue(f)                               6.460%        04/29/24             472,496
          858,115   Prudential Home
                     Mortgage Securities                         6.050%        04/25/24             875,887
          972,917   Prudential Home
                     Mortgage Securities                         6.500%        04/25/26             992,735
          479,586   Prudential Home Mortgage
                     Securities -- 144A Issue(f)                 6.755%        09/28/08             493,456
          872,218   Prudential Home Mortgage
                     Securities -- 144A Issue(d)                 6.770%        04/28/24             897,250
          797,903   Prudential Home Mortgage
                     Securities -- 144A Issue(f)                 7.335%        09/28/24             850,565
          462,404   Residential Funding
                     Mortgage Securities                         6.500%        11/25/23             494,994


              See accompanying notes to investments in securities.

                                       54




                                                                                                     MARKET
PRINCIPAL                                                       COUPON         MATURITY            VALUE(a)
- ---------                                                       ------         --------        ------------
                                                                                      
     $    846,019   Residential Funding
                     Mortgage Securities                         6.500%        03/25/24        $    869,335
          559,926   Residential Funding
                     Mortgage Securities                         6.500%        12/25/28             581,203
          580,134   Residential Funding
                     Mortgage Securities                         7.000%        05/25/12             596,018
        1,631,352   Residential Funding
                     Mortgage Securities                         7.000%        10/25/27           1,657,911
          627,234   Residential Funding
                     Mortgage Securities                         7.000%        08/25/29             656,821
          344,119   Residential Funding
                     Mortgage Securities                         7.250%        07/25/11             358,310
        1,141,041   Structured Asset
                     Mortgage Investments                        6.750%        05/02/30           1,146,381
                                                                                               ------------
                                                                                                 35,798,937
                                                                                               ------------
Non-Agency Sub-Prime Residential Mortgage-Backed
 Securities (.4%)
          174,717   Banco Hipotecario
                     Nacional -- 144A
                     Issue(b)(d)(h)                              3.265%        03/25/11              61,151
          469,203   Banco Hipotecario
                     Nacional -- 144A
                     Issue(b)(d)(h)                              7.540%        05/31/17             140,761
          475,957   Banco Hipotecario
                     Nacional -- 144A
                     Issue(b)(d)(h)                              7.916%        07/25/09             190,383
                                                                                               ------------
                                                                                                    392,295
                                                                                               ------------
Total other mortgage-backed securities (cost: $57,734,227)                                       60,861,791
                                                                                               ------------
Total long-term debt securities (cost: $101,884,357)                                            105,820,420
                                                                                               ------------


              See accompanying notes to investments in securities.

                                       55





                                                                                                     MARKET
SHARES                                                                                             VALUE(a)
- ------                                                                                        -------------
                                                                                           
SHORT-TERM SECURITIES (7.5%)
        5,147,903   Dreyfus Funds -- Cash Management Plus Fund,
                     current rate 1.780%                                                      $   5,147,903
        2,884,321   Federated Money Market Obligations Trust -- Prime
                     Obligation Fund, current rate 1.720%                                         2,884,321
                                                                                              -------------
                    Total short-term securities
                     (cost: $8,032,224)                                                           8,032,224
                                                                                              -------------
                    Total investments in securities
                     (cost: $109,916,581)(i)                                                  $ 113,852,644
                                                                                              =============


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  The Fund held 1.8% of net assets in foreign securities as of September 30,
     2002.
(c)  Represents a debt security with a weighted average net pass-through rate
     which varies based on the interest rates of the securities in the pool of
     underlying collateral. The rate disclosed is the rate in effect at
     September 30, 2002.
(d)  Represents ownership in an illiquid security. (See note 7 to the financial
     statements.) Information concerning the illiquid securities held at
     September 30, 2002 which includes acquisition date and cost, is as follows:



                                                                 ACQUISITION
     SECURITY                                                        DATE           COST
     --------                                                    -----------    -----------
                                                                          
     Banco Hipotecario Nacional 144A Issue*                        5/18/2000    $   437,399
     Banco Hipotecario Nacional 144A Issue*                          various        459,629
     Banco Hipotecario Nacional 144A Issue*                        9/06/2002         12,976
     Fortress CBO Investments I Limited 144A Issue*                7/26/2000      1,262,973
     GMAC Commercial Mortgage Securities                             various        705,767
     Prudential Home Mortgage Securities 144A Issue*               8/24/2000        811,794
     Structured Multiple Asset Receivable 144A Issue*               9/7/2001        559,959
                                                                                -----------
                                                                                $ 4,250,497
                                                                                ===========


*    A 144A Issue represents a security which has not been registered with
     the Securities and Exchange Commission under the Securities Act of
     1933.
(e)  Interest-only security that entitles holders to receive only interest
     on the underlying mortgages. The principal amount of the underlying
     pool represents the notional amount on which current interest is
     calculated. The yield to maturity of an interest-only security is
     sensitive to the rate of principal payments on the underlying mortgage
     assets. The rate disclosed represents the market yield based upon the
     current cost basis and estimated timing and amount of future cash
     flows.
(f)  Long-term debt security sold within terms of a private placement
     memorandum exempt from registration under Section 144A of the
     Securities Act of 1933 as amended, and may be sold only to dealers in
     that program or other accredited investors. These securities have been
     determined to be liquid under guidelines established by the board of
     directors.

                 See accompanying notes to financial statements.

                                       56


(g)  At September 30, 2002 the total cost of investments purchased on a
     when-issued or forward commitment basis is $7,668,587.
(h)  Income is not being accrued on these securities and any payments
     received are treated as a reduction of principal.
(i)  At September 30, 2002 the cost of securities for federal income tax
     purposes was $109,949,911. The aggregate unrealized appreciation and
     depreciation of investments in securities based on this cost were:

                                                       
     Gross unrealized appreciation                             $   4,602,965
     Gross unrealized depreciation                                  (700,232)
                                                               -------------
     Net unrealized appreciation                               $   3,902,733
                                                               =============

     

                 See accompanying notes to financial statements.

                                       57


ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES
SEPTEMBER 30, 2002

(Percentages of each investment category relate to total net assets.)



                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                   
COMMON STOCK (60.6%)
   BASIC MATERIALS (1.9%)
     Aluminum (.1%)
     3,500    Alcoa, Inc.                                             $   67,550
                                                                    ------------
     Chemicals (1.8%)
     7,200    Air Products and Chemicals, Inc.                           302,472
     3,700    Dow Chemical Company                                       101,047
     9,600    EI Dupont De Nemours & Company                             346,272
    15,400    Lyondell Petrochemical Company                             183,876
                                                                    ------------
                                                                         933,667
                                                                    ------------
   CAPITAL GOODS (3.3%)
     Aerospace/Defense (.3%)
     2,600    Raytheon Company                                            76,180
     1,400    United Technologies Corporation                             79,086
                                                                    ------------
                                                                         155,266
                                                                    ------------
     Electrical Equipment (1.4%)
    23,556    General Electric Company                                   580,655
     5,000    Honeywell International, Inc.                              108,300
                                                                    ------------
                                                                         688,955
                                                                    ------------
     Manufacturing (1.2%)
     4,800    3M Company                                                 527,856
     5,400    Tyco International, Ltd. (c)                                76,140
                                                                    ------------
                                                                         603,996
                                                                    ------------
     Trucks and Parts (.4%)
    10,400    Navistar International Corporation                         225,472
                                                                    ------------
   COMMUNICATION SERVICES (1.6%)
     Telecommunication (.3%)
     4,780    Qualcomm, Inc. (b)                                         132,024
                                                                    ------------
     Telephone (1.3%)
     8,100    AT&T Corporation -- Libery Media Corporation                97,281
     7,500    Bellsouth Corporation                                      137,700
     7,800    SBC Communications, Inc.                                   156,780
     9,800    Verizon Communications                                     268,912
                                                                    ------------
                                                                         660,673
                                                                    ------------


              See accompanying notes to investments in securities.

                                       58




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                 
   CONSUMER CYCLICAL (7.6%)
     Auto (1.5%)
     5,400    Eaton Corporation                                     $    344,196
     2,700    Harley-Davidson, Inc.                                      125,415
     1,300    ITT Industries, Inc.                                        81,029
     3,700    Magna International, Inc.(c)                               208,606
                                                                    ------------
                                                                         759,246
                                                                    ------------
     Leisure (1.4%)
    34,400    Brunswick Corporation                                      723,776
                                                                    ------------
     Lodging-- Hotel (.6%)
    28,200    Hilton Hotels                                              320,916
                                                                    ------------
     Retail (3.5%)
     7,200    Bed Bath & Beyond, Inc.(b)                                 234,504
     6,800    Family Dollar Stores                                       182,784
     3,200    Kohls' Corporation(b)                                      194,592
     5,300    Lowes Companies, Inc.                                      219,420
     6,300    Michaels' Stores, Inc.(b)                                  287,910
    12,800    Wal-Mart Stores, Inc.                                      630,272
                                                                    ------------
                                                                       1,749,482
                                                                    ------------
     Textiles (.6%)
     9,900    Jones Apparel Group, Inc.(b)                               303,930
                                                                    ------------
   CONSUMER STAPLES (6.2%)
     Beverage (.5%)
     3,180    Pepsico, Inc.                                              117,501
     3,300    The Coca-Cola Company                                      158,268
                                                                    ------------
                                                                         275,769
                                                                    ------------
     Broadcasting (1.1%)
    13,200    Clear Channel Communications, Inc.(b)                      458,700
     5,600    Comcast Corporation                                        116,816
                                                                    ------------
                                                                         575,516
                                                                    ------------
     Entertainment (.6%)
     7,500    Viacom, Inc.(b)                                            304,125
                                                                    ------------
     Food (.4%)
     5,900    Kraft Foods, Inc.                                          215,114
                                                                    ------------
     Household Products (2.0%)
     7,800    Colgate-Palmolive Company                                  420,810
     4,500    Gillette Compay                                            133,200
     5,200    Procter & Gamble Company                                   464,776
                                                                    ------------
                                                                       1,018,786
                                                                    ------------


              See accompanying notes to investments in securities.

                                       59




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                 
     Personal Care (.5%)
     5,900    Avon Products, Inc.                                   $    271,990
                                                                    ------------
     Retail (.4%)
     8,900    CVS Corporation                                            225,615
                                                                    ------------
     Service (.3%)
     5,600    Manpower, Inc.                                             164,304
                                                                    ------------
     Tobacco (.4%)
     5,300    Philip Morris Companies, Inc.                              205,640
                                                                    ------------
   ENERGY (5.1%)
     Oil (3.2%)
     4,800    Chevron Corporation                                        332,400
    35,200    Exxon Mobil Corporation                                  1,122,880
     4,600    Royal Dutch Petroleum Company(c)                           184,782
                                                                    ------------
                                                                       1,640,062
                                                                    ------------
     Oil & Gas (1.9%)
     6,300    Ensco International, Inc.                                  157,752
    10,256    Nabors Industries, Ltd.(b)(c)                              335,884
    11,600    Noble Corporation(b)                                       359,600
     3,100    Smith International, Inc.(b)                                90,861
                                                                    ------------
                                                                         944,097
                                                                    ------------
   FINANCIAL (14.3%)
     Auto Finance (.2%)
     4,500    Fleet Boston Financial Corporation                          91,485
                                                                    ------------
     Banks (6.2%)
    11,800    Bank of America Corporation                                752,840
    26,900    U.S. Bancorp                                               499,802
    33,400    Wachovia Corporation                                     1,091,846
    12,600    Wells Fargo & Company                                      606,816
     3,700    Zion BanCorporation                                        161,061
                                                                    ------------
                                                                       3,112,365
                                                                    ------------
     Consumer Finance (.6%)
    10,000    American Express Company                                   311,800
                                                                    ------------
     Finance -- Diversified (.6%)
     2,900    Fannie Mae                                                 172,666
     2,000    Freddie Mac                                                111,800
                                                                    ------------
                                                                         284,466
                                                                    ------------


              See accompanying notes to investments in securities.

                                       60




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                 
     Insurance (2.3%)
    11,700    Allstate Corporation                                  $    415,935
     8,100    American International Group                               443,070
     1,900    Chubb Corporation                                          104,177
     6,600    Expeditor Washington International, Inc.                   184,404
                                                                    ------------
                                                                       1,147,586
                                                                    ------------
     Investment Bankers/Brokers (2.5%)
    23,000    CitiGroup, Inc.                                            681,950
     2,600    Goldman Sachs Group, Inc.                                  171,678
     7,100    Merrill Lynch & Company, Inc.                              233,945
     4,600    Morgan Stanley                                             155,848
                                                                    ------------
                                                                       1,243,421
                                                                    ------------
     Real Estate (.4%)
    11,100    Boardwalk Equities, Inc.(c)                                104,340
     4,406    Brookfield Properties Corporation(c)                        84,815
                                                                    ------------
                                                                         189,155
                                                                    ------------
     Real Estate Investment Trust (1.0%)
     8,300    Developers Diversified Realty Corporation                  182,683
    10,900    Prologis                                                   271,519
     6,003    Winston Hotels, Inc.                                        43,462
                                                                    ------------
                                                                         497,664
                                                                    ------------
     Savings and Loans (.5%)
     8,400    Charter One Financial, Inc.                                249,648
                                                                    ------------
   HEALTH CARE (9.5%)
     Biotechnology (.8%)
     2,200    Amgen, Inc.(b)                                              91,740
     6,500    Genentech, Inc.(b)                                         212,095
     2,300    Idec Pharmaceuticals Corporation(b)                         95,496
                                                                    ------------
                                                                         399,331
                                                                    ------------
     Drugs (4.9%)
     4,900    Eli Lilly & Company                                        271,166
     7,500    Forest Laboratores, Inc.(b)                                615,075
    34,725    Pfizer, Inc.                                             1,007,720
     3,400    Schering-Plough Corporation                                 72,488
    16,400    Wyeth                                                      521,520
                                                                    ------------
                                                                       2,487,969
                                                                    ------------


              See accompanying notes to investments in securities.

                                       61




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                 
     Health Care -- Diversified (1.4%)
    12,700    Johnson & Johnson                                     $    686,816
                                                                    ------------
     Hospital Management (.7%)
     7,300    The HCA -- Healthcare Company                              347,553
                                                                    ------------
     Medical Products/Supplies (1.7%)
     5,800    Becton Dickinson and Company                               164,720
     6,000    Boston Scientific Corporation                              189,360
     3,400    Guidant Corporation                                        109,854
     6,800    St. Jude Medical, Inc.                                     242,760
     4,300    Zimmer Holdings, Inc.(b)                                   164,862
                                                                    ------------
                                                                         871,556
                                                                    ------------
   TECHNOLOGY (8.4%)
     Communications Equipment (.1%)
     4,900    Brocade Communication Systems, Inc.(b)                      36,897
                                                                    ------------
     Computer Hardware (2.2%)
    15,460    Dell Computer Corporation(b)                               363,619
     6,900    International Business Machines Corporation                402,891
    47,800    Symbol Technologies, Inc.                                  366,626
                                                                    ------------
                                                                       1,133,136
                                                                    ------------
     Computer Networking (.9%)
    36,985    Cisco Systems, Inc.(b)                                     387,603
     2,700    SEI Investments Company                                     64,476
                                                                    ------------
                                                                         452,079
                                                                    ------------
     Computer Peripherals (.3%)
    29,200    EMC Corporation(b)                                         133,444
                                                                    ------------
     Computer Services & Software (2.0%)
    10,400    BEA Systems, Inc.(b)                                        53,872
    15,588    Microsoft Corporation(b)                                   681,040
    22,300    Oracle Systems(b)                                          175,278
     7,200    Peoplesoft, Inc.                                            89,064
                                                                    ------------
                                                                         999,254
                                                                    ------------
     Electrical Semiconductor (1.2%)
     6,904    Applied Materials, Inc.(b)                                  79,741
     4,100    Intersil Corporation                                        53,136
    34,827    LSI Logic Corporation(b)                                   221,151
    12,686    Texas Instruments, Inc.                                    187,372
     4,300    Xilinx, Inc.(b)                                             68,103
                                                                    ------------
                                                                         609,503
                                                                    ------------


              See accompanying notes to investments in securities.

                                       62




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                              ------------
                                                                 
     Electronics -- Computer Distribution (1.0%)
     9,100    Celestica, Inc.(b)(c)                                 $    119,210
     7,500    Cree, Inc.(b)                                               93,750
     7,300    WW Grainger, Inc.                                          310,615
                                                                    ------------
                                                                         523,575
                                                                    ------------
     Service -- Data Processing (.7%)
    14,600    Paychex, Inc.                                              355,072
                                                                    ------------
   TRANSPORTATION (1.0%)
     Air Freight (.3%)
     6,200    CH Robinson Worldwide, Inc.                                166,842
                                                                    ------------
     Railroads (.7%)
    12,518    CSX Corporation                                            330,225
                                                                    ------------
   UTILITIES (1.7%)
     Electric Companies (1.7%)
     2,900    Entergy Corporation                                        120,640
    11,300    Firstenergy Corporation                                    337,757
     7,000    Nisource, Inc.                                             120,610
    14,200    Pacific Gas and Electric Company                           159,892
     3,100    Public Service Enterprise Group, Inc.                       94,550
                                                                    ------------
                                                                         833,449
                                                                    ------------
Total common stock (cost: $34,024,335)                                30,660,262
                                                                    ------------


              See accompanying notes to investments in securities.

                                       63




                                                                                              MARKET
PRINCIPAL                                                    COUPON         MATURITY        VALUE(a)
- ---------                                                    ------         --------    ------------
                                                                               
LONG-TERM DEBT SECURITIES (35.4%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (14.4%)
    Federal Home Loan Mortgage Corporation (FHLMC) (1.7%)
    $    850,000                                              6.500%        09/01/32    $    882,305
                                                                                        ------------
    Federal National Mortgage Association (FNMA) (9.9%)
       1,070,000                                              6.000%        09/01/17       1,111,890
         336,603                                              4.000%        04/25/22         338,860
          40,180                                              6.000%        01/01/29          41,407
         196,640                                              6.230%        01/01/08         218,998
         306,338                                              6.500%        10/01/28         319,715
         205,722                                              6.500%        02/01/29         214,705
         387,204                                              6.500%        02/01/32         401,558
          95,090                                              6.500%        03/01/32          98,615
         194,792                                              6.500%        09/01/32         202,012
         112,083                                              7.000%        09/01/31         117,823
         504,124                                              7.000%        11/01/31         526,483
         709,292                                              7.000%        02/01/32         744,005
         223,414                                              7.000%        03/01/32         234,861
         136,596                                              7.000%        06/01/32         142,659
         293,969                                              7.000%        07/01/32         307,018
                                                                                        ------------
                                                                                           5,020,609
                                                                                        ------------
    Government National Mortgage Association (GNMA) (.8%)
         312,098                                              7.375%        11/15/11         349,240
          27,006                                              7.500%        10/15/28          28,684
                                                                                        ------------
                                                                                             377,924
                                                                                        ------------
    U.S. Treasury (2.0%)
         113,627   Inflationary Index Bond(g)                 3.375%        01/15/07         123,816
          75,000   Bond                                       5.500%        08/15/28          82,389
         550,000   Bond                                       6.000%        02/15/26         641,115
         150,000   Bond                                       6.125%        08/15/29         179,525
                                                                                        ------------
                                                                                           1,026,845
                                                                                        ------------
Total U.S. government and agencies obligations
 (cost: $7,024,981)                                                                        7,307,683
                                                                                        ------------


              See accompanying notes to investments in securities.

                                       64




                                                                                              MARKET
PRINCIPAL                                                     COUPON        MATURITY        VALUE(a)
- ---------                                                     ------        --------    ------------
                                                                               
   CORPORATE OBLIGATIONS (21.0%)
   BASIC MATERIALS (2.7%)
    Agriculture Products (1.4%)
    $    450,000   Archer-Daniels-Midland
                    Company                                   7.000%        02/01/31    $    520,444
         150,000   Cargill, Inc.(f)                           6.375%        06/01/12         169,190
                                                                                        ------------
                                                                                             689,634
                                                                                        ------------
    Construction (.8%)
         350,000   Vulcan Materials, Inc.                     6.400%        02/01/06         386,054
                                                                                        ------------
    Paper and Forest (.5%)
         250,000   Weyerhaeuser Company(f)                    7.375%        03/15/32         269,183
                                                                                        ------------
   CONSUMER CYCLICAL (1.2%)
    Auto (.4%)
         200,000   Enterprise Rent-A-Car
                    Company                                   7.500%        06/15/03         206,375
                                                                                        ------------
    Publishing (.8%)
         350,000   Gannett Company, Inc.                      5.500%        04/01/07         381,919
                                                                                        ------------
   CONSUMER STAPLES (1.2%)
    Broadcasting (.4%)
         212,000   TCI Communications Inc                     6.375%        05/01/03         209,076
                                                                                        ------------
    Food (.4%)
         200,000   General Mills, Inc.                        6.000%        02/15/12         215,419
                                                                                        ------------
    Retail (.4%)
         200,000   American Stores Company                    7.200%        06/09/03         206,266
                                                                                        ------------
   FINANCIAL (14.7%)
    Asset-Backed Securities (1.4%)
         250,000   Fortress CBO Investments I,
                    Ltd. -- 144A Issue(d)                     7.850%        07/25/09         277,402
         250,000   Lehman ABS Manufactured
                    Housing Contract                          5.873%        05/15/22         260,906
         156,894   Prudential Home Mortgage
                    Security Company -- 144A
                    Issue(f)                                  6.770%        04/28/24         159,910
                                                                                        ------------
                                                                                             698,218
                                                                                        ------------
    Banks (1.0%)
         500,000   St. George Funding
                    Company 144A Issue(c)(d)                  8.485%        12/29/49         513,510
                                                                                        ------------


              See accompanying notes to investments in securities.

                                       65




                                                                                              MARKET
PRINCIPAL                                                     COUPON        MATURITY        VALUE(a)
- ---------                                                     ------        --------    ------------
                                                                               
    Collateralized Mortgage Obligations/Mortgage
     Revenue Bonds (6.3%)
    $     51,112   Banco Hipotecario Nacional
                    144A Issue(c)(d)(h)                       7.916%        07/25/09    $     20,445
         294,212   Banco Hipotecario
                    Nacional -- 144A Issue(c)(d)(h)           8.000%        03/31/11          88,264
         410,249   Bear Stearns &
                    Company, Inc.                             8.000%        11/25/29         428,714
         387,445   Chase Mortgage Finance
                    Corporation -- 144A Issue(f)              6.641%        03/28/25         398,828
         350,000   Nomura Asset Securites
                    Corporation(c)                            7.710%        04/13/36         395,179
         238,645   Paine Webber Mortgage
                    Acceptance Corporation                    7.000%        10/25/23         240,731
         500,000   Park Avenue Finance
                    Corporation -- 144A Issue(f)              7.680%        05/12/07         573,850
         235,490   Residential Funding
                    Mortgage Securities                       7.000%        10/25/23         241,707
         760,547   Rosewood Care Centers
                    Capital Funding                           7.250%        11/01/13         781,363
                                                                                        ------------
                                                                                           3,169,081
                                                                                        ------------
    Commercial Finance (.7%)
         350,000   General Electric Capital
                    Corporation                               6.750%        03/15/32         375,393
                                                                                        ------------
    Commercial Mortgage-Backed Securities (.6%)
              --   Asset Securitization
                    Corporation -- 144A Issue(e)              7.500%        01/13/15         301,276
                                                                                        ------------
    Consumer Finance (.8%)
         200,000   American Express Credit
                    Corporation(i)                            1.963%        03/15/10         199,988
         200,000   Citibank Credit Card
                    Issuance Trust(i)                         1.856%        12/15/05         199,879
                                                                                        ------------
                                                                                             399,867
                                                                                        ------------
    Insurance (1.3%)
         400,000   Prudential Insurance Company
                    of America(f)                             6.600%        05/15/08         439,111
         200,000   Stancorp Financial
                    Group, Inc.                               6.875%        10/01/12         203,385
                                                                                        ------------
                                                                                             642,496
                                                                                        ------------
     Investment Bankers/Brokers (.5%)
         250,000   Morgan Stanley                             6.750%        04/15/11         273,308
                                                                                        ------------


              See accompanying notes to investments in securities.

                                       66




                                                                                              MARKET
PRINCIPAL                                                     COUPON        MATURITY        VALUE(a)
- ---------                                                     ------        --------    ------------
                                                                               
    Real Estate Investment Trust (2.1%)
    $    250,000   Prologis                                   6.700%        04/15/04    $    262,345
         200,000   Reckson Operating
                    Partnership LP                            7.400%        03/15/04         210,662
         200,000   Spieker Properties, Inc.                   6.950%        12/15/02         201,550
         350,000   Vornado Realty Trust                       5.625%        06/15/07         362,574
                                                                                        ------------
                                                                                           1,037,131
                                                                                        ------------
   UTILITIES (1.2%)
    Electric Companies (1.2%)
         250,000   Dominion Resources, Inc.                   5.700%        09/17/12         257,515
         200,000   Hydro-Quebec(c)                            8.000%        02/01/13         258,316
         100,000   South Carolina Electric & Gas              6.625%        02/01/32         113,668
                                                                                        ------------
                                                                                             629,499
                                                                                        ------------
Total corporate obligations (cost: $10,142,920)                                           10,603,705
                                                                                        ------------
Total long-term debt securities (cost: $17,167,901)                                       17,911,388
                                                                                        ------------




SHARES
- ------
                                                                                     
SHORT-TERM SECURITIES (4.6%)
 2,271,057    Dreyfus Funds -- Cash
               Management Plus Fund, current rate 1.780%                                   2,271,057
       113    Federated Money Market Obligations Trust -- Prime
               Obligations Fund, current rate 1.720%                                             113
    20,515    Wells Fargo & Company -- Cash Investment Fund,
               current rate 1.810%                                                            20,515
                                                                                        ------------
              Total short-term securities
               (cost: $2,291,685)                                                          2,291,685
                                                                                        ------------
              Total investments in securities
               (cost: $53,483,921)(j)                                                   $ 50,863,335
                                                                                        ============


              See accompanying notes to investments in securities.

                                       67


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 4.5% of net assets in foreign securities as of September 30,
     2002.
(d)  Represents ownership in an illiquid security. (See note 7 to the financial
     statements.) Information concerning the illiquid securities held at
     September 30, 2002, which includes acquisition date and cost, is as
     follows:



                                           ACQUISITION
     SECURITY                                  DATE              COST
     --------                              -----------       -----------
                                                       
     Fortress CBO Investments I,
       Ltd.-- 144A Issue*                      11/6/01       $   247,534
     Banco Hipotecario Nacional --
       144A Issue*                            04/01/99            49,504
     Banco Hipotecario Nacional --
       144A Issue*                            03/07/00           281,150
     St. George Funding Company --
       144A Issue*                            06/12/97           500,169
                                                             -----------
                                                             $ 1,078,357
                                                             ===========


*    A 144A Issue represents a security which has not been registered with the
     Securities and Exchange Commission under the Securities Act of 1933.
(e)  Interest-only security that entitles the holders to receive only interest
     on the underlying mortgages. The principal amount of the underlying pool
     represents the notional amount on which current interest is calculated. The
     yield to maturity of an interest-only security is sensitive to the rate of
     principal payments on the underlying mortgage assets. The rate disclosed
     represents the market yield based upon the current cost basis and estimated
     timing and amount of future cash flows.
(f)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     accredited investors. These securities have been determined to be liquid
     under guidelines established by the board of directors.
(g)  U.S. Treasury inflation protection securities (TIPS) are securities in
     which the principal amount is adjusted for inflation and the semi-annual
     interest payments equal a fixed percentage of the inflation-adjusted
     principal amount.
(h)  Income is not being accrued on these securities and any payments received
     are treated as a reduction of principal.
(i)  Floating rate bond
(j)  At September 30, 2002 the cost of securities for federal income tax
     purposes was $56,829,609. The aggregate unrealized appreciation and
     depreciation of investments in securities based on this cost were:

                                                       
     Gross unrealized appreciation                             $     319,881
     Gross unrealized depreciation                                (6,286,155)
                                                               -------------
     Net unrealized depreciation                               $  (5,966,274)
                                                               =============

     

                 See accompanying notes to financial statements.

                                       68


                       This Page Intentionally Left Blank

                                       69


ADVANTUS FIXED INCOME AND BLENDED FUNDS
STATEMENTS OF ASSETS AND LIABILITIES                          SEPTEMBER 30, 2002



                                                                                                BOND
                                                                                                FUND
                                                                                           -------------
                                                                                        
                           ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                                          $  25,409,539
Cash in bank on demand deposit                                                                         -
Receivable for Fund shares sold                                                                   71,831
Receivable for investment securities sold (including paydowns)                                   939,607
Dividends and accrued interest receivable                                                        225,544
Receivable for refundable foreign income taxes withheld                                                -
Collateral for securities loaned (note 6)                                                              -
Other receivables                                                                                  1,207
                                                                                           -------------
       Total assets                                                                           26,647,728
                                                                                           -------------

                         LIABILITIES
Bank overdraft                                                                                    86,542
Bank overdraft of foreign currency (identified cost: $2,306)                                           -
Payable for Fund shares repurchased                                                               35,278
Dividends payable to shareholders                                                                 31,634
Payable for investment securities purchased                                                    1,739,372
Payable to Adviser                                                                                27,578
Payable upon return of securities loaned (note 6)                                                      -
                                                                                           -------------
       Total liabilities                                                                       1,920,404
                                                                                           -------------
Net assets applicable to outstanding capital stock                                         $  24,727,324
                                                                                           =============

Represented by:
    Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
     Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares
     unallocated) of $.01 par value                                                        $      23,386
    Additional paid-in capital                                                                24,790,552
    Undistributed (distributions in excess of) net investment income                             (23,757)
    Accumulated net realized gains (losses) from investments and
     foreign currency transactions                                                            (1,111,100)
    Unrealized appreciation (depreciation) on investments
     and translation of assets and liabilities in foreign currencies                           1,048,243
                                                                                           -------------
       Total - representing net assets applicable to outstanding capital stock             $  24,727,324
                                                                                           =============
Net assets applicable to outstanding Class A shares                                        $  17,313,342
                                                                                           =============
Net assets applicable to outstanding Class B shares                                        $   6,307,868
                                                                                           =============
Net assets applicable to outstanding Class C shares                                        $   1,106,114
                                                                                           =============

Shares outstanding and net asset value per share:
    Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032   $       10.57
                                                                                           =============
    Class B - Shares outstanding: 595,446; 327,158; --; 2,693,353; 1,071,480               $       10.59
                                                                                           =============
    Class C - Shares outstanding: 104,778; 104,167; --; 939,860; 229,104                   $       10.56
                                                                                           =============
* Identified cost                                                                          $  24,361,296
+ Including securities on loan of                                                          $           -


                 See accompanying notes to financial statements.

                                       70




                                                                                           INTERNATIONAL        MONEY
                                                                                              BALANCED         MARKET
                                                                                                FUND            FUND
                                                                                           -------------    -------------
                                                                                                      
                           ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                                          $  39,735,957    $  41,830,330
Cash in bank on demand deposit                                                                     8,300                -
Receivable for Fund shares sold                                                                    2,918           66,573
Receivable for investment securities sold (including paydowns)                                    59,626                -
Dividends and accrued interest receivable                                                        474,931          114,021
Receivable for refundable foreign income taxes withheld                                           24,267                -
Collateral for securities loaned (note 6)                                                      2,420,920                -
Other receivables                                                                                      -            1,536
                                                                                           -------------    -------------
       Total assets                                                                           42,726,919       42,012,460
                                                                                           -------------    -------------

                         LIABILITIES
Bank overdraft                                                                                         -                -
Bank overdraft of foreign currency (identified cost: $2,306)                                       2,308                -
Payable for Fund shares repurchased                                                               67,794           57,777
Dividends payable to shareholders                                                                      -              435
Payable for investment securities purchased                                                            -                -
Payable to Adviser                                                                                58,502           26,426
Payable upon return of securities loaned (note 6)                                              2,420,920                -
                                                                                           -------------    -------------
       Total liabilities                                                                       2,549,524           84,638
                                                                                           -------------    -------------
Net assets applicable to outstanding capital stock                                         $  40,177,395    $  41,927,822
                                                                                           =============    =============

Represented by:
    Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
     Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares
     unallocated) of $.01 par value                                                        $      46,173    $     419,278
    Additional paid-in capital                                                                49,551,336       41,508,544
    Undistributed (distributions in excess of) net investment income                            (595,730)               -
    Accumulated net realized gains (losses) from investments and
     foreign currency transactions                                                            (2,125,334)               -
    Unrealized appreciation (depreciation) on investments
     and translation of assets and liabilities in foreign currencies                          (6,699,050)               -
                                                                                           -------------    -------------
       Total - representing net assets applicable to outstanding capital stock             $  40,177,395    $  41,927,822
                                                                                           =============    =============
Net assets applicable to outstanding Class A shares                                        $  36,487,887    $  41,927,822
                                                                                           =============    =============
Net assets applicable to outstanding Class B shares                                        $   2,797,862                -
                                                                                           =============    =============
Net assets applicable to outstanding Class C shares                                        $     891,646                -
                                                                                           =============    =============

Shares outstanding and net asset value per share:
    Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032   $        8.72    $        1.00
                                                                                           =============    =============
    Class B - Shares outstanding: 595,446; 327,158; --; 2,693,353; 1,071,480               $        8.55                -
                                                                                           =============    =============
    Class C - Shares outstanding: 104,778; 104,167; --; 939,860; 229,104                   $        8.56                -
                                                                                           =============    =============
* Identified cost                                                                          $  46,405,121    $  41,830,330
+ Including securities on loan of                                                          $   2,141,563    $           -





                                                                                              MORTGAGE
                                                                                             SECURITIES        SPECTRUM
                                                                                                FUND             FUND
                                                                                           -------------    -------------
                                                                                                      
                           ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                                          $ 113,852,644    $  50,863,335
Cash in bank on demand deposit                                                                   215,312              375
Receivable for Fund shares sold                                                                1,095,153            3,909
Receivable for investment securities sold (including paydowns)                                 1,150,588          167,455
Dividends and accrued interest receivable                                                        615,000          184,589
Receivable for refundable foreign income taxes withheld                                                -                -
Collateral for securities loaned (note 6)                                                              -        3,106,909
Other receivables                                                                                    847            1,395
                                                                                           -------------    -------------
       Total assets                                                                          116,929,544       54,327,967
                                                                                           -------------    -------------

                         LIABILITIES
Bank overdraft                                                                                         -                -
Bank overdraft of foreign currency (identified cost: $2,306)                                           -                -
Payable for Fund shares repurchased                                                              145,010           25,516
Dividends payable to shareholders                                                                118,532                -
Payable for investment securities purchased                                                    8,870,823          555,366
Payable to Adviser                                                                               109,171           69,384
Payable upon return of securities loaned (note 6)                                                      -        3,106,909
                                                                                           -------------    -------------
       Total liabilities                                                                       9,243,536        3,757,175
                                                                                           -------------    -------------
Net assets applicable to outstanding capital stock                                         $ 107,686,008    $  50,570,792
                                                                                           =============    =============

Represented by:
    Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
     Class B - 2 billion shares, Class C - 2 billion shares and 4 billion shares
     unallocated) of $.01 par value                                                        $      97,195    $      48,096
    Additional paid-in capital                                                               103,804,611       67,966,195
    Undistributed (distributions in excess of) net investment income                            (118,531)           5,170
    Accumulated net realized gains (losses) from investments and
     foreign currency transactions                                                               (33,330)     (14,828,083)
    Unrealized appreciation (depreciation) on investments
     and translation of assets and liabilities in foreign currencies                           3,936,063       (2,620,586)
                                                                                           -------------    -------------
       Total - representing net assets applicable to outstanding capital stock             $ 107,686,008    $  50,570,792
                                                                                           =============    =============
Net assets applicable to outstanding Class A shares                                        $  67,395,315    $  36,973,789
                                                                                           =============    =============
Net assets applicable to outstanding Class B shares                                        $  29,879,468    $  11,216,484
                                                                                           =============    =============
Net assets applicable to outstanding Class C shares                                        $  10,411,225    $   2,380,519
                                                                                           =============    =============

Shares outstanding and net asset value per share:
    Class A - Shares outstanding: 1,638,445; 4,185,948; 41,927,822; 6,086,238; 3,509,032   $       11.07    $       10.54
                                                                                           =============    =============
    Class B - Shares outstanding: 595,446; 327,158;--; 2,693,353; 1,071,480                $       11.09    $       10.47
                                                                                           =============    =============
    Class C - Shares outstanding: 104,778; 104,167;--; 939,860; 229,104                    $       11.08    $       10.39
                                                                                           =============    =============
* Identified cost                                                                          $ 109,916,581    $  53,483,921
+ Including securities on loan of                                                          $           -    $   3,029,396


                                       71


ADVANTUS FIXED INCOME AND BLENDED FUNDS
STATEMENTS OF OPERATIONS                           YEAR ENDED SEPTEMBER 30, 2002



                                                                                     BOND
                                                                                     FUND
                                                                                -------------
                                                                             
Investment Income:
    Interest                                                                    $   1,453,554
    Dividends (net of foreign withholding taxes of $72,357 for
     International Balanced Fund)                                                           -
     Income from securities lending activities                                            920
     Commission reimbursment income (note 8)                                                -
                                                                                -------------
       Total investment income                                                      1,454,474
                                                                                -------------
Expenses (note 4):
    Investment advisory fee                                                           140,385
    Rule 12b-1 fees - Class A                                                          40,081
    Rule 12b-1 fees - Class B                                                          63,340
    Rule 12b-1 fees - Class C                                                          10,310
    Custodian fees                                                                     10,581
    Transfer agent and shareholder services fee                                        87,639
    Administrative services fee                                                        74,400
    Auditing and accounting services                                                    8,667
    Legal fees                                                                          5,574
    Registration fees                                                                  35,821
    Printing and shareholder reports                                                   20,653
    Directors' fees                                                                       899
    Insurance                                                                           2,013
    Other                                                                               5,096
                                                                                -------------
       Total expenses                                                                 505,459
    Less fees and expenses waived or absorbed by Advisor and Distributor                    -
     Class A Rule 12b-1 fees                                                         (181,150)
                                                                                -------------
     Other absorbed fees
       Total net expenses                                                             324,309
                                                                                -------------
       Investment income - net                                                      1,130,165

Realized and unrealized gains (losses) on investments and foreign currencies:
     Net realized gains (losses) from:
       Investments (note 3)                                                           293,831
       Foreign currency transactions                                                        -
     Net change in unrealized appreciation or depreciation on:
       Investments                                                                    316,770
       Translation of assets and liabilities in foreign currency                            -
                                                                                -------------
         Net gains (losses) on investments                                            610,601
                                                                                -------------
Net increase (decrease) in net assets resulting from operations                 $   1,740,766
                                                                                =============


                 See accompanying notes to financial statements.

                                       72


                                                   YEAR ENDED SEPTEMBER 30, 2002



                                                                                INTERNATIONAL        MONEY
                                                                                   BALANCED          MARKET
                                                                                     FUND             FUND
                                                                                -------------    -------------
                                                                                           
Investment Income:
    Interest                                                                    $     789,664    $     865,090
    Dividends (net of foreign withholding taxes of $72,357 for
     International Balanced Fund)                                                     744,176                -
     Income from securities lending activities                                         31,956                -
     Commission reimbursment income (note 8)                                            8,234                -
                                                                                -------------    -------------
       Total investment income                                                      1,574,030          865,090
                                                                                -------------    -------------
Expenses (note 4):
    Investment advisory fee                                                           318,502          204,824
    Rule 12b-1 fees - Class A                                                         102,735          102,412
    Rule 12b-1 fees - Class B                                                          33,658                -
    Rule 12b-1 fees - Class C                                                          10,315                -
    Custodian fees                                                                     29,620            6,675
    Transfer agent and shareholder services fee                                       114,414          196,220
    Administrative services fee                                                        63,600           61,200
    Auditing and accounting services                                                   72,856           10,667
    Legal fees                                                                          5,873            5,783
    Registration fees                                                                  33,350           19,385
    Printing and shareholder reports                                                   24,566           27,467
    Directors' fees                                                                     1,073                -
    Insurance                                                                           2,238            2,350
    Other                                                                               6,284            2,957
                                                                                -------------    -------------
       Total expenses                                                                 819,084          639,940
    Less fees and expenses waived or absorbed by Advisor and Distributor              (20,547)        (102,412)
     Class A Rule 12b-1 fees                                                          (21,524)        (189,327)
                                                                                -------------    -------------
     Other absorbed fees
       Total net expenses                                                             777,013          348,201
                                                                                -------------    -------------
       Investment income - net                                                        797,017          516,889

Realized and unrealized gains (losses) on investments and foreign currencies:
     Net realized gains (losses) from:
       Investments (note 3)                                                        (2,685,017)               -
       Foreign currency transactions                                                   23,320                -
     Net change in unrealized appreciation or depreciation on:
       Investments                                                                     (2,735)               -
       Translation of assets and liabilities in foreign currency                        6,326                -
                                                                                -------------    -------------
         Net gains (losses) on investments                                         (2,658,106)               -
                                                                                -------------    -------------
Net increase (decrease) in net assets resulting from operations                 $  (1,861,089)   $     516,889
                                                                                =============    =============




                                                                                   MORTGAGE
                                                                                  SECURITIES        SPECTRUM
                                                                                     FUND             FUND
                                                                                -------------    -------------
                                                                                           
Investment Income:
    Interest                                                                    $   6,012,049    $   1,357,354
    Dividends (net of foreign withholding taxes of $72,357 for
     International Balanced Fund)                                                           -          526,641
     Income from securities lending activities                                            397            5,787
     Commission reimbursment income (note 8)                                                -                -
                                                                                -------------    -------------
       Total investment income                                                      6,012,446        1,889,782
                                                                                -------------    -------------
Expenses (note 4):
    Investment advisory fee                                                           397,173          309,933
    Rule 12b-1 fees - Class A                                                         130,726          111,517
    Rule 12b-1 fees - Class B                                                         243,286          143,002
    Rule 12b-1 fees - Class C                                                          69,964           30,797
    Custodian fees                                                                     16,535           10,200
    Transfer agent and shareholder services fee                                       200,859          271,995
    Administrative services fee                                                        74,400           74,400
    Auditing and accounting services                                                   14,167           31,617
    Legal fees                                                                          6,223            6,077
    Registration fees                                                                  51,892           36,051
    Printing and shareholder reports                                                   32,168           32,456
    Directors' fees                                                                     1,738            1,526
    Insurance                                                                           2,350            2,465
    Other                                                                               4,143           11,598
                                                                                -------------    -------------
       Total expenses                                                               1,245,624        1,073,634
    Less fees and expenses waived or absorbed by Advisor and Distributor                    -                -
     Class A Rule 12b-1 fees                                                         (216,342)        (187,045)
                                                                                -------------    -------------
     Other absorbed fees
       Total net expenses                                                           1,029,282          886,589
                                                                                -------------    -------------
       Investment income - net                                                      4,983,164        1,003,193
Realized and unrealized gains (losses) on investments and foreign currencies:
     Net realized gains (losses) from:
       Investments (note 3)                                                         2,061,759          795,011
       Foreign currency transactions                                                        -                -
     Net change in unrealized appreciation or depreciation on:
       Investments                                                                   (946,746)      (4,590,027)
       Translation of assets and liabilities in foreign currency                            -                -
                                                                                -------------    -------------
         Net gains (losses) on investments                                          1,115,013       (3,795,016)
                                                                                -------------    -------------
Net increase (decrease) in net assets resulting from operations                 $   6,098,177    $  (2,791,823)
                                                                                =============    =============


                                       73


ADVANTUS FIXED INCOME AND BLENDED FUNDS
STATEMENTS OF CHANGES IN NET ASSETS      YEARS ENDED SEPTEMBER 30, 2002 AND 2001



                                                                                           BOND FUND
                                                                                ------------------------------
                                                                                     2002             2001
                                                                                -------------    -------------
                                                                                           
Operations:
  Investment income - net                                                       $   1,130,165    $   1,239,980
  Net realized gains (losses) on investments                                          293,831          667,303
  Net change in unrealized appreciation or depreciation of investments                316,770          932,264
                                                                                -------------    -------------
      Net increase (decrease) in net assets resulting from operations               1,740,766        2,839,547
                                                                                -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                           (807,857)        (866,736)
   Class B                                                                           (271,659)        (324,599)
   Class C                                                                            (44,247)         (57,037)
  Net realized gains on investments:
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
Tax return of capital:
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
                                                                                -------------    -------------
      Total distributions                                                          (1,123,763)      (1,248,372)
                                                                                -------------    -------------
Capital share transactions (note 6):
  Proceeds from sales:
   Class A                                                                          8,060,173        4,288,940
   Class B                                                                          1,095,698          849,975
   Class C                                                                            377,877          339,564
  Shares issued as a result of reinvested distributions:
   Class A                                                                            482,580          537,883
   Class B                                                                            232,831          274,868
   Class C                                                                             38,135           52,255
  Payments for redemption of shares:
   Class A                                                                         (7,411,405)      (5,151,285)
   Class B                                                                         (1,753,551)      (1,749,781)
   Class C                                                                           (361,952)        (552,024)
                                                                                -------------    -------------
      Increase (decrease) in net assets from capital share transactions               760,386       (1,109,605)
                                                                                -------------    -------------
      Total increase (decrease) in net assets                                       1,377,389          481,570
Net assets at beginning of year                                                    23,349,935       22,868,365
                                                                                -------------    -------------
Net assets at end of year*                                                      $  24,727,324    $  23,349,935
                                                                                =============    =============
* including undistributed (distributions in excess of) net investment income    $     (23,757)   $     (30,159)


                 See accompanying notes to financial statements.

                                       74




                                                                                     INTERNATIONAL BALANCED
                                                                                             FUND
                                                                                ------------------------------
                                                                                     2002             2001
                                                                                -------------    -------------
                                                                                           
Operations:
  Investment income - net                                                       $     797,017    $     773,755
  Net realized gains (losses) on investments                                       (2,661,697)         585,025
  Net change in unrealized appreciation or depreciation of investments                  3,591       (6,706,060)
                                                                                -------------    -------------
      Net increase (decrease) in net assets resulting from operations              (1,861,089)      (5,347,280)
                                                                                -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                            (13,409)        (474,541)
   Class B                                                                                  -          (20,756)
   Class C                                                                                  -           (7,703)
  Net realized gains on investments:
   Class A                                                                           (538,381)      (4,464,596)
   Class B                                                                            (46,854)        (433,503)
   Class C                                                                            (13,595)        (160,088)
Tax return of capital:
   Class A                                                                            (58,591)               -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
                                                                                -------------    -------------
      Total distributions                                                            (670,830)      (5,561,187)
                                                                                -------------    -------------
Capital share transactions (note 6):
  Proceeds from sales:
   Class A                                                                          9,885,446        2,195,662
   Class B                                                                            231,246          266,499
   Class C                                                                            103,193           88,765
  Shares issued as a result of reinvested distributions:
   Class A                                                                            547,656        4,562,906
   Class B                                                                             45,527          444,191
   Class C                                                                             13,545          167,374
  Payments for redemption of shares:
   Class A                                                                        (11,684,865)      (4,761,221)
   Class B                                                                           (820,242)        (908,928)
   Class C                                                                           (222,867)        (603,327)
                                                                                -------------    -------------
      Increase (decrease) in net assets from capital share transactions            (1,901,361)       1,451,921
                                                                                -------------    -------------
      Total increase (decrease) in net assets                                      (4,433,280)      (9,456,546)
Net assets at beginning of year                                                    44,610,675       54,067,221
                                                                                -------------    -------------
Net assets at end of year*                                                      $  40,177,395    $  44,610,675
                                                                                -------------    -------------
* including undistributed (distributions in excess of) net investment income    $    (595,730)   $    (660,628)




                                                                                          MONEY MARKET
                                                                                             FUND
                                                                                ------------------------------
                                                                                     2002             2001
                                                                                -------------    -------------
                                                                                           
Operations:
  Investment income - net                                                       $     516,889    $   1,904,964
  Net realized gains (losses) on investments                                                -                -
  Net change in unrealized appreciation or depreciation of investments                      -                -
                                                                                -------------    -------------
      Net increase (decrease) in net assets resulting from operations                 516,889        1,904,964
                                                                                -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                           (516,889)      (1,904,964)
   Class B                                                                                  -                -
   Class C                                                                                  -                -
  Net realized gains on investments:
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
Tax return of capital:
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
                                                                                -------------    -------------
      Total distributions                                                            (516,889)      (1,904,964)
                                                                                -------------    -------------
Capital share transactions (note 6):
  Proceeds from sales:
   Class A                                                                         49,808,401       66,749,910
   Class B                                                                                  -                -
   Class C                                                                                  -                -
  Shares issued as a result of reinvested distributions:
   Class A                                                                            514,260        1,869,131
   Class B                                                                                  -                -
   Class C                                                                                  -                -
  Payments for redemption of shares:
   Class A                                                                        (50,878,207)     (68,323,524)
   Class B                                                                                  -                -
   Class C                                                                                  -                -
                                                                                -------------    -------------
      Increase (decrease) in net assets from capital share transactions              (555,546)         295,517
                                                                                -------------    -------------
      Total increase (decrease) in net assets                                        (555,546)         295,517
Net assets at beginning of year                                                    42,483,368       42,187,851
                                                                                -------------    -------------
Net assets at end of year*                                                      $  41,927,822    $  42,483,368
                                                                                -------------    -------------
* including undistributed (distributions in excess of) net investment income    $           -    $           -


                                       75




                                                                                     MORTGAGE SECURITIES
                                                                                             FUND
                                                                                ------------------------------
                                                                                    2002             2001
                                                                                -------------    -------------
                                                                                           
Operations:
  Investment income - net                                                       $   4,983,164    $   3,677,031
  Net realized gains (losses) on investments                                        2,061,759       (2,360,079)
  Net change in unrealized appreciation or depreciation of investments               (946,746)       5,867,873
                                                                                -------------    -------------
      Net increase (decrease) in net assets resulting from operations               6,098,177        7,184,825
                                                                                -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                         (3,454,050)      (2,406,221)
   Class B                                                                         (1,427,914)      (1,040,626)
   Class C                                                                           (410,303)        (238,882)
  Net realized gains
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
  Tax return of capital
   Class A                                                                            (50,986)        (135,460)
   Class B                                                                            (21,078)         (58,582)
   Class C                                                                             (6,056)         (13,448)
                                                                                -------------    -------------
      Total distributions                                                          (5,370,387)      (3,893,219)
                                                                                -------------    -------------
Capital share transactions (note 6):
  Proceeds from sales:
   Class A                                                                         40,374,981       12,959,927
   Class B                                                                         11,113,864        7,835,581
   Class C                                                                          6,746,433        3,150,142
  Shares issued as a result of reinvested distributions
   Class A                                                                          2,487,059        1,683,438
   Class B                                                                          1,191,985          896,517
   Class C                                                                            352,089          213,056
  Payments for redemption of shares
   Class A                                                                        (18,385,514)      (6,077,614)
   Class B                                                                         (3,844,743)      (2,927,513)
   Class C                                                                         (1,977,904)      (1,634,811)
                                                                                -------------    -------------
      Increase (decrease) in net assets from capital share transactions            38,058,250       16,098,723
                                                                                -------------    -------------
      Total increase (decrease) in net assets                                      38,786,040       19,390,329
Net assets at beginning of year                                                    68,899,968       49,509,639
                                                                                -------------    -------------
Net assets at end of year*                                                      $ 107,686,008    $  68,899,968
                                                                                =============    =============
* including undistributed (distributions in excess of) net investment income of $    (118,531)   $     (88,086)


                 See accompanying notes to financial statements.

                                       76




                                                                                         SPECTRUM FUND
                                                                                ------------------------------
                                                                                    2002             2001
                                                                                -------------    -------------
                                                                                           
Operations:
  Investment income - net                                                       $   1,003,193    $   1,151,606
  Net realized gains (losses) on investments                                          795,011      (13,849,891)
  Net change in unrealized appreciation or depreciation of investments             (4,590,027)     (21,515,051)
                                                                                -------------    -------------
      Net increase (decrease) in net assets resulting from operations              (2,791,823)     (34,213,336)
                                                                                -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                           (931,366)        (856,166)
   Class B                                                                           (193,939)        (137,409)
   Class C                                                                            (41,695)         (31,425)
  Net realized gains
   Class A                                                                            (61,065)      (8,664,445)
   Class B                                                                            (20,461)      (2,995,355)
   Class C                                                                             (4,456)        (676,021)
  Tax return of capital
   Class A                                                                                  -                -
   Class B                                                                                  -                -
   Class C                                                                                  -                -
                                                                                -------------    -------------
      Total distributions                                                          (1,252,982)     (13,360,821)
                                                                                -------------    -------------
Capital share transactions (note 6):
  Proceeds from sales:
   Class A                                                                          3,242,717        4,884,713
   Class B                                                                            732,968        2,045,874
   Class C                                                                            265,270          468,737
  Shares issued as a result of reinvested distributions
   Class A                                                                            915,287        9,170,037
   Class B                                                                            203,782        3,055,969
   Class C                                                                             42,941          681,146
  Payments for redemption of shares
   Class A                                                                         (9,234,283)     (13,454,590)
   Class B                                                                         (4,082,012)      (5,199,830)
   Class C                                                                           (955,048)      (1,324,135)
                                                                                -------------    -------------
      Increase (decrease) in net assets from capital share transactions            (8,868,378)         327,921
                                                                                -------------    -------------
      Total increase (decrease) in net assets                                     (12,913,183)     (47,246,236)
Net assets at beginning of year                                                    63,483,975      110,730,211
                                                                                -------------    -------------
Net assets at end of year*                                                      $  50,570,792    $  63,483,975
                                                                                =============    =============
* including undistributed (distributions in excess of) net investment income of $       5,170    $     192,864


                                       77


ADVANTUS FIXED INCOME AND BLENDED FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002

(1)  ORGANIZATION

     Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc.,
Advantus Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc., and
Advantus Spectrum Fund, Inc. (the Funds) are registered under the Investment
Company Act of 1940 (as amended) as diversified, open-end management investment
companies. The Funds' prospectus provides a detailed description of each Fund's
investment objective, policies and strategies.

     The Funds currently issue three classes of shares: Class A, Class B and
Class C shares, except for the Money Market Fund which does not issue Class B or
C shares. Class A shares are sold subject to a front-end sales charge except for
the Money Market Fund which does not have any sales charges. Class B shares are
sold subject to a contingent deferred sales charge payable upon redemption if
redeemed within six years of purchase. Class C shares are sold without either a
front-end sales charge or a contingent deferred sales charge. Both Class B and
Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both
Class B and Class C shares automatically convert to Class A shares at net asset
value after a specified holding period. Such holding periods decline as the
amount of the purchase increases and range from 28 to 84 months after purchase
for Class B shares and 40 to 96 months after purchase for Class C shares. All
three classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of Rule 12b-1
fees charged differs among Class A, Class B and Class C shares. Income, expenses
(other than Rule 12b-1 fees) and realized and unrealized gains or losses are
allocated to each class of shares based upon their relative net assets.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The significant accounting policies followed by the Funds are summarized as
follows:

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, including disclosure of contingent assets and
liabilities, as of the balance sheet date and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.

                                       78


  INVESTMENTS IN SECURITIES

     Each Fund's net asset value is generally calculated as of the close of
normal trading on the New York Stock Exchange (typically 3:00 p.m. Central
Time). Investments in securities traded on a national exchange are valued at the
last sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
The pricing service may use models that price securities based on current yields
and relative security characteristics, such as coupon rate, maturity date,
issuer credit quality and prepayment speeds, as applicable. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith under procedures adopted by the Board of Directors.
Short-term securities are valued at market. For the Money Market Fund, pursuant
to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all securities
are valued at amortized cost which approximates market value, in order to
maintain a constant net asset value of $1. However, there is no assurance that
the Fund will maintain a $1 NAV.

     Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date, or
upon dividend notification for certain foreign securities. Interest income,
including amortization of bond premium and discount computed on a level yield
basis, is accrued daily.

  FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS

     Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities, income and expenses are translated at the exchange rate on the
transaction date. The Funds do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with net realized and unrealized gains or losses from
investments.

     Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Funds' books and the U.S. dollar

                                       79


equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities, resulting from changes in the
exchange rate.

     The International Balanced Fund also may enter into forward foreign
currency exchange contracts for operational purposes and to protect against
adverse exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by International Balanced
Fund and the resulting unrealized appreciation and depreciation are determined
using foreign currency exchange rates from an independent pricing service.
International Balanced Fund is subject to the credit risk that the other party
will not complete the obligations of the contract.

  FEDERAL TAXES

     Each Fund's policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no income tax provision is
required. Also, each Fund's policy is to make required minimum distributions
prior to December 31, in order to avoid federal excise tax.

     For federal income tax purposes, the following Funds had capital loss
carryovers and/or post October losses at September 30, 2002 which, if not offset
by subsequent capital gains, will expire September 30, 2010. It is unlikely the
Board of Directors will authorize a distribution of any net realized capital
gains until available capital loss carryovers have been offset or expire:

                                                         
  Bond Fund                                                   $  1,043,533
  International Balanced Fund                                    2,064,851
  Spectrum Fund                                                 11,482,396

  

     Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains were recorded by the
Funds.

     The Funds may elect to utilize equalization debits by which a portion of
the costs of redemptions, which occurred during the year ended September 30,
2002, would reduce net realized gain for tax purposes.

                                       80


     On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments were made as follows:



                            UNDISTRIBUTED       ACCUMULATED       ADDITIONAL
                           NET INVESTMENT        REALIZED          PAID IN
FUND                           INCOME            GAIN/LOSS         CAPITAL
- ----                       --------------       -----------       ----------
                                                             
International Balanced         $ (718,710)       $  695,891           22,819
Mortgage Securities               278,658          (278,658)              --
Spectrum                          (23,887)           (6,081)          29,968


     The tax character of distributions paid for the years indicated are as
follows:



                               YEARS ENDED SEPTEMBER 30,
                            ------------------------------
FUND                            2002               2001
- ----                        -----------        -----------
                                         
BOND
DISTRIBUTIONS PAID FROM:
Ordinary income             $ 1,123,763        $ 1,248,372

INTERNATIONAL BALANCED
DISTRIBUTIONS PAID FROM:
Ordinary income                  13,409            503,000
Long-term capital gain          598,830          5,058,187
Return of capital                58,591                 --

MONEY MARKET
DISTRIBUTIONS PAID FROM:
Ordinary income                 516,889          1,904,964

MORTGAGE SECURITIES
DISTRIBUTIONS PAID FROM:
Ordinary income               5,013,609          3,685,729
Return of capital                78,120            207,490
Long-term capital gain          278,658                 --

SPECTRUM
DISTRIBUTIONS PAID FROM:
Ordinary income               1,167,000          5,386,153
Long-term capital gain           85,982          7,974,668


                                       81


     As of September 30, 2002, the components of distributable earnings on a tax
basis for each Fund are as follows:



                                                ACCUMULATED       UNREALIZED
                            UNDISTRIBUTED        LONG-TERM       APPRECIATION
FUND                       ORDINARY INCOME      GAIN (LOSS)     (DEPRECIATION)
- ----                       ---------------     ------------     --------------
                                                        
Bond                          $  7,878         $ (1,043,533)     $     980,675
International Balanced              --           (2,064,851)        (6,759,533)
Money Market                       435                   --                 --
Mortgage Securities                 --                   --          3,902,733
Spectrum                         5,170          (11,482,396)        (5,966,274)


  DISTRIBUTIONS TO SHAREHOLDERS

     For the International Balanced Fund and the Spectrum Fund dividends from
net investment income are declared and paid quarterly. Realized gains, if any,
are paid annually.

     For the Bond Fund, Money Market Fund and Mortgage Securities Fund dividends
from net investment income are declared daily and paid monthly in cash or
reinvested in additional shares. Capital gains, if any, are paid annually.

  SECURITIES PURCHASED ON A WHEN-ISSUED BASIS

     Delivery and payment for securities which have been purchased by a Fund on
a forward commitment or when-issued basis can take place a month or more after
the transaction date. During this period, such securities are subject to market
fluctuations. As of September 30, 2002, Bond Fund and Mortgage Securities Fund
had entered into outstanding, when-issued or forward commitments of $983,576 and
$7,668,587, respectively. Each Fund has segregated assets with the custodian to
cover such when-issued and forward commitments.

(3)  INVESTMENT SECURITY TRANSACTIONS

     For the year ended September 30, 2002, the cost of purchases and proceeds
from sales of investment securities aggregated $499,632,211 and $500,364,011,
respectively for the Money Market Fund. For the other Funds, the cost of
purchases and proceeds from sales of investment securities, other than temporary
investments in short-term securities, for the year ended September 30, 2002 were
as follows:



FUND                                        PURCHASES            SALES
- ----                                      -------------       ------------
                                                        
Bond                                      $  33,829,997       $ 33,366,135
International Balanced                       20,338,954         22,072,649
Mortgage Securities                         117,529,446         81,340,402
Spectrum                                     77,655,010         87,399,128


(4)  EXPENSES AND RELATED PARTY TRANSACTIONS

     The Funds have an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser), a wholly-owned

                                       82


subsidiary of Securian Financial Group. Under the agreement, Advantus Capital
manages the Funds' assets and provides research, statistical and advisory
services and pays related office rental and executive expenses and salaries.

     Each Fund pays Advantus Capital Management an annual fee, based on its
average daily net assets in the following amounts:



FUND                          ANNUAL FEE
- --------------------------------------------------------------------------------
                           
Bond                          .60% of assets to $250 million; and .55% of assets
                              exceeding $250 million to $500 million; and .50%
                              of assets exceeding $500 million to $1 billion;
                              and .45% of assets exceeding $1 billion

International Balanced        .70% of assets to $250 million; and .65% of assets
                              exceeding $250 million to $500 million; and .60%
                              of assets exceeding $500 million to $1 billion;
                              and .55% of assets exceeding $1 billion

Money Market                  .50% of assets to $500 million; and .45% of assets
                              exceeding $500 million to $1 billion; and .425% of
                              assets exceeding $1 billion to $2 Billion; and
                              .40% of assets exceeding $2 billion

Mortgage Securities           .475% of assets to $1 billion; and .46% of assets
                              exceeding $1 billion to $2 billion; and .45% of
                              assets exceeding $2 billion

Spectrum                      .50% of assets to $1 billion; and .48% of assets
                              exceeding $1 billion to $2 billion; and .46% of
                              assets exceeding $2 billion.


     Advantus Capital has a sub-advisory agreement with the following registered
investment adviser. Under the sub-advisory agreement, Advantus Capital pays the
sub-adviser an annual fee based on average daily net assets, in the following
amounts:



FUND             SUB-ADVISOR          ANNUAL FEE
- -------------    ------------------   -------------------------------------------------
                                
International    Templeton            .70% of assets to $25 million; and .55% of assets
Balanced         Investment Counsel   exceeding $25 million to $50 million; and .50% of
                                      assets exceeding $50 million to $100 million; and
                                      .40% of assets exceeding $100 million


     The Funds have adopted separate Plans of Distribution applicable to Class
A, Class B and Class C shares, respectively, relating to the payment of certain
expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended). The Funds pay fees to Securian Financial Services, Inc. (Securian),
the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial
Group, to be used to pay certain expenses incurred in the distribution,
promotion and servicing of the Funds' shares. The Class A Plan

                                       83


provides for a service fee up to .25 percent of average daily net assets of
Class A shares. The Class B and Class C Plans provide for a fee up to 1.00
percent of average daily net assets of Class B and Class C shares, respectively.
The Class B and Class C 1.00 percent fee is comprised of a .75 percent
distribution fee and a .25 percent service fee. Securian is currently waiving
the portion of Class A Rule 12b-1 fees which exceeds, as a percentage of average
daily net assets, .20 percent in International Balanced and the entire 12b-1 fee
for Money Market Fund. Securian waived Class A 12b-1 fees in the amounts of
$20,547 and $102,412, respectively, for the above Funds for the year ended
September 30, 2002.

     The Funds have engaged PFPC Global Fund Services to act as their transfer
agent, dividend disbursing agent and redemption agent and bear the expenses of
such services.

     The Funds also bear certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reporting fees, outside legal, auditing and accounting services, and other
miscellaneous expenses.

     The Funds have entered in a shareholder and administrative services
agreement with Securian Financial Group. Under this agreement, the Funds pay a
shareholder services fee, equal to $7 per shareholder account annually, to
Securian Financial Group for shareholder services which Securian Financial Group
provides. Prior to December 1, 2001, the Funds paid a shareholder services fee
equal to $5 per shareholder account annually. The Funds also pay Securian
Financial Group an administrative services fee equal to $6,200 per month for
Bond Fund, Mortgage Securities Fund and Spectrum Fund, $5,300 per month for
International Balanced Fund and $5,100 per month for Money Market Fund for
accounting, auditing, legal and other administrative services which Securian
Financial Group provides.

     Advantus Capital directly incurs and pays the above operating expenses and
the Funds in turn reimburse Advantus Capital.

  VOLUNTARY FEE ABSORPTION

     Advantus Capital has voluntarily agreed to absorb all Fund costs and
expenses that exceed 1.15% of Class A average daily net assets and 1.90% of
Class B and C average daily net assets for Bond Fund, all Fund costs and
expenses that exceed 1.62% of Class A average daily net assets and 2.42% of
Class B and C average daily net assets for International Balanced Fund, all Fund
costs and expenses that exceed .85% of Class A average daily net for Money
Market Fund, all Fund costs and expenses which exceed .95% of Class A average
daily net assets and 1.70% of Class B and C average daily net assets for
Mortgage Securities Fund and all Fund costs and expenses that

                                       84


exceed 1.22% of Class A average daily net assets and 1.97% of Class B and C
average daily net assets for Spectrum Fund. During the year ended September 30,
2002, Advantus Capital voluntarily agreed to absorb $181,150, $21,524, $189,327,
$216,342 and $187,045, respectively, in expenses which were otherwise payable by
the Funds.

  ACCOUNTING SERVICES

     The International Balanced Fund has an agreement with SEI Investments
Mutual Fund Services (SEI) whereby SEI provides daily fund accounting services.
Under this agreement, the annual fee for the Fund is equal to the greater of
$45,000 or .06% of the first $150 million in net assets, .05% of net assets from
$150 million to $850 million and .04% of net assets in excess of $1 billion.

     For the year ended September 30, 2002, sales charges retained by Securian
for distributing the Funds' three classes of shares for Bond, International
Balanced, Mortgage Securities and Spectrum were $12,282, $6,929, $9,278 and
$32,299, respectively.

     As of September 30, 2002 the ownership of shares by Minnesota Life and
subsidiaries and the directors and officers of the Funds as a whole was as
follows:



                                                                PERCENTAGE
                                             NUMBER OF            OWNED
FUND                                          SHARES             OF CLASS
- ----                                         ---------          ----------
                                                                
Bond
  Class A                                      341,589                20.8%
International Balanced
  Class A                                    3,222,851                77.0%
Money Market
  Class A                                    4,679,431                11.2%
Mortgage Securities
  Class A                                      583,972                 9.6%
Spectrum
  Class A                                          981                 0.0%


     Legal fees were paid to a law firm with whom the Funds' secretary is a
partner to Bond Fund, International Balanced Fund, Money Market Fund, Mortgage
Securities Fund and Spectrum Fund in the amount of $5,307, $5,311, $5,304,
$5,302, $5,305, respectively.

                                       85


(5)  CAPITAL SHARE TRANSACTIONS

     Transactions in shares for the years ended September 30, 2002 and 2001,
were as follows:



                                            BOND FUND
                    ----------------------------------------------------------
                          CLASS A             CLASS B              CLASS C
                    ------------------  ------------------   -----------------
                      2002      2001      2002      2001       2002      2001
                    --------  --------  --------  --------   -------   -------
                                                     
Sold                 793,620   428,285   106,141    83,643    36,666    33,990
Issued for
 reinvested
 distributions        47,082    53,922    22,664    27,488     3,726     5,242
Redeemed            (729,969) (517,080) (170,786) (175,538)  (35,651)  (55,127)
                    --------  --------  --------  --------   -------   -------
                     110,733   (34,873)  (41,981)  (64,407)    4,741   (15,895)
                    ========  ========  ========  ========   =======   =======




                                    INTERNATIONAL BALANCED FUND
                  ------------------------------------------------------------
                          CLASS A              CLASS B             CLASS C
                  --------------------   -----------------   -----------------
                     2002       2001       2002      2001      2002      2001
                  ----------  --------   -------   -------   -------   -------
                                                     
Sold               1,005,733   215,841    24,615    25,152    10,844     8,513
Issued for
 reinvested
 distributions        57,082   438,581     4,795    43,108     1,426    16,228
Redeemed          (1,188,610) (458,489)  (87,172)  (87,802)  (23,558)  (59,525)
                  ----------  --------   -------   -------   -------   -------
                    (125,795)  195,933   (57,762)  (19,542)  (11,288)  (34,784)
                  ==========  ========   =======   =======   =======   =======




                        MONEY MARKET FUND
                    -------------------------
                             CLASS A
                    -------------------------
                        2002          2001
                    -----------   -----------
                            
Sold                 49,808,396    66,749,910
Issued for
 reinvested
 distributions          514,265     1,869,131
Redeemed            (50,878,207)  (68,323,524)
                    -----------   -----------
                       (555,546)      295,517
                    ===========   ===========


                                       86




                                      MORTGAGE SECURITIES FUND
                  --------------------------------------------------------------
                          CLASS A               CLASS B             CLASS C
                  ---------------------  -------------------  ------------------
                     2002        2001       2002      2001      2002      2001
                  ----------   --------   --------  --------  --------  --------
                                                      
Sold               3,700,516  1,210,033  1,016,397   728,922   617,004   293,663
Issued for
 reinvested
 distributions       228,004    157,266    109,077    83,586    32,255    19,865
Redeemed          (1,707,279)  (571,227)  (360,354) (273,913) (183,912) (153,223)
                  ----------   --------   --------  --------  --------  --------
                   2,221,241    796,072    765,120   538,595   465,347   160,305
                  ==========   ========   ========  ========  ========  ========




                                          SPECTRUM FUND
                    ----------------------------------------------------------
                          CLASS A             CLASS B              CLASS C
                    ------------------  ------------------   -----------------
                      2002      2001      2002      2001       2002      2001
                    --------  --------  --------  --------   -------   -------
                                                     
Sold                 270,707   324,750    61,696   137,812    23,078    31,646
Issued for
 reinvested
 distributions        77,674   618,986    17,367   206,448     3,684    46,289
Redeemed            (775,059) (958,885) (344,138) (376,427)  (81,875)  (97,953)
                    --------  --------  --------  --------   -------   -------
                    (426,678)   15,149  (265,075)  (32,167)  (55,113)  (20,018)
                    ========  ========  ========  ========   =======   =======


(6)  SECURITIES LENDING CONTRACTS

     To enhance returns, the Funds loan securities to brokers in exchange for
collateral. The Funds receive a fee from the brokers measured as a percent of
the loaned securities. At September 30, 2002, the collateral is invested in cash
equivalents and repurchase agreements and must be 102% of the value of
securities loaned. The risk to the Funds is that the borrower may not provide
additional collateral when required or return the securities when due. At
September 30, 2002, International Balanced Fund and Spectrum Fund had securities
valued at $2,141,563 and $3,029,396 that were on loan to brokers and the Funds
had $2,420,920 and $3,106,909 in cash collateral, respectively.

(7)  ILLIQUID SECURITIES

     The Funds' investments in illiquid securities are limited to 10% of net
assets at the time of purchase. At September 30, 2002 investments in securities
of Bond Fund, Mortgage Securities Fund and Spectrum Fund include issues that are
illiquid. The aggregate value of illiquid securities held by the Funds were
$852,291, $4,126,999 and $899,621, respectively, which represents 3.4%, 3.8% and
1.8% of net assets, respectively. Pursuant to guidelines adopted by the Funds'
Board of Directors, certain unregistered

                                       87


securities are determined to be liquid and are not included within the percent
limitation specified above.

(8)  COMMISSION RECAPTURE

     International Balanced Fund participates in commission recapture agreements
with certain brokers whereby a portion of brokerage commissions on fund trades
are refunded. The commission recapture is reported as commission reimbursment
income on the statement of operations. For the year ended September 30, 2002,
the International Balanced Fund had participated in such agreements and
recaptured $8,234 in brokerage commissions.

                                       88


(9)  FINANCIAL HIGHLIGHTS

ADVANTUS BOND FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS A
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  10.30   $   9.60    $   9.71    $  10.69   $  10.43
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .52        .58         .58         .54        .59
   Net gains (losses) on securities (both realized and unrealized)         .27        .70        (.11)       (.79)       .30
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .79       1.28         .47        (.25)       .89
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.52)      (.58)       (.58)       (.54)      (.60)
   Distributions from net realized gains                                     -          -           -        (.19)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.52)      (.58)       (.58)       (.73)      (.63)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.57   $  10.30    $   9.60    $   9.71   $  10.69
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           7.90%     13.68%       5.04%      (2.36)%     8.75%
Net assets, end of year (in thousands)                                $ 17,313   $ 15,737    $ 15,002    $ 17,846   $ 19,419
Ratios to average net assets:
  Expenses                                                                1.15%      1.15%       1.15%       1.15%      1.10%
  Net investment income                                                   5.07%      5.77%       6.08%       5.41%      5.55%
  Expenses without waiver                                                 1.92%      1.99%       1.84%       1.55%      1.58%
  Net investment income without waiver                                    4.30%      4.93%       5.39%       5.01%      5.07%
Portfolio turnover rate (excluding short-term securities)                148.3%     251.9%      191.4%      211.9%     237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       89


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS B
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  10.33   $   9.62    $   9.74    $  10.71   $  10.43
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .44        .50         .51         .47        .51
   Net gains (losses) on securities (both realized and unrealized)         .26        .72        (.12)       (.78)       .31
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .70       1.22         .39        (.31)       .82
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.44)      (.51)       (.51)       (.47)      (.51)
   Distributions from net realized gains                                    --         --          --        (.19)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.44)      (.51)       (.51)       (.66)      (.54)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.59   $  10.33    $   9.62    $   9.74   $  10.71
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           6.99%     12.93%       4.16%      (2.98)%     8.09%
Net assets, end of year (in thousands)                                $  6,308   $  6,582    $  6,755    $  8,171   $  8,894
Ratios to average net assets:
  Expenses                                                                1.90%      1.90%       1.90%       1.90%      1.90%
  Net investment income                                                   4.32%      5.03%       5.33%       4.64%      4.78%
  Expenses without waiver                                                 2.67%      2.74%       2.59%       2.28%      2.28%
  Net investment income without waiver                                    3.55%      4.19%       4.64%       4.26%      4.40%
Portfolio turnover rate (excluding short-term securities)                148.3%     251.9%      191.4%      211.9%     237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       90


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS C
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  10.29   $   9.59    $   9.70    $  10.68   $  10.42
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .44        .50         .51         .47        .51
   Net gains (losses) on securities (both realized and unrealized)         .27        .70        (.11)       (.79)       .29
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .71       1.20         .40        (.32)       .80
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.44)      (.50)       (.51)       (.47)      (.51)
   Distributions from net realized gains                                     -          -           -        (.19)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.44)      (.50)       (.51)       (.66)      (.54)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.56   $  10.29    $   9.59    $   9.70   $  10.68
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           7.11%     12.84%       4.26%      (3.10)%     7.89%
Net assets, end of year (in thousands)                                $  1,106   $  1,029    $  1,112    $  1,594   $  2,089
Ratios to average net assets:
  Expenses                                                                1.90%      1.90%       1.91%       1.90%      1.90%
  Net investment income                                                   4.32%      5.03%       5.32%       4.64%      4.81%
  Expenses without waiver                                                 2.67%      2.74%       2.59%       2.28%      2.28%
  Net investment income without waiver                                    3.55%      4.19%       4.68%       4.26%      4.43%
Portfolio turnover rate (excluding short-term securities)                148.3%     251.9%      191.4%      211.9%     237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       91


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS A
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $   9.28   $  11.59    $  11.80    $  10.56   $  13.29
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .18        .18         .23         .21        .28
   Net gains (losses) on securities (both realized and unrealized)        (.59)     (1.28)        .50        1.52      (1.95)
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.41)     (1.10)        .73        1.73      (1.67)
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                     --       (.11)       (.36)       (.11)      (.14)
   Distributions from net realized gains                                  (.13)     (1.10)       (.58)       (.38)      (.92)
   Tax return of capital                                                  (.02)        --          --          --         --
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.15)     (1.21)       (.94)       (.49)     (1.06)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $   8.72   $   9.28    $  11.59    $  11.80   $  10.56
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (4.62)%   (10.57)%      6.26%      16.65%    (13.02)%
Net assets, end of year (in thousands)                                $ 36,488   $ 40,021    $ 47,693    $ 49,502   $ 46,025
Ratios to average net assets:
  Expenses                                                                1.62%      1.62%       1.52%       1.63%      1.62%
  Net investment income                                                   1.84%      1.60%       1.92%       1.77%      2.38%
  Expenses without waivers                                                1.72%      1.73%       1.65%       1.70%      1.91%
  Net investment income without waivers                                   1.74%      1.49%       1.79%       1.70%      2.09%
Portfolio turnover rate (excluding short-term securities)                 47.8%      35.6%       44.2%       73.8%      57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       92


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS B
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $   9.17   $  11.49    $  11.66    $  10.47   $  13.23
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .10        .11         .11         .12        .19
   Net gains (losses) on securities (both realized and unrealized)        (.59)     (1.28)        .51        1.51      (1.93)
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.49)     (1.17)        .62        1.63      (1.74)
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                     --       (.05)       (.21)       (.06)      (.10)
   Distributions from net realized gains                                  (.13)     (1.10)       (.58)       (.38)      (.92)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.13)     (1.15)       (.79)       (.44)     (1.02)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $   8.55   $   9.17    $  11.49    $  11.66   $  10.47
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (5.52)%   (11.29)%      5.32%      15.84%    (13.63)%
Net assets, end of year (in thousands)                                $  2,798   $  3,530    $  4,647    $  5,293   $  4,869
Ratios to average net assets:
  Expenses                                                                2.42%      2.42%       2.32%       2.43%      2.29%
  Net investment income                                                   1.04%       .79%       1.12%        .94%      1.77%
  Expenses without waivers                                                2.47%      2.48%       2.42%       2.43%      2.44%
  Net investment income without waivers                                    .99%       .74%       1.02%        .94%      1.62%
Portfolio turnover rate (excluding short-term securities)                 47.8%      35.6%       44.2%       73.8%      57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       93


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS C
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $   9.18   $  11.50    $  11.66    $  10.48   $  13.24
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .08        .11         .11         .10        .18
   Net gains (losses) on securities (both realized and unrealized)        (.57)     (1.28)        .51        1.52      (1.92)
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.49)     (1.17)        .62        1.62      (1.74)
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                     --       (.05)       (.20)       (.06)      (.10)
   Distributions from net realized gains                                  (.13)     (1.10)       (.58)       (.38)      (.92)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.13)     (1.15)       (.78)       (.44)     (1.02)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $   8.56   $   9.18    $  11.50    $  11.66   $  10.48
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (5.52)%   (11.27)%      5.36%      15.71%    (13.67)%
Net assets, end of year (in thousands)                                $    892   $  1,060    $  1,728    $  2,510   $  3,074
Ratios to average net assets:
  Expenses                                                                2.42%      2.42%       2.33%       2.44%      2.49%
  Net investment income                                                   1.04%       .78%       1.09%        .94%      1.52%
  Expenses without waivers                                                2.47%      2.48%       2.43%       2.44%      2.64%
  Net investment income without waivers                                    .99%       .73%        .99%        .94%      1.37%
Portfolio turnover rate (excluding short-term securities)                 47.8%      35.6%       44.2%       73.8%      57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       94


ADVANTUS MONEY MARKET FUND



                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value beginning of year                                     $   1.00   $   1.00    $   1.00    $   1.00   $   1.00
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .01        .04         .05         .04        .05
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .01        .04         .05         .04        .05
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.01)      (.04)       (.05)       (.04)      (.05)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.01)      (.04)       (.05)       (.04)      (.05)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $   1.00   $   1.00    $   1.00    $   1.00   $   1.00
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           1.27%      4.56%       5.33%       4.24%      4.78%
Net assets, end of year (in thousands)                                $ 41,928   $ 42,483    $ 42,188    $ 41,203   $ 60,901
Ratios to average net assets:
  Expenses                                                                 .85%       .85%        .85%        .85%       .85%
  Net investment income                                                   1.26%      4.45%       5.21%       4.17%      4.68%
  Expenses without waiver                                                 1.56%      1.66%       1.78%       1.56%      1.41%
  Net investment income without waiver                                     .55%      3.64%       4.28%       3.46%      4.12%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions.

                                       95


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS A
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  10.99   $  10.37    $  10.30    $  10.75   $  10.54
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .70        .73         .69         .69        .64
   Net gains (losses) on securities (both realized and unrealized)         .11        .65         .09        (.45)       .25
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .81       1.38         .78         .24        .89
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.72)      (.72)       (.70)       (.68)      (.65)
   Tax return of capital                                                  (.01)      (.04)       (.01)       (.01)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.73)      (.76)       (.71)       (.69)      (.68)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  11.07   $  10.99    $  10.37    $  10.30   $  10.75
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           7.88%     13.90%       7.70%       2.26%      8.73%
Net assets, end of year (in thousands)                                $ 67,395   $ 42,458    $ 31,814    $ 33,617   $ 32,268
Ratios to average net assets:
  Expenses                                                                 .95%       .95%        .95%        .95%       .95%
  Net investment income                                                   6.24%      6.75%       6.81%       6.29%      6.02%
  Expenses without waiver                                                 1.21%      1.31%       1.32%       1.21%      1.29%
  Net investment income without waiver                                    5.98%      6.39%       6.44%       6.03%      5.68%
Portfolio turnover rate (excluding short-term securities)                 98.5%      55.2%       64.7%      127.1%     152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       96


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS B
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  11.01   $  10.39    $  10.33    $  10.77   $  10.56
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .61        .65         .61         .61        .57
   Net gains (losses) on securities (both realized and unrealized)         .12        .65         .08        (.44)       .24
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .73       1.30         .69         .17        .81
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.64)      (.64)       (.62)       (.60)      (.57)
   Tax return of capital                                                  (.01)      (.04)       (.01)       (.01)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.65)      (.68)       (.63)       (.61)      (.60)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  11.09   $  11.01    $  10.39    $  10.33   $  10.77
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           6.99%     13.05%       6.90%       1.51%      7.92%
Net assets, end of year (in thousands)                                $ 29,879   $ 21,227    $ 14,436    $ 14,057   $ 10,079
Ratios to average net assets:
  Expenses                                                                1.70%      1.70%       1.70%       1.70%      1.70%
  Net investment income                                                   5.49%      6.00%       6.06%       5.57%      5.33%
  Expenses without waiver                                                 1.96%      2.06%       2.07%       1.94%      1.99%
  Net investment income without waiver                                    5.23%      5.64%       5.69%       5.33%      5.04%
Portfolio turnover rate (excluding short-term securities)                 98.5%      55.2%       64.7%      127.1%     152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       97


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS C
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  10.99   $  10.37    $  10.31    $  10.76   $  10.55
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .62        .66         .61         .61        .57
   Net gains (losses) on securities (both realized and unrealized)         .12        .64         .08        (.45)       .24
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                     .74       1.30         .69         .16        .81
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.64)      (.64)       (.62)       (.60)      (.57)
   Tax return of capital                                                  (.01)      (.04)       (.01)       (.01)      (.03)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.65)      (.68)       (.63)       (.61)      (.60)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  11.08   $  10.99    $  10.37    $  10.31   $  10.76
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                           6.99%     13.05%       6.89%       1.50%      7.92%
Net assets, end of year (in thousands)                                $ 10,411   $  5,216    $  3,259    $  5,126   $  4,343
Ratios to average net assets:
  Expenses                                                                1.70%      1.70%       1.70%       1.70%      1.70%
  Net investment income                                                   5.49%      6.00%       6.06%       5.58%      5.40%
  Expenses without waiver                                                 1.96%      2.06%       2.07%       1.94%      1.99%
  Net investment income without waiver                                    5.23%      5.64%       5.69%       5.34%      5.11%
Portfolio turnover rate (excluding short-term securities)                 98.5%      55.2%       64.7%      127.1%     152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

                                       98


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS A
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  11.45   $  19.73    $  17.88    $  16.50   $  16.40
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .23        .22         .31         .31        .33
   Net gains (losses) on securities (both realized and unrealized)        (.89)     (6.08)       2.55        2.30       1.40
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.66)     (5.86)       2.86        2.61       1.73
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.25)      (.20)       (.30)       (.31)      (.33)
   Distributions from net realized gains                                     -      (2.22)       (.71)       (.92)     (1.30)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.25)     (2.42)      (1.01)      (1.23)     (1.63)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.54   $  11.45    $  19.73    $  17.88   $  16.50
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (5.91)%   (32.35)%     16.22%      16.08%     11.31%
Net assets, end of year (in thousands)                                $ 36,974   $ 45,066    $ 77,964    $ 73,613   $ 68,157
Ratios to average net assets:
  Expenses                                                                1.22%      1.12%       1.11%       1.10%      1.19%
  Net investment income                                                   1.84%      1.57%       1.58%       1.77%      1.98%
  Expenses without waiver                                                 1.52%      1.40%       1.20%       1.10%      1.19%
  Net investment income without waiver                                    1.54%      1.29%       1.49%       1.77%      1.98%
Portfolio turnover rate (excluding short-term securities)                129.0%     158.4%      132.0%      100.8%     139.8%


- ----------
(a)  Total return figures presented for the periods above assume reinvestment of
     distributions and do not include the effects of sales charges.

                                       99


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS B
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001         2000       1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  11.38   $  19.61    $  17.79    $  16.43   $  16.34
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .12        .11         .17         .19        .22
   Net gains (losses) on securities (both realized and unrealized)        (.87)     (6.03)       2.53        2.28       1.39
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.75)     (5.92)       2.70        2.47       1.61
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.16)      (.09)       (.17)       (.19)      (.22)
   Distributions from net realized gains                                     -      (2.22)       (.71)       (.92)     (1.30)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.16)     (2.31)       (.88)      (1.11)     (1.52)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.47   $  11.38    $  19.61    $  17.79   $  16.43
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (6.56)%   (32.82)%     15.51%      15.31%     10.55%
Net assets, end of year (in thousands)                                $ 11,216   $ 15,207    $ 26,838    $ 24,420   $ 17,751
Ratios to average net assets:
  Expenses                                                                1.97%      1.87%       1.86%       1.82%      1.84%
  Net investment income                                                   1.09%       .82%        .83%       1.06%      1.32%
  Expenses without waiver                                                 2.27%      2.15%       1.95%       1.82%      1.84%
  Net investment income without waiver                                     .79%       .54%        .72%       1.06%      1.32%
Portfolio turnover rate (excluding short-term securities)                129.0%     158.4%      132.0%      100.8%     139.8%


- ----------
(a)  Total return figures presented for the periods above assume reinvestment of
     distributions and do not include the effects of sales charges.

                                       100


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                              CLASS C
                                                                      ------------------------------------------------------
                                                                                     YEAR ENDED SEPTEMBER 30,
                                                                      ------------------------------------------------------
                                                                        2002       2001        2000        1999       1998
                                                                      --------   --------    --------    --------   --------
                                                                                                     
Net asset value, beginning of year                                    $  11.29   $  19.49    $  17.69    $  16.34   $  16.27
                                                                      --------   --------    --------    --------   --------
Income from investment operations:
   Net investment income                                                   .12        .11         .17         .19        .24
   Net gains (losses) on securities (both realized and unrealized)        (.86)     (6.00)       2.51        2.27       1.36
                                                                      --------   --------    --------    --------   --------
      Total from investment operations                                    (.74)     (5.89)       2.68        2.46       1.60
                                                                      --------   --------    --------    --------   --------
Less distributions:
   Dividends from net investment income                                   (.16)      (.09)       (.17)       (.19)      (.23)
   Distributions from net realized gains                                     -      (2.22)       (.71)       (.92)     (1.30)
                                                                      --------   --------    --------    --------   --------
      Total distributions                                                 (.16)     (2.31)       (.88)      (1.11)     (1.53)
                                                                      --------   --------    --------    --------   --------
Net asset value, end of year                                          $  10.39   $  11.29    $  19.49    $  17.69   $  16.34
                                                                      ========   ========    ========    ========   ========
Total return(a)                                                          (6.54)%   (32.87)%     15.38%      15.29%     10.57%
Net assets, end of year (in thousands)                                $  2,381   $  3,210    $  5,928    $  5,659   $  4,062
Ratios to average net assets:
  Expenses                                                                1.97%      1.87%       1.86%       1.82%      1.83%
  Net investment income                                                   1.09%       .82%        .83%       1.07%      1.31%
  Expenses without waiver                                                 2.27%      2.15%       1.95%       1.82%      1.83%
  Net investment income without waiver                                     .79%       .54%        .72%       1.07%      1.31%
Portfolio turnover rate (excluding short-term securities)                129.0%     158.4%      132.0%      100.8%     139.8%


- ----------
(a)  Total return figures presented for the periods above assume reinvestment of
     distributions and do not include the effects of sales charges.

                                       101


Independent Auditors' Report

The Board of Directors and Shareholders
Advantus Bond Fund, Inc.
Advantus International Balanced Fund, Inc.
Advantus Money Market Fund, Inc.
Advantus Mortgage Securities Fund, Inc.
Advantus Spectrum Fund, Inc.:

     We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Advantus Bond Fund,
Inc., Advantus International Balanced Fund, Inc., Advantus Money Market Fund,
Inc., Advantus Mortgage Securities Fund, Inc., and Advantus Spectrum Fund, Inc.
(the Funds) as of September 30, 2002, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2002, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Advantus Bond Fund, Inc., Advantus International Balanced Fund, Inc., Advantus
Money Market Fund, Inc., Advantus Mortgage Securities Fund, Inc. and Advantus
Spectrum Fund, Inc. as of September 30, 2002, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.

                                    KPMG LLP

Minneapolis, Minnesota
November 8, 2002

                                       102


                                                  FEDERAL INCOME TAX INFORMATION

                                                                     (UNAUDITED)

     The following information for federal income tax purposes is presented as
an aid to shareholders in reporting the distributions paid by the Fund in the
fiscal period ended September 30, 2002. Dividends for the 2002 calendar year
will be reported to you on Form 1099-Div in late January 2003. Shareholders
should consult a tax adviser on how to report these distributions for state and
local purposes.

ADVANTUS BOND FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS A
                                                                        PER
PAYABLE DATE                                                           SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0404
November 30, 2001                                                        .0420
December 31, 2001                                                        .0449
January 31, 2002                                                         .0513
February 28, 2002                                                        .0375
March 31, 2002                                                           .0389
April 30, 2002                                                           .0447
May 31, 2002                                                             .0482
June 30, 2002                                                            .0418
July 31, 2002                                                            .0431
August 31, 2002                                                          .0404
September 30, 2002                                                       .0420
                                                                      --------
                                                                      $  .5152
                                                                      ========


INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS B
                                                                        PER
PAYABLE DATE                                                           SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0339
November 30, 2001                                                        .0358
December 31, 2001                                                        .0386
January 31, 2002                                                         .0449
February 28, 2002                                                        .0317
March 31, 2002                                                           .0326
April 30, 2002                                                           .0386
May 31, 2002                                                             .0418
June 30, 2002                                                            .0356
July 31, 2002                                                            .0366
August 31, 2002                                                          .0339
September 30, 2002                                                       .0356
                                                                      --------
                                                                      $  .4396
                                                                      ========


                                       103


INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS C
                                                                        PER
PAYABLE DATE                                                           SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0338
November 30, 2001                                                        .0357
December 31, 2001                                                        .0384
January 31, 2002                                                         .0447
February 28, 2002                                                        .0316
March 31, 2002                                                           .0325
April 30, 2002                                                           .0385
May 31, 2002                                                             .0417
June 30, 2002                                                            .0355
July 31, 2002                                                            .0365
August 31, 2002                                                          .0338
September 30, 2002                                                       .0355
                                                                      --------
                                                                      $  .4382
                                                                      ========


ADVANTUS INTERNATIONAL BALANCED FUND



CLASS A
                                                                                   PER
PAYABLE DATE                                                                      SHARE
- ------------                                                                     --------
                                                                              
September 27, 2002                                                               $  .0172*
                                                                                 ========
Capital gains distributions-taxable as long-term capital gains, 20% rate.
 December 14, 2001                                                               $  .1261
                                                                                 ========


* The total distribution of $.0172 includes - tax return of capital of $.0140

INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS B

                                                                                   PER
PAYABLE DATE                                                                      SHARE
- ------------                                                                     --------
                                                                              
Capital gains distributions-taxable as long-term capital gains, 20% rate.
December 14, 2001                                                                $  .1261
                                                                                 ========




CLASS C
                                                                                   PER
PAYABLE DATE                                                                      SHARE
- ------------                                                                     --------
                                                                              
Capital gains distributions-taxable as long-term capital gains, 20% rate.
December 14, 2001                                                                $  .1261
                                                                                 ========


                                       104


ADVANTUS MONEY MARKET FUND

INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR
DEDUCTIONS BY CORPORATIONS.



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0018
November 30, 2001                                                        .0014
December 31, 2001                                                        .0013
January 31, 2002                                                         .0011
February 28, 2002                                                        .0009
March 31, 2002                                                           .0010
April 30, 2002                                                           .0009
May 31, 2002                                                             .0009
June 30, 2002                                                            .0008
July 31, 2002                                                            .0009
August 31, 2002                                                          .0008
September 30, 2002                                                       .0008
                                                                      --------
                                                                      $  .0123
                                                                      ========


                                       105


ADVANTUS MORTGAGE SECURITIES FUND

INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS A
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0620
November 30, 2001                                                        .0581
December 31, 2001                                                        .0602
January 31, 2002                                                         .0637
February 28, 2002                                                        .0627
March 31, 2002                                                           .0403
April 30, 2002                                                           .0724
May 31, 2002                                                             .0653
June 30, 2002                                                            .0607
July 31, 2002                                                            .0692
August 31, 2002                                                          .0649
September 30, 2002                                                       .0509
                                                                      --------
                                                                      $  .7304*
                                                                      ========


* The total distribution of $.7304 includes a tax return of capital of $.0106.

INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS B
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0551
November 30, 2001                                                        .0514
December 31, 2001                                                        .0534
January 31, 2002                                                         .0569
February 28, 2002                                                        .0566
March 31, 2002                                                           .0336
April 30, 2002                                                           .0659
May 31, 2002                                                             .0585
June 30, 2002                                                            .0541
July 31, 2002                                                            .0624
August 31, 2002                                                          .0580
September 30, 2002                                                       .0441
                                                                      --------
                                                                      $  .6500*
                                                                      ========


* The total distribution of $.6500 includes a tax return of capital of $.0094.

                                       106


INCOME DISTRIBUTIONS - TAXABLE AS DIVIDEND INCOME, NONE QUALIFYING FOR DEDUCTION
BY CORPORATIONS.



CLASS C
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
October 31, 2001                                                      $  .0550
November 30, 2001                                                        .0513
December 31, 2001                                                        .0533
January 31, 2002                                                         .0568
February 28, 2002                                                        .0565
March 31, 2002                                                           .0335
April 30, 2002                                                           .0658
May 31, 2002                                                             .0584
June 30, 2002                                                            .0540
July 31, 2002                                                            .0623
August 31, 2002                                                          .0579
September 30, 2002                                                       .0441
                                                                      --------
                                                                      $  .6489*
                                                                      ========


* The total distribution of $.6489 includes a tax return of capital of $.0094.

ADVANTUS SPECTRUM FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 46.8% QUALIFYING FOR DEDUCTION
BY CORPORATIONS



CLASS A
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
December 14, 2001                                                        .0790
March 28, 2002                                                           .0457
June 21, 2002                                                            .0640
September 27, 2002                                                       .0652
                                                                      --------
                                                                      $  .2539
                                                                      ========


                                       107




CLASS B
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
December 14, 2001                                                        .0555
March 28, 2002                                                           .0246
June 21, 2002                                                            .0409
September 27, 2002                                                       .0438
                                                                      --------
                                                                      $  .1648
                                                                      ========




CLASS C
                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                          --------
                                                                   
December 14, 2001                                                        .0561
March 28, 2002                                                           .0221
June 21, 2002                                                            .0409
September 27, 2002                                                       .0442
                                                                      --------
                                                                      $  .1633
                                                                      ========


                                       108


ADVANTUS INTERNATIONAL BALANCED FUND

THE FUND HAS ELECTED TO PASS-THROUGH FOREIGN TAX CREDITS TO ITS SHAREHOLDERS.
THE FOLLOWING INFORMATION WILL AID YOU IN FILING FOR YOUR FOREIGN TAX CREDIT.



                                                                           CLASS A
                                                             CLASS A     FOREGIN TAX
                                                         FOREIGN INCOME   PAID PER
COUNTRY                                                     PER SHARE       SHARE
- -------                                                  --------------  -----------
                                                                   
Australia                                                  $ 0.009007    $        -
Belgium                                                      0.015464             -
Canada                                                       0.029844      0.001168
Denmark                                                      0.004509             -
Finland                                                      0.007678      0.001147
France                                                       0.043283      0.000584
Germany                                                      0.040126      0.001526
Hong Kong                                                    0.016344             -
Italy                                                        0.038488      0.000470
Japan                                                        0.028356      0.001069
Netherlands                                                  0.025102      0.001856
New Zealand                                                  0.006816      0.000568
Norway                                                       0.001242             -
Spain                                                        0.019268      0.001110
Sweden                                                       0.017562      0.002269
Switzerland                                                  0.002518      0.000280
United Kingdom                                               0.094151      0.005230
                                                           ----------    ----------
TOTAL FOREIGN                                                0.399760      0.017277
                                                           ----------    ----------
United States                                                0.043805             -
                                                           ----------    ----------
TOTAL                                                      $ 0.443564    $ 0.017277
                                                           ==========    ==========


                                       109


ADVANTUS FUND

DIRECTORS AND EXECUTIVE OFFICERS

Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund. Certain of the directors are considered
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund primarily by reason of their engagement as officers of the Fund's
investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or
as officers of companies affiliated with Advantus Capital, including Minnesota
Life Insurance Company ("Minnesota Life"). The remaining directors, because they
are not interested persons of the Fund, are considered independent ("Independent
Directors") and are not employees or officers of, and have no financial interest
in, Advantus Capital, Minnesota Life or their other affiliates. A majority of
the Board of Directors is comprised of Independent Directors.

The individuals listed in the table below serve as directors and officers of
each Fund, and also serve in the same capacity for each of the other seven
Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 29 portfolios, for which Advantus Capital serves as the
investment adviser). Only executive officers and other officers who perform
policy-making functions with the Funds are listed. None of the directors is a
director of any public company (a company required to file reports under the
Securities Exchange Act of 1934) or of any registered investment companies other
than the Advantus Funds. Each director serves for an indefinite term, until his
or her resignation, death or removal.



                        POSITION WITH FUND
NAME, ADDRESS(1)        AND LENGTH OF         PRINCIPAL OCCUPATION(s)
AND AGE                 TIME SERVED           DURING PAST 5 YEARS
- ---------------------------------------------------------------------------------------------------
                                        
INTERESTED DIRECTORS
William N. Westhoff     Director since        Retired; prior to July 26, 2002, President, Treasurer
Age: 55                 July 23, 1998         and Director, Advantus Capital Management, Inc.;
                                              Senior Vice President and Treasurer, Minnesota
                                              Life Insurance Company; Senior Vice President,
                                              Global Investments, American Express Financial
                                              Corporation, Minneapolis, Minnesota, from
                                              August 1994 to October 1997

Frederick P. Feuerherm  Vice President,       Vice President, Assistant Secretary and Director,
Age: 55                 Director and          Advantus Capital Management, Inc.; Vice
                        Treasurer since       President, Minnesota Life Insurance Company;
                        July 13, 1994         Vice President, Minnesota Mutual Companies, Inc.;
                                              Vice President, Securian Financial Group, Inc.;
                                              Vice President, Securian Holding Company; Vice
                                              President and Director, MIMLIC Funding, Inc.
                                              (entity holding legal title to bonds beneficially
                                              owned by certain clients of Advantus Capital);
                                              Vice President and Assistant Secretary, MCM
                                              Funding 1997-1, Inc. and MCM Funding 1998-1, Inc.
                                              (entities holding legal title to mortgages
                                              beneficially owned by certain clients of Advantus
                                              Capital); Treasurer, Ministers Life Resources,
                                              Inc.; Treasurer, The Ministers Life Insurance
                                              Company


                                       110




                                        
INDEPENDENT DIRECTORS
Ralph D. Ebbott         Director since        Retired, Vice President and Treasurer of
Age: 75                 October 22, 1985      Minnesota Mining and Manufacturing Company
                                              (industrial and consumer products) through
                                              June 1989

William C. Melton       Director since        Founder and President of Melton Research Inc.
Age: 54                 April 25, 2002        since 1997; member of the Advisory Board of
                                              Macroeconomic Advisors LLC since 1998;
                                              member, Minneapolis StarTribune Board of
                                              Economists since 1986; member, State of
                                              Minnesota Council of Economic Advisors from
                                              1988 to 1994; various senior positions at American
                                              Express Financial Advisors (formerly Investors
                                              Diversified Services and, thereafter, IDS/American
                                              Express) from 1982 through 1997, including Chief
                                              Economist and, thereafter, Chief International
                                              Economist

Ellen S. Berscheid      Director since        Regents' Professor of Psychology
Age: 65                 October 22, 1985      at the University of Minnesota

OTHER EXECUTIVE OFFICERS
Dianne M. Orbison       President since       President and Treasurer, Advantus Capital
Age: 50                 July 25, 2002         Management, Inc.; Vice President and Treasurer,
                                              Minnesota Life Insurance Company; Vice
                                              President and Treasurer, Minnesota Mutual
                                              Companies, Inc.; Vice President and Treasurer,
                                              Securian Financial Group, Inc.; Vice President and
                                              Treasurer, Securian Holding Company; President
                                              and Treasurer, MIMLIC Funding, Inc. (entity
                                              holding legal title to bonds beneficially owned by
                                              certain clients of Advantus Capital); President and
                                              Treasurer, MCM Funding 1997-1, Inc. and MCM
                                              Funding 1998-1, Inc. (entities holding legal title to
                                              mortgages beneficially owned by certain clients
                                              of Advantus Capital)

Michael J. Radmer       Secretary since       Partner with the law firm of
Dorsey & Whitney LLP    April 16, 1998        Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota
55402
Age: 57


- -----------
(1)  Unless otherwise noted, the address of each director and officer is the
     address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

The Fund's Statement of Additional Information (SAI) includes additional
information about Fund directors, and is available, without charge, upon
request. You may request a copy of the current SAI by telephoning Advantus
Shareholder Services, toll free, at (800) 665-6005.

                                       111


SHAREHOLDER SERVICES

     The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that may apply.

EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same share class) at any time as your needs change. Exchanges are at the
then current net asset value (exchanges from the Advantus Money Market Fund will
incur the applicable sales charge, if not previously subjected to the charge).
Shareholders may make twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.

INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.

SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.

DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead of
sending you a check.

TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.

SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".

AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.

REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge, if any.

                                       112


AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $500 when you agree to make investments
of not less than $50 under the plan and lower your average share cost through
"dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor
does it prevent loss in declining markets.) The Automatic Investment Plan allows
you to invest automatically monthly, semi-monthly or quarterly from your
checking or savings account.

IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.

TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check from your bank. Depending on the performance of the
underlying investment options, the value may be worth more or less than the
original amount invested upon redemption. Some limitations apply, please refer
to the prospectus for details.

ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.

TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 7:30
a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.

INTERNET ADDRESS: www.AdvantusFunds.com

HOW TO INVEST

You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Securian Financial Services, Inc., distributor of
the

                                       113


Funds. Contact your representative for information and a prospectus containing
more complete information including charges and expenses, for any of the
Advantus Funds you are interested in. Read the prospectus carefully before
investing. To find a Registered Representative near you, call the toll-free
service line (1-800-665-6005) or visit www.AdvantusFunds.com.

MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for
qualified accounts and accounts covered by an automatic investment plan).
Minimum subsequent investment is $50.

THE FUND'S MANAGER

Advantus Capital Management, Inc., investment adviser to the Fund, selects and
reviews the Fund's investments and provides executive and other personnel for
the Fund's management. (For the Advantus International Balanced Fund, Inc.,
Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management,
LLC, and State Street Research & Management Company, respectively, selects the
Fund's investments.)

Advantus Capital Management, Inc. manages twelve mutual funds containing $2.2
billion in assets in addition to $11.6 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 15 years of
investment experience.

ADVANTUS FAMILY OF FUNDS

Advantus Bond Fund

Advantus Horizon Fund

Advantus Spectrum Fund

Advantus Enterprise Fund

Advantus Cornerstone Fund

Advantus Money Market Fund

Advantus Mortgage Securities Fund

Advantus International Balanced Fund

Advantus Venture Fund

Advantus Index 500 Fund

Advantus Real Estate Securities Fund

                                       114



      THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
      TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT PROSPECTUS.
                READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.

[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

                              Distributed by:
                              SECURIAN FINANCIAL SERVICES, INC.
                              Securities Dealer, Member NASD/SIPC.
                              Registered Investment Advisor

                              400 Robert Street North, St. Paul, MN 55101-2098
                              1.888.237.1838
                              3010-2002-4838



SECURIAN FINANCIAL SERVICES, INC.
400 ROBERT STREET NORTH                                       PRESORTED STANDARD
ST. PAUL, MN 55101-2098                                        U.S. POSTAGE PAID
                                                                 ST. PAUL, MN
                                                                PERMIT NO. 3547


ADDRESS SERVICE REQUESTED


F. 58525 Rev. 11-2002

EX-99.(17)(X)

                                                                 Exhibit (17)(x)


[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

[GRAPHIC]

ADVANTUS FIXED INCOME
AND BLENDED FUNDS

SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED MARCH 31, 2003


ADVANTUS BOND FUND, INC.
AN AGGREGATE BOND FUND

ADVANTUS INTERNATIONAL BALANCED FUND, INC.
AN INTERNATIONAL STOCK AND BOND FUND

ADVANTUS MONEY MARKET FUND, INC.
A MONEY MARKET SECURITIES FUND

ADVANTUS MORTGAGE SECURITIES FUND, INC.
A MORTGAGE - RELATED SECURITIES FUND

ADVANTUS SPECTRUM FUND, INC.
AN ASSET ALLOCATION FUND


CUT DOWN PAPERWORK, NOT TREES

ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS.
TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005.



ADVANTUS FIXED INCOME AND BLENDED FUNDS

TABLE OF CONTENTS

                                                                   
PERFORMANCE UPDATES
   Bond Fund                                                            3
   International Balanced Fund                                          9
   Money Market Fund                                                   16
   Mortgage Securities Fund                                            19
   Spectrum Fund                                                       26

INVESTMENTS IN SECURITIES
   Bond Fund                                                           32
   International Balanced Fund                                         39
   Money Market Fund                                                   48
   Mortgage Securities Fund                                            52
   Spectrum Fund                                                       60

FINANCIAL STATEMENTS
   Statements of Assets and Liabilities                                70
   Statements of Operations                                            72
   Statements of Changes in Net Assets                                 74
   Notes to Financial Statements                                       78

DIRECTORS AND EXECUTIVE OFFICERS                                      101

SHAREHOLDER SERVICES                                                  103





LETTER FROM THE PRESIDENT

[PHOTO OF DIANNE ORBISON]

Dear Shareholder:

The military action in Iraq began on March 19, and it is no surprise that the
war has dominated the news and impacted market sentiment. The stock market has
been reacting to a number of macro factors, the largest of these being the Iraqi
conflict. Other concerns include the economy and the direction of interest
rates.

Over the past two years, the federal government and the Federal Reserve have
instituted the most stimulative fiscal and monetary policies in 50 years.
Changes in Federal fiscal policy have helped reverse a $200 billion annualized
surplus to a $375 billion deficit. Never have we experienced a turnaround of
this magnitude in just two years. The Fed's cheap money policy put interest
rates at 1950s levels. This combination has pumped significant liquidity into
the economy, but the economic spark has been slow to ignite.

Are economic and market conditions improving? We think so, albeit slowly. In the
short term, we look for business conditions to steadily improve and stock prices
to continue their slow upward trend. We feel that the long-awaited stock market
"recovery" will come about gradually and lack the dramatic upswing that many
investors wish for. We believe that the bond market will continue to be flat,
yet we anticipate upward pressure on interest rates, especially at the short end
of the yield curve (i.e., short-term rates). We expect to see a rise in interest
rates later this year.

Uncertainty and volatile markets are linked in a cause and effect relationship.
This is NOT a contemporary phenomenon; it is as old as the markets. Past periods
of uncertainty resulted in extreme market volatility. Those investors who
focused on the long-term and avoided overacting to short-term developments will
be -- in our opinion -- rewarded in the long run for their disciplined approach.

Regardless of economic conditions and market certainty, we believe that proper
asset allocation and strong diversification are critical to your successful
investing. We encourage you to annually review your asset allocation with your
financial representative, and, we thank you for investing with Advantus.

IMPORTANT INVESTMENT MANAGEMENT CHANGES AFFECTING THE ADVANTUS FUNDS ARE ALSO
OCCURRING:

All shareholders have previously been sent a prospectus supplement, dated April
24, 2003, containing important information about a transaction affecting the
management of the Advantus Funds. The Funds' investment adviser, Advantus
Capital Management, Inc. (Advantus Capital), and certain of its affiliates, have
announced an agreement with Waddell & Reed Financial, Inc.

                                        1


(W&R), a large mutual fund and investment management firm with headquarters in
Kansas City, under which Advantus Capital has agreed to sell its assets related
to the Advantus Funds to a W&R affiliate, Waddell & Reed Ivy Investment Company
(WRIICO). As part of the transaction, Advantus Capital will exit the retail
mutual fund business.

Advantus Capital has also recommended to the Board of Directors of each of the
Advantus Funds that the Fund be merged into an existing or newly formed shell
fund currently managed by WRIICO or another W&R affiliate. Each Fund's merger
will be subject to the approval of the Board of Directors and the Fund's
shareholders. In addition, because Advantus Capital does not actively manage
equity funds (other than real estate equity funds) after May 1, 2003, the Boards
of Directors of Advantus Cornerstone Fund, Inc. Advantus Horizon Fund, Inc. and
Advantus Spectrum Fund, Inc. have approved interim investment advisory
agreements under which WRIICO serves as the investment adviser to each of those
Funds effective May 1, 2003. All of these matters are described in greater
detail in the prospectus supplement. It is currently anticipated that
shareholders of the Advantus Funds will be presented with additional information
and specific merger proposals in September of 2003.

Sincerely,

/s/ Dianne Orbison

Dianne Orbison
President, Advantus Funds

                                        2


ADVANTUS BOND FUND, INC.

PERFORMANCE UPDATE

WAYNE SCHMIDT, PORTFOLIO MANAGER,
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The Fund's performance for the six-month period ended March 31, 2003, for each
class of shares offered was as follows:

                          
          Class A                      2.91 percent*
          Class B                      2.63 percent*
          Class C                      2.54 percent*

          

The Fund's benchmark, the Lehman Brothers Aggregate Bond Index,** returned 2.98
percent for the same period.

PERFORMANCE ANALYSIS

The steady three year decline in interest rates may be coming to an end as
intermediate and long U.S. Treasury interest rates actually moved higher during
the past six months. The yield on the five-year U.S. Treasury Note rose 15 basis
points (.15 percent) to yield 2.71 percent. The 30-year U.S. Treasury Bond yield
also climbed 15 basis points (.15 percent) higher to finish the period with a
4.82 percent yield.

The keys to an outstanding six month performance boiled down to owning the right
securities in the right sectors. Corporate bonds were the best performing sector
within the investment grade fixed income universe and they also represented the
Fund's largest overweight. Adding BBB names like: Public Service Company of
Colorado, Oncor Electric, Stancorp, USA Interactive and BF Goodrich, in the
fourth quarter of 2002 paid handsome dividends in the first quarter of 2003 as
their spreads to U.S. Treasuries tightened significantly. In the mortgage-backed
securities sector, our broad use of pool-specific low loan balance pools of
mortgages performed exceptionally well as their prepayment speeds were only a
fraction of the overall mortgage market. The addition of callable Agency
debentures added yield to the Fund and at the same time, provided a capital
preservation base.

OUTLOOK

These are extraordinary times. The geopolitical uncertainties ahead will create
significant short-term volatility, but we feel that the long-term direction
leans toward higher interest rates. The road will be bumpy, but when the dust
settles, we expect that the U.S. economy will improve as both the accommodative

                                        3


monetary and fiscal policy begins to take hold. We believe that yield and
principal preservation will be the key drivers to future fixed income
performance. We will seek ways to maximize the opportunities in your Portfolio
through superior security selection in the bond market.


*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 4.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns fluctuate so that shares upon redemption may be worth
more or less than their original cost.

**The Lehman Brothers Aggregate Bond Index is an unmanaged benchmark which
includes all publicly issued fixed rate, nonconvertible domestic corporate
debt.

                                        4


      COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
          ADVANTUS BOND FUND, LEHMAN BROTHERS AGGREGATE BOND INDEX AND
                              CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the
three classes of shares of the Advantus Bond Fund compared to the Lehman
Brothers Aggregate Bond Index and the Consumer Price Index. The lines in the
Class A graph represent the cumulative total return of a hypothetical $10,000
investment made on March 31, 1993 through March 31, 2003. The lines in the Class
B and Class C graphs represent the cumulative total return of a hypothetical
$10,000 investment made on the inception date of Class B and Class C shares of
the Advantus Bond Fund (August 19, 1994 and March 1, 1995 for Class B and C,
respectively) through March 31, 2003.

[CHART]

                                     CLASS A

AVERAGE ANNUAL TOTAL RETURN:

             
One year        6.64%
Five year       5.25%
Ten year        5.89%



(Thousands)



                 CLASS A       LEHMAN AGGREGATE          CPI
                                              
 3/31/1993       $ 10,000           $ 10,000           $ 10,000
10/31/1993       $ 10,670           $ 10,572           $ 10,161
 9/30/1994       $  9,957           $ 10,193           $ 10,419
 9/30/1995       $ 11,456           $ 11,627           $ 10,684
 9/30/1996       $ 11,918           $ 12,196           $ 11,005
 9/30/1997       $ 13,178           $ 13,381           $ 11,249
 9/30/1998       $ 14,370           $ 14,921           $ 11,410
 9/30/1999       $ 13,991           $ 14,867           $ 11,710
 9/30/2000       $ 14,697           $ 15,906           $ 12,114
 9/30/2001       $ 16,706           $ 17,966           $ 12,428
 9/30/2002       $ 18,027           $ 19,411           $ 12,624
 3/31/2003       $ 18,551           $ 20,094           $ 12,833


                                        5


[CHART]

                                     CLASS B

AVERAGE ANNUAL TOTAL RETURN:

                             
One year                        5.93%
Five year                       5.27%
Since inception (8/19/94)       6.67%



(Thousands)



                     CLASS B    LEHMAN AGGREGATE         CPI
                                             
8/19/1994           $ 10,000         $ 10,000         $ 10,000
9/30/1994           $  9,876         $  9,865         $ 10,027
9/30/1995           $ 11,251         $ 11,252         $ 10,282
9/30/1996           $ 11,602         $ 11,804         $ 10,591
9/30/1997           $ 12,730         $ 12,950         $ 10,826
9/30/1998           $ 13,810         $ 14,441         $ 10,981
9/30/1999           $ 13,349         $ 14,388         $ 11,269
9/30/2000           $ 13,904         $ 15,394         $ 11,659
9/30/2001           $ 15,706         $ 17,388         $ 11,961
9/30/2002           $ 16,947         $ 18,882         $ 12,149
3/31/2003           $ 17,439         $ 19,446         $ 12,351


                                        6


[CHART]

                                     CLASS C

AVERAGE ANNUAL TOTAL RETURN:

                            
One year                       10.85%
Five year                       5.44%
Since inception (3/1/95)        6.53%



(Thousands)



                 CLASS C     LEHMAN AGGREGATE        CPI
                                         
 3/1/1995       $ 10,000         $ 10,000         $ 10,000
9/30/1995       $ 10,925         $ 10,884         $ 10,126
9/30/1996       $ 11,265         $ 11,417         $ 10,430
9/30/1997       $ 12,348         $ 12,526         $ 10,661
9/30/1998       $ 13,372         $ 13,968         $ 10,813
9/30/1999       $ 12,909         $ 13,917         $ 11,098
9/30/2000       $ 13,459         $ 14,890         $ 11,481
9/30/2001       $ 15,187         $ 16,819         $ 11,779
9/30/2002       $ 16,266         $ 18,264         $ 11,964
3/31/2003       $ 16,687         $ 18,810         $ 12,163


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 4.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                        7


TEN LARGEST BOND HOLDING



                                                      MARKET         % OF BOND
SECURITY DESCRIPTION                                  VALUE          PORTFOLIO
- --------------------                               -----------       ---------
                                                                 
Federal Home Loan Mortgage Association
   6.500%, 09/01/32                                $   702,302          2.8%
Federal National Mortgage Association
   6.500%, 09/01/32                                    401,892          1.6%
Federal National Mortgage Association
   7.000%, 02/01/32                                    424,416          1.7%
Federal National Mortgage Association
   7.500%, 05/01/31                                    437,715          1.8%
U.S. Treasury Bond
   6.000%, 02/15/26                                    687,469          2.8%
U.S. Treasury Bond
   3.000%, 02/15/08                                    455,274          1.8%
U.S. Treasury Bond
   3.875%, 02/15/13                                    401,672          1.6%
Anheuser-Busch Companies, Inc.
   7.100%, 06/15/07                                    532,304          2.2%
Metropolitan Asset Funding, Inc. 144A Issue
   7.525%, 04/20/27                                    436,811          1.8%
The National Collegiate Trust 1997-S2
   7.240%, 09/20/14                                    405,221          1.6%
                                                   -----------         ----
                                                   $ 4,885,076         19.7%
                                                   ===========         ====


[CHART]

                                     
U.S. Treasury                            7.1%
U.S. Government Agencies                34.1%
AAA Rated                               11.7%
AA Rated                                 9.3%
A Rated                                 15.5%
BBB Rated                               20.2%
D Rated                                  0.4%
Cash and Other Assets/Liabilities        1.7%



                                        8


ADVANTUS INTERNATIONAL BALANCED FUND

PERFORMANCE UPDATE

ALEXANDER CALVO AND TUCKER SCOTT III, CFA, PORTFOLIO MANAGERS
TEMPLETON INVESTMENT COUNSEL, LLC.

PERFORMANCE

The Advantus International Balanced Fund's performance for the six-month period
ended March 31, 2003 for each class of shares offered was as follows:

              
          Class A          2.64 percent*
          Class B          2.22 percent*
          Class C          2.22 percent*

          

By comparison, an international equity index, the MSCI EAFE Index,** returned -
2.18 percent, and an international bond index, the J.P. Morgan Non-U.S.
Government Bond Index+ returned 9.99 percent for the same period. The Fund's
benchmark, a blended index comprised of 60% MSCI EAFE Index and 40% J.P. Morgan
Non-U.S. Government Bond Index, returned 2.74 percent for the same period.

PERFORMANCE ANALYSIS

The six-month period ended March 31, 2003, was a challenging period for equity
markets and investors. Global equity markets experienced uncertainty, and the
U.S. market in particular was the focus of worldwide attention. This was due
initially to investor anxiety about the war in Iraq, particularly its potential
destabilizing effect on the global economic recovery. An uncertain employment
outlook and the rise in oil and gasoline prices complicated the situation. A
drop in confidence led consumers and corporations to postpone major purchases.
The onset of the war led to a strong rally across many markets, reflecting
investor expectations for a short and decisive victory by the coalition forces.
However, the rally stalled after investors realized that it would take longer
than anticipated to win the war. On balance, a volatile quarter ended the
semi-annual period with global markets returning below the level they were at
the beginning of the year.

By equity sector, the Fund's relative performance was strong among Information
Technology, Energy, and Consumer-related holdings. In these sectors, Nortel,
Check Point Software, Repsol, and Adidas-Salomon AG made strong contributions to
Fund performance. However, Financials, Industrials, Health Care, and
Telecommunications Services holdings lagged the benchmark in relative
performance. In these sectors, BAE Systems, Aventis, and Cable & Wireless
detracted from the Fund's relative performance. By country, the Fund's relative
performance was strong in Japan (where the Fund remained underweight), Brazil,
and Germany, but holdings in Denmark and the United Kingdom lagged the
benchmark.

                                        9


In emerging markets, the South Korean stock market, where we have roughly 4
percent of the Fund's portfolio, has been under pressure lately. This has been
primarily for political reasons. Despite the Fund being overweight that market,
the performance of our holdings held up comparatively well during the period. We
believe the political strain should be temporary. Longer term, we expect that
companies in the United States and in other developed markets will continue to
face huge competitive threats from companies that are localized in emerging
markets such as South Korea. Many of these companies, which a few years back did
not even exist or were not publicly traded in a stock exchange, possess
tremendous cost advantages. Moreover, while in South Korea, companies such as
Samsung Electronics and LG Electronics have become global leaders in their niche
businesses, they have continued to trade at discounts to their peers in the
developed markets. We expect this valuation disparity to lessen over time. In
the meantime, we continue to view periods of market weakness in the South Korean
stock market as an opportunity to buy at a discount certain companies that we
consider high quality holdings.

In contrast to the challenges faced by equity investors, global fixed income
markets posted strong returns over the six-month period ended March 31, 2003.
Global bond markets benefited from the appreciation of most major currencies
against the U.S. dollar, as well as continued easing of monetary policy at major
central banks, particularly in Europe, to accommodate weak demand prospects and
disinflationary pressures. The global fixed income portion of the Fund benefited
from an overweight position in Australia, New Zealand and Euroland and the
respective strong currency gains in each market. Additionally, the Fund
benefited from an underweight exposure to Japan and United Kingdom, which
significantly underperformed within the benchmark.

The Federal Reserve Board reduced the Fed funds rate by 50 basis points (.50
percent) from 1.75% to 1.25% during the period. The U.S. Treasury curve
steepened, as short-term interest rates declined following the rate cut while
the long-end of the U.S. curve twisted upwards in response to relatively more
positive economic data proceeding the onset of the Iraqi war and market
expectations that the war will be shorter in duration. Meanwhile, the Euroland
benchmark yield curve shifted down during the period as lower growth and
inflations expectations prompted the European Central Bank lowered its reference
interest rate by 75 basis points (.75 percent) from 3.25 percent to 2.50
percent.

Euro Area bonds, including German, Italian, French and Spanish bonds, rose
approximately 14.81 percent in U.S. dollar terms during the six-month period,
supported by 10.63 percent appreciation of the Euro. The Dollar-bloc bond
markets (represented by New Zealand, Australia and Canada) posted relatively
strong performance, largely driven by strong currency gains. New Zealand and
Australian bonds outperformed, returning 22.46 percent and 14.77 percent in U.S.
dollar terms, respectively, while Canadian bonds slightly underperformed rising
9.04 percent. The New Zealand and Australian dollar were among the top
performing currencies for the period, which appreciated 18.37 percent and 11.41

                                       10


percent against the U.S. dollar. The Canadian dollar also performed well,
returning 8.15 percent. The U.K. index, which returned 2.60 percent in U.S.
dollar terms, underperformed the global markets, with the British Pound
appreciating 0.91 percent against the U.S. dollar. Similarly, the Japanese Index
underperformed the broader market returning 4.98 percent in U.S. dollar terms.
During the period, the Japanese Yen appreciated 3.15 percent against the U.S.
dollar.

OUTLOOK

Looking forward, our investment strategy from a fixed income perspective remains
focused on global macroeconomic fundamentals, predominantly continued global
interest rate convergence precipitated through weak demand, relative currency
strength against the U.S. dollar and disinflation in many of the major world
economies. More concisely, the Fund's positioning reflects two central points to
in our global outlook. First, with regard to currencies, we hold a defensive
view on U.S. dollar and the Japanese Yen, while a positive outlook on the Euro,
peripheral Europe, Australia and New Zealand. Second, we maintain a positive
long-term outlook for the prospects for yield curve compression to the U.S.
Treasury curve within peripheral Europe, Australia and New Zealand. Given
constrained economic conditions in core Europe, there is opportunity for
continued monetary easing and hence positive bond market performance in the
region. Furthermore, given globally benign and converging inflation rates, we
feel that there are opportunities for international interest rates to converge
closer to U.S. rates in regions such as Scandinavia, New Zealand and Australia,
which would also be positive for the respective bond markets.

Going forward from an equity perspective, we believe stock selection will remain
crucial, especially if the stock markets continue to be as volatile as they have
been over the past few quarters. However, we are convinced that heightened stock
market volatility can offer opportunities for the disciplined, long-term
investor, both to buy and to sell stocks. At Templeton, rather than speculating
on short-term market trends, we will continue to focus our attention on
identifying stocks that in our opinion are trading at a substantial discount to
long-term value. Our approach is disciplined, and cash will be put to work
slowly over time as we identify stocks that we believe offer the strongest
long-term prospects.

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The MSCI EAFE Index is an unmanaged index of common stocks from European,
Australian, and Far Eastern markets.

+The J.P. Morgan Non-U.S. Government Bond Index includes all liquid foreign
government issues of Australia, Belgium, Canada, Denmark, France, Germany,
Italy, Japan, Netherlands, Spain, Sweden and United Kingdom. It is the income
from sales of goods and services, minus the cost associated with things like
returned or undeliverable merchandise. Also called "Sales", "Net Sales", "Net
Revenue", and just plain "Revenue".

                                       11


             COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
             ADVANTUS INTERNATIONAL BALANCED FUND, MSCI EAFE INDEX,
           J.P. MORGAN NON-U.S. GOVERNMENT BOND INDEX, A BLENDED INDEX
                            AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the
three classes of shares of the Advantus International Balanced Fund compared to
the MSCI EAFE Index, the J.P. Morgan Non-U.S. Government Bond Index, a blended
index comprised of 60% MSCI EAFE Index and 40% J.P. Morgan Non-U.S. Government
Bond Index, and the Consumer Price Index. The five lines in each graph represent
the cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus International Balanced
Fund (September 16, 1994 for Class A, January 31, 1997 for Class B, and March 1,
1995 for Class C) through March 31, 2003.

[CHART]

                                     CLASS A

AVERAGE ANNUAL TOTAL RETURN:

                           
One year                      -13.26%
Five year                      -2.50%
Since Inception (9/16/94)       2.95%



(Thousands)



                CLASS C        EAFE      J.P. MORGAN      CPI        BLENDED
                                                     
9/16/1994       $ 10,000     $ 10,000     $ 10,000     $ 10,000     $ 10,000
9/30/1994       $  9,274     $  9,845     $ 10,094     $ 10,054     $  9,944
9/30/1995       $  9,961     $ 10,460     $ 11,972     $ 10,275     $ 11,056
9/30/1996       $ 11,030     $ 11,399     $ 12,605     $ 10,584     $ 11,890
9/30/1997       $ 13,576     $ 12,819     $ 12,639     $ 10,818     $ 12,783
9/30/1998       $ 11,809     $ 11,782     $ 14,133     $ 10,973     $ 12,783
9/30/1999       $ 13,775     $ 15,472     $ 14,256     $ 11,261     $ 15,189
9/30/2000       $ 14,639     $ 16,466     $ 13,087     $ 11,643     $ 15,304
9/30/2001       $ 13,092     $ 11,477     $ 13,693     $ 11,952     $ 13,693
9/30/2002       $ 12,488     $  9,739     $ 12,000     $ 12,126     $ 12,973
3/31/2003       $ 12,817     $  9,175     $ 13,199     $ 12,334     $ 13,328


                                       12


[CHART]

                                     CLASS B

AVERAGE ANNUAL TOTAL RETURN:

                           
One year                      -13.50%
Five year                      -2.45%
Since inception (1/31/97)       0.25%



(Thousands)



                CLASS B        EAFE     J.P. MORGAN      CPI         BLENDED
                                                     
1/31/1997       $ 10,000     $ 10,000     $ 10,000     $ 10,000     $ 10,000
9/30/1997       $ 10,730     $ 11,246     $ 10,027     $ 10,094     $ 10,751
9/30/1998       $  9,264     $ 10,336     $ 11,212     $ 10,238     $ 10,752
9/30/1999       $ 10,887     $ 13,573     $ 11,310     $ 10,507     $ 12,775
9/30/2000       $ 11,589     $ 14,445     $ 10,382     $ 10,864     $ 12,872
9/30/2001       $ 10,347     $ 10,068     $ 10,862     $ 11,151     $ 10,862
9/30/2002       $  9,884     $  9,784     $ 12,000     $ 11,314     $ 10,291
3/31/2003       $ 10,155     $  9,571     $ 13,199     $ 11,508     $ 10,292


                                       13


[CHART]

                                     CLASS C

AVERAGE ANNUAL TOTAL RETURN:

                            
One year                       -8.94%
Five year                      -2.18%
Since Inception (3/1/95)        3.63%



(Thousands)



                 CLASS C        EAFE      J.P. MORGAN       CPI          BLENDED
                                                         
 3/1/1995       $ 10,000      $ 10,000      $ 10,000      $ 10,000      $ 10,000
9/30/1995       $ 11,026      $ 11,175      $ 11,198      $ 10,146      $ 11,192
9/30/1996       $ 12,120      $ 12,179      $ 11,791      $ 10,450      $ 12,036
9/30/1997       $ 14,780      $ 13,696      $ 11,822      $ 10,682      $ 12,940
9/30/1998       $ 12,759      $ 12,588      $ 13,219      $ 10,834      $ 12,940
9/30/1999       $ 14,763      $ 16,530      $ 13,335      $ 11,119      $ 15,375
9/30/2000       $ 15,555      $ 17,592      $ 12,241      $ 11,497      $ 15,492
9/30/2001       $ 13,801      $ 12,262      $ 12,807      $ 11,801      $ 12,807
9/30/2002       $ 13,055      $ 10,406      $ 14,150      $ 11,974      $ 12,133
3/31/2003       $ 13,345      $ 10,179      $ 15,563      $ 12,179      $ 12,466


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       14


FIVE LARGEST STOCK HOLDINGS



                                                     MARKET       % OF STOCK
COMPANY                                 SHARES        VALUE        PORTFOLIO
- -------                                -------     -----------    ----------
                                                           
Vestas Wind Systems                     74,810     $   566,110       2.6%
Nippon Telephone &
   Telegraph Corporation                   158         536,971       2.5%
BHP Billiton PLC                       100,220         502,168       2.3%
Nordic                                 113,190         496,522       2.3%
Checkpoint Software                     33,700         487,639       2.2%
                                                   -----------      ----
                                                   $ 2,589,410      11.9%
                                                   ===========      ====


FIVE LARGEST BOND HOLDINGS



                                                     MARKET       % OF BOND
COMPANY                                               VALUE       PORTFOLIO
- -------                                            -----------    ---------
                                                              
United Kingdom
   7.50%, 12/07/06                                 $ 1,197,494       7.4%
Netherlands Government
   5.75%, 2/15/07                                    1,186,434       7.3%
Government of New Zealand
   7.00%, 7/15/09                                    1,147,143       7.1%
Government of France
   4.00%, 10/25/09                                   1,104,120       6.8%
Bundesrepublic
   5.00%, 7/04/11                                    1,020,545       6.3%
                                                   -----------      ----
                                                   $ 5,655,736      34.9%
                                                   ===========      ====


[CHART]

                                    
Financial                               9.9%
Energy                                 10.4%
Communication Services                  4.9%
Technology                              2.7%
Capital Goods                           8.3%
Consumer Cyclical                       3.1%
Basic Materials                         7.1%
Utilities                               3.1%
Health Care                             1.8%
Consumer Staples                        2.5%
Foreign Government Bonds               40.2%
Cash and Other Assets/Liabilities       6.0%



                                       15


ADVANTUS MONEY MARKET FUND

PERFORMANCE UPDATE

STEVE NELSON, CFA, PORTFOLIO MANAGER,
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

For the six month period ended March 31, 2003, the Advantus Money Market Fund
earned a total return of .33 percent.* This compares to the three-month U.S.
Treasury Bill, which earned .74 percent for the same period. The seven-day
compound yield of the Fund was .99 percent* for the same period

PERFORMANCE ANALYSIS

Over the past six months short-term interest rates continued to decline,
reaching their lowest levels in decades. The Federal Reserve cut the Fed Funds
rate by another 50 basis points (.50 percent) at their November meeting. The
rate cut was the twelfth time over the past two years the Fed has eased monetary
policy to ignite the sluggish U.S. economy. As a result, over the past half year
the yield on the three month T-bill declined another .46 percent to .74 percent
while the yield on the six month T-bill declined .39 percent to 1.11 percent.

On an absolute basis, money market returns were quite low as a result of
extremely low levels of short-term interest rates and a very steep yield curve.
With rates so low, the yields offered in the commercial paper market have
steadily declined, with most issuers now offering only around 1.25 percent
yields.

After cutting the Fed Funds rate in November the Federal Reserve changed its
bias to "balanced" from "weakness" as it relates to the state of the economy and
future rate moves. The Fed kept their bias balanced at the December and January
meetings as well. Then, due to the significant uncertainties related to the
impending war with Iraq, they refrained entirely at their March 18th meeting
from characterizing the risks facing the economy (i.e., they had no bias).

The prospect of war has been set aside and replaced with concerns about the
duration of the U.S. occupation of Iraq and how the post-war geopolitical
situation will unfold. This will continue to concern Americans and most citizens
globally for some time. As such, another drop in rates by the Fed is possible.
However, the potential for short-term rates to move still lower casts some doubt
about the willingness of investors to continue to participate in money markets
and thereby provide financing to corporations. Ultimately, the prognosis for the
U.S. economy once the war-related uncertainties subside will determine whether
another rate cut is necessary.

                                       16


OUTLOOK

We believe that high-quality U.S. corporate commercial paper remains a sound,
albeit low-yielding alternative for investors seeking a high degree of safety
and liquidity. We believe this is especially true given the current geopolitical
backdrop and uncertainty about the strength of the U.S. economy. The Portfolio
has over 95 percent of its assets invested in high quality corporate commercial
paper (i.e., commercial paper that is rated A-1 or higher by Standard and Poor's
and P-1 by Moody's). In addition, the Portfolio's holdings are well diversified
over a variety of stable industries. While we expect that money market returns
will stay low over the next several months, investors should consider the
Portfolio's benefits of excellent liquidity and principal preservation as they
make their asset allocation decisions.

[CHART]

                            AVERAGE DAYS TO MATURITY



                      NUMBER OF DAYS
                         
 10/1/2002                  48
 10/8/2002                  44
10/15/2002                  41
10/22/2002                  39
10/29/2002                  37
 11/5/2002                  32
11/12/2002                  55
11/19/2002                  60
11/26/2002                  59
 12/3/2002                  52
12/10/2002                  56
12/17/2002                  56
12/24/2002                  58
12/31/2002                  52
  1/7/2003                  46
 1/14/2003                  46
 1/21/2003                  40
 1/28/2003                  42
  2/4/2003                  43
 2/11/2003                  41
 2/18/2003                  40
 2/25/2003                  39
  3/4/2003                  42
 3/11/2003                  39
 3/18/2003                  36
 3/25/2003                  40


*Historical performance is not an indication of future performance. Investment
returns will fluctuate. Investments in the Money Market account are neither
insured nor guaranteed by the federal deposit insurance corporation or any other
government agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.

                                       17


[CHART]

                            SEVEN-DAY COMPOUND YIELD*



                 PERCENTAGE
                
 10/1/2002         0.91%
 10/8/2002         1.03%
10/15/2002         0.95%
10/22/2002         0.97%
10/29/2002         0.96%
 11/5/2002         0.95%
11/12/2002         0.88%
11/19/2002         0.99%
11/26/2002         0.79%
 12/3/2002         0.73%
12/10/2002         0.66%
12/17/2002         0.56%
12/24/2002         0.65%
12/31/2002         0.57%
  1/7/2003         0.63%
 1/14/2003         0.53%
 1/21/2003         0.49%
 1/28/2003         0.55%
  2/4/2003         0.47%
 2/11/2003         0.47%
 2/18/2003         0.40%
 2/25/2003         0.49%
  3/4/2003         0.47%
 3/11/2003         0.48%
 3/18/2003         0.46%
 3/25/2003         0.51%


                                       18


ADVANTUS MORTGAGE SECURITIES FUND

PERFORMANCE UPDATE

KENT WEBER, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The performance of the Fund for the six-month period ended March 31, 2003 was as
follows for the three classes of shares currently outstanding:

                         
          Class A                     2.25 percent*
          Class B                     1.88 percent*
          Class C                     1.97 percent*

          

The Fund's benchmark, the Lehman Brothers Mortgage-Backed Securities Index**,
returned 2.29 percent for the same period.

PERFORMANCE ANALYSIS

Over the last six months, the mortgage market, inclusive of asset backed and
commercial backed securities, has delivered you competitive total returns. This
solid performance is being propelled forward by both incremental income and
moderate spread tightening as a result of strong investor demand, solid credit
fundamentals, manageable prepayments and declining market volatility.

Overall the mortgage market continues to attract a great deal of interest from
income hungry investors looking for high quality fixed income opportunities
without lots of interest rate risk. The commercial mortgage backed and asset
backed securities markets actually delivered the best relative performance
during this period as prepayment levels in those markets were modest and credit
fundamentals either continued to improve or stabilized.

Interest rates remained within an established trading range over the last two
quarters. In turn, continued strong housing markets in combination with
stubbornly low interest rates have helped maintain high levels of refinancing
activity especially within the prime credit quality sectors of the residential
mortgage markets. The mortgage index is, therefore, constantly being repopulated
each month with lower coupon securities carrying less prepayment risk but
moderately more duration. The duration of the mortgage index is still less than
2 years and the mortgage market remains a virtual smorgasbord of investment
opportunities.

INVESTMENT OVERVIEW

The focus of our investment strategies remains on upside opportunities in
security selection and the benefits of prudent, opportunistic diversification in
this slow growth environment that has encountered periods of high credit
volatility, historically fast prepayments and been periodically challenged by
waves of limited liquidity. Some general themes employed throughout the

                                       19


period that have contributed to the strong relative performance of your
portfolio include:

- -  Movement to a duration neutral position as interest rates moved to new lows
   in the more recent quarter and the mortgage index continues to gradually
   extend each month as lower coupon securities replaced higher coupon
   securities at record pace.

- -  Remained fully invested as the opportunity cost of holding cash remains high.

- -  Agency mortgage securities: underweight high premium sectors and own only
   specified premium pools with favorable prepayment characteristic in
   combination with using dollar rolls with our current coupon new issue pools.
   Since the beginning of the year, it seems like every investor is getting
   involved in the specified pool market (we were an early sponsor of these
   agency markets moving actively into these securities in early 2000). The good
   prepayment stories are approaching full value, but still make excellent core
   holdings against the Index.

- -  Reduced our commercial mortgage-backed securities allocation as some
   securities are approaching full valuations.

- -  Selectively, increased our allocation to the asset backed market and
   non-agency residential sectors as risk adjusted returns look attractive.

- -  Preference for securities that benefit from this steep yield curve
   environment and roll down the curve gracefully.

OUTLOOK

We feel that the recovery so eagerly anticipated and actively pursued through
the use of aggressive monetary and fiscal policies has merely been delayed and
not repealed. Ultimately, we believe that the economy will heal as businesses
and consumers continue to repair their balance sheets. While it may be closer to
the end of the year before we see meaningful economic traction, in our opinion
it's at this point that rates should start to move higher and return to more
normalized levels. In this income-thirsty, steep-yield curve environment, we
feel that mortgages should continue to perform well fundamentally and demand
should stay robust. We are looking for the general level of total returns to
normalize in the mid-single digits and be driven more by income and less by
capital gains.

Thank you for your business. We work hard to earn your trust and deliver our
shareholders a unique, value-added mortgage portfolio.

* Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 4.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

** The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged
benchmark composite which includes all fixed-rate securities backed by mortgage
pools of the Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA).

                                       20


 COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS
 MORTGAGE SECURITIES FUND, LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX AND
                              CONSUMER PRICE INDEX

On the following three charts you can see how the total return for
each of the three classes of shares of the Advantus Mortgage Securities Fund
compared to the Lehman Brothers Mortgage-Backed Securities Index and the
Consumer Price Index. The lines in the Class A graph represent the cumulative
total return of a hypothetical $10,000 investment made on March 31, 1993 through
March 31, 2003. The lines in the Class B and Class C graphs represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class B and Class C shares (August 19, 1994 and March 1, 1995,
respectively) through March 31, 2003.

[CHART]

                                     CLASS A

AVERAGE ANNUAL TOTAL RETURN:

                 
One year            4.81%
Five year           6.68%
Ten year            6.64%



(Thousands)



                             LEHMAN BROTHERS MORTGAGE-
              CLASS A         BACKED SECURITIES INDEX           CPI
                                                     
 3/31/1993      $ 10,000               $ 10,000               $ 10,000
10/31/1993      $ 10,060               $ 10,314               $ 10,161
 9/30/1994      $  9,623               $ 10,166               $ 10,419
 9/30/1995      $ 10,925               $ 11,542               $ 10,684
 9/30/1996      $ 11,453               $ 12,212               $ 11,005
 9/30/1997      $ 12,640               $ 13,438               $ 11,249
 9/30/1998      $ 13,782               $ 14,597               $ 11,410
 9/30/1999      $ 14,054               $ 14,929               $ 11,710
 9/30/2000      $ 15,136               $ 16,037               $ 12,114
 9/30/2001      $ 17,240               $ 18,016               $ 12,428
 9/30/2002      $ 18,599               $ 19,343               $ 12,624
 3/31/2003      $ 19,017               $ 19,787               $ 12,833


                                       21


[CHART]

                                     CLASS B

AVERAGE ANNUAL TOTAL RETURN:

                              
One year                         3.94%
Five year                        6.64%
Since inception (8/19/94)        7.53%



(Thousands)



                               LEHMAN BROTHERS MORTGAGE-
                 CLASS B         BACKED SECURITIES INDEX         CPI
                                                      
8/19/1994        $ 10,000              $ 10,000                $ 10,000
9/30/1994        $  9,928              $  9,889                $ 10,027
9/30/1995        $ 11,192              $ 11,227                $ 10,282
9/30/1996        $ 11,647              $ 11,878                $ 10,591
9/30/1997        $ 12,771              $ 13,071                $ 10,826
9/30/1998        $ 13,821              $ 14,198                $ 10,981
9/30/1999        $ 13,990              $ 14,521                $ 11,269
9/30/2000        $ 14,955              $ 15,599                $ 11,659
9/30/2001        $ 16,942              $ 17,524                $ 11,961
9/30/2002        $ 18,278              $ 18,815                $ 12,149
3/31/2003        $ 18,688              $ 19,246                $ 12,351


                                       22


[CHART]

                                     CLASS C

AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             8.94%
Five year                            6.87%
Since inception (3/1/95)             7.38%



(Thousands)



                            LEHMAN BROTHERS MORTGAGE-
                 CLASS C      BACKED SECURITIES INDEX        CPI
                                                  
 3/1/1995       $ 10,000             $ 10,000              $ 10,000
9/30/1995       $ 10,791             $ 10,793              $ 10,126
9/30/1996       $ 11,230             $ 11,419              $ 10,430
9/30/1997       $ 12,314             $ 12,566              $ 10,661
9/30/1998       $ 13,339             $ 13,649              $ 10,813
9/30/1999       $ 13,489             $ 13,959              $ 11,098
9/30/2000       $ 14,419             $ 14,995              $ 11,481
9/30/2001       $ 16,301             $ 16,846              $ 11,779
9/30/2002       $ 17,440             $ 18,087              $ 11,964
3/31/2003       $ 17,776             $ 18,502              $ 12,163


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 4.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       23


TEN LARGEST BOND HOLDING



                                                      MARKET         % OF BOND
SECURITY DESCRIPTION                                   VALUE         PORTFOLIO
- --------------------                               ------------      ---------
                                                                  
Federal National Mortgage Association
   6.000%, 10/01/32                                $  5,886,910         4.5%
Federal National Mortgage Association
   6.000%, 11/01/32                                   3,144,559         2.4%
Federal National Mortgage Association
   6.000%, 03/01/33                                   6,591,705         5.1%
Federal National Mortgage Association
   6.500%, 03/31/32                                   2,661,995         2.0%
Federal National Mortgage Association
   6.500%, 07/01/32                                   3,406,076         2.6%
Federal National Mortgage Association
   6.500%, 08/01/32                                   3,933,370         3.0%
Federal National Mortgage Association
   6.500%, 09/01/32                                   6,575,629         5.1%
Federal National Mortgage Association
   7.000%, 06/01/32                                   3,566,551         2.7%
Federal Home Loan Mortgage Association
   6.500%, 09/01/32                                   4,263,976         3.3%
Paine Webber Mortgage Acceptance Corporation
   144A Issue
   7.655%, 01/02/12                                   2,693,571         2.1%
                                                   ------------        ----
                                                   $ 42,724,342        32.9%
                                                   ============        ====


[CHART]

                                                         
Cash and Other Assets/Liabilities                            3.3%
FHLMC                                                        7.5%
FNMA                                                        39.9%
GNMA                                                         1.2%
Asset Backed Securities                                     18.3%
Collateralized Mtg. Obligation/Mtg Rev. Bonds               20.2%
Non-Agency Commercial Mtg-Backed Securities                  6.8%
Other Agency Obligations                                     0.4%
Vendee Mortgage Trust                                        0.8%
State and Local Government Obligations                       0.6%
Health Care                                                  1.0%



                                       24


[CHART]

                                                                         
Cash and Other Assets/Liabilities                                            3.3%
Liquid 144A Issues                                                          13.6%
Illiquid 144A Issues and Other Private Placement Illiquid Issues             2.8%
Public Issues                                                               80.3%



[CHART]

                                         
Cash and Other Assets/Liabilities            3.3%
AAA Rated                                   66.3%
AA Rated                                    10.6%
A Rated                                      5.3%
BBB Rated                                   11.8%
BB Rated                                     2.3%
D Rated                                      0.4%



                                       25


ADVANTUS SPECTRUM FUND, INC.

PERFORMANCE UPDATE

MATT FINN AND ALLEN STEINKOPF, EQUITY FUND MANAGERS,
ADVANTUS CAPITAL MANAGEMENT, INC.

WAYNE SCHMIDT, FIXED INCOME FUND MANAGER,
ADVANTUS CAPITAL MANAGEMENT, INC.

(Effective May 1, 2003, Spectrum Fund is managed by Waddell & Reed Ivy
Investment Company. See the President's letter on page 1.)

PERFORMANCE

The Fund's performance for the six-month period ended March 31, 2003 for each
class of shares offered was as follows:

                  
          Class A              4.73 percent*
          Class B              4.27 percent*
          Class C              4.21 percent*

          

This compares to the Fund's benchmark, a blend of 60 percent S&P 500 Index** and
40 percent Lehman Brothers Aggregate Bond Index+, which returned 4.04 percent
over the same period. The S&P 500 Index and the Lehman Brothers Aggregate Bond
Index returned 5.02 percent and 2.98 percent, respectively, for the same period.

* Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

** The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

+ The Lehman Brothers Aggregate Bond Index is comprised of the Lehman Brothers
Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed Securities
Index and the Lehman Brothers Asset-Backed Securities Index.

                                       26


PERFORMANCE ANALYSIS

The Fund beat its benchmark with strong security selection. The equity
side was boosted by our exposure to stocks as the S&P was up 5.10 percent, while
holdings in corporate bonds were the best performing sector within the
investment grade fixed income universe and represented the fixed income side's
largest overweight.

The Health Care sector, aided by the performance of Amgen, Inc. and St. Jude
Medical, Inc., was the best performing sector for the Fund. Both companies are
in the midst of a ramp up of new products that are being met with consumer
enthusiasm. The health care system in the U.S. has grown double digits in the
last three years and this increase in funds has found its way into the companies
that are offering differentiated products that are immune from generic
competition. The Energy sector was also a positive performer as the U.S. natural
gas market has become incredibly tight. With oil prices high because of the war,
fuel switching is not economical for companies using natural gas. This has
increased the price for natural gas and this increase is starting to find its
way to the bottom line of companies in the Energy sector.

                                       27


      COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
       ADVANTUS SPECTRUM FUND, RUSSELL 1000 GROWTH INDEX, LEHMAN BROTHERS
          AGGREGATE BOND INDEX, BLENDED INDEX AND CONSUMER PRICE INDEX

On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Spectrum Fund compared to the Lehman
Brothers Aggregate Bond Index, the S & P 500 Index, blended index of 60 percent
S & P 500 Index and 40 percent Lehman Brothers Aggregate Bond Index, and the
Consumer Price Index. The lines in the Class A graph represent the cumulative
total return of a hypothetical $10,000 investment made on March 31, 1993 through
March 31, 2003. The lines in the Class B and Class C graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of Class B and Class C shares of the Advantus Spectrum Fund
(August 19, 1994 and March 1, 1995, respectively) through March 31, 2003.

[CHART]

                                     CLASS A

AVERAGE ANNUAL TOTAL RETURN:

             
One year        -16.12%
Five year        -3.41%
Ten year          4.16%



(Thousands)



                CLASS A         CPI          BLENDED INDEX     S&P 500 INDEX     LEHMAN AGGREGATE
                                                                      
 3/31/1993     $ 10,000       $ 10,000         $ 10,000           $ 10,000           $ 10,000
10/31/1993     $  9,749       $ 10,161         $ 10,552           $ 10,519           $ 10,572
 9/30/1994     $  9,562       $ 10,419         $ 10,497           $ 10,687           $ 10,193
 9/30/1995     $ 11,320       $ 10,684         $ 12,944           $ 13,865           $ 11,627
 9/30/1996     $ 12,872       $ 11,005         $ 14,753           $ 16,684           $ 12,196
 9/30/1997     $ 15,016       $ 11,249         $ 18,815           $ 23,433           $ 13,381
 9/30/1998     $ 16,715       $ 11,410         $ 20,804           $ 25,553           $ 14,921
 9/30/1999     $ 19,402       $ 11,710         $ 24,131           $ 32,659           $ 14,867
 9/30/2000     $ 22,547       $ 12,114         $ 26,803           $ 36,991           $ 15,906
 9/30/2001     $ 15,254       $ 12,428         $ 23,512           $ 27,144           $ 17,966
 9/30/2002     $ 14,353       $ 12,624         $ 21,315           $ 21,584           $ 19,411
 3/31/2003     $ 15,032       $ 12,833         $ 22,264           $ 22,668           $ 20,094


                                       28


[CHART]

                                     CLASS B

AVERAGE ANNUAL TOTAL RETURN:

                                
One year                           -16.27%
Five year                           -3.25%
Since inception (8/19/94)            4.85%



(Thousands)



                 CLASS B           CPI        BLENDED INDEX       S&P 500 INDEX       LEHMAN AGGREGATE
                                                                            
8/19/1994       $ 10,000         $ 10,000        $ 10,000            $ 10,000              $ 10,000
9/30/1994       $ 10,005         $ 10,027        $  9,793            $ 10,013              $  9,865
9/30/1995       $ 11,768         $ 10,282        $ 12,076            $ 12,991              $ 11,252
9/30/1996       $ 13,306         $ 10,591        $ 13,764            $ 15,632              $ 11,804
9/30/1997       $ 15,437         $ 10,826        $ 17,553            $ 21,955              $ 12,950
9/30/1998       $ 17,066         $ 10,981        $ 19,409            $ 23,942              $ 14,441
9/30/1999       $ 19,678         $ 11,269        $ 22,513            $ 30,600              $ 14,388
9/30/2000       $ 22,693         $ 11,659        $ 25,006            $ 34,658              $ 15,394
9/30/2001       $ 15,262         $ 11,961        $ 21,929            $ 25,433              $ 17,388
9/30/2002       $ 14,361         $ 12,149        $ 19,880            $ 20,223              $ 18,882
3/31/2003       $ 15,040         $ 12,351        $ 20,764            $ 21,239              $ 19,446


                                       29


[CHART]

                                     CLASS C

AVERAGE ANNUAL TOTAL RETURN:

                           
One year                      -12.00%
Five year                      -3.05%
Since inception (3/1/95)        4.39%



(Thousands)



             CLASS C        CPI      BLENDED INDEX   S&P 500 INDEX     LEHMAN AGGREGATE
                                                             
 3/1/1995    $ 10,000    $ 10,000       $ 10,000        $ 10,000            $ 10,000
9/30/1995    $ 11,263    $ 10,126       $ 11,648        $ 12,214            $ 10,884
9/30/1996    $ 12,713    $ 10,430       $ 13,275        $ 14,698            $ 11,417
9/30/1997    $ 14,731    $ 10,661       $ 16,930        $ 20,643            $ 12,526
9/30/1998    $ 16,288    $ 10,813       $ 18,720        $ 22,511            $ 13,968
9/30/1999    $ 18,778    $ 11,098       $ 21,714        $ 28,771            $ 13,917
9/30/2000    $ 21,649    $ 11,481       $ 24,118        $ 32,587            $ 14,890
9/30/2001    $ 14,534    $ 11,779       $ 21,150        $ 23,913            $ 16,819
9/30/2002    $ 13,583    $ 11,964       $ 19,174        $ 19,014            $ 18,264
3/31/2003    $ 14,167    $ 12,163       $ 20,028        $ 19,969            $ 18,810


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       30


FIVE LARGEST STOCK HOLDING



                                                     MARKET        % OF STOCK
COMPANY                                 SHARES        VALUE        PORTFOLIO
- -------                                 ------     -----------     ----------
                                                            
Pfizer, Inc                             34,725       1,082,031        3.6%
Exxon Mobil Corporation                 30,600       1,069,470        3.6%
Microsoft Corporation                   41,576       1,006,555        3.3%
Citigroup, Inc                          23,000         792,350        2.6%
General Electric Company                31,056         791,928        2.6%
                                                   -----------       ----
                                                   $ 4,742,334       15.8%
                                                   ===========       ====


[CHART]

                                      
Bonds                                    34.8%
S&P Depository Receipt                    0.5%
Common Stock                             62.1%
Cash & Other Assets/Liabilities           2.6%



[CHART]

BOND PORTFOLIO CHARACTERISTICS-QUALITY BREAKDOWN

                                  
U.S. Treasury                        12.9%
U.S. Government Agencies             38.0%
AAA Rated                             9.8%
AA Rated                             10.1%
A Rated                              15.0%
BBB Rated                            13.3%
CCC Rated                             0.7%
D Rated                               0.2%



                                       31


ADVANTUS BOND FUND
INVESTMENTS IN SECURITIES
MARCH 31, 2003 (UNAUDITED)

(Percentages of each investment category relate to total net assets.)



                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
LONG-TERM DEBT SECURITIES (98.3%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (41.2%)
    Federal Home Loan Mortgage Corporation (FHLMC) (6.0%)
     $ 250,000                                              2.500%      04/22/05         $       251,560
       150,000                                              2.500%      07/28/05                 151,080
       250,000                                              2.750%      12/30/05                 251,634
       150,000                                              4.375%      02/04/10                 152,340
       669,576                                              6.500%      09/01/32                 702,302
                                                                                         ---------------
                                                                                               1,508,916
                                                                                         ---------------
    Federal National Mortgage Association (FNMA) (25.0%)
       250,000                                              2.650%      02/13/06                 250,835
       250,000                                              2.750%      05/04/05                 252,206
       250,000                                              3.100%      05/19/06                 250,463
       300,000                                              3.500%      01/28/08                 305,186
       299,826                                              6.000%      09/01/17                 315,614
       332,420                                              6.000%      10/01/32                 346,735
       280,930                                              6.000%      11/01/32                 293,027
       200,000                                              6.000%      03/01/33                 207,613
       146,629                                              6.230%      01/01/08                 162,234
       190,213                                              6.500%      12/01/31                 199,632
        84,085                                              6.500%      04/01/32                  88,249
        90,115                                              6.500%      05/01/32                  94,578
       195,794                                              6.500%      07/01/32                 205,491
       361,332                                              6.500%      08/01/32                 379,226
       382,929                                              6.500%      09/01/32                 401,892
       317,555                                              6.500%      10/01/32                 333,281
       152,917                                              7.000%      09/01/31                 162,113
       371,232                                              7.000%      11/01/31                 393,547
       400,098                                              7.000%      02/01/32                 424,416
       325,923                                              7.000%      03/01/32                 345,736
       200,077                                              7.000%      06/01/32                 212,240
       227,252                                              7.000%      07/01/32                 241,068
       408,084                                              7.500%      05/01/31                 437,715
                                                                                         ---------------
                                                                                               6,303,097
                                                                                         ---------------
    Other Agency Obligations (1.2%)
       300,000  Federal Home Loan Bank(c)                   1.895%      09/11/06                 299,916
                                                                                         ---------------
    State and Local Government Obligations (1.9%)
       195,000  City of Eden Prairie,
                Minnesota                                   7.350%      02/20/09                 228,653
       250,000  Province of Manitoba(b)                     2.750%      01/17/06                 253,444
                                                                                         ---------------
                                                                                                 482,097
                                                                                         ---------------
    U.S. Treasury (7.1%)
       225,000  Bond                                        5.375%      02/15/31                 243,387



              See accompanying notes to investments in securities.

                                       32




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED
     $ 600,000  Bond                                        6.000%      02/15/26         $       687,469
       450,000  Note                                        3.000%      02/15/08                 455,274
       400,000  Note                                        3.875%      02/15/13                 401,672
                                                                                         ---------------
                                                                                               1,787,802
                                                                                         ---------------
Total U.S. government and agencies obligations
   (cost: $10,091,631)                                                                        10,381,828
                                                                                         ---------------
CORPORATE OBLIGATIONS (57.1%)
   BASIC MATERIALS (4.8%)
    Agriculture Products (2.1%)
       250,000  Archer-Daniels-Midland
                Company                                    7.000%       02/01/31                 288,478
       200,000  Cargill, Inc. 144A Issue(e)                6.375%       06/01/12                 224,373
                                                                                         ---------------
                                                                                                 512,851
                                                                                         ---------------
    Aluminum (.6%)
       150,000  Alcoa, Inc.                                 4.250%      08/15/07                 155,808
                                                                                         ---------------
    Construction (2.1%)
       200,000  Hanson Australia Funding(b)                 5.250%      03/15/13                 195,857
       300,000  Vulcan Materials Company                    6.400%      02/01/06                 330,900
                                                                                         ---------------
                                                                                                 526,757
                                                                                         ---------------
   CONSUMER CYCLICAL (2.6%)
    Publishing (.9%)
       200,000  Gannett Company, Inc.                       5.500%      04/01/07                 219,163
                                                                                         ---------------
    Service (1.7%)
       250,000  Hertz Corporation                           7.625%      06/01/12                 222,112
       200,000  PHH Corporation                             7.125%      03/01/13                 200,997
                                                                                         ---------------
                                                                                                 423,109
                                                                                         ---------------
   CONSUMER STAPLES (5.3%)
    Beverage (3.1%)
       500,000  Anheuser-Busch
                Companies, Inc.                             7.100%      06/15/07                 532,304
       250,000  Diageo Capital PLC(b)                       3.500%      11/19/07                 252,746
                                                                                         ---------------
                                                                                                 785,050
                                                                                         ---------------
    Food (1.4%)
       250,000  ConAgra Foods, Inc.(c)                      2.018%      09/10/03                 250,269
       100,000  Unilever Capital Corporation                5.900%      11/15/32                 103,012
                                                                                         ---------------
                                                                                                 353,281
                                                                                         ---------------
    Household Products (.8%)
       200,000  SC Johnson & Son, Inc. 144A
                Issue(e)                                    5.750%      02/15/33                 195,243
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       33




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   ENERGY (2.8%)
    Electric Companies (.4%)
     $ 100,000  Centerpoint Energy Houston
                Notes 144A Issue(e)                         6.950%      03/15/33         $       104,273
                                                                                         ---------------
    Oil (1.6%)
       250,000  Conoco, Inc.(c)                             2.226%      04/15/03                 250,061
       150,000  Husky Energy, Inc.(b)                       6.250%      06/15/12                 161,694
                                                                                         ---------------
                                                                                                 411,755
                                                                                         ---------------
    Oil & Gas (.8%)
       200,000  Valero Logistics 144A Issue(e)              6.050%      03/15/13                 201,967
                                                                                         ---------------
   FINANCIAL (34.3%)
    Asset-Backed Securities (8.0%)
       250,000  AmeriCredit Corporation(c)                  1.592%      03/06/07                 249,905
       250,000  Fortress CBO Investments I,
                Ltd.(b)(d)                                  7.850%      07/25/38                 279,868
       219,951  Green Tree Financial
                Corporation                                 6.400%      10/15/18                 227,022
       242,935  Green Tree Financial
                Corporation                                 8.300%      05/15/19                 260,795
       132,904  Green Tree Financial
                Corporation                                 8.900%      04/15/25                 142,671
       400,000  Metropolitan Asset Funding,
                Inc. 144A Issue(e)                          7.525%      04/20/27                 436,881
       387,864  The National Collegiate Trust
                1997-S2                                     7.240%      09/20/14                 405,221
                                                                                         ---------------
                                                                                               2,002,363
                                                                                         ---------------
    Auto Finance (1.0%)
       250,000  General Motors Acceptance
                Corporation                                 6.125%      08/28/07                 256,377
                                                                                         ---------------
    Banks (1.8%)
       200,000  St. George Funding Company
                LLC 144A Issue(b)(c)(d)                     8.485%      12/29/49                 210,108
       200,000  Wells Fargo Bank NA                         7.550%      06/21/10                 240,496
                                                                                         ---------------
                                                                                                 450,604
                                                                                         ---------------
    Collateralized Mortgage Obligations/Mortgage
      Revenue Bonds (5.5%)
        85,793  Banco Hipotecario Nacional
                144A Issue(b)(d)(g)                         7.916%      07/25/09                  27,454
       218,262  Chase Mortgage Finance
                Corporation                                 6.500%      09/25/13                 224,692
       103,277  Countrywide Mortgage Backed
                Securities, Inc.                            6.750%      03/25/24                 104,544
       379,165  GE Capital Mortgage Services,
                Inc.                                        6.750%      11/25/28                 387,126



              See accompanying notes to investments in securities.

                                       34




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   FINANCIAL--CONTINUED
     $ 121,895  GE Capital Mortgage Services,
                Inc. 144A Issue(e)                          6.500%      04/25/24         $       123,532
       277,587  Mellon Residential Funding
                Corporation                                 6.750%      06/26/28                 284,674
       172,280  Norwest Asset Securities
                Corporation                                 7.000%      06/25/12                 171,996
        68,220  Prudential Home Mortgage
                Securities 144A Issue(c)(e)                 6.629%      04/28/24                  69,297
                                                                                         ---------------
                                                                                               1,393,315
                                                                                         ---------------
    Commercial Mortgage-Backed Securities (6.8%)
            --  Asset Securitization
                Corporation(c)(f)                           9.266%      04/14/29                 160,961
            --  Asset Securitization
                Corporation 144A
                Issue(c)(e)(f)                              9.530%      10/13/26                 165,822
       244,389  GMAC Commercial Mortgage
                Securities, Inc. 144A Issue(e)              7.350%      10/15/06                 271,409
       250,000  GS Mortgage Securities
                Corporation II(c)                           6.809%      07/13/07                 277,888
       250,000  Paine Webber Mortgage
                Acceptance Corporation 144A
                Issue(e)                                    7.655%      01/02/12                 274,854
       195,143  Park Avenue Finance
                Corporation 144A Issue(e)                   7.580%      05/12/07                 219,482
       300,000  Park Avenue Finance
                Corporation 144A Issue(e)                   7.680%      05/12/07                 345,030
                                                                                         ---------------
                                                                                               1,715,446
                                                                                         ---------------
    Consumer Finance (.8%)
       200,000  Household Finance
                Corporation(c)                              2.759%      12/16/04                 202,855
                                                                                         ---------------
    Finance  Diversified (.4%)
       100,000  Eastview Credit Corporation
                144A Issue(e)                               6.950%      06/15/04                 102,666
                                                                                         ---------------
    Insurance (3.7%)
       250,000  ASIF Global Financing 144A
                Issue(e)                                    3.850%      11/26/07                 254,365
       150,000  Principal Life Global Funding I
                144A Issue(e)                               6.250%      02/15/12                 163,086
       250,000  Stancorp Financial Group, Inc.              6.875%      10/01/12                 263,901
       250,000  Travelers Property Casualty
                144A Issue (e)                              6.375%      03/15/33                 247,184
                                                                                         ---------------
                                                                                                 928,536
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       35




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   FINANCIAL--CONTINUED
    Investment Bankers/Brokers (1.7%)
     $ 250,000  Goldman Sachs Group, Inc.                   6.125%      02/15/33         $       250,830
       150,000  Morgan Stanley                              6.750%      04/15/11                 167,882
                                                                                         ---------------
                                                                                                 418,712
                                                                                         ---------------
    Real Estate Investment Trust (3.5%)
       150,000  New Plan Excel Realty Trust                 5.875%      06/15/07                 158,220
       200,000  Prologis                                    6.700%      04/15/04                 208,979
       200,000  Reckson Operating Partnership LP            7.400%      03/15/04                 208,321
       300,000  Vornado Realty Trust                        5.625%      06/15/07                 309,252
                                                                                         ---------------
                                                                                                 884,772
                                                                                         ---------------
    Savings and Loans (1.1%)
       250,000  Washington Mutual Financial
                Corporation                                 6.875%      05/15/11                 284,832
                                                                                         ---------------
   RESIDENTIAL CMOS (2.1%)
    Collateralized Mortgage Obligations/Mortgage
      Revenue Bonds (2.1%)
       251,848  BlackRock Capital Finance LP
                144A Issue(e)                               7.750%      09/25/26                 269,817
       247,582  Sequoia Mortgage Funding
                Company 144A Issue(e)                       6.380%      08/28/31                 250,043
                                                                                         ---------------
                                                                                                 519,860
                                                                                         ---------------
   TECHNOLOGY (1.0%)
    Computer Hardware (1.0%)
       250,000  International Business
                Machines Corporation                        5.875%      11/29/32                 255,479
                                                                                         ---------------
   TRANSPORTATION (1.0%)
    Railroads (1.0%)
       250,000  CSX Corporation                             7.250%      05/01/04                 264,277
                                                                                         ---------------
   UTILITIES (3.2%)
    Electric Companies (3.2%)
       200,000  Entergy Louisiana, Inc.                     8.500%      06/01/03                 202,263
       250,000  Hydro-Quebec(b)                             8.000%      02/01/13                 321,091
       250,000  Oncor Electric Delivery
                Company 144A Issue(e)                       7.250%      01/15/33                 282,067
                                                                                         ---------------
                                                                                                 805,421
                                                                                         ---------------
Total corporate obligations (cost: $13,832,795)                                               14,374,772
                                                                                         ---------------
Total long-term debt securities (cost: $23,924,426)                                           24,756,600
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       36




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
SHORT-TERM SECURITIES (.6%)
           846  BlackRock Provident Institutional TempFund,
                current rate 1.180%                                                      $           846
       150,395  Federated Prime Obligations Fund, current rate 1.270%                            150,395
                                                                                         ---------------
                Total short-term securities
                (cost: $151,241)                                                                 151,241
                                                                                         ---------------
                Total investments in securities
                (cost: $24,075,667)(h)                                                   $    24,907,841
                                                                                         ===============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  The Fund held 6.8% of net assets in foreign securities at March 31, 2003.
(c)  Variable rate security
(d)  Represents ownership in an illiquid security. (See note 9 to the financial
     statements.) Information concerning the illiquid securities held at
     March 31, 2003, which includes acquisition date and cost, is as follows:



                                                                      ACQUISITION
     SECURITY:                                                            DATE                COST
     ---------                                                        -----------        ---------------
                                                                                   
     St. George Funding Company 144A Issue*                             06/12/97         $       200,068
     Banco Hipotecario Nacional 144A Issue*                             01/08/01                  84,564
     Fortress CBO Investments I, Limited 144A Issue*                    01/16/01                 247,534
                                                                                         ---------------
                                                                                         $       532,166
                                                                                         ===============


*    A 144A Issue represents a security which has not been registered with the
     Securities and Exchange Commission under the Securities Act of 1933.
(e)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors". These securities have been determined to be liquid
     under guidelines established by the Board of Directors.
(f)  Interest-only security that entitles holders to receive only interest on
     the underlying mortgages. The principal amount of the underlying pool
     represents the notional amount on which current interest is calculated. The
     yield to maturity of an interest-only security is sensitive to the rate of
     principle payments on the underlying mortgage assets. The rate disclosed
     represents the market yield based upon the current cost basis and estimate
     timing and amount of future cash flows.
(g)  Security is in default with respect to interest payments. Income is not
     being accrued on this security and any payments received are treated as a
     reduction of principal. This security is being fair-valued according to
     procedures approved by the board of directors.

                 See accompanying notes to financial statements.

                                       37


(h)  At March 31, 2003 the cost of securities for federal income tax purposes
     was $24,075,668. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                                                 
     Gross unrealized appreciation                                                       $     1,049,048
     Gross unrealized depreciation                                                              (216,875)
                                                                                         ---------------
     Net unrealized appreciation                                                         $       832,173
                                                                                         ===============

     

                 See accompanying notes to financial statements.

                                       38


                                            ADVANTUS INTERNATIONAL BALANCED FUND
                                                       INVESTMENTS IN SECURITIES
                                                      MARCH 31, 2003 (UNAUDITED)

           (Percentages of each investment category relate to total net assets.)



                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
COMMON STOCK (53.8%)
   AUSTRALIA (.8%)
    Mining (.8%)
   140,520    Iluka Resources, Ltd.                                                      $       340,514
                                                                                         ---------------
   BERMUDA (.8%)
    Insurance (.6%)
     3,500    XL Capital, Ltd. Class A(c)                                                        247,730
    Service (.2%)
     6,000    Accenture, Ltd.(b)                                                                  93,000
                                                                                         ---------------
                                                                                                 340,730
                                                                                         ---------------
   CANADA (2.9%)
    Mining (.8%)
    19,600    Barrick Gold Corporation                                                           308,601
    Oil & Gas (1.3%)
    26,750    Husky Energy, Inc.                                                                 307,881
    15,000    Transcanada Pipelines, Ltd.                                                        219,756
    Telecommunication (.8%)
    17,000    BCE, Inc.                                                                          312,043
                                                                                         ---------------
                                                                                               1,148,281
                                                                                         ---------------
   DENMARK (2.0%)
    Power Products -- Industrial (1.4%)
    74,810    Vestas Wind Systems                                                                566,110
    Telecommunication (.6%)
    11,000    Tele Danmark                                                                       259,419
                                                                                         ---------------
                                                                                                 825,529
                                                                                         ---------------
   FINLAND (1.4%)
    Insurance (.6%)
    40,525    Sampo Insurance                                                                    247,637
    Paper and Forest (.3%)
    13,000    Stora Enso                                                                         119,868
    Telecommunication (.5%)
    21,000    Metso Corporation                                                                  214,257
                                                                                         ---------------
                                                                                                 581,762
                                                                                         ---------------
   FRANCE (4.2%)
    Chemicals (.8%)
     7,498    Aventis                                                                            329,155
    Investment Bankers/Brokers (.7%)
    24,000    AXA-UAP                                                                            283,363
    Machinery (.1%)
    21,534    Alstom                                                                              33,132


              See accompanying notes to investments in securities.

                                       39




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   FRANCE--CONTINUED
    Manufacturing (.5%)
     7,400    Michelin                                                                   $      203,487
    Mining (.8%)
    13,320    Pechiney                                                                           324,707
    Oil & Gas (1.0%)
     3,110    Total Fina Elf                                                                     393,661
    Water Utilities (.3%)
     8,800    Lyonnaise Des Eaux                                                                 102,267
                                                                                         ---------------
                                                                                               1,669,772
                                                                                         ---------------
   GERMANY (4.1%)
    Banks (.7%)
     7,000    Deutsche Bank AG                                                                   294,078
    Chemicals (.5%)
    15,000    Bayer                                                                              204,436
    Electric Companies (.7%)
     6,860    E.On Ag                                                                            282,807
    Manufacturing (.8%)
     3,600    Adidas-Salomon                                                                     317,408
    Technology (.4%)
     2,300    SAP                                                                                174,303
    Transport Services (1.0%)
    40,040    Deutsche Post AG                                                                   397,157
                                                                                         ---------------
                                                                                               1,670,189
                                                                                         ---------------
   HONG KONG (3.6%)
    Chemicals (--)
     1,880    CK Life Sciences International(b)                                                      294
    Electric Companies (.7%)
    72,500    CLP Holdings, Ltd.                                                                 300,246
    Investment Bankers/Brokers (--)
    28,000    Peregrine Investments Holdings                                                           0
    Oil & Gas (.6%)
 1,095,345    Petrochina                                                                         230,320
    Real Estate (1.3%)
    47,000    Cheung Kong                                                                        260,326
    46,000    Hutchison Whampoa                                                                  250,659
    Telecommunication (1.0%)
    26,210    China Mobile ADR(b)                                                                259,479
   205,900    Swire Pacific Class B                                                              135,956
                                                                                         ---------------
                                                                                               1,437,280
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       40




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   INDIA (.3%)
    Office Equipment (.3%)
    15,700    Satyam Computer ADR                                                        $       129,996
                                                                                         ---------------
   ISRAEL (1.2%)
    Technology (1.2%)
    33,700    Checkpoint Software(b)                                                             487,639
                                                                                         ---------------
   ITALY (1.1%)
    Banks (.4%)
    25,000    San Paolo-IMI                                                                      169,954
    Oil & Gas (.7%)
    20,500    ENI SPA                                                                            273,804
                                                                                         ---------------
                                                                                                 443,758
                                                                                         ---------------
  JAPAN (4.8%)
    Drugs (1.1%)
    14,000    Ono Pharmaceutical                                                                 435,655
    Electrical Equipment (1.2%)
    34,000    Hitachi                                                                            118,418
    37,000    NEC                                                                                122,002
     7,100    Sony Corporation                                                                   251,476
    Investment Bankers/Brokers (.6%)
    23,600    Nomura Securities                                                                  245,792
    Machinery (.6%)
    66,000    Komatsu                                                                            242,672
    Telecommunication (1.3%)
       158    Nippon Telegraph & Telephone Corporation                                           536,971
                                                                                         ---------------
                                                                                               1,952,986
                                                                                         ---------------
   MEXICO (.9%)
    Mining (.5%)
    86,560    Grupo Carso S.A.(b)                                                                207,411
    Telecommunication (.4%)
     5,700    Telefonos de Mexico ADR                                                            169,404
                                                                                         ---------------
                                                                                                 376,815
                                                                                         ---------------
   NETHERLANDS (2.2%)
    Chemicals (.6%)
    12,180    Akzo Nobel                                                                         242,159
    Electrical Equipment (.8%)
    21,100    Philips Electronics                                                                331,320
    Insurance (.8%)
    27,960    ING Group                                                                          323,100
                                                                                         ---------------
                                                                                                 896,579
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       41




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   NEW ZEALAND (.5%)
    Telecommunication (.5%)
    87,000    Telecom Corporation of New Zealand                                         $       217,914
                                                                                         ---------------
   SOUTH KOREA (2.4%)
    Electric Companies (.7%)
    33,550    Korea Electric Power                                                               267,729
    Electrical Equipment (.8%)
     3,000    Samsung Electronics GDR                                                            339,000
    Technology (.9%)
    21,900    KT Corporation ADR                                                                 376,023
                                                                                         ---------------
                                                                                                 982,752
                                                                                         ---------------
   SPAIN (1.8%)
    Electric Companies (1.1%)
    26,772    Iberdrola SA                                                                       436,159
    Oil & Gas (.7%)
    20,550    Repsol                                                                             296,447
    Telecommunication (--)
       549    Telefonica SA(b)                                                                     5,099
                                                                                         ---------------
                                                                                                 737,705
                                                                                         ---------------
   SWEDEN (4.8%)
    Banks (2.3%)
    35,600    Foreningssparbanken                                                                411,466
   113,190    Nordic                                                                             496,522
    Machinery (.7%)
    14,600    Atlas Copco                                                                        288,420
    Trucks and Parts (1.8%)
    17,200    Autoliv                                                                            343,484
    20,800    Volvo Free 'B'                                                                     369,197
                                                                                         ---------------
                                                                                               1,909,089
                                                                                         ---------------
   SWITZERLAND (2.9%)
    Banks (.6%)
     6,000    UBS AG(b)                                                                          255,281
    Food (1.2%)
     2,400    Nestle SA                                                                          475,045
    Human Resources (.4%)
     5,600    Adecco                                                                             155,596
    Insurance (.7%)
     5,350    Swiss Reinsurance                                                                  262,463
                                                                                         ---------------
                                                                                               1,148,385
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       42




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   UNITED KINGDOM (11.1%)
    Chemicals (.9%)
    76,909    Imperial Chemical Industries                                               $       111,841
    44,000    Shire Pharmaceuticals                                                              268,110
    Electrical Equipment (1.4%)
   126,910    BAE Systems PLC                                                                    224,672
   206,000    Chubb PLC                                                                          190,484
   137,200    Kidde PLC                                                                          144,215
    37,000    WPP Group                                                                          199,431
    Food (.8%)
    90,400    J Sainsbury PLC                                                                    314,360
    Investment Bankers/Brokers (.6%)
    43,500    Abbey National                                                                     226,215
    Manufacturing (1.1%)
    80,000    Brambles Industries PLC                                                            192,207
   218,600    Rolls-Royce PLC                                                                    244,463
    Medical Products/Supplies (.6%)
    34,850    Nycomed Amersham                                                                   229,077
    Mining (1.3%)
   100,220    BHP Billiton PLC                                                                   502,168
    Oil & Gas (2.0%)
    74,800    LLoyds TSB Group PLC                                                               380,709
    69,300    Shell Transportation & Trading Company PLC                                         418,987
    Publishing (.3%)
    33,415    United Business Media PLC                                                          114,614
    Retail (.8%)
    75,544    Marks & Spencer Group                                                              336,732
    Telecommunication (.8%)
   287,990    Cable & Wireless PLC                                                               314,096
                                                                                         ---------------
                                                                                               4,412,381
                                                                                         ---------------
Total common stock (cost: $29,957,426)                                                        21,710,056
                                                                                         ---------------
PREFERRED STOCK (.6%)
   GERMANY (.6%)
    Trucks and Parts (.6%)
     9,430    Volkswagen                                                                         225,763
                                                                                         ---------------
Total preferred stock (cost: $247,427)                                                           225,763
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       43




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
LONG-TERM DEBT SECURITIES (40.2%)(c)
   AUSTRALIA (1.4%)
    Government (1.4%)
       550,000  New South Wales Treasury
                Corporation (Australian Dollar)             6.500%      05/01/06         $       348,413
       314,000  Queensland Treasury
                Corporation (Australian Dollar)             6.500%      06/14/05                 196,911
                                                                                         ---------------
                                                                                                 545,324
                                                                                         ---------------
   AUSTRIA (1.1%)
    Government (1.1%)
        70,000  Republic of Austria
                (European Currency Unit)                    4.000%      07/15/09                  78,286
       300,000  Republic of Austria
                (European Currency Unit)                    5.000%      07/15/12                 350,897
                                                                                         ---------------
                                                                                                 429,183
                                                                                         ---------------
   BELGIUM (1.9%)
    Government (1.9%)
       100,000  Belgium Government
                (European Currency Unit)                    4.750%      09/28/06                 115,674
       100,000  Belgium Government
                (European Currency Unit)                    5.000%      09/28/12                 116,584
       405,000  Belgium Government
                (European Currency Unit)                    7.500%      07/29/08                 528,997
                                                                                         ---------------
                                                                                                 761,255
                                                                                         ---------------
   CANADA (1.3%)
    Government (1.3%)
       748,000  Canadian Government
                (Canadian Dollar)                           6.000%      06/01/11                 541,889
                                                                                         ---------------
   DENMARK (1.6%)
    Government (1.6%)
     2,864,000  Kingdom of Denmark
                (Danish Kroner)                             5.000%      08/15/05                 440,693
     1,400,000  Kingdom of Denmark
                (Danish Kroner)                             5.000%      11/15/13                 217,480
                                                                                         ---------------
                                                                                                 658,173
                                                                                         ---------------
   FINLAND (1.0%)
    Government (1.0%)
        60,000  Finnish Government
                (European Currency Unit)                    5.000%      04/25/09                  70,737
       280,000  Finnish Government
                (European Currency Unit)                    5.750%      02/23/11                 344,951
                                                                                         ---------------
                                                                                                 415,688
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       44




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   FRANCE (3.6%)
    Government (3.6%)
       297,000  Government of France
                (European Currency Unit)                    4.000%      01/12/04         $       328,110
       992,000  Government of France
                (European Currency Unit)                    4.000%      10/25/09               1,104,120
                                                                                         ---------------
                                                                                               1,432,230
                                                                                         ---------------
   GERMANY (4.1%)
    Government (4.1%)
       870,000  Bundesrepublic
                (European Currency Unit)                    5.000%      07/04/11               1,020,545
       531,000  Bundesrepublic
                (European Currency Unit)                    6.000%      07/04/07                 644,439
                                                                                         ---------------
                                                                                               1,664,984
                                                                                         ---------------
   IRELAND (1.6%)
    Government (1.6%)
       540,000  Irish Government
                (European Currency Unit)                    5.000%      04/18/13                 631,556
                                                                                         ---------------
   ITALY (2.8%)
    Government (2.8%)
       447,000  Buoni Poliennali del Tesoro
                (European Currency Unit)                    5.500%      11/01/10                 538,854
       479,001  Buoni Poliennali del Tesoro
                (European Currency Unit)                    7.750%      11/01/06                 607,623
                                                                                         ---------------
                                                                                               1,146,477
                                                                                         ---------------
   NETHERLANDS (2.9%)
    Government (2.9%)
       990,000  Netherlands Government
                (European Currency Unit)                    5.750%      02/15/07               1,186,434
                                                                                         ---------------
   NEW ZEALAND (4.1%)
    Government (4.1%)
       900,000  Government of New Zealand
                (New Zealand Dollar)                        6.000%      11/15/11                 499,858
     1,950,000  Government of New Zealand
                (New Zealand Dollar)                        7.000%      07/15/09               1,147,143
                                                                                         ---------------
                                                                                               1,647,001
                                                                                         ---------------
   NORWAY (1.6%)
    Government (1.6%)
     3,000,000  Kingdom of Norway
                (Norwegian Krone)                           6.000%      05/16/11                 433,668



              See accompanying notes to investments in securities.

                                       45




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
NORWAY--CONTINUED
     1,500,000  Kingdom of Norway
                (Norwegian Krone)                           6.750%      01/15/07         $       218,219
                                                                                         ---------------
                                                                                                 651,887
                                                                                         ---------------
   SPAIN (4.1%)
    Government (4.1%)
       100,000  Government of Spain
                (European Currency Unit)                    4.800%      10/31/06                 116,043
       630,000  Government of Spain
                (European Currency Unit)                    5.000%      07/30/12                 737,434
       350,000  Government of Spain
                (European Currency Unit)                    6.000%      01/31/08                 427,232
       294,000  Government of Spain
                (European Currency Unit)                   10.150%      01/31/06                 384,074
                                                                                         ---------------
                                                                                               1,664,783
                                                                                         ---------------
   SWEDEN (4.1%)
    Government (4.1%)
     1,000,000  Sweden Kingdom
                (Swedish Krona)                             3.500%      04/20/06                 116,996
     7,180,000  Sweden Kingdom
                (Swedish Krona)                             5.500%      10/08/12                 902,184
     3,100,000  Sweden Kingdom
                (Swedish Krona)                             6.000%      02/09/05                 381,223
     1,800,000  Sweden Kingdom
                (Swedish Krona)                             6.500%      05/05/08                 235,478
                                                                                         ---------------
                                                                                               1,635,881
                                                                                         ---------------
   UNITED KINGDOM (3.0%)
    Government (3.0%)
       673,000  United Kingdom
                (British Sterling Pound)                    7.500%      12/07/06               1,197,494
                                                                                         ---------------
Total long-term debt securities (cost: $13,913,310)                                           16,210,239
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       46




                                                                                                  MARKET
PAR/SHARES                                                 COUPON       MATURITY                VALUE(a)
- ----------                                                 ------       --------                --------
                                                                                
SHORT-TERM SECURITIES (1.7%)
       209,000  Government of France
                (European Currency Unit)                    6.750%      10/25/03         $       233,417
     1,000,000  Norwegian Treasury Bill
                (Norwegian Krone)                           4.250%       9/17/03                 134,676
       339,451  Bankers Trust Institutional
                Liquid Assets, current
                rate 1.760%                                                                      339,451
                                                                                         ---------------
              Total short-term securities
              (cost: $657,073)                                                                   707,544
                                                                                         ---------------
              Total investments in securities
              (cost: $44,775,236)(d)                                                     $    38,853,602
                                                                                         ===============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  Principal amounts for foreign debt securities are denominated in the
     currencies indicated.
(d)  At March 31, 2003 the cost of securities for federal income tax purposes
     was $44,837,275. The aggregate unrealized appreciation and depreciation of
     investments in securities based on their cost were:

                                                                                 
     Gross unrealized appreciation                                                       $     2,466,587
     Gross unrealized depreciation                                                            (8,450,260)
                                                                                         ---------------
     Net unrealized depreciation                                                         $    (5,983,673)
                                                                                         ===============

     

                 See accompanying notes to financial statements.

                                       47


ADVANTUS MONEY MARKET FUND
INVESTMENTS IN SECURITIES
MARCH 31, 2003 (UNAUDITED)

(Percentages of each investment category relate to total net assets.)



PRINCIPAL                                                 RATE          MATURITY            VALUE(a)
- ---------                                                 ----          --------            --------
                                                                                
COMMERCIAL PAPER (63.3%)
   BASIC MATERIALS (5.3%)
    Agriculture Products (2.8%)
   $ 1,100,000  Archer-Daniels-Midland
                Company(b)                                  1.190%      05/13/03         $     1,098,473
                                                                                         ---------------
    Chemicals (2.5%)
     1,000,000  E I Du Pont De Nemours and
                Company                                     1.240%      04/23/03                 999,273
                                                                                         ---------------
   CAPITAL GOODS (2.5%)
    Office Equipment (2.5%)
     1,000,000  Pitney Bowes Credit
                Corporation                                 1.300%      04/01/03               1,000,000
                                                                                         ---------------
   COMMUNICATION SERVICES (2.8%)
    Telephone (2.8%)
       500,000  BellSouth Corporation (b)                   1.230%      04/04/03                 499,949
       600,000  BellSouth Corporation (b)                   1.230%      04/08/03                 599,856
                                                                                         ---------------
                                                                                               1,099,805
                                                                                         ---------------
   CONSUMER CYCLICAL (9.2%)
    Household Products (4.6%)
     1,800,000  Procter & Gamble
                Company(b)                                  1.180%      04/25/03               1,798,584
                                                                                         ---------------
    Publishing (4.6%)
     1,000,000  Gannett Company, Inc.                       1.250%      04/10/03                 999,695
       800,000  McGraw-Hill, Inc.                           1.240%      04/14/03                 799,653
                                                                                         ---------------
                                                                                               1,799,348
                                                                                         ---------------
   CONSUMER STAPLES (13.1%)
    Beverage (5.6%)
     1,000,000  Anheuser-Busch Companies,
                Inc.(b)                                     1.250%      04/24/03                 999,221
     1,200,000  The Coca-Cola Company                       1.230%      05/16/03               1,198,155
                                                                                         ---------------
                                                                                               2,197,376
                                                                                         ---------------
    Food (2.5%)
     1,000,000  Cargill, Inc.(b)                            1.240%      04/21/03                 999,311
                                                                                         ---------------
    Health Care -- Diversified (2.5%)
     1,000,000  Gillette Company(b)                         1.220%      04/11/03                 999,661
                                                                                         ---------------
    Household Products (2.5%)
     1,000,000  Colgate-Palmolive Company(b)                1.230%      05/01/03                 999,000
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       48




PRINCIPAL                                                 RATE          MATURITY            VALUE(a)
- ---------                                                 ----          --------            --------
                                                                                
   FINANCIAL (16.9%)
    Banks (2.5%)
   $ 1,000,000  Wells Fargo & Company                       1.240%      04/30/03         $       999,001
                                                                                         ---------------
    Commercial Finance (2.6%)
     1,000,000  General Electric Capital
                Corporation                                 1.260%      04/25/03                 999,160
                                                                                         ---------------
    Consumer Finance (5.3%)
     1,100,000  AIG Sunamerica Global
                Financing II                                1.190%      04/14/03               1,099,527
     1,000,000  American General Finance
                Corporation                                 1.270%      04/04/03                 999,894
                                                                                         ---------------
                                                                                               2,099,421
                                                                                         ---------------
    Finance -- Diversified (3.9%)
     1,000,000  Verizon Net Fund                            1.250%      05/06/03                 998,785
       540,000  Verizon Net Fund                            1.260%      04/07/03                 539,883
                                                                                         ---------------
                                                                                               1,538,668
                                                                                         ---------------
    Investment Bankers/Brokers (2.6%)
       500,000  Merrill Lynch &
                Company, Inc.                               1.190%      04/09/03                 499,868
       500,000  Merrill Lynch &
                Company, Inc.                               1.210%      05/01/03                 499,508
                                                                                         ---------------
                                                                                                 999,376
                                                                                         ---------------
   HEALTH CARE (10.9%)
    Drugs (8.1%)
     1,200,000  Abbott Laboratories(b)                      1.240%      04/02/03               1,199,959
     1,000,000  Pfizer, Inc.(b)                             1.220%      04/02/03                 999,966
     1,000,000  Schering-Plough
                Corporation                                 1.250%      04/02/03                 999,965
                                                                                         ---------------
                                                                                               3,199,890
                                                                                         ---------------
    Health Care -- Diversified (2.8%)
     1,100,000  Johnson & Johnson, Inc.(b)                  1.130%      04/16/03               1,099,482
                                                                                         ---------------
   TRANSPORTATION (2.6%)
    Air Freight (2.6%)
     1,000,000  United Parcel Service, Inc.                 1.140%      04/17/03                 999,493
                                                                                         ---------------
Total commercial paper (cost: $24,925,322)                                                    24,925,322
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       49




PRINCIPAL                                                 RATE          MATURITY            VALUE(a)
- ---------                                                 ----          --------            --------
                                                                                
U.S. GOVERNMENT OBLIGATIONS (20.5%)
   $ 1,000,000  Federal Home Loan Bank                      1.200%      04/30/03         $       999,033
     1,300,000  Federal Home Loan Mortgage
                Corporation                                 1.210%      05/01/03               1,298,689
     1,000,000  Federal Home Loan Mortgage
                Corporation                                 1.210%      05/02/03                 998,958
       950,000  Federal National Mortgage
                Association                                 1.210%      04/09/03                 949,745
       823,000  Federal National Mortgage
                Association                                 1.220%      05/15/03                 821,773
     1,500,000  Federal National Mortgage
                Association                                 1.225%      04/11/03               1,499,490
     1,500,000  Federal National Mortgage
                Association                                 1.230%      04/29/03               1,498,565
                                                                                         ---------------
Total U.S. government obligations (cost: $8,066,253)                                           8,066,253
                                                                                         ---------------
OTHER SHORT-TERM INVESTMENTS (9.1%)
   CONSUMER CYCLICAL (5.2%)
    Food (5.2%)
     2,000,000  H.J. Heinz Company 144A
                Issue(c)                                    6.561%      11/15/03               2,053,707
                                                                                         ---------------
   FINANCIAL (3.9%)
    Finance -- Diversified (3.9%)
     1,500,000  Associates Corporation of
                North America                               5.750%      11/01/03               1,538,820
                                                                                         ---------------
Total other short-term investments (cost: $3,592,527)                                          3,592,527
                                                                                         ---------------




SHARES
- ------
                                                                                      
MONEY MARKET FUNDS (7.0%)
       821,406  Federated Prime Obligations Fund,
                current rate 1.270%                                                              821,406
     1,809,457  One Group Institutional Prime Money Market Fund,
                current rate 1.290%                                                            1,809,457
       107,910  Wells Fargo & Company, current rate 1.431%                                       107,910
                                                                                         ---------------
                Total short-term securities
                (cost: $2,738,773)                                                             2,738,773
                                                                                         ---------------
                Total investments in securities
                (cost: $39,322,875)(d)                                                   $    39,322,875
                                                                                         ===============


              See accompanying notes to investments in securities.

                                       50


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Commercial paper sold within terms of a private placement memorandum,
     exempt from registration under Section 4(2) of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors." This security has been determined to be liquid
     under guidelines established by the Board of Directors. In the aggregate
     such securities represent 28.7% of the Fund's net assets at March 31, 2003.
(c)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors". These securities have been determined to be liquid
     under guidelines established by the Board of Directors.
(d)  Also represents the cost of securities for federal income tax purposes at
     March 31, 2003.

                 See accompanying notes to financial statements.

                                       51


ADVANTUS MORTGAGE SECURITIES FUND
INVESTMENTS IN SECURITIES
MARCH 31, 2003 (UNAUDITED)

(Percentages of each investment category relate to total net assets.)



                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
LONG-TERM DEBT SECURITIES (96.7%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (50.4%)
    Federal Home Loan Mortgage Corporation (FHLMC) (7.5%)
   $ 1,952,661                                              5.500%      12/01/17         $     2,037,176
     2,232,916                                              6.000%      09/01/32               2,326,976
     1,395,036                                              6.500%      03/01/32               1,455,369
     4,065,286                                              6.500%      09/01/32               4,263,976
                                                                                         ---------------
                                                                                              10,083,497
                                                                                         ---------------
    Federal National Mortgage Association (FNMA) (39.9%)
     1,091,068                                              5.500%      02/01/18               1,138,920
     1,485,731                                              5.500%      02/01/18               1,543,414
       421,017                                              6.000%      09/01/32                 439,147
     5,643,866                                              6.000%      10/01/32               5,886,910
     3,014,737                                              6.000%      11/01/32               3,144,559
     1,498,488                                              6.000%      02/01/33               1,555,530
     6,350,000                                              6.000%      03/01/33               6,591,705
       422,157                                              6.500%      11/01/28                 444,243
     1,237,157                                              6.500%      12/01/31               1,298,422
     1,617,761                                              6.500%      02/01/32               1,697,880
     2,550,041                                              6.500%      03/01/32               2,661,995
       287,658                                              6.500%      04/01/32                 301,904
       540,689                                              6.500%      05/01/32                 567,467
     3,245,350                                              6.500%      07/01/32               3,406,076
     3,747,767                                              6.500%      08/01/32               3,933,370
     6,265,346                                              6.500%      09/01/32               6,575,629
       192,457                                              6.500%      10/01/32                 201,989
       237,750                                              7.000%      02/01/29                 252,570
       800,985                                              7.000%      06/01/31                 849,638
       329,304                                              7.000%      09/01/31                 349,314
       928,080                                              7.000%      11/01/31                 983,868
     1,846,793                                              7.000%      02/01/32               1,959,054
     1,394,453                                              7.000%      03/01/32               1,479,224
     3,362,157                                              7.000%      06/01/32               3,566,551
     1,500,000  (h)                                         5.000%      04/01/18               1,540,312
     1,250,000  (h)                                         5.500%      04/01/18               1,296,485
                                                                                         ---------------
                                                                                              53,666,176
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       52




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS--CONTINUED
    Government National Mortgage Association
      (GNMA) (1.2%)
    $  779,476                                              7.875%      05/15/17         $       888,309
            --  (c)(g)                                      9.280%      07/16/40                 654,280
                                                                                         ---------------
                                                                                               1,542,589
                                                                                         ---------------
    Other Agency Obligations (.4%)
       116,316  Collateralized Mortgage
                Obligation Trust                            5.000%      07/01/18                 116,640
       479,225  EF Hutton Trust II                          9.950%      10/20/18                 480,594
                                                                                         ---------------
                                                                                                 597,234
                                                                                         ---------------
    Vendee Mortgage Trust (.8%)
       295,135  U.S. Department of Veteran
                Affairs(k)                                  7.793%      02/15/25                 319,233
       664,996  U.S. Department of Veteran
                Affairs(k)                                  7.210%      02/15/25                 720,351
                                                                                         ---------------
                                                                                               1,039,584
                                                                                         ---------------
    State and Local Government Obligations (.6%)
       727,000  Pleasant Hill California                    7.950%       09/20/15                785,291
                                                                                         ---------------
                                                                                                 785,291
                                                                                         ---------------
Total U.S. government and agencies obligations
  (cost: $66,651,315)                                                                         67,714,371
                                                                                         ---------------
   ASSET BACKED SECURITIES (18.3%)
     1,800,000  Associates Manufactured
                Housing                                     7.900%      03/15/27               1,913,512
     1,165,000  BankAmerica Manufactured
                Housing Contract Trust                      7.015%      01/10/28               1,216,604
     2,000,000  BankAmerica Manufactured
                Housing Contract Trust                      7.800%      10/10/26               2,148,450
     1,350,000  Fortress CBO Investments I,
                Ltd. 144A Issue(b)(d)                       7.850%      07/25/38               1,511,284
     1,891,582  Green Tree Financial Corporation            6.400%      10/15/18               1,952,392
       927,789  Green Tree Financial Corporation            7.650%      04/15/19                 983,748
     1,943,477  Green Tree Financial Corporation            8.300%      05/15/19               2,086,361
       573,821  Green Tree Financial Corporation            8.300%      11/15/19                 615,604
       705,303  Green Tree Financial Corporation            9.100%      04/15/25                 713,114


              See accompanying notes to investments in securities.

                                       53




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   ASSET BACKED SECURITIES--CONTINUED
   $ 1,100,000  Lehman ABS Manufactured
                Housing Contract                            5.873%      05/15/22         $     1,122,049
       423,497  Metropolitan Asset Funding,
                Inc. 144A Issue(e)                          6.980%      05/20/12                 433,728
     2,044,353  Mid-State Trust                             7.340%      07/01/35               2,219,372
     2,305,661  Mid-State Trust                             7.400%      07/01/35               2,469,943
       982,041  Mid-State Trust                             7.790%      07/01/35               1,036,472
     1,152,598  Oakwood Mortgage Investors,
                Inc.                                        7.375%      08/15/27               1,182,787
     1,300,015  Oakwood Mortgage Investors,
                Inc. 144A Issue(e)(i)                       8.100%      10/15/21               1,377,203
       531,127  Vanderbilt Mortgage and
                Finance, Inc.                               7.530%      07/07/14                 516,521
     1,000,000  Vanderbilt Mortgage and
                Finance, Inc.                               7.955%      12/07/24               1,117,400
                                                                                         ---------------
Total asset backed securities (cost: $23,954,284)                                             24,616,544
                                                                                         ---------------
   OTHER MORTGAGE-BACKED SECURITIES (27.0%)
    Collateralized Mortgage Obligations/Mortgage
      Revenue Bonds (20.2%)
       105,573  Banco Hipotecario Nacional
                144A Issue(b)(c)(d)(j)                      2.755%      03/25/11                  28,505
       460,008  Banco Hipotecario Nacional
                144A Issue(b)(d)(j)                         7.540%      05/31/17                 124,202
       270,998  Banco Hipotecario Nacional
                144A Issue(b)(d)(j)                         7.916%      07/25/09                  86,719
     1,437,634  Bear Stearns Mortgage
                Securities, Inc.                            6.750%      04/30/30               1,495,410
        26,755  Bear Stearns Mortgage
                Securities, Inc.                            6.750%      05/02/30                  26,692
       579,330  Bear Stearns Mortgage
                Securities, Inc.                            8.000%      11/25/29                 607,033
     1,343,187  BlackRock Capital Finance LP
                144A Issue(e)                               7.750%      09/25/26               1,439,024
       637,531  Chase Mortgage Finance
                Corporation                                 6.750%      11/25/24                 649,025
       689,738  Chase Mortgage Finance
                Corporation                                 6.750%      02/25/25                 704,234
       442,049  Chase Mortgage Finance
                Corporation 144A Issue(c)(e)                6.634%      03/28/25                 454,209
     1,181,017  Chase Mortgage Finance
                Corporation 144A Issue(e)                   6.750%      09/25/31               1,205,255


              See accompanying notes to investments in securities.

                                       54




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
   $   520,043  Citicorp Mortgage Securities,
                Inc. 144A Issue(c)(e)                       6.303%      09/25/14         $       540,860
       670,451  Citicorp Mortgage Securities,
                Inc. 144A Issue(e)                          7.250%      08/25/27                 681,782
       326,953  Countrywide Funding
                Corporation                                 6.625%      02/25/24                 333,504
     1,266,505  Countrywide Funding
                Corporation                                 7.000%      06/25/24               1,283,299
       230,673  Countrywide Mortgage
                Backed Securities, Inc.                     6.500%      03/25/24                 233,332
       434,038  DLJ Mortgage Acceptance
                Corporation                                 6.750%      01/25/24                 447,545
       160,513  FBS Mortgage Corporation(c)                 7.200%      08/25/24                 160,012
       300,145  First Union Residential
                Securitization Trans, Inc.(c)               6.804%      09/25/26                 309,015
         8,563  Franchise Finance
                Corporation of America 144A
                Issue(c)(e)                                 2.090%      01/18/05                   8,544
       476,446  Franchise Finance
                Corporation of America 144A
                Issue(d)                                    7.800%      07/25/11                 511,984
     1,250,000  Franchise Finance
                Corporation of America 144A
                Issue(e)                                    8.910%      06/25/14               1,342,552
       211,799  GE Capital Mortgage
                Services, Inc.                              6.000%      04/25/09                 215,734
       547,088  GE Capital Mortgage
                Services, Inc.                              6.250%      04/25/14                 569,415
       266,549  GE Capital Mortgage
                Services, Inc. 144A Issue(e)                6.000%      11/25/08                 268,269
       212,963  GE Capital Mortgage
                Services, Inc. 144A Issue(e)                6.500%      01/25/24                 215,254
       169,851  Housing Securities, Inc.                    7.000%      06/25/23                 172,048
     1,500,000  JP Morgan Residential
                Mortgage Acceptance
                Corporation 144A
                Issue(e)(i)                                 5.250%      08/28/30               1,479,375
       612,283  Norwest Asset Securities
                Corporation                                 6.250%      04/25/14                 627,223
     1,006,730  Norwest Asset Securities
                Corporation                                 6.750%      08/25/29               1,032,103
       299,087  Paine Webber Mortgage
                Acceptance Corporation(c)                   6.928%      02/25/24                 302,312
       413,339  Paine Webber Mortgage
                Acceptance Corporation                      8.125%      07/25/09                 412,835


              See accompanying notes to investments in securities.

                                       55




                                                                                                  MARKET
PRINCIPAL                                                   COUPON      MATURITY                VALUE(a)
- ---------                                                   ------      --------                --------
                                                                                
OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
   $   266,435  Paine Webber Mortgage
                Acceptance Corporation 144A Issue(e)        6.460%      04/29/24         $       276,978
       611,169  Prudential Home Mortgage Securities         6.050%      04/25/24                 621,540
       693,391  Prudential Home Mortgage Securities         6.500%      04/25/26                 692,629
       312,284  Prudential Home Mortgage
                Securities 144A Issue(c)(e)                 6.762%      09/28/08                 320,143
       497,594  Prudential Home Mortgage
                Securities 144A Issue(c)(d)                 6.774%      04/28/24                 508,024
       471,214  Prudential Home Mortgage
                Securities 144A Issue(c)(e)                 7.336%      09/28/24                 488,908
       253,613  Residential Funding
                Mortgage  Securities                        6.500%      11/25/23                 264,734
       570,653  Residential Funding
                Mortgage Securities                         6.500%      03/25/24                 584,051
       556,126  Residential Funding
                Mortgage Securities                         6.500%      12/25/28                 573,165
       479,045  Residential Funding
                Mortgage Securities                         7.000%      05/25/12                 478,493
     1,382,937  Residential Funding
                Mortgage Securities                         7.000%      10/25/27               1,381,609
       622,615  Residential Funding
                Mortgage Securities                         7.000%      08/25/29                 638,834
       297,194  Residential Funding
                Mortgage Securities                         7.250%      07/25/11                 304,660
       357,653  Securitized Asset Sales, Inc.
                144A Issue(c)(e)                            6.661%      11/28/23                 369,173
     1,733,077  Sequoia Mortgage Funding
                Company 144A Issue(e)                       6.380%      08/28/31               1,750,301
                                                                                         ---------------
                                                                                              27,220,547
                                                                                         ---------------
   Non-Agency Commercial Mortgage-Backed Securities (6.8%)
            --  Asset Securitization
                Corporation(c)(g)                           8.520%      04/14/29                 845,120
            --  Asset Securitization
                Corporation 144A
                Issue(c)(e)(g)                              9.000%      10/13/26                 717,625
            --  Asset Securitization
                Corporation(c)(g)                           9.150%      01/13/15               1,073,291
       958,118  Franchise Finance
                Corporation of America 144A
                Issue(d)                                    7.450%      02/18/22               1,012,967


              See accompanying notes to investments in securities.

                                       56




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   OTHER MORTGAGE-BACKED SECURITIES--CONTINUED
   $   623,506  GMAC Commercial Mortgage
                Securities(f)(i)                            5.940%      07/01/13         $       625,455
     2,450,000  Paine Webber Mortgage
                Acceptance Corporation 144A
                Issue(e)                                    7.655%      01/02/12               2,693,571
       199,295  Park Avenue Finance
                Corporation 144A Issue(e)                   7.580%      05/12/07         $       224,152
     1,700,000  Park Avenue Finance
                Corporation 144A Issue(e)                   7.680%      05/12/07               1,955,171
                                                                                         ---------------
                                                                                               9,147,352
                                                                                         ---------------
Total other mortgage-backed securities (cost: $35,183,158)                                    36,367,899
                                                                                         ---------------
CORPORATE OBLIGATIONS (1.0%)
   HEALTH CARE (1.0%)
    Managed Care (1.0%)
       500,000  Covenant Retirement
                Communities, Inc.(c)                        6.750%      06/01/04                 508,594
       750,000  Covenant Retirement
                Communities, Inc.(c)                        7.000%      06/01/06                 803,609
                                                                                         ---------------
Total corporate obligations (cost: $1,250,000)                                                 1,312,203
                                                                                         ---------------
Total long-term debt securities (cost: $127,038,757)                                         130,011,017
                                                                                         ---------------




SHARES
- ------
                                                                                      
SHORT-TERM SECURITIES (7.6%)
     5,059,940  Federated Prime Obligations Fund,
                current rate 1.270%                                                            5,059,940
     5,116,785  One Group Institutional Prime Money Market,
                current rate 1.290%                                                            5,116,785
                                                                                         ---------------
                Total short-term securities
                (cost: $10,176,725)                                                           10,176,725
                                                                                         ---------------
                Total investments in securities
                (cost $137,215,482)(l)                                                   $   140,187,742
                                                                                         ===============


              See accompanying notes to investments in securities.

                                       57


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements..
(b)  The Fund held 1.3% of net assets in foreign securities at March 31, 2003.
(c)  Variable rate security
(d)  Represents ownership in an illiquid security. (See note 9 to the financial
     statements.) Information concerning the illiquid securities held at
     March 31, 2003, which includes acquisition date and cost, is as follows:



                                                      ACQUISITION
     SECURITY:                                            DATE            COST
     ---------                                        -----------         ----
                                                                
     Banco Hipotecario Nacional 144A Issue*             05/18/00      $   428,827
     Banco Hipotecario Nacional 144A Issue*             09/06/02            7,841
     Banco Hipotecario Nacional 144A Issue*              various          261,701
     Franchise Finance Corporation of America
     144A Issue*                                        09/07/01          490,888
     Franchise Finance Corporation of America
     144A Issue*                                        11/26/02          974,886
     Fortress CBO Investments I, Limited 144A Issue*    07/26/00        1,262,973
     Prudential Home Mortgage Securities 144A Issue*    08/24/00          463,123
                                                                      -----------
                                                                      $ 3,890,239
                                                                      ===========


*    A 144A Issue represents a security which has not been registered with the
     Securities and Exchange Commission under the Securities Act of 1933.
(e)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors". These securities have been determined to be liquid
     under guidelines established by the Board of Directors.
(f)  Represents a private placement security.
(g)  Interest-only security that entitles holders to receive only interest on
     the underlying mortgages. The principal amount of the underlying pool
     represents the notional amount on which current interest is calculated. The
     yield to maturity of an interest-only security is sensitive to the rate of
     principle payments on the underlying mortgage assets. The rate disclosed
     represents the market yield based upon the current cost basis and estimate
     timing and amount of future cash flows.
(h)  At March 31, 2003 the total cost of investments issued on a when-issued or
     forward commitment basis is $2,828,066.
(i)  This security is being fair-valued according to procedures approved by the
     board of directors.
(j)  Security is in default with respect to interest payments. Income is not
     being accrued on this security and any payments received are treated as a
     reduction of principal. This security is being fair-valued according to
     procedures approved by the board of directors.
(k)  Represents a debt security with a weighted average net pass-through rate
     which varies based on the interest rates of the securities in the pool of
     underlying collateral. The rate disclosed is the rate in effect at
     March 31, 2003.

                                       58


(l)  At March 31, 2003 the cost of securities for federal income tax purposes
     was $137,215,482. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                         
     Gross unrealized appreciation                               $     3,808,808
     Gross unrealized depreciation                                      (836,548)
                                                                 ---------------
     Net unrealized appreciation                                 $     2,972,260
                                                                 ===============

     

                 See accompanying notes to financial statements.

                                       59


ADVANTUS SPECTRUM FUND
INVESTMENTS IN SECURITIES
MARCH 31, 2003 (UNAUDITED)

(Percentages of each investment category relate to total net assets.)



                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
COMMON STOCK (62.1%)
   BASIC MATERIALS (1.9%)
    Chemicals (1.5%)
     4,600    Air Products and Chemicals, Inc.                                           $       190,578
     9,600    E.I. DuPont de Nemours and Company                                                 373,056
     3,600    The Dow Chemical Company                                                            99,396
     3,100    The Sherwin-Williams Company                                                        81,933
                                                                                         ---------------
                                                                                                 744,963
                                                                                         ---------------
    Paper and Forest (.4%)
     3,700    Weyerhaeuser Company                                                               176,971
                                                                                         ---------------

   CAPITAL GOODS (3.2%)
    Aerospace/Defense (.3%)
     2,700    United Technologies Corporation                                                    156,006
                                                                                         ---------------
    Electrical Equipment (1.7%)
    31,056    General Electric Company                                                           791,928
                                                                                         ---------------
    Manufacturing (1.2%)
     2,500    3M Company                                                                         325,075
    20,600    Tyco International, Ltd.(c)                                                        264,916
                                                                                         ---------------
                                                                                                 589,991
                                                                                         ---------------

   COMMUNICATION SERVICES (2.1%)
    Cellular (.2%)
    13,900    AT&T Wireless Services, Inc.(b)                                                     91,740
                                                                                         ---------------
    Telecommunication (.2%)
     2,580    Qualcomm, Inc.                                                                      93,035
                                                                                         ---------------
    Telephone (1.7%)
     9,800    BellSouth Corporation                                                              212,366
     7,800    SBC Communications, Inc.                                                           156,468
    12,500    Verizon Communications, Inc.                                                       441,875
                                                                                         ---------------
                                                                                                 810,709
                                                                                         ---------------

   CONSUMER CYCLICAL (6.8%)
    Auto (.3%)
     2,400    Eaton Corporation                                                                  167,880
                                                                                         ---------------
    Leisure (1.5%)
    37,700    Brunswick Corporation                                                              716,300
                                                                                         ---------------
    Lodging -- Hotel (.4%)
    15,900    Hilton Hotels Corporation                                                          184,599
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       60




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   CONSUMER CYCLICAL--CONTINUED
    Retail (4.6%)
     2,800    Autozone, Inc.(b)                                                          $       192,388
     7,200    Bed Bath & Beyond, Inc.(b)                                                         248,688
     5,200    CVS Corporation                                                                    124,020
     9,200    Darden Restaurants, Inc.                                                           164,220
     9,000    Family Dollar Stores                                                               277,920
    10,500    Home Depot, Inc.                                                                   255,780
     5,600    JC Penney Company                                                                  109,984
     5,300    Lowe's Companies, Inc.                                                             216,346
    12,800    Wal-Mart Stores, Inc.                                                              665,984
                                                                                         ---------------
                                                                                               2,255,330
                                                                                         ---------------

   CONSUMER STAPLES (8.0%)
    Beverage (1.2%)
     6,900    Constellation Brands, Inc.(b)                                                      156,630
     4,200    Pepsi Bottling Group, Inc.                                                          75,306
     2,900    Pepsico, Inc.                                                                      116,000
     6,200    The Coca-Cola Company                                                              250,976
                                                                                         ---------------
                                                                                                 598,912
                                                                                         ---------------
    Broadcasting (1.5%)
    13,200    Clear Channel Communications, Inc.(b)                                              447,744
     5,467    Comcast Corporation Class A(b)                                                     156,301
     5,600    Comcast Corporation Special Class A(b)                                             153,944
                                                                                         ---------------
                                                                                                 757,989
                                                                                         ---------------
    Entertainment (1.5%)
    26,500    The Walt Disney Company                                                            451,030
     7,500    Viacom, Inc.(b)                                                                    273,900
                                                                                         ---------------
                                                                                                 724,930
                                                                                         ---------------
    Household Products (2.2%)
     9,700    Colgate-Palmolive Company                                                          528,068
     6,000    Procter & Gamble Company                                                           534,300
                                                                                         ---------------
                                                                                               1,062,368
                                                                                         ---------------
    Personal Care (.6%)
     4,700    Avon Products, Inc.                                                                268,135
                                                                                         ---------------
    Service (1.0%)
    11,800    Ceridian Corporation(b)                                                            164,964
    10,500    Manpower, Inc.                                                                     313,740
                                                                                         ---------------
                                                                                                 478,704
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       61




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   ENERGY (4.7%)
    Oil (2.8%)
     3,300    ConocoPhillips                                                             $       176,880
     1,800    Devon Energy Corporation                                                            86,796
    30,600    Exxon Mobil Corporation                                                          1,069,470
                                                                                         ---------------
                                                                                               1,333,146
                                                                                         ---------------
    Oil & Gas (1.9%)
     9,100    Ensco International, Inc.                                                          232,141
    10,256    Nabors Industries, Ltd.(b)(c)                                                      408,907
     8,200    Smith International, Inc.(b)                                                       288,886
                                                                                         ---------------
                                                                                                 929,934
                                                                                         ---------------

   FINANCIAL (13.4%)
    Banks (5.4%)
     9,000    Bank of America Corporation                                                        601,560
     4,600    Charter One Financial, Inc.                                                        127,236
     4,500    FleetBoston Financial Corporation                                                  107,460
     2,500    Northern Trust Corporation                                                          76,125
    19,300    U.S. Bancorp                                                                       366,314
    21,200    Wachovia Corporation                                                               722,284
     9,900    Wells Fargo & Company                                                              445,401
     3,700    Zions BanCorporation                                                               158,286
                                                                                         ---------------
                                                                                               2,604,666
                                                                                         ---------------
    Consumer Finance (1.1%)
    10,000    American Express Company                                                           332,300
    11,900    MBNA Corporation                                                                   179,095
                                                                                         ---------------
                                                                                                 511,395
                                                                                         ---------------
    Finance -- Diversified (.6%)
     2,900    Fannie Mae                                                                         189,515
     2,000    Freddie Mac                                                                        106,200
                                                                                         ---------------
                                                                                                 295,715
                                                                                         ---------------
    Insurance (1.5%)
    11,400    American International Group                                                       563,730
    12,300    Travelers Property Casualty Corporation                                            173,307
                                                                                         ---------------
                                                                                                 737,037
                                                                                         ---------------
    Investment Bankers/Brokers (3.2%)
    23,000    Citigroup, Inc.                                                                    792,350
     2,600    Goldman Sachs Group, Inc.                                                          177,008
     7,100    Merrill Lynch & Company, Inc.                                                      251,340


              See accompanying notes to investments in securities.

                                       62




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   FINANCIAL--CONTINUED
     4,600    Morgan Stanley                                                             $       176,410
     6,200    T Rowe Price Group, Inc.                                                           168,138
                                                                                         ---------------
                                                                                               1,565,246
                                                                                         ---------------
    Real Estate (.6%)
    11,100    Boardwalk Equities, Inc.(c)                                                        110,112
     8,606    Brookfield Properties Corporation(c)                                               169,108
                                                                                         ---------------
                                                                                                 279,220
                                                                                         ---------------
    Real Estate Investment Trust --  Shopping Centers (.4%)
     8,300    Developers Diversified Realty Corporation                                          200,445
                                                                                         ---------------
    Real Estate Investment Trust -- Warehouse/Industrial (.6%)
    10,900    Prologis                                                                           275,988
                                                                                         ---------------

   HEALTH CARE (9.2%)
    Biotechnology (1.3%)
    11,200    Amgen, Inc.(b)                                                                     644,560
                                                                                         ---------------
    Drugs (4.2%)
    10,900    Bristol-Myers Squibb Company                                                       230,317
     3,300    Merck & Company, Inc.                                                              180,774
    34,725    Pfizer, Inc.                                                                     1,082,031
     6,000    Schering-Plough Corporation                                                        106,980
    12,300    Wyeth                                                                              465,186
                                                                                         ---------------
                                                                                               2,065,288
                                                                                         ---------------
    Health Care -- Diversified (1.6%)
     4,800    Abbott Laboratories                                                                180,528
    10,000    Johnson & Johnson                                                                  578,700
                                                                                         ---------------
                                                                                                 759,228
                                                                                         ---------------
    Managed Care (.6%)
     4,900    Express Scripts, Inc.(b)                                                           272,832
                                                                                         ---------------
    Medical Products/Supplies (.9%)
     3,700    Medtronic, Inc.                                                                    166,944
     3,400    St Jude Medical, Inc.(b)                                                           165,750
     2,000    Zimmer Holdings, Inc.(b)                                                            97,260
                                                                                         ---------------
                                                                                                 429,954
                                                                                         ---------------
    Special Services (.6%)
    10,500    Fisher Scientific International, Inc.(b)                                           293,580
                                                                                         ---------------

   TECHNOLOGY (10.9%)
    Communications Equipment (.1%)
     3,300    Comverse Technology, Inc.(b)                                                        37,323
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       63




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   TECHNOLOGY--CONTINUED
    Computer Hardware (3.8%)
    12,260    Dell Computer Corporation(b)                                               $       334,821
    28,300    Hewlett-Packard Company                                                            440,065
     6,900    International Business Machines Corporation                                        541,167
    17,000    Seagate Technology(b)(c)                                                           175,440
    44,000    Symbol Technologies, Inc.                                                          378,840
                                                                                         ---------------
                                                                                               1,870,333
                                                                                         ---------------
    Computer Networking (.6%)
    23,185    Cisco Systems, Inc.(b)                                                             299,086
                                                                                         ---------------
    Computer Services & Software (2.9%)
    41,576    Microsoft Corporation                                                            1,006,555
    17,200    Oracle Corporation(b)                                                              186,603
    11,400    Siebel Systems, Inc.(b)                                                             91,314
     5,800    Veritas Software Corporation(b)                                                    101,964
                                                                                         ---------------
                                                                                               1,386,436
                                                                                         ---------------
    Electrical Instruments (.1%)
    17,600    JDS Uniphase Corporation(b)                                                         50,160
                                                                                         ---------------
    Electrical Semiconductor (2.0%)
     5,700    Entegris, Inc.(b)                                                                   56,772
    13,100    Intel Corporation                                                                  213,268
     6,600    Intersil Corporation(b)                                                            102,696
    14,600    National Semiconductor Corporation(b)                                              248,784
     2,100    Novellus Systems, Inc.(b)                                                           57,267
    18,286    Texas Instruments, Inc.                                                            299,342
                                                                                         ---------------
                                                                                                 978,129
                                                                                         ---------------
    Electronics -- Computer Distribution (.8%)
     3,900    Cree, Inc.(b)                                                                       72,228
     7,300    WW Grainger, Inc.                                                                  313,170
                                                                                         ---------------
                                                                                                 385,398
                                                                                         ---------------
    Service -- Data Processing (.3%)
     4,100    First Data Corporation                                                             151,741
                                                                                         ---------------
    Telecommunication (.3%)
     6,900    UTStarcom, Inc.(b)                                                                 137,931
                                                                                         ---------------

   TRANSPORTATION (.7%)
    Airlines (.2%)
    13,300    Northwest Airlines Corporation(b)                                                   91,770
                                                                                         ---------------
    Auto (.2%)
     2,000    Polaris Industries, Inc.                                                            99,440
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       64




                                                                                                  MARKET
SHARES                                                                                          VALUE(a)
- ------                                                                                          --------
                                                                                      
   TRANSPORTATION--CONTINUED
    Railroads (.3%)
     3,200    Canadian National Railway Company(c)                                       $       136,960
                                                                                         ---------------

   UTILITIES (1.2%)
    Electric Companies (1.2%)
    12,000    NiSource, Inc.                                                                     218,400
     6,300    PG&E Corporation(b)                                                                 84,735
     4,700    PPL Corporation                                                                    167,367
     3,100    Public Service Enterprise Group, Inc.                                              113,739
                                                                                         ---------------
                                                                                                 584,241
                                                                                         ---------------
Total common stock (cost: $30,403,262)                                                        30,077,672
                                                                                         ---------------

   S&P DEPOSITORY RECEIPT (.5%)
     3,100    S&P Depository Receipt                                                             263,097
                                                                                         ---------------
Total S&P Depository Receipt (cost: $267,738)                                                    263,097
                                                                                         ---------------




PRINCIPAL                                                  COUPON       MATURITY
- ---------                                                  ------       --------
                                                                                      
LONG-TERM DEBT SECURITIES (34.8%)
   U.S. GOVERNMENT AND AGENCIES OBLIGATIONS (17.7%)
    Federal Home Loan Mortgage Corporation (FHLMC) (2.8%)
     $ 488,165                                              5.500%      12/01/17                 509,294
       813,057                                              6.500%      09/01/32                 852,795
                                                                                         ---------------
                                                                                               1,362,089
                                                                                         ---------------
    Federal National Mortgage Association (FNMA) (9.4%)
       250,000                                              2.750%      06/09/05                 252,437
       172,636                                              4.000%      04/25/22                 173,914
       987,120                                              6.000%      09/01/17               1,039,098
       195,505                                              6.230%      01/01/08                 216,312
       251,140                                              6.500%      10/01/28                 264,279
       170,360                                              6.500%      02/01/29                 179,273
       334,240                                              6.500%      02/01/32                 350,794
        83,011                                              6.500%      03/01/32                  86,655
       184,901                                              6.500%      09/01/32                 194,058
        91,473                                              7.000%      09/01/31                  97,032
       408,355                                              7.000%      11/01/31                 432,902
       400,098                                              7.000%      02/01/32                 424,416
       201,182                                              7.000%      02/01/32                 213,412
       193,903                                              7.000%      03/01/32                 205,691
       121,786                                              7.000%      06/01/32                 129,189
       272,703                                              7.000%      07/01/32                 289,281
                                                                                         ---------------
                                                                                               4,548,743
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       65




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
    Government National Mortgage Association (GNMA) (.7%)
       300,167                                              7.375%      11/15/11         $       332,348
                                                                                         ---------------
    Other Agency Obligations (.3%)
       150,000  Federal Home Loan Bank(d)                   1.895%      09/11/06                 149,958
                                                                                         ---------------
    U.S. Treasury (4.5%)
       375,000  Bond                                        5.375%      02/15/31                 405,645
       550,000  Bond                                        6.000%      02/15/26                 630,180
       150,000  Bond                                        6.125%      08/15/29                 175,693
       400,000  Note                                        3.875%      02/15/13                 401,672
       525,000  Note                                        4.625%      05/15/06                 565,769
                                                                                         ---------------
                                                                                               2,178,959
                                                                                         ---------------
Total U.S. government and agencies obligations
  (cost: $8,266,807)                                                                           8,572,097
                                                                                         ---------------
CORPORATE OBLIGATIONS (17.1%)
   BASIC MATERIALS (2.6%)
    Agriculture Products (1.5%)
     $ 450,000  Archer-Daniels-Midland Company              7.000%      02/01/31                 519,260
       150,000  Cargill, Inc. 144A Issue(f)                 6.375%      06/01/12                 168,280
                                                                                         ---------------
                                                                                                 687,540
                                                                                         ---------------
    Construction (1.1%)
       150,000  Hanson Australia Funding(c)                 5.250%      03/15/13                 146,892
       350,000  Vulcan Materials Company                    6.400%      02/01/06                 386,050
                                                                                         ---------------
                                                                                                 532,942
                                                                                         ---------------
   CONSUMER CYCLICAL (1.5%)
    Auto (.4%)
       200,000  ERAC USA Finance Company
                144A Issue(f)                               7.500%      06/15/03                 202,081
                                                                                         ---------------
    Publishing (.8%)
       350,000  Gannett Company, Inc.                       5.500%      04/01/07                 383,536
                                                                                         ---------------
    Service (.3%)
       150,000  PHH Corporation                             7.125%      03/01/13                 150,747
                                                                                         ---------------
   CONSUMER STAPLES (1.4%)
    Beverage (.2%)
       100,000  Diageo Capital PLC(c)                       3.500%      11/19/07                 101,098
                                                                                         ---------------
    Food (.8%)
       250,000  ConAgra Foods, Inc.(d)                      2.120%      09/10/03                 250,269
       100,000  Unilever Capital Corporation                5.900%      11/15/32                 103,012
                                                                                         ---------------
                                                                                                 353,281
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       66




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   CONSUMER STAPLES--CONTINUED
    Retail (.4%)
       200,000  American Stores Company                     7.200%      06/09/03         $       201,797
                                                                                         ---------------
   ENERGY (.5%)
     Oil (.5%)
       250,000  Conoco, Inc.(d)                             2.226%      04/15/03                 250,061
                                                                                         ---------------
   FINANCIAL (10.2%)
    Asset-Backed Securities (1.3%)
     $ 250,000  Fortress CBO Investments I,
                Ltd. 144A Issue(c)(e)                       7.850%      07/25/38                 279,868
       250,000  Lehman ABS Manufactured
                Housing Contract                            5.873%      05/15/22                 255,011
        99,627  Mid-State Trust                             7.340%      07/01/35                 108,157
                                                                                         ---------------
                                                                                                 643,036
                                                                                         ---------------
    Auto Finance (.2%)
       100,000  General Motors Acceptance
                Corporation                                 6.125%      08/28/07                 102,551
                                                                                         ---------------
    Banks (.4%)
       200,000  St. George Funding Company
                LLC 144A Issue(c)(d)(e)                     8.485%      12/29/49                 210,108
                                                                                         ---------------
    Collateralized Mortgage Obligations/Mortgage
      Revenue Bonds (2.0%)
        29,102  Banco Hipotecario Nacional
                144A Issue(c)(e)(h)                         7.916%      07/25/09                   9,313
       309,357  Banco Hipotecario Nacional
                144A Issue(c)(e)(h)                         8.000%      03/31/11                  83,526
       386,220  Bear Stearns Mortgage
                Securities, Inc.                            8.000%      11/25/29                 404,689
       224,284  Chase Mortgage Finance
                Corporation 144A Issue(d)(f)                6.634%      03/28/25                 230,454
        52,265  Paine Webber Mortgage
                Acceptance Corporation                      7.000%      10/25/23                  52,204
        68,220  Prudential Home Mortgage
                Securities 144A Issue(d)(f)                 6.613%      04/28/24                  69,297
       109,747  Residential Funding Mortgage
                Securities                                  7.000%      10/25/23                 113,104
                                                                                         ---------------
                                                                                                 962,587
                                                                                         ---------------
     Commercial Mortgage-Backed Securities (.6%)
            --  Asset Securitization
                Corporation(d)(g)                           9.150%      08/13/29                 279,288
                                                                                         ---------------


              See accompanying notes to investments in securities.

                                       67




                                                                                                  MARKET
PRINCIPAL                                                  COUPON       MATURITY                VALUE(a)
- ---------                                                  ------       --------                --------
                                                                                
   FINANCIAL--CONTINUED
    Insurance (1.8%)
     $ 200,000  ASIF Global Financing 144A Issue(f)         3.850%      11/26/07         $       203,492
       400,000  Prudential Funding LLC 144A Issue(f)        6.600%      05/15/08                 444,711
       200,000  Stancorp Financial Group, Inc.              6.875%      10/01/12                 211,121
                                                                                         ---------------
                                                                                                 859,324
                                                                                         ---------------
    Investment Bankers/Brokers (1.0%)
       200,000  Goldman Sachs Group, Inc.                   6.125%      02/15/33                 200,664
       250,000  Morgan Stanley                              6.750%      04/15/11                 279,804
                                                                                         ---------------
                                                                                                 480,468
                                                                                         ---------------
    Non-Agency Commercial Mortgage-Backed Securities
      (1.2%)
       500,000  Park Avenue Finance
                Corporation 144A Issue(f)                   7.680%      05/12/12                 575,050
                                                                                         ---------------
    Real Estate Investment Trust (1.7%)
       250,000  Prologis                                    6.700%      04/15/04                 261,224
       200,000  Reckson Operating Partnership LP            7.400%      03/15/04                 208,321
       350,000  Vornado Realty Trust                        5.625%      06/15/07                 360,794
                                                                                         ---------------
                                                                                                 830,339
                                                                                         ---------------
   TECHNOLOGY (.4%)
    Computer Hardware (.4%)
       200,000  International Business
                Machines Corporation                        5.875%      11/29/32                 204,384
                                                                                         ---------------
   UTILITIES (.5%)
    Electric Companies (.5%)
       200,000  Hydro-Quebec(c)                             8.000%      02/01/13                 256,873
                                                                                         ---------------
Total corporate obligations (cost: $7,943,043)                                                 8,267,091
                                                                                         ---------------
Total long-term debt securities (cost: $16,209,850)                                           16,839,188
                                                                                         ---------------




SHARES
- ------
                                                                                      
SHORT-TERM SECURITIES (1.2%)
           293  Federated Prime Obligations Fund, current rate 1.270%                                293
       375,544  One Group Institutional Prime Money Market,
                current rate 1.290%                                                              375,544
       185,921  Wells Fargo & Company, current rate 1.431%                                       185,921
                                                                                         ---------------
                Total short-term securities
                (cost: $561,758)                                                                 561,758
                                                                                         ---------------
                Total investments in securities
                (cost: $47,442,608)(i)                                                   $    47,741,715
                                                                                         ===============


              See accompanying notes to investments in securities.

                                       68


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 4.9% of net assets in foreign securities at March 31, 2003.
(d)  Variable rate security
(e)  Represents ownership in an illiquid security. (See note 9 to the financial
     statements.) Information concerning the illiquid securities held at March
     31, 2003, which includes acquisition date and cost, is as follows:



                                                          ACQUISITION
     SECURITY:                                               DATE              COST
     ---------                                            -----------       ----------
                                                                      
     Banco Hipotecario Nacional 144A Issue*                  04/01/99           28,186
     Banco Hipotecario Nacional 144A Issue*                  03/07/00          295,623
     Fortress CBO Investments I, Limited 144A Issue*         01/16/01          247,534
     St. George Funding Company LLC 144A Issue*              06/12/97          200,068
                                                                            ----------
                                                                            $  771,411
                                                                            ==========


*    A 144A Issue represents a security which has not been registered with the
     Securities and Exchange Commission under the Securities Act of 1933.
(f)  Long-term debt security sold within terms of a private placement memorandum
     exempt from registration under Section 144A of the Securities Act of 1933,
     as amended, and may be sold only to dealers in that program or other
     "accredited investors". These securities have been determined to be liquid
     under guidelines established by the Board of Directors.
(g)  Interest-only security that entitles holders to receive only interest on
     the underlying mortgages. The principal amount of the underlying pool
     represents the notional amount on which current interest is calculated. The
     yield to maturity of an interest-only security is sensitive to the rate of
     principle payments on the underlying mortgage assets. The rate disclosed
     represents the market yield based upon the current cost basis and estimate
     timing and amount of future cash flows.
(h)  Security is in default with respect to interest payments. Income is not
     being accrued on this security and any payments received are treated as a
     reduction of principal. This security is being fair-valued according to
     procedures approved by the board of directors.
(i)  At March 31, 2003 the cost of securities for federal income tax purposes
     was $49,565,967. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                           
     Gross unrealized appreciation                                 $     870,216
     Gross unrealized depreciation                                    (2,694,468)
                                                                   -------------
     Net unrealized depreciation                                   $  (1,824,252)
                                                                   =============

     

                 See accompanying notes to financial statements.

                                       69


ADVANTUS FIXED INCOME AND BLENDED FUNDS
Statements of Assets and Liabilities                  MARCH 31, 2003 (UNAUDITED)



                                                                      INTERNATIONAL       MONEY          MORTGAGE
                                                          BOND          BALANCED          MARKET        SECURITIES      SPECTRUM
                                                          FUND            FUND             FUND            FUND           FUND
                                                      -------------   -------------   -------------   -------------   -------------
                                                                                                       
                     ASSETS
Investments in securities, at market value - see
 accompanying schedule for detailed listing*+         $  24,907,841   $  38,853,602   $  39,322,875   $ 140,187,742   $  47,741,715
Cash in bank on demand deposit                               57,592       1,071,975               -          89,110           1,193
Receivable for Fund shares sold                             114,101           4,251         158,283       1,129,619           7,055
Receivable for investment securities sold
 (including paydowns)                                           754               -               -       1,472,228         789,990
Dividends and accrued interest receivable                   224,549         484,136          89,013         796,986         186,700
Receivable for refundable foreign income taxes
 withheld                                                         -          20,127               -               -               -
Receivable from advisor                                      18,508               -          19,937          15,152          15,122
Collateral for securities loaned (note 6)                   955,410       1,167,860               -               -       4,601,379
                                                      -------------   -------------   -------------   -------------   -------------
      Total Assets                                       26,278,755      41,601,951      39,590,108     143,690,837      53,343,154
                                                      -------------   -------------   -------------   -------------   -------------
                   LIABILITIES
Payable for Fund shares repurchased                          41,225          15,914         139,383         524,524         112,770
Payable for investment securities purchased                       -               -               -       8,347,545          78,396
Dividends payable to shareholders                            25,764               -              95         144,134               -
Payable to Advisor                                           27,143          60,456          22,979         119,438          45,836
Accrued expenses                                             36,236                          68,164          70,149          65,105
Other payables                                                    -               -               -           1,581               -
Payable upon return of securities loaned (note 6)           955,410       1,167,860               -               -       4,601,379
                                                      -------------   -------------   -------------   -------------   -------------
      Total Liabilities                                   1,085,778       1,244,230         230,621       9,207,371       4,903,486
                                                      -------------   -------------   -------------   -------------   -------------
Net assets applicable to outstanding capital stock    $  25,192,977   $  40,357,721   $  39,359,487   $ 134,483,466   $  48,439,668
                                                      =============   =============   =============   =============   =============
Represented by:
   Capital stock - authorized 10 billion shares
    (Class A - 2 billion shares, Class B - 2 billion
    shares, Class C - 2 billion shares and 4 billion
    shares unallocated) of $.01 par value             $      23,666   $      46,172   $     393,595   $     121,942   $      44,455
   Additional paid-in capital                            25,081,801      48,657,382      38,965,892     131,075,648      64,000,527
   Undistributed (distributions in excess of) net
    investment income                                       (11,650)       (365,174)              -          (6,642)        (27,807)
   Accumulated net realized gain (losses) from
    investments and foreign currency transactions          (733,014)     (2,030,999)              -         320,258     (15,876,614)
   Unrealized appreciation (depreciation) on
    investments and translation of assets and
    liabilities in foreign currencies                       832,174      (5,949,660)              -       2,972,260         299,107
                                                      -------------   -------------   -------------   -------------   -------------
      Total - representing net assets applicable to
       outstanding capital stock                      $  25,192,977   $  40,357,721   $  39,359,487   $ 134,483,466   $  48,439,668
                                                      =============   =============   =============   =============   =============
Net assets applicable to outstanding Class A shares   $  18,144,909   $  37,018,518   $  39,359,487   $  84,127,665   $  36,107,837
                                                      =============   =============   =============   =============   =============
Net assets applicable to outstanding Class B shares   $   5,923,280   $   2,606,222               -   $  36,658,931   $  10,080,161
                                                      =============   =============   =============   =============   =============
Net assets applicable to outstanding Class C shares   $   1,124,788   $     732,981               -   $  13,696,870   $   2,251,670
                                                      =============   =============   =============   =============   =============
Shares outstanding and net asset value per share:
   Class A - Shares outstanding: 1,705,449;
    4,135,973; 39,359,487; 7,631,898; 3,307,199       $       10.64   $        8.95   $        1.00   $       11.02   $       10.92
                                                      =============   =============   =============   =============   =============
   Class B - Shares outstanding: 555,354; 297,586;
    -- ; 3,320,018; 929,085                           $       10.67   $        8.76               -   $       11.04   $       10.85
                                                      =============   =============   =============   =============   =============
   Class C - Shares outstanding: 105,818; 83,774;
    -- ; 1,242,287; 209,192                           $       10.63   $        8.75               -   $       11.03   $       10.76
                                                      =============   =============   =============   =============   =============
* Identified cost                                     $  24,075,667   $  44,775,236   $  39,322,875   $ 137,215,482   $  47,442,608
+ Including securities on loan of                     $     941,194   $   1,117,277   $           -   $           -   $   4,453,817


                 See accompanying notes to financial statements.

                                      70/71


ADVANTUS FIXED INCOME AND BLENDED FUNDS
Statements of Operations                          PERIOD FROM OCTOBER 1, 2002 TO
                                                      MARCH 31, 2003 (UNAUDITED)



                                                                      INTERNATIONAL       MONEY          MORTGAGE
                                                          BOND          BALANCED          MARKET        SECURITIES      SPECTRUM
                                                          FUND            FUND             FUND            FUND           FUND
                                                      -------------   -------------   -------------   -------------   -------------
                                                                                                       
Investment Income:
   Interest                                           $     705,816   $     411,524   $     308,725   $   3,987,875   $     486,649
   Dividends (net of foreign withholding taxes of
    $25,000 for
      International Balanced Fund)                                -         178,541               -               -         270,586
      Income from securities lending activities                 183           5,224               -               -             172
      Commission reimbursement income (note 8)                    -           1,026               -               -               -
                                                      -------------   -------------   -------------   -------------   -------------
        Total investment income                             705,999         596,315         308,725       3,987,875         757,407
                                                      -------------   -------------   -------------   -------------   -------------
Expenses (note 4):
   Investment advisory fee                                   74,365         147,511         102,561         280,245         127,079
   Rule 12b-1 fees - Class A                                 22,095          48,074          51,280          91,788          46,857
   Rule 12b-1 fees - Class B                                 30,134          14,116               -         163,319          54,919
   Rule 12b-1 fees - Class C                                  5,427           4,317               -          59,516          11,811
   Administrative services fee                               34,300          31,800          28,800          34,300          34,300
   Transfer agent and shareholder service fee                39,973          37,946          77,470         125,159          84,915
   Custodian fees                                             3,998          14,697           2,811           3,921           4,144
   Audit and accounting services                             15,847          37,749          11,900          17,476          16,287
   Legal fees                                                 4,821           3,785           4,370           7,222           4,792
   Registration fees                                         22,811          15,750          12,266          31,238          20,667
   Printing and shareholder reports                           9,227          11,269          11,850          19,806          14,713
   Director's fees                                              312             545             582           1,409             674
   Insurance                                                  1,196           1,279           1,284           1,594           1,373
   Other                                                      3,219           2,186           2,190           8,293           4,119
                                                      -------------   -------------   -------------   -------------   -------------
        Total expenses                                      267,725         371,024         307,364         845,286         426,650
   Less fees and expenses waived or absorbed by
    Advisor and Distributor
      Class A Rule 12b-1 fees                                     -               -         (51,280)              -               -
      Other absorbed fees                                  (100,199)         (5,265)        (83,806)       (113,808)        (80,536)
                                                      -------------   -------------   -------------   -------------   -------------
        Total net expenses                                  167,526         365,759         172,278         731,478         346,114
                                                      -------------   -------------   -------------   -------------   -------------
        Investment income - net                             538,473         230,556         136,447       3,256,397         411,293

Realized and unrealized gains (losses) on
 investments and foreign currencies:
      Net realized gains (losses) from:
        Investments (note 3)                                378,086         (26,509)              -         353,588      (1,048,531)
        Foreign currency transactions                             -         120,844               -               -               -
      Net change in unrealized appreciation or
       depreciation on:
        Investments                                        (216,069)        747,529               -        (963,803)      2,919,693
        Translation of assets and liabilities in
         foreign currency                                         -           1,861               -               -               -
                                                      -------------   -------------   -------------   -------------   -------------
           Net gains (losses) on iInvestments               162,017         843,725               -        (610,215)      1,871,162
                                                      -------------   -------------   -------------   -------------   -------------
Net increase (decrease) in net assets resulting from
 operations                                           $     700,490   $   1,074,281   $     136,447   $   2,646,182   $   2,282,455
                                                      =============   =============   =============   =============   =============


                 See accompanying notes to financial statements.

                                      72/73


ADVANTUS FIXED INCOME AND BLENDED FUNDS
Statements of Changes in Net Assets     PERIOD FROM OCTOBER 1, 2002 TO MARCH 31,
                                          2003 AND YEAR ENDED SEPTEMBER 30, 2002
                                                                     (UNAUDITED)



                                                                                                     INTERNATIONAL BALANCED
                                                                          BOND FUND                           FUND
                                                               ------------------------------    ------------------------------
                                                                   2003              2002            2003             2002
                                                               -------------    -------------    -------------    -------------
                                                                                                      
Operations:
  Investment income - net                                      $     538,473    $   1,130,165    $     230,556    $     797,017
  Net realized gains (losses) on investments                         378,086          293,831           94,335       (2,661,697)
  Net change in unrealized appreciation or depreciation of
   investments                                                      (216,069)         316,770          749,390            3,591
                                                               -------------    -------------    -------------    -------------
      Net increase (decrease) in net assets resulting from
       operations                                                    700,490        1,740,766        1,074,281       (1,861,089)
                                                               -------------    -------------    -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                          (394,047)        (807,857)               -          (13,409)
   Class B                                                          (112,162)        (271,659)               -                -
   Class C                                                           (20,157)         (44,247)               -                -
  Net realized gains on investments:
   Class A                                                                 -                -                -         (538,381)
   Class B                                                                 -                -                -          (46,854)
   Class C                                                                 -                -                -          (13,595)
Tax return of capital:
   Class A                                                                 -                -                -          (58,591)
   Class B                                                                 -                -                -                -
   Class C                                                                 -                -                -                -
                                                               -------------    -------------    -------------    -------------
      Total distributions                                           (526,366)      (1,123,763)               -         (670,830)
                                                               -------------    -------------    -------------    -------------
Capital share transactions (note 5):
  Proceeds from sales:
   Class A                                                         1,755,421        8,060,173        8,068,134        9,885,446
   Class B                                                           936,812        1,095,698          118,695          231,246
   Class C                                                           226,427          377,877          825,274          103,193
  Shares issued as a result of reinvested distributions:
   Class A                                                           245,090          482,580                -          547,656
   Class B                                                            97,230          232,831                -           45,527
   Class C                                                            16,954           38,135                -           13,545
  Payments for redemptions of shares:
   Class A                                                        (1,298,402)      (7,411,405)      (8,511,421)     (11,684,865)
   Class B                                                        (1,456,310)      (1,753,551)        (384,761)        (820,242)
   Class C                                                          (231,693)        (361,952)      (1,009,876)        (222,867)
                                                               -------------    -------------    -------------    -------------
      Increase (decrease) in net assets from capital share
       transactions                                                  291,529          760,386         (893,955)      (1,901,361)
                                                               -------------    -------------    -------------    -------------
      Total increase (decrease) in net assets                        465,653        1,377,389          180,326       (4,433,280)
Net assets at beginning of year                                   24,727,324       23,349,935       40,177,395       44,610,675
                                                               -------------    -------------    -------------    -------------
Net assets at end of period*                                   $  25,192,977    $  24,727,324    $  40,357,721    $  40,177,395
                                                               =============    =============    =============    =============
* including undistributed (distributions in excess of) net
  investment income                                            $     (11,650)   $     (23,757)   $    (365,174)   $    (595,730)




                                                                        MONEY MARKET
                                                                            FUND
                                                               ------------------------------
                                                                   2003             2002
                                                               -------------    -------------
                                                                          
Operations:
  Investment income - net                                      $     136,447    $     516,889
  Net realized gains (losses) on investments                               -                -
  Net change in unrealized appreciation or depreciation of
   investments                                                             -                -
                                                               -------------    -------------
      Net increase (decrease) in net assets resulting from
       operations                                                    136,447          516,889
                                                               -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                          (136,447)        (516,889)
   Class B                                                                 -                -
   Class C                                                                 -                -
  Net realized gains on investments:
   Class A                                                                 -                -
   Class B                                                                 -                -
   Class C                                                                 -                -
Tax return of capital:
   Class A                                                                 -                -
   Class B                                                                 -                -
   Class C                                                                 -                -
                                                               -------------    -------------
      Total distributions                                           (136,447)        (516,889)
                                                               -------------    -------------
Capital share transactions (note 5):
  Proceeds from sales:
   Class A                                                        18,565,689       49,808,401
   Class B                                                                 -                -
   Class C                                                                 -                -
  Shares issued as a result of reinvested distributions:
   Class A                                                           134,864          514,260
   Class B                                                                 -                -
   Class C                                                                 -                -
  Payments for redemptions of shares:
   Class A                                                       (21,268,888)     (50,878,207)
   Class B                                                                 -                -
   Class C                                                                 -                -
                                                               -------------    -------------
      Increase (decrease) in net assets from capital share
       transactions                                               (2,568,335)        (555,546)
                                                               -------------    -------------
      Total increase (decrease) in net assets                     (2,568,335)        (555,546)
Net assets at beginning of year                                   41,927,822       42,483,368
                                                               -------------    -------------
Net assets at end of period*                                   $  39,359,487    $  41,927,822
                                                               =============    =============
* including undistributed (distributions in excess of) net
  investment income                                            $           -    $           -


                 See accompanying notes to financial statements.

                                      74/75




                                                                     MORTGAGE SECURITIES
                                                                             FUND                        SPECTRUM FUND
                                                               ------------------------------    ------------------------------
                                                                   2003             2002             2003             2002
                                                               -------------    -------------    -------------    -------------
                                                                                                      
Operations:
  Investment income - net                                      $   3,256,397    $   4,983,164    $     411,293    $   1,003,193
  Net realized gains (losses) on investments                         353,588        2,061,759       (1,048,531)         795,011
  Net change in unrealized appreciation or depreciation of
   investments                                                      (963,803)        (946,746)       2,919,693       (4,590,027)
                                                               -------------    -------------    -------------    -------------
      Net increase (decrease) in net assets resulting from
       operations                                                  2,646,182        6,098,177        2,282,455       (2,791,823)
                                                               -------------    -------------    -------------    -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                        (2,054,844)      (3,454,050)        (364,715)        (931,366)
   Class B                                                          (798,353)      (1,427,914)         (64,987)        (193,939)
   Class C                                                          (291,311)        (410,303)         (14,568)         (41,695)
  Net realized gains on investments:
   Class A                                                                 -                -                -          (61,065)
   Class B                                                                 -                -                -          (20,461)
   Class C                                                                 -                -                -           (4,456)
  Tax return of capital:
   Class A                                                                 -          (50,986)               -                -
   Class B                                                                 -          (21,078)               -                -
   Class C                                                                 -           (6,056)               -                -
                                                               -------------    -------------    -------------    -------------
      Total distributions                                         (3,144,508)      (5,370,387)        (444,270)      (1,252,982)
                                                               -------------    -------------    -------------    -------------
Capital share transactions (note 5):
  Proceeds from sales:
   Class A                                                        29,658,490       40,374,981        2,436,047        3,242,717
   Class B                                                         9,206,910       11,113,864          294,189          732,968
   Class C                                                         5,028,634        6,746,433           41,171          265,270
  Shares issued as a result of reinvested distributions:
   Class A                                                         1,460,751        2,487,059          339,285          915,287
   Class B                                                           642,503        1,191,985           61,581          203,782
   Class C                                                           236,129          352,089           12,929           42,941
  Payments for redemptions of shares:
   Class A                                                       (14,079,010)     (18,385,514)      (4,982,142)      (9,234,283)
   Class B                                                        (2,929,625)      (3,844,743)      (1,904,586)      (4,082,012)
   Class C                                                        (1,928,998)      (1,977,904)        (267,783)        (955,048)
                                                               -------------    -------------    -------------    -------------
      Increase (decrease) in net assets from capital share
       transactions                                               27,295,784       38,058,250       (3,969,309)      (8,868,378)
                                                               -------------    -------------    -------------    -------------
      Total increase (decrease) in net assets                     26,797,458       38,786,040       (2,131,124)     (12,913,183)
Net assets at beginning of year                                  107,686,008       68,899,968       50,570,792       63,483,975
                                                               -------------    -------------    -------------    -------------
Net assets at end of period*                                   $ 134,483,466    $ 107,686,008    $  48,439,668    $  50,570,792
                                                               =============    =============    =============    =============
* including undistributed (distributions in excess of) net
  investment income                                            $      (6,642)   $    (118,531)   $     (27,807)   $       5,170


                 See accompanying notes to financial statements.

                                      76/77


ADVANTUS FIXED INCOME AND BLENDED FUNDS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)

(1)  ORGANIZATION

     The Advantus Bond Fund, Inc., the Advantus International Balanced Fund,
Inc., the Advantus Money Market Fund, Inc., the Advantus Mortgage Securities
Fund, Inc., and the Advantus Spectrum Fund, Inc. (the Funds) are registered
under the Investment Company Act of 1940 (as amended) as diversified, open-end
management investment companies. The Funds' prospectus provides a detailed
description of each Fund's investment objective, policies and strategies.

     The Funds currently issue three classes of shares: Class A, Class B and
Class C shares, except for the Money Market Fund which does not issue Class B or
C shares. Class A shares are sold subject to a front-end sales charge except for
the Money Market Fund which does not have any sales charges. Class B shares are
sold subject to a contingent deferred sales charge payable upon redemption if
redeemed within six years of purchase. Class C shares are sold without either a
front-end sales charge or a contingent deferred sales charge. Both Class B and
Class C shares are subject to a higher Rule 12b-1 fee than Class A shares. Both
Class B and Class C shares automatically convert to Class A shares at net asset
value after a specified holding period. Such holding periods decline as the
amount of the purchase increases and range from 28 to 84 months after purchase
for Class B shares and 40 to 96 months after purchase for Class C shares. All
three classes of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of Rule 12b-1
fees charged differs between Class A, Class B and Class C shares. Income,
expenses (other than Rule 12b-1 fees) and realized and unrealized gains or
losses are allocated to each class of shares based upon their relative net
assets.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The significant accounting policies followed by the Funds are summarized as
follows:

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, including disclosure of contingent assets and
liabilities, as of the balance sheet date and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.

                                       78


  INVESTMENTS IN SECURITIES

     Each Fund's net asset value is generally calculated as of the close of
normal trading on the New York Stock Exchange (typically 3:00 p.m. Central
Time). Investments in securities traded on a national exchange are valued at the
last sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
The pricing service may use models that price securities based on current yields
and relative security characteristics, such as coupon rate, maturity date,
issuer credit quality and prepayment speeds, as applicable. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith under procedures adopted by the Board of Directors.
Short-term securities are valued at market. For the Money Market Fund, pursuant
to Rule 2a-7 of the Investment Company Act of 1940 (as amended), all securities
are valued at amortized cost which approximates market value, in order to
maintain a constant net asset value of $1. However, there is no assurance that
the Fund will maintain a $1 NAV.

     Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date, or
upon dividend notification for certain foreign securities. Interest income,
including amortization of bond premium and discount computed on a level yield
basis, is accrued daily.

  FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN CURRENCY CONTRACTS

     Securities and other assets and liabilities denominated in foreign
currencies are translated daily into U.S. dollars at the closing rate of
exchange. Foreign currency amounts related to the purchase or sale of
securities, income and expenses are translated at the exchange rate on the
transaction date. The Funds do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with net realized and unrealized gains or losses from
investments.

     Net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency gains
or losses realized between trade and settlement dates on securities
transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Funds' books and the U.S. dollar

                                       79


equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities, other than investments in securities, resulting from changes in the
exchange rate.

     The International Balanced Fund also may enter into forward foreign
currency exchange contracts for operational purposes and to protect against
adverse exchange rate fluctuations. The net U.S. dollar value of foreign
currency underlying all contractual commitments held by the International
Balanced Fund and the resulting unrealized appreciation and depreciation are
determined using foreign currency exchange rates from an independent pricing
service. The International Balanced Fund is subject to the credit risk that the
other party will not complete the obligations of the contract.

  FEDERAL TAXES

     Each Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no income tax provision is
required. Also, each Funds' policy is to make required minimum distributions
prior to December 31, in order to avoid federal excise tax.

     For federal income tax purposes, the following Funds had capital loss
carryovers and/or post October losses at September 30, 2002 which, if not offset
by subsequent capital gains, will expire September 30, 2010. It is unlikely the
Board of Directors will authorize a distribution of any net realized capital
gains until available capital loss carryovers have been offset or expire:

                                                         
  Bond Fund                                                   $  1,043,533
  International Balanced Fund                                    2,064,851
  Spectrum Fund                                                 11,482,396

  

     Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains were recorded by the
Funds.

     The Funds may elect to utilize equalization debits by which a portion of
the costs of redemptions, which occurred during the year ended September 30,
2002, would reduce net realized gain for tax purposes.

                                       80


  DISTRIBUTIONS TO SHAREHOLDERS

     For the International Balanced Fund and the Spectrum Fund dividends from
net investment income are declared and paid quarterly. Realized gains, if any,
are paid annually.

     For the Bond Fund, Money Market Fund and Mortgage Securities Fund dividends
from net investment income are declared daily and paid monthly in cash or
reinvested in additional shares. Capital gains, if any, are paid annually.

  SECURITIES PURCHASED ON A WHEN-ISSUED BASIS

     Delivery and payment for securities which have been purchased by a Fund on
a forward commitment or when-issued basis can take place a month or more after
the transaction date. During this period, such securities are subject to market
fluctuations. As of March 31, 2003, the Mortgage Securities Fund had entered
into outstanding, when-issued or forward commitments of $2,836,797. The Fund has
segregated assets with the custodian to cover such when-issued and forward
commitments.

(3)  INVESTMENT SECURITY TRANSACTIONS

     For the six-month period ended March 31, 2003, the cost of purchases and
proceeds from sales of investment securities aggregated $218,987,189 and
$221,675,305, respectively for the Money Market Fund. For the other Funds, the
cost of purchases and proceeds from sales of investment securities, other than
temporary investments in short-term securities, for the six-month period ended
March 31, 2003 were as follows:



FUND                                          PURCHASES           SALES
- ----                                        ------------        ------------
                                                          
Bond                                        $ 16,364,546        $ 15,658,383
International Balanced                         8,236,806           9,260,125
Mortgage Securities                           65,384,691          69,547,460
Spectrum                                      23,704,408          26,634,960


(4)  EXPENSES AND RELATED PARTY TRANSACTIONS

     The Funds have an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of
Securian Financial Group. Under the agreement, Advantus Capital manages the
Funds' assets and provides research, statistical and advisory services and pays
related office rental and executive expenses and salaries. Effective May 1,
2003, however, Spectrum Fund has entered into an interim investment advisory
agreement with Waddell & Reed Ivy Investment Company ("WRIICO") pursuant to
which WRIICO provides similar services to Spectrum Fund.

                                       81


     Each of the Funds pays Advantus Capital Management an annual fee, based on
average net assets in the following amounts (except that, effective May 1, 2003,
Spectrum Fund pays WRIICO the same amount it formerly paid to Advantus Capital):



FUND                                ANNUAL FEE
- --------------------------------------------------------------------------------
                                 
Bond                                .60% of assets to $250 million; and .55% of
                                    assets exceeding $250 million to $500
                                    million; and .50% of assets exceeding $500
                                    million to $1 billion; and .45% of assets
                                    exceeding $1 billion

International Balanced              .70% of assets to $250 million; and .65% of
                                    assets exceeding $250 million to $500
                                    million; and .60% of assets exceeding $500
                                    million to $1 billion; and .55% of assets
                                    exceeding $1 billion

Money Market                        .50% of assets to $500 million; and .45% of
                                    assets exceeding $500 million to $1 billion;
                                    and .425% of assets exceeding $1 billion to
                                    $2 billion; and .40% of assets exceeding $2
                                    billion

Mortgage Securities                 .475% of assets to $1 billion; and .46% of
                                    assets exceeding $1 billion to $2 billion;
                                    and .45% of assets exceeding $2 billion

Spectrum                            .50% of assets to $1 billion; and .48% of
                                    assets exceeding $1 billion to $2 billion;
                                    and .46% of assets exceeding $2 billion.


     Advantus Capital has a sub-advisory agreement with the following registered
investment adviser. Under the sub-advisory agreement, Advantus Capital pays the
sub-adviser an annual fee based on average daily net assets, in the following
amounts:



FUND               SUB-ADVISOR           ANNUAL FEE
- ----------------   --------------------  ---------------------------------------
                                   
International      Templeton             .70% of assets to $25 million; and .55%
Balanced           Investment Counsel    of assets exceeding $25 million to $50
                                         million; and .50% of assets exceeding
                                         $50 million to $100 million; and .40%
                                         of assets exceeding $100 million


     The Funds have adopted separate Plans of Distribution applicable to Class
A, Class B and Class C shares, respectively, relating to the payment of certain
expenses pursuant to Rule 12b-1 under the Investment Company Act of 1940 (as
amended). The Funds pay fees to Securian Financial Services, Inc. (Securian),
the underwriter of the Funds and a wholly-owned subsidiary of Securian Financial
Group, to be used to pay certain expenses incurred in the distribution,
promotion and servicing of the Funds shares. The Class A Plan provides for a
service fee up to .25 percent of average daily net assets of Class A shares. The
Class B and Class C Plans provide for a fee up to 1.00 percent

                                       82


of average daily net assets of Class B and Class C shares, respectively. The
Class B and Class C 1.00 percent fee is comprised of a .75 percent distribution
fee and a .25 percent service fee. Securian is currently waiving the entire
12b-1 fee for the Money Market Fund. Securian waived Class A 12b-1 fees in the
amount of $51,280 for the Money Market Fund for the six-month period ended
March 31, 2003.

     The Funds have engaged PFPC Global Fund Services to act as their transfer
agent, dividend disbursing agent and redemption agent and bear the expenses of
such services.

     The Funds also bear certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reporting fees, outside legal, auditing and accounting services, and other
miscellaneous expenses.

     The Funds have entered into a shareholder and administrative services
agreement with Minnesota Life. Under this agreement, the Funds pay a shareholder
services fee, equal to $7 per shareholder account annually, to Minnesota Life
for shareholder services which Minnesota Life provides. The Funds also pay
Minnesota Life an administrative services fee. From October 1992 through
February 2003 the fee was equal to $6,200 per month for the Bond Fund, the
Mortgage Securities Fund and the Spectrum Fund, $5,300 per month for
International Balanced Fund, and $5,100 per month for Money Market Fund;
thereafter the administrative services fees for the above funds is $3,300 per
month for accounting, auditing, legal and other administrative services which
Minnesota Life provides.

  VOLUNTARY FEE ABSORPTION

     Advantus Capital has voluntarily agreed to absorb all Fund costs and
expenses that exceed 1.15% of Class A average daily net assets and 1.90% of
Class B and C average daily net assets for the Bond Fund, all Fund costs and
expenses that exceed 1.67% of Class A average daily net assets and 2.42% of
Class B and C average daily net assets for the International Balanced Fund, all
Fund costs and expenses that exceed .85% of Class A average daily net for the
Money Market Fund, all Fund costs and expenses which exceed .975% (.95% prior to
December 2, 2002) of Class A average daily net assets and 1.725% (1.70% prior to
December 2, 2002) of Class B and C average daily net assets for the Mortgage
Securities Fund and all Fund costs and expenses that exceed 1.32% (1.22% prior
to February 1, 2003) of Class A average daily net assets and 2.07% (1.97% prior
to February 1, 2003) of Class B and C average daily net assets for the Spectrum
Fund. During the six-month period ended March 31, 2003, Advantus Capital
voluntarily

                                       83


agreed to absorb $100,199, $5,265, $83,806, $113,808 and $80,536, respectively,
in expenses which were otherwise payable by the Funds.

  ACCOUNTING SERVICES

     The International Balanced Fund has an agreement with SEI Investments
Mutual Funds Services (SEI) whereby SEI provides daily fund accounting services.
Under this agreement, the annual fee for the Fund is equal to the greater of
$45,000 or .06% of the first $150 million in net assets, .05% of net assets from
$150 million to $850 million and .04% of net assets in excess of $1 billion. As
of March 3, 2003 the Bond Fund, Money Market Fund, Mortgage Securities Fund and
the Spectrum Fund have an agreement with State Street whereby State Street
provides daily fund accounting services.

     For the six month period ended March 31, 2003, sales charges received by
Securian for distributing the Funds' three classes of shares for Bond,
International Balanced, Mortgage Securities and Spectrum are $28,628, $6,114,
$421,873 and $20,419 respectively.

     As of March 31, 2003 the ownership of shares by Minnesota Life and
subsidiaries and the directors and officers of the Funds as a whole was as
follows:



                                                                PERCENTAGE
                                             NUMBER OF            OWNED
FUND                                          SHARES             OF CLASS
- ----                                         ---------          ----------
                                                             
Bond
  Class A                                      341,589             20.5%
International Balanced
Class A                                      3,222,851             77.9%
Money Market
  Class A                                    4,900,919             12.5%
Mortgage Securities
  Class A                                      660,182              9.1%
Spectrum
  Class A                                        1,930               .1%


     Legal fees were paid to a law firm of which the Funds' secretary is a
partner to the Bond Fund, International Balanced Fund, Money Market Fund,
Mortgage Securities Fund and the Spectrum Fund in the amount of $3,325, $3,550,
$3,325, $2,900, $3,325, respectively.

                                       84


(5)  CAPITAL SHARE TRANSACTIONS

     Transactions in shares for the six month period ended March 31, 2003 and
the year ended September 30, 2002, were as follows:



                                                        BOND FUND
                       ---------------------------------------------------------------------------
                               CLASS A                   CLASS B                   CLASS C
                       -----------------------   -----------------------   -----------------------
                          2003         2002         2003         2002         2003         2002
                       ----------   ----------   ----------   ----------   ----------   ----------
                                                                         
Sold                      166,961      793,620       88,756      106,141       21,458       36,666
Issued for
reinvested
distributions              23,220       47,082        9,193       22,664        1,608        3,726
Redeemed                 (123,177)    (729,969)    (138,041)    (170,786)     (22,026)     (35,651)
                       ----------   ----------   ----------   ----------   ----------   ----------
                           67,004      110,733      (40,092)     (41,981)       1,131        4,741
                       ==========   ==========   ==========   ==========   ==========   ==========




                                               INTERNATIONAL BALANCED FUND
                       ---------------------------------------------------------------------------
                               CLASS A                   CLASS B                   CLASS C
                       -----------------------   -----------------------   -----------------------
                          2003         2002         2003         2002         2003         2002
                       ----------   ----------   ----------   ----------   ----------   ----------
                                                                         
Sold                      875,794    1,005,733       13,400       24,615       91,554       10,844
Issued for
reinvested
distributions                   -       57,082            -        4,795            -        1,426
Redeemed                 (925,769)  (1,188,610)     (42,972)     (87,172)    (111,947)     (23,558)
                       ----------   ----------   ----------   ----------   ----------   ----------
                          (49,975)    (125,795)     (29,572)     (57,762)     (20,393)     (11,288)
                       ==========   ==========   ==========   ==========   ==========   ==========




                           MONEY MARKET FUND
                       --------------------------
                                CLASS A
                       --------------------------
                           2003           2002
                       -----------    -----------
                                
Sold                    18,565,677     49,808,396
Issued for
reinvested
distributions              134,876        514,265
Redeemed               (21,268,888)   (50,878,207)
                       -----------    -----------
                        (2,568,335)      (555,546)
                       ===========    ===========


                                       85




                                                 MORTGAGE SECURITIES FUND
                       ---------------------------------------------------------------------------
                               CLASS A                   CLASS B                   CLASS C
                       -----------------------   -----------------------   -----------------------
                          2003         2002         2003         2002         2003         2002
                       ----------   ----------   ----------   ----------   ----------   ----------
                                                                        
Sold                    2,690,424    3,700,516      834,092    1,016,397      456,142      617,004
Issued for
reinvested
distributions             132,561      228,004       58,185      109,077       21,418       32,255
Redeemed               (1,277,325)  (1,707,279)    (265,612)    (360,354)    (175,133)    (183,912)
                       ----------   ----------   ----------   ----------   ----------   ----------
                        1,545,660    2,221,241      626,665      765,120      302,427      465,347
                       ==========   ==========   ==========   ==========   ==========   ==========




                                                     SPECTRUM FUND
                       ---------------------------------------------------------------------------
                               CLASS A                   CLASS B                   CLASS C
                       -----------------------   -----------------------   -----------------------
                          2003         2002         2003         2002         2003         2002
                       ----------   ----------   ----------   ----------   ----------   ----------
                                                                         
Sold                      222,918      270,707       26,776       61,696       3,7923       23,078
Issued for
reinvested
distributions              30,769       77,674        5,621       17,367        1,189        3,684
Redeemed                 (455,520)    (775,059)    (174,792)    (344,138)     (24,894)     (81,875)
                       ----------   ----------   ----------   ----------   ----------   ----------
                         (201,833)    (426,678)    (142,395)    (265,075)     (19,912)     (55,113)
                       ==========   ==========   ==========   ==========   ==========   ==========


(6)  SECURITIES LENDING CONTRACTS

     To enhance returns, the Funds loan securities to brokers in exchange for
collateral. The Funds receive a fee from the brokers measured as a percent of
the loaned securities. At March 31, 2003, the collateral is invested in cash
equivalents and repurchase agreements and must be 102% of the value of
securities loaned. The risk to the Funds is that the borrower may not provide
additional collateral when required or return the securities when due. At
March 31, 2003, Bond, International Balanced and Spectrum had securities valued
at $941,199, $1,117,277 and $4,467,358 that were on loan to brokers and the
Funds had $955,410, $1,167,860 and $4,601,379 in cash collateral, respectively.

(7)  ILLIQUID SECURITIES

     The Funds' investments in illiquid securities are limited to 10% of net
assets at the time of purchase. At March 31, 2003 investments in securities of
the Bond Fund, the Mortgage Securities Fund and the Spectrum Fund include issues
that are illiquid. The aggregate value of illiquid securities held by the Funds
were $517,430, $3,783,685 and $582,815, respectively, which represents 2.1%,
2.8% and 1.2% of net assets, respectively. Pursuant to guidelines adopted by the
Funds' Board of Directors, certain unregistered

                                       86


securities are determined to be liquid and are not included within the percent
limitations specified above.

(8)  COMMISSION RECAPTURE

     The International Balanced Fund participates in commission recapture
agreements with certain brokers whereby a portion of brokerage commissions on
fund trades are refunded. The commission recapture is reported as commission
reimbursement income on the statement of operations. For the six-month period
ended March 31, 2003, the International Balanced Fund had participated in such
agreements and recaptured $1,026 in brokerage commissions.

                                       87


(9)  FINANCIAL HIGHLIGHTS

ADVANTUS BOND FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS A
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.57        $    10.30     $     9.60     $     9.71     $    10.69    $    10.43
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .24               .52            .58            .58            .54           .59
   Net gains (losses) on securities
     (both realized and unrealized)              .06               .27            .70           (.11)          (.79)          .30
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .30               .79           1.28            .47           (.25)          .89
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net
     investment income                          (.23)             (.52)          (.58)          (.58)          (.54)         (.60)
   Distributions from net realized
     gains                                         -                 -              -              -           (.19)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.23)             (.52)          (.58)          (.58)          (.73)         (.63)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.64        $    10.57     $    10.30     $     9.60     $     9.71    $    10.69
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.91%             7.90%         13.68%          5.04%         (2.36)%        8.75%
Net assets, end of period
  (in thousands)                      $       18,145        $   17,313     $   15,737     $   15,002     $   17,846    $   19,419
Ratios to average net assets:
  Expenses                                      1.15%(b)          1.15%          1.15%          1.15%          1.15%         1.10%
  Net investment income                         4.56%(b)          5.07%          5.77%          6.08%          5.41%         5.55%
  Expenses without waiver                       1.95%(b)          1.92%          1.99%          1.84%          1.55%         1.58%
  Net investment income without
   waiver                                       3.75%(b)          4.30%          4.93%          5.39%          5.01%         5.07%
Portfolio turnover rate (excluding
  short-term securities)                        66.0%            148.3%         251.9%         191.4%         211.9%        237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       88


ADVANTUS BOND FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS B
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.59        $    10.33     $     9.62     $     9.74     $    10.71    $    10.43
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .20               .44            .50            .51            .47           .51
   Net gains (losses) on
     securities (both realized and
     unrealized)                                 .08               .26            .72           (.12)          (.78)          .31
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .28               .70           1.22            .39           (.31)          .82
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.20)             (.44)          (.51)          (.51)          (.47)         (.51)
   Distributions from net realized
     gains                                         -                 -              -              -           (.19)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.20)             (.44)          (.51)          (.51)          (.66)         (.54)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.67        $    10.59     $    10.33     $     9.62     $     9.74    $    10.71
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.63%             6.99%         12.93%          4.16%         (2.98)%        8.09%
Net assets, end of period
  (in thousands)                      $        5,923        $    6,308     $    6,582     $    6,755     $    8,171    $    8,894
Ratios to average net assets:
  Expenses                                      1.90%(b)          1.90%          1.90%          1.90%          1.90%         1.90%
  Net investment income                         3.81%(b)          4.32%          5.03%          5.33%          4.64%         4.78%
  Expenses without waiver                       2.70%(b)          2.67%          2.74%          2.59%          2.28%         2.28%
  Net investment income without
    waiver                                      3.00%(b)          3.55%          4.19%          4.64%          4.26%         4.40%
Portfolio turnover rate (excluding
  short-term securities)                        66.0%            148.3%         251.9%         191.4%         211.9%        237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       89


ADVANTUS BOND FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS C
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.56        $    10.29     $     9.59     $     9.70     $    10.68    $    10.42
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .20               .44            .50            .51            .47           .51
   Net gains (losses) on
     securities (both realized and
     unrealized)                                 .06               .27            .70           (.11)          (.79)          .29
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .26               .71           1.20            .40           (.32)          .80
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.19)             (.44)          (.50)          (.51)          (.47)         (.51)
   Distributions from net realized
     gains                                         -                 -              -              -           (.19)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.19)             (.44)          (.50)          (.51)          (.66)         (.54)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.63        $    10.56     $    10.29     $     9.59     $     9.70    $    10.68
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.54%             7.11%         12.84%          4.26%         (3.10)%        7.89%
Net assets, end of period
  (in thousands)                      $        1,125        $    1,106     $    1,029     $    1,112     $    1,594    $    2,089
Ratios to average net assets:
  Expenses                                      1.90%(b)          1.90%          1.90%          1.91%          1.90%         1.90%
  Net investment income                         3.82%(b)          4.32%          5.03%          5.32%          4.64%         4.81%
  Expenses without waiver                       2.70%(b)          2.67%          2.74%          2.59%          2.28%         2.28%
  Net investment income without
    waiver                                      3.01%(b)          3.55%          4.19%          4.68%          4.26%         4.43%
Portfolio turnover rate (excluding
  short-term securities)                        66.0%            148.3%         251.9%         191.4%         211.9%        237.2%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       90


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS A
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $         8.72        $     9.28     $    11.59     $    11.80     $    10.56    $    13.29
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .06               .18            .18            .23            .21           .28
   Net gains (losses) on securities
      (both realized and unrealized)             .17              (.59)         (1.28)           .50           1.52         (1.95)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .23              (.41)         (1.10)           .73           1.73         (1.67)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                        -                 -           (.11)          (.36)          (.11)         (.14)
   Distributions from net realized
     gains                                         -              (.13)         (1.10)          (.58)          (.38)         (.92)
   Tax return of capital                           -              (.02)             -              -              -             -
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                          -              (.15)         (1.21)          (.94)          (.49)        (1.06)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $         8.95        $     8.72     $     9.28     $    11.59     $    11.80    $    10.56
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.64%            (4.62)%       (10.57)%         6.26%         16.65%       (13.02)%
Net assets, end of period
  (in thousands)                      $       37,019        $   36,488     $   40,021     $   47,693     $   49,502    $   46,025
Ratios to average net assets:
  Expenses                                      1.67%(b)          1.62%          1.62%          1.52%          1.63%         1.62%
  Net investment income                         1.14%(b)          1.84%          1.60%          1.92%          1.77%         2.38%
  Expenses without waiver                       1.70%(b)          1.72%          1.73%          1.65%          1.70%         1.91%
  Net investment income without
    waiver                                      1.11%(b)          1.74%          1.49%          1.79%          1.70%         2.09%
Portfolio turnover rate (excluding
  short-term securities)                        20.6%             47.8%          35.6%          44.2%          73.8%         57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       91


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS B
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $         8.55        $     9.17     $    11.49     $    11.66     $    10.47    $    13.23
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .04               .10            .11            .11            .12           .19
   Net gains (losses) on securities
      (both realized and unrealized)             .17              (.59)         (1.28)           .51           1.51         (1.93)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .21              (.49)         (1.17)           .62           1.63         (1.74)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                        -                 -           (.05)          (.21)          (.06)         (.10)
   Distributions from net realized
     gains                                         -              (.13)         (1.10)          (.58)          (.38)         (.92)
   Tax return of capital                           -                 -              -              -              -             -
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                          -              (.13)         (1.15)          (.79)          (.44)        (1.02)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $         8.76        $     8.55     $     9.17     $    11.49     $    11.66    $    10.47
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.22%            (5.52)%       (11.29)%         5.32%         15.84%       (13.63)%
Net assets, end of period
  (in thousands)                      $        2,606        $    2,798     $    3,530     $    4,647     $    5,293    $    4,869
Ratios to average net assets:
  Expenses                                      2.42%(b)          2.42%          2.42%          2.32%          2.43%         2.29%
  Net investment income                          .69%(b)          1.04%           .79%          1.12%           .94%         1.77%
  Expenses without waiver                       2.45%(b)          2.47%          2.48%          2.42%          2.43%         2.44%
  Net investment income without
    waiver                                       .69%(b)           .99%           .74%          1.02%           .94%         1.62%
Portfolio turnover rate (excluding
  short-term securities)                        20.6%             47.8%          35.6%          44.2%          73.8%         57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       92


ADVANTUS INTERNATIONAL BALANCED FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS C
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $         8.56        $     9.18     $    11.50     $    11.66     $    10.48    $    13.24
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .03               .08            .11            .11            .10           .18
   Net gains (losses) on
     securities (both realized and
     unrealized)                                 .16              (.57)         (1.28)           .51           1.52         (1.92)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .19              (.49)         (1.17)           .62           1.62         (1.74)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                        -                 -           (.05)          (.20)          (.06)         (.10)
   Distributions from net realized
     gains                                         -              (.13)         (1.10)          (.58)          (.38)         (.92)
   Tax return of capital                           -                 -              -              -              -             -
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                          -              (.13)         (1.15)          (.78)          (.44)        (1.02)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $         8.75        $     8.56     $     9.18     $    11.50     $    11.66    $    10.48
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.22%            (5.52)%       (11.27)%         5.36%         15.71%       (13.67)%
Net assets, end of period
  (in thousands)                      $          733        $      892     $    1,060     $    1,728     $    2,510    $    3,074
Ratios to average net assets:
  Expenses                                      2.42%(b)          2.42%          2.42%          2.33%          2.44%         2.49%
  Net investment income                          .73%(b)          1.04%           .78%          1.09%           .94%         1.52%
  Expenses without waiver                       2.45%(b)          2.47%          2.48%          2.43%          2.44%         2.64%
  Net investment income without
    waiver                                       .73%(b)           .99%           .73%           .99%           .94%         1.37%
Portfolio turnover rate (excluding
  short-term securities)                        20.6%             47.8%          35.6%          44.2%          73.8%         57.0%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       93


ADVANTUS MONEY MARKET FUND



                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $         1.00        $     1.00     $     1.00     $     1.00     $     1.00    $     1.00
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                           -(c)            .01            .04            .05            .04           .05
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                                 -               .01            .04            .05            .04           .05
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                        -(c)           (.01)          (.04)          (.05)          (.04)         (.05)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                          -              (.01)          (.04)          (.05)          (.04)         (.05)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $         1.00        $     1.00     $     1.00     $     1.00     $     1.00    $     1.00
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                  .33%             1.27%          4.56%          5.33%          4.24%         4.78%
Net assets, end of period
  (in thousands)                      $       39,359        $   41,928     $   42,483     $   42,188     $   41,203    $   60,901
Ratios to average net assets:
  Expenses                                       .73%(b)           .85%           .85%           .85%           .85%          .85%
  Net investment income                          .67%(b)          1.26%          4.45%          5.21%          4.17%         4.68%
  Expenses without waiver                       1.14%(b)          1.56%          1.66%          1.78%          1.56%         1.41%
  Net investment income without
    waiver                                       .26%(b)           .55%          3.64%          4.28%          3.46%         4.12%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.
(c)  Amount is less than $.01.

                                       94


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS A
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        11.07        $    10.99     $    10.37     $    10.30     $    10.75    $    10.54
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .33               .70            .73            .69            .69           .64
   Net gains (losses) on securities
     (both realized and unrealized)             (.07)              .11            .65            .09           (.45)          .25
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .26               .81           1.38            .78            .24           .89
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.31)             (.72)          (.72)          (.70)          (.68)         (.65)
   Distributions from net realized
     gains                                         -                 -              -              -              -             -
   Tax return of capital                           -              (.01)          (.04)          (.01)          (.01)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.31)             (.73)          (.76)          (.71)          (.69)         (.68)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        11.02        $    11.07     $    10.99     $    10.37     $    10.30    $    10.75
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 2.25%             7.88%         13.90%          7.70%          2.26%         8.73%
Net assets, end of period
  (in thousands)                      $       84,128        $   67,395     $   42,458     $   31,814     $   33,617    $   32,268
Ratios to average net assets:
  Expenses                                       .95%(b)           .95%           .95%           .95%           .95%          .95%
  Net investment income                         5.79%(b)          6.24%          6.75%          6.81%          6.29%         6.02%
  Expenses without waiver                       1.14%(b)          1.21%          1.31%          1.32%          1.21%         1.29%
  Net investment income without
    waiver                                      5.60%(b)          5.98%          6.39%          6.44%          6.03%         5.68%
Portfolio turnover rate (excluding
  short-term securities)                        36.1%             98.5%          55.2%          64.7%         127.1%        152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       95


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS B
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        11.09        $    11.01     $    10.39     $    10.33     $    10.77    $    10.56
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .29               .61            .65            .61            .61           .57
   Net gains (losses) on
     securities (both realized and
     unrealized)                                (.07)              .12            .65            .08           (.44)          .24
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .22               .73           1.30            .69            .17           .81
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.27)             (.64)          (.64)          (.62)          (.60)         (.57)
   Distributions from net realized
     gains                                         -                 -              -              -              -             -
   Tax return of capital                           -              (.01)          (.04)          (.01)          (.01)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.27)             (.65)          (.68)          (.63)          (.61)         (.60)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        11.04        $    11.09     $    11.01     $    10.39     $    10.33    $    10.77
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 1.88%             6.99%         13.05%          6.90%          1.51%         7.92%
Net assets, end of period
  (in thousands)                      $       36,659        $   29,879     $   21,227     $   14,436     $   14,057    $   10,079
Ratios to average net assets:
  Expenses                                      1.70%(b)          1.70%          1.70%          1.70%          1.70%         1.70%
  Net investment income                         5.02%(b)          5.49%          6.00%          6.06%          5.57%         5.33%
  Expenses without waiver                       1.89%(b)          1.96%          2.06%          2.07%          1.94%         1.99%
  Net investment income without
    waiver                                      4.83%(b)          5.23%          5.64%          5.69%          5.33%         5.04%
Portfolio turnover rate (excluding
  short-term securities)                        36.1%             98.5%          55.2%          64.7%         127.1%        152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       96


ADVANTUS MORTGAGE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS C
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        11.08        $    10.99     $    10.37     $    10.31     $    10.76    $    10.55
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .29               .62            .66            .61            .61           .57
   Net gains (losses) on
     securities (both realized and
     unrealized)                                (.07)              .12            .64            .08           (.45)          .24
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .22               .74           1.30            .69            .16           .81
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.27)             (.64)          (.64)          (.62)          (.60)         (.57)
   Distributions from net realized
     gains                                         -                 -              -              -              -             -
Tax return of capital                              -              (.01)          (.04)          (.01)          (.01)         (.03)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.27)             (.65)          (.68)          (.63)          (.61)         (.60)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        11.03        $    11.08     $    10.99     $    10.37     $    10.31    $    10.76
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 1.97%             6.99%         13.05%          6.89%          1.50%         7.92%
Net assets, end of period
  (in thousands)                      $       13,697        $   10,411     $    5,216     $    3,259     $    5,126    $    4,343
Ratios to average net assets:
  Expenses                                      1.70%(b)          1.70%          1.70%          1.70%          1.70%         1.70%
  Net investment income                         5.05%(b)          5.49%          6.00%          6.06%          5.58%         5.40%
  Expenses without waiver                       1.89%(b)          1.96%          2.06%          2.07%          1.94%         1.99%
  Net investment income without
    waiver                                      4.86%(b)          5.23%          5.64%          5.69%          5.34%         5.11%
Portfolio turnover rate (excluding
  short-term securities)                        36.1%             98.5%          55.2%          64.7%         127.1%        152.5%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       97


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS A
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.54        $    11.45     $    19.73     $    17.88     $    16.50    $    16.40
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .10               .23            .22            .31            .31           .33
   Net gains (losses) on
     securities (both realized and
      unrealized)                                .39              (.89)         (6.08)          2.55           2.30          1.40
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .49              (.66)         (5.86)          2.86           2.61          1.73
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.11)             (.25)          (.20)          (.30)          (.31)         (.33)
   Distributions from net realized
     gains                                         -                 -          (2.22)          (.71)          (.92)        (1.30)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.11)             (.25)         (2.42)         (1.01)         (1.23)        (1.63)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.92        $    10.54     $    11.45     $    19.73     $    17.88    $    16.50
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 4.73%            (5.91)%       (32.35)%        16.22%         16.08%        11.31%
Net assets, end of period
  (in thousands)                      $       36,108        $   36,974     $   45,066     $   77,964     $   73,613    $   68,157
Ratios to average net assets:
  Expenses                                      1.17%(b)          1.22%          1.12%          1.11%          1.10%         1.19%
  Net investment income                         1.67%(b)          1.84%          1.57%          1.58%          1.77%         1.98%
  Expenses without waiver                       1.49%(b)          1.52%          1.40%          1.20%          1.10%         1.19%
  Net investment income without
    waiver                                      1.35%(b)          1.54%          1.29%          1.49%          1.77%         1.98%
Portfolio turnover rate (excluding
  short-term securities)                        47.1%            129.0%         158.4%         132.0%         100.8%        139.8%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       98


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS B
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.47        $    11.38     $    19.61     $    17.79     $    16.43    $    16.34
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .08               .12            .11            .17            .19           .22
   Net gains (losses) on
     securities (both realized and
     unrealized)                                 .37              (.87)         (6.03)          2.53           2.28          1.39
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .45              (.75)         (5.92)          2.70           2.47          1.61
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.07)             (.16)          (.09)          (.17)          (.19)         (.22)
   Distributions from net realized
     gains                                         -                 -          (2.22)          (.71)          (.92)        (1.30)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.07)             (.16)         (2.31)          (.88)         (1.11)        (1.52)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.85        $    10.47     $    11.38     $    19.61     $    17.79    $    16.43
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 4.27%            (6.56)%       (32.82)%        15.51%         15.31%        10.55%
Net assets, end of period
  (in thousands)                      $       10,080        $   11,216     $   15,207     $   26,838     $   24,420    $   17,751
Ratios to average net assets:
  Expenses                                      1.92%(b)          1.97%          1.87%          1.86%          1.82%         1.84%
  Net investment income                         1.47%(b)          1.09%           .82%           .83%          1.06%         1.32%
  Expenses without waiver                       2.24%(b)          2.27%          2.15%          1.95%          1.82%         1.84%
  Net investment income without
    waiver                                      1.15%(b)           .79%           .54%           .72%          1.06%         1.32%
Portfolio turnover rate (excluding
  short-term securities)                        47.1%            129.0%         158.4%         132.0%         100.8%        139.8%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       99


ADVANTUS SPECTRUM FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                               CLASS C
                                      -------------------------------------------------------------------------------------------
                                       PERIOD FROM
                                        OCTOBER 1,
                                         2002 TO                                  YEAR ENDED SEPTEMBER 30,
                                      MARCH 31, 2003        ---------------------------------------------------------------------
                                       (UNAUDITED)             2002           2001           2000           1999          1998
                                      --------------        ----------     ----------     ----------     ----------    ----------
                                                                                                     
Net asset value, beginning of
  period                              $        10.39        $    11.29     $    19.49     $    17.69     $    16.34    $    16.27
                                      --------------        ----------     ----------     ----------     ----------    ----------
Income from investment operations:
   Net investment income                         .08               .12            .11            .17            .19           .24
   Net gains (losses) on
     securities (both realized and
     unrealized)                                 .36              (.86)         (6.00)          2.51           2.27          1.36
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total from investment
        operations                               .44              (.74)         (5.89)          2.68           2.46          1.60
                                      --------------        ----------     ----------     ----------     ----------    ----------
Less distributions:
   Dividends from net investment
     income                                     (.07)             (.16)          (.09)          (.17)          (.19)         (.23)
   Distributions from net realized
     gains                                         -                 -          (2.22)          (.71)          (.92)        (1.30)
                                      --------------        ----------     ----------     ----------     ----------    ----------
      Total distributions                       (.07)             (.16)         (2.31)          (.88)         (1.11)        (1.53)
                                      --------------        ----------     ----------     ----------     ----------    ----------
Net asset value, end of period        $        10.76        $    10.39     $    11.29     $    19.49     $    17.69    $    16.34
                                      ==============        ==========     ==========     ==========     ==========    ==========
Total return(a)                                 4.21%            (6.54)%       (32.87)%        15.38%         15.29%        10.57%
Net assets, end of period
  (in thousands)                      $        2,252        $    2,381     $    3,210     $    5,928     $    5,659    $    4,062
Ratios to average net assets:
  Expenses                                      1.92%(b)          1.97%          1.87%          1.86%          1.82%         1.83%
  Net investment income                         1.47%(b)          1.09%           .82%           .83%          1.07%         1.31%
  Expenses without waiver                       2.24%(b)          2.27%          2.15%          1.95%          1.82%         1.83%
  Net investment income without
    waiver                                      1.15%(b)           .79%           .54%           .72%          1.07%         1.31%
Portfolio turnover rate (excluding
  short-term securities)                        47.1%            129.0%         158.4%         132.0%         100.8%        139.8%


- ----------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods of less than one year, total return presented has not
     been annualized.
(b)  Adjusted to an annual basis.

                                       100


                                                                  ADVANTUS FUNDS
                                                Directors and Executive Officers

Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund. Certain of the directors are considered
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund primarily by reason of their engagement as officers of the Fund's
investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or
as officers of companies affiliated with Advantus Capital, including Minnesota
Life Insurance Company ("Minnesota Life"). Effective May 1, 2003, however,
Waddell & Reed Ivy Investment Company ("WRIICO") serves as investment adviser
for Advantus Spectrum Fund. The remaining directors, because they are not
interested persons of the Fund, are considered independent ("Independent
Directors") and are not employees or officers of, and have no financial interest
in, Advantus Capital, Minnesota Life, WRIICO or their other affiliates. A
majority of the Board of Directors is comprised of Independent Directors.

The individuals listed in the table below serve as directors and officers of the
Fund, and also serve in the same capacity for each of the other eleven Advantus
Funds (the Advantus Funds are comprised of twelve registered investment
companies, consisting of 29 portfolios). Only executive officers and other
officers who perform policy-making functions with the Fund are listed. None of
the directors is a director of any public company (a company required to file
reports under the Securities Exchange Act of 1934) or of any registered
investment companies other than the Advantus Funds. Each director serves for an
indefinite term, until his or her resignation, death or removal.



                                   POSITION WITH FUND
NAME, ADDRESS(1)                   AND LENGTH OF          PRINCIPAL OCCUPATION(S)
AND AGE                            TIME SERVED            DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
                                                    
INTERESTED DIRECTORS

William N. Westhoff                Director since         Retired since July 2002, prior thereto President, Treasurer and
Age: 55                            July 23, 1998          Director, Advantus Capital Management, Inc.; Senior Vice President and
                                                          Treasurer, Minnesota Life Insurance Company since April 1998; Senior
                                                          Vice President, Global Investments, American Express Financial
                                                          Corporation, Minneapolis, Minnesota, from August 1994 to October 1997

INDEPENDENT DIRECTORS

Ralph D. Ebbott                    Director since         Retired, Vice President and Treasurer of Minnesota Mining and
Age: 75                            February 25, 1985      Manufacturing Company (industrial and consumer products) through
                                                          June 1989

William C. Melton                  Director since         Founder and President of Melton Research Inc. since 1997; member of the
Age: 55                            April 25, 2002         Advisory Board of Macroeconomic Advisors LLC since 1998; member,
                                                          Minneapolis StarTribune Board of Economists since 1986; member, State
                                                          of Minnesota Council of Economic Advisors from 1988 to 1994; various
                                                          senior positions at American Express Financial Advisors (formerly
                                                          Investors


                                       101


                                                    
                                                          Diversified Services and, thereafter, IDS/American Express) from 1982
                                                          through 1997, including Chief Economist and, thereafter, Chief
                                                          International Economist

Ellen S. Berscheid                 Director since         Regents' Professor of Psychology at the University of Minnesota
Age: 66                            October 22, 1985

OTHER EXECUTIVE OFFICERS

Dianne M. Orbison                  President since        President and Treasurer, Advantus Capital Management, Inc.; Vice
Age: 50                            July 25, 2002          President and Treasurer, Minnesota Life Insurance Company; Vice
                                                          President and Treasurer, Minnesota Mutual Companies, Inc.; Vice
                                                          President and Treasurer, Securian Financial Group, Inc.; Vice President
                                                          and Treasurer, Securian Holding Company; President and Treasurer,
                                                          MIMLIC Funding, Inc. (entity holding legal title to bonds beneficially
                                                          owned by certain clients of Advantus Capital); President and Treasurer,
                                                          MCM Funding 1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding
                                                          legal title to mortgages beneficially owned by certain clients of
                                                          Advantus Capital)

Frederick P. Feuerherm             Vice President, and    Vice President, Assistant Secretary and Director, Advantus Capital
Age: 56                            Treasurer since        Management, Inc.; Vice  President, Minnesota Life Insurance Company;
                                   July 13, 1993          Vice President, Minnesota Mutual Companies, Inc.; Vice President,
                                                          Securian Financial Group, Inc.; Vice President, Securian Holding
                                                          Company; Vice President and Director, MIMLIC Funding, Inc. (entity
                                                          holding legal title to bonds beneficially owned by certain clients of
                                                          Advantus Capital); Vice President and Assistant Secretary, MCM Funding
                                                          1997-1, Inc. and MCM Funding 1998-1, Inc. (entities holding legal title
                                                          to mortgages beneficially owned by certain clients of Advantus
                                                          Capital); Treasurer, Ministers Life Resources, Inc.; Treasurer, The
                                                          Ministers Life Insurance Company; Director of each of the Advantus
                                                          Funds, prior to April 23, 2003

Michael J. Radmer                  Secretary since        Partner with the law firm of
Dorsey & Whitney LLP               February 25, 1985      Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota
55402
Age: 57



- ----------
(1) Unless otherwise noted, the address of each director and officer is the
    address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

The Fund's Statement of Additional Information (SAI) includes additional
information about Fund directors, and is available, without charge, upon
request. You may request a copy of the current SAI by telephoning Advantus
Shareholder Services, toll free, at (800) 665-6005.

                                       102


                                                            SHAREHOLDER SERVICES

     The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that may apply.

EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same share class) at any time as your needs change. Exchanges are at the
then current net asset value (exchanges from the Advantus Money Market Fund will
incur the applicable sales charge, if not previously subjected to the charge).
Shareholders may make twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.

INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.

SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.

DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead of
sending you a check.

TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.

SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".

AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.

REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge, if any.

                                       103


AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $500 when you agree to make investments
of not less than $50 under the plan and lower your average share cost through
"dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor
does it prevent loss in declining markets.) The Automatic Investment Plan allows
you to invest automatically monthly, semi-monthly or quarterly from your
checking or savings account.

IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.

TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check from your bank. Depending on the performance of the
underlying investment options, the value may be worth more or less than the
original amount invested upon redemption. Some limitations apply, please refer
to the prospectus for details.

ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.

TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 7:30
a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.

INTERNET ADDRESS: www.AdvantusFunds.com

HOW TO INVEST

You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Securian Financial Services, Inc., distributor of
the Funds. Contact your representative for information and a prospectus
containing

                                       104


more complete information including charges and expenses, for any of the
Advantus Funds you are interested in. Read the prospectus carefully before
investing. To find a Registered Representative near you, call the toll-free
service line (1-800-665-6005) or visit www.AdvantusFunds.com.

MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for
qualified accounts and accounts covered by an automatic investment plan).
Minimum subsequent investment is $50.

THE FUND'S MANAGER

Advantus Capital Management, Inc., investment adviser to each of the Funds
except Advantus Horizon Fund, Advantus Cornerstone Fund and Advantus Spectrum
Fund, selects and reviews the Fund's investments and provides executive and
other personnel for the Fund's management. (For the Advantus International
Balanced Fund, Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund,
Inc., the sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset
Management, LLC, and State Street Research & Management Company, respectively,
selects the Fund's investments.) Effective May 1, 2003, Waddell & Reed Ivy
Investment Company serves as the interim investment advisor to Advantus Horizon
Fund, Advantus Cornerstone Fund and the Advantus Spectrum Fund.

Advantus Capital Management, Inc. manages nine mutual funds containing $1.4
billion in assets in addition to $11.8 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 15 years of
investment experience.

ADVANTUS FAMILY OF FUNDS

Advantus Bond Fund

Advantus Horizon Fund

Advantus Spectrum Fund

Advantus Enterprise Fund

Advantus Cornerstone Fund

Advantus Money Market Fund

Advantus Mortgage Securities Fund

Advantus International Balanced Fund

Advantus Venture Fund

Advantus Index 500 Fund

Advantus Real Estate Securities Fund

                                       105


                 (This page has been left blank intentionally.)



                 (This page has been left blank intentionally.)



                 (This page has been left blank intentionally.)



THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED TO OTHERS
           ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT PROSPECTUS.
                READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.

                  [ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

                  Distributed by:
                  SECURIAN FINANCIAL SERVICES, INC.
                  Securities Dealer, Member NASD/SIPC.
                  Registered Investment Advisor

                  400 Robert Street North, St. Paul, MN 55101-2098
                  1.888.237.1838
                  3010-2003-7367



SECURIAN FINANCIAL SERVICES, INC.                             PRESORTED STANDARD
400 ROBERT STREET NORTH                                       U.S. POSTAGE PAID
ST. PAUL, MN 55101-2098                                          ST. PAUL, MN
                                                               PERMIT NO. 3547

CHANGE SERVICE REQUESTED



F.59170 Rev.5-2003

EX-99.(17)(Y)

                                                                 Exhibit (17)(y)


ADVANTUS EQUITY FUNDS [LOGO]

ANNUAL REPORT TO SHAREHOLDERS
DATED JULY 31, 2002

ADVANTUS CORNERSTONE FUND, INC.
A LARGE COMPANY VALUE FUND

ADVANTUS ENTERPRISE FUND, INC.
A SMALL COMPANY GROWTH FUND

ADVANTUS HORIZON FUND, INC.
A LARGE COMPANY GROWTH FUND

ADVANTUS INDEX 500 FUND, INC.
A LARGE COMPANY INDEX FUND

ADVANTUS REAL ESTATE SECURITIES FUND, INC.
A REAL ESTATE - RELATED SECURITIES FUND

ADVANTUS VENTURE FUND, INC.
A SMALL COMPANY VALUE FUND

CUT DOWN PAPERWORK, NOT TREES
Advantus now offers e-delivery of prospectuses, annual and semi-annual reports.
To find out more, call Advantus Shareholder Services at (800) 665-6005.


ADVANTUS EQUITY FUNDS
TABLE OF CONTENTS

PERFORMANCE UPDATES
   Cornerstone Fund                                                    3
   Enterprise Fund                                                     7
   Horizon Fund                                                       12
   Index 500 Fund                                                     18
   Real Estate Securities Fund                                        22
   Venture Fund                                                       27

INVESTMENTS IN SECURITIES
   Cornerstone Fund                                                   31
   Enterprise Fund                                                    37
   Horizon Fund                                                       42
   Index 500 Fund                                                     48
   Real Estate Securities Fund                                        65
   Venture Fund                                                       68

FINANCIAL STATEMENTS
   Statements of Assets and Liabilities                               76
   Statements of Operations                                           80
   Statements of Changes in Net Assets                                84
   Notes to Financial Statements                                      90

INDEPENDENT AUDITORS' REPORT                                         117

FEDERAL INCOME TAX INFORMATION                                       118

DIRECTORS AND EXECUTIVE OFFICERS                                     120

SHAREHOLDER SERVICES                                                 122


LETTER FROM THE PRESIDENT

[PHOTO OF DIANNE ORBISON]

Dear Shareholders:

It's been a very eventful year in the economy and the markets. We've seen a
major rally in the bond market, and a major sell off in stocks. Negative events,
questionable earnings reports, and unscrupulous corporate leadership is a lot of
weight for the stock market to carry. Investors are still not confident that the
market can bear the load, which contributed to the stock sell off during the
first half of the year.

A flight to quality is still underway, and this is not unusual when political,
social, and economic events hold uncertainty. In the period ended July 31, 2002,
strong fixed income performance (Lehman Aggregate Bond Index* at 7.84%) and very
weak equity performance (S&P 500 Index** at -23.63) was recorded. The difference
in returns between stocks and bonds, as measured by these two benchmark indices,
was near record levels.

We believe the capital markets will continue to be volatile and suggest that
investors adjust their expectations for a time-specific market recovery. Current
market conditions didn't happen overnight, and it has taken longer than expected
for a sustainable recovery to surface. Although most segments of the stock
market were down at the end of our reporting period, we believe valuations are
fair and better than they have been in six months.

The economy is growing, albeit slowly. We expect that U.S. growth, as measured
by GDP, will be a respectable 2.5 percent in 2002. Monetary policy is still
easy, and we expect no changes from the Federal Reserve in the near term.
Inflation is running less than two percent annually with little, if any,
increase expected.

Also, the underlying strength of the U.S. economy remains solid. The weakness of
the dollar, however, may benefit investors considering a greater allocation to
international investments. Consider having a periodic conversation with your
financial advisor about your goals, risk tolerance, and allocation strategy.

You will notice that all Advantus equity funds are included in this report. The
remaining Advantus Funds (fixed income and balanced) will be published in an
annual report to be dated September 30, 2002. We have combined the reports for
the funds into two mailings to achieve economies of scale in report preparation
and mailing. We are also moving forward with plans to combine Advantus Funds
prospectuses in the same way and for the same reasons.

This is my first letter to you as President of the Advantus Funds. Bill
Westhoff, former President and investment management veteran, retired in late
July, 2002 after 31 years of service to shareholders. I look forward to
communicating with
                                       1



you on a regular basis and bringing you news of the economy, markets,
and Advantus.

Sincerely,

/s/ Dianne Orbison

Dianne Orbison
President, Advantus Funds

*The LEHMAN BROTHERS AGGREGATE BOND INDEX is a market-weighted index that covers
the U.S. investment grade fixed rate bond market. The index includes government
and corporate securities, agency mortgage pass-through securities and asset
backed securities.

**The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

                                       2


ADVANTUS CORNERSTONE FUND

PERFORMANCE UPDATE

MATTHEW NORRIS, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE
The Fund's performance for the 10 month* period ended July 31, 2002 for each
class of shares offered is as follows:

Class A                     -5.72 percent**
Class B                     -6.40 percent**
Class C                     -6.42 percent**

These returns were ahead of the Fund's primary benchmark--the Russell 1000 Value
Index***--which lost 7.23 percent.

PERFORMANCE ANALYSIS
The Fund's performance is dependent on individual stock selection. During the
period, our analysis of companies helped the Fund avoid many of the high-profile
disappointments in the market. For example, the Fund did not hold Tyco or Enron
during this period, and a small investment in WorldCom was sold in 2001.
Investing in sound companies at low stock prices generally rewards the buyer
over time. A number of our individual holdings had notable performance for the
period, such as Anthem (health insurance), 3M Company (industrial), Wachovia
Corporation (banking) and Prologis (real estate).

On a sector level, the Fund's low weightings in Telecommunications and Utilities
helped performance, while our Technology weight was a negative.


*Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current
fiscal year covers a ten-month period.

**Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

***The Russell 1000 Value Index contains those stocks from the Russell 1000 with
low book to price ratio. The Russell 1000 is the 1,000 largest companies in the
Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks,
which represents approximately 98 percent of the U.S. market

                                       3


OUTLOOK
It appears the domestic economy is slowly recovering in a choppy manner, and
these fits and starts have been reflected in the volatility of the equity
markets. While we believe the economy is sound and will ultimately return to
traditional long-term growth rates, it is impossible to predict the strength or
timing of such a recovery. Thus we continue to select investments one at a time
with a bottom-up, individual company focus. This approach should lead to
consistent performance over time.

TEN LARGEST STOCK HOLDINGS



                                                 MARKET     % OF STOCK
COMPANY                            SHARES        VALUE        PORTFOLIO
- -------                            ------     ----------    -----------
                                                    
Exxon Mobil Corporation            99,006     $3,639,458       5.7%
CitiGroup, Inc.                    71,113      2,385,130       3.7%
Wachovia Corporation               59,300      2,122,940       3.3%
Bank of America Corporation        31,800      2,114,700       3.3%
Wells Fargo & Company              34,300      1,744,498       2.7%
Chevron Corporation                22,713      1,703,475       2.7%
SBC Communications, Inc.           56,142      1,552,888       2.4%
U.S. Bancorp                       72,158      1,543,460       2.4%
3M Company                         11,900      1,497,377       2.4%
Brunswick Corporation              65,000      1,487,200       2.3%
                                             -----------      -----
                                             $19,791,126      30.9%
                                             ===========      =====


[CHART]

                                           
Cash and Other Assets/Liabilities              (1.0%)
Transportation                                 (1.9%)
Utilities                                      (3.2%)
Capital Goods                                  (5.4%)
Health Care                                    (5.5%)
Basic Materials                                (5.8%)
Communication Services                         (6.1%)
Technology                                     (7.4%)
Consumer Cyclical                             (10.0%)
Consumer Staples                              (10.4%)
Energy                                        (10.9%)
Financial                                     (32.4%)



                                       4


                        COMPARISON OF CHANGE IN VALUE OF
         A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS CORNERSTONE FUND,
                RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Cornerstone Fund compared to the Russell 1000
Value Index, and the Consumer Price Index. The lines in each graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus Cornerstone Fund
(September 16, 1994 for Class A and Class B and March 1, 1995 for Class C)
through July 31, 2002.

                                  CLASS A AND B

                                    
SEC AVERAGE ANNUAL TOTAL RETURN:
Class A:
One year                               -22.22%
Five year                               -6.54%
Since inception (9/16/94)                5.05%
Class B:
One year                               -22.47%
Five year                               -6.52%
Since inception (9/16/94)                4.97%



[CHART]



(THOUSANDS)
                                   RUSSELL 1000
           CLASS A     CLASS B      VALUE INDEX       CPI
                                        
9/16/94    $10,000     $10,000        $10,000       $10,000
9/30/94    $ 9,325     $ 9,870        $ 9,743       $10,054
9/30/95    $11,598     $11,708        $12,441       $10,275
9/30/96    $14,441     $14,649        $14,673       $10,570
9/30/97    $19,980     $20,400        $20,880       $10,818
9/30/98    $16,694     $16,947        $21,629       $10,973
9/30/99    $18,384     $18,531        $25,678       $11,261
9/30/00    $18,605     $18,764        $27,965       $11,643
9/30/01    $15,634     $15,648        $25,474       $11,952
7/31/02    $14,709     $14,647        $23,632       $12,066


                                       5


                                     CLASS C

                               
SEC AVERAGE ANNUAL TOTAL RETURN:
One year                          -18.36%
Five year                          -6.23%
Since inception (3/1/95)            5.08%



[CHART]



(THOUSANDS)
                         RUSSELL 1000
           CLASS C        VALUE INDEX         CPI
                                  
 3/1/95    $10,000          $10,000        $10,000
9/30/95    $12,013          $12,107        $10,146
9/30/96    $14,846          $14,280        $10,437
9/30/97    $20,354          $20,320        $10,682
9/30/98    $16,838          $21,049        $10,834
9/30/99    $18,411          $24,989        $11,119
9/30/00    $18,493          $27,214        $11,497
9/30/01    $15,427          $24,790        $11,801
7/31/02    $14,438          $22,998        $11,914


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       6


ADVANTUS ENTERPRISE FUND
PERFORMANCE UPDATE

ELIZABETH B. DATER AND SAMMY OH, PORTFOLIO MANAGERS
CREDIT SUISSE ASSET MANAGEMENT, LLC

PERFORMANCE
The performance of the Advantus Enterprise Fund for the 10-month period* ended
July 31, 2002, was as follows for the three classes of shares currently
outstanding:

Class A                     -10.56 percent**
Class B                     -11.22 percent**
Class C                     -11.21 percent**

The Fund's benchmark, the Russell 2000 Growth Index*** returned -12.09 percent
for the same period.

PERFORMANCE ANALYSIS
Despite an ongoing economic recovery, beginning late in 2001, the period
was a very difficult one for the U.S. stock market. Any grounds for optimism
regarding the economy were overwhelmed by ethical and accounting irregularities,
combined with heightened geopolitical risks and a clouded profit outlook. The
Fund was hurt by the market's sharp selloff and by weakness in certain areas,
notably in technology. On a positive note, stocks that helped the Fund included
its health-care-services holdings.

We made few noteworthy changes to the Fund in terms of sector emphasis. We
maintained an overweighting in health care, favoring the group's services names
(e.g., hospital and managed-care companies). We also continued to hold a number
of small- and mid-cap pharmaceutical stocks that we believe have compelling
product platforms.


*Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current
fiscal year covers a ten-month period.

**Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

***The Russell 2000 Growth Index contains those securities in the Russell 2000
Index with a greater-than-average growth orientation. The Russell 2000 Index is
the 2000 smallest companies in the Russell 3000. The Russell 3000 is an
unmanaged index of 3000 common stocks, which represents approximately 98 percent
of the U.S. market.

Investments in smaller company micro-cap stocks generally carry a higher level
of volatility and risk over the short-term.

                                       7


Within the technology segment, we maintained a modestly underweighted/neutral
position. We had a bias toward software companies that we believe might benefit
from an eventual rise in corporate technology budgets. While there appears to be
little on the horizon in terms of dramatic product or service breakthroughs
(akin to the Internet phenomenon of the late 1990s), we believe that as
corporate profits eventually strengthen, systems upgrades will probably be
ongoing events. The rest of the Fund remained invested in a variety of sectors,
including retail, energy, financial services, and the consumer area, broadly
defined.

OUTLOOK
Looking ahead, we see risks as well as grounds for optimism. Regarding the
former, there is the possibility that a hoped-for revival in corporate capital
investment could be delayed for quite a spell. We also have some concerns that,
given the recent exposure of corporate excesses, Congress may enact regulations
that investors might perceive as being burdensome to reputable companies.

On the positive side, we do believe the economy should continue to recover, at a
slow-to-moderate pace, as opposed to the first quarter's robust annualized
growth rate. In such an environment, we believe that the growth profile of
smaller-cap companies could appeal to investors, once general risk concerns
begin to ease. And we note that, historically, small-cap growth stocks often
outperformed the larger-cap segment during periods when the economy was
rebounding from recession. Whether they can again remains to be seen, but we see
no fundamental reasons that they should lag. Regardless, we believe that stock
selection will remain critical and we will remain focused on those companies we
deem to be innovative and well managed and whose shares appear reasonably valued
given their longer-term business prospects.

                                       8


TEN LARGEST STOCK HOLDINGS



                                                       MARKET     % OF STOCK
COMPANY                                   SHARES       VALUE      PORTFOLIO
- -------                                   ------       -----      ---------
                                                          
Entercom Communications Corporation       16,600    $  718,780      2.6%
Province Healthcare Company               35,350       678,720      2.4%
Pogo Producing Company                    21,000       651,000      2.4%
Medicis Pharmaceutical Corporation        15,267       639,993      2.3%
Coventry Health Care, Inc.                20,500       618,075      2.2%
Mid Atlantic Medical Services, Inc.       18,800       612,128      2.2%
Lifepoint Hospitals, Inc.                 17,600       599,280      2.2%
CACI International, Inc.                  17,200       589,616      2.1%
Education Management Corporation          13,800       550,758      2.0%
Affymetrix, Inc.                          30,100       537,285      1.9%
                                                    ----------     -----
                                                    $6,195,635     22.3%
                                                    ==========     ====


[CHART]

                                           
Cash and Other Assets/Liabilities             (10.9%)
Transportation                                 (1.0%)
Basic Materials                                (1.5%)
Capital Goods                                  (2.2%)
Financial                                      (7.6%)
Energy                                         (9.4%)
Consumer Staples                              (11.9%)
Technology                                    (14.7%)
Consumer Cyclical                             (16.0%)
Health Care                                   (24.8%)




                                       9


                        COMPARISON OF CHANGE IN VALUE OF
         A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS ENTERPRISE FUND,
               RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Enterprise Fund compared to the Russell 2000
Growth Index and the Consumer Price Index. The lines in each graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus Enterprise Fund
(September 16, 1994 for Class A and Class B and March 1, 1995 for Class C)
through July 31, 2002.

                                  CLASS A AND B

                                    
SEC AVERAGE ANNUAL TOTAL RETURN:
Class A:
One year                               -33.82%
Five year                               -7.74%
Since inception (9/16/94)                 .39%
Class B:
One year                               -34.08%
Five year                               -7.79%
Since inception (9/16/94)                 .22%



[CHART]



(THOUSANDS)
                                  RUSSELL 2000
           CLASS A     CLASS B     GROWTH INDEX       CPI
                                        
9/16/94    $10,000     $10,000        $10,000       $10,000
9/30/94    $ 9,371     $ 9,910        $10,042       $10,054
9/30/95    $11,983     $12,107        $12,616       $10,275
9/30/96    $13,979     $14,173        $14,391       $10,584
9/30/97    $15,780     $16,000        $17,737       $10,818
9/30/98    $11,235     $11,315        $13,331       $10,973
9/30/99    $14,450     $14,477        $17,683       $11,261
9/30/00    $20,613     $20,687        $22,928       $11,643
9/30/01    $11,525     $11,462        $13,161       $11,952
7/31/02    $10,310     $10,177        $11,569       $12,066


                                       10


                                     CLASS C

                               
SEC AVERAGE ANNUAL TOTAL RETURN:
Class C:
One year                          -30.53%
Five year                          -7.49%
Since inception (3/1/95)            -.33%




[CHART]



(THOUSANDS)
                         RUSSELL 2000
            CLASS C      GROWTH INDEX         CPI
                                  
 3/1/95    $10,000          $10,000        $10,000
9/30/95    $12,038          $12,563        $10,146
9/30/96    $13,913          $14,331        $10,450
9/30/97    $15,568          $17,662        $10,682
9/30/98    $10,992          $13,276        $10,834
9/30/99    $14,012          $17,610        $11,119
9/30/00    $19,821          $22,832        $11,497
9/30/01    $10,993          $13,106        $11,801
7/31/02    $ 9,760          $11,521        $11,914



The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       11


ADVANTUS HORIZON FUND

PERFORMANCE UPDATE

THOMAS A. GUNDERSON, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

The Advantus Horizon Fund's performance for the 10-month period* ended July 31,
2002, for each class of shares offered was as follows:

                                             
Class A                                         - 11.08 percent**
Class B                                         - 11.71 percent**
Class C                                         - 11.71 percent**



Over the past six months the Advantus Horizon Fund declined along with the
overall market, yet was able to post performance well ahead of its index
benchmark. For the ten-month period* the portfolio declined 11.08 percent
compared to a 13.80 percent decline in the Russell 1000 Growth Index***, as
measured by Class A shares,--exceeding the benchmark by 272 basis points.

Wide spread turmoil in the stock market occurred over the past ten months as a
result of an uncertain economic recovery, numerous accounting issues, and a
sharp deterioration in the credibility of corporate America. The market traded
broadly lower, with growth stocks declining more than value stocks.

The Fund was able to exceed its performance benchmark by superior stock
selection combined with underweights in the hardest hit areas of the market. The
two largest sectors for the growth index posted sharp declines, with Health Care
down 17 percent and information technology down 11 percent for the ten-month
period. Fortunately, good stock selection allowed the Fund to post performance
that exceeded the index in these important sectors.

Health Care was broadly lower due to slowing earnings growth rates in
pharmaceuticals, biotech products and medical devices. The only strong areas in
Health Care were the hospitals and managed care companies. The Advantus stock
selection process kept the Fund underweighted by 131 basis points in

*Due to a change in the fiscal year of the Fund from 9/30 to 7/31 the current
fiscal year covers a ten-month period.

**Historical results are not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's Maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

***The Russell 1000 Growth Index contains those stocks from the Russell 1000
with greater than average growth orientation. The Russell 1000 is the 1,000
largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of
3,000 common stocks, which represents approximately 98 percent of the U.S.
market.

                                       12


pharmaceuticals and biotech, keeping it out of the hardest hit areas. Looking
ahead, a strong demographic tail wind, combined with lower valuation levels,
make the Health Care sector one of increasing interest in the Fund. As of July
31, 24 percent of the Fund was invested in Health Care related companies.

A continued lack of revenue or earnings growth led Technology stocks lower
during the period. Corporations are not spending much on Technology investments
in today's uncertain environment. Many companies in this sector are in the
process of being "right sized" to meet the likely demand going forward. As a
result of the poor fundamentals, the Fund had about a 300 basis point
underweight in the Technology sector for the period versus the Index. As of July
31, 24.60 percent of the Portfolio was invested in Technology stocks. While the
current environment is tough, history indicates that as corporate earnings
growth improves Technology spending will accelerate along with a general pick up
in capital spending.

The strongest sector was Consumer Staples, posting a slightly positive return.
The market favored stable stocks that are showing growth along with high quality
earnings. As a result, stocks like Anheuser-Busch and Sysco Foods did well for
the Fund as they continued to post solid growth along with high quality earnings
numbers.

Overall, a disciplined stock selection approach and focus on sustainable growth
allowed the Fund to select attractive companies for investment and, importantly,
to avoid or minimize the worst hit portions of the market. The Fund avoided the
Telecom Service and growth Utility stocks that were the hardest hit sectors of
the market. Additionally, underweights in Technology and Health Care, along with
timely sales of stocks allowed the Fund to avoid further substantial losses and
significantly outperform its benchmarks.

OUTLOOK

This is a "show me" market. Investors want to see high quality earnings, earning
growth, and results now, not some time in the future. The willingness to look
ahead and invest on a hoped for improvement in fundamentals is quickly fading
along with the confidence in the U.S stock market. We feel that it will take
time for the stock market to earn back the credibility and trust that is needed
to attract future investors into the stock market.

We continue to invest in companies that we believe can show real and sustainable
growth resulting from high returns on company investments, not from financial
maneuvering that boost short-term earnings per share. The Fund is also taking a
diversified approach to managing risk in this market. We have a little over 100
names in the Fund to mitigate the effect of the next potential accounting or
other issue that may arise. In addition, we feel that the Fund is positioned to
excel regardless of the timing or strength of the economic recovery as it
remains diversified across the major economic sectors. The Fund does not have
big sector over/under weight; rather we seek to enhance performance from
superior stock selection based on our disciplined stock selection process.

                                       13


TEN LARGEST STOCK HOLDINGS



                                                      MARKET      % OF STOCK
COMPANY                                  SHARES        VALUE       PORTFOLIO
- -------                                  ------        -----       ---------
                                                         
General Electric Company                 58,328     $1,878,162          6.5%
Pfizer, Inc.                             56,050      1,813,217          6.3%
Microsoft Corporation                    24,759      1,187,194          4.1%
Cisco Systems, Inc.                      56,785        748,994          2.6%
Johnson & Johnson                        14,000        742,000          2.6%
Wal-Mart Stores, Inc.                    13,900        683,602          2.3%
Wyeth                                    15,900        634,410          2.2%
The Coca-Cola Company                    12,600        629,244          2.2%
American International Group              9,400        600,848          2.1%
Freddie Mac                               9,300        576,135          2.0%
                                                    ----------         -----
                                                    $9,493,806         32.9%
                                                    ==========         =====


[CHART]

                                            
Cash and Other Assets/Liabilities              (3.6%)
Communication Services                         (0.5%)
Basic Materials                                (1.9%)
Transportation                                 (2.1%)
Energy                                         (3.0%)
Capital Goods                                  (7.9%)
Financial                                     (12.9%)
Consumer Cyclical                             (13.5%)
Consumer Staples                              (14.2%)
Health Care                                   (18.6%)
Technology                                    (21.8%)



                                       14


                        COMPARISON OF CHANGE IN VALUE OF
          A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS HORIZON FUND,
               RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX

On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Horizon Fund compared to the Russell
1000 Growth Index and the Consumer Price Index. The lines in the Class A graph
represent the cumulative total return of a hypothetical $10,000 investment made
on July 31, 1992 through July 31, 2002. The lines in the Class B and Class C
graphs represent the cumulative total return of a hypothetical $10,000
investment made on the inception date of Class B and Class C shares of the
Advantus Horizon Fund (August 19, 1994 and March 1, 1995, respectively) through
July 31, 2002.

                                    CLASS A

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                          
One year                     -31.53%
Five year                     -6.37%
Ten year                       4.13%




                                       RUSSELL 1000
                    CLASS A            GROWTH INDEX        CPI
                    -------            ------------        ---
                                                
     7/31/92         $9,447               $10,000        $10,000
     9/30/92         $9,449               $10,000        $10,000
     9/30/93        $10,277               $10,596        $10,269
     9/30/94        $10,478               $11,841        $10,624
     9/30/95        $13,073               $15,653        $10,858
     9/30/96        $15,325               $19,002        $11,184
     9/30/97        $19,150               $25,898        $11,432
     9/30/98        $22,286               $28,773        $11,595
     9/30/99        $27,799               $38,801        $11,899
     9/30/00        $33,152               $47,887        $12,292
     9/30/01        $16,755               $26,032        $12,629
     7/31/02        $14,962               $22,251        $12,750


                                       15


                                     CLASS B

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                               
One year                          -31.74%
Five year                          -6.30%
Since inception (8/19/94)           3.93%




                             RUSSELL 1000
               CLASS B        GROWTH INDEX       CPI
               -------        ------------       ---
                                      
     8/19/94   $10,000          $10,000        $10,000
     9/30/94    $9,629          $10,125        $10,067
     9/30/95   $12,074          $13,386        $10,289
     9/30/96   $14,221          $16,249        $10,598
     9/30/97   $17,855          $22,146        $10,833
     9/30/98   $20,757          $24,605        $10,987
     9/30/99   $25,759          $33,181        $11,276
     9/30/00   $30,517          $40,950        $11,659
     9/30/01   $15,385          $22,261        $11,968
     7/31/02   $13,584          $19,203        $12,082


                                     CLASS C

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                               
One year                          -28.15%
Five year                          -6.02%
Since inception (3/1/95)            3.41%




                               RUSSELL 1000
                 CLASS C       GROWTH INDEX        CPI
                 -------       ------------        ---
                                        
       3/1/95    $10,000          $10,000        $10,000
      9/30/95    $11,844          $12,331        $10,146
      9/30/96    $12,668          $14,969        $10,450
      9/30/97    $17,084          $20,402        $10,682
      9/30/98    $19,863          $22,667        $10,834
      9/30/99    $24,595          $30,567        $11,119
      9/30/00    $28,945          $37,724        $11,497
      9/30/01    $14,519          $20,508        $11,801
      7/31/02    $12,820          $17,690        $11,914


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

                                       16


Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.


                                       17


ADVANTUS INDEX 500 FUND

PERFORMANCE UPDATE

JAMES SEIFERT, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE

For the year ended July 31, 2002, the Advantus Index 500 Fund returned the
following for each class of shares currently offered:

                                                             
Class A                                                         - 24.14 percent*
Class B                                                         - 24.80 percent*
Class C                                                         - 24.80 percent*



The Fund's benchmark, the S&P 500 Index,** returned -23.63 percent for the same
period.

PERFORMANCE ANALYSIS

Eight of the eleven sectors in the S&P 500 Index** posted negative returns for
the period. Basic materials led the positive performing sectors with a 8.43
percent return while contributing only .21 percent to the Index return.
Communication Services led the sectors that detracted from the index return with
a -3.30 percent contribution and a -49.10 percent return. Surprisingly enough,
more than half of the securities in the index (257) ended the period with
positive returns. The top five positive contributing stocks included Procter &
Gamble, Dell Computer Corporation, Bank of America Corporation, Wells Fargo &
Company, Inc. and Minnesota Mining and Manufacturing Company. The five worst
contributing stocks included AOL Time Warner, Inc., Tyco International, Ltd.,
SBC Communications, Inc., Bristol Myers Squibb and Verizon Communications.

OUTLOOK

The economy is growing, albeit slowly. We expect that U.S. growth, as measured
by GDP, will be a respectable 2.5 percent both for the quarter and full year,
2002. Monetary policy is still easy, and we expect no changes in the near

* Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge.

**The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall. The Advantus Index 500 Fund is
a mutual fund whose performance reflects the deduction of an investment advisory
fee and other expenses.


                                       18


term. Inflation is running less than two percent annually with little if any
increase expected.

Our economy relies on three sectors: business, federal and municipal government,
and consumers.

- -    Businesses are still wary of capital spending, so they're holding on to
     their money, which doesn't help the overall economy. It seems unlikely that
     businesses will significantly increase capital spending soon.

- -    The war on terrorism will be long and expensive. We believe that federal
     tax stimulus packages are done. State and municipal governments are
     starting to run deficits, which may lead to tax increases.

- -    The American consumer has supported our sagging economy for nearly two
     years. Housing starts, auto sales and other goods are still relatively
     strong. We believe consumer spending will continue to shore up this
     economy, albeit at a slower rate.

We believe the capital markets will continue to be volatile and investors may
see lower rates of return across all asset classes. Diversification and
discipline are mainstays for serious investors and of paramount importance to
all investors, and the current investment environment drives that point home. We
also strongly urge you to stay in the markets for the long term. Study after
study shows that investors who consistently stay in the market are eventually
rewarded for their discipline. Markets go up and markets go down; it's their
nature. We feel that by focusing on your strategy and resolve, you're much more
likely to reach your financial goals.

                                       19


TEN LARGEST STOCK HOLDINGS



                                                       MARKET     % OF STOCK
COMPANY                                  SHARES        VALUE       PORTFOLIO
- -------                                  ------        -----       ---------
                                                         
General Electric Company                 39,494     $1,271,707          3.8%
Microsoft Corporation                    21,522      1,031,980          3.1%
Exxon Mobil Corporation                  26,953        990,792          3.0%
Wal-Mart Stores, Inc.                    17,677        869,355          2.6%
Pfizer, Inc.                             24,818        802,862          2.4%
CitiGroup, Inc.                          20,455        686,061          2.0%
American International Group             10,384        663,745          2.0%
Johnson & Johnson                        11,967        634,251          1.9%
Intel Corporation                        26,571        499,269          1.5%
The Coca-Cola Company                     9,871        492,958          1.5%
                                                    ----------         -----
                                                    $7,942,980         23.8%
                                                    ==========         =====


[CHART]

                                    
Cash and Other Assets/Liabilities       (3.5%)
Transportation                          (1.7%)
Utilities                               (2.8%)
Basic Materials                         (3.2%)
Communication Services                  (3.9%)
Energy                                  (5.9%)
Capital Goods                           (8.6%)
Consumer Cyclical                      (10.2%)
Consumer Staples                       (12.4%)
Health Care                            (13.1%)
Technology                             (14.2%)
Financial                              (20.5%)



                                       20


                        COMPARISON OF CHANGE IN VALUE OF
       A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS INDEX 500 FUND,
                     S&P 500 INDEX AND CONSUMER PRICE INDEX

On the following chart you can see how the total return for each of the three
classes of shares of the Advantus Index 500 Fund compared to the S&P 500 Index
and the Consumer Price Index. The lines represent the cumulative total return of
a hypothetical $10,000 investment made on the inception date of each class of
shares of the Advantus Index 500 Fund (January 31, 1997) through July 31, 2002.

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                                            
Class A:
   One year                                    -28.31%
   Five year                                    -1.60%
   Since inception (1/31/97)                     2.06%
Class B:
   One year                                    -28.56%
   Five year                                    -1.63%
   Since inception (1/31/97)                     1.99%
Class C:
   One year                                    -24.80%
   Five year                                    -1.36%
   Since inception (1/31/97)                     2.16%




               CLASS A     CLASS B    CLASS C       S&P 500 Index      CPI
               -------     -------    -------       -------------      ---
                                                      
  1/31/97      $10,000     $10,000    $10,000          $10,000       $10,000
  7/31/97      $11,464     $11,577    $12,043          $12,244       $10,075
  7/31/98      $13,549     $13,701    $14,101          $14,607       $10,245
  7/31/99      $16,141     $16,362    $16,644          $17,557       $10,458
  7/31/00      $17,379     $17,584    $17,763          $19,129       $10,834
  7/31/01      $14,751     $14,871    $14,940          $16,390       $11,129
  7/31/02      $11,156     $11,146    $11,235          $12,517       $11,286



The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       21


ADVANTUS REAL ESTATE SECURITIES FUND

PERFORMANCE UPDATE

JOSEPH BETLEJ, CFA, PORTFOLIO MANAGER
ADVANTUS CAPITAL MANAGEMENT, INC.

PERFORMANCE OVERVIEW

For the year ended July 31, 2002, the Advantus Real Estate Securities Fund
returned 12.31 percent* for Class A shares.

For the same period, the Wilshire Associates Real Estate Securities Index
(WARESI)** provided a total return of 8.92 percent.

For the period from November 28, 2001, inception date of class B shares, to July
31, 2002, the Advantus Real Estate Securities Fund returned 11.56 percent* for
Class B shares.

PERFORMANCE ANALYSIS

Real estate stocks were recognized within the turbulent stock market and economy
as a defensive place to seek shelter. In these uncertain times, investors sought
the stability provided by real assets, solid dividend yields, and cashflow
visibility provided by long term leases which are typical of certain real estate
companies.

Last August, we began the year in a weakening economic environment, but were
hopeful of a rebound beginning in 2002. Such hopes were dashed after the events
of September 11, and the economy deteriorated further as both businesses and the
consumer attempted to determine the effects of the terrorist acts. The consumer
rebounded better than most had expected, but businesses felt the brunt of the
softer economy, combined with their later deterioration of credibility due to
many accounting scandals.

During the last three months of the fiscal year 2002, we added to hotel, retail
and homebuilding stocks in the Fund as we determined that the weakness generated
by the economy and the events of September 11 were overdone in

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Wilshire Associates Real Estate Securities Index is a market
capitalization-weighted index of equity securities whose primary business is
equity ownership of commercial real estate (REITS).

Investment risks associated with investing in the Real Estate Securities
Fund, in addition to other risks, include rental fluctuation, depreciation,
property tax value changes and differences in real estate market values.


                                       22


the stock price. The Fed became more accommodating by lowering rates, easing the
cost of credit for both consumers and businesses. The low valuations generated
generous opportunities to build positions in quality companies in these groups.
The strength of the consumer was evidenced by sales during the holiday season
and new home orders, propelling retail and homebuilder stocks.

While these cyclical stocks added strength to performance, we also became
defensive, favoring stocks trading at high (but safe) dividend yields and those
trading at large discounts to the underlying value of company assets. We also
favored stocks that had solid growth prospects, regardless of the tone of the
economy. Smaller capitalization real estate stocks also provided value relative
to their big-cap counterparts. These strategies helped the Advantus Real Estate
Securities Fund deliver strong performance due to superior stock selection.

More important to our performance is the areas where we were underweight. We
limited our exposure to apartment companies because we saw weakening property
fundamentals with valuations of the stocks that did not leave room for mistakes.
As investors began to understand the sensitivity of apartment stocks to a drop
in job formation and rising homeownership rates, the apartment companies
generated poor performance. Office companies also suffered from the weak job
creation. Over the course of the year we have increased the underweight in these
property types due to increased concessions in the office market and continued
new development in the apartment group.

OUTLOOK

While the economy is beginning to find strength, we anticipate that it will
stumble along for the near future. Confidence by corporate decision makers is at
a low. Long term decisions about commitments to hiring people and leasing space
are being postponed. Fortunately, most real estate companies have balance sheet
quality that allows them to withstand the negative effects of job losses and the
weak economy on their properties. However, we expect that the longer the
duration of economic doldrums continues, the larger the impact on real estate
companies. Therefore, we seek to avoid companies with large development
pipelines, weak balance sheets, and those exposed to weak tenant credit. We seek
companies trading at discounted valuations, solid dividends, and stable rent
rolls, as each provides downside protection in weaker stock markets. Growth
stories that are not as dependent on the strength in the macro economy still
exist, and we will be exposed to these companies that can create value in their
real estate through all parts of the cycle.

We thank you for your confidence in the Advantus Real Estate Securities Team.

                                       23




TEN LARGEST STOCK HOLDINGS



                                                      MARKET       % OF STOCK
COMPANY                                 SHARES        VALUE         PORTFOLIO
- -------                                 ------    ------------     ----------
                                                             
Prologis                                80,962     $ 2,064,531          6.4%
Equity Office Properties Trust          52,100       1,374,398          4.3%
Simon Property Group, Inc.              28,900       1,040,111          3.2%
Vornado Realty Trust                    23,800       1,036,490          3.2%
Starwood Hotels & Resorts
Worldwide, Inc.                         40,200       1,033,140          3.2%
Apartment Investment &
Management Company                      22,920       1,030,483          3.2%
P.S. Business Parks, Inc.               26,900         946,880          2.9%
Carramerica Realty Corporation          31,700         871,750          2.7%
Kimco Realty Corporation                26,350         846,889          2.6%
Brookfield Properties Corporation       41,100         819,945          2.6%
                                                   -----------         ----
                                                   $11,064,617         34.3%
                                                   ===========         ====



[CHART]

                                                      
Consumer Cyclical                                         (5.1%)
Real Estate                                               (8.0%)
Real Estate Investment Trust-Apartments                  (12.4%)
Real Estate Investment Trust-Diversified                 (11.3%)
Real Estate Investment Trust-Hotels                       (7.2%)
Insurance                                                 (0.6%)
Real Estate Investment Trust-Office Property             (15.8%)
Real Estate Investment Trust-Shopping Centers            (24.0%)
Real Estate Investment Trust-Warehouse/Industrial        (12.1%)
Cash and Other Assets/Liabilities                         (3.5%)



                                       24



                        COMPARISON OF CHANGE IN VALUE OF
                A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS
                REAL ESTATE SECURITIES FUND, WILSHIRE ASSOCIATES
              REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX

On the following two charts you can see how the total return for each of the two
classes of shares of the Advantus Real Estate Securities Fund compared to the
Wilshire Associates Real Estate Securities Index and the Consumer Price Index.
The lines in the Class A and Class B graphs represent the cumulative total
return of a hypothetical $10,000 investment made on the inception date of Class
A and Class B shares of the Advantus Real Estate Securities Fund (February 25,
1999 and November 30, 2001, respectively) through July 31, 2002.

                                     CLASS A

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                                  
Class A:
  One year                            6.13%
  Since inception (2/25/99)          10.16%




                                               WILSHIRE ASSOCIATES REAL
                           CLASS A              ESTATE SECURITIES INDEX        CPI
                                                                    
           2/25/1999       $10,000                       $10,000             $10,000
           7/31/1999        $9,904                       $10,574             $10,121
           7/31/2000       $11,379                       $12,524             $10,486
           7/31/2001       $12,393                       $14,032             $10,771
           7/31/2002       $13,942                       $15,263             $10,923



                                       25

                                     CLASS B

[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                                 
Class B:
Since inception (11/30/01)          6.56%


(Thousands)

[CHART]



                                               WILSHIRE ASSOCIATES REAL
                         CLASS B                ESTATE SECURITIES INDEX      CPI
                                                                  
        11/28/2001       $10,000                        $10,000            $10,000
        12/31/2001       $10,354                        $10,290             $9,983
         7/31/2002       $10,656                        $10,892            $10,130



The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       26



ADVANTUS VENTURE FUND
PERFORMANCE UPDATE

JOHN BURBANK, PORTFOLIO MANAGER
STATE STREET RESEARCH AND MANAGEMENT COMPANY

PERFORMANCE

For the year ended July 31, 2002, the Advantus Venture Fund returned the
following for each class of shares currently offered:

                           
Class A                      -13.27 percent*
Class B                      -14.02 percent*
Class C                      -13.96 percent*



By comparison, the Fund's benchmark, the Russell 2000 Value Index** returned
- -5.51 percent for the same period.

PERFORMANCE ANALYSIS

In the last year, an economic downturn, the September 11th terrorist attacks,
and corporate reporting scandals have resulted in equity markets losing
significant value as the DJIA fell 15.5 percent and the NASDAQ composite has
fallen 34.5 percent during this time. Despite evidence of an economic recovery,
equity markets continue to languish, as investor confidence remains low as
investors continue to remain weary following the recent corporate scandals.

During this time smaller- and mid-cap stocks have been favored over larger-cap
stocks. The Russell 2000 Index has declined 18.0 percent, followed by the
Russell 1000 Index (-22.9 percent). Additionally, Value disciplines have been
favored over Growth; the Russell 1000 Value Index return has exceeded the
Russell 1000 Growth Index return by 11.5 percent and the Russell 2000 Value
Index has outperformed the Russell 2000 Growth Index return by 25.1 percent.

In this environment, the Venture Fund's portfolio lagged the Russell 2000 Value
Index. Index returns were driven by Financial Services, which constitutes about
30 percent of the index, as it was the only sector to post a positive return for
the year. The portfolio's significant underweight in this sector, a result of
our bottom up selection process, significantly hurt relative performance. While
our exposure to insurers were additive, our lack of exposure REITs, S&L's, and
banks was detrimental to return comparisons. Additionally, our overweight in


*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge.

**The Russell 2000 Value Index contains those stocks from the Russell 2000 with
low price to book ratios. The Russell 2000 are the 2,000 smallest companies in
the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks
which represents approximately 98 percent of the U.S. market.

Investments in smaller company and micro-cap stocks generally carry a higher
level of volatility and risk over the short-term.

                                       27


Other Energy, one of the worst performing sectors in the index, negatively
impacted portfolio performance.

Stock performance results were mixed in this turbulent market environment as
strong performance in Other Energy, Consumer Discretionary, Health Care, and
Financial Services was offset by weaker performance within the Producer Durables
and Technology sectors. Exposure to semiconductors, and semiconductor-related
holdings, during this time was the primary driver of poor performance in these
sectors.

OUTLOOK

State Street Research's top-down forecast is that U.S. economic growth will
muddle along at a modestly below trend pace (trend defined as 3.0%) during the
remainder of 2002 and into 2003. We expect the Federal Reserve will remain
accommodative through 2003. Near term, the U.S. is likely to remain in a
low-inflation, high-productivity environment. However, longer-term, inflation is
expected to edge up, fueled by an accommodative Fed, re-regulation and trade
protectionism, rising service sector costs, and a weaker dollar.

That being said, top-down forecasts of the economy are not central to our
investment process. Our approach is to seek superior investment returns through
bottom-up fundamental stock research, by operating with a long-term outlook and
a clear value orientation, and by taking a very patient and disciplined approach
to buying and selling securities. We focus on stocks whose market
capitalizations are in the range of the Russell 2000 Value Index and have
quality franchises, inexpensive valuations, and multiple price appreciation
drivers. We construct broadly diversified portfolios, but with significant
positions in our favorite companies, and will sell when price targets are met,
if companies are taken over, or if price appreciation drivers do not work.

We have been looking to add in areas where valuations are low, such as energy,
producer durables, telecom equipment, software, and mid-cycle recovery plays
such as heavy machinery and related components. We have been looking to sell
investments in insurance, defense, gaming, and lodging on strength. At the end
of the fiscal year, we remain significantly less concentrated in Financial
Services and Health Care than the Russell 2000 Value Index and are moderately
underweighted in Consumer Staples and Utilities. Conversely, we remain heavily
weighted in the Materials, Producer Durables, Transportation, and Energy
sectors. Because of our value approach, the Fund has tended to have a modest
cyclical bias, and our perception of individual stock values is leading us to
add cyclical names and trim positions in defensive stocks in our trading.
Consequently, we feel that the Fund is well positioned for the market to reflect
increased confidence in an economic recovery.

                                       28




TEN LARGEST STOCK HOLDINGS


                                                      MARKET       %OF STOCK
COMPANY                                 SHARES        VALUE        PORTFOLIO
- -------                                 ------    ------------     ---------
                                                               
Mandalay Resort Group                   46,000    $  1,304,560          2.2%
International Game Technology           21,900       1,275,675          2.2%
Varian Semiconductor
Equipment                               46,300       1,216,764          2.1%
Phelps Dodge Corporation                35,000       1,196,300          2.1%
Wabtec Corporation                      89,700       1,122,147          1.9%
EGL, Inc.                               88,300       1,034,876          1.8%
Readers Digest Association              61,700       1,030,390          1.8%
American Axle &
Manufacturing Holdings                  37,900         966,450          1.7%
Agrium, Inc.                           108,900         936,540          1.6%
Methanex Corporation                   113,800         910,400          1.6%
                                       -------     -----------         ----
                                                   $10,994,102         19.0%
                                                   ===========         ====


[CHART]

                                        
Cash and Other Assets/Liabilities            (2.3%)
Utilities                                    (0.4%)
Health Care                                  (2.6%)
Consumer Staples                             (3.2%)
Financial                                    (4.5%)
Transportation                               (7.0%)
Energy                                       (7.7%)
Capital Goods                               (16.4%)
Basic Materials                             (16.8%)
Consumer Cyclical                           (17.9%)
Technology                                  (21.2%)



                                       29




                        COMPARISON OF CHANGE IN VALUE OF
        A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS VENTURE FUND,
               RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX

On the following chart you can see how the total return for each of the three
classes of shares of the Advantus Venture Fund compared to the Russell 2000
Value Index and the Consumer Price Index. The lines represent the cumulative
total return of a hypothetical $10,000 investment made on the inception date of
each class of shares of the Advantus Venture Fund (January 31, 1997) through
July 31, 2002.



[CHART]



SEC AVERAGE ANNUAL TOTAL RETURN:
                                
Class A:
One year                          -18.04%
Five year                           3.77%
Since inception (1/31/97)           6.22%
Class B:
One year                          -18.32%
Five year                           3.72%
Since inception (1/31/97)           6.13%
Class C:
One year                          -13.96%
Five year                           4.04%
Since inception (1/31/97)           6.40%


(Thousands)


[CHART]




                                                         RUSSELL 2000
                 CLASS A       CLASS B       CLASS C      VALUE INDEX       CPI
                                                           
 1/31/1997       $10,000       $10,000       $10,000        $10,000       $10,000
 7/31/1997       $10,944       $11,033       $11,533        $11,790       $10,075
 7/31/1998       $11,919       $11,965       $12,449        $12,503       $10,245
 7/31/1999       $11,456       $11,474       $11,850        $12,487       $10,458
 7/31/2000       $11,884       $11,916       $12,199        $13,090       $10,834
 7/31/2001       $16,065       $16,153       $16,340        $16,198       $11,129
 7/31/2002       $13,934       $13,867       $14,059        $15,306       $11,286


The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the perfomance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                      30



                                                       ADVANTUS CORNERSTONE FUND
                                                       INVESTMENTS IN SECURITIES
                                                                   JULY 31, 2002

           (Percentages of each investment category relate to total net assets.)




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              
COMMON STOCK (99.0%)
   BASIC MATERIALS (5.8%)
     Aluminum (.5%)
    10,900    Alcoa, Inc.                                        $     294,845
                                                                 -------------

     Chemicals (4.7%)
    15,900    Air Products and Chemicals, Inc.                         703,575
    18,600    Dow Chemical Company                                     536,982
    23,200    EI Dupont De Nemours & Company                           972,312
    48,000    Lyondell Petrochemical Company                           633,600
     5,700    Rohm & Haas Company                                      213,750
                                                                 -------------
                                                                     3,060,219
                                                                 -------------
     Paper and Forest (.6%)
     7,900    Bowater, Inc.                                            360,161
                                                                 -------------

   CAPITAL GOODS (5.4%)
     Aerospace/Defense (1.2%)
     4,600    General Dynamics Corporation                             372,232
     6,300    United Technologies Corporation                          437,850
                                                                 -------------
                                                                       810,082
                                                                 -------------
     Electrical Equipment (1.3%)
     7,500    Emerson Electric Company                                 382,125
    14,500    Honeywell International, Inc.                            469,220
                                                                 -------------
                                                                       851,345
                                                                 -------------

     Engineering/Construction (.3%)
     4,800    Caterpillar, Inc.                                        214,560
                                                                 -------------

     Manufacturing (2.3%)
    11,900    3M Company                                             1,497,377
                                                                 -------------

     Trucks and Parts (.3%)
     8,900    Navistar International Corporation                       229,531
                                                                 -------------

   COMMUNICATION SERVICES (6.1%)
     Telephone (6.1%)
    33,900    Bellsouth Corporation                                    910,215
    56,142    SBC Communications, Inc.                               1,552,888
    45,057    Verizon Communications                                 1,486,881
                                                                 -------------
                                                                     3,949,984
                                                                 -------------


      See accompanying notes to investments in securities.

                                      31




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

   CONSUMER CYCLICAL (10.0%)
     Auto (2.1%)
     5,000    Eaton Corporation                                       $349,100
     7,400    Lear Corporation (b)                                     318,940
    11,800    Magna International, Inc. (c)                            694,076
                                                                 -------------
                                                                     1,362,116
                                                                 -------------

     Leisure (2.3%)
    65,000    Brunswick Corporation                                  1,487,200
                                                                 -------------

     Lodging-- Hotel (1.0%)
    52,200    Hilton Hotels                                            637,884
                                                                 -------------

     Publishing (1.0%)
     4,500    Gannett Company, Inc.                                    323,595
     8,200    Tribune Company                                          327,180
                                                                 -------------
                                                                       650,775
                                                                 -------------

     Retail (.7%)
    11,600    Michaels Stores, Inc. (b)                                429,548
                                                                 -------------

     Service (1.4%)
     8,000    Harrahs Entertainment, Inc. (b)                          378,560
    24,100    Interpublic Group Companies, Inc.                        503,931
                                                                 -------------
                                                                       882,491
                                                                 -------------

     Textiles (1.5%)
    28,000    Jones Apparel Group, Inc. (b)                            952,840
                                                                 -------------

CONSUMER STAPLES (10.4%)
     Beverage (.6%)
     7,300    The Coca-Cola Company                                    364,562
                                                                 -------------

     Broadcasting (.7%)
    16,500    Clear Channel Communications, Inc. (b)                   429,825
                                                                 -------------

     Entertainment (1.7%)
    39,200    The Walt Disney Company                                  695,016
    10,000    Viacom, Inc. (b)                                         389,200
                                                                 -------------
                                                                     1,084,216
                                                                 -------------

     Food (1.1%)
    19,800    Kraft Foods, Inc.                                        732,600
                                                                 -------------

     Household Products (2.0%)
    14,600    Procter & Gamble Company                               1,299,254
                                                                 -------------


      See accompanying notes to investments in securities.

                                      32






                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

   CONSUMER STAPLES--CONTINUED
     Personal Care (1.1%)
    14,800    Avon Products, Inc.                                    $ 684,648
                                                                 -------------

Restaurants (.9%)
    10,200    Brinker International, Inc. (b)                          332,520
    11,400    McDonalds Corporation                                    282,150
                                                                 -------------
                                                                       614,670
                                                                 -------------

     Retail (.5%)
    11,100    CVS Corporation                                          317,460
                                                                 -------------

     Service (.8%)
    13,600    Manpower, Inc.                                           512,176
                                                                 -------------

     Tobacco (1.0%)
    14,800    Philip Morris Companies, Inc.                            681,540
                                                                 -------------

   ENERGY (10.9%)
     Oil (8.8%)
    22,713    Chevron Corporation                                    1,703,475
    99,006    Exxon Mobil Corporation                                3,639,458
     7,800    Royal Dutch Petroleum Company (c)                        356,460
                                                                 -------------
                                                                     5,699,393
                                                                 -------------

     Oil & Gas (2.1%)
    13,700    EOG Resources, Inc.                                      469,773
    16,400    Nabors Industries, Ltd. (b)(c)                           500,528
    13,000    Noble Corporation (b)                                    421,200
                                                                 -------------
                                                                     1,391,501
                                                                 -------------

   FINANCIAL (32.4%)
     Banks (16.1%)
    31,800    Bank of America Corporation                            2,114,700
    15,200    Bank One Corporation                                     591,432
    27,935    JP Morgan Chase and Company                              697,257
    12,000    National City BanCorporation                             370,800
     7,700    PNC Financial Services Group                             324,555
    72,158    U.S. Bancorp                                           1,543,460
    59,300    Wachovia Corporation                                   2,122,940
    34,300    Wells Fargo & Company                                  1,744,498
    18,800    Zion BanCorporation                                      949,588
                                                                 -------------
                                                                    10,459,230
                                                                 -------------


      See accompanying notes to investments in securities.

                                      33





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

   FINANCIAL--CONTINUED
     Consumer Finance (1.0%)
    18,100    American Express Company                              $  638,206
                                                                 -------------

     Finance-- Diversified (1.7%)
    17,400    Federal Home Loan Mortgage Corpration                  1,077,930
                                                                 -------------

     Insurance (5.3%)
    27,300    Allstate Corporation                                   1,037,673
    16,027    American International Group                           1,024,446
     5,500    Chubb Corporation                                        356,895
     5,600    Hartford Financial Services Group, Inc.                  283,360
     6,200    Marsh and McLennan Companies, Inc.                       296,980
    15,600    MetLife, Inc.                                            439,764
                                                                 -------------
                                                                     3,439,118
                                                                 -------------

     Investment Bankers/Brokers (5.6%)
    71,113    CitiGroup, Inc.                                        2,385,130
     9,000    Goldman Sachs Group, Inc.                                658,350
    14,840    Morgan Stanley                                           598,794
                                                                 -------------
                                                                     3,642,274
                                                                 -------------

     Real Estate Investment Trust (1.8%)
    16,400    Developers Diversified Realty Corporation                377,200
    30,900    Prologis                                                 787,950
                                                                 -------------
                                                                     1,165,150
                                                                 -------------

     Savings and Loans (.9%)
    18,200    Charter One Financial, Inc.                              617,344
                                                                 -------------

   HEALTH CARE (5.5%)
     Drugs (2.8%)
     5,100    Eli Lilly & Company                                      297,942
    21,500    Pfizer, Inc.                                             695,525
    20,200    Schering-Plough Corporation                              515,100
     7,700    Wyeth                                                    307,230
                                                                 -------------
                                                                     1,815,797
                                                                 -------------

     Hospital Management (.8%)
    10,800    The HCA-- Healthcare Company                             507,600
                                                                 -------------

     Medical Products/Supplies (1.0%)
    22,000    Becton Dickinson and Company                             639,320
                                                                 -------------

     Special Services (.9%)
     8,300    Anthem, Inc. (b)                                         563,404
                                                                 -------------


      See accompanying notes to investments in securities.
                                      34





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

   TECHNOLOGY (7.4%)
     Communications Equipment (.4%)
    24,700    Motorola, Inc.                                     $     286,520
                                                                 -------------

     Computer Hardware (2.7%)
    19,200    International Business Machines Corporation            1,351,680
    41,800    Symbol Technologies, Inc.                                382,052
                                                                 -------------
                                                                     1,733,732
                                                                 -------------

     Computer Services & Software (1.0%)
    44,100    Oracle Systems                                           441,397
    11,600    Peoplesoft, Inc.                                         208,568
                                                                 -------------
                                                                       649,965
                                                                 -------------

     Electrical Semiconductor (1.8%)
    84,300    LSI Logic Corporation (b)                                657,540
     6,450    Microchip Technology, Inc. (b)                           142,029
    16,200    Texas Instruments, Inc.                                  375,030
                                                                 -------------
                                                                     1,174,599
                                                                 -------------

     Electronics-- Computer Distribution (1.1%)
    14,300    WW Grainger, Inc.                                        701,272
                                                                 -------------

     Equipment Semiconductor (.4%)
    17,300    Teradyne, Inc. (b)                                       259,500
                                                                 -------------

   TRANSPORTATION (1.9%)
     Airlines (.4%)
    27,800    Northwest Airlines, Inc. (b)                             257,984
                                                                 -------------

     Railroads (1.5%)
    27,300    CSX Corporation                                          943,761
                                                                 -------------

   UTILITIES (3.2%)
     Electric Companies (3.2%)
     8,900    American Electric Power Company, Inc.                    292,899
    10,400    Duke Energy Corporation                                  265,096
     4,000    Entergy Corporation                                      162,120
    15,300    Exelon Corporation                                       750,465
    16,200    Nisource, Inc.                                           320,760
     8,700    Public Service Enterprise Group, Inc.                    300,586
                                                                 -------------
                                                                     2,091,926
                                                                 -------------
Total common stock (cost: $65,902,530)                              64,147,435
                                                                 -------------


      See accompanying notes to investments in securities.

                                      35






                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              


   SHORT-TERM SECURITIES (2.3%)
 1,452,238    Dreyfus Cash Management Plus Funds, current
              rate 1.820 %                                        $  1,452,238
         2    Federated Money Market Obligations Trust--
              Prime Obligation Fund, current rate 1.760%                     2
    29,190    Wells Fargo & Company-- Cash Investment Fund,
              current rate 1.717%                                       29,190
                                                                 -------------

              Total short-term securities
              (cost: $1,481,430)                                     1,481,430
                                                                 -------------

              Total investments in securities
              (cost: $67,383,960) (d)                             $ 65,628,865
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 2.4% of net assets in foreign securities as of July 31, 2002.
(d)  At July 31, 2002 the cost of securities for federal income tax purposes was
     $68,680,771. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

     
     
                                                               
     Gross unrealized appreciation                                $  3,736,343
     Gross unrealized depreciation                                  (6,788,249)
                                                                 -------------
     Net unrealized depreciation                                   $(3,051,906)
                                                                 =============
     


                  See accompanying notes to financial statements.

                                      36




                                                        ADVANTUS ENTERPRISE FUND
                                                       INVESTMENTS IN SECURITIES
                                                                   JULY 31, 2002

           (Percentages of each investment category relate to total net assets.)



                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

COMMON STOCK (89.1%)
   BASIC MATERIALS (1.5%)
     Chemicals (1.5%)
     2,100    Albemarle Corporation                                    $62,076
    10,500    Cambrex Corporation                                      402,150
                                                                 -------------
                                                                       464,226
                                                                 -------------

   CAPITAL GOODS (2.2%)
     Containers-- Metal/Glass (.8%)
    67,500    Crown Cork & Seal Company, Inc. (b)                      232,875
                                                                 -------------

     Engineering/Construction (.9%)
    16,300    Granite Construction, Inc.                               294,541
                                                                 -------------

     Office Equipment (.5%)
    15,400    Moore Corporation, Ltd. (b) (c)                          159,698
                                                                 -------------

   CONSUMER CYCLICAL (16.0%)
     Auto (1.2%)
     7,200    Borg-Warner Automotive, Inc.                             386,496
                                                                 -------------

     Distribution Durables (.2%)
     4,200    MSC Industrial Direct Company, Inc. (b)                   67,721
                                                                 -------------

     Leisure (1.5%)
    30,900    Six Flags, Inc. (b)                                      464,118
                                                                 -------------

     Publishing (1.2%)
     9,900    Scholastic Corporation (b)                               386,001
                                                                 -------------

     Retail (6.6%)
     6,000    Barnes & Noble, Inc. (b)                                 129,240
    12,800    Cost Plus, Inc. (b)                                      313,216
    32,200    Gymboree Corporation (b)                                 434,700
    16,050    Hot Topic, Inc. (b)                                      249,577
     6,800    Pacific Sunwear of California, Inc. (b)                  125,664
    28,290    Valuevision Media, Inc. (b)                              426,047
    17,000    Yankee Candle Company (b)                                372,810
                                                                 -------------
                                                                     2,051,254
                                                                 -------------

     Service (2.9%)
    42,700    Doubleclick, Inc. (b)                                    203,252
    17,759    Getty Images, Inc. (b)                                   292,526
    25,400    Penn National Gaming, Inc. (b)                           396,240
                                                                 -------------
                                                                       892,018
                                                                 -------------


       See accompanying notes to investments in securities.

                                      37





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              
CONSUMER CYCLICAL--CONTINUED
     Textiles (2.4%)
    16,700    Linens n Things, Inc. (b)                             $  406,645
    26,700    Tommy Hilfiger Corporation (b) (c)                       348,168
                                                                 -------------
                                                                       754,813
                                                                 -------------

   CONSUMER STAPLES (11.9%)
     Broadcasting (5.7%)
    26,300    Cumulus Media, Inc. (b)                                  350,842
    32,300    Emmis Communications (b)                                 512,278
    16,600    Entercom Communications Corporation (b)                  718,780
    21,200    Insight Communications (b)                               192,072
                                                                 -------------
                                                                     1,773,972
                                                                 -------------

     Food (2.4%)
    17,400    Pathmark Stores, Inc. (b)                                286,056
    14,000    Performance Food Group Company (b)                       462,280
                                                                 -------------
                                                                       748,336
                                                                 -------------

     Food & Health (.7%)
    15,400    Hain Celestial Group, Inc. (b)                           229,306
                                                                 -------------

     Retail (1.3%)
    32,200    CKE Restaurants, Inc. (b)                                206,724
    14,200    Duane Reade, Inc. (b)                                    210,160
                                                                 -------------
                                                                       416,884
                                                                 -------------

     Service (1.8%)
    13,800    Education Management Corporation (b)                     550,758
                                                                 -------------

   ENERGY (9.4%)
     Oil (.7%)
    41,500    Newpark Resources, Inc. (b)                              203,350
                                                                 -------------

     Oil & Gas (8.7%)
    19,600    FMC Technologies, Inc. (b)                               362,600
    12,400    Newfield Exploration Company (b)                         391,096
    21,000    Pogo Producing Company                                   651,000
    24,700    Remington Oil & Gas Corporation (b)                      385,320
    15,500    Spinnaker Exploration Company (b)                        436,170
    13,989    Stone Energy Corporation (b)                             475,346
                                                                 -------------
                                                                     2,701,532
                                                                 -------------


       See accompanying notes to investments in securities.

                                      38





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

FINANCIAL (7.6%)
     Banks (1.1%)
     8,600    Westamerica BanCorporation                            $  335,916
                                                                 -------------

     Finance-- Diversified (1.2%)
    13,600    Raymond James Financial, Inc.                            369,920
                                                                 -------------

     Insurance (3.3%)
    18,300    HCC Insurance Holdings, Inc.                             412,665
    18,800    Mid Atlantic Medical Services, Inc. (b)                  612,128
                                                                 -------------
                                                                     1,024,793
                                                                 -------------

     Investment Bankers/Brokers (.9%)
     6,100    Affiliated Managers Group (b)                            288,042
                                                                 -------------

     Savings and Loans (1.1%)
    15,000    IndyMac Bancorp, Inc. (b)                                330,750
                                                                 -------------

   HEALTH CARE (24.8%)
     Biotechnology (3.0%)
    30,100    Affymetrix, Inc. (b)                                     537,285
    14,800    Lynx Therapeutics, Inc. (b)                               14,652
    11,800    Scios, Inc. (b)                                          370,048
                                                                 -------------
                                                                       921,985
                                                                 -------------

     Drugs (4.9%)
    12,600    Cubist Pharmaceuticals, Inc. (b)                         113,652
    16,200    K-V Pharmaceutical Company (b)                           340,200
    15,267    Medicis Pharmaceutical Corporation (b)                   639,993
     6,900    OSI Pharmaceuticals, Inc. (b)                            206,724
    31,200    Sepracor, Inc. (b)                                       210,600
                                                                 -------------
                                                                     1,511,169
                                                                 -------------

     Hospital Management (5.7%)
    20,400    Community Health Systems (b)                             504,900
    17,600    Lifepoint Hospitals, Inc. (b)                            599,280
    35,350    Province Healthcare Company (b)                          678,720
                                                                 -------------
                                                                     1,782,900
                                                                 -------------

     Managed Care (3.3%)
    16,200    Advance Paradigm, Inc. (b)                               363,204
    18,700    Beverly Enterprises (b)                                   59,279
    20,500    Coventry Health Care, Inc. (b)                           618,075
                                                                 -------------
                                                                     1,040,558
                                                                 -------------


       See accompanying notes to investments in securities.

                                      39





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              

HEALTH CARE--CONTINUED
     Medical Products/Supplies (1.9%)
    16,400    Alliance Imaging, Inc. (b)                            $  208,116
    12,500    SonoSite, Inc. (b)                                       162,625
    16,800    Therasense, Inc. (b)                                     235,032
                                                                 -------------
                                                                       605,773
                                                                 -------------

     Special Services (6.0%)
    16,700    Apria Healthcare Group, Inc. (b)                         391,114
     9,646    DaVita, Inc. (b)                                         227,646
    16,200    Fisher Scientific International, Inc. (b)                441,450
     9,600    Henry Schein, Inc. (b)                                   412,416
    12,500    Renal Care Group, Inc. (b)                               405,000
                                                                 -------------
                                                                     1,877,626
                                                                 -------------

   TECHNOLOGY (14.7%)
     Communications Equipment (.3%)
    89,100    Openwave Systems, Inc. (b)                                89,100
                                                                 -------------

     Computer Networking (2.1%)
    39,100    Adaptec, Inc. (b)                                        230,690
    42,500    Legato Systems, Inc. (b)                                 114,750
    40,250    Radiant Systems, Inc. (b)                                313,950
                                                                 -------------
                                                                       659,390
                                                                 -------------

     Computer Services & Software (7.0%)
    30,600    Agile Software Corporation (b)                           182,376
    17,200    CACI International, Inc. (b)                             589,616
    24,600    Caminus Corporation (b)                                   50,430
    71,400    Chordiant Software, Inc. (b)                              57,120
    34,500    Informatica Corporation (b)                              240,120
    63,242    Manugistics Group, Inc. (b)                              254,233
    36,300    MatrixOne, Inc. (b)                                      243,210
    20,000    NetIQ Corporation (b)                                    396,200
    12,500    Precise Software Solutions, Ltd. (b)(c)                  157,000
                                                                 -------------
                                                                     2,170,305
                                                                 -------------

     Data Processing (1.6%)
    30,304    Documentum, Inc. (b)                                     490,828
                                                                 -------------

     Electrical Defense (1.0%)
    40,300    Aeroflex, Inc. (b)                                       306,280
                                                                 -------------


       See accompanying notes to investments in securities.

                                      40





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                 ---------
                                                              
TECHNOLOGY--CONTINUED
     Electrical Instruments (--)
    51,700    APW, Ltd. (b)                                              $ 517
                                                                 -------------

     Electrical Semiconductor (1.4%)
     8,900    Anadigics, Inc. (b)                                       23,140
    26,700    Cirrus Logic, Inc. (b)                                   158,598
     9,600    Varian Semiconductor Equipment (b)                       252,288
                                                                 -------------
                                                                       434,026
                                                                 -------------

     Equipment Semiconductor (1.3%)
    15,440    Brooks-PRI Automation, Inc. (b)                          293,669
     4,204    Cymer, Inc. (b)                                          117,670
                                                                 -------------
                                                                       411,339
                                                                 -------------

   TRANSPORTATION (1.0%)
     Trucking (1.0%)
    11,300    JB Hunt Transport Services, Inc. (b)                     297,416
                                                                 -------------
Total common stock (cost: $37,538,785)                              27,726,532
                                                                 -------------

SHORT-TERM SECURITIES (9.3%)
 1,700,498    Wells Fargo & Company-- Cash Investment Fund I,
              current rate 1.717%                                  $ 1,700,498
 1,207,241    Wells Fargo & Company-- Treasury Plus Fund,
              current rate 1.631%                                  $ 1,207,241
                                                                 -------------
              Total short-term securities
              (cost: $2,907,739)                                     2,907,739
                                                                 -------------
              Total investments in securities
              (cost: $40,446,524) (d)                              $30,634,271
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 2.1% of net assets in foreign securities as of July 31, 2002.
(d)  At July 31, 2002 the cost of securities for federal income tax purposes was
     $40,546,223. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:



                                                                
     Gross unrealized appreciation                                  $2,516,635
     Gross unrealized depreciation                                 (12,428,587)
                                                                 -------------
     Net unrealized depreciation                                   $(9,911,952)
                                                                 =============


                  See accompanying notes to financial statements.

                                      41




ADVANTUS HORIZON FUND
INVESTMENTS IN SECURITIES
JULY 31, 2002

(Percentages of each investment category relate to total net assets.)





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
COMMON STOCK (96.4%)
   BASIC MATERIALS (1.9%)
     Chemicals (1.9%)
     4,200    Air Products and Chemicals, Inc.                      $  185,850
     8,900    Pharmacia Corporation                                    398,186
                                                                    ----------
                                                                       584,036
   CAPITAL GOODS (7.9%)
     Electrical Equipment (6.3%)
    58,328    General Electric Company                               1,878,162
                                                                    ----------

     Manufacturing (1.6%)
     3,700    3M Company                                               465,571
                                                                    ----------

   COMMUNICATION SERVICES (.5%)
     Telecommunication (.5%)
     5,074    Qualcomm, Inc. (b)                                       139,434
                                                                    ----------

   CONSUMER CYCLICAL (13.5%)
     Auto (1.5%)
     2,900    Danaher Corporation                                      179,945
     5,700    Harley-Davidson, Inc.                                    269,952
                                                                    ----------
                                                                       449,897
                                                                    ----------

     Leisure (1.3%)
    16,500    Brunswick Corporation                                    377,520
                                                                    ----------

     Lodging-- Hotel (1.0%)
    24,500    Hilton Hotels                                            299,390
                                                                    ----------

     Retail (8.2%)
     6,800    Bed Bath & Beyond, Inc. (b)                              210,800
     1,523    eBay, Inc. (b)                                            86,948
     6,200    Family Dollar Stores                                     187,798
     3,100    Fastenal Company                                         118,017
     9,150    Home Depot, Inc.                                         282,552
     6,800    Kohls Corporation (b)                                    448,800
     7,800    Lowes Companies, Inc.                                    295,230
     4,100    Michaels Stores, Inc. (b)                                151,823
    13,900    Wal-Mart Stores, Inc.                                    683,602
                                                                    ----------
                                                                     2,465,570
                                                                    ----------

     Service (1.0%)
     6,500    Harrahs Entertainment, Inc. (b)                          307,580
                                                                    ----------

     Textiles (.5%)
     4,400    Jones Apparel Group, Inc. (b)                            149,732
                                                                    ----------


              See accompanying notes to investments in securities.
                                       42





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
CONSUMER STAPLES (14.2%)
     Beverage (4.1%)
     1,800    Anheuser-Busch Companies, Inc.                          $ 93,078
    11,710    Pepsico, Inc.                                            502,827
    12,600    The Coca-Cola Company                                    629,244
                                                                    ----------
                                                                     1,225,149
                                                                    ----------

     Broadcasting (.5%)
     5,400    Clear Channel Communications, Inc. (b)                   140,670
                                                                    ----------

     Entertainment (.6%)
     4,300    Viacom, Inc. (b)                                         167,356
                                                                    ----------

     Food & Health (1.1%)
    12,500    Sysco Corporation                                        325,625
                                                                    ----------

     Household Products (2.8%)
     7,300    Colgate-Palmolive Company                                374,855
     5,400    Procter & Gamble Company                                 480,546
                                                                    ----------
                                                                       855,401
                                                                    ----------

     Personal Care (.5%)
     3,100    Avon Products, Inc.                                      143,406
                                                                    ----------

     Restaurants (.7%)
     6,200    Brinker International, Inc. (b)                          202,120
                                                                    ----------

     Retail (1.5%)
    12,900    Walgreen Company                                         455,757
                                                                    ----------

     Service (1.5%)
     7,800    Automatic Data Processing, Inc.                          290,862
     8,100    Concord EFS, Inc. (b)                                    157,950
                                                                    ----------
                                                                       448,812
                                                                    ----------

     Tobacco (.9%)
     5,800    Philip Morris Companies, Inc.                            267,090
                                                                    ----------

   ENERGY (3.0%)
     Oil & Gas (3.0%)
     5,600    Ensco International, Inc.                                144,760
     6,100    EOG Resources, Inc.                                      209,169
     9,800    Nabors Industries, Ltd. (b)(c)                           299,096
     8,000    Noble Corporation (b)                                    259,200
                                                                    ----------
                                                                       912,225
                                                                    ----------


              See accompanying notes to investments in securities.
                                       43




                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                               

FINANCIAL (12.9%)
     Banks (3.6%)
     4,500    Bank of America Corporation                          $   299,250
     3,700    Fifth Third BanCorporation                               244,459
     2,000    State Street Corporation                                  85,000
     5,400    Wells Fargo & Company                                    274,644
     3,700    Zion BanCorporation                                      186,887
                                                                    ----------
                                                                     1,090,240
                                                                    ----------

     Consumer Finance (1.6%)
     5,100    American Express Company                                 179,826
     8,450    MBNA Corporation                                         163,845
     1,400    SLM Corporation                                          127,400
                                                                    ----------
                                                                       471,071
                                                                    ----------

     Finance-- Diversified (2.5%)
     2,300    Fannie Mae                                               172,247
     9,300    Freddie Mac                                              576,135
                                                                    ----------
                                                                       748,382
                                                                    ----------

     Insurance (3.4%)
     9,400    American International Group                             600,848
     7,300    Expeditor Washington International, Inc.                 215,350
     4,200    Marsh and McLennan Companies, Inc                .       201,180
                                                                    ----------
                                                                     1,017,378
                                                                    ----------

     Investment Bankers/Brokers (1.8%)
    10,700    CitiGroup, Inc.                                          358,878
     2,600    Goldman Sachs Group, Inc.                                190,190
                                                                    ----------
                                                                       549,068
                                                                    ----------

   HEALTH CARE (18.6%)
     Biotechnology (1.6%)
     3,900    Amgen, Inc. (b)                                          177,996
     4,400    Genentech, Inc. (b)                                      152,900
     3,500    Idec Pharmaceuticals Corporation (b)                     156,065
                                                                    ----------
                                                                       486,961
                                                                    ----------

     Drugs (10.8%)
     5,900    Eli Lilly & Company                                      344,678
     5,800    Forest Laboratories, Inc. (b)                            449,326
    56,050    Pfizer, Inc.                                           1,813,217
    15,900    Wyeth                                                    634,410
                                                                    ----------
                                                                     3,241,631
                                                                    ----------


              See accompanying notes to investments in securities.
                                       44






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

HEALTH CARE--CONTINUED
     Health Care-- Diversified (2.7%)
    14,000    Johnson & Johnson                                     $  742,000
     1,650    Tenet Healthcare Corporation (b)                          78,623
                                                                    ----------
                                                                       820,623
                                                                    ----------

     Hospital Management (.7%)
     4,400    The HCA-- Healthcare Company                             206,800
                                                                    ----------

     Managed Care (.7%)
     2,400    Unitedhealth Group, Inc.                                 210,384
                                                                    ----------

     Medical Products/Supplies (2.1%)
     5,600    Laboratory Corporation of America Holdings               192,080
    11,600    Zimmer Holdings, Inc. (b)                                431,868
                                                                    ----------
                                                                       623,948
                                                                    ----------

   TECHNOLOGY (21.8%)
     Communications Equipment (.7%)
     5,500    Brocade Communication Systems, Inc. (b)                  103,125
     9,100    Motorola, Inc.                                           105,560
                                                                    ----------
                                                                       208,685
                                                                    ----------

     Computer Hardware (3.6%)
    20,030    Dell Computer Corporation (b)                            499,348
     5,600    International Business Machines Corporation              394,240
    20,300    Symbol Technologies, Inc.                                185,542
                                                                    ----------
                                                                     1,079,130
                                                                    ----------

     Computer Networking (3.5%)
     1,126    Affiliated Computer Services, Inc. (b)                    52,899
    56,785    Cisco Systems, Inc. (b)                                  748,994
     9,400    SEI Investments Company                                  247,314
                                                                    ----------
                                                                     1,049,207
                                                                    ----------

     Computer Peripherals (.4%)
    15,400    EMC Corporation (b)                                      115,500
                                                                    ----------

     Computer Services & Software (5.6%)
     5,300    BEA Systems, Inc. (b)                                     29,415
     2,385    Cadence Design Systems, Inc. (b)                          29,693
       946    Electronic Arts, Inc. (b)                                 56,930
    24,759    Microsoft Corporation (b)                              1,187,194
    22,200    Oracle Systems (b)                                       222,200
     5,200    Peoplesoft, Inc.                                          93,496
     2,006    Sungard Data Systems, Inc. (b)                            47,041
                                                                    ----------
                                                                     1,665,969
                                                                    ----------


              See accompanying notes to investments in securities.
                                       45






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

TECHNOLOGY--CONTINUED
     Electrical Instruments (.1%)
     2,142    Agilent Technologies, Inc. (b)                         $  40,441
                                                                    ----------

     Electrical Semiconductor (4.5%)
     3,400    Altera Corporation (b)                                    40,222
     2,466    Analog Devices, Inc. (b)                                  59,431
    13,252    Applied Materials, Inc. (b)                              197,057
    26,331    Intel Corporation                                        494,759
     2,288    Linear Technology Corporation                             61,959
    10,441    LSI Logic Corporation (b)                                 81,440
     2,298    Microchip Technology, Inc. (b)                            50,602
     1,381    Novellus Systems, Inc. (b)                                37,273
     2,018    RF Micro Devices, Inc. (b)                                13,440
    12,087    Texas Instruments, Inc.                                  279,814
     2,279    Xilinx, Inc. (b)                                          43,734
                                                                    ----------
                                                                     1,359,731
                                                                    ----------

     Electronics-- Computer Distribution (1.0%)
     2,222    Maxim Integrated Products (b)                             78,170
     4,800    WW Grainger, Inc.                                        235,392
                                                                    ----------
                                                                       313,562
                                                                    ----------

     Equipment Semiconductor (.4%)
     1,335    KLA-Tencor Corporation (b)                                52,586
     4,298    Teradyne, Inc. (b)                                        64,470
                                                                    ----------
                                                                       117,056
                                                                    ----------

     Service-- Data Processing (2.0%)
    11,000    First Data Corporation                                   384,450
     1,364    Intuit, Inc. (b)                                          59,989
     6,500    Paychex, Inc.                                            171,015
                                                                    ----------
                                                                       615,454
                                                                    ----------

   TRANSPORTATION (2.1%)
     Air Freight (1.5%)
     7,400    CH Robinson Worldwide, Inc.                              222,000
     3,300    United Parcel Service, Inc.                              215,622
                                                                    ----------
                                                                       437,622
                                                                    ----------

     Railroads (.6%)
     5,200    CSX Corporation                                          179,764
                                                                    ----------
Total common stock (cost: $27,211,471)                              28,909,110
                                                                    ----------


              See accompanying notes to investments in securities.
                                       46





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

S&P DEPOSITORY RECEIPT (1.0%)
     3,300    S & P Depository Receipt                              $  301,950
                                                                    ----------
Total S&P Depository Receipt (cost: $269,297)                          301,950
                                                                    ----------

SHORT-TERM SECURITIES (2.8%)
   800,923    Dreyfus Funds-- Cash Management Plus Fund,
              current rate 1.820%                                      800,923
     1,150    Federated Money Market Obligations Trust-- Prime
              Obligation Fund, current rate 1.900%                       1,150
    49,222    Wells Fargo & Company-- Cash Investment Fund,
              current rate 1.698%                                       49,222
                                                                    ----------
              Total short-term securities
              (cost: $851,295)                                         851,295
                                                                    ----------
              Total investments in securities
              (cost: $28,332,063) (d)                              $30,062,355
                                                                   ===========



Notes to Investments in Securities
- ----------------------------------

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 1.0% of net assets in foreign securities as of July 31, 2002.
(d)  At July 31, 2002, the cost of securities for federal income tax purposes
     was $31,134,263. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:



                                                                
     Gross unrealized appreciation                                 $ 3,472,046
     Gross unrealized depreciation                                  (4,543,954)
                                                                    ----------
     Net unrealized depreciation                                   $(1,071,908)
                                                                   ===========



                See accompanying notes to financial statements.
                                       47



ADVANTUS INDEX 500 FUND
INVESTMENTS IN SECURITIES
JULY 31, 2002

(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)




                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

COMMON STOCK (96.5%)
   BASIC MATERIALS (3.2%)
     Agriculture Products (.1%)
     2,589    Archer-Daniels-Midland Company                         $  30,291
                                                                    ----------

     Aluminum (.3%)
     3,365    Alcoa, Inc.                                               91,023
                                                                    ----------

     Chemicals (1.5%)
       877    Air Products and Chemicals, Inc.                          38,807
     3,607    Dow Chemical Company                                     104,134
     3,947    E.I. du Pont de Nemours & Company                        165,419
       348    Eastman Chemical Company                                  15,423
       556    Ecolab, Inc.                                              25,548
       450    Engelhard Corporation                                     11,250
       155    Great Lakes Chemical Corporation                           3,895
       380    Hercules, Inc. (b)                                         4,028
       367    International Flavors and Fragrances, Inc.                11,227
     5,139    Pharmacia Corporation                                    229,919
       668    PPG Industries, Inc.                                      38,343
       686    Praxair, Inc.                                             35,878
       871    Rohm & Haas Company                                       32,662
       340    Sigma-Aldrich Corporation                                 16,293
                                                                    ----------
                                                                       732,826
                                                                    ----------

     Construction (  )
       445    Vulcan Materials, Inc.                                    17,996
                                                                    ----------

     Iron and Steel (.1%)
       315    Allegheny Technologies, Inc.                               3,015
       293    Nucor Corporation                                         16,358
       309    United States Steel Corporation                            5,145
       296    Worthington Industries, Inc.                               5,195
                                                                    ----------
                                                                        29,713
                                                                    ----------

     Mining (.2%)
       532    Freeport-McMoran, Inc. (b)                                 8,124
     1,582    Newmont Mining                                            38,601
       340    Phelps Dodge Corporation                                  11,621
                                                                    ----------
                                                                        58,346
                                                                    ----------

     Paper and Forest (1.0%)
       232    Bemis Company, Inc.                                       11,150
       256    Boise Cascade Corporation                                  7,421
       895    Georgia-Pacific Corporation                               19,600
     1,960    International Paper Company                               78,047
     2,062    Kimberly-Clark Corporation                               125,885
       372    Louisiana-Pacific Corporation                              2,946
       777    MeadWestvaco Corporation                                  20,660


              See accompanying notes to investments in securities.
                                       48





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
   BASIC MATERIALS--CONTINUED
       670    Plum Creek Timber Company, Inc.                         $ 19,095
       248    Temple Inland, Inc.                                       13,318
       927    Weyerhaeuser Company                                      54,461
                                                                    ----------
                                                                       352,583
                                                                    ----------

   CAPITAL GOODS (8.6%)
     Aerospace/Defense (1.7%)
       871    General Dynamics Corporation                              70,481
       389    Goodrich Corporation                                       8,679
     1,860    Lockheed Martin Corporation                              119,245
       467    Northrop Grumman Corporation                              51,697
     1,575    Raytheon Company                                          51,313
       700    Rockwell Collins                                          17,990
       701    Rockwell International Corporation                        12,968
     3,334    The Boeing Company                                       138,428
     1,878    United Technologies Corporation                          130,521
                                                                    ----------
                                                                       601,322
                                                                    ----------

     Containers-Metal/Glass (  )
       250    Ball Corporation                                          10,755
                                                                    ----------

     Electrical Equipment (4.5%)
       750    American Power Conversion Corporation (b)                  8,212
       418    Cooper Industries, Inc.                                   13,017
     1,732    Emerson Electric Company                                  88,245
    39,494    General Electric Company (e)                           1,271,707
     3,249    Honeywell International, Inc.                            105,138
       777    Molex, Inc.                                               22,673
     3,270    Solectron Corporation (b)                                 13,080
       603    Thermo Electron Corporation (b)                           10,239
                                                                    ----------
                                                                     1,532,311
                                                                    ----------

     Engineering/Construction (.2%)
     1,349    Caterpillar, Inc.                                         60,300
                                                                    ----------

     Machinery (.3%)
       904    Deere & Company                                           37,986
       805    Dover Corporation                                         23,627
       709    Ingersoll Rand Company                                    27,219
                                                                    ----------
                                                                        88,832
                                                                    ----------

     Manufacturing (1.4%)
     1,548    3M Company                                               194,785
       481    Avery Dennison Corporation                                29,923
     1,187    Illinois Tool Works, Inc.                                 78,330
       380    Johnson Controls, Inc.                                    30,788
       200    Millipore Corporation                                      6,620
       500    Parker Hannifin Corporation                               20,130


              See accompanying notes to investments in securities.
                                       49






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
   CAPITAL GOODS--CONTINUED
       371    Sealed Air Corporation (b)                               $ 5,383
       555    Textron, Inc.                                             21,867
     7,935    Tyco International, Ltd. (c)                             101,568
                                                                    ----------
                                                                       489,394
                                                                    ----------

     Office Equipment (.2%)
       568    Lexmark International Group, Inc. (b)                     27,764
       929    Pitney Bowes, Inc.                                        36,231
                                                                    ----------
                                                                        63,995
                                                                    ----------

     Trucks and Parts (.1%)
       175    Cummins Engine Company, Inc.                               5,652
       255    Navistar International Corporation                         6,576
       422    Paccar, Inc.                                              16,184
                                                                    ----------
                                                                        28,412
                                                                    ----------

     Waste Management (.2%)
       756    Allied Waste Industries (b)                                4,990
     2,456    Waste Management, Inc.                                    58,134
                                                                    ----------
                                                                        63,124
                                                                    ----------

   COMMUNICATION SERVICES (3.9%)
     Cellular (.2%)
    10,755    AT&T Wireless Services, Inc. (b)                          50,441
     1,107    Citizens Communications Company (b)                        6,066
     3,195    Nextel Communications, Inc. (b)                           18,307
                                                                    ----------
                                                                        74,814
                                                                    ----------

     Telecommunication (.4%)
     3,053    Qualcomm, Inc. (b)                                        83,896
     6,664    Qwest Communications International, Inc          .         8,530
     3,541    Sprint Corporation-- Fon Group                            33,108
     3,944    Sprint Corporation-- PCS Group (b)                        16,170
                                                                    ----------
                                                                       141,704
                                                                    ----------

     Telephone (3.3%)
     1,211    Alltel Corporation                                        49,070
    15,096    AT&T Corporation                                         153,677
     7,449    Bellsouth Corporation                                    200,006
       508    Centurytel, Inc.                                          13,513
    13,274    SBC Communications, Inc.                                 367,159
    10,822    Verizon Communications                                   357,126
                                                                    ----------
                                                                     1,140,551
                                                                    ----------


              See accompanying notes to investments in securities.
                                       50






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
CONSUMER CYCLICAL (10.2%)
     Auto (1.3%)
       237    Cooper Tire and Rubber Company                         $   4,742
       567    Dana Corporation                                           9,117
       614    Danaher Corporation                                       38,099
     2,190    Delphi Corporation                                        21,812
       327    Eaton Corporation                                         22,831
     7,204    Ford Motor Company                                        97,038
     2,271    General Motors Corporation                               105,715
       613    Goodyear Tire & Rubber Company                            10,691
     1,252    Harley-Davidson, Inc.                                     59,295
       375    ITT Industries, Inc.                                      23,955
       244    Snap-On, Inc.                                              6,629
       533    TRW, Inc.                                                 28,755
       497    Visteon Corporation                                        5,537
                                                                    ----------
                                                                       434,216
                                                                    ----------

     Building Materials (.2%)
       297    American Standard Companies, Inc. (b)                     21,238
       250    Centex Corporation                                        11,987
       250    Crane Company                                              5,745
       200    Kaufman and Broad Home Corporation                         9,242
     1,862    Masco Corporation                                         45,060
       284    Pulte Corporation                                         13,609
                                                                    ----------
                                                                       106,881
                                                                    ----------

     Distribution Durables (.1%)
       690    Genuine Parts Company                                     21,190
                                                                    ----------

     Hardware and Tools (.1%)
       361    Black & Decker Corporation                                16,425
       380    The Stanley Works                                         13,714
                                                                    ----------
                                                                        30,139
                                                                    ----------

     Houseware (.1%)
     3,776    Corning, Inc.                                              6,042
       778    Leggett & Platt, Inc.                                     17,497
       350    Maytag Corporation                                        11,595
       256    Whirlpool Corporation                                     14,687
                                                                    ----------
                                                                        49,821
                                                                    ----------

     Leisure (.2%)
       300    Brunswick Corporation                                      6,864
       669    Hasbro, Inc.                                               8,195
       368    International Game Technology (b)                         21,436
     1,647    Mattel, Inc.                                              30,980
                                                                    ----------
                                                                        67,475
                                                                    ----------


              See accompanying notes to investments in securities.
                                       51





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

CONSUMER CYCLICAL--CONTINUED
     Lodging-- Hotel (.1%)
     1,384    Hilton Hotels                                          $  16,912
       964    Marriott International, Inc.                              32,294
                                                                    ----------
                                                                        49,206
                                                                    ----------

     Photography/Imagery (.1%)
     1,128    Eastman Kodak Company                                     34,720
                                                                    ----------

     Publishing (.7%)
       324    Dow Jones and Company, Inc.                               13,349
     1,121    Gannett Company, Inc.                                     80,611
       355    Knight-Ridder, Inc.                                       21,495
       748    McGraw-Hill Companies, Inc.                               46,787
       228    Meredith Corporation                                       8,315
       461    RR Donnelly & Sons Company                                12,811
       661    The New York Times Company                                29,910
     1,158    Tribune Company                                           46,204
                                                                    ----------
                                                                       259,482
                                                                    ----------

     Retail (6.5%)
       193    American Greetings Corporation                             3,102
       429    Autozone, Inc. (b)                                        31,639
     1,149    Bed Bath & Beyond, Inc. (b)                               35,619
     1,256    Best Buy Company, Inc. (b)                                41,322
       405    Big Lots, Inc. (b)                                         6,723
       817    Circuit City Stores, Inc.                                 13,930
     1,834    Costco Wholesale Corporation (b)                          63,952
       278    Dillards, Inc.                                             6,533
     1,320    Dollar General Corporation                                22,651
     1,110    eBay, Inc. (b)                                            63,370
       628    Family Dollar Stores                                      19,022
       813    Federated Department Stores (b)                           30,577
     3,444    Gap, Inc.                                                 41,845
     9,359    Home Depot, Inc.                                         289,006
     1,038    JC Penney Company                                         18,269
     1,314    Kohls Corporation (b)                                     86,724
     2,039    Limited Brands, Inc.                                      36,641
     3,087    Lowes Companies, Inc.                                    116,843
     1,088    May Department Stores Company                             33,423
     1,047    Nike, Inc.                                                51,607
       498    Nordstrom, Inc.                                            9,412
     1,221    Office Depot, Inc. (b)                                    15,849
       684    Radioshack Corporation                                    17,510
       248    Reebok International, Ltd. (b)                             6,674
     1,253    Sears Roebuck Company                                     59,104
     1,774    Staples, Inc. (b)                                         29,608
     3,604    Target Corporation                                       120,193
       637    The Sherwin-Williams Company                              18,301



              See accompanying notes to investments in securities.
                                       52





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

   CONSUMER CYCLICAL--CONTINUED
       568    Tiffany & Company                                      $  13,996
     2,106    TJX Companies, Inc.                                       37,339
       768    Toys `R' Us, Inc. (b)                                     10,353
    17,677    Wal-Mart Stores, Inc. (e)                                869,355
                                                                    ----------
                                                                     2,220,492
                                                                    ----------

     Service (.7%)
       715    Apollo Group, Inc. (b)                                    28,064
     4,145    Cendant Corporation (b)                                   57,284
       669    Convergys Corporation (b)                                 10,115
       338    Fluor Corporation                                         10,850
       471    Harrahs Entertainment, Inc. (b)                           22,288
     1,519    Interpublic Group Companies, Inc.                         31,762
       794    Omnicom Group                                             42,328
       430    Quintiles Transnational Corporation (b)                    4,270
       704    Robert Half International, Inc. (b)                       14,045
       589    Sabre Holdings Corporation(b)                             15,620
       367    TMP Worldwide, Inc. (b)                                    5,666
                                                                    ----------
                                                                       242,292
                                                                    ----------

     Textiles (.1%)
       475    Jones Apparel Group, Inc. (b)                             16,164
       441    Liz Clairborne, Inc.                                      12,723
       425    VF Corporation                                            16,397
                                                                    ----------
                                                                        45,284
                                                                    ----------

   CONSUMER STAPLES (12.4%)
     Beverage (3.1%)
     3,483    Anheuser-Busch Companies, Inc.                           180,106
       300    Brown-Forman Corporation                                  20,334
     1,702    Coca-Cola Enterprises                                     31,691
       164    Coors Company                                              9,907
     1,123    Pepsi Bottling Group                                      27,761
     7,027    Pepsico, Inc.                                            301,739
     9,871    The Coca-Cola Company                                    492,958
                                                                    ----------
                                                                     1,064,496
                                                                    ----------

     Broadcasting (.5%)
     2,448    Clear Channel Communications, Inc. (b)                    63,770
     3,758    Comcast Corporation (b)                                   78,542
       846    Univision Communications, Inc. (b)                        24,187
                                                                    ----------
                                                                       166,499
                                                                    ----------


              See accompanying notes to investments in securities.
                                       53






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

CONSUMER STAPLES--CONTINUED
     Entertainment (1.4%)
     2,300    Carnival Corporation                                   $  60,950
     8,109    The Walt Disney Company                                  143,773
     7,025    Viacom, Inc. (b)                                         273,413
                                                                    ----------
                                                                       478,136
                                                                    ----------

     Food (1.2%)
     1,654    Campbell Soup Company                                     38,538
     2,093    Conagra, Inc.                                             52,555
     1,438    General Mills, Inc.                                       59,605
     1,378    H.J. Heinz Company                                        52,984
       595    Hershey Foods Corporation                                 46,684
     1,641    Kellogg Company                                           56,516
     3,117    Sara Lee Corporation                                      58,413
       930    William Wrigley Jr. Company                               47,570
                                                                    ----------
                                                                       412,865
                                                                    ----------

     Food & Health (.2%)
     2,636    Sysco Corporation                                         68,668
                                                                    ----------

     Household Products (2.3%)
       931    Clorox Company                                            35,844
     2,155    Colgate-Palmolive Company                                110,659
     4,200    Gillette Compay                                          138,096
     1,026    Newell Rubbermaid, Inc.                                   30,862
       597    Pactiv Corporation (b)                                    10,847
     5,165    Procter & Gamble Company                                 459,633
       170    Tupperware Corporation                                     2,950
                                                                    ----------
                                                                       788,891
                                                                    ----------

     Personal Care (.2%)
       249    Alberto-Culver Company                                    11,830
       975    Avon Products, Inc.                                       45,104
                                                                    ----------
                                                                        56,934
                                                                    ----------

     Restaurants (.6%)
       703    Darden Restaurants, Inc.                                  16,324
     5,055    McDonalds Corporation                                    125,111
     1,534    Starbucks Corporation (b)                                 30,112
       431    Wendys International, Inc.                                15,856
     1,152    Yum! Brands, Inc.                                         35,597
                                                                    ----------
                                                                       223,000
                                                                    ----------

     Retail (1.1%)
     1,639    Albertsons, Inc.                                          46,187
     1,575    CVS Corporation                                           45,045
     3,155    Kroger Company (b)                                        61,459



              See accompanying notes to investments in securities.
                                       54





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
CONSUMER STAPLES--CONTINUED
     1,921    Safeway, Inc. (b)                                      $  53,442
       520    Supervalu, Inc.                                           10,837
     4,067    Walgreen Company                                         143,687
       549    Winn-Dixie Stores, Inc.                                    8,647
                                                                    ----------
                                                                       369,304
                                                                    ----------

     Service (.5%)
     2,465    Automatic Data Processing, Inc.                           91,920
       705    Cintas Corporation                                        30,942
     2,052    Concord EFS, Inc. (b)                                     40,014
       206    Deluxe Corporation                                         8,011
                                                                    ----------
                                                                       170,887
                                                                    ----------

     Tobacco (1.3%)
       629    Fortune Brands, Inc.                                      32,897
     8,503    Philip Morris Companies, Inc.                            391,563
       705    UST, Inc.                                                 20,748
                                                                    ----------
                                                                       445,208
                                                                    ----------

   ENERGY (5.9%)
     Oil (4.6%)
       403    Amerada Hess                                              27,565
     4,243    Chevron Corporation                                      318,225
     2,466    Conoco, Inc.                                              59,480
       655    Devon Energy Corporation                                  27,300
    26,953    Exxon Mobil Corporation                                  990,792
     1,231    Marathon Oil Corporation                                  29,839
     1,502    Occidental Petroleum Corporation                          40,689
     1,510    Phillips Petroleum Company                                78,143
                                                                    ----------
                                                                     1,572,033
                                                                    ----------

     Oil & Gas (1.3%)
       966    Anadarko Petroleum Corporation                            42,021
       557    Apache Finance Property                                   28,686
       315    Ashland, Inc.                                             11,236
     1,318    Baker Hughes, Inc.                                        35,322
       648    BJ Services Company (b)                                   20,665
       791    Burlington Resources, Inc.                                28,911
       465    EOG Resources, Inc.                                       15,945
     1,637    Halliburton Company                                       21,608
       425    Kerr-McGee Corporation                                    19,877
       185    McDermott International, Inc. (b)                            868
       578    Nabors Industries, Ltd. (b)                               17,641
       572    Noble Corporation (b)                                     18,533
       320    Rowan Companies, Inc. (b)                                  6,262
     2,256    Schlumberger, Ltd.                                        96,828
       300    Sunoco, Inc.                                              10,662


              See accompanying notes to investments in securities.
                                       55






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
ENERGY--CONTINUED
     1,271    Transocean Sedco Forex, Inc.                           $  32,411
       938    Unocal Corporation                                        30,635
     1,618    Veritas DGC, Inc. (b)                                     27,231
                                                                    ----------
                                                                       465,342
                                                                    ----------

   FINANCIAL (20.5%)
     Auto Finance (.3%)
     4,161    Fleet Boston Financial Corporation                        96,535
                                                                    ----------

     Banks (7.0%)
     1,363    AmSouth Bancorporation                                    30,422
     6,117    Bank of America Corporation                              406,812
     4,665    Bank One Corporation                                     181,515
     1,913    BB&T Corporation                                          70,819
       759    Comerica Bank                                             44,143
     2,340    Fifth Third BanCorporation                               154,604
       524    First Tennessee National Corporation                      19,613
       885    Huntington Bancshares, Inc.                               17,470
     7,912    JP Morgan Chase and Company                              197,484
     1,713    KeyCorporation                                            44,983
       790    Marshal & Ilsley Corporation                              23,771
     1,730    Mellon Financial Corporation                              45,983
     2,383    National City BanCorporation                              73,635
       856    Northern Trust Corporation                                34,094
       860    Regions Financial Corporation                             30,298
     1,371    SouthTrust Corporation                                    34,604
     1,274    State Street Corporation                                  54,145
     1,120    Suntrust Banks, Inc.                                      73,696
     1,154    Synovus Financial Corporation                             27,696
     2,893    The Bank of New York Company, Inc.                        92,634
     7,597    U.S. Bancorp                                             162,500
       805    Union Planters Corporation                                24,665
     5,439    Wachovia Corporation                                     194,716
     6,799    Wells Fargo & Company                                    345,797
       397    Zion BanCorporation                                       20,052
                                                                    ----------
                                                                     2,406,151
                                                                    ----------

     Commercial Finance (.1%)
       650    North Fork BanCorporation                                 26,397
                                                                    ----------

     Consumer Finance (1.3%)
     5,285    American Express Company                                 186,349
       877    Capital One Financial Corporation                         27,801
     1,814    Household International, Inc.                             77,404
     5,077    MBNA Corporation                                          98,443
       632    SLM Corporation                                           57,512
                                                                    ----------
                                                                       447,509
                                                                    ----------


              See accompanying notes to investments in securities.
                                       56






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

FINANCIAL --CONTINUED
     Public Finance (.2%)
       510    Countrywide Credit Industries, Inc.                    $  25,913
     1,117    PNC Financial Services Group                              47,082
                                                                    ----------
                                                                        72,995
                                                                    ----------

     Finance--Diversified (1.8%)
       471    Ambac Financial Group, Inc.                               29,687
     3,963    Fannie Mae                                               296,789
     2,760    Freddie Mac                                              170,982
     1,112    John Hancock Financial Services, Inc.                     36,807
       470    MGIC Investment Corporation                               29,610
       624    Moodys Corporation                                        30,950
     1,123    Providian Financial Corporation                            5,637
       859    Stilwell Financial, Inc.                                  11,639
                                                                    ----------
                                                                       612,101
                                                                    ----------

     Insurance (5.0%)
       995    ACE, Ltd. (c)                                             31,512
       615    Aetna, Inc.                                               26,863
     2,029    Aflac, Inc.                                               63,731
     2,819    Allstate Corporation                                     107,150
    10,384    American International Group                             663,745
     1,037    AON Corporation                                           24,629
       687    Chubb Corporation                                         44,579
       543    Cigna Corporation                                         48,870
       629    Cincinnati Financial Corporation                          25,217
     1,035    Hartford Financial Services Group, Inc.                   52,371
       597    Jefferson-Pilot Corporation                               25,940
       768    Lincoln National Corporation                              28,178
       722    Loews Corporation                                         34,252
     2,330    Marsh and McLennan Companies, Inc.                       111,607
       644    MBIA, Inc.                                                31,936
     2,803    MetLife, Inc.                                             79,017
       874    Progressive Corporation                                   44,705
     2,330    Prudential Insurance Company of America                   76,867
       452    Safeco Corporation                                        14,346
     1,425    The Principal Financial Group (b)                         40,912
       789    The St. Paul Companies, Inc.                              24,625
       484    Torchmark Corporation                                     17,540
       947    Unumprovident Corporation                                 19,376
       610    Wellpoint Health Networks, Inc. (b)                       43,615
       540    XL Capital, Ltd. (c)                                      40,014
                                                                    ----------
                                                                     1,721,597
                                                                    ----------

     Investment Bankers/Brokers (3.9%)
       404    Bear Stearns & Company, Inc.                              24,329
       724    Block Financial Corporation                               34,955



              See accompanying notes to investments in securities.
                                       57






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
FINANCIAL--CONTINUED
     5,449    Charles Schwab Corporation                             $  48,769
    20,455    CitiGroup, Inc.                                          686,061
     1,046    Franklin Resources, Inc.                                  35,909
     1,880    Goldman Sachs Group, Inc.                                137,522
       939    Lehman Brothers Holdings, Inc.                            53,251
     3,383    Merrill Lynch & Company, Inc.                            120,604
     4,378    Morgan Stanley                                           176,652
       521    T. Rowe Price Associates, Inc.                            14,083
                                                                    ----------
                                                                     1,332,135
                                                                    ----------

     Real Estate Investment Trust (.3%)
     1,674    Equity Office Properties Trust                            44,160
     1,068    Equity Residential                                        28,569
       735    Simon Property Group, Inc.                                26,453
       772    Starwood Hotels & Resorts Worldwide, Inc.                 19,840
                                                                    ----------
                                                                       119,022
                                                                    ----------

     Savings and Loans (.6%)
       882    Charter One Financial, Inc.                               29,917
       598    Golden West Financial Corporation                         39,319
     3,872    Washington Mutual, Inc.                                  144,852
                                                                    ----------
                                                                       214,088
                                                                    ----------

   HEALTH CARE (13.1%)
     Biotechnology (.8%)
     5,063    Amgen, Inc. (b)                                          231,075
       548    Biogen, Inc. (b)                                          19,712
       799    Genzyme Corporation (b)                                   18,201
                                                                    ----------
                                                                       268,988
                                                                    ----------

     Drugs (6.7%)
     7,703    Bristol-Myers Squibb Company                             180,481
     1,795    Cardinal Health, Inc.                                    103,392
       712    Chiron Corporation (b)                                    24,023
     4,468    Eli Lilly & Company                                      261,021
       760    Forest Laboratories, Inc. (b)                             58,877
       970    King Pharmaceuticals, Inc. (b)                            20,574
       944    Medimmune, Inc. (b)                                       28,075
     9,002    Merck & Company, Inc.                                    446,499
    24,818    Pfizer, Inc.                                             802,862
     5,826    Schering-Plough Corporation                              148,563


              See accompanying notes to investments in securities.
                                       58





                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 

HEALTH CARE--CONTINUED
       425    Watson Pharmaceuticals, Inc. (b)                        $  8,955
     5,271    Wyeth                                                    210,313
                                                                    ----------
                                                                     2,293,635
                                                                    ----------

     Health Care-- Diversified (3.0%)
     6,202    Abbott Laboratories                                      256,825
       484    Allergan, Inc.                                            29,277
     1,481    Healthsouth Corporation (b)                               15,180
    11,967    Johnson & Johnson                                        634,251
     1,911    Tenet Healthcare Corporation (b)                          91,059
                                                                    ----------
                                                                     1,026,592
                                                                    ----------

     Hospital Management (.3%)
     2,020    HCA, Inc.                                                 94,940
       865    Health Management Associates, Inc. (b)                    17,499
                                                                    ----------
                                                                       112,439
                                                                    ----------

     Managed Care (.6%)
       648    Humana, Inc. (b)                                           7,977
       357    Manor Care, Inc. (b)                                       7,850
     1,169    McKesson HBOC, Inc.                                       38,483
       532    Trigon Healthcare, Inc. (b)                               54,110
     1,224    Unitedhealth Group, Inc.                                 107,296
                                                                    ----------
                                                                       215,716
                                                                    ----------

     Medical Products/Supplies (1.7%)
       442    AmerisourceBergen Corporation                             29,610
       237    Bausch & Lomb, Inc.                                        7,840
     2,418    Baxter International, Inc.                                96,502
       994    Becton Dickinson and Company                              28,886
       063    Biomet, Inc.                                              27,564
     1,628    Boston Scientific Corporation (b)                         48,824
       227    C.R. Bard, Inc.                                           12,274
     1,187    Guidant Corporation (b)                                   41,308
     4,825    Medtronic, Inc.                                          194,930
       451    Pall Corporation                                           7,929
       748    St. Jude Medical, Inc. (b)                                28,424
       752    Stryker Corporation (b)                                   38,066
       718    Zimmer Holdings, Inc. (b)                                 26,731
                                                                    ----------
                                                                       588,888
                                                                    ----------

   TECHNOLOGY (14.2%)
     Communications Equipment (.5%)
     3,156    ADC Telecommunications, Inc. (b)                           5,681
       303    Andrew Corporation (b)                                     3,409
     1,391    Avaya, Inc. (b)                                            2,073


              See accompanying notes to investments in securities.
                                       59






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
TECHNOLOGY--CONTINUED
     1,723    Ciena Corporation (b)                                   $  6,944
       708    Comverse Technology, Inc. (b)                              5,636
    13,617    Lucent Technologies, Inc.                                 23,830
     9,024    Motorola, Inc.                                           104,678
       600    Scientific-Atlanta, Inc.                                   7,590
     1,556    Tellabs, Inc. (b)                                          8,916
                                                                    ----------
                                                                       168,757
                                                                    ----------

     Computer Hardware (3.1%)
     1,406    Apple Computer, Inc. (b)                                  21,456
     2,257    Computer Associates International, Inc.                   21,080
    10,315    Dell Computer Corporation (b)                            257,153
     1,192    Gateway, Inc. (b)                                          4,053
    11,998    Hewlett-Packard Company                                  169,772
     6,804    International Business Machines Corporation              479,002
       410    NCR Coporation (b)                                        10,787
       511    Nvidia Corporation (b)                                     5,657
     2,223    Palm, Inc. (b)                                             2,423
    12,901    Sun Microsystems, Inc. (b)                                50,572
       889    Symbol Technologies, Inc.                                  8,125
     2,861    Xerox Corporation (b)                                     19,884
                                                                    ----------
                                                                     1,049,964
                                                                    ----------

     Computer Networking (1.2%)
    29,096    Cisco Systems, Inc. (b)                                  383,776
     2,305    Yahoo!, Inc. (b)                                          30,357
                                                                    ----------
                                                                       414,133
                                                                    ----------

     Computer Peripherals (.3%)
     8,836    EMC Corporation (b)                                       66,270
     1,323    Network Appliance, Inc. (b)                               11,193
       402    Qlogic Corporation (b)                                    16,382
                                                                    ----------
                                                                        93,845
                                                                    ----------

     Computer Services & Software (4.9%)
       941    Adobe Systems, Inc.                                       22,546
    17,695    AOL Time Warner, Inc. (b)                                203,493
       408    Autodesk, Inc.                                             5,259
       956    BMC Software, Inc. (b)                                    12,858
       629    Citrix Systems, Inc. (b)                                   3,466
       731    Computer Sciences Corporation (b)                         27,047
     1,395    Compuware Corporation (b)                                  5,175
       549    Electronic Arts, Inc. (b)                                 33,039
     1,072    IMS Health, Inc.                                          16,959
       349    Mercury Interactive Corporation (b)                        8,941
    21,522    Microsoft Corporation (b)(e)                           1,031,980
     1,354    Novell, Inc. (b)                                           3,019


              See accompanying notes to investments in securities.
                                       60






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
TECHNOLOGY--CONTINUED
    21,823    Oracle Systems (b)                                    $  218,426
     1,033    Parametric Technology Corporation (b)                      3,223
     1,179    Peoplesoft, Inc. (b)                                      21,198
       745    Rational Software Corporation (b)                          5,006
     1,877    Siebel Systems, Inc. (b)                                  17,644
     1,122    Sungard Data Systems, Inc. (b)                            26,311
     1,272    Unisys Corporation (b)                                     9,565
                                                                    ----------
                                                                     1,675,155
                                                                    ----------

     Electrical Instruments (.2%)
     1,770    Agilent Technologies, Inc. (b)                            33,418
       836    Applied Biosystems Group - Applera
              Corporation                                               15,600
     5,411    JDS Uniphase Corporation (b)                              13,690
       470    Perkin Elmer, Inc.                                         3,581
       350    Tektronix, Inc. (b)                                        6,524
       453    Waters Corporation (b)                                    10,288
                                                                    ----------
                                                                        83,101
                                                                    ----------

     Electrical Semiconductor (2.9%)
     1,259    Advanced Micro Devices (b)                                10,110
     1,451    Altera Corporation (b)                                    17,165
     1,427    Analog Devices, Inc. (b)                                  34,391
      ,509    Applied Materials, Inc. (b)                               96,789
     1,184    Applied Micro Circuits Corporation (b)                     5,458
     1,059    Broadcom Corporation (b)                                  19,867
    26,571    Intel Corporation                                        499,269
     1,237    Linear Technology Corporation                             33,498
     1,374    LSI Logic Corporation (b)                                 10,717
     2,355    Micron Technology, Inc. (b)                               45,899
       693    National Semiconductor Corporation (b)                    12,550
       605    Novellus Systems, Inc. (b)                                16,329
       622    PMC-Sierra, Inc. (b)                                       5,940
       295    Power-One, Inc. (b)                                        1,345
     6,892    Texas Instruments, Inc.                                  159,550
       704    Vitesse Semiconductor Corporation (b)                      1,704
     1,310    Xilinx, Inc. (b)                                          25,139
                                                                    ----------
                                                                       995,720
                                                                    ----------

     Electronics-- Computer Distribution (.2%)
     1,272    Maxim Integrated Products (b)                             44,749
     2,024    Sanmina Corporation (b)                                    8,238
       170    Thomas and Betts Corporation                               2,502
       419    W.W. Grainger, Inc.                                       20,548
                                                                    ----------
                                                                        76,037
                                                                    ----------


              See accompanying notes to investments in securities.
                                       61






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                 
TECHNOLOGY--CONTINUED
     Equipment Semiconductor (.1%)
       757    Jabil Circuit, Inc. (b)                                $  13,467
       710    KLA-Tencor Corporation (b)                                27,967
       663    Teradyne, Inc. (b)                                         9,945
                                                                    ----------
                                                                        51,379
                                                                    ----------

     Service-- Data Processing (.8%)
     1,902    Electronic Data Systems Corporation                       69,937
       511    Equifax, Inc.                                             10,833
     3,039    First Data Corporation                                   106,213
       797    Fiserv, Inc. (b)                                          27,425
       895    Intuit, Inc. (b)                                          39,362
     1,480    Paychex, Inc.                                             38,939
                                                                    ----------
                                                                       292,709
                                                                    ----------

   TRANSPORTATION (1.7%)
     Air Freight (1.0%)
     1,159    FedEx Corporation (b)                                     59,051
     4,440    United Parcel Service, Inc.                              290,110
                                                                    ----------
                                                                       349,161
                                                                    ----------

     Airlines (.2%)
       577    AMR Corporation (b)                                        6,451
       474    Delta Air Lines, Inc.                                      7,385
     3,056    Southwest Airlines Company                                42,203
                                                                    ----------
                                                                        56,039
                                                                    ----------

     Railroads (.5%)
     1,457    Burlington Northern Santa Fe Corporation                  42,865
       877    CSX Corporation                                           30,318
     1,452    Norfolk Southern Railway Company                          29,403
     1,056    Union Pacific Corporation                                 61,956
                                                                    ----------
                                                                       164,542
                                                                    ----------

     Trucking (--)
       256    Ryder System, Inc.                                         6,700
                                                                    ----------

   UTILITIES (2.8%)
     Electric Companies (2.4%)
     2,075    AES Corporation (b)                                        4,254
       528    Allegheny Energy, Inc.                                    11,114
       593    Ameren Corporation                                        25,914
     1,361    American Electric Power Company, Inc.                     44,791
       688    Cinergy Corporation                                       23,323
       484    CMS Energy Corporation                                     3,930



              See accompanying notes to investments in securities.
                                       62






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                                
UTILITIES--CONTINUED
       882    Consolidated Edison Company of New York, Inc.          $  37,794
       594    Constellation Energy Group                                16,555
     1,141    Dominion Resources, Inc.                                  67,821
       668    DTE Energy Company                                        27,361
     3,298    Duke Energy Corporation                                   84,066
     1,200    Edison International (b)                                  15,720
       896    Entergy Corporation                                       36,315
     1,255    Exelon Corporation                                        61,558
     1,204    Firstenergy Corporation                                   37,023
       672    FPL Group, Inc.                                           38,069
       803    Nisource, Inc.                                            15,899
     1,460    Pacific Gas and Electric Company (b)                      20,294
       375    Pinnacle West Capital Corporation                         12,750
       526    PPL Corporation                                           17,384
       924    Progress Energy, Inc.                                     43,197
       771    Public Service Enterprise Group, Inc.                     26,638
     1,183    Reliant Energy, Inc.                                      11,901
     2,760    Southern Company                                          79,433
       534    Teco Energy, Inc.                                         12,335
     1,019    TXU Electric & Gas                                        43,949
                                                                    ----------
                                                                       819,388
                                                                    ----------

     Natural Gas (.3%)
     1,406    Dynegy, Inc.                                               3,374
     2,266    El Paso Energy Corporation                                32,744
       587    Keyspan Corporation                                       20,486
       512    Kinder Morgan Energy Partners                             21,304
       209    Nicor, Inc.                                                5,643
       158    Peoples Energy Corporation                                 5,547
        12    Sempra Energy                                             17,214
     2,001    Williams Companies, Inc.                                   5,903
                                                                    ----------
                                                                       112,215
                                                                    ----------

     Power Products-- Industrial (.1%)
     1,434    Calpine Corporation (b)                                    7,127
     1,516    Mirant Corporation (b)                                     5,458
     1,531    Xcel Energy, Inc.                                         10,656
                                                                    ----------
                                                                        23,241
                                                                    ----------
Total common stock (cost: $34,138,210)                              33,438,627
                                                                    ----------


              See accompanying notes to investments in securities.
                                       63






                                                                          MARKET
SHARES                                                                 VALUE(a)
- ------                                                                 --------
                                                               

SHORT-TERM SECURITIES (2.3%)
   723,619    Dreyfus Funds-- Cash Management Plus Fund,
              current rate 1.820%                                 $    723,619
    52,407    Federated Money Market Obligations Trust-- Prime
              Obligation Fund, current rate 1.760%                      52,407
    16,019    Wells Fargo & Company-- Cash Investment Fund I,
              current rate 1.717%                                       16,019
                                                                    ----------
              Total short-term securities
              (cost: $792,045)                                         792,045
                                                                    ----------
              Total investments in securities
              (cost: $34,930,255) (d)                              $34,230,672
                                                                    ==========



Notes to Investments in Securities

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held .5% of net assets in foreign securities as of July 31, 2002.
(d)  At July 31, 2002, the cost of securities for federal income tax purposes
     was $35,632,872. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:




                                                                
     Gross unrealized appreciation                                 $ 6,097,748
     Gross unrealized depreciation                                  (7,499,948)
                                                                    ----------
     Net unrealized depreciation                                   $(1,402,200)
                                                                    ==========


(e)  Partially pledged as initial margin deposit on open stock index futures
     purchase contracts (see note 8 to the financial statements).

              See accompanying notes to investments in securities.
                                       64


                                            ADVANTUS REAL ESTATE SECURITIES FUND
                                                       INVESTMENTS IN SECURITIES

                                                                   JULY 31, 2002

           (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)



                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
COMMON STOCK (96.5%)
   CONSUMER CYCLICAL (5.1%)
    Building Materials (1.7%)
     3,500   Centex Corporation                                       $  167,825
     3,600   Kaufman and Broad Home Corporation                          166,356
     2,300   Pulte Corporation                                           110,216
     4,900   Standard Pacific Corporation                                128,625
                                                                      ----------
                                                                         573,022
                                                                      ----------
    Lodging -- Hotel (3.4%)
    26,600   Extended Stay America, Inc. (b)                             372,400
    56,800   Hilton Hotels                                               694,096
     7,600   Prime Hospitality Corporation (b)                            74,860
                                                                      ----------
                                                                       1,141,356
                                                                      ----------
   FINANCIAL (91.4%)
    Insurance (.6%)
     3,100   Expeditor Washington International, Inc.                    193,316
                                                                      ----------
    Real Estate (8.0%)
    77,840   Boardwalk Equities, Inc. (c)                                720,798
    41,100   Brookfield Properties Corporation (c)                       819,945
    22,600   Catellus Development Corporation (b)                        438,440
     8,600   Forest City Enterprises (b)                                 295,840
    14,600   St. Joe Company                                             416,100
                                                                      ----------
                                                                       2,691,123
                                                                      ----------
    Real Estate Investment Trust -- Apartments (12.4%)
    14,100   AMLI Residential Properties                                 321,480
    22,920   Apartment Investment & Management
             Company                                                   1,030,483
    17,500   Archstone Communities Trust                                 444,500
    10,800   Avalonbay Communities, Inc.                                 485,460
    17,800   Camden Property Trust                                       658,600
    30,500   Equity Residential                                          815,875
     7,600   Essex Property Trust, Inc.                                  387,600
                                                                      ----------
                                                                       4,143,998
                                                                      ----------
    Real Estate Investment Trust -- Diversified (11.3%)
    12,100   American Mortgage Acceptance Corporation                    154,275
     9,800   Capital Automotive REIT                                     221,088
    10,600   Duke Realty Corporation                                     272,950
    14,700   Entertainment Properties Trust                              339,570
    12,300   Istar Financial, Inc.                                       363,465
    30,200   Keystone Property Trust                                     468,100
     8,000   Liberty Property Trust                                      257,200
    23,800   Vornado Realty Trust                                      1,036,490


              See accompanying notes to investments in securities.


                                       65




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
FINANCIAL -- CONTINUED
    75,100    Winston Hotels, Inc.                                    $  651,868
                                                                      ----------
                                                                       3,765,006
                                                                      ----------
    Real Estate Investment Trust -- Hotels (7.2%)
    24,300    Felcor Suite Hotels, Inc.                                  365,715
    59,900    Host Marriott Corporation                                  673,875
    10,100    Innkeepers USA Trust                                        86,079
    18,700    Meristar Hospitality Corporation                           257,125
    40,200    Starwood Hotels & Resorts Worldwide, Inc.                1,033,140
                                                                      ----------
                                                                       2,415,934
                                                                      ----------
    Real Estate Investment Trust -- Office Property (15.8%)
    19,900    Boston Properties, Inc.                                    742,270
    17,900    Brandywine Realty Trust                                    411,700
    31,700    Carramerica Realty Corporation                             871,750
    52,100    Equity Office Properties Trust                           1,374,398
    17,400    Great Lakes REIT, Inc.                                     294,930
    11,900    Highwoods Properties, Inc.                                 317,135
    11,000    Prentiss Properties Trust                                  312,180
    11,100    Reckson Associates Realty Corporation                      253,746
     4,126    Reckson Associates Realty Corporation B                    100,221
     4,200    SL Green Realty Corporation                                135,450
    32,600    Trizec Properties, Inc.                                    454,770
                                                                      ----------
                                                                       5,268,550
                                                                      ----------
    Real Estate Investment Trust -- Shopping Centers (24.0%)
    15,300    CBL & Associates Properties, Inc.                          561,663
    14,600    Chelsea Property Group, Inc.                               493,772
    32,100    Developers Diversified Realty Corporation                  738,300
    34,400    Equity One, Inc.                                           452,016
    14,000    General Growth Properties, Inc.                            678,720
    14,500    Glimcher Realty Trust                                      275,210
    26,350    Kimco Realty Corporation                                   846,889
     2,900    Lennar Corporation                                         147,175
    22,000    Mid-Atlantic Realty Trust                                  351,560
    16,800    Mills Corporation                                          495,600
    10,800    Pan Pacific Retail Properties, Inc.                        373,140
    26,200    Ramco Gershenson                                           534,480
    28,900    Simon Property Group, Inc.                               1,040,111
    25,400    The Rouse Company                                          800,100
    19,700    Urstadt Biddle Properties                                  236,400
                                                                      ----------
                                                                       8,025,136
                                                                      ----------
    Real Estate Investment Trust -- Warehouse/Industrial (12.1%)
    13,800    First Industrial Realty Trust                              446,430
    26,900    P.S. Business Parks, Inc.                                  946,880



              See accompanying notes to investments in securities.


                                       66




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                               -----------
                                                               
   FINANCIAL -- CONTINUED
    80,962    Prologis                                               $ 2,064,531
    15,100    Public Storage, Inc.                                       570,025
                                                                     -----------
                                                                       4,027,866
                                                                     -----------
Total common stock (cost: $29,952,748)                                32,245,307
                                                                     -----------
SHORT-TERM SECURITIES (3.1%)
     1,457    Blackrock Provident Institutional TempFund,
              current rate 1.746%                                    $     1,457
    84,709    Federated Prime Obligation Fund, current
              rate 1.760%                                                 84,709
   947,984    Wells Fargo & Company-- Cash Investment
              Fund I, current rate 1.717%                                947,984
                                                                     -----------
              Total short-term securities
              (cost: $1,034,150)                                       1,034,150
                                                                     -----------
              Total investments in securities
              (cost: $30,986,898) (d)                                $33,279,457
                                                                     ===========



NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.

(b)  Presently non-income producing.

(c)  The Fund held 4.6% of net assets in foreign securities as of July 31, 2002.

(d)  At July 31, 2002 the cost of securities for federal income tax purposes was
     $31,643,891. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                             
     Gross unrealized appreciation                                   $ 2,480,777
     Gross unrealized depreciation                                     (845,211)
                                                                     -----------
     Net unrealized appreciation                                     $ 1,635,566
                                                                     ===========

     


                 See accompanying notes to financial statements.


                                       67


ADVANTUS VENTURE FUND

INVESTMENTS IN SECURITIES

JULY 31, 2002

      (PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS.)



                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
COMMON STOCK (97.7%)
   BASIC MATERIALS (16.8%)
    Agriculture Products (1.2%)
    11,100    Bunge, Ltd.                                             $  226,995
    23,100    Cadiz, Inc. (b)                                             98,175
    10,600    Corn Products International, Inc.                          290,970
     7,100    NCO Group, Inc. (b)                                        105,350
                                                                      ----------
                                                                         721,490
                                                                      ----------
    Chemicals (6.9%)
   108,900    Agrium, Inc. (c)                                           936,540
    44,155    American Pacific Corporation (b)                           397,395
     6,000    Cabot Microcelectronics Corporation (b)                    254,040
     3,500    Cambrex Corporation                                        134,050
     6,900    IMC Global, Inc.                                            74,865
   113,800    Methanex Corporation (c)                                   910,400
     7,800    Minerals Technologies, Inc.                                291,330
    18,400    PolyOne Corporation                                        182,712
    30,632    Stepan Company                                             879,139
                                                                      ----------
                                                                       4,060,471
                                                                      ----------
    Construction (1.2%)
    17,800    Martin Marietta Materials, Inc.                            682,274
                                                                      ----------
    Iron and Steel (2.9%)
    23,000    Ak Steel Corporation (b)                                   215,740
    20,700    Allegheny Technologies, Inc.                               198,099
    15,064    Belden, Inc.                                               246,296
     7,000    Cleveland-Cliffs, Inc.                                     170,800
     6,100    GrafTech International, Ltd. (b)                            48,495
    25,100    NS Group, Inc. (b)                                         181,975
    17,600    United States Steel Corporation                            293,040
    15,500    Valmont Industries, Inc.                                   337,125
                                                                      ----------
                                                                       1,691,570
                                                                      ----------
    Mining (3.2%)
    35,000    Phelps Dodge Corporation                                 1,196,300
    56,700    Stillwater Mining Company (b)                              538,650
    48,600    Titanium Metals Corporation (b)                            185,652
                                                                      ----------
                                                                       1,920,602
                                                                      ----------
    Paper and Forest (1.4%)
    40,600    Graphic Packaging International
              Corporation (b)                                            328,860
    25,200    Packaging Corporation of America (b)                       478,800
                                                                      ----------
                                                                         807,660
                                                                      ----------


              See accompanying notes to investments in securities.


                                       68





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   CAPITAL GOODS (16.4%)
    Aerospace/Defense (3.5%)
    56,100    AAR Corporation                                         $  490,314
    57,500    BE Aerospace, Inc. (b)                                     603,750
       995    Curtiss Wright Corporation                                  66,466
    26,200    Orbital Science (b)                                        101,918
     4,700    Precision Castparts Corporation                            123,140
    14,500    Teledyne Technologies, Inc. (b)                            225,475
    11,100    Triumph Group, Inc. (b)                                    439,005
     1,800    United Dominion Industries, Ltd. (b)                        39,186
                                                                      ----------
                                                                       2,089,254
                                                                      ----------
    Electrical Equipment (1.5%)
    40,500    Technitrol, Inc.                                           759,375
    12,000    Trimble Navigation, Ltd. (b)                               157,080
                                                                      ----------
                                                                         916,455
                                                                      ----------
    Engineering/Construction (.8%)
    12,900    Dycom Industries, Inc. (b)                                 124,485
    17,100    Elcor Corporation                                          354,825
                                                                      ----------
                                                                         479,310
                                                                      ----------
    Machinery (6.0%)
     6,800    Agco Corporation (b)                                       121,924
    24,000    Asyst Technologies, Inc. (b)                               286,800
    24,831    CTB International Corporation (b)                          366,257
    24,600    Denison International PLC (b)(c)                           393,600
    19,500    Hanover Compressor Company (b)                             171,795
    54,600    JLG Industries, Inc.                                       491,400
    20,800    Kadant, Inc. (b)                                           296,400
    20,100    Kulicke and Soffa Industries, Inc. (b)                     132,258
     6,500    Lindsay Manufacturing Company                              140,400
    89,700    Wabtec Corporation                                       1,122,147
                                                                      ----------
                                                                       3,522,981
                                                                      ----------
    Manufacturing (1.8%)
     4,600    Flowserve Corporation (b)                                   79,350
     4,100    GSI Group, Inc. (b)(c)                                      27,552
    10,200    Maverick Tube Corporation (b)                              106,284
    16,900    Steelcase, Inc.                                            227,981
     8,200    Stewart & Stevenson Services, Inc.                         115,866
       300    Tredegar Corporation                                         5,250
    28,300    Trinity Industries, Inc.                                   513,079
                                                                      ----------
                                                                       1,075,362
                                                                      ----------
    Metal Fabrication (1.3%)
    43,300    ABC-NACO, Inc. (b)                                              43
    48,201    Ladish Company, Inc. (b)                                   442,485


              See accompanying notes to investments in securities.


                                       69





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   CAPITAL GOODS -- CONTINUED
    23,904    Penn Engineering & Manufacturing Corporation            $  319,118
                                                                      ----------
                                                                         761,646
                                                                      ----------
    Trucks and Parts (1.5%)
    34,900    Navistar International Corporation                         900,071
                                                                      ----------
   COMMUNICATION SERVICES (--)
    Telecommunication (--)
     6,360    Channel Commercial Corporation (b)                          27,030
                                                                      ----------
   CONSUMER CYCLICAL (17.9%)
    Auto (4.0%)
    37,900    American Axle & Manufacturing Holdings (b)                 966,450
     6,100    Borg-Warner Automotive, Inc.                               327,448
     5,100    Cooper Tire and Rubber Company                             102,051
     6,100    Dura Automotive Systems, Inc. (b)                           84,973
    15,200    Lear Corporation (b)                                       655,120
    59,293    Titan International, Inc. (b)                              203,968
                                                                      ----------
                                                                       2,340,010
                                                                      ----------
    Building Materials (.6%)
     7,495    Nortek, Inc. (b)                                           329,480
                                                                      ----------
    Leisure (3.9%)
    21,900    International Game Technology (b)                        1,275,675
    27,100    Six Flags, Inc. (b)                                        407,042
    33,220    Steinway Musical Instruments, Inc. (b)                     651,112
                                                                      ----------
                                                                       2,333,829
                                                                      ----------
    Lodging -- Hotel (.5%)
    22,800    Station Casinos, Inc. (b)                                  300,960
                                                                      ----------
    Publishing (3.8%)
    16,700    Belo Corporation                                           364,895
    53,200    Hollinger International, Inc.                              532,000
    18,000    Journal Register Company (b)                               327,960
    61,700    Readers Digest Association                               1,030,390
                                                                      ----------
                                                                       2,255,245
                                                                      ----------
    Retail (.6%)
     5,675    Big Lots, Inc.                                              94,205
     2,294    OshKosh B'Gosh, Inc.                                        69,049
     9,540    Whitehall Jewellers, Inc. (b)                              104,177
     7,700    Wilsons The Leather Experts, Inc. (b)                       67,544
                                                                      ----------
                                                                         334,975
                                                                      ----------
    Service (4.5%)
    26,800    Argosy Gaming Company (b)                                  660,620
     9,500    Harrah's Entertainment, Inc. (b)                           449,540



              See accompanying notes to investments in securities.


                                       70




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   CONSUMER CYCLICAL -- CONTINUED
    44,400    Integrated Electrical Services, Inc. (b)                $  237,540
    46,000    Mandalay Resort Group (b)                                1,304,560
                                                                      ----------
                                                                       2,652,260
                                                                      ----------
   CONSUMER STAPLES (3.2%)
    Broadcasting (.7%)
     4,700    Cox Enterprises (b)                                        109,275
    21,100    Interep National Radio Sales, Inc. (b)                      74,694
     6,800    Westwood One, Inc. (b)                                     215,900
                                                                      ----------
                                                                         399,869
                                                                      ----------
    Personal Care (.7%)
    18,500    Bally Total Fitness (b)                                    273,245
    11,800    Steiner Leisure, Ltd. (b)                                  128,620
                                                                      ----------
                                                                         401,865
                                                                      ----------
    Restaurants (.3%)
     6,510    Zapata Corporation (b)                                     178,374
                                                                      ----------
    Service (1.5%)
     9,900    Arbitron, Inc. (b)                                         330,165
    26,700    Heidrick & Struggles International (b)                     415,185
    13,800    Tetra Tech, Inc. (b)                                       120,198
                                                                      ----------
                                                                         865,548
                                                                      ----------
   ENERGY (7.7%)
    Mining (.7%)
    17,800    Peabody Holding Company                                    398,720
                                                                      ----------
    Oil (.3%)
    33,600    Newpark Resources, Inc. (b)                                164,640
                                                                      ----------
    Oil & Gas (6.7%)
    27,600    Cabot Oil & Gas Corporation                                576,840
   164,100    Canadian 88 Energy Corporation (b)(c)                      244,509
     2,669    Canadian Natural Resources, Ltd. (c)                        86,422
     5,300    Clayton Williams Energy, Inc. (b)                           49,025
     9,500    Core Laboratories NV (b)(c)                                 90,440
    18,800    Global Industries, Ltd. (b)                                 90,428
    38,000    Ocean Energy, Inc.                                         756,200
     2,750    Patina Oil & Gas                                            64,488
     7,494    Plains Resources, Inc. (b)                                 179,481
    17,627    Pure Resources, Inc. (b)                                   318,344
     3,400    Stone Energy Corporation (b)                               115,532
    12,700    Vintage Petroleum, Inc.                                    111,506
    16,900    W-H Energy Services, Inc. (b)                              285,779
    20,300    Western Gas Resources, Inc.                                634,781
    21,350    XTO Energy Company                                         383,233
                                                                      ----------
                                                                       3,987,008
                                                                      ----------



              See accompanying notes to investments in securities.


                                       71





                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   FINANCIAL (4.5%)
    Banks (1.1%)
    14,600    Silicon Valley Bancshares (b)                           $  315,944
    17,866    Staten Island BanCorporation, Inc.                         352,318
                                                                      ----------
                                                                         668,262
                                                                      ----------
    Commercial Finance (.2%)
     3,900    Dun & Bradstreet Corporation (b)                           126,165
                                                                      ----------
    Finance -- Diversified (1.1%)
     8,000    Dollar Thrifty Auto Group, Inc. (b)                        155,200
     9,800    Moodys Corporation                                         486,080
                                                                      ----------
                                                                         641,280
                                                                      ----------
    Insurance (1.1%)
    11,500    ACE, Ltd. (c)                                              364,205
     5,203    Fidelity National Finance                                  153,957
     3,700    Hub International, Ltd. (c)                                 51,874
     6,100    Odyssey Reinsurance Holdings Corporation                    89,792
                                                                      ----------
                                                                         659,828
                                                                      ----------
    Real Estate Investment Trust (.8%)
     9,100    Entertainment Properties Trust                             210,210
    10,300    Heritage Property Investment Trust                         250,496
                                                                      ----------
                                                                         460,706
                                                                      ----------
    Savings and Loans (.2%)
     3,672    New York Community Bancorp, Inc.                           105,754
                                                                      ----------
   HEALTH CARE (2.6%)
    Biotechnology (.2%)
    10,688    Invivo Corporation (b)                                     140,547
                                                                      ----------
    Drugs (.9%)
    26,200    Sangstat Medical Corporation (b)                           508,804
                                                                      ----------
    Hospital Management (.2%)
     4,200    Community Health Systems (b)                               103,950
                                                                      ----------
    Medical Products/Supplies (.4%)
    33,600    Aradigm Corporation (b)                                    100,800
     8,100    ArthoCare Corporation (b)                                  104,085
    10,400    Aspect Medical Systems, Inc. (b)                            26,624
                                                                      ----------
                                                                         231,509
                                                                      ----------
    Special Services (.9%)
    22,700    DaVita, Inc. (b)                                           535,720
                                                                      ----------
   TECHNOLOGY (21.2%)
    Computer Systems (.3%)
    16,300    Carreker Corporation (b)                                   150,775



              See accompanying notes to investments in securities.


                                       72




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   TECHNOLOGY -- CONTINUED
     1,000    SRA International, Inc. (b)                             $   24,800
                                                                      ----------
                                                                         175,575
                                                                      ----------
    Communications Equipment (1.5%)
    23,800    Anaren Microwave, Inc. (b)                                 185,640
     9,100    Commscope, Inc. (b)                                         68,250
    32,700    Inet Technologies, Inc. (b)                                137,340
    28,500    Plantronics, Inc. (b)                                      522,690
                                                                      ----------
                                                                         913,920
                                                                      ----------
    Computer Hardware (1.4%)
    37,400    Natural Microsystems Corporation (b)                        80,036
     9,200    Optimal Robotics Corporation (b)(c)                         81,972
    30,600    SanDisk Corporation (b)                                    440,640
    10,600    SBS Technologies, Inc. (b)                                  84,800
    44,300    Simple Technology (b)                                      125,369
                                                                      ----------
                                                                         812,817
                                                                      ----------
    Computer Peripherals (1.5%)
    29,600    Electronics For Imaging, Inc.                              459,688
    24,000    Hutchinson Technology, Inc. (b)                            410,880
                                                                      ----------
                                                                         870,568
                                                                      ----------
    Computer Services & Software (3.6%)
    49,700    Earthlink, Inc. (b)                                        227,626
    10,000    Hall Kinion & Associates, Inc. (b)                          66,500
     9,300    iManage, Inc. (b)                                           24,645
    39,500    McData Corporation (b)                                     423,440
    20,400    Micros Systems, Inc. (b)                                   516,120
    31,800    Numerical Technologies, Inc.                               120,204
    26,100    Proquest Company (b)                                       769,950
                                                                      ----------
                                                                       2,148,485
                                                                      ----------
    Electrical Instruments (2.9%)
    40,000    BEI Technologies, Inc.                                     440,000
    12,300    Benchmark Electronics, Inc. (b)                            322,998
    23,600    Cognex Corporation (b)                                     362,732
    14,800    Coherent, Inc. (b)                                         340,844
    11,000    Credence Systems Corporation (b)                           150,700
    10,600    LeCroy Corporation (b)                                      98,262
     7,800    Opticnet, Inc. (b)(d)                                          624
                                                                      ----------
                                                                       1,716,160
                                                                      ----------
    Electrical Semiconductor (4.8%)
    20,500    Actel Corporation (b)                                      299,710
    14,600    Chippac, Inc. (b)                                           57,962
    23,900    Entegris, Inc. (b)                                         239,000
    28,850    GlobeSpan Virata, Inc. (b)                                 102,129



              See accompanying notes to investments in securities.


                                       73




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                                
   TECHNOLOGY -- CONTINUED
    11,800    Helix Technology Corporation                            $  149,978
    14,900    SIPEX Corporation (b)                                       55,428
    35,500    Triquint Semiconductor, Inc. (b)                           235,010
    46,300    Varian Semiconductor Equipment (b)                       1,216,764
    35,700    Veeco Instruments, Inc. (b)                                485,520
                                                                      ----------
                                                                       2,841,501
                                                                      ----------
    Electronics -- Computer Distribution (1.6%)
     6,500    AVX Corporation                                             85,280
    49,300    DDi Corporation (b)                                         31,552
    44,400    Kemet Corporation (b)                                      574,092
    16,000    Thomas and Betts Corporation                               235,520
                                                                      ----------
                                                                         926,444
                                                                      ----------
    Equipment Semiconductor (3.2%)
    33,600    Advanced Technology Materials, Inc. (b)                    607,152
    43,600    Brooks-PRI Automation, Inc. (b)                            829,272
    12,300    Electroglas, Inc. (b)                                       46,617
    19,000    MKS Instruments, Inc. (b)                                  323,000
    38,000    Therma-Wave, Inc. (b)                                       97,280
                                                                      ----------
                                                                       1,903,321
                                                                      ----------
    Service -- Data Processing (.4%)
    41,400    Ciber, Inc. (b)                                            238,050
                                                                      ----------
   TRANSPORTATION (7.0%)
    Air Freight (2.1%)
    31,516    AirNet Systems, Inc. (b)                                   198,551
    88,300    EGL, Inc. (b)                                            1,034,876
                                                                      ----------
                                                                       1,233,427
                                                                      ----------
    Airlines (2.7%)
     9,400    Alaska Airgroup, Inc. (b)                                  220,900
    29,000    ExpressJet Holdings, Inc. (b)                              352,350
    26,100    Frontier Airlines, Inc. (b)                                152,163
    95,000    Mesa Air Group, Inc. (b)                                   667,850
    26,300    Midwest Express Holdings, Inc. (b)                         217,501
                                                                      ----------
                                                                       1,610,764
                                                                      ----------
    Railroads (.9%)
    21,200    GATX Corporation                                           536,572
                                                                      ----------
    Shipping (.7%)
     8,100    General Maritime Corporation (b)                            79,380
     9,400    Teekay Shipping Corporation (c)                            322,232
                                                                      ----------
                                                                         401,612
                                                                      ----------



              See accompanying notes to investments in securities.


                                       74




                                                                          MARKET
SHARES                                                                  VALUE(a)
- ------                                                                ----------
                                                               
   TRANSPORTATION -- CONTINUED
    Transport Services (.6%)
   100,700    OMI Corporation (b)                                    $   377,625
                                                                     -----------
   UTILITIES (.4%)
    Electric Companies (.4%)
     1,500    Black Hills Corporation                                     38,205
    19,000    Westar Energy, Inc.                                        222,680
                                                                     -----------
                                                                         260,885
                                                                     -----------
Total common stock (cost: $60,869,500)                                57,749,210
                                                                     -----------
WARRANTS
- --------
    14,300    Dime Bancorp, Inc. (b)                                       1,144
                                                                     -----------
Total warrants (cost: $2,175)                                              1,144
                                                                     -----------
SHORT-TERM SECURITIES (1.8%)
 1,034,413    Wells Fargo & Company -- Cash
              Investment Fund I, current rate 1.717%                 $ 1,034,413
                                                                     -----------
              Total short-term securities
              (cost: $1,034,413)                                       1,034,413
                                                                     -----------
              Total investments in securities
              (cost: $61,906,088) (e)                                $58,784,767
                                                                     ===========



NOTES TO INVESTMENTS IN SECURITIES

(a)  Securities are valued by procedures described in note 2 to the financial
     statements.

(b)  Presently non-income producing.

(c)  The Fund held 5.9% of net assets in foreign securities as of July 31, 2002.

(d)  Represents ownership in an illiquid security. (See note 9 to the financial
     statements) Information concerning the illiquid security held at July 31,
     2002, which includes acquisition date and cost is as follows:



                                        ACQUISITION
         SECURITY                          DATE               COST
         --------                       -----------           ----
                                                        
         Opticnet, Inc.                   10/30/00            $624


(e)  At July 31, 2002 the cost of securities for federal income tax purposes was
     $62,074,319. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                                
     Gross unrealized appreciation                                 $  9,028,840
     Gross unrealized depreciation                                  (12,318,392)
                                                                   -------------
     Net unrealized depreciation                                   $ (3,289,552)
                                                                   ============




                 See accompanying notes to financial statements.


                                       75


ADVANTUS EQUITY FUNDS
STATEMENTS OF ASSETS AND LIABILITIES                               JULY 31, 2002


                                                                                    CORNERSTONE      ENTERPRISE       HORIZON
                                                                                        FUND            FUND            FUND
                                                                                    ------------    ------------    ------------
                                                                                        2002            2002            2002
                                                                                    ------------    ------------    ------------
                                                                                                           
                                     ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                                   $ 65,628,865    $ 30,634,271    $ 30,062,355
Receivable for Fund shares sold                                                            8,666           1,219           1,529
Receivable for investment securities sold                                              1,280,298         665,282          31,673
Accrued interest receivable                                                                  360           5,290             269
Dividends receivable                                                                      73,817           3,602          11,059
Collateral for securities loaned (note 7)                                              2,555,915       8,390,692       1,162,779
Other receivables                                                                          9,231             110           4,278
                                                                                    ------------    ------------    ------------
   Total assets                                                                       69,557,152      39,700,466      31,273,942
                                                                                    ------------    ------------    ------------
                                   LIABILITIES
Payable for investment securities purchased                                            2,094,541         143,576          75,641
Payable for Fund shares redeemed                                                          16,167           1,529           4,765
Payable to Adviser                                                                        72,955          40,870          35,785
Payable upon return of securities loaned (note 7)                                      2,555,915       8,390,692       1,162,779
                                                                                    ------------    ------------    ------------
   Total liabilities                                                                   4,739,578       8,576,667       1,278,970
                                                                                    ------------    ------------    ------------
Net assets applicable to outstanding capital stock                                  $ 64,817,574    $ 31,123,799    $ 29,994,972
                                                                                    ============    ============    ============
Represented by:
  Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
   Class B - 2 billion shares, Class C - 2 billion shares and
   4 billion shares unallocated) of $.01 par value                                  $     55,003    $     48,964    $     27,391
  Additional paid-in capital                                                          77,235,986      58,134,547      45,310,309
  Undistributed (distributions in excess of) net investment income                         4,818              --              --
  Accumulated net realized gains (losses) from investments                           (10,723,138)    (17,247,459)    (17,073,020)
  Unrealized appreciation (depreciation) on investments                               (1,755,095)     (9,812,253)      1,730,292
                                                                                    ------------    ------------    ------------
   Total - representing net assets applicable to outstanding capital stock          $ 64,817,574    $ 31,123,799    $ 29,994,972
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class A Shares                                  $ 57,947,279    $ 27,357,239    $ 21,830,076
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class B Shares                                  $  6,190,135    $  3,345,090    $  7,507,340
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class C Shares                                  $    680,160    $    421,470    $    657,556
                                                                                    ============    ============    ============
Shares outstanding and net asset value per share:
  Class A - Shares outstanding: 4,907,681, 4,244,859 and 1,944,245                  $      11.81    $       6.44    $      11.23
                                                                                    ============    ============    ============
  Class B - Shares outstanding: 533,841, 578,574 and 731,303                        $      11.60    $       5.78    $      10.27
                                                                                    ============    ============    ============
  Class C - Shares outstanding: 58,812, 72,959 and 63,563                           $      11.57    $       5.78    $      10.34
                                                                                    ============    ============    ============
* Identified cost                                                                   $ 67,383,960    $ 40,446,524    $ 28,332,063
+ Including securities on loan of                                                   $  2,492,550    $  7,916,003    $  1,136,445


                 See accompanying notes to financial statements

                                       76
                                       77




                                                                                      INDEX 500      REAL ESTATE       VENTURE
                                                                                        FUND       SECURITIES FUND      FUND
                                                                                    ------------    ------------    ------------
                                                                                        2002            2002            2002
                                                                                    ------------    ------------    ------------
                                                                                                           
                                     ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                                   $ 34,230,672    $ 33,279,457    $ 58,784,767
Receivable for Fund shares sold                                                          145,053         158,506         171,872
Receivable for investment securities sold                                                  3,395         399,328         672,379
Accrued interest receivable                                                                  275           2,132           2,883
Dividends receivable                                                                      31,964          14,776           9,163
Variation margin receivable (note 2)                                                       5,100              --              --
Collateral for securities loaned (note 7)                                              1,655,148       3,349,586      10,151,588
Other receivables                                                                         17,163              --             655
                                                                                    ------------    ------------    ------------
   Total assets                                                                       36,088,769      37,203,785      69,793,307
                                                                                    ------------    ------------    ------------
                                   LIABILITIES
Payable for investment securities purchased                                               14,951         398,982         401,928
Payable for Fund shares redeemed                                                          25,424          14,704         146,408
Payable to Adviser                                                                        33,700          40,386          14,112
Payable upon return of securities loaned (note 7)                                      1,655,148       3,349,586      10,151,588
                                                                                    ------------    ------------    ------------
   Total liabilities                                                                   1,729,223       3,803,658      10,714,036
                                                                                    ------------    ------------    ------------
Net assets applicable to outstanding capital stock                                  $ 34,359,546    $ 33,400,127    $ 59,079,271
                                                                                    ============    ============    ============
Represented by:
  Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
   Class B - 2 billion shares, Class C - 2 billion shares and
   4 billion shares unallocated) of $.01 par value                                  $     28,896    $     28,000    $     48,376
  Additional paid-in capital                                                          40,495,407      30,873,931      57,928,365
  Undistributed (distributions in excess of) net investment income                        15,318          92,822              --
  Accumulated net realized gains (losses) from investments                            (5,422,697)        112,815       4,223,851
  Unrealized appreciation (depreciation) on investments                                 (757,378)      2,292,559      (3,121,321)
                                                                                    ------------    ------------    ------------
   Total - representing net assets applicable to outstanding capital stock          $ 34,359,546    $ 33,400,127    $ 59,079,271
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class A Shares                                  $ 18,196,010    $ 32,268,948    $ 53,071,152
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class B Shares                                  $ 14,558,915    $  1,131,179    $  4,531,306
                                                                                    ============    ============    ============
Net asset applicable to outstanding Class C Shares                                  $  1,604,621              --    $  1,476,813
                                                                                    ============    ============    ============
Shares outstanding and net asset value per share:
  Class A - Shares outstanding: 1,516,679, 2,704,869 and 4,333,250                  $      12.00    $      11.93    $      12.25
                                                                                    ============    ============    ============
  Class B - Shares outstanding: 1,236,348, 95,132 and 380,789                       $      11.78    $      11.89    $      11.90
                                                                                    ============    ============    ============
  Class C - Shares outstanding: 136,573,-- and 123,524                              $      11.75              --    $      11.96
                                                                                    ============    ============    ============
* Identified cost                                                                   $ 34,930,255    $ 30,986,898    $ 61,906,088
+ Including securities on loan of                                                   $  1,554,806    $  3,239,099    $  9,300,613


                 See accompanying notes to financial statements

                                       78
                                       79


ADVANTUS EQUITY FUNDS
STATEMENTS OF OPERATIONS                                           JULY 31, 2002


                                                                                  CORNERSTONE                   ENTERPRISE
                                                                                     FUND                          FUND
                                                                        ----------------------------- ------------------------------
                                                                           PERIOD FROM                 PERIOD FROM
                                                                        OCTOBER 1, 2001  YEAR ENDED   OCTOBER 1, 2001   YEAR ENDED
                                                                           TO JULY 31,  SEPTEMBER 30,    TO JULY 31,   SEPTEMBER 30,
                                                                               2002          2001            2002          2001
                                                                        --------------- ------------- --------------- --------------
                                                                                                          
Investment income:
  Interest                                                               $     32,455   $    310,943   $     44,238   $    150,200
  Dividends                                                                 1,190,174      1,306,973         24,359         30,755
  Income from securities lending activities                                     6,336          5,601         14,569          9,876
                                                                         -------------  ------------   -------------  -------------
      Total investment income                                               1,228,965      1,623,517         83,166        190,831
                                                                         -------------  ------------   -------------  -------------
Expenses (note 4):
  Investment advisory fee                                                     443,621        623,266        245,166        349,882
  Rule 12b-1 fees - Class A                                                   140,042        192,549         75,907        106,338
  Rule 12b-1 fees - Class B                                                    66,388        108,962         41,469         66,383
  Rule 12b-1 fees - Class C                                                     7,188         11,223          5,141          8,095
  Administrative services fee                                                  62,000         74,400         62,000         74,400
  Transfer agent and shareholder services fees                                140,533        193,737        103,827        134,897
  Custodian fees                                                                4,490         10,933          6,892         14,668
  Auditing and accounting services                                             13,213         22,007         13,113         24,203
  Legal fees                                                                    5,455         10,575          5,133          8,996
  Directors' fees                                                               1,777             --            604             --
  Registration fees                                                            25,475         33,165         34,266         31,728
  Printing and shareholder reports                                             24,948         34,411         23,740         30,264
  Insurance                                                                     2,463          1,756          2,350          1,365
  Other                                                                         8,487          8,756          6,386          4,291
                                                                         -------------  ------------   -------------  -------------
      Total expenses                                                          946,080      1,325,740        625,994        855,510
                                                                         -------------  ------------   -------------  -------------
  Less fees and expenses waived or absorbed by Adviser and Distributor:
   Class A Rule 12b-1 fees                                                         --             --        (30,363)       (42,535)
   Other waived fees                                                         (105,055)      (131,531)       (72,685)       (60,437)
                                                                         -------------  ------------   -------------  -------------
      Total fees and expenses waived or absorbed                             (105,055)      (131,531)      (103,048)      (102,972)
                                                                         -------------  ------------   -------------  -------------
      Total net expenses                                                      841,025      1,194,209        522,946        752,538
                                                                         -------------  ------------   -------------  -------------
      Investment income (loss) - net                                          387,940        429,308       (439,780)      (561,707)
                                                                         -------------  ------------   -------------  -------------
Realized and unrealized gains (losses) on investments:
   Net realized gains (losses) on investments (note 3)                     (5,242,003)    (3,427,029)    (6,244,790)   (10,661,326)
                                                                         -------------  ------------   -------------  -------------
   Net change in unrealized appreciation or depreciation on investments     1,253,980    (11,683,754)     3,142,493    (17,527,880)
                                                                         -------------  ------------   -------------  -------------
      Net losses on investments                                            (3,988,023)   (15,110,783)    (3,102,297)   (28,189,206)
                                                                         -------------  ------------   -------------  -------------
Net increase (decrease) in net assets resulting from operations          $ (3,600,083)  $(14,681,475)  $ (3,542,077)  $(28,750,913)
                                                                         =============  ============   =============  =============


                 See accompanying notes to financial statements

                                       80
                                       81




                                                                                    HORIZON                INDEX 500
                                                                                      FUND                    FUND
                                                                         -----------------------------    ------------
                                                                          PERIOD FROM
                                                                         OCTOBER 1, 2001    YEAR ENDED     YEAR ENDED
                                                                           TO JULY 31,   SEPTEMBER 30,      JULY 31,
                                                                              2002             2001           2002
                                                                         --------------- -------------    ------------
                                                                                                
Investment income:
  Interest                                                                $     14,804    $     75,369    $     55,232
  Dividends                                                                    238,178         225,685         604,087
  Income from securities lending activities                                      2,414           1,867           3,929
                                                                          ------------    ------------    ------------
      Total investment income                                                  255,396         302,921         663,248
                                                                          ------------    ------------    ------------
Expenses (note 4):
  Investment advisory fee                                                      231,587         427,000         148,568
  Rule 12b-1 fees - Class A                                                     58,966         105,267          56,862
  Rule 12b-1 fees - Class B                                                     87,139         173,285         189,402
  Rule 12b-1 fees - Class C                                                      7,835          15,646          20,114
  Administrative services fee                                                   62,000          74,400          74,400
  Amortization of organizational costs (note 5)                                     --              --           8,883
  Transfer agent and shareholder services fees                                 241,582         314,627         206,835
  Custodian fees                                                                 3,859          11,848           9,311
  Auditing and accounting services                                              16,013          29,114          25,632
  Legal fees                                                                     5,107           9,546           6,666
  Directors' fees                                                                  952           1,128           1,210
  Registration fees                                                             32,520          37,489          36,396
  Printing and shareholder reports                                              29,132          38,822          31,325
  Insurance                                                                      2,350           2,011           2,350
  Licensing fee                                                                     --              --           3,500
  Other                                                                          9,869           9,150           5,076
                                                                          ------------    ------------    ------------
      Total expenses                                                           788,911       1,249,333         826,530
                                                                          ------------    ------------    ------------
  Less fees and expenses waived or absorbed by Adviser or Distributor:
   Class A Rule 12b-1 fees                                                          --              --         (22,745)
   Other waived fees                                                          (271,049)       (284,604)       (297,973)
                                                                          ------------    ------------    ------------
      Total fees and expenses waived or absorbed                              (271,049)       (284,604)       (320,718)
                                                                          ------------    ------------    ------------
      Total net expenses                                                       517,862         964,729         505,812
                                                                          ------------    ------------    ------------
      Investment income (loss) - net                                          (262,466)       (661,808)        157,436
                                                                          ------------    ------------    ------------
Net realized gains (losses) on (note 3):
  Security transactions                                                     (1,803,623)    (13,832,622)     (2,949,300)
  Futures contracts (note 2)                                                        --              --        (269,879)
                                                                          ------------    ------------    ------------
                                                                            (1,803,623)    (13,832,622)     (3,219,179)
                                                                          ------------    ------------    ------------
   Net change in unrealized appreciation or depreciation on investments     (1,437,501)    (28,342,114)     (8,585,433)
                                                                          ------------    ------------    ------------
                                                                            (1,437,501)    (28,342,114)     (8,585,433)
                                                                          ------------    ------------    ------------
      Net gains (losses) on investments                                     (3,241,124)    (42,174,736)    (11,804,612)
                                                                          ------------    ------------    ------------
Net increase (decrease) in net assets resulting from operations           $ (3,503,590)   $(42,836,544)   $(11,647,176)
                                                                          ============    ============    ============





                                                                          REAL ESTATE
                                                                           SECURITIES       VENTURE
                                                                              FUND            FUND
                                                                          ------------    ------------
                                                                           YEAR ENDED      YEAR ENDED
                                                                            JULY 31,         JULY 31,
                                                                              2002             2002
                                                                          ------------    ------------
                                                                                    
Investment income:
  Interest                                                                $     16,039    $     93,160
  Dividends                                                                    909,273         340,445
  Income from securities lending activities                                      2,869          18,433
                                                                          ------------    ------------
      Total investment income                                                  928,181         452,038
                                                                          ------------    ------------
Expenses (note 4):
  Investment advisory fee                                                      163,110         444,881
  Rule 12b-1 fees - Class A                                                     53,635         143,955
  Rule 12b-1 fees - Class B                                                      2,939          46,950
  Rule 12b-1 fees - Class C                                                         --          12,773
  Administrative services fee                                                   61,200          74,400
  Amortization of organizational costs (note 5)                                     --           8,872
  Transfer agent and shareholder services fees                                  11,167          87,232
  Custodian fees                                                                 8,350           4,372
  Auditing and accounting services                                              13,982          22,782
  Legal fees                                                                     6,203           6,922
  Directors' fees                                                                  553           1,702
  Registration fees                                                             28,995          39,064
  Printing and shareholder reports                                              17,797          21,389
  Insurance                                                                      1,950           2,350
  Licensing fee                                                                     --              --
  Other                                                                          1,728              --
                                                                          ------------    ------------
      Total expenses                                                           371,609         917,644
                                                                          ------------    ------------
  Less fees and expenses waived or absorbed by Adviser or Distributor:
   Class A Rule 12b-1 fees                                                     (32,181)        (57,582)
   Other waived fees                                                           (10,569)             --
                                                                          ------------    ------------
      Total fees and expenses waived or absorbed                               (42,750)        (57,582)
                                                                          ------------    ------------
      Total net expenses                                                       328,859         860,062
                                                                          ------------    ------------
      Investment income (loss) - net                                           599,322        (408,024)
                                                                          ------------    ------------
Net realized gains (losses) on (note 3):
  Security transactions                                                        324,588       6,024,204
  Futures contracts (note 2)                                                        --              --
                                                                          ------------    ------------
                                                                               324,588       6,024,204
                                                                          ------------    ------------
   Net change in unrealized appreciation or depreciation on investments      1,180,088     (15,478,121)
                                                                          ------------    ------------
                                                                             1,180,088     (15,478,121)
                                                                          ------------    ------------
      Net gains (losses) on investments                                      1,504,676      (9,453,917)
                                                                          ------------    ------------
Net increase (decrease) in net assets resulting from operations           $  2,103,998    $ (9,861,941)
                                                                          ============    ============


                 See accompanying notes to financial statements

                                       82
                                       83


ADVANTUS EQUITY FUNDS
STATEMENTS OF CHANGES IN NET ASSETS



                                                                                                      CORNERSTONE FUND
                                                                                     -----------------------------------------------
                                                                                      PERIOD FROM
                                                                                        OCTOBER 1,       YEARS ENDED SEPTEMBER 30,
                                                                                     2001 TO JULY 31,  -----------------------------
                                                                                          2002             2001           2000
                                                                                     ---------------- --------------  --------------
                                                                                                             
Operations:
  Investment income (loss) - net                                                      $     387,940   $     429,308   $     322,259
  Net realized gains (losses) on investments                                             (5,242,003)     (3,427,029)     (1,634,621)
  Net change in unrealized appreciation or depreciation on investments                    1,253,980     (11,683,754)      2,471,025
                                                                                     ---------------- --------------  --------------
      Increase (decrease) in net assets resulting from operations                        (3,600,083)    (14,681,475)      1,158,663
                                                                                     ---------------- --------------  --------------

Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                 (377,849)       (408,866)       (332,612)
   Class B                                                                                   (5,558)         (1,880)              -
   Class C                                                                                     (594)           (254)              -
  Net realized gains on investments:
   Class A                                                                                        -               -        (760,784)
   Class B                                                                                        -               -        (151,807)
   Class C                                                                                        -               -         (15,257)
  Tax return of capital:
   Class A                                                                                        -               -         (40,388)
   Class B                                                                                        -               -               -
   Class C                                                                                        -               -               -
  Excess distribution of net realized gain:
   Class A                                                                                        -               -        (354,581)
   Class B                                                                                        -               -         (70,753)
   Class C                                                                                        -               -          (7,111)
                                                                                     ---------------- --------------  --------------
      Total distributions                                                                  (384,001)       (411,000)     (1,733,293)
                                                                                     ---------------- --------------  --------------
Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                                7,910,021       5,289,579       5,178,041
   Class B                                                                                  357,179         611,558         854,661
   Class C                                                                                   37,054          64,321         111,411
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                  207,753         228,567       1,330,582
   Class B                                                                                    5,340           1,823         216,243
   Class C                                                                                      591             251          22,191
  Payments for redemption of shares:
   Class A                                                                              (12,312,791)     (8,002,033)    (17,321,930)
   Class B                                                                               (2,231,688)     (3,076,130)     (6,953,574)
   Class C                                                                                 (192,680)       (289,292)       (860,962)
                                                                                     ---------------- --------------  --------------
      Increase (decrease) in net assets from capital share transactions                  (6,219,221)     (5,171,356)    (17,423,337)
                                                                                     ---------------- --------------  --------------
      Total decrease in net assets                                                      (10,203,305)    (20,263,831)    (17,997,967)
Net assets at beginning of period                                                        75,020,879      95,284,710     113,282,677
                                                                                     ---------------- --------------  --------------
Net assets at end of period*                                                           $ 64,817,574    $ 75,020,879    $ 95,284,710
                                                                                     ================ ==============  ==============
* Including undistributed (distributions in excess) net investment income                     4,818          18,308               -




                                                                                                      ENTERPRISE FUND
                                                                                     -----------------------------------------------
                                                                                       PERIOD FROM
                                                                                        OCTOBER 1,        YEARS ENDED SEPTEMBER 30,
                                                                                      2001 TO JULY 31 ------------------------------
                                                                                           2002            2001              2000
                                                                                     ---------------- --------------   -------------
                                                                                                              
Operations:
  Investment income (loss) - net                                                       $  (439,780)   $    (561,707)   $   (692,833)
  Net realized gains (losses) on investments                                            (6,244,790)     (10,661,326)     27,497,733
  Net change in unrealized appreciation or depreciation on investments                   3,142,493      (17,527,880)     (6,379,250)
                                                                                     ---------------- --------------   -------------
      Increase (decrease) in net assets resulting from operations                       (3,542,077)     (28,750,913)     20,425,650
                                                                                     ---------------- --------------   -------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                       -                -               -
   Class B                                                                                       -                -               -
   Class C                                                                                       -                -               -
  Net realized gains on investments:
   Class A                                                                                       -      (17,270,178)              -
   Class B                                                                                       -       (2,987,176)              -
   Class C                                                                                       -         (359,988)              -
  Tax return of capital:
   Class A                                                                                       -                -               -
   Class B                                                                                       -                -               -
   Class C                                                                                       -                -               -
  Excess distribution of net realized gain:
   Class A                                                                                       -                -               -
   Class B                                                                                       -                -               -
   Class C                                                                                       -                -               -
                                                                                     ---------------- --------------   -------------
      Total distributions                                                                        -      (20,617,342)              -
                                                                                     ---------------- --------------   -------------
Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                               7,486,324        3,423,922      42,808,703
   Class B                                                                                 300,215          701,160       2,184,969
   Class C                                                                                  61,967          159,604         416,929
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                       -       17,184,998               -
   Class B                                                                                       -        2,913,962               -
   Class C                                                                                       -          351,595               -
  Payments for redemption of shares:
   Class A                                                                              (7,690,490)      (4,242,274)    (44,233,607)
   Class B                                                                              (1,080,529)      (1,427,099)     (2,173,566)
   Class C                                                                                (137,446)        (224,061)       (488,009)
                                                                                     ---------------- --------------   -------------
      Increase (decrease) in net assets from capital share transactions                 (1,059,959)      18,841,807      (1,484,581)
                                                                                     ---------------- --------------   -------------
      Total decrease in net assets                                                      (4,602,036)     (30,526,448)     18,941,069
Net assets at beginning of period                                                       35,725,835       66,252,283      47,311,214
                                                                                     ---------------- --------------   -------------
Net assets at end of period*                                                           $31,123,799    $  35,725,835    $ 66,252,283
                                                                                     ================ ==============   =============
* Including undistributed (distributions in excess) net investment income                        -                -               -


                See accompanying notes to financial statements.
                                       84
                                       85




                                                                                                  HORIZON FUND
                                                                              ------------------------------------------------
                                                                                PERIOD FROM
                                                                                 OCTOBER 1,        YEARS ENDED SEPTEMBER 30,
                                                                              2001 TO JULY 31,  ------------------------------
                                                                                    2002             2001             2000
                                                                              ----------------  --------------   -------------
                                                                                                        
Operations:
  Investment income (loss) - net                                                $  (262,466)    $    (661,808)   $ (1,067,867)
  Net realized gains (losses) on investments                                     (1,803,623)      (13,832,622)     15,798,951
  Net change in unrealized appreciation or depreciation on investments           (1,437,501)      (28,342,114)        986,530
                                                                              ----------------  --------------   -------------
      Increase (decrease) in net assets resulting from operations                (3,503,590)      (42,836,544)     15,717,614
                                                                              ----------------  --------------   -------------

Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                -                 -               -
   Class B                                                                                -                 -               -
   Class C                                                                                -                 -               -
  Net realized gains on investments:
   Class A                                                                                -        (9,628,296)     (1,947,401)
   Class B                                                                                -        (4,375,595)       (839,265)
   Class C                                                                                -          (390,723)        (79,353)
                                                                              ----------------  --------------   -------------
      Total distributions                                                                 -       (14,394,614)     (2,866,019)
                                                                              ----------------  --------------   -------------

Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                        1,969,386         6,031,604      12,781,313
   Class B                                                                          539,921         1,569,835       5,858,583
   Class C                                                                           46,322           270,628         480,940
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                -         9,409,680       1,920,111
   Class B                                                                                -         4,048,610         812,787
   Class C                                                                                -           374,664          78,055
  Payments for redemption of shares:
   Class A                                                                       (5,178,717)      (12,322,741)    (16,846,488)
   Class B                                                                       (2,842,922)       (5,184,908)     (6,731,920)
   Class C                                                                         (306,392)         (537,056)     (1,044,844)
                                                                              ----------------  --------------   -------------
      Increase (decrease) in net assets from capital share transactions          (5,772,402)        3,660,316      (2,691,463)
                                                                              ----------------  --------------   -------------
      Total decrease in net assets                                               (9,275,992)      (53,570,842)     10,160,132
Net assets at beginning of period                                                39,270,964        92,841,806      82,681,674
                                                                              ----------------  --------------   -------------
Net assets at end of period*                                                    $29,994,972      $ 39,270,964    $ 92,841,806
                                                                              ================  ==============   =============
* Including undistributed (distributions in excess) net investment income                 -                 -               -




                                                                                         INDEX 500 FUND
                                                                                ---------------------------------

                                                                                       YEARS ENDED JULY 31,
                                                                                ---------------------------------
                                                                                      2002               2001
                                                                                --------------      -------------
                                                                                              
Operations:
  Investment income (loss) - net                                                $     157,436       $    150,862
  Net realized gains (losses) on investments                                       (3,219,179)        (1,245,076)
  Net change in unrealized appreciation or depreciation on investments             (8,585,433)        (7,773,551)
                                                                                --------------      -------------
      Increase (decrease) in net assets resulting from operations                 (11,647,176)        (8,867,765)
                                                                                --------------      -------------

Distributions to shareholders from:
  Investment income - net:
   Class A                                                                           (143,635)          (156,156)
   Class B                                                                             (6,716)           (26,452)
   Class C                                                                               (649)            (3,392)
  Net realized gains on investments:
   Class A                                                                                  -            (79,075)
   Class B                                                                                  -            (75,120)
   Class C                                                                                  -             (8,718)
                                                                                --------------      -------------
      Total distributions                                                            (151,000)          (348,913)
                                                                                --------------      -------------

Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                          4,652,626          6,914,160
   Class B                                                                          1,997,234          2,880,975
   Class C                                                                            362,915            832,407
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                             93,414            157,009
   Class B                                                                              6,471            104,295
   Class C                                                                                623             12,614
  Payments for redemption of shares:
   Class A                                                                         (5,370,976)        (2,658,123)
   Class B                                                                         (4,188,695)        (4,703,171)
   Class C                                                                           (487,518)        (1,200,111)
                                                                                --------------      -------------
      Increase (decrease) in net assets from capital share transactions            (2,933,906)         2,340,055
                                                                                --------------      -------------
      Total decrease in net assets                                                (14,732,082)        (6,876,623)
Net assets at beginning of period                                                  49,091,628         55,968,251
                                                                                --------------      -------------
Net assets at end of period*                                                    $  34,359,546        $49,091,628
                                                                                ==============      =============
* Including undistributed (distributions in excess) net investment income              15,318                  -


                See accompanying notes to financial statements.
                                       86
                                       87




                                                                                          REAL ESTATE SECURITIES
                                                                                                    FUND
                                                                                         -------------------------
                                                                                            YEAR ENDED JULY 31,
                                                                                         -------------------------
                                                                                             2002         2001
                                                                                         -----------  -------------
                                                                                                
Operations:
  Investment income (loss) - net                                                         $   599,322  $    591,346
  Net realized gains (losses) on investments                                                 324,588     1,369,807
  Net change in unrealized appreciation or depreciation on investments                     1,180,088      (615,603)
                                                                                         -----------  -------------
      Increase (decrease) in net assets resulting from operations                          2,103,998     1,345,550
                                                                                         -----------  -------------

Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                  (502,926)     (630,000)
   Class B                                                                                    (3,574)            -
   Class C                                                                                         -             -
  Net realized gains on investments:
   Class A                                                                                (1,186,943)            -
   Class B                                                                                      (753)            -
   Class C                                                                                         -             -
                                                                                         -----------  -------------
      Total distributions                                                                 (1,694,196)     (630,000)
                                                                                         -----------  -------------

Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                                16,920,073     6,869,380
   Class B                                                                                 1,266,380             -
   Class C                                                                                         -             -
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                 1,132,267       351,840
   Class B                                                                                     4,086             -
   Class C                                                                                         -             -
  Payments for redemption of shares:
   Class A                                                                                (3,548,144)   (2,304,948)
   Class B                                                                                  (120,245)            -
   Class C                                                                                         -             -
                                                                                         -----------  -------------
      Increase (decrease) in net assets from capital share transactions                   15,654,417     4,916,272
                                                                                         -----------  -------------
      Total decrease in net assets                                                        16,064,219     5,631,822
Net assets at beginning of period                                                         17,335,908    11,704,086
                                                                                         -----------  -------------
Net assets at end of period*                                                             $33,400,127  $ 17,335,908
                                                                                         ===========  =============
* Including undistributed (distributions in excess) net investment income                     92,822             -





                                                                                             VENTURE FUND
                                                                                       -------------------------
                                                                                            YEAR ENDED JULY 31,
                                                                                       -------------------------
                                                                                          2002          2001
                                                                                      ------------- ------------
                                                                                              
Operations:
  Investment income (loss) - net                                                      $   (408,024) $  (289,097)
  Net realized gains (losses) on investments                                             6,024,204    3,528,586
  Net change in unrealized appreciation or depreciation on investments                 (15,478,121)  10,099,522
                                                                                      ------------- ------------

      Increase (decrease) in net assets resulting from operations                       (9,861,941)  13,339,011
                                                                                      ------------- ------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                       -            -
   Class B                                                                                       -            -
   Class C                                                                                       -            -
  Net realized gains on investments:
   Class A                                                                              (3,292,173)  (1,209,518)
   Class B                                                                                (271,697)     (91,557)
   Class C                                                                                 (72,757)      (9,739)
                                                                                      ------------- ------------
      Total distributions                                                               (3,636,627)  (1,310,814)
                                                                                      ------------- ------------

Capital share transactions (notes 4 and 6):
  Proceeds from sales:
   Class A                                                                              23,934,179   14,129,639
   Class B                                                                               2,199,878    1,147,269
   Class C                                                                               1,327,144      182,197
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                               1,073,557      198,759
   Class B                                                                                 259,096       90,161
   Class C                                                                                  69,520        9,462
  Payments for redemption of shares:
   Class A                                                                             (14,413,881)  (2,096,012)
   Class B                                                                              (1,024,908)    (428,829)
   Class C                                                                                (175,731)     (74,966)
                                                                                      ------------- ------------
      Increase (decrease) in net assets from capital share transactions                 13,248,854   13,157,680
                                                                                      ------------- ------------
      Total decrease in net assets                                                        (249,714)  25,185,877
Net assets at beginning of period                                                       59,328,985   34,143,108
                                                                                      ------------- ------------
Net assets at end of period*                                                          $ 59,079,271  $59,328,985
                                                                                      ============= ============
* Including undistributed (distributions in excess) net investment income                        -            -



                See accompanying notes to financial statements.
                                       88
                                       89


ADVANTUS EQUITY FUNDS
NOTES TO FINANCIAL STATEMENTS

JULY 31, 2002

(1)   ORGANIZATION

      The Advantus Horizon Fund, Inc., the Advantus Enterprise Fund, Inc.,
the Advantus Cornerstone Fund, Inc., the Advantus Venture Fund, Inc., the
Advantus Index 500 Fund, Inc., and the Advantus Real Estate Securities Fund,
Inc. (the Funds) are registered under the Investment Company Act of 1940 (as
amended) as diversified, open-end management investment companies. The Funds'
prospectus' provides a detailed description of each Funds' investment
objective, policies and strategies.

      The Funds currently issue three classes of shares: Class A, Class B and
Class C shares, except for the Real Estate Securities Fund which does not issue
Class C shares. Class A shares are sold subject to a front-end sales charge.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption if redeemed within six years of purchase. Class C shares are
sold without either a front-end sales charge or a contingent deferred sales
charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee
than Class A shares. Both Class B and Class C shares automatically convert to
Class A shares at net asset value after a specified holding period. Such holding
periods decline as the amount of the purchase increases and range from 28 to 84
months after purchase for Class B shares and 40 to 96 months after purchase for
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that the
level of Rule 12b-1 fees charged differs between Class A, Class B and Class C
shares. Income, expenses (other than Rule 12b-1 fees) and realized and
unrealized gains or losses are allocated to each class of shares based upon its
relative net assets.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The significant accounting policies followed by the Funds are summarized
as follows:

   USE OF ESTIMATES

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, including disclosure of contingent assets
and liabilities, as of the balance sheet date and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

                                     90


      INVESTMENTS IN SECURITIES

      Each Funds' net asset value is generally calculated as of the close of
normal trading on the New York Stock Exchange (typically 3:00 p.m. Central
Time). Investments in securities traded on a national exchange are valued at the
last sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
The pricing service may use models that price securities based on current yields
and relative security characteristics, such as coupon rate, maturity date,
issuer credit quality and prepayment speeds, as applicable. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith under procedures adopted by the Board of Directors.
Short-term securities are valued at market.

      Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.

   FUTURES TRANSACTIONS

      To gain exposure to or protect itself from market changes, the Funds may
buy and sell financial futures contracts traded on any U.S. or foreign exchange.
The Funds also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may correlate with changes in the value of the underlying
securities.

      Upon entering into a futures contract, the Funds are required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Funds each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Funds recognize a realized gain or loss when the contract is
closed or expires.

   FEDERAL TAXES

      The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no income tax provision

                                     91


is required. The Funds' policy is to make required minimum distributions prior
to December 31, in order to avoid federal excise tax.

      For federal income tax purposes, the following Funds had capital loss
carryovers and/or post October losses at July 31, 2002 which, if not offset by
subsequent capital gains, will expire July 31, 2010 through July 31, 2011. It is
unlikely the Board of Directors will authorize a distribution of any net
realized capital gains until available capital loss carryovers have been offset
or expire:



                                                             
   Cornerstone Fund                                             $ 9,426,327
   Enterprise Fund                                               17,147,760
   Horizon Fund                                                  14,270,820
   Index 500 Fund                                                 4,777,874


      Net investment income (loss) and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of temporary
book-to-tax differences. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains were recorded by the
Funds.

      The Funds may elect to utilize equalization debits by which a portion of
the costs of redemptions, which occurred during the year ended July 31, 2002,
would reduce net realized gain for tax purposes.

      On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments were made as follows:



                            UNDISTRIBUTED       ACCUMULATED       ADDITIONAL
                           NET INVESTMENT        REALIZED          PAID IN
FUND                           INCOME            GAIN/LOSS          CAPITAL
- ----                       --------------       -----------       ---------
                                                           
Cornerstone                   $ (17,429)       $  12,960            $  4,469
Enterprise                      439,780                -            (439,780)
Horizon                         262,466                -            (262,466)
Index 500                         8,882                -              (8,882)
Real Estate Securities                -         (138,693)            138,693
Venture                         408,024         (963,560)            555,536


                                     92


      The tax character of distributions paid for the periods indicated is as
follows:



                            PERIOD FROM         YEARS ENDED SEPTEMBER 30,
                           OCTOBER 1, 2001    ------------------------------
FUND                      TO JULY 31, 2002        2001              2000
- ----                      ----------------    ------------       -----------
                                                        
CORNERSTONE
DISTRIBUTIONS PAID FROM:
Ordinary income                $384,001       $    411,000       $   332,612
Long-term capital gain                -                  -         1,360,293
Tax return of capital                                                 40,388

ENTERPRISE
DISTRIBUTIONS PAID FROM:
Ordinary income                       -          9,729,068                 -
Long-term capital gain                -         10,888,274                 -

HORIZON
DISTRIBUTIONS PAID FROM:
Ordinary income                       -          4,147,789                 -
Long-term capital gain                -         10,246,825         2,866,019




                                  YEARS ENDED JULY 31,
                                -----------------------
FUND                            2002                2001
- ----                        -----------           --------
                                            
INDEX 500
DISTRIBUTIONS PAID FROM:
Ordinary income             $   151,000           $348,913
Long-term capital gain                -                  -

REAL ESTATE SECURITIES
DISTRIBUTIONS PAID FROM:
Ordinary income               1,127,977            630,000
Long-term capital gain          566,219                  -

VENTURE
DISTRIBUTIONS PAID FROM:
Ordinary income               2,204,481            476,034
Long-term capital gain        1,432,146            834,780

      As of July 31, 2002, the components of distributable earnings on a tax
basis for each Fund are as follows:



                                                ACCUMULATED       UNREALIZED
                            UNDISTRIBUTED        LONG-TERM       APPRECIATION
FUND                       ORDINARY INCOME      GAIN (LOSS)     (DEPRECIATION)
- ----                       ---------------     -------------    --------------
                                                        
Cornerstone                   $  4,818         $ (9,426,327)     $(3,051,906)
Enterprise                           -          (17,147,760)      (9,911,952)
Horizon                              -          (14,270,820)      (1,071,908)
Index 500                       15,318           (4,777,874)      (1,402,200)
Real Estate Securities         466,065              396,565        1,635,566
Venture                         10,968            4,381,114       (3,289,552)


                                     93

   DISTRIBUTIONS TO SHAREHOLDERS

      Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.

(3)   INVESTMENT SECURITY TRANSACTIONS

      For the period ended July 31, 2002, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities, were as
follows:



FUND                                         PURCHASES            SALES
- ----                                        -----------        -----------
                                                         
Cornerstone                                 $71,009,443        $73,165,958
Enterprise                                   25,095,866         28,584,386
Horizon                                      25,871,871         31,477,087
Index 500                                     5,612,652          7,690,132
Real Estate Securities                       35,957,393         21,872,959
Venture                                      34,625,342         21,548,692


(4)   EXPENSES AND RELATED PARTY TRANSACTIONS
      The Funds have an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of
Securian Financial Group. Under the agreement, Advantus Capital manages the
Funds' assets and provides research, statistical and advisory services and pays
related office rental and executive expenses and salaries.

      Each of the Funds pays Advantus Capital Management an annual fee, based on
average net assets in the following amounts:



FUND                             ANNUAL FEE
- ------------------------------------------------------------------------------------------------
                              
Cornerstone                      .70% of assets to $500 million; and .65% of assets exceeding
                                 $500 million to $1 billion; and .60% of assets exceeding
                                 $1 billion to $2 billion; and .55% of assets exceeding
                                 $2 billion

Enterprise                       .70% of assets to $1 billion; and .68% of assets exceeding
                                 $1 billion to $2 billion; and .66% of assets exceeding
                                 $2 billion

Horizon                          .70% of assets to $1 billion; and .65% of assets exceeding
                                 $1 billion to $2 billion; and .60% of assets exceeding
                                 $2 billion

Index 500                        .34% of assets to $500 million; and .30% of assets exceeding
                                 $500 million to $1 billion; and .25% of assets exceeding
                                 $1 billion to $2 billion; and .20% of assets exceeding
                                 $2 billion.

Real Estate Securities           .75% of assets to $1 billion; and .725% of assets exceeding
                                 $1 billion to $2 billion; and .70% of assets exceeding
                                 $2 billion.

Venture                          .70% of assets to $1 billion; and .68% of assets exceeding
                                 $1 billion to $2 billion; and .66% of assets exceeding
                                 $2 billion


                                     94


      Advantus Capital has a sub-advisory agreement with the following
registered investment advisers. Under the sub-advisory agreements, Advantus
Capital pays the sub-advisers an annual fee based on average daily net
assets, in the following amounts:



FUND               SUB-ADVISOR                ANNUAL FEE
- ----               -----------                ----------
                                        
Enterprise         Credit Suisse Asset        .65% of assets to $425 million; and .60%
                   Management                 of assets exceeding $425 million to $850 million;
                                              and .55% of assets exceeding $850 million to
                                              $1.150 billion; and .50% of assets exceeding
                                              $1.150 billion to $2 billion and .45 of assets
                                              exceeding $2 billion

Venture            State Street Research      .65% of assets to $500 million; and
                   and Management             .60 of assets exceeding $500 million to
                                              $1 billion; and .50% of assets Exceeding
                                              $1 billion


      The Funds have adopted separate Plans of Distribution applicable to
Class A, Class B and Class C shares, respectively, relating to the payment of
certain expenses pursuant to Rule 12b-1 under the Investment Company Act of
1940 (as amended). The Funds pay fees to Securian Financial Services, Inc.
(Securian), the underwriter of the Funds and a wholly-owned subsidiary of
Securian Financial Group, to be used to pay certain expenses incurred in the
distribution, promotion and servicing of the Funds shares. The Class A Plan
provides for a service fee up to .25 percent of average daily net assets of
Class A shares. The Class B and Class C Plans provide for a fee up to 1.00
percent of average daily net assets of Class B and Class C shares,
respectively. The Class B and Class C 1.00 percent fee is comprised of a .75
percent distribution fee and a .25 percent service fee. Securian is currently
waiving the portion of Class A Rule 12b-1 fees which exceeds, as a percentage
of average daily net assets, .15 percent in Enterprise, Index 500 and
Venture, and .10 percent in the Real Estate Securities Fund. Securian waived
Class A 12b-1 fees in the amounts of $30,363, $22,745, $57,582, and $32,181,
respectively, for the above Funds for the period ended July 31, 2002.

      The Funds have engaged PFPC Global Fund Services to act as their transfer
agent, dividend disbursing agent and redemption agent and bear the expenses of
such services.

      The Funds also bear certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reporting fees, outside legal, auditing and accounting services, and other
miscellaneous expenses.

                                  95


      The Funds have entered in a shareholder and administrative services
agreement with Securian Financial Group. Under this agreement, the Funds pay a
shareholder services fee, equal to $7 per shareholder account annually, to
Securian Financial Group for shareholder services which Securian Financial Group
provides. Prior to December 1, 2001, the Funds paid a shareholder services fee
equal to $5 per shareholder account annually. The Funds also pay Securian
Financial Group an administrative services fee equal to $5,100 per month for the
Real Estate Securities Fund and $6,200 per month in all the remaining Funds for
accounting, auditing, legal and other administrative services which Securian
Financial Group provides.

      Advantus Capital directly incurs and pays the above operating expenses and
the Fund's in turn reimburses Advantus Capital.

   VOLUNTARY FEE ABSORPTION

      Advantus Capital has voluntarily agreed to absorb all Fund costs and
expenses that exceed 1.24% of Class A average daily net assets and 1.99% of
Class B and C average daily net assets for the Cornerstone Fund, all Fund costs
and expenses that exceed 1.38% of Class A average daily net assets and 2.23% of
Class B and C average daily net assets for the Enterprise Fund, all Fund costs
and expenses that exceed 1.35% of Class A average daily net assets and 2.10% of
Class B and C average daily net assets for the Horizon Fund, all Fund costs and
expenses which exceed .75% of Class A average daily net assets and 1.60% of
Class B and C average daily net assets for the Index 500 Fund, all Fund costs
and expenses that exceed 1.65% of Class A average daily net assets effective
August 1, 2002 (previously it was 1.50%) and 2.40% of Class B average daily net
assets for Real Estate Securities Fund, and all Fund costs and expenses that
exceed 1.40% of Class A average daily net assets and 2.25% of Class B and C
average daily net assets for the Venture Fund. During the period ended July 31,
2002, Advantus Capital voluntarily agreed to absorb $105,055, $72,685, $271,049,
$297,973, $10,569, and $--, respectively, in expenses which were otherwise
payable by the Funds.

      For the period ended July 31, 2002, sales charges received by Securian for
distributing the Funds' three classes of shares for Cornerstone, Enterprise,
Horizon, Index 500, Real Estate Securities, and Venture are $144,268, $51,925,
$118,958, $194,688, $42,568, and $77,840 respectively.

                                     96


      As of July 31, 2002 the ownership of shares by Minnesota Life and
subsidiaries and the directors and officers of the Funds as a whole was as
follows:



                                                                PERCENTAGE
                                              NUMBER OF            OWNED
FUND                                           SHARES            OF CLASS
- ----                                         ----------         ----------
                                                          
Cornerstone
  Class A                                    4,055,814                82.6%
Enterprise
  Class A                                    3,564,971                84.0%
Horizon
  Class A                                       13,098                 0.7%
Index 500
  Class A                                      707,403                46.6%
  Class B                                          763                  --%
  Class C                                       10,992                 8.0%
Real Estate
  Class A                                    2,454,169                90.7%
Venture
  Class A                                    3,898,399                89.9%


      Legal fees were paid to a law firm of which the Funds' secretary is a
partner to the Cornerstone Fund, the Enterprise Fund, the Horizon Fund, the
Index 500 Fund, the Real Estate Securities Fund, and the Venture Fund in the
amount of $5,865 for each of the Funds.

(5)   ORGANIZATIONAL COSTS

      The Index 500 Fund and Venture Fund incurred organizational expenses in
connection with the start-up and initial registration. These costs were
amortized over 60 months on a straight-line basis beginning with the
commencement of operations and were fully amortized at July 31, 2002.

                                  97


(6)  CAPITAL SHARE TRANSACTIONS
     Transactions in shares for the period ended July 31, 2002, and the years
ended September 30, 2001 and 2000, were as follows:



                                                                                 CORNERSTONE FUND
                                     -----------------------------------------------------------------------------------------------
                                                  CLASS A                          CLASS B                        CLASS C
                                     --------------------------------  -------------------------------  ----------------------------
                                       2002       2001        2000       2002       2001       2000       2002      2001      2000
                                     ---------  --------- -----------  ---------  ---------  ---------  --------  --------  --------
                                                                                                 
Sold                                  590,303    361,247     342,146     27,171     42,405     57,188     2,846     4,525     7,551
Issued for reinvested distributions    15,571     16,815      84,952        409        128     13,914        45        17     1,429
Redeemed                             (921,372)  (551,305) (1,150,121)  (170,656)  (214,538)  (465,471)  (14,734)  (20,295)  (57,511)
                                     ---------  --------- -----------  ---------  ---------  ---------  --------  --------  --------
                                     (315,498)  (173,243)   (723,023)  (143,076)  (172,005)  (394,369)  (11,843)  (15,753)  (48,531)
                                     =========  ========= ===========  =========  =========  =========  ========  ========  ========



                                                                                ENTERPRISE FUND
                                     -----------------------------------------------------------------------------------------------
                                                 CLASS A                          CLASS B                         CLASS C
                                     -------------------------------  -------------------------------  -----------------------------
                                       2002       2001        2000        2002      2001        2000      2002      2001      2000
                                     --------- ---------- -----------  --------- ---------   ---------  --------  --------  --------
                                                                                                 
Sold                                  892,251    374,323   2,133,665     38,348    67,534     104,910     7,676    14,611    20,405
Issued for reinvested distributions         -  1,621,745           -          -   302,899           -         -    37,153         -
Redeemed                             (914,738)  (429,560) (2,180,851)  (141,912) (151,151)   (109,705)  (17,929)  (23,563)  (23,890)
                                     --------- ---------- -----------  --------- ---------   ---------  --------  --------  --------
                                      (22,487) 1,566,508     (47,186)  (103,564)  219,282      (4,795)  (10,253)   28,201    (3,485)
                                     ========= ========== ===========  ========= =========   =========  ========  ========  ========




                                                                              HORIZON FUND
                                     -----------------------------------------------------------------------------------------------
                                                    CLASS A                        CLASS B                          CLASS C
                                     --------------------------------  -------------------------------  ----------------------------
                                       2002       2001        2000       2002      2001         2000      2002      2001      2000
                                     --------- ---------- -----------  --------- ---------   ---------  --------  --------  --------
                                                                                                 
Sold                                  144,293    359,055     416,222     42,647    92,722     194,436     3,696    14,967    16,377
Issued for reinvested distributions         -    466,476      64,614          -   216,815      28,830         -    20,334     2,752
Redeemed                             (386,031)  (685,126)   (540,501)  (230,525) (308,878)    227,243   (24,538)  (32,274)  (36,606)
                                     --------- ---------- -----------  --------- ---------   ---------  --------  --------  --------
                                     (241,738)   140,405     (59,665)  (187,878)      659      (3,977)  (20,842)    3,027   (17,477)
                                     ========= ========== ===========  ========= =========   =========  ========  ========  ========



                                       98




                                                                       INDEX 500 FUND
                          ----------------------------------------------------------------------------------------------
                                     CLASS A                          CLASS B                        CLASS C
                          --------------------------      -------------------------       ------------------------------
                              2002            2001           2002            2001            2002                 2001
                          -----------     ----------      ----------      ---------       ---------            ---------
                                                                                             
Sold                         321,990         399,791        140,642         169,289         25,624               48,578
Issued for
reinvested
distributions                  6,645           9,492            439           6,151             42                  747
Redeemed                    (374,275)       (153,203)      (304,910)       (277,977)       (35,675)             (72,679)
                          -----------     ----------      ----------      ---------       ---------            ---------
                             (45,640)        256,080       (163,829)       (102,537)       (10,009)             (23,354)
                          ===========     ==========      ==========      =========       =========            =========




                                  REAL ESTATE SECURITIES FUND
                           -----------------------------------------
                                   CLASS A                  CLASS B
                           -------------------------       ---------
                              2002             2001           2002
                           ---------       ---------       ---------
                                                  
Sold                       1,428,832         621,574        104,942
Issued for
reinvested
distributions                101,578          32,451            342
Redeemed                    (311,365)       (210,066)       (10,152)
                           ---------       ---------       ---------
                           1,219,045         443,959         95,132
                           =========       =========       =========




                                                                       VENTURE FUND
                         ----------------------------------------------------------------------------------------------
                                      CLASS A                        CLASS B                          CLASS C
                         ----------------------------      -------------------------      -----------------------------
                             2002            2001            2002            2001           2002                  2001
                         ------------      ----------      ---------        --------      ---------              ------
                                                                                               
Sold                       1,639,269       1,044,828        154,746          83,650         98,695               13,032
Issued for
reinvested
distributions                 79,848          16,689         19,807           7,731          5,281                  801
Redeemed                  (1,023,466)       (158,483)       (72,399)        (32,805)       (12,771)              (5,435)
                         ------------      ----------      ---------        --------      ---------              ------
                             695,651         903,034        102,154          58,576         91,205                8,398
                         ============      ==========      =========        ========      =========              ======


(7)   SECURITIES LENDING CONTRACTS

     To enhance returns, the Funds loan securities to brokers in exchange for
collateral. The Funds receive a fee from the brokers measured as a percent of
the loaned securities. At July 31, 2002, the collateral is invested in cash
equivalents and repurchase agreements and must be 102% of the value of
securities loaned. The risk to the Funds is that the borrower may not provide
additional collateral when required or return the securities when due. At July
31, 2002, Cornerstone, Enterprise, Horizon, Index 500, Real Estate, and Venture
had securities valued at $2,492,550, $7,916,003, $1,136,445, $1554,806,
$3,239,099 and $9,300,613 that were on loan to brokers and the


                                       99


Funds had $2,555,915, $8,390,692, $1,162,779, $1,655,148, $3,349,586 and
$10,151,588 in cash collateral, respectively.

(8)   STOCK INDEX FUTURES CONTRACTS

     Investments in securities as of July 31, 2002, included securities valued
at $2,826,920 in the Advantus Index 500 Fund that were used as collateral to
cover initial margin deposits on three open September S&P 500 and two open
September S&P 500 EMINI Futures purchase contacts. The market value of the open
purchase contracts as of July 31, 2002, was $774,775 with an unrealized loss of
$57,795.

(9)   ILLIQUID SECURITIES

     At July 31, 2002, each of the Funds' investments in illiquid securities are
limited to 10% of net assets at the time of purchase. At July 31, 2002
investments in securities of the Venture Fund include issues that are illiquid.
The aggregate value of illiquid securities held by the Venture Fund was $624
which represents 0.0% of net assets.


                                      100


(10)  FINANCIAL HIGHLIGHTS

ADVANTUS CORNERSTONE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                               CLASS A
                                                             --------------------------------------------------------------------
                                                             PERIOD FROM
                                                              OCTOBER 1,
                                                               2001 TO                      YEAR ENDED SPETEMBER 30,
                                                              JULY 31,     ------------------------------------------------------
                                                                 2002         2001          2000       1999      1998       1997
                                                             ----------    ---------    ---------   --------  --------  ---------
                                                                                                      
Net asset value, beginning of period                         $   12.59     $   15.08    $   15.14   $  13.88  $  18.68  $   15.06
                                                             ----------    ---------    ---------   --------  --------  ---------
Income from investment operations:
   Net investment income (loss)                                    .08           .09          .06        .15       .16        .14
   Net gains (losses) (both realized and unrealized)              (.78)        (2.50)         .13       1.24     (3.04)      5.19
                                                             ----------    ---------    ---------   --------  --------  ---------
     Total from investment operations                             (.70)        (2.41)         .19       1.41     (2.88)      5.33
                                                             ----------    ---------    ---------   --------  --------  ---------
Less distributions:
   Dividends from net investment income                           (.08)         (.08)        (.05)      (.15)     (.16)      (.14)
   Distributions from net realized gains                             -             -         (.13)         -     (1.76)     (1.57)
   Excess distributions of net realized gain                         -             -         (.06)         -         -          -
   Tax return of capital                                             -             -         (.01)         -         -          -
                                                             ----------    ---------    ---------   --------  --------  ---------
     Total distributions                                          (.08)         (.08)        (.25)      (.15)    (1.92)     (1.71)
                                                             ----------    ---------    ---------   --------  --------  ---------
Net asset value, end of period                               $   11.81     $   12.59    $   15.08   $  15.14  $  13.88  $   18.68
                                                             ==========    =========    =========   ========  ========  =========
Total return (a)                                                 (5.72)%      (15.97)%       1.26%     10.13%   (16.45)%    38.35%
Net assets, end of period (in thousands)                     $  57,947     $  65,766    $  81,389   $ 92,657  $ 93,833  $ 107,322
Ratios to average net assets:
  Expenses                                                        1.24%(b)      1.24%        1.24%      1.21%     1.16%      1.08%
  Net investment income (loss)                                     .70%(b)       .61%         .43%       .94%      .98%       .85%
  Expenses without waivers                                        1.41%(b)      1.39%        1.34%      1.23%     1.25%      1.28%
  Net investment income (loss) without waivers                     .53%(b)       .46%         .33%       .92%      .89%       .65%
Portfolio turnover rate (excluding short-term securities)         95.3%        147.9%       180.1%      78.7%    114.4%      87.7%


- --------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return has not been
     annualized.

(b)  Adjusted to an annual basis.


                                      101


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                               CLASS B
                                                              ---------------------------------------------------------------------
                                                               PERIOD FROM
                                                               OCTOBER 1,
                                                                 2001 TO                        YEAR ENDED SEPTEMBER 30,
                                                                 JULY 31,    ------------------------------------------------------
                                                                   2002        2001         2000      1999     1998          1997
                                                              -------------  -------     --------  --------  --------     --------
                                                                                                        
Net asset value, beginning of period                            $  12.38     $ 14.86     $  14.97  $  13.73  $  18.52     $  14.92
                                                              -------------  -------     --------  --------  --------     --------
Income from investment operations:
   Net investment income (loss)                                        -        (.02)        (.02)      .03       .03            -
   Net gains (losses) (both realized and unrealized)                (.77)      (2.46)         .10      1.24     (3.02)        5.18
                                                              -------------  -------     --------  --------  --------     --------
     Total from investment operations                               (.77)      (2.48)         .08      1.27     (2.99)        5.18
                                                              -------------  -------     --------  --------  --------     --------
Less distributions:
   Dividends from net investment income                             (.01)          -            -      (.03)     (.04)        (.01)
   Distributions from net realized gains                               -           -         (.13)        -     (1.76)       (1.57)
   Excess distributions of net realized gain                           -           -         (.06)        -         -            -
                                                              -------------  -------     --------  --------  --------     --------
     Total distributions                                            (.01)          -         (.19)     (.03)    (1.80)       (1.58)
                                                              -------------  -------     --------  --------  --------     --------
Net asset value, end of period                                  $  11.60     $ 12.38     $  14.86  $  14.97  $  13.73     $  18.52
                                                              =============  =======     ========  ========  ========     ========
Total return (a)                                                   (6.40)%    (16.61)%        .54%     9.26%   (17.21)%      37.68%
Net assets, end of period (in thousands)                        $  6,190     $ 8,382     $ 12,615  $ 18,611  $ 21,176     $ 21,405
Ratios to average net assets:
  Expenses                                                          1.99%(b)    1.99%        1.99%     1.96%     1.95%        1.98%
  Net investment income (loss)                                      (.05)%(b)   (.14)%       (.29)%     .20%      .18%        (.05)%
  Expenses without waivers                                          2.16%(b)    2.14%        2.09%     1.96%     1.95%        1.98%
  Net investment income (loss) without waivers                      (.22)%(b)   (.29)%       (.39)%     .20%      .18%        (.05)%
Portfolio turnover rate (excluding short-term securities)           95.3%      147.9%       180.1%     78.7%    114.4%        87.7%


- -----------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return has not been
     annualized.

(b)  Adjusted to an annual basis.


                                      102


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                                      CLASS C
                                                                           --------------------------------------------------------
                                                                           PERIOD FROM
                                                                            OCTOBER 1,
                                                                             2001 TO               YEAR ENDED SEPTEMBER 30,
                                                                             JULY 31,  --------------------------------------------
                                                                              2002       2001     2000     1999     1998     1997
                                                                           ----------- -------   ------   ------  -------   -------
                                                                                                          
Net asset value, beginning of period                                        $12.35     $ 14.82   $14.93   $13.68  $ 18.48   $14.94
                                                                           ----------- -------   ------   ------  -------   -------
Income from investment operations:
   Net investment income (loss)                                                  -       (.02)    (.02)     .03      .03        -
   Net gains (losses) (both realized and unrealized)                          (.78)      (2.45)     .10     1.25    (3.04)    5.12
                                                                           ----------- -------   ------   ------  -------   -------
     Total from investment operations                                         (.78)      (2.47)     .08     1.28    (3.01)    5.12
                                                                           ----------- -------   ------   ------  -------   -------
Less distributions:
   Dividends from net investment income                                       (.01)          -        -     (.03)    (.03)    (.01)
   Distributions from net realized gains                                         -           -     (.13)       -    (1.76)   (1.57)
   Excess distributions of net realized gain                                     -           -     (.06)       -        -        -
   Tax return of capital                                                         -           -        -        -        -        -
                                                                           ----------- -------   ------   ------  -------   -------
     Total distributions                                                      (.01)          -     (.19)    (.03)   (1.79)   (1.58)
                                                                           ----------- -------   ------   ------  -------   -------
Net asset value, end of period                                              $11.56     $ 12.35   $14.82   $14.93  $ 13.68   $18.48
                                                                           =========== =======   ======   ======  =======   =======
Total return (a)                                                             (6.42)%    (16.58)%    .54%    9.35%  (17.28)%  37.10%
Net assets, end of period (in thousands)                                    $  680     $   873   $1,281   $2,015  $ 3,094   $3,399
Ratios to average net assets:
  Expenses                                                                    1.99%(b)    1.99%    1.99%    1.96%    1.95%    1.98%
  Net investment income (loss)                                                (.05)%(b)   (.14)%   (.29)%    .21%     .18%    (.05)%
  Expenses without waivers                                                    2.16%(b)    2.14%    2.09%    1.96%    1.95%    1.98%
  Net investment income (loss) without waivers                                (.22)%(b)   (.29)%   (.39)%    .21%     .18%    (.05)%
Portfolio turnover rate (excluding short-term securities)                     95.3%      147.9%   180.1%    78.7%   114.4%    87.7%


- -----------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return has not been
     annualized.

(b)  Adjusted to an annual basis.


                                      103


ADVANTUS ENTERPRISE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                               CLASS A
                                                               ---------------------------------------------------------------
                                                               PERIOD FROM
                                                                OCTOBER 1,
                                                                 2001 TO                     YEAR ENDED SEPTEMBER 30,
                                                                 JULY 31,    -------------------------------------------------
                                                                  2002         2001       2000      1999      1998       1997
                                                               -----------   -------    -------    -------   -------   -------
                                                                                                     
Net asset value, beginning of period                            $  7.20      $ 20.77    $ 14.56    $ 11.32   $ 15.90   $ 15.94
                                                               -----------   -------    -------    -------   -------   -------
Income from investment operations:
   Net investment loss                                             (.08)        (.03)      (.19)      (.14)     (.13)     (.04)
   Net gains (losses) (both realized and unrealized)               (.68)       (7.07)      6.40       3.38     (4.45)     1.74
                                                               -----------   -------    -------    -------   -------   -------
     Total from investment operations                              (.76)       (7.10)      6.21       3.24     (4.58)     1.70
                                                               -----------   -------    -------    -------   -------   -------
Less distributions:
   Distributions from net realized gains                              -        (6.47)         -          -         -     (1.74)
                                                               -----------   -------    -------    -------   -------   -------
     Total distributions                                              -        (6.47)         -          -         -     (1.74)
                                                               -----------   -------    -------    -------   -------   -------
Net asset value, end of period                                  $  6.44      $  7.20    $ 20.77    $ 14.56   $ 11.32   $ 15.90
                                                                ==========   =======    =======    =======   =======   =======
Total return (a)                                                 (10.56)%     (44.09)%    42.65%     28.62%   (28.81)%   12.88%
Net assets, end of period (in thousands)                        $27,357      $30,744    $56,087    $40,009   $31,844   $44,102
Ratios to average net assets:
  Expenses                                                         1.38%(b)     1.38%      1.25%      1.33%     1.27%     1.28%
  Net investment income (loss)                                    (1.14)%(b)   (1.00)%     (.92)%     (.97)%    (.91)%    (.32)%
  Expenses without waivers                                         1.69%(b)     1.60%      1.43%      1.45%     1.44%     1.48%
  Net investment income (loss) without waivers                    (1.45)%(b)   (1.22)%    (1.10)%    (1.09)%   (1.08)%    (.52)%
Portfolio turnover rate (excluding short-term securities)          62.2%       105.4%     181.5%      99.3%     71.1%     65.8%


- ---------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.

(b)  Adjusted to an annual basis.


                                      104


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                                         CLASS B
                                                                  ----------------------------------------------------------------
                                                                  PERIOD FROM
                                                                   OCTOBER 1,
                                                                    2001 TO                     YEAR ENDED SEPTEMBER 30,
                                                                    JULY 31,     -------------------------------------------------
                                                                      2002         2001       2000      1999       1998      1997
                                                                  -----------    -------    -------    ------    -------    ------
                                                                                                          
Net asset value, beginning of period                                $  6.51      $ 19.63    $ 13.88    $10.88    $ 15.42    $ 15.64
                                                                  -----------    -------    -------    ------    -------    ------
Income from investment operations:
   Net investment loss                                                 (.16)        (.07)      (.35)     (.26)     (.24)      (.18)
   Net gains (losses) (both realized and unrealized)                   (.57)       (6.58)      6.10      3.26     (4.30)      1.70
                                                                  -----------    -------    -------    ------    -------    ------
   Total from investment operations                                    (.73)       (6.65)      5.75      3.00     (4.54)      1.52
                                                                  -----------    -------    -------    ------    -------    ------
Less distributions:
   Distributions from net realized gains                                  -        (6.47)         -         -          -     (1.74)
                                                                  -----------    -------    -------    ------    -------    ------
     Total distributions                                                  -        (6.47)         -         -          -     (1.74)
                                                                  -----------    -------    -------    ------    -------    ------
Net asset value, end of period                                      $  5.78      $  6.51    $ 19.63    $13.88    $ 10.88   $ 15.42
                                                                  ===========    =======    =======    ======    =======   =======
Total return (a)                                                     (11.22)%     (44.59)%    41.43%    27.57%    (29.44)%   11.89%
Net assets, end of period (in thousands)                            $ 3,345      $ 4,440    $ 9,086    $6,491    $ 5,903   $ 7,683
Ratios to average net assets:
  Expenses                                                             2.23%(b)     2.23%      2.10%     2.18%      2.14%     2.18%
  Net investment income (loss)                                        (1.99)%(b)   (1.85)%    (1.77)%   (1.82)%    (1.77)%   (1.60)%
  Expenses without waivers                                             2.44%(b)     2.35%      2.10%     2.18%      2.14%     2.18%
  Net investment income (loss) without waivers                        (2.20)%(b)   (1.97)%    (1.77)%   (1.82)%    (1.77)%   (1.60)%
Portfolio turnover rate (excluding short-term securities)              62.2%       105.4%     181.5%     99.3%      71.1%     65.8%


- -------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return presented has not
     been annualized.

(b)  Adjusted to an annual basis.


                                      105


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                               CLASS C
                                                            -------------------------------------------------------------------
                                                            PERIOD FROM
                                                            OCTOBER 1,
                                                              2001 TO                    YEAR ENDED SEPTEMBER 30,
                                                              JULY 31,   ------------------------------------------------------
                                                               2002       2001         2000        1999       1998        1997
                                                            -----------  -------      ------      ------    -------      ------
                                                                                                       
Net asset value, beginning of period                         $  6.50     $ 19.62      $13.87      $10.87    $ 15.41      $15.63
                                                            -----------  -------      ------      ------    -------      ------
Income from investment operations:
   Net investment loss                                          (.15)       (.05)       (.36)       (.27)      (.26)       (.23)
   Net gains (losses) (both realized and unrealized)            (.57)      (6.60)       6.11        3.27      (4.28)       1.75
                                                            -----------  -------      ------      ------    -------      ------
     Total from investment operations                           (.72)      (6.65)       5.75        3.00      (4.54)       1.52
                                                            -----------  -------      ------      ------    -------      ------
Less distributions:
   Distributions from net realized gains                           -       (6.47)          -           -          -       (1.74)
                                                            -----------  -------      ------      ------    -------      ------
     Total distributions                                           -       (6.47)          -           -          -       (1.74)
                                                            -----------  -------      ------      ------    -------      ------
Net asset value, end of period                               $  5.78     $  6.50      $19.62      $13.87    $ 10.87      $15.41
                                                            ===========  =======      ======      ======    =======      ======
Total return (a)                                              (11.21)%    (44.54)%     41.46%      27.48%    (29.40)%     11.89%
Net assets, end of period (in thousands)                     $   421     $   541      $1,079      $  812    $   780      $1,133
Ratios to average net assets:
  Expenses                                                      2.23%(b)    2.23%       2.10%       2.18%      2.14%       2.18%
  Net investment income (loss)                                 (1.99)%(b)  (1.85)%     (1.77)%     (1.82)%    (1.78)%     (1.75)%
  Expenses without waivers                                      2.44%(b)    2.35%       2.10%       2.18%      2.14%       2.18%
  Net investment income (loss) without waivers                 (2.20)%(b)  (1.97)%     (1.77)%     (1.82)%    (1.78)%     (1.75)%
Portfolio turnover rate (excluding short-term securities)       62.2%      105.4%      181.5%       99.3%      71.1%       65.8%


- -----------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return has not been
     annualized.

(b)  Adjusted to an annual basis.


                                      106


ADVANTUS HORIZON FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                               CLASS A
                                                            -------------------------------------------------------------------
                                                            PERIOD FROM
                                                             OCTOBER 1,
                                                               2001 TO                    YEAR ENDED SEPTEMBER 30,
                                                              JULY 31,   ------------------------------------------------------
                                                               2002        2001        2000        1999       1998        1997
                                                            -----------  -------    --------     -------    -------     -------
                                                                                                      
Net asset value, beginning of year                           $ 12.63     $ 31.08    $  26.88     $ 23.59    $ 23.06     $ 23.07
                                                            -----------  -------    --------     -------    -------     -------
Income from investment operations:
   Net investment loss                                          (.07)       (.16)       (.28)       (.16)      (.09)       (.08)
   Net gains (losses) (both realized and unrealized)           (1.33)     (13.38)       5.41        5.77       3.48        4.89
                                                            -----------  -------    --------     -------    -------     -------
      Total from investment operations                         (1.40)     (13.54)       5.13        5.61       3.39        4.81
                                                            -----------  -------    --------     -------    -------     -------
Less distributions:
   Distributions from net realized gains                           -       (4.91)       (.93)      (2.32)     (2.86)      (4.82)
                                                            -----------  -------    --------     -------    -------     -------
      Total distributions                                          -       (4.91)       (.93)      (2.32)     (2.86)      (4.82)
                                                            -----------  -------    --------     -------    -------     -------
Net asset value, end of year                                 $ 11.23     $ 12.63     $ 31.08     $ 26.88    $ 23.59     $ 23.06
                                                            ===========  =======    ========     =======    =======     =======
Total return (a)                                              (11.08)%    (49.46)%     19.26%      24.74%     16.38%      24.96%
Net assets, end of year (in thousands)                       $21,830     $27,603     $63,568     $56,581    $47,183     $40,192
Ratios to average net assets:
  Expenses                                                      1.35%(b)    1.35%       1.33%       1.30%      1.36%       1.43%
  Net investment income (loss)                                  (.58)%(b)   (.85)%      (.89)%      (.61)%     (.39)%      (.39)%
  Expenses without waivers                                      2.17%(b)    1.81%       1.42%       1.30%      1.37%       1.48%
  Net investment income (loss) without waivers                 (1.40)%(b)  (1.32)%      (.97)%      (.61)%     (.40)%      (.44)%
Portfolio turnover rate (excluding short-term securities)       67.6%      129.6%      109.3%       60.1%      72.6%       71.5%


- --------------
(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return presented has not
     been annualized.

(b)  Adjusted to an annual basis.


                                      107


ADVANTUS HORIZON FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                          CLASS B
                                                          ------------------------------------------------------------------------
                                                          PERIOD FROM
                                                           OCTOBER 1,
                                                            2001 TO                   YEAR ENDED SEPTEMBER 30,
                                                            JULY 31,     ---------------------------------------------------------
                                                              2002         2001         2000        1999       1998        1997
                                                          ------------   ---------   ---------   ---------   ---------   ---------
                                                                                                       
Net asset value, beginning of year                        $ 11.62        $ 29.26     $ 25.54     $ 22.65     $ 22.41     $ 22.65
                                                          -------        -------     -------     -------     -------     -------
Income from investment operations:
     Net investment loss                                     (.16)          (.30)       (.49)       (.32)       (.22)       (.19)
     Net gains (losses) (both realized and unrealized)      (1.19)        (12.43)       5.14        5.53        3.32        4.77
                                                          -------        -------     -------     -------     -------     -------
   Total from investment operations                         (1.35)        (12.73)       4.65        5.21        3.10        4.58
                                                          -------        -------     -------     -------     -------     -------
Less distributions:
     Distributions from net realized gains                     --          (4.91)       (.93)      (2.32)      (2.86)      (4.82)
                                                          -------        -------     -------     -------     -------     -------
       Total distributions                                     --          (4.91)       (.93)      (2.32)      (2.86)      (4.82)
                                                          -------        -------     -------     -------     -------     -------
Net asset value, end of year                              $ 10.27        $ 11.62     $ 29.26     $ 25.54     $ 22.65     $ 22.41
                                                          =======        =======     =======     =======     =======     =======
Total return (a)                                           (11.71)%       (49.85)%     18.40%      23.93%      15.48%      24.25%
Net assets, end of year (in thousands)                    $ 7,507        $10,679     $26,878     $23,561     $17,100     $11,684
Ratios to average net assets:
     Expenses                                                2.10%(b)       2.10%       2.08%       2.04%       2.07%       2.18%
     Net investment income (loss)                           (1.33)%(b)     (1.60)%     (1.63)%     (1.34)%     (1.11)%     (1.13)%
     Expenses without waivers                                2.92%(b)       2.56%       2.17%       2.04%       2.07%       2.18%
     Net investment income (loss) without waivers           (2.15)%(b)     (2.07)%     (1.72)%     (1.34)%     (1.11)%     (1.13)%
Portfolio turnover rate (excluding short-term securities)    67.6%         129.6%      109.3%       60.1%       72.6%       71.5%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return presented has not
     been annualized.

(b)  Adjusted to an annual basis.


                                      108


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                          CLASS C
                                                         -----------------------------------------------------------------------
                                                         PERIOD FROM
                                                          OCTOBER 1,
                                                           2001 TO                     YEAR ENDED SEPTEMBER 30,
                                                           JULY 31,     --------------------------------------------------------
                                                             2002         2001         2000      1999       1998        1997
                                                         ------------   ---------    --------- ---------   ---------   ---------
                                                                                                     
Net asset value, beginning of year                       $ 11.71        $ 29.44      $ 25.69   $22.79      $22.38      $22.67
                                                         -------        -------      -------   ------      ------      ------
Income from investment operations:
     Net investment loss                                    (.16)          (.30)        (.51)    (.36)       (.24)       (.20)
     Net gains (losses) (both realized and unrealized)     (1.21)        (12.52)        5.19     5.58        3.51        4.73
                                                         -------        -------      -------   ------      ------      ------
       Total from investment operations                    (1.37)        (12.82)        4.68     5.22        3.27        4.53
                                                         -------        -------      -------   ------      ------      ------
Less distributions:
     Distributions from net realized gains                    --          (4.91)        (.93)   (2.32)      (2.86)      (4.82)
                                                         -------        -------      -------   ------      ------      ------
       Total distributions                                    --          (4.91)        (.93)   (2.32)      (2.86)      (4.82)
                                                         -------        -------      -------   ------      ------      ------
Net asset value, end of year                             $ 10.34        $ 11.71      $ 29.44   $25.69      $22.79      $22.38
                                                         =======        =======      =======   ======      ======      ======
Total return (a)                                          (11.71)%       (49.84)%      18.37%   23.82%      15.74%      24.03%
Net assets, end of year (in thousands)                   $   658        $   988      $ 2,396   $2,540      $2,299      $1,754
Ratios to average net assets:
     Expenses                                               2.10%(b)       2.10%        2.08%    2.04%       2.07%       2.18%
     Net investment income (loss)                          (1.33)%(b)     (1.60)%      (1.63)%  (1.34)%     (1.10)      (1.14)%
     Expenses without waivers                               2.92%(b)       2.56%        2.17%    2.04%       2.07%       2.18%
     Net investment income (loss) without waivers          (2.15)%(b)     (2.07)%      (1.72)%  (1.34)      (1.10)%     (1.14)%
Portfolio turnover rate (excluding short-term securities)   67.6%         129.6%      109.3%    60.1%       72.6%       71.5%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total returns presented has not
     been annualized.

(b)  Adjusted to an annual basis.


                                      109


ADVANTUS INDEX 500 FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                         CLASS A
                                                            -------------------------------------------------------------------
                                                                                    YEAR ENDED JULY 31,
                                                            -------------------------------------------------------------------
                                                              2002            2001          2000           1999           1998
                                                            ---------      ---------      ---------      ---------      -------
                                                                                                         
Net asset value, beginning of year                          $ 15.92        $ 18.93        $ 17.74        $ 15.06        $ 12.89
                                                            -------        -------        -------        -------        -------
Income from investment operations:
     Net investment income (loss)                               .11            .12            .10            .11            .10
     Net gains (losses) (both realized and unrealized)        (3.94)         (2.98)          1.27           2.74           2.21
                                                            -------        -------        -------        -------        -------
       Total from investment operations                       (3.83)         (2.86)          1.37           2.85           2.31
                                                            -------        -------        -------        -------        -------
Less distributions:
     Dividends from net investment income                      (.09)          (.10)          (.03)          (.10)          (.12)
     Distributions from net realized gains                       --           (.05)          (.15)          (.07)          (.02)
                                                            -------        -------        -------        -------        -------
       Total distributions                                     (.09)          (.15)          (.18)          (.17)          (.14)
                                                            -------        -------        -------        -------        -------
Net asset value, end of year                                $ 12.00        $ 15.92        $ 18.93        $ 17.74        $ 15.06
                                                            =======        =======        =======        =======        =======
Total return (a)                                             (24.14)%       (15.12)%         7.67%         19.13%         18.19%
Net assets, end of year (in thousands)                      $18,196        $24,870        $24,723        $25,498        $15,711
Ratios to average net assets:
     Expenses                                                   .75%           .75%           .75%           .75%           .74%
     Net investment income (loss)                               .77%           .72%           .52%           .64%           .83%
     Expenses without waivers                                  1.53%          1.43%          1.38%          1.43%          1.81%
     Net investment income (loss) without waivers              (.01)%          .04%          (.11)%         (.04)%         (.24)%
Portfolio turnover rate (excluding short-term securities)      13.6%          17.2%          42.6%          25.3%          59.2%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      110


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                          CLASS B
                                                            -------------------------------------------------------------------
                                                                                    YEAR ENDED JULY 31,
                                                            -------------------------------------------------------------------
                                                              2002            2001          2000           1999           1998
                                                            ---------      ---------      ---------      ---------      -------
                                                                                                         
Net asset value, beginning of year                          $ 15.66        $ 18.68        $ 17.64        $15.01         $ 12.87
                                                            -------        -------        -------        ------         -------
Income from investment operations:
     Net investment income (loss)                              (.01)          (.02)          (.06)         (.03)            .02
     Net gains (losses) (both realized and unrealized)        (3.86)         (2.93)          1.25          2.73            2.17
                                                            -------        -------        -------        ------         -------
       Total from investment operations                       (3.87)         (2.95)          1.19          2.70            2.19
                                                            -------        -------        -------        ------         -------
     Less distribution:
       Dividends from net investment income                    (.01)          (.02)           --            --             (.03)
       Distributions from net realized gains                     --           (.05)          (.15)         (.07)           (.02)
                                                            -------        -------        -------        ------         -------
         Total distributions                                   (.01)          (.07)          (.15)         (.07)           (.05)
                                                            -------        -------        -------        ------         -------
Net asset value, end of year                                $ 11.78        $ 15.66        $ 18.68        $17.64         $ 15.01
                                                            =======        =======        =======        ======         =======
Total return (a)                                             (24.80)%       (15.77)%         6.71%        18.10%          17.17%
Net assets, end of year (in thousands)                      $14,559        $21,931        $28,077        $24,202        $11,832
Ratios to average net assets:
     Expenses                                                  1.60%          1.60%          1.60%         1.60%           1.60%
     Net investment income (loss)                              (.08)%         (.11)%         (.33)%        (.21)%          (.06)%
     Expenses without waivers                                  2.28%          2.18%          2.13%         2.16%           2.51%
     Net investment income (loss) without waivers              (.76)%         (.69)%         (.86)%        (.77)%          (.97)%
Portfolio turnover rate (excluding short-term securities)      13.6%          17.2%          42.6%         25.3%           59.2%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      111


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                         CLASS C
                                                            -------------------------------------------------------------------
                                                                                    YEAR ENDED JULY 31,
                                                            -------------------------------------------------------------------
                                                              2002            2001          2000           1999           1998
                                                            ---------      ---------      ---------      ---------      -------
                                                                                                         
Net asset value, beginning of year                          $ 15.63        $ 18.64        $17.60         $14.97         $12.85
                                                            -------        -------        ------         ------         ------
Income from investment operations:
     Net investment income (loss)                              (.01)          (.03)         (.06)          (.03)           .01
     Net gains (losses) (both realized and unrealized)        (3.86)         (2.91)         1.25           2.73           2.16
                                                            -------        -------        ------         ------         ------
       Total from investment operations                       (3.87)         (2.94)         1.19           2.70           2.17
                                                            -------        -------        ------         ------         ------
     Less distributions:
       Dividends from net investment income                    (.01)          (.02)           --             --           (.03)
       Distributions from net realized gains                     --           (.05)         (.15)          (.07)          (.02)
                                                            -------        -------        ------         ------         ------
         Total distributions                                   (.01)          (.07)         (.15)          (.07)          (.05)
                                                            -------        -------        ------         ------         ------
Net asset value, end of year                                $ 11.75        $ 15.63        $18.64         $17.60         $14.97
                                                            =======        =======        ======         ======         ======
Total return (a)                                             (24.80)%       (15.80)%        6.73%         18.03%         17.09%
Net assets, end of year (in thousands)                      $ 1,605        $ 2,291        $3,168         $2,910         $1,508
Ratios to average net assets:
     Expenses                                                  1.60%          1.60%         1.60%          1.60%          1.60%
     Net investment income (loss)                              (.08)%         (.11)%        (.33)%         (.21)%         (.06)%
     Expenses without expense waivers                          2.28%          2.18%         2.13%          2.16%          2.51%
     Net investment income (loss) without waivers              (.76)%         (.69)%        (.86)%         (.77)%         (.97)%
Portfolio turnover rate (excluding short-term securities)      13.6%          17.2%         42.6%          25.3%          59.2%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      112


ADVANTUS REAL ESTATE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                      CLASS A                           CLASS B
                                                            ------------------------------------------------------   -------------
                                                                                                      PERIOD FROM     PERIOD FROM
                                                                                                      FEBRUARY 25,    NOVEMBER 28,
                                                                      YEAR ENDED JULY 31,              1999(d) TO       2001(e) TO
                                                              2002           2001           2000     JULY 31, 1999   JULY 31, 2002
                                                            --------       --------       --------   -------------   -------------
                                                                                                         
Net asset value, beginning of year                          $ 11.67        $ 11.23        $ 10.25        $10.02         $11.56
                                                            -------        -------        -------        ------         ------
Income from investment operations:
     Net investment income                                      .32            .51            .43           .18            .11
     Net gains
       (both realized and unrealized)                          1.01            .47           1.00           .31           1.23
                                                            -------        -------        -------        ------         ------
         Total from investment operations                      1.33            .98           1.43           .49           1.34
                                                            -------        -------        -------        ------         ------
Less distributions:
     Distributions from net investment income                  (.28)          (.54)          (.41)         (.18)          (.22)
     Distributions from net realized gains                     (.79)            --           (.04)           --           (.79)
     Excess distributions of net investment income               --             --             --          (.08)            --
                                                            -------        -------        -------        ------         ------
         Total distributions                                  (1.07)          (.54)          (.45)         (.26)         (1.01)
                                                            -------        -------        -------        ------         ------
Net asset value, end of year                                $ 11.93        $ 11.67        $ 11.23        $10.25         $11.89
                                                            =======        =======        =======        ======         ======
Total return (a)                                              12.31%          9.10%         14.89%         4.78%          7.75%
Net assets, end of year (in thousands)                      $32,269        $17,336        $11,704        $6,113         $1,131
Ratios to average net assets:
     Expenses                                                  1.50%          1.50%          1.50%         1.50%(b)       2.40%(b)
     Net investment income (loss)                              2.83%          4.29%          4.26%         4.09%(b)       1.29%(b)
     Expenses without waivers                                  1.69%          1.99%          2.72%         3.49%(b)       2.44%(b)
     Net investment income (loss) without waivers              2.64%          3.81%          3.04%         2.10%(b)       1.25%(b)
Portfolio turnover rate (excluding short-term securities)     101.2%         173.1%         116.8%         51.5%         101.2%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges. For periods less than one year, total return presented has not
     been annualized.

(b)  Adjusted to an annual basis.

(d)  Date shares became effectively registered.

(e)  Inception date of the Class B shares


                                      113


ADVANTUS VENTURE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                           CLASS A
                                                            -------------------------------------------------------------------
                                                                                      YEAR ENDED JULY 31,
                                                            -------------------------------------------------------------------
                                                              2002           2001           2000           1999           1998
                                                            --------       --------       --------       --------       -------
                                                                                                         
Net asset value, beginning of year                          $ 15.05        $ 11.47        $ 11.20        $ 12.03        $ 11.73
                                                            -------        -------        -------         ------         ------
Income from investment operations:
     Net investment income (loss)                              (.08)          (.06)           .05            .10            .06
     Net gains (losses) (both realized and unrealized)        (1.84)          4.04            .32           (.59)           .98
                                                            -------        -------        -------         ------         ------
       Total from investment operations                       (1.92)          3.98            .37           (.49)          1.04
                                                            -------        -------        -------         ------         ------
Less distributions:
     Dividends from net investment income                        --             --           (.06)          (.09)          (.08)
     Dividends in excess of net investment income                --             --           (.04)            --             --
     Distributions from net realized gains                     (.88)          (.40)            --           (.23)          (.66)
     Tax return of capital                                       --             --             --           (.02)            --
                                                            -------        -------        -------         ------         ------
       Total distributions                                     (.88)          (.40)          (.10)          (.34)          (.74)
                                                            -------        -------        -------         ------         ------
Net asset value, end of year                                $ 12.25        $ 15.05        $ 11.47        $ 11.20        $ 12.03
                                                            =======        =======        =======         ======         ======
Total return (a)                                             (13.27)%        35.18%          3.74%         (3.89)%         8.92%
Net assets, end of year (in thousands)                      $53,071        $54,735        $31,371        $31,683        $34,630
Ratios to average net assets:
     Expenses                                                  1.27%          1.40%          1.40%          1.40%          1.38%
     Net investment income (loss)                              (.57)%         (.56)%          .63%           .81%           .55%
     Expenses without waivers                                  1.37%          1.51%          1.71%          1.64%          1.55%
     Net investment income (loss) without waivers              (.67)%         (.67)%          .32%           .57%           .38%
Portfolio turnover rate (excluding short-term securities)      37.3%          37.8%         169.0%         103.9%          45.0%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      114


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                         CLASS B
                                                            ---------------------------------------------------------------
                                                                                   YEAR ENDED JULY 31,
                                                            ---------------------------------------------------------------
                                                              2002          2001          2000          1999          1998
                                                            --------      --------      --------      --------      -------
                                                                                                     
Net asset value, beginning of year                          $ 14.77       $11.36        $11.11        $11.94        $11.71
                                                            -------      -------       -------        ------        ------
Income from investment operations:
     Net investment income (loss)                              (.17)        (.16)         (.04)           --          (.02)
     Net gains (losses) (both realized and unrealized)        (1.82)        3.97           .32          (.58)          .92
                                                            -------      -------       -------        ------        ------
       Total from investment operations                       (1.99)        3.81           .28          (.58)          .90
                                                            -------      -------       -------        ------        ------
Less distributions:
     Dividends from net investment income                        --           --          (.02)         (.02)         (.01)
     Distributions from net realized gains                     (.88)        (.40)           --          (.23)         (.66)
     Dividends in excess of net investment income                --           --          (.01)           --            --
                                                            -------      -------       -------        ------        ------
       Total distributions                                     (.88)        (.40)         (.03)         (.25)         (.67)
                                                            -------      -------       -------        ------        ------
Net asset value, end of year                                $ 11.90       $14.77        $11.36        $11.11        $11.94
                                                            =======      =======       =======        ======        ======
Total return (a)                                             (14.02)%      34.01%         2.89%        (4.77)%        7.65%
Net assets, end of year (in thousands)                      $ 4,531       $4,114        $2,500        $3,115        $3,529
Ratios to average net assets:
     Expenses                                                  2.12%        2.25%         2.24%         2.25%         2.25%
     Net investment income (loss)                             (1.42)%      (1.41)%        (.24)%        (.04)%        (.26)%
     Expenses without waivers                                  2.12%        2.26%         2.45%         2.36%         2.25%
     Net investment income (loss) without waivers             (1.42)%      (1.42)%        (.45)%        (.15)%        (.26)%
Portfolio turnover rate (excluding short-term securities)      37.3%        37.8%        169.0%        103.9%         45.0%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      115


Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                         CLASS C
                                                            ---------------------------------------------------------------
                                                                                   YEAR ENDED JULY 31,
                                                            ---------------------------------------------------------------
                                                              2002          2001          2000          1999          1998
                                                            --------      --------      --------      --------      -------
                                                                                                     
Net asset value, beginning of year                          $ 14.83       $11.41        $11.15        $11.98        $11.71
                                                            -------      -------       -------        ------        ------
Income from investment operations:
     Net investment income (loss)                              (.14)        (.15)         (.03)         (.01)         (.03)
     Net gains (losses) (both realized and unrealized)        (1.85)        3.98           .32          (.57)          .97
                                                            -------      -------       -------        ------        ------
       Total from investment operations                       (1.99)        3.83           .29          (.58)          .94
                                                            -------      -------       -------        ------        ------
Less distributions:
     Dividends from net investment income                        --           --          (.02)         (.02)         (.01)
     Distributions from net realized gains                     (.88)        (.40)           --          (.23)         (.66)
     Distributions in excess of net investment income            --           --          (.01)           --            --
                                                            -------      -------       -------        ------        ------
       Total distributions                                     (.88)        (.40)         (.03)         (.25)         (.67)
                                                            -------      -------       -------        ------        ------
Net asset value, end of year                                $ 11.96       $14.83        $11.41        $11.15        $11.98
                                                            =======      =======       =======        ======        ======
Total return (a)                                             (13.96)%      33.94%         2.95%        (4.81)%        7.90%
Net assets, end of year (in thousands)                      $ 1,477       $  479        $  273        $  467        $  702
Ratios to average net assets:
     Expenses                                                  2.12%        2.25%         2.24%         2.25%         2.25%
     Net investment income (loss)                             (1.42)%      (1.41)%        (.24)%        (.04)%        (.26)%
     Expenses without waivers                                  2.12%        2.26%         2.45%         2.36%         2.25%
     Net investment income (loss) without waivers             (1.42)%      (1.42)%        (.45)%        (.15)%        (.26)%
Portfolio turnover rate (excluding short-term securities)      37.3%        37.8%        169.0%        103.9%         45.0%


- ----------

(a)  Total return figures presented for the periods stated above assume
     reinvestment of distributions and do not include the effects of sales
     charges.


                                      116


INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Advantus Cornerstone Fund, Inc.
Advantus Enterprise Fund, Inc.
Advantus Horizon Fund, Inc.
Advantus Index 500 Fund, Inc.
Advantus Real Estate Securities Fund, Inc.
Advantus Venture Fund, Inc.

      We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Advantus Cornerstone
Fund, Inc., Advantus Enterprise Fund, Inc., Advantus Horizon Fund, Inc.,
Advantus Index 500 Fund, Inc., Advantus Real Estate Securities Fund, Inc.,
and Advantus Venture Fund, Inc. as of July 31, 2002, and the related
statements of operations and statements of changes in net assets and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of July 31, 2002, by
correspondence with the custodian or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

      In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Advantus Cornerstone Fund, Inc., Advantus Enterprise Fund, Inc.,
Advantus Horizon Fund, Inc., Advantus Index 500 Fund, Inc., Advantus Real
Estate Securities Fund, Inc., and Advantus Venture Fund, Inc. as of July 31,
2002, and the results of their operations, changes in their net assets and
the financial highlights for each of the periods presented, in conformity
with accounting principles generally accepted in the United States of America.


                                    KPMG LLP

Minneapolis, MN
September 6, 2002

                                       117


                    FEDERAL INCOME TAX INFORMATION (UNAUDITED)

     The following information for federal income tax purposes is presented
as an aid to shareholders in reporting the distributions paid by the Fund in
the fiscal period ended July 31, 2002. Dividends for the 2001 calendar  year
will be reported to you on Form 1099-Div in late January 2003. Shareholders
should consult a tax adviser on how to report these distributions for state
and local purposes.

ADVANTUS CORNERSTONE FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR
DEDUCTION BY CORPORATIONS


CLASS A




                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                       .0350
March 28, 2002                                                          .0161
June 21, 2002                                                           .0243
                                                                       ------
                                                                       $.0754
                                                                       ======


CLASS B



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                      $.0086
                                                                       ======


CLASS C



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                      $.0088
                                                                       ======


ADVANTUS INDEX 500 FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 100% QUALIFYING FOR
DEDUCTION BY CORPORATIONS

CLASS A



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
September 20, 2001                                                     $.0127
December 20, 2001                                                       .0359
March 28, 2002                                                          .0147
June 21, 2002                                                           .0274
                                                                       ------
                                                                       $.0907
                                                                       ======


CLASS B



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                      $.0050
                                                                       ======



CLASS C



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                      $.0047
                                                                       ======


                                      118


ADVANTUS REAL ESTATE SECURITIES FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 1.3% QUALIFYING FOR
DEDUCTION BY CORPORATIONS.

CLASS A



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
September 20, 2001                                                     $.0196
December 20, 2001                                                       .1667
March 29, 2002                                                          .0369
June 21, 2002                                                           .0581
                                                                       ------
                                                                       $.2813
                                                                       ======
Capital gains distributions-taxable as long-term
capital gains, 20% rate. December 14, 2001*                            $.7906
                                                                       ======


* Represents $.4137 of short-term capital gains (taxable as dividend income).

CLASS B



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    
December 20, 2001                                                      $.1603
April 3, 2002                                                           .0229
June 21, 2002                                                           .0390
                                                                       ------
                                                                       $.2222
                                                                       ======
Capital gains distributions-taxable as
long-term capital gains, 20% rate. December 14, 2001*                  $.7906
                                                                       ======



* Represents $.4137 of short-term capital gains (taxable as dividend income).

ADVANTUS VENTURE FUND

INCOME DISTRIBUTION - TAXABLE AS DIVIDEND INCOME, 17.4% QUALIFYING FOR
DEDUCTION BY CORPORATIONS.

CLASS A, CLASS B AND CLASS C



                                                                         PER
PAYABLE DATE                                                            SHARE
- ------------                                                           -------
                                                                    

Capital gains distributions-taxable as long-term
capital gains, 20% rate. December 14, 2001*                            $.8831
                                                                       ======


* Represents $.5353 of short-term capital gains (taxable as dividend income).

                                       119


ADVANTUS FUNDS

DIRECTORS AND EXECUTIVE OFFICERS

Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund,
and review the performance of the Fund. Certain of the directors are
considered "interested persons" (as defined in the Investment Company Act of
1940) of the Fund primarily by reason of their engagement as officers of the
Fund's investment adviser, Advantus Capital Management, Inc. ("Advantus
Capital"), or as officers of companies affiliated with Advantus Capital,
including Minnesota Life Insurance Company ("Minnesota Life"). The remaining
directors, because they are not interested persons of the Fund, are
considered independent ("Independent Directors") and are not employees or
officers of, and have no financial interest in, Advantus Capital, Minnesota
Life or their other affiliates. A majority of the Board of Directors is
comprised of Independent Directors.

The individuals listed in the table below serve as directors and officers of
each Fund, and also serve in the same capacity for each of the other six
Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 30 portfolios, for which Advantus Capital serves as
the investment adviser). Only executive officers and other officers who
perform policy-making functions with the Funds are listed. None of the
directors is a director of any public company (a company required to file
reports under the Securities Exchange Act of 1934) or of any registered
investment companies other than the Advantus Funds. Each director serves for
an indefinite term, until his or her resignation, death or removal.



                                  POSITION WITH FUND
NAME, ADDRESS(1)                  AND LENGTH OF           PRINCIPAL OCCUPATION(S)
AND AGE                           TIME SERVED             DURING PAST 5 YEARS
                                                    
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
William N. Westhoff                Director since          Retired; prior to July 26, 2002, President, Treasurer
Age: 55                            July 23, 1998           and Director, Advantus Capital Management, Inc.;
                                                           Senior Vice President and Treasurer, Minnesota
                                                           Life Insurance Company; Senior Vice President,
                                                           Global Investments, American Express Financial
                                                           Corporation, Minneapolis, Minnesota, from
                                                           August 1994 to October 1997

Frederick P. Feuerherm             Vice President,         Vice President, Assistant Secretary and Director,
Age: 55                            Director and            Advantus Capital Management, Inc.; Vice
                                   Treasurer since         President, Minnesota Life Insurance Company;
                                   July 13, 1993           Vice President, Minnesota Mutual Companies,
                                                           Inc.; Vice President, Securian Financial Group,
                                                           Inc.; Vice President, Securian Holding Company;
                                                           Vice President and Director, MIMLIC Funding,
                                                           Inc. (entity holding legal title to bonds beneficially
                                                           owned by certain clients of Advantus Capital);
                                                           Vice President and Assistant Secretary, MCM
                                                           Funding 1997-1, Inc. and MCM Funding 1998-1,
                                                           Inc. (entities holding legal title to mortgages
                                                           beneficially owned by certain clients of Advantus
                                                           Capital); Treasurer, Ministers Life Resources, Inc.;
                                                           Treasurer, The Ministers Life Insurance Company


                                       120




                                                     
- --------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------------------------------------------------
Ralph D. Ebbott                    Director since          Retired, Vice President and Treasurer of
Age: 75                            February 25, 1985       Minnesota Mining and Manufacturing Company
                                                           (industrial and consumer products) through
                                                           June 1989

William C. Melton                  Director since          Founder and President of Melton Research Inc.
Age: 54                            April 25, 2002          since 1997; member of the Advisory Board of
                                                           Macroeconomic Advisors LLC since 1998;
                                                           member, Minneapolis StarTribune Board of
                                                           Economists since 1986; member, State of
                                                           Minnesota Council of Economic
                                                           Advisors from  1988 to 1994; various senior positions
                                                           at American Express Financial Advisors (formerly
                                                           Investors Diversified Services and, thereafter,
                                                           IDS/American Express) from 1982 through
                                                           1997, including Chief Economist and, thereafter,
                                                           Chief International Economist

Ellen S. Berscheid                 Director since          Regents' Professor of Psychology
Age: 65                            October 22, 1985        at the University of Minnesota

- --------------------------------------------------------------------------------------------------------------------------
OTHER EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Dianne M. Orbison                  President since         President and Treasurer, Advantus Capital
Age: 50                            July 25, 2002           Management, Inc.; Vice President and Treasurer,
                                                           Minnesota Life Insurance Company; Vice President
                                                           and Treasurer, Minnesota Mutual Companies, Inc.;
                                                           Vice President and Treasurer, Securian Financial
                                                           Group, Inc.; Vice President and Treasurer, Securian
                                                           Holding Company; President and Treasurer, MIMLIC
                                                           Funding, Inc. (entity holding legal title to bonds
                                                           beneficially owned by certain clients of Advantus
                                                           Capital); President and Treasurer, MCM Funding
                                                           1997-1, Inc. and MCM Funding 1998-1, Inc. (entities
                                                           holding legal title to mortgages beneficially owned by
                                                           certain clients of Advantus Capital)

Michael J. Radmer                  Secretary since         Partner with the law firm of
Dorsey & Whitney LLP               February 25, 1998       Dorsey & Whitney LLP
50 South Sixth Street
Minneapolis,
Minnesota 55402
Age: 57


- ------------------

(1) Unless otherwise noted, the address of each director and officer is the
    address of the Funds: 400 Robert Street North, St. Paul, Minnesota 55101.

The Funds Statement of Additional Information (SAI) includes additional
information about Fund directors, and is available, without charge, upon
request. You may request a copy of the current SAI by telephoning Advantus
Shareholder Services, toll free, at (800) 665-6005.

                                       121


SHAREHOLDER SERVICES

     The Advantus Family of Funds offers a variety of services that enhance
your ability to manage your assets. Check each Fund's prospectus for the
details of the services and any limitations that may apply.

EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations
within the same share class) at any time as your needs change. Exchanges are
at the then current net asset value (exchanges from the Advantus Money Market
Fund will incur the applicable sales charge, if not previously subjected to
the charge). Shareholders may make twelve exchanges each calendar year
without incurring a transaction charge. Thereafter, there will be a $7.50
transaction charge for each additional exchange within the calendar year.

INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you
desire, we'll pay you in cash.

SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the
value may be worth more or less than the original amount invested when
withdrawn.

DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead
of sending you a check.

TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.

SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".

AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.

REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it
possible for you to reduce the sales charge, if any.

                                       122


AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $25 and lower your average share cost
through "dollar-cost averaging." (Dollar-cost averaging does not assure a
profit, nor does it prevent loss in declining markets.) The Automatic
Investment Plan allows you to invest automatically monthly, semi-monthly or
quarterly from your checking or savings account.

IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for
your Traditional, Roth or Education Individual Retirement Account or other
qualified plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k)
Money Purchase or Defined Benefit plans.

TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or
wire transferred to your bank of record for the account. Wire transfers are
for amounts over $500. The prevailing wire charge will be added to the
withdrawal amount. The Telephone Redemption privilege will automatically be
established unless otherwise indicated on the Account Application. Telephone
Redemption may be changed (added/deleted) at any time by submitting a request
in writing. To have the redemption automatically deposited into your checking
account, please send a voided check from your bank. Depending on the
performance of the underlying investment options, the value may be worth more
or less than the original amount invested upon redemption. Some limitations
apply, please refer to the prospectus for details.

ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.

TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from
7:30 a.m. to 5:15 p.m. Central Time. Our voice response system is available
24 hours, seven days a week. This system allows you to access current net
asset values, account balances and recent account activity.

INTERNET ADDRESS: www.AdvantusFunds.com

HOW TO INVEST

You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Securian Financial Services, Inc., distributor
of the

                                       123


Funds. Contact your representative for information and a prospectus
containing more complete information including charges and expenses, for any
of the Advantus Funds you are interested in. Read the prospectus carefully
before investing. To find a Registered Representative near you, call the
toll-free service line (1-800-665-6005) or visit www.AdvantusFunds.com.

MINIMUM INVESTMENTS: Your initial investment in any of the Advantus Funds can
be as small as $25 when you use our Automatic Investment Plan. Minimum
lump-sum initial investment is $250. Minimum subsequent investment is $25.

THE FUND'S MANAGER

Advantus Capital Management, Inc., investment adviser to the Fund, selects
and reviews the Fund's investments and provides executive and other personnel
for the Fund's management. (For the Advantus International Balanced Fund,
Inc., Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset
Management, LLC, and State Street Research & Management Company,
respectively, selects the Fund's investments.)

Advantus Capital Management, Inc. manages twelve mutual funds containing $2.3
billion in assets in addition to $13.3 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 15 years of
investment experience.

ADVANTUS FAMILY OF FUNDS

Advantus Bond Fund

Advantus Horizon Fund

Advantus Spectrum Fund

Advantus Enterprise Fund

Advantus Cornerstone Fund

Advantus Money Market Fund

Advantus Mortgage Securities Fund

Advantus International Balanced Fund

Advantus Venture Fund

Advantus Index 500 Fund

Advantus Real Estate Securities Fund

                                        124


           THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
            TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT APPLICABLE
                                  MUTUAL FUND PROSPECTUS.

                     READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.


                                   [ADVANTUS LOGO]
                                     ADVANTUS(TM)
                                  CAPITAL MANAGEMENT


                                Distributed by:
                                SECURIAN FINANCIAL SERVICES, INC.
                                Securities Dealer, Member NASD/SIPC.
                                Registered Investment Advisor

                                400 Robert Street North, St. Paul, MN 55101-2098
                                1.888.237.1838
                                3010-2002-3864


SECURIAN FINANCIAL SERVICES, INC.
400 ROBERT STREET NORTH
ST. PAUL, MN 55101-2098

                                                              PRESORTED STANDARD
                                                               U.S. POSTAGE PAID
                                                                 ST. PAUL, MN
                                                               PERMIT NO. 3547

ADDRESS SERVICE REQUESTED


F. 58297 Rev. 9-2002

EX-99.(17)(Z)

                                                                 Exhibit (17)(z)

ADVANTUS EQUITY FUNDS

[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

SEMI-ANNUAL REPORT TO SHAREHOLDERS
DATED JANUARY 31, 2003

ADVANTUS CORNERSTONE FUND, INC.
A LARGE COMPANY VALUE FUND

ADVANTUS ENTERPRISE FUND, INC.
A SMALL COMPANY GROWTH FUND

ADVANTUS HORIZON FUND, INC.
A LARGE COMPANY GROWTH FUND

ADVANTUS INDEX 500 FUND, INC.
A LARGE COMPANY INDEX FUND

ADVANTUS REAL ESTATE SECURITIES FUND, INC.
A REAL ESTATE - RELATED SECURITIES FUND

ADVANTUS VENTURE FUND, INC.
A SMALL COMPANY VALUE FUND

CUT DOWN PAPERWORK, NOT TREES

ADVANTUS NOW OFFERS E-DELIVERY OF PROSPECTUSES, ANNUAL AND SEMI-ANNUAL REPORTS.
TO FIND OUT MORE, CALL ADVANTUS SHAREHOLDER SERVICES AT (800) 665-6005.



SUPPLEMENT DATED FEBRUARY 3, 2003 TO THE PROSPECTUS DATED NOVEMBER 29, 2002

     ADVANTUS CORNERSTONE FUND, INC.
     ADVANTUS ENTERPRISE FUND, INC.
     ADVANTUS HORIZON FUND, INC.
     ADVANTUS INDEX 500 FUND, INC.
     ADVANTUS REAL ESTATE SECURITIES FUND, INC.
     ADVANTUS VENTURE FUND, INC.

I.     In connection with Advantus Cornerstone Fund, Inc., footnote (c) to the
       table of fees and expenses on page 5 of the prospectus is amended to read
       as follows:

       (c)    Advantus Capital Management, Inc. (Advantus Capital), the Fund's
              investment adviser, has voluntarily agreed to absorb "other
              expenses", excluding advisory fees and Rule 12b-1 fees, in excess
              of .39% of average net assets of the Fund. After such absorption,
              the ratio of total fund operating expenses to average net assets
              will be 1.34% for Class A shares and 2.09% for Class B and Class C
              shares. Advantus Capital reserves the right to discontinue such
              absorption at any time at its sole discretion.

II.    In connection with Advantus Enterprise Fund, Inc., footnote (c) to the
       table of fees and expenses on page 10 of the prospectus is amended to
       read as follows:

       (c)    Advantus Capital Management, Inc. (Advantus Capital), the Fund's
              investment adviser, has voluntarily agreed to absorb "other
              expenses", excluding advisory fees and Rule 12b-1 fees, in excess
              of .58% of average net assets of the Fund. After such absorption,
              the ratio of total fund operating expenses to average net assets
              will be 1.53% for Class A shares and 2.28% for Class B and Class C
              shares. Advantus Capital reserves the right to discontinue such
              absorption at any time at its sole discretion.

III.   In connection with Advantus Horizon Fund, Inc., footnote (c) to the table
       of fees and expenses on page 15 of the prospectus is amended to read as
       follows:

       (c)    Advantus Capital Management, Inc. (Advantus Capital), the Fund's
              investment adviser, has voluntarily agreed to absorb "other
              expenses", excluding advisory fees and Rule 12b-1 fees, in excess
              of .45% of average net assets of the Fund. After such absorption,
              the ratio of total fund operating expenses to average net assets
              will be 1.40% for Class A shares and 2.15% for Class B and Class C
              shares. Advantus Capital reserves the right to discontinue such
              absorption at any time at its sole discretion.

Investors should retain this supplement for future reference.
F.58814 2-2003



ADVANTUS Equity Funds

TABLE OF CONTENTS

                                                                      
PERFORMANCE UPDATES

     Cornerstone Fund                                                     3

     Enterprise Fund                                                      8

     Horizon Fund                                                        13

     Index 500 Fund                                                      19

     Real Estate Securities Fund                                         23

     Venture Fund                                                        28

INVESTMENTS IN SECURITIES

     Cornerstone Fund                                                    32

     Enterprise Fund                                                     37

     Horizon Fund                                                        42

     Index 500 Fund                                                      48

     Real Estate Securities Fund                                         65

     Venture Fund                                                        68

FINANCIAL STATEMENTS

     Statements of Assets and Liabilities                                78

     Statements of Operations                                            80

     Statements of Changes in Net Assets                                 82

     Notes to Financial Statements                                       88

DIRECTORS AND EXECUTIVE OFFICERS                                        114

SHAREHOLDER SERVICES                                                    116





Letter from the President

[PHOTO]

Dear Shareholders:

Although economic growth has slowed dramatically, it has not stopped, and I
believe that is reason for optimism. Growth drives our economy and markets. In
the first six months of 2002, growth, as measured by the gross national product,
dropped from 5 percent to 1.3 percent, with a similar up and down pattern in the
second half of the year, as well. Over the past two years, we've had
unprecedented levels of fiscal and monetary stimuli that simply have not taken
hold. Stimulative fiscal and monetary policies -- together with low inflation --
are in place. I feel these are powerful tools to help mend an ailing economy,
but these policies have generated a limited economic rebound so far.

Staying optimistic has been a daunting task for equity investors. The S&P 500*
ended the year at -22.10 percent. This was the third consecutive year of
negative returns in this broad market index, which hasn't occurred since the
period from 1939 through 1941. Missed or reduced earnings, accounting fraud, and
no distinct catalyst for an equity market recovery impacted investor sentiment.
Market upswings came in short limited spurts in the second half of the year, but
nothing that resembled a dramatic recovery. As sentiment sank lower, more
uncertainty was unleashed in the market.

Fallout from corporate scandals and accounting problems was not limited to the
stock market. The corporate bond sector of the fixed income market was also
adversely affected by numerous defaults and bankruptcies. In 2002, slowing U.S.
and global economies, continued equity market volatility, and growing global
tensions have all contributed to an environment of extreme uncertainty. In
periods of uncertainty, investors become defensive. On the domestic front,
Treasuries were the year's strongest performers.

Under our forecasted scenario for 2003, we expect that the capital markets
should perform marginally better than they did in 2002. We believe that in 2003:

- -    Corporate profits will improve, however, investors will not be convinced
     until they are both reported and CONFIRMED. It will be important that
     perception of corporate governance and fiduciary integrity improve before
     the main street investor feels comfortable reentering the market en masse.

                                        1


- -    The Federal Reserve has aggressively eased monetary policy over the past
     two years, and we expect the highly stimulative policy to remain in place
     until a "confirmed" pattern of historic trend growth is evident. Under this
     circumstance, we believe bonds will remain in a trading range with only
     moderate upward pressure on the front end of the yield curve as the Fed
     gradually puts the brakes to its policy of easing. We expect this to happen
     late in the year. The Fed will probably not complete the process of
     restoring the fed funds rate to neutral until 2004 or later.

- -    Corporate credits will very slowly improve as debt is reduced and profits
     begin to improve. We believe this will result in narrowing yield spreads
     which consequently will result in corporate bonds outperforming U.S.
     Treasury bonds.

Overall, in 2003, we believe investors will begin to recapture some of the
equity losses incurred over the past three painful years.

Sincerely,

/s/ Dianne Orbison

Dianne Orbison
President, Advantus Funds


Past performance is not necessarily indicative of future results.

*The S&P 500 INDEX is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall.

                                        2


Advantus Cornerstone Fund

MATTHEW D. FINN AND
MATT NORRIS, PORTFOLIO MANAGERS,
ADVANTUS CAPITAL MANAGEMENT

PERFORMANCE
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                      
     Class A                  - 6.17 percent*
     Class B                  - 6.42 percent*
     Class C                  - 6.43 percent*

     

This compares to the Fund's benchmark , the Russell 1000 Value Index**, which
lost -4.56 percent for the same period.

PERFORMANCE ANALYSIS
Equity returns were quite volatile for the six month period ending January 31,
2003. The market rose in August, fell in the first week of October to lows not
seen since 1997, rallied sharply into January, then retracted most of its gains
by the end of the month. Each of these moves was greater than 20 percent.
Investors were focused on changing expectations for the economy and a possible
war in the Middle East.

The better performing market sectors included Technology-Software, Communication
Equipment, Communication Service providers and Advertising, Broadcasting and
Publishing. These sectors were characterized by two things: First, they are
sectors that were extremely oversold and inexpensive, and second, they are
sectors that we feel will benefit from a strengthening economy. Other
economically-sensitive sectors were some of the worst, including Consumer
Cyclical sectors such as automotive, retail, and leisure. These sectors had
experienced better performance earlier in the year, and did not do well when
investors started looking in other investment areas.

The Fund added performance with investments in the Utility sector, where a
number of names were oversold in October and bounced back nicely. Good stock
selection helped the Fund avoid the weak automotive names, while investing in a
number that did well. Consumer Staples also added to performance. The Fund was
hurt by our holdings in the semiconductor area. Weak operating metrics have led
to a number of individual semiconductor names falling within value parameters.
We bought these names at that time, however our investments were made too early
as operations have yet to improve. We anticipate better operating metrics will
soon appear, and continue to hold the same investments.

                                        3


OUTLOOK
The domestic economy continues to move in fits and starts, leading to the choppy
performance of the equity markets. While we believe the long term economy is
sound, we cannot predict the timing or strength of recovery. Therefore, we
continue to focus on fundamental analysis of individual stocks due to our belief
that we can identify investments that meet our criteria. The stock price must be
trading below what we feel it should be worth, operating metrics must be stable
or improving, and a near term catalyst must exist that will move the stock price
up to its fair value. Our bottom up research focuses on our comprehensive study
of a firm's financial statements, tying the balance sheet, income statement and
cash flow statement together, and combining that with an understanding of what
company management is trying to accomplish. Understanding these issues on a
company-by-company basis will help us take advantage of market movements and
select individual stocks that offer opportunities for purchase and sale.


*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Russell 1000 Value Index contains those stocks from the Russell 1000 with
low book to price ratio. The Russell 1000 is the 1,000 largest companies in the
Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks,
which represents approximately 98 percent of the U.S. market

                                        4


TEN LARGEST STOCK HOLDINGS



                                               MARKET      % OF STOCK
COMPANY                         SHARES         VALUE        PORTFOLIO
- -------                       ----------   -------------   ----------
                                                     
Exxon Mobil Corporation        105,306     $   3,596,198       5.8%
Bank of America Corporation     33,600         2,353,680       3.8%
Citigroup, Inc.                 64,613         2,221,395       3.6%
U.S. Bancorp                    92,658         1,955,084       3.1%
Wachovia Corporation            52,700         1,895,619       3.0%
Verizon Communications          45,557         1,743,922       2.8%
Wells Fargo & Company           36,700         1,738,479       2.8%
Brunswick Corporation           81,300         1,582,911       2.5%
International Business
  Machines Corporation          18,800         1,470,724       2.4%
SBC Communications, Inc.        56,442         1,379,443       2.2%
                                           -------------      ----
                                           $  19,937,455      32.0%
                                           =============      ====


[CHART]

                                             
Cash and Other Assets/Liabilities                0.10%
Transportation                                   0.70%
Basic Materials                                  4.20%
Capital Goods                                    4.70%
Health Care                                      5.80%
Utilities                                        6.20%
Communication Services                           6.70%
Consumer Cyclical                                7.00%
Consumer Staples                                 9.60%
Technology                                       9.80%
Energy                                          11.90%
Financial                                       33.30%



                                        5


                        COMPARISON OF CHANGE IN VALUE OF
         A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS CORNERSTONE FUND,
                RUSSELL 1000 VALUE INDEX AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Cornerstone Fund compared to the Russell 1000
Value Index, and the Consumer Price Index. The lines in each graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus Cornerstone Fund
(September 16, 1994 for Class A and Class B and March 1, 1995 for Class C)
through January 31, 2003.

[CHART]

                                  CLASS A AND B

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
Class A:
  One year                           -21.44%
  Five year                           -6.75%
  Since inception (9/16/94)            3.95%
Class B:
  One year                           -21.58%
  Five year                           -6.66%
  Since inception (9/16/94)            3.84%



(Thousands)



                                               RUSSELL 1000
                     CLASS A       CLASS B     VALUE INDEX        CPI
                                                   
9/16/1994          $   10,000    $   10,000    $     10,000    $   10,000
9/30/1994          $    9,325    $    9,870    $      9,743    $   10,054
9/30/1995          $   11,598    $   11,708    $     12,441    $   10,275
9/30/1996          $   14,441    $   14,649    $     14,673    $   10,570
9/30/1997          $   19,980    $   20,400    $     20,880    $   10,818
9/30/1998          $   16,694    $   16,947    $     21,629    $   10,973
9/30/1999          $   18,384    $   18,531    $     25,678    $   11,261
9/30/2000          $   18,605    $   18,764    $     27,965    $   11,643
9/30/2001          $   15,634    $   15,648    $     25,474    $   11,952
7/31/2002          $   14,435    $   14,647    $     24,463    $   12,066
1/31/2003          $   13,802    $   13,707    $     23,348    $   12,220


                                        6


[CHART]

                                     CLASS C

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -17.43%
Five year                             -6.38%
Since inception (3/1/95)               3.87%



(Thousands)



                                 RUSSELL 1000
                     CLASS C     VALUE INDEX        CPI
                                        
 3/1/1995          $   10,000    $     10,000    $   10,000
9/30/1995          $   12,013    $     12,107    $   10,146
9/30/1996          $   14,846    $     14,280    $   10,437
9/30/1997          $   20,354    $     20,320    $   10,682
9/30/1998          $   16,838    $     21,049    $   10,834
9/30/1999          $   18,411    $     24,989    $   11,119
9/30/2000          $   18,493    $     27,214    $   11,497
9/30/2001          $   15,427    $     24,790    $   11,801
7/31/2002          $   14,438    $     23,807    $   11,914
1/31/2003          $   13,510    $     22,721    $   12,066


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                        7


Advantus Enterprise Fund

SAMMY OH AND ELIZABETH DATER, PORTFOLIO MANAGERS, CREDIT SUISSE ASSET
MANAGEMENT, LLC

PERFORMANCE OVERVIEW
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                  
     Class A              - .31 percent*
     Class B              - .69 percent*
     Class C              - .69 percent*

     

The Fund's benchmark, the Russell 2000 Growth Index** returned -3.01 percent for
the same period.

PERFORMANCE ANALYSIS
The period was a volatile and ultimately negative one for the U.S. stock market.
The period began on a strong note, with equities rising in August after falling
sharply over the May-through-July span. Stocks fell again in September, however,
and, despite some supportive trends that aided the market in October and
November -- another interest-rate cut from the Federal Reserve, the Republican's
sweep of Congress, a temporary easing of war worries -- most prominent equity
indexes had losses in the 3% to 7% range for the six months. In the small-cap
area, growth stocks outperformed value stocks, having entered the period with
larger year-to-date declines.

The Fund's performance reflected the difficult investment environment in the
period. However, the Fund outperformed its benchmark, aided by good stock
selection in the consumer discretionary sector. The Fund's technology holdings
also helped its return. On the negative side, stocks that hindered the Fund's
relative return included its consumer staples and energy stocks.

OUTLOOK
As we look ahead, our view is that the economy should remain on a growth path,
though the recovery might be a sluggish one for a few months at least. The
Federal Reserve's aggressive reduction of interest rates over the past year has
appeared to be less and less stimulative and we feel it may take time for other
stimulative catalysts (e.g., tax cuts--now on the table in Washington--or an
increase in corporate investment spending) to support investor confidence. Of
course, the threat of war remains a wild card and could continue to unsettle
markets on an ongoing basis.

                                        8


For our part, we will remain focused on what we believe are well-managed
companies that we believe can successfully execute their business models.
Companies we favor at present include media names, especially radio companies
that are picking up market share from newspapers. We believe that advertising
revenues will remain supportive as 2003 progresses.

Elsewhere of note, we intend to remain overweight in Health Care, at least over
the near-to-intermediate term. Our holdings continue to include medical-devices
and services companies that we feel are delivering good earnings results.
Regarding the consumer area, we have some concerns over retailers in general,
and have trimmed certain positions. We continue to view technology cautiously,
and do not plan to have an aggressive weighting anytime soon. However, we are
identifying companies trading at what we consider to be compelling valuations,
and will look for opportunities to selectively increase our exposure going
forward.


Investments in smaller company and micro-cap stocks generally carry a higher
level of volatility and risk over the short term.

* Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Russell 2000 Growth Index is an unmanaged index (with no defined
investment objective) of those securities in the Russell 2000 Index with a
greater-than-average growth orientation. The Russell 2000 Growth Index includes
reinvestment of dividends, and is compiled by Frank Russell Company. Investors
cannot invest directly in an index.

                                        9


TEN LARGEST STOCK HOLDINGS



                                                      MARKET       % OF STOCK
COMPANY                                 SHARES         VALUE        PORTFOLIO
- -------                               ----------   -------------   ----------
                                                             
Affymetrix, Inc.                          27,300   $     740,922       2.7%
Medicis Pharmaceutical Corporation        13,467         695,571       2.5%
Community Health Systems                  32,100         610,542       2.2%
Coventry Health Care, Inc.                21,000         582,750       2.1%
Lifepoint Hospitals, Inc.                 20,600         529,420       1.9%
Education Management Corporation          14,100         514,185       1.9%
Emmis Communications                      22,900         502,426       1.8%
Mid Atlantic Medical Services, Inc.       14,400         495,648       1.8%
Stone Energy Corporation                  14,289         485,969       1.7%
Advance Paradigm, Inc.                    16,600         482,396       1.7%
                                                   -------------      ----
                                                   $   5,639,829      20.3%
                                                   =============      ====


[CHART]

                                             
Cash and Other Assets/Liabilities                8.70%
Communication Services                           1.20%
Transportation                                   1.90%
Capital Goods                                    3.50%
Basic Materials                                  4.90%
Energy                                           6.30%
Financial                                        8.60%
Consumer Staples                                 9.70%
Consumer Cyclical                               14.10%
Technology                                      18.30%
Health Care                                     22.80%



                                       10


                        COMPARISON OF CHANGE IN VALUE OF
         A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS ENTERPRISE FUND,
               RUSSELL 2000 GROWTH INDEX AND CONSUMER PRICE INDEX

On the following charts you can see how the total return for each of the three
classes of shares of the Advantus Enterprise Fund compared to the Russell 2000
Growth Index and the Consumer Price Index. The lines in each graph represent the
cumulative total return of a hypothetical $10,000 investment made on the
inception date of each class of shares of the Advantus Enterprise Fund
(September 16, 1994 for Class A and Class B and March 1, 1995 for Class C)
through January 31, 2003.

[CHART]

                                  CLASS A AND B

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
Class A:
  One year                           -34.45%
  Five year                           -7.20%
  Since inception (9/16/94)            0.33%
Class B:
  One year                           -34.69%
  Five year                           -7.25%
  Since inception (9/16/94)            0.13%



(Thousands)



                                               RUSSELL 2000
                     CLASS A       CLASS B     GROWTH INDEX       CPI
                                                   
9/16/1994          $   10,000    $   10,000    $     10,000    $   10,000
9/30/1994          $    9,371    $    9,910    $     10,042    $   10,054
9/30/1995          $   11,983    $   12,107    $     12,616    $   10,275
9/30/1996          $   13,979    $   14,173    $     14,391    $   10,584
9/30/1997          $   15,780    $   16,000    $     17,737    $   10,818
9/30/1998          $   11,235    $   11,315    $     13,331    $   10,973
9/30/1999          $   14,450    $   14,477    $     17,683    $   11,261
9/30/2000          $   20,613    $   20,687    $     22,928    $   11,643
9/30/2001          $   11,525    $   11,462    $     13,161    $   11,952
7/31/2002          $   10,310    $   10,177    $     11,808    $   12,066
1/31/2003          $   10,278    $   10,106    $     11,453    $   12,220


                                       11


[CHART]

                                     CLASS C

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -31.18%
Five year                             -6.94%
Since inception (3/1/95)              -0.39%



(Thousands)



                                 RUSSELL 2000
                     CLASS C     GROWTH INDEX       CPI
                                        
 3/1/1995          $   10,000    $      10,000   $   10,000
9/30/1995          $   12,038    $      12,563   $   10,146
9/30/1996          $   13,913    $      14,331   $   10,450
9/30/1997          $   15,568    $      17,662   $   10,682
9/30/1998          $   10,992    $      13,276   $   10,834
9/30/1999          $   14,012    $      17,610   $   11,119
9/30/2000          $   19,821    $      22,832   $   11,497
9/30/2001          $   10,993    $      13,106   $   11,801
7/31/2002          $    9,760    $      11,759   $   11,914
1/31/2003          $    9,693    $      11,405   $   12,066


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       12


Advantus Horizon Fund

THOMAS A. GUNDERSON, PORTFOLIO MANAGER,
ADVANTUS CAPITAL MANAGEMENT

PERFORMANCE
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                  
     Class A              - 5.88 percent*
     Class B              - 6.14 percent*
     Class C              - 6.19 percent*

     

This compares to the Fund's benchmark, the Russell 1000 Growth Index***, which
returned -3.01 percent for the same period.

PERFORMANCE ANALYSIS
Wide spread turmoil in the stock market occurred over the past 6 months as a
result of an uncertain economic recovery, a sharp deterioration in the
credibility of corporate America and fears about the results of a possible war
with Iraq. The market traded broadly lower, with growth stocks declining
slightly more than value stocks. The Fund was able to exceed its performance
benchmark by superior stock selection.

During the period the market was broadly lower, with no major sectors
significantly deviating from the Russell 1000 Growth Index. The best performing
sector was Energy driven by tight inventory levels, higher prices and fears
about Middle East supply. Due to these factors, our investment in Nabors
Industries, a North American land drilling company, gained 20 percent for the
period. For a change, the Technology sector's performance exceeded the average
by about 2 percent as fundamentals appear to be finding a bottom.

Investments in Citigroup and Bank of America gained 11 percent and 8 percent for
the period and contributed to performance in the Financial sector. Also
contributing to performance was Avon Products as they continue to produce steady
earnings growth in a tough environment. Finally, the stock selection process led
to a meaningfully smaller position in General Electric than the Index, which
further contributed to performance as the stock fell 27 percent during the
period.

Overall, a disciplined stock selection approach and a focus on sustainable
growth allowed the Fund to select attractive companies for investment and
minimize, or avoid altogether, the worst hit portions of the market.

                                       13


During the period several changes were made. Net purchases were made in the
Technology sector; especially in software companies like SAP, Peoplesoft, and
Veritas, as these companies show strong earnings gains on lower levels of sales
growth and are showing improved trends. For the first time in many years, the
Horizon Fund has a modest overweight vs. the Index in the Technology sector.
Health Care purchases were also made in growth companies such as Medtronic
(medical devices), and Express Scripts (pharmacy benefits manager). Sales were
made in our logistics companies as they hit our price targets. Additional sales
were made in the Financial and Energy sectors as some of these companies
approached our target prices, or are less likely to show good relative earnings
growth in the future.

OUTLOOK
The winds of war are blowing an icy chill across the economy, financial markets,
and corporate capital spending budgets. Our stock selection process is
identifying companies that we believe are well positioned to experience a
positive impact when the level of fear and uncertainty subside. Examples of this
include our recent purchase of software stocks. At the same time we feel our
risk management process is at work to enable competitive portfolio performance
regardless of the eventual economic scenario that plays out over the next year.

The Fund continues to be fully invested, as it has all year, with cash remaining
in the 1-3 percent range. We continue to invest in companies that can show real
and sustainable growth that result from high returns on company investments. The
Fund is also taking a diversified approach to managing risk in this market,
having a little over 100 names currently held in the portfolio.


**Historical results are not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

***The Russell 1000 Growth Index contains those stocks from the Russell 1000
with greater than average growth orientation. The Russell 1000 is the 1,000
largest companies in the Russell 3000. The Russell 3000 is an unmanaged index of
3,000 common stocks, which represents approximately 98 percent of the U.S.
market.

                                       14


TEN LARGEST STOCK HOLDINGS



                                                      MARKET       % OF STOCK
COMPANY                                 SHARES         VALUE        PORTFOLIO
- -------                               ----------   -------------   ----------
                                                             
Pfizer, Inc.                            53,350     $   1,619,706       6.3%
Microsoft Corporation                   28,459         1,350,664       5.3%
General Electric Company                46,128         1,067,402       4.2%
Johnson & Johnson                       18,900         1,013,229       4.0%
Wal-Mart Stores, Inc.                   16,200           774,360       3.0%
Amgen, Inc.                             13,200           672,672       2.6%
Cisco Systems, Inc.                     49,785           665,626       2.6%
Procter & Gamble Company                 7,000           598,990       2.3%
Freddie Mac                              9,900           554,202       2.2%
Intel Corporation                       29,831           467,154       1.8%
                                                   -------------      ----
                                                   $   8,784,005      34.3%
                                                   =============      ====


[CHART]

                                             
Cash and Other Assets/Liabilities                1.30%
Utilities                                        0.40%
Basic Materials                                  0.70%
Communication Services                           0.70%
Energy                                           2.90%
Capital Goods                                    7.40%
Financial                                       10.90%
Consumer Cyclical                               12.20%
Consumer Staples                                13.70%
Technology                                      24.20%
Health Care                                     25.60%



                                       15


                        COMPARISON OF CHANGE IN VALUE OF
           A HYPOTHETICAL $10,000 INVESTMENT IN ADVANTUS HORIZON FUND,
               RUSSELL 1000 GROWTH INDEX AND CONSUMER PRICE INDEX

On the following three charts you can see how the total return for each of the
three classes of shares of the Advantus Horizon Fund compared to the Russell
1000 Growth Index and the Consumer Price Index. The lines in the Class A graph
represent the cumulative total return of a hypothetical $10,000 investment made
on January 31, 1993 through January 31, 2003. The lines in the Class B and Class
C graphs represent the cumulative total return of a hypothetical $10,000
investment made on the inception date of Class B and Class C shares of the
Advantus Horizon Fund (August 19, 1994 and March 1, 1995, respectively) through
January 31, 2003.

[CHART]

                                     CLASS A

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -30.44%
Five year                             -8.15%
Ten year                               2.87%



(Thousands)



                                               RUSSELL 1000
                     CLASS A        CPI        GROWTH INDEX
                                      
1/31/1993          $   10,000    $   10,000    $     10,000
9/30/1993          $   10,325    $   10,269    $     10,020
9/30/1994          $   10,526    $   10,624    $     11,197
9/30/1995          $   13,133    $   10,858    $     14,803
9/30/1996          $   15,396    $   11,184    $     17,970
9/30/1997          $   19,238    $   11,432    $     24,491
9/30/1998          $   22,389    $   11,595    $     27,210
9/30/1999          $   27,927    $   11,899    $     36,693
9/30/2000          $   33,305    $   12,292    $     45,285
9/30/2001          $   16,832    $   12,629    $     24,618
7/31/2002          $   14,966    $   12,750    $     21,043
1/31/2003          $   14,087    $   12,913    $     19,778


                                       16


[CHART]

                                     CLASS B

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -30.59%
Five year                             -8.05%
Since inception (8/19/94)              2.92%



(Thousands)



                                               RUSSELL 1000
                     CLASS B        CPI        GROWTH INDEX
                                      
8/19/1994          $   10,000    $   10,000    $     10,000
9/30/1994          $    9,629    $   10,067    $     10,125
9/30/1995          $   12,074    $   10,289    $     13,386
9/30/1996          $   14,221    $   10,598    $     16,249
9/30/1997          $   17,855    $   10,833    $     22,146
9/30/1998          $   20,757    $   10,987    $     24,605
9/30/1999          $   25,759    $   11,276    $     33,181
9/30/2000          $   30,517    $   11,659    $     40,950
9/30/2001          $   15,385    $   11,968    $     22,261
7/31/2002          $   13,584    $   12,082    $     19,028
1/31/2003          $   12,750    $   12,236    $     17,885


                                       17


[CHART]

                                     CLASS C

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
One year                             -26.96%
Five year                             -7.78%
Since inception (3/1/95)               2.44%



(Thousands)



                                               RUSSELL 1000
                     CLASS C        CPI        GROWTH INDEX
                                      
 3/1/1995          $   10,000    $   10,000    $     10,000
9/30/1995          $   11,844    $   10,146    $     12,331
9/30/1996          $   12,668    $   10,450    $     14,969
9/30/1997          $   17,084    $   10,682    $     20,402
9/30/1998          $   19,863    $   10,834    $     22,667
9/30/1999          $   24,595    $   11,119    $     30,567
9/30/2000          $   28,945    $   11,497    $     37,724
9/30/2001          $   14,519    $   11,801    $     20,508
7/31/2002          $   12,820    $   11,914    $     17,529
1/31/2003          $   12,027    $   12,066    $     16,476


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       18


Advantus Index 500 Fund

PERFORMANCE UPDATE

JAMES SEIFERT
PORTFOLIO MANAGER

PERFORMANCE
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                  
     Class A              - 5.56 percent*
     Class B              - 5.97 percent*
     Class C              - 5.90 percent*

     

The Fund's benchmark, the S&P 500 Index**, returned -5.26 percent for the same
period.

PERFORMANCE ANALYSIS
The broader market continues to be held back on fears of an Iraq conflict, a
sharp decline in household net worth and slow economic growth. Communication
services was the only sector to post positive returns for the period ending up
9.10 percent. Capital goods led the sectors that detracted from the index return
with a -1.35 percent contribution on a return of -14.90 percent.

OUTLOOK
Looking ahead, we see a moderate acceleration in U.S. economic growth. We expect
the pace for growth, however, to remain well below potential as the result of
weak business capital spending, a crisis of confidence associated with corporate
accounting scandals, and uncertainties associated with global war and the threat
of terrorism. In addition, we foresee little help will be forth coming from both
Europe and Japan as the result of their long-standing anti-growth tax and
regulatory policies.

We believe that inflation in most industrial nations to be well below the
long-term trend as the result of the overhang of excess global investment in
both labor and productive capacity. We expect that currency volatility will also
continue as countries seek to increase their competitive advantage by weakening
their currencies. Weaker currency, although attractive in the short run, we
believe will ultimately reduce a country's standard of living by increasing
their domestic prices. The strong U.S. dollar has kept inflation at bay for more
than 10 years. However, we feel that current fiscal policies may result in a
weaker U.S. dollar in the near term.

Stimulative monetary and fiscal policies have generated a limited economic
rebound. We anticipate the pace of the rebound will remain subdued by the

                                       19


continued adjustments to the 1990's excess, the substantial declines in the
stock market, and the rise in risk premium. As we move through 2003, we expect
some of these restraints to dissipate and economic growth to reaccelerate and
provide the base for the expansion.

Under our forecasted scenario for 2003, we expect that the capital markets
should perform marginally better than they did in 2002. We believe that in the
upcoming year:

- -    Corporate profits will improve, however, investors will not be convinced
     until they are both reported and CONFIRMED. It will be important that
     perception of corporate governance and fiduciary integrity improve before
     the main street investor feels comfortable reentering the market enmasse.

- -    The Federal Reserve has aggressively eased monetary policy over the past
     two years, and we expect the highly stimulative policy to remain in place
     until a "confirmed" pattern of historic trend growth is evident. Under this
     circumstance, we believe bonds will remain in a trading range with only
     moderate upward pressure on the front end of the yield curve as the Fed
     gradually puts the brakes to its policy of easing. We expect this to happen
     late in the year. The Fed will probably not complete the process of
     restoring the funds rate to neutral until 2004 or later.

- -    Corporate credits will very slowly improve as debt is reduced and profits
     begin to improve. We believe this will result in narrowing yield spreads
     which consequently will result in corporate bonds outperforming U.S.
     Treasury bonds.

Founding father, Benjamin Franklin once said, "THERE ARE NO GAINS WITHOUT
PAINS." All in all, we believe investors will begin to recapture some of the
losses incurred over the past three painful years.

"Standard & Poor's(R)," "S&P(R)," "S&P500(R)," and "Standard & Poor's 500(R),"
are registered trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by Advantus Capital Management, Inc. The Fund is not sponsored,
endorsed, sold, or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Fund.

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge.

**The S&P 500 Index is a broad, unmanaged index of 500 common stocks which are
representative of the U.S. stock market overall. The Advantus Index 500 Fund is
a mutual fund whose performance reflects the deduction of an investment advisory
fee and other expenses. Investors cannot invest directly in the index.

                                       20


TEN LARGEST STOCK HOLDINGS



                                                MARKET      % OF STOCK
COMPANY                          SHARES         VALUE        PORTFOLIO
- -------                        ----------   -------------   ----------
                                                      
Microsoft Corporation           20,172      $     957,363       3.2%
General Electric Company        37,545            868,791       2.9%
Exxon Mobil Corporation         25,388            867,000       2.9%
Wal-Mart Stores, Inc.           16,654            796,061       2.7%
Pfizer, Inc.                    23,249            705,840       2.4%
Citigroup, Inc.                 19,379            666,250       2.2%
Johnson & Johnson               11,201            600,486       2.0%
American International Group     9,878            534,597       1.8%
International Business
  Machines Corporation           6,379            499,029       1.7%
Merck & Company, Inc.            8,469            469,098       1.6%
                                            -------------      ----
                                            $   6,964,515      23.4%
                                            =============      ====


[CHART]

                                         
Cash and Other Assets/Liabilities            5.50%
Transportation                               1.60%
Utilities                                    2.70%
Basic Materials                              3.60%
Communication Services                       4.10%
Energy                                       5.80%
Capital Goods                                7.50%
Consumer Cyclical                            9.60%
Consumer Staples                            11.50%
Health Care                                 13.20%
Technology                                  14.30%
Financial                                   20.60%



                                       21


                        COMPARISON OF CHANGE IN VALUE OF
        A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS INDEX 500 FUND,
                     S&P 500 INDEX AND CONSUMER PRICE INDEX

On the following chart you can see how the total return for each of the three
classes of shares of the Advantus Index 500 Fund compared to the S&P 500 Index
and the Consumer Price Index. The lines represent the cumulative total return of
a hypothetical $10,000 investment made on the inception date of each class of
shares of the Advantus Index 500 Fund (January 31, 1997) through January 31,
2003.

[CHART]

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
Class A:
  One year                           -27.71%
  Five year                           -3.38%
  Since inception (1/31/97)            0.92%
Class B:
  One year                           -27.98%
  Five year                           -3.41%
  Since inception (1/31/97)            1.01%
Class C:
  One year                           -24.12%
  Five year                           -3.13%
  Since inception (1/31/97)            0.95%



(Thousands)



                                                             S&P 500
                     CLASS A       CLASS B      CLASS C       INDEX          CPI
                                                           
1/31/1997          $   10,000    $   10,000    $  10,000    $   10,000    $  10,000
7/31/1997          $   11,464    $   11,577    $  12,043    $   12,244    $  10,075
7/31/1998          $   13,549    $   13,701    $  14,101    $   14,607    $  10,245
7/31/1999          $   16,141    $   16,362    $  16,644    $   17,557    $  10,458
7/31/2000          $   17,379    $   17,584    $  17,763    $   19,129    $  10,834
7/31/2001          $   14,751    $   14,871    $  14,940    $   16,390    $  11,129
7/31/2002          $   11,191    $   11,146    $  11,235    $   12,336    $  11,286
1/31/2003          $   10,568    $   10,621    $  10,556    $   11,687    $  11,430


The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       22


Advantus Real Estate Securities Fund

JOE BETLEJ, PORTFOLIO MANAGER,
ADVANTUS CAPITAL MANAGEMENT

PERFORMANCE
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                  
     Class A              - 4.40 percent*
     Class B              - 4.74 percent*

     

For the same period the Fund's benchmark, the Wilshire Associates Real Estate
Securities Index (WARESI)**, provided a total return of -6.07 percent.

PERFORMANCE ANALYSIS
Returns on real estate stocks had been well ahead of the broader market from
2000 through the first half of 2002. Since then, these stocks have delivered
negative returns on par with the broader market, largely due to the downturn in
fundamentals for a number of real estate property types. Cyclical lows are being
approached in occupancy rates for apartments and office properties in the United
States. This is due to continued delivery of new construction projects and a
true lack of demand created by an economy that is not generating jobs. This
decline is reflected in lower rental rates and increased inducements for tenants
to sign leases. While it is tough times to be a landlord for these property
types, reasonable fundamentals still exist in retail property types. We feel
retailers have the strength of the consumer behind them and better-positioned
balance sheets and business plans to withstand economic weakness. These
retailers continue to generate profit and seek new locations in highly
productive malls and other retail centers. Additionally, Industrial properties
have found a bottoming in occupancy and rental rates as demand has returned,
although at a modest pace.

The Fund performed well by avoiding weaker performing sectors and overweighting
property types with solid fundamentals, or those we expect to rebound at a more
rapid pace. We were significantly underweight versus our benchmark index in
Apartment, Office and Self-storage companies due to our concerns that
occupancies and rental rates will continue to decline for these properties
through the first half of 2003. Our overweight in Regional Mall, Outlet Mall,
and Grocery-Anchored Retail stocks resulted in strong performance in this part
of the Fund. Our uncertainty regarding the economy directed us to increase our
emphasis on high dividend yield stocks. Most high dividend yield stocks did not
do well during the reporting period, however, because some of these companies
were forced to cut their dividend. We avoided these weaker companies and
invested in companies generating reliable dividends due to our investment
process that emphasizes credit analysis and balance sheet review.

                                       23


OUTLOOK
Across most property types, we feel that the underlying fundamentals are priced
into the stocks. Therefore, we continue our focus on fundamental analysis of
individual stocks due to our belief that we can identify real estate stocks that
can generate value for the Fund even while recognizing a weak operating
environment. In a year where occupancies and rental rates will be challenged for
many property types, we endeavor to find opportunities in companies with
business plans that can deliver growth, irrespective of the rebounding strength
of the economy. We continue our focus on high-quality dividend names which are
favored in times of economic uncertainty. Our Fund positioning reflects the
anticipated effects of a war in Iraq, specifically its effect on geographic
regions whose economy is dependent on domestic military operations and travel.
We favor companies with better balance sheets due to their ability to withstand
the effects of weaker occupancies and rental rates.


Investment risks associated with investing in the real estate fund, in addition
to other risks, include rental income fluctuations, depreciation, property tax
value changes, and differences in real estate market values.

*Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge. Investment returns and principal values will fluctuate so that shares
upon redemption may be worth more or less than their original cost.

**The Wilshire Associates Real Estate Securities Index is a market
capitalization-weighted index of equity securities whose primary business is
equity ownership of commercial real estate (REITS).

                                       24


TEN LARGEST STOCK HOLDINGS



                                                      MARKET       % OF STOCK
COMPANY                                 SHARES         VALUE        PORTFOLIO
- -------                               ----------   -------------   ----------
                                                             
Prologis                                 104,062   $   2,585,941       6.7%
General Growth Properties, Inc.           30,300       1,499,850       3.9%
EOP Operation LP                          60,100       1,438,794       3.7%
Simon Property Group, Inc.                40,900       1,337,430       3.5%
The Rouse Company                         41,600       1,319,968       3.4%
Brookfield Properties Corporation         71,700       1,305,657       3.4%
Carramerica Realty Corporation            52,900       1,270,129       3.3%
Apartment Investment &
  Management Company                      33,920       1,232,992       3.2%
Developers Diversified
  Realty Corporation                      54,800       1,228,616       3.2%
P.S. Business Parks, Inc.                 33,800       1,059,630       2.8%
                                                   -------------      ----
                                                   $  14,279,007      37.1%
                                                   =============      ====


[CHART]

                                         
Cash and Other Assets/Liabilities            7.00%
Health Care                                  0.60%
Consumer Cyclical                            2.50%
Financial                                   89.90%



                                       25


                        COMPARISON OF CHANGE IN VALUE OF
 A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS REAL ESTATE SECURITIES FUND,
    WILSHIRE ASSOCIATES REAL ESTATE SECURITIES INDEX AND CONSUMER PRICE INDEX

On the following two charts you can see how the total return for each of the two
classes of shares of the Advantus Real Estate Securities Fund compared to the
Wilshire Associates Real Estate Securities Index and the Consumer Price Index.
The lines in the Class A and Class B graphs represent the cumulative total
return of a hypothetical $10,000 investment made on the inception date of Class
A and Class B shares of the Advantus Real Estate Securities Fund (February 25,
1999 and November 30, 2001, respectively) through January 31, 2003.

[CHART]

                                     CLASS A

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
Class A:
 One year                            -2.42%
 Since inception (2/25/99)            7.57%



(Thousands)



                                 WILSHIRE ASSOCIATES REAL
                     CLASS A     ESTATE SECURITIES INDEX       CPI
                                                   
2/25/1999          $   10,000            $   10,000         $  10,000
7/31/1999          $    9,904            $   10,574         $  10,121
7/31/2000          $   11,379            $   12,524         $  10,486
7/31/2001          $   12,393            $   14,032         $  10,771
7/31/2002          $   13,836            $   15,263         $  10,923
1/31/2003          $   13,228            $   14,336         $  11,063


                                       26


                                     CLASS B

SEC AVERAGE ANNUAL TOTAL RETURN:

                                  
Class B:
 One year                            -2.55%
 Since inception (11/30/01)           1.51%



(Thousands)



                                 WILSHIRE ASSOCIATES REAL
                     CLASS B     ESTATE SECURITIES INDEX       CPI
                                                   
11/30/2001         $   10,000            $   10,000         $  10,000
12/31/2001         $   10,354            $   10,290         $   9,983
 7/31/2002         $   11,181            $   10,916         $  10,130
 1/31/2003         $   10,651            $   10,253         $  10,259


The preceding charts are useful because they provide you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the performance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       27


Advantus Venture Fund

JOHN BURBANK AND PAUL HAAGENSEN,
PORTFOLIO MANAGERS, STATE STREET RESEARCH

PERFORMANCE
The Fund's performance for the six-months ended January 31, 2003 for each class
of shares offered is as follows:

                  
     Class A              - 9.01 percent*
     Class B              - 9.37 percent*
     Class C              - 9.31 percent*

     

This compares to the Fund's benchmark, the Russell 2000 Value Index**, which
returned -5.73 percent for the same period.

PERFORMANCE ANALYSIS
The equity market posted its third consecutive year of losses as economic
uncertainty and geopolitical risks continued to undermine investor confidence. A
brief rally in the fourth quarter gave investors hope that the market had
bottomed and the market nearly offset its third-quarter losses. The Russell
2000(R) Value Index posted overall negative returns for the six-month period
ending January 31, 2003, despite strong performance in the Technology and
Energy-related sectors. The Transportation, Health Care and Consumer-related
sectors all posted losses, dragging the index down.

Many of the investments in the Fund were based on the valuations of companies
positioned to benefit from an economic turnaround and increased business
spending. This opportunity, however, never came to fruition in 2002. While stock
selection was additive to performance in the Materials and Energy sectors,
weaker stock selection in Producer Durables, Technology, Consumer Discretionary
and Financial Services contributed to Fund underperformance over the six-month
period.

Throughout the year, the valuations of cyclical names that had been hurt in the
economic downtown appeared to offer potential. As a result, we invested heavily
in many production technology equipment positions that turned in disappointing
results during the period. Within the industry, Kulicke & Soffa Industries,
Therma-Wave and Brooks-PRI Automation all posted double-digit losses. Returns in
the Technology sector were negatively impacted by the poor performance of
semiconductor manufacturers Triquint Semiconductor, ChipPAC and Cypress
Semiconductor. In the Consumer Discretionary sector, gains by International Game
Technology helped to offset the losses incurred from Six Flags, Steinway Musical
Instruments and Reader's Digest.

                                       28


In contrast, strong stock selection in the Materials and Energy-related sectors
lessened the impact of losses in the Technology-related and Consumer
Discretionary sectors. Fertilizer manufacturer Agrium and Cabot Oil & Gas, an
oil and gas operations company, both benefited from the favorable pricing
environment for natural gas. Chemical manufacturer Methanex also posted gains,
contributing to the Fund's returns.

OUTLOOK

While smaller-cap and value have outperformed the general market over the last
several years, we would not expect that kind of significant outperformance to
persist going forward. We believe our investment approach has tended to perform
well regardless of whether the asset class is "in" or "out" of favor. In fact,
we are finding many more value candidates for investment today than we did a
year ago. We continue to focus our efforts on buying good companies with
compelling valuations and are optimistic that an adherence to this strategy will
continue to produce favorable long-term results.

We remain committed to our bottom-up investment approach, in which stocks are
selected on a stock-by-stock basis. While the market favored more defensive
names this year, we remained committed to buying fundamentally attractive
stocks. We are neither chasing past winners, nor eliminating positions in solid
companies solely on the basis of price declines resulting from economic
weakness. Instead, we are carefully rechecking our fundamental research. We will
use price weakness as an opportunity to build positions in quality companies
exhibiting strong free cash flow at lower levels. Many of the more attractive
opportunities, based on valuations, have come in cyclically oriented industries,
resulting in the cyclical bias in the Fund.

As a result of our bottom-up stock selection process, we believe many of the
most attractive opportunities lie within cyclically oriented industries. The
Fund remains overweight in Transportation, Materials, Producer Durables and
Technology. In contrast, we are underweight in more defensive sectors, including
Utilities, Consumer Staples and Health Care.

Investments in smaller company and micro-cap stocks generally carry a higher
level of volatility and risk over the short term.

* Historical performance is not an indication of future performance. These
performance results do not reflect the impact of Class A's maximum 5.5 percent
front-end sales charge or Class B's maximum 5 percent contingent deferred sales
charge.

** The Russell 2000 Value Index contains those stocks from the Russell 2000 with
low price to book ratios. The Russell 2000 are the 2,000 smallest companies in
the Russell 3000. The Russell 3000 is an unmanaged index of 3,000 common stocks
which represents approximately 98 percent of the U.S. market.

                                       29


TEN LARGEST STOCK HOLDINGS



                                                      MARKET       % OF STOCK
COMPANY                                 SHARES         VALUE        PORTFOLIO
- -------                               ----------   -------------   ----------
                                                             
Varian Semiconductor Equipment
  Associates, Inc.                        53,800   $   1,395,572       2.7%
Agrium, Inc.                             113,800       1,233,592       2.4%
Phelps Dodge Corporation                  34,800       1,202,340       2.3%
Navistar International Corporation        47,200       1,136,104       2.2%
Technitrol, Inc.                          61,800         983,238       1.9%
Wabtec Corporation                        81,200         974,400       1.9%
American Axle & Manufacturing
  Holdings                                38,600         971,562       1.8%
Readers Digest Association                74,900         964,712       1.8%
EGL, Inc.                                 70,000         916,300       1.7%
Veeco Instruments, Inc.                   50,100         701,400       1.3%
                                                   -------------      ----
                                                   $  10,479,220      20.0%
                                                   =============      ====


[CHART]

                                         
Cash and Other Assets/Liabilities            0.20%
Communication Services                       0.50%
Health Care                                  1.50%
Financial                                    3.30%
Consumer Staples                             5.20%
Energy                                       6.80%
Transportation                               7.10%
Consumer Cyclical                           13.60%
Basic Materials                             16.70%
Capital Goods                               21.80%
Technology                                  23.30%



                                       30


                        COMPARISON OF CHANGE IN VALUE OF
         A HYPOTHETICAL $10,000 INVESTMENT IN THE ADVANTUS VENTURE FUND,
                RUSSELL 2000 VALUE INDEX AND CONSUMER PRICE INDEX

On the following chart you can see how the total return for each of the three
classes of shares of the Advantus Venture Fund compared to the Russell 2000
Value Index and the Consumer Price Index. The lines represent the cumulative
total return of a hypothetical $10,000 investment made on the inception date of
each class of shares of the Advantus Venture Fund (January 31, 1997) through
January 31, 2003.

[CHART]

SEC AVERAGE ANNUAL TOTAL RETURN:

                                                    
Class A:
  One year                                             -25.98%
  Five year                                              0.14%
  Since inception (1/31/97)                              4.03%
Class B:
  One year                                             -26.23%
  Five year                                              0.08%
  Since inception (1/31/97)                              4.07%
Class C:
  One year                                             -22.25%
  Five year                                              0.43%
  Since inception (1/31/97)                              4.14%



(Thousands)



                                                            RUSSELL 2000
                     CLASS A       CLASS B      CLASS C     VALUE INDEX        CPI
                                                             
1/31/1997          $   10,000    $   10,000    $  10,000    $     10,000    $   10,000
7/31/1997          $   10,944    $   11,033    $  11,533    $     11,790    $   10,075
7/31/1998          $   11,919    $   11,965    $  12,449    $     12,503    $   10,245
7/31/1999          $   11,456    $   11,474    $  11,850    $     12,487    $   10,458
7/31/2000          $   11,884    $   11,916    $  12,199    $     13,090    $   10,834
7/31/2001          $   16,065    $   16,153    $  16,340    $     16,198    $   11,129
7/31/2002          $   13,934    $   13,867    $  14,059    $     15,306    $   11,286
1/31/2003          $   12,679    $   12,704    $  12,750    $     14,429    $   11,430


The preceding chart is useful because it provides you with more information
about your investments. There are limitations, however. An index may reflect the
performance of securities that the Fund may not hold. Also, the index does not
deduct sales charges, investment advisory fees and other fund expenses, whereas
your Fund does. Performance presented for the Fund reflects the deduction of the
maximum 5.5 percent front-end sales charge for Class A and the maximum
applicable contingent deferred sales charge for Class B shares. Sales charges
pay for your financial professional's investment advice. Individuals cannot
invest in the index itself, nor can they invest in any fund which seeks to track
the perfomance of the index without incurring some charges and expenses.

Historical performance is not an indication of future performance. Investment
returns and principal values will fluctuate so that shares upon redemption may
be worth more or less than their original cost.

                                       31


Advantus Cornerstone Fund
Investments in Securities
JANUARY 31, 2003
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)



                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
COMMON STOCK (99.9%)
   BASIC MATERIALS (4.2%)
     Chemicals (4.2%)
    15,800    Air Products and Chemicals, Inc.                      $  654,910
    25,400    Dow Chemical Company                                     738,124
    32,800    EI Dupont De Nemours & Company                         1,242,136
                                                                    ----------
                                                                     2,635,170
                                                                    ----------
   CAPITAL GOODS (4.7%)
     Aerospace/Defense (.7%)
     6,700    United Technologies Corporation                          425,986
                                                                    ----------
     Engineering/Construction (.4%)
     5,100    Caterpillar, Inc.                                        224,298
                                                                    ----------
     Manufacturing (3.6%)
     6,900    3M Company                                               859,395
    18,100    Timken Company                                           313,311
    68,700    Tyco International, Ltd. (c)                           1,099,887
                                                                    ----------
                                                                     2,272,593
                                                                    ----------
   COMMUNICATION SERVICES (6.7%)
     Telephone (6.7%)
    11,620    AT&T Corporation                                         226,358
    36,000    Bellsouth Corporation                                    820,080
    56,442    SBC Communications, Inc.                               1,379,443
    45,557    Verizon Communications                                 1,743,922
                                                                    ----------
                                                                     4,169,803
                                                                    ----------
   CONSUMER CYCLICAL (7.0%)
     Auto (1.7%)
     6,800    Borg-Warner Automotive, Inc.                             364,140
     5,300    Eaton Corporation                                        376,724
    17,800    Ford Motor Company                                       162,158
     4,500    General Motors Corporation                               163,485
                                                                    ----------
                                                                     1,066,507
                                                                    ----------
     Leisure (2.5%)
    81,300    Brunswick Corporation                                  1,582,911
                                                                    ----------
     Lodging -- Hotel (.6%)
    31,400    Hilton Hotels                                            367,694
                                                                    ----------
     Publishing (1.2%)
     4,800    Gannett Company, Inc.                                    348,768
     8,600    Tribune Company                                          416,240
                                                                    ----------
                                                                       765,008
                                                                    ----------


              See accompanying notes to investments in securities.

                                       32




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   CONSUMER CYCLICAL--CONTINUED
     Retail (1.0%)
    15,000    JC Penney Company                                     $  290,850
    11,600    The Sherwin-Williams Company                             309,024
                                                                    ----------
                                                                       599,874
                                                                    ----------
   CONSUMER STAPLES (9.6%)
     Beverage (.6%)
    14,000    Constellation Brands, Inc. (b)                           350,980
                                                                    ----------
     Broadcasting (2.2%)
    17,500    Clear Channel Communications, Inc. (b)                   701,400
    13,800    Comcast Corporation (b)                                  353,004
    33,000    Liberty Media Corporation (b)                            329,010
                                                                    ----------
                                                                     1,383,414
                                                                    ----------
     Entertainment (1.8%)
    41,200    The Walt Disney Company                                  721,000
    10,400    Viacom, Inc. (b)                                         400,920
                                                                    ----------
                                                                     1,121,920
                                                                    ----------
     Food (1.0%)
    10,100    H.J. Heinz Company                                       326,331
     9,700    Kraft Foods, Inc.                                        308,945
                                                                    ----------
                                                                       635,276
                                                                    ----------
     Household Products (1.5%)
    11,200    Procter & Gamble Company                                 958,384
                                                                    ----------
     Personal Care (.9%)
    11,400    Avon Products, Inc.                                      570,000
                                                                    ----------
     Retail (.4%)
    17,500    Winn-Dixie Stores, Inc.                                  245,000
                                                                    ----------
     Service (.8%)
    15,000    Manpower, Inc.                                           520,200
                                                                    ----------
     Tobacco (.4%)
     6,700    Altria Group, Inc.                                       253,729
                                                                    ----------
   ENERGY (11.9%)
     Oil (8.6%)
    16,613    Chevron Corporation                                    1,069,877
     6,600    ConocoPhillips                                           318,054
     7,700    Devon Energy Corporation                                 348,810
   105,306    Exxon Mobil Corporation                                3,596,198
                                                                    ----------
                                                                     5,332,939
                                                                    ----------


              See accompanying notes to investments in securities.

                                       33




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   ENERGY--CONTINUED
     Oil & Gas (3.3%)
    14,600    EOG Resources, Inc.                                   $  565,896
    17,900    Nabors Industries, Ltd. (b) (c)                          659,615
    15,100    Smith International, Inc. (b)                            480,784
    20,500    Veritas DGC, Inc. (b)                                    374,166
                                                                    ----------
                                                                     2,080,461
                                                                    ----------
   FINANCIAL (33.3%)
     Auto Finance (.7%)
    16,800    Fleet Boston Financial Corporation                       438,648
                                                                    ----------
     Banks (15.3%)
    33,600    Bank of America Corporation                            2,353,680
    15,900    Bank One Corporation                                     580,509
    14,100    J.P. Morgan Chase & Company                              329,094
    14,900    The Bank of New York Company, Inc.                       376,970
    92,658    U.S. Bancorp                                           1,955,084
    52,700    Wachovia Corporation                                   1,895,619
    36,700    Wells Fargo & Company                                  1,738,479
     6,700    Zion Bancorp                                             277,514
                                                                    ----------
                                                                     9,506,949
                                                                    ----------
     Consumer Finance (2.0%)
    19,600    American Express Company                                 696,388
    31,800    MBNA Corporation                                         535,194
                                                                    ----------
                                                                     1,231,582
                                                                    ----------
     Finance -- Diversified (.5%)
     5,500    Federal Home Loan Mortgage Corpration                    307,890
                                                                    ----------
     Insurance (5.5%)
    28,000    Allstate Corporation                                     985,320
    20,127    American International Group                           1,089,273
     5,800    Chubb Corporation                                        311,576
     7,000    Marsh & McLennan Companies, Inc.                         298,410
    16,300    MetLife, Inc.                                            436,351
    19,800    Travelers Property Casualty Corporation                  320,958
                                                                    ----------
                                                                     3,441,888
                                                                    ----------
     Investment Bankers/Brokers (7.5%)
    64,613    Citigroup, Inc.                                        2,221,395
    17,634    Comcast Corporation (b)                                  469,593
     7,200    Goldman Sachs Group, Inc.                                490,320
     8,100    Merrill Lynch & Company, Inc.                            283,662
    15,540    Morgan Stanley                                           588,966
    23,500    T. Rowe Price Associates, Inc.                           628,390
                                                                    ----------
                                                                     4,682,326
                                                                    ----------


              See accompanying notes to investments in securities.

                                       34




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   FINANCIAL--CONTINUED
     Real Estate Investment Trust (1.3%)
    17,000    Developers Diversified Realty Corporation             $  381,140
    16,600    Prologis                                                 412,510
                                                                    ----------
                                                                       793,650
                                                                    ----------
     Savings and Loans (.5%)
    10,485    Charter One Financial, Inc.                              303,121
                                                                    ----------
   HEALTH CARE (5.8%)
     Drugs (3.2%)
    10,300    Bristol-Myers Squibb Company                             242,977
     8,400    Merck & Company, Inc.                                    465,276
    21,900    Pfizer, Inc.                                             664,884
    16,600    Wyeth                                                    647,898
                                                                    ----------
                                                                     2,021,035
                                                                    ----------
     Health Care- Diversified (.8%)
    13,200    Abbott Laboratories                                      503,184
                                                                    ----------
     Managed Care (.5%)
     6,000    Express Scripts, Inc. (b)                                333,300
                                                                    ----------
     Medical Products/Supplies (.6%)
    10,800    Becton Dickinson and Company                             354,240
                                                                    ----------
     Special Services (.7%)
    15,800    Fisher Scientific International, Inc. (b)                456,620
                                                                    ----------
   TECHNOLOGY (9.8%)
     Computer Hardware (5.3%)
    45,100    Hewlett-Packard Company                                  785,191
    18,800    International Business Machines Corporation            1,470,724
    27,300    Seagate Technology                                       250,614
    92,100    Symbol Technologies, Inc.                                776,403
                                                                    ----------
                                                                     3,282,932
                                                                    ----------
     Computer Services & Software (1.4%)
    33,600    AOL Time Warner, Inc. (b)                                391,776
    16,200    Peoplesoft, Inc. (b)                                     314,118
    17,300    Siebel Systems, Inc. (b)                                 144,628
                                                                    ----------
                                                                       850,522
                                                                    ----------
     Electrical Semiconductor (2.0%)
    11,400    Analog Devices, Inc. (b)                                 272,802
    21,700    National Semiconductor Corporation (b)                   286,440
    42,900    Texas Instruments, Inc.                                  682,110
                                                                    ----------
                                                                     1,241,352
                                                                    ----------


              See accompanying notes to investments in securities.

                                       35




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                               
   TECHNOLOGY--CONTINUED
     Electronics-- Computer Distribution (1.1%)
    14,800    WW Grainger, Inc.                                   $    700,040
                                                                  ------------
   TRANSPORTATION (.7%)
     Airlines (.7%)
    65,600    Northwest Airlines, Inc. (b)                             411,312
                                                                  ------------
   UTILITIES (6.2%)
     Electric Companies (6.2%)
     4,700    Dominion Resources, Inc.                                 254,693
    13,200    Exelon Corporation                                       672,276
    11,000    Firstenergy Corporation                                  343,200
    60,400    Nisource, Inc.                                         1,073,308
    41,000    Pacific Gas & Electric Company (b)                       565,800
    18,100    PPL Corporation                                          633,500
     9,000    Public Service Enterprise Group, Inc.                    317,520
                                                                  ------------
                                                                     3,860,297
                                                                  ------------
Total common stock (cost: $63,827,702)                              62,283,035
                                                                  ------------
SHORT-TERM SECURITIES (.8%)
   454,676    Dreyfus Cash Management Plus Funds,
              current rate 1.310%                                      454,676
         2    Federated Money Market Obligations Trust -- Prime
              Obligation Fund, current rate 1.280%                           2
     2,763    Wells Fargo & Company -- Cash Investment Fund,
              current rate 1.280%                                        2,763
                                                                  ------------
              Total short-term securities
              (cost: $457,441)                                         457,441
                                                                  ------------
              Total investments in securities
              (cost: $64,285,143) (d)                             $ 62,740,476
                                                                  ============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 2.8% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003 the cost of securities for federal income tax purposes
     was $66,056,349. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                          
     Gross unrealized appreciation                                $  2,525,369
     Gross unrealized depreciation                                  (5,841,242)
                                                                  ------------
     Net unrealized depreciation                                  $ (3,315,873)
                                                                  ============

     

                 See accompanying notes to financial statements.

                                       36


                                                        Advantus Enterprise Fund
                                                       Investments in Securities
                                                                JANUARY 31, 2003
                                                                     (UNAUDITED)
           (Percentages of each investment category relate to total net assets.)



                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
COMMON STOCK (91.3%)
   BASIC MATERIALS (4.9%)
     Chemicals (3.1%)
    15,800    Airgas, Inc. (b)                                      $  272,550
     5,400    Albemarle Corporation                                    141,750
    10,800    Cambrex Corporation                                      277,560
     6,100    Minerals Technologies, Inc.                              241,865
                                                                    ----------
                                                                       933,725
                                                                    ----------
     Paper and Forest (1.8%)
    24,900    Constar International, Inc. (b)                          202,437
    16,600    Delta & Pine Land Company                                334,490
                                                                    ----------
                                                                       536,927
                                                                    ----------
   CAPITAL GOODS (3.5%)
     Containers -- Metal/Glass (1.1%)
    48,700    Crown Cork & Seal Company, Inc. (b)                      337,491
                                                                    ----------
     Engineering/Construction (.8%)
    16,700    Granite Construction, Inc.                               253,840
                                                                    ----------
     Office Equipment (.8%)
    20,000    Moore Corporation, Ltd. (b) (c)                          244,200
                                                                    ----------
     Trucks and Parts (.8%)
     4,100    Oshkosh Truck Corporation (b)                            257,357
                                                                    ----------
   COMMUNICATION SERVICES (1.2%)
     Telecommunication (1.2%)
    33,600    Polycom, Inc. (b)                                        379,008
                                                                    ----------
   CONSUMER CYCLICAL (14.1%)
     Auto (1.3%)
     7,400    Borg-Warner Automotive, Inc.                             396,270
                                                                    ----------
     Distribution Durables (1.0%)
    17,100    MSC Industrial Direct Company, Inc. (b)                  302,670
                                                                    ----------
     Publishing (1.2%)
    10,100    Scholastic Corporation (b)                               359,752
                                                                    ----------
     Retail (4.4%)
    13,100    Cost Plus, Inc. (b)                                      309,160
    24,000    Gymboree Corporation (b)                                 342,240
    12,850    Hot Topic, Inc. (b)                                      304,545
    28,990    Valuevision Media, Inc. (b)                              382,378
                                                                    ----------
                                                                     1,338,323
                                                                    ----------
     Service (4.3%)
    43,700    Doubleclick, Inc. (b)                                    275,747
                                                                    ----------


              See accompanying notes to investments in securities.

                                       37




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   CONSUMER CYCLICAL--CONTINUED
    15,359    Getty Images, Inc. (b)                                $  449,251
    16,100    Kroll, Inc. (b)                                          306,383
    17,600    Penn National Gaming, Inc. (b)                           286,880
                                                                    ----------
                                                                     1,318,261
                                                                    ----------
     Textiles (1.9%)
    17,100    Linens n Things, Inc. (b)                                398,601
    27,400    Tommy Hilfiger Corporation (b) (c)                       178,100
                                                                    ----------
                                                                       576,701
                                                                    ----------
   CONSUMER STAPLES (9.7%)
     Broadcasting (4.6%)
    26,900    Cumulus Media, Inc. (b)                                  402,962
    22,900    Emmis Communications (b)                                 502,426
     9,400    Entercom Communications Corporation (b)                  459,096
     2,500    Insight Communications (b)                                27,747
                                                                    ----------
                                                                     1,392,231
                                                                    ----------
     Entertainment (.8%)
    17,300    Movie Gallery, Inc. (b)                                  243,065
                                                                    ----------
     Food (1.4%)
    14,300    Performance Food Group Company (b)                       441,155
                                                                    ----------
     Food & Health (.6%)
    15,800    Hain Celestial Group, Inc. (b)                           187,546
                                                                    ----------
     Retail (.6%)
    14,500    Duane Reade, Inc. (b)                                    195,460
                                                                    ----------
     Service (1.7%)
    14,100    Education Management Corporation (b)                     514,185
                                                                    ----------
   ENERGY (6.3%)
     Oil (.8%)
    61,300    Newpark Resources, Inc. (b)                              245,200
                                                                    ----------
     Oil & Gas (5.5%)
    15,300    FMC Technologies, Inc. (b)                               296,973
     8,600    Newfield Exploration Company (b)                         284,402
    18,700    Remington Oil & Gas Corporation (b)                      342,210
    13,400    Spinnaker Exploration Company (b)                        266,258
    14,289    Stone Energy Corporation (b)                             485,969
                                                                    ----------
                                                                     1,675,812
                                                                    ----------
   FINANCIAL (8.6%)
     Banks (1.2%)
     8,800    Westamerica Bancorporation                               359,216
                                                                    ----------


              See accompanying notes to investments in securities.

                                       38




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   FINANCIAL--CONTINUED
     Finance-- Diversified (1.2%)
    13,900    Raymond James Financial, Inc.                         $  354,450
                                                                    ----------
     Insurance (3.9%)
    18,700    HCC Insurance Holdings, Inc.                             450,670
    14,400    Mid Atlantic Medical Services, Inc. (b)                  495,648
    23,500    USI Holdings Corporation (b)                             241,110
                                                                    ----------
                                                                     1,187,428
                                                                    ----------
     Investment Bankers/Brokers (1.3%)
     6,800    Affiliated Managers Group, Inc. (b)                      315,792
     1,700    Jefferies Group, Inc.                                     66,010
                                                                    ----------
                                                                       381,802
                                                                    ----------
     Savings and Loans (1.0%)
    15,400    IndyMac Bancorp, Inc.                                    301,378
                                                                    ----------
   HEALTH CARE (22.8%)
     Biotechnology (3.3%)
    27,300    Affymetrix, Inc. (b)                                     740,922
     8,000    Scios, Inc. (b)                                          262,400
                                                                    ----------
                                                                     1,003,322
                                                                    ----------
     Drugs (6.3%)
    11,400    Biomar Pharmaceutical, Inc. (b)                          121,980
    23,600    Cubist Pharmaceuticals, Inc. (b)                         155,052
     6,800    Inspire Pharmaceuticals, Inc. (b)                         87,108
    16,600    K-V Pharmaceutical Company (b)                           303,780
    13,467    Medicis Pharmaceutical Corporation (b)                   695,571
     9,500    OSI Pharmaceuticals, Inc. (b)                            144,675
    36,900    Sepracor, Inc. (b)                                       415,863
                                                                    ----------
                                                                     1,924,029
                                                                    ----------
     Hospital Management (3.7%)
    32,100    Community Health Systems (b)                             610,542
    20,600    Lifepoint Hospitals, Inc. (b)                            529,420
                                                                    ----------
                                                                     1,139,962
                                                                    ----------
     Managed Care (3.5%)
    16,600    Advance Paradigm, Inc. (b)                               482,396
    21,000    Coventry Health Care, Inc. (b)                           582,750
                                                                    ----------
                                                                     1,065,146
                                                                    ----------
     Medical Products/Supplies (2.0%)
    16,800    Alliance Imaging, Inc. (b)                                83,832
    12,500    SonoSite, Inc. (b)                                       144,375



              See accompanying notes to investments in securities.

                                       39




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                                 
   HEALTH CARE--CONTINUED
    23,900    Therasense, Inc. (b)                                  $  170,885
     7,900    Wilson Greatbatch Technologies, Inc. (b)                 201,292
                                                                    ----------
                                                                       600,384
                                                                    ----------
     Special Services (4.0%)
    17,100    Apria Healthcare Group, Inc. (b)                         394,155
     2,246    DaVita, Inc. (b)                                          54,129
     9,400    Fisher Scientific International, Inc. (b)                271,660
    10,200    Henry Schein, Inc. (b)                                   413,406
     2,800    Renal Care Group, Inc. (b)                                80,920
                                                                    ----------
                                                                     1,214,270
                                                                    ----------
   TECHNOLOGY (18.3%)
     Communications Equipment (1.4%)
    26,900    InterDigital Communications Corporation (b)              326,028
    89,100    Openwave Systems, Inc. (b)                               109,593
                                                                    ----------
                                                                       435,621
                                                                    ----------
     Computer Networking (3.0%)
    40,100    Adaptec, Inc. (b)                                        237,392
    60,400    Legato Systems, Inc. (b)                                 303,812
    41,250    Radiant Systems, Inc. (b)                                384,037
                                                                    ----------
                                                                       925,241
                                                                    ----------
     Computer Services & Software (7.1%)
    34,500    Agile Software Corporation (b)                           240,810
    18,800    Avid Technology, Inc. (b)                                399,500
    12,200    CACI International, Inc. (b)                             458,476
    80,800    Chordiant Software, Inc. (b)                             133,320
    44,600    Informatica Corporation (b)                              311,308
    23,900    JD Edwards & Company (b)                                 299,467
    64,842    Manugistics Group, Inc. (b)                              149,137
    37,200    MatrixOne, Inc. (b)                                      181,164
                                                                    ----------
                                                                     2,173,182
                                                                    ----------
     Data Processing (1.4%)
    29,004    Documentum, Inc. (b)                                     428,389
                                                                    ----------
     Electrical Instruments ( -- )
    51,700    APW, Ltd. (b)                                              1,034
                                                                    ----------
     Electrical Semiconductor (3.0%)
    14,100    Integrated Circuit Systems (b)                           296,100
    22,600    Semtech Corporation (b)                                  301,032
    11,900    Varian Semiconductor Equipment Associates, Inc. (b)      308,686
                                                                    ----------
                                                                       905,818
                                                                    ----------


              See accompanying notes to investments in securities.

                                       40




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                               
   TECHNOLOGY--CONTINUED
     Equipment Semiconductor (2.4%)
    18,440    Brooks-PRI Automation, Inc. (b)                     $    193,620
     9,404    Cymer, Inc. (b)                                          290,678
    20,800    Lam Research Corporation (b)                             243,152
                                                                  ------------
                                                                       727,450
                                                                  ------------
   TRANSPORTATION (1.9%)
     Trucking (1.9%)
    11,600    JB Hunt Transport Services, Inc. (b)                     320,508
    15,900    Swift Transportation Company, Inc. (b)                   254,400
                                                                  ------------
                                                                       574,908
                                                                  ------------
Total common stock (cost: $35,159,003)                              27,832,209
                                                                  ------------
SHORT-TERM SECURITIES (7.9%)
 1,599,078    Wells Fargo & Company -- Cash Investment Fund I,
              current rate 1.280%                                    1,599,078
   819,388    Wells Fargo & Company -- Treasury Plus Fund,
              current rate 1.172%                                      819,388
                                                                  ------------
              Total short-term securities
              (cost: $2,418,466)                                     2,418,466
                                                                  ------------
              Total investments in securities
              (cost: $37,577,469) (d)                             $ 30,250,675
                                                                  ============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 1.4% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003 the cost of securities for federal income tax purposes
     was $37,719,793. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                         
     Gross unrealized appreciation                               $   2,776,111
     Gross unrealized depreciation                                 (10,245,229)
                                                                 -------------
     Net unrealized depreciation                                 $  (7,469,118)
                                                                 =============

     

                 See accompanying notes to financial statements.

                                       41


Advantus Horizon Fund
Investments in Securities
January 31, 2003
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)



                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                               
COMMON STOCK (98.7%)
   BASIC MATERIALS (.7%)
     Chemicals (.7%)
     4,200    Air Products and Chemicals, Inc.                    $    174,090
                                                                  ------------
   CAPITAL GOODS (7.4%)
     Aerospace/Defense (.9%)
     1,600    Lockheed Martin Corporation                               81,680
     2,600    United Technologies Corporation                          165,308
                                                                  ------------
                                                                       246,988
                                                                  ------------
     Electrical Equipment (4.1%)
    46,128    General Electric Company                               1,067,402
                                                                  ------------
     Manufacturing (2.4%)
     3,400    3M Company                                               423,470
    12,100    Tyco International, Ltd. (c)                             193,721
                                                                  ------------
                                                                       617,191
                                                                  ------------
   COMMUNICATION SERVICES (.7%)
     Telecommunication (.7%)
     4,774    Qualcomm, Inc. (b)                                       179,789
                                                                  ------------
   CONSUMER CYCLICAL (12.2%)
     Auto (1.7%)
     1,800    Danaher Corporation                                      110,538
     2,100    Eaton Corporation                                        149,268
     4,200    Harley-Davidson, Inc.                                    175,476
                                                                  ------------
                                                                       435,282
                                                                  ------------
     Leisure (1.2%)
    16,500    Brunswick Corporation                                    321,255
                                                                  ------------
     Retail (9.3%)
     3,900    Autozone, Inc. (b)                                       256,269
     5,200    Bed Bath & Beyond, Inc. (b)                              174,356
     2,023    eBay, Inc. (b)                                           152,049
    10,500    Family Dollar Stores                                     316,260
     4,300    Fastenal Company                                         142,416
     3,900    Kohls Corporation (b)                                    204,243
    11,800    Lowes Companies, Inc.                                    403,324
    16,200    Wal-Mart Stores, Inc.                                    774,360
                                                                  ------------
                                                                     2,423,277
                                                                  ------------
   CONSUMER STAPLES (13.7%)
     Beverage (3.9%)
     1,700    Anheuser-Busch Companies, Inc.                            80,699
     5,600    Constellation Brands, Inc. (b)                           140,392


              See accompanying notes to investments in securities.

                                       42




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                               
   CONSUMER STAPLES--CONTINUED
     9,910    Pepsico, Inc.                                       $    401,157
    10,000    The Coca-Cola Company                                    404,600
                                                                  ------------
                                                                     1,026,848
                                                                  ------------
     Broadcasting (1.3%)
     8,300    Clear Channel Communications, Inc. (b)                   332,664
                                                                  ------------
     Entertainment (.9%)
     5,900    Viacom, Inc. (b)                                         227,445
                                                                  ------------
     Food (.2%)
     1,500    Kraft Foods, Inc.                                         47,775
                                                                  ------------
     Food & Health (.5%)
     4,700    Sysco Corporation                                        138,039
                                                                  ------------
     Household Products (4.0%)
     8,700    Colgate-Palmolive Company                                442,917
     7,000    Procter & Gamble Company                                 598,990
                                                                  ------------
                                                                     1,041,907
                                                                  ------------
     Personal Care (.5%)
     2,500    Avon Products, Inc.                                      125,000
                                                                  ------------
     Restaurants (.8%)
    10,000    Darden Restaurants, Inc.                                 217,000
                                                                  ------------
     Retail (.7%)
     6,600    Walgreen Company                                         191,400
                                                                  ------------
     Service (.5%)
     3,900    Automatic Data Processing, Inc.                          135,213
                                                                  ------------
     Tobacco (.4%)
     2,700    Altria Group, Inc.                                       102,249
                                                                  ------------
   ENERGY (2.9%)
     Oil (.3%)
     1,500    Devon Energy Corporation                                  67,950
                                                                  ------------
     Oil & Gas (2.6%)
     1,900    EOG Resources, Inc.                                       73,644
     4,080    Nabors Industries, Ltd. (b)(c)                           150,348
     3,900    Noble Corporation (b)                                    133,692
     4,200    Smith International, Inc. (b)                            133,728
    10,600    Veritas DGC, Inc. (b)                                    193,471
                                                                  ------------
                                                                       684,883
                                                                  ------------


              See accompanying notes to investments in securities.

                                       43




                                                                       MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                               
   FINANCIAL (10.9%)
     Banks (2.4%)
     2,000    Bank of America Corporation                         $    140,100
     1,800    Fifth Third Bancorp                                       96,030
     2,000    State Street Corporation                                  79,180
     4,400    Wells Fargo & Company                                    208,428
     2,300    Zion Bancorp                                              95,266
                                                                  ------------
                                                                       619,004
                                                                  ------------
     Consumer Finance (2.2%)
     5,100    American Express Company                                 181,203
    14,250    MBNA Corporation                                         239,828
     1,400    SLM Corporation                                          148,722
                                                                  ------------
                                                                       569,753
                                                                  ------------
     Finance -- Diversified (2.1%)
     9,900    Freddie Mac                                              554,202
                                                                  ------------
     Insurance (1.9%)
     6,400    American International Group                             346,368
     3,300    Marsh & McLennan Companies, Inc.                         140,679
                                                                  ------------
                                                                       487,047
                                                                  ------------
     Investment Bankers/Brokers (2.3%)
     7,600    Citigroup, Inc. (b)                                      261,288
     2,000    Goldman Sachs Group, Inc.                                136,200
     7,700    T. Rowe Price Associates, Inc.                           205,898
                                                                  ------------
                                                                       603,386
                                                                  ------------
   HEALTH CARE (25.6%)
     Biotechnology (2.8%)
    13,200    Amgen, Inc. (b)                                          672,672
     1,300    Genentech, Inc. (b)                                       47,762
                                                                  ------------
                                                                       720,434
                                                                  ------------
     Drugs (10.0%)
     5,500    Eli Lilly & Company                                      331,320
     4,800    Forest Laboratores, Inc. (b)                             248,400
     1,500    Merck & Company, Inc.                                     83,085
    53,350    Pfizer, Inc.                                           1,619,706
     8,400    Wyeth                                                    327,852
                                                                  ------------
                                                                     2,610,363
                                                                  ------------
     Health Care -- Diversified (5.3%)
     9,800    Abbott Laboratories                                      373,576


              See accompanying notes to investments in securities.

                                       44




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   HEALTH CARE--CONTINUED
    18,900    Johnson & Johnson                                  $   1,013,229
                                                                 -------------
                                                                     1,386,805
                                                                 -------------
     Hospital Management (.4%)
     2,500    The HCA - Healthcare Company                             106,850
                                                                 -------------
     Managed Care (1.9%)
     6,000    Caremark RX, Inc.                                        117,600
     5,800    Express Scripts, Inc. (b)                                322,190
       700    UnitedHealth Group, Inc.                                  61,530
                                                                 -------------
                                                                       501,320
                                                                 -------------
     Medical Products/Supplies (4.5%)
     2,100    AmeriSourceBergen Corporation                            122,220
     1,900    Boston Scientific Corporation (b)                         76,855
     7,900    Medtronic, Inc.                                          354,868
     7,600    St Jude Medical, Inc. (b)                                331,132
     7,000    Zimmer Holdings, Inc. (b)                                287,000
                                                                 -------------
                                                                     1,172,075
                                                                 -------------
     Special Services (.7%)
     6,600    Fisher Scientific International, Inc.                    190,740
                                                                 -------------
   TECHNOLOGY (24.2%)
     Communications Equipment (1.1%)
     5,500    Brocade Communication Systems, Inc. (b)                   24,585
     2,700    Comverse Technology, Inc. (b)                             25,704
    15,900    Nokia Oyj (c)                                            228,801
                                                                 -------------
                                                                       279,090
                                                                 -------------
     Computer Hardware (3.9%)
    15,330    Dell Computer Corporation (b)                            365,774
     4,200    Hewlett-Packard Company                                   73,122
     5,600    International Business Machines Corporation              438,088
    15,300    Symbol Technologies, Inc.                                128,979
                                                                 -------------
                                                                     1,005,963
                                                                 -------------
     Computer Networking (2.9%)
     1,126    Affiliated Computer Services, Inc. (b)                    61,052
    49,785    Cisco Systems, Inc. (b)                                  665,626
     3,300    Juniper Networks, Inc. (b)                                28,941
                                                                 -------------
                                                                       755,619
                                                                 -------------


              See accompanying notes to investments in securities.

                                       45




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TECHNOLOGY--CONTINUED
     Computer Peripherals (.2%)
     7,900    EMC Corporation (b)                                $      60,830
                                                                 -------------
     Computer Services & Software (8.5%)
     8,700    AOL Time Warner, Inc. (b)                                101,442
     5,300    BEA Systems, Inc. (b)                                     60,738
       746    Electronic Arts, Inc. (b)                                 38,650
    28,459    Microsoft Corporation (b)                              1,350,664
    15,100    Oracle Systems (b)                                       181,653
     8,500    Peoplesoft, Inc. (b)                                     164,815
     3,100    SAP AG (c)                                                72,850
    12,200    Siebel Systems, Inc. (b)                                 101,992
     2,006    Sungard Data Systems, Inc. (b)                            38,997
     2,500    Symantec Corporation (b)                                 116,700
                                                                 -------------
                                                                     2,228,501
                                                                 -------------
     Electrical Instruments (.1%)
     9,400    JDS Uniphase Corporation (b)                              25,474
                                                                 -------------
     Electrical Semiconductor (5.2%)
     3,400    Altera Corporation (b)                                    37,332
     2,466    Analog Devices, Inc. (b)                                  59,011
    15,052    Applied Materials, Inc. (b)                              180,172
     4,200    Entegris, Inc. (b)                                        44,902
    29,831    Intel Corporation                                        467,154
     3,600    Intersil Corporation (b)                                  52,200
     2,288    Linear Technology Corporation                             59,785
     2,498    Microchip Technology, Inc.                                55,181
     1,800    Novellus Systems, Inc. (b)                                53,010
    18,587    Texas Instruments, Inc.                                  295,533
     2,279    Xilinx, Inc. (b)                                          45,101
                                                                 -------------
                                                                     1,349,381
                                                                 -------------
     Electronics -- Computer Distribution (1.1%)
     2,222    Maxim Integrated Products (b)                             69,215
     4,800    WW Grainger, Inc.                                        227,040
                                                                 -------------
                                                                       296,255
                                                                 -------------
     Equipment Semiconductor (.3%)
     2,435    KLA-Tencor Corporation (b)                                79,478
                                                                 -------------
     Service -- Data Processing (.9%)
     4,800    First Data Corporation                                   165,120
     3,100    Paychex, Inc.                                             78,058
                                                                 -------------
                                                                       243,178
                                                                 -------------


              See accompanying notes to investments in securities.

                                       46




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   UTILITIES (.4%)
     Electric Companies (.4%)
     3,000    PPL Corporation                                    $     105,000
                                                                 -------------
Total common stock (cost: $24,847,580)                              25,754,393
                                                                 -------------
S & P DEPOSITORY RECEIPT (--)
       100    S & P Depository Receipt                                   8,598
                                                                 -------------
Total S & P Depository Receipt (cost: $8,161)                            8,598
                                                                 -------------
SHORT-TERM SECURITIES (.5%)
   100,534    Dreyfus Cash Management Plus Fund, current rate
              1.224%                                                   100,534
     1,159    Federated Money Market Obligations Trust -- Prime
              Obligation Fund, current rate 1.280%                       1,160
    16,296    Wells Fargo & Company-- Cash Investment Fund,
              current rate 1.280%                                       16,296
                                                                 -------------
              Total short-term securities
              (cost: $117,990)                                         117,990
                                                                 -------------
              Total investments in securities
              (cost: $24,973,731) (d)                            $  25,880,983
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 1.3% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003, the cost of securities for federal income tax purposes
     was $28,677,400. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                          
     Gross unrealized appreciation                               $   2,292,000
     Gross unrealized depreciation                                  (5,088,417)
                                                                 -------------
     Net unrealized depreciation                                 $  (2,796,417)
                                                                 =============

    

                 See accompanying notes to financial statements.

                                       47


Advantus Index 500 Fund
Investments in Securities
JANUARY 31, 2003
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)



                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
COMMON STOCK (94.5%)
   BASIC MATERIALS (3.6%)
     Agriculture Products (.1%)
     2,402    Archer-Daniels-Midland Company                           $28,944
       961    Monsanto Company                                          16,962
                                                                 -------------
                                                                        45,906
                                                                 -------------
     Aluminum (.2%)
     3,178    Alcoa, Inc.                                               62,829
                                                                 -------------
     Chemicals (2.1%)
       877    Air Products and Chemicals, Inc.                          36,352
     3,428    Dow Chemical Company                                      99,618
     3,739    E.I. du Pont de Nemours & Company                        141,596
       273    Eastman Chemical Company                                   9,345
       481    Ecolab, Inc.                                              23,713
       450    Engelhard Corporation                                      9,319
       205    Great Lakes Chemical Corporation                           4,557
       380    Hercules, Inc. (b)                                         3,150
       367    International Flavors and Fragrances, Inc.                11,660
     4,907    Pharmacia Corporation                                    204,965
       668    PPG Industries, Inc.                                      32,618
       608    Praxair, Inc.                                             33,160
       365    Quest Diagnostics, Inc. (b)                               19,630
       846    Rohm & Haas Company                                       26,099
       265    Sigma-Aldrich Corporation                                 11,891
                                                                 -------------
                                                                       667,673
                                                                 -------------
     Construction (--)
       370    Vulcan Materials, Inc.                                    12,598
                                                                 -------------
     Iron and Steel (.1%)
       304    Allegheny Technologies, Inc.                               1,389
       293    Nucor Corporation                                         11,694
       385    United States Steel Corporation                            5,525
       296    Worthington Industries, Inc.                               4,490
                                                                 -------------
                                                                        23,098
                                                                 -------------
     Mining (.2%)
       532    Freeport-McMoran, Inc. (b)                                 9,986
     1,507    Newmont Mining                                            43,628
       340    Phelps Dodge Corporation (b)                              11,747
                                                                 -------------
                                                                        65,361
                                                                 -------------
     Paper and Forest (.9%)
       232    Bemis Company, Inc.                                       10,120
       231    Boise Cascade Corporation                                  5,523


              See accompanying notes to investments in securities.

                                       48




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   BASIC MATERIALS--CONTINUED
       943    Georgia-Pacific Corporation                        $      14,503
     1,814    International Paper Company                               64,760
     1,946    Kimberly-Clark Corporation                                90,139
       372    Louisiana-Pacific Corporation (b)                          2,716
       755    MeadWestvaco Corporation                                  18,158
       670    Plum Creek Timber Company, Inc.                           14,619
       223    Temple Inland, Inc.                                        9,638
       824    Weyerhaeuser Company                                      39,593
                                                                 -------------
                                                                       269,769
                                                                 -------------
   CAPITAL GOODS (7.5%)
     Aerospace/Defense (1.6%)
       761    General Dynamics Corporation                              50,333
       434    Goodrich Corporation                                       7,465
     1,713    Lockheed Martin Corporation                               87,449
       687    Northrop Grumman Corporation                              62,799
     1,550    Raytheon Company                                          46,639
       700    Rockwell Collins                                          14,441
       701    Rockwell International Corporation                        16,158
     3,159    The Boeing Company                                        99,793
     1,776    United Technologies Corporation                          112,918
                                                                 -------------
                                                                       497,995
                                                                 -------------
     Containers -- Metal/Glass (--)
       200    Ball Corporation                                          10,500
                                                                 -------------
     Electrical Equipment (3.4%)
       739    American Power Conversion Corporation (b)                 11,499
       343    Cooper Industries, Inc.                                   12,152
     1,585    Emerson Electric Company                                  74,384
    37,545    General Electric Company (e)                             868,791
     3,084    Honeywell International, Inc.                             75,373
       702    Molex, Inc.                                               14,735
     3,101    Solectron Corporation (b)                                 11,133
       603    Thermo Electron Corporation (b)                           10,956
                                                                 -------------
                                                                     1,079,023
                                                                 -------------
     Engineering/Construction (.2%)
     1,324    Caterpillar, Inc.                                         58,229
                                                                 -------------
     Machinery (.3%)
       904    Deere & Company                                           38,149
       780    Dover Corporation                                         20,413
       634    Ingersoll Rand Company (c)                                24,891
                                                                 -------------
                                                                        83,453
                                                                 -------------


              See accompanying notes to investments in securities.

                                       49




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CAPITAL GOODS--CONTINUED
     Manufacturing (1.5%)
     1,469    3M Company                                         $     182,964
       406    Avery Dennison Corporation                                24,194
     1,187    Illinois Tool Works, Inc.                                 72,193
       330    Johnson Controls, Inc.                                    26,654
       200    Millipore Corporation (b)                                  6,462
       475    Parker Hannifin Corporation                               19,147
       296    Sealed Air Corporation (b)                                11,165
       505    Textron, Inc.                                             19,473
     7,510    Tyco International, Ltd. (c)                             120,235
                                                                 -------------
                                                                       482,487
                                                                 -------------
     Office Equipment (.2%)
       475    Lexmark International Group, Inc. (b)                     28,756
       879    Pitney Bowes, Inc.                                        28,603
                                                                 -------------
                                                                        57,359
                                                                 -------------
     Trucks and Parts (.1%)
       175    Cummins Engine Company, Inc.                               4,322
       255    Navistar International Corporation (b)                     6,138
       422    PACCAR, Inc.                                              18,281
                                                                 -------------
                                                                        28,741
                                                                 -------------
     Waste Management (.2%)
       743    Allied Waste Industries (b)                                7,267
     2,302    Waste Management, Inc.                                    52,923
                                                                 -------------
                                                                        60,190
                                                                 -------------
   COMMUNICATION SERVICES (4.1%)
     Cellular (.4%)
    10,192    AT&T Wireless Services, Inc. (b)                          61,865
     1,032    Citizens Communications Company (b)                       10,103
     3,633    Nextel Communications, Inc. (b)                           45,848
                                                                 -------------
                                                                       117,816
                                                                 -------------
     Telecommunication (.6%)
     2,975    Qualcomm, Inc.                                           112,038
     6,396    Qwest Communications International, Inc. (b)              28,910
     3,360    Sprint Corporation - Fon Group                            40,790
     3,753    Sprint Corporation - PCS Group (b)                        14,111
                                                                 -------------
                                                                       195,849
                                                                 -------------
     Telephone (3.1%)
     1,161    Alltel Corporation                                        54,416
     2,894    AT&T Corporation                                          56,375


              See accompanying notes to investments in securities.

                                       50




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   COMMUNICATION SERVICES--CONTINUED
     6,996    Bellsouth Corporation                              $     159,369
       558    Centurytel, Inc.                                          16,924
    12,517    SBC Communications, Inc.                                 305,915
    10,322    Verizon Communications                                   395,126
                                                                 -------------
                                                                       988,125
                                                                 -------------
   CONSUMER CYCLICAL (9.6%)
     Auto (1.0%)
       237    Cooper Tire and Rubber Company                             3,389
       560    Dana Corporation                                           6,031
       564    Danaher Corporation                                       34,635
     2,106    Delphi Corporation                                        17,943
       302    Eaton Corporation                                         21,466
     6,923    Ford Motor Company                                        63,069
     2,109    General Motors Corporation                                76,620
       613    Goodyear Tire & Rubber Company (b)                         3,249
     1,138    Harley-Davidson, Inc.                                     47,546
       375    ITT Industries, Inc.                                      21,060
       220    Snap-On, Inc.                                              5,610
       490    Visteon Corporation                                        3,366
                                                                 -------------
                                                                       303,984
                                                                 -------------
     Building Materials (.3%)
       297    American Standard Companies, Inc. (b)                     19,798
       250    Centex Corporation                                        13,230
       225    Crane Company                                              3,627
       200    KB Home Corporation                                        8,942
     1,862    Masco Corporation                                         33,870
       259    Pulte Corporation                                         12,945
                                                                 -------------
                                                                        92,412
                                                                 -------------
     Distribution Durables (.1%)
       640    Genuine Parts Company                                     18,880
                                                                 -------------
     Hardware and Tools (.1%)
       286    Black & Decker Corporation                                10,479
       355    The Stanley Works                                          9,450
                                                                 -------------
                                                                        19,929
                                                                 -------------
     Houseware (.2%)
     4,327    Corning, Inc. (b)                                         17,654
       703    Leggett & Platt, Inc.                                     14,201
       275    Maytag Corporation                                         6,949
       256    Whirlpool Corporation                                     13,304
                                                                 -------------
                                                                        52,108
                                                                 -------------


              See accompanying notes to investments in securities.

                                       51




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER CYCLICAL--CONTINUED
     Leisure (.2%)
       350    Brunswick Corporation                              $       6,814
       653    Hasbro, Inc.                                               7,836
       318    International Game Technology (b)                         25,081
     1,647    Mattel, Inc.                                              32,940
                                                                 -------------
                                                                        72,671
                                                                 -------------
     Lodging-- Hotel (.1%)
     1,384    Hilton Hotels                                             16,207
       889    Marriott International, Inc.                              27,737
                                                                 -------------
                                                                        43,944
                                                                 -------------
     Photography/Imagery (.1%)
     1,128    Eastman Kodak Company                                     34,178
                                                                 -------------
     Publishing (.8%)
       324    Dow Jones & Company, Inc.                                 13,077
     1,005    Gannett Company, Inc.                                     73,023
       305    Knight-Ridder, Inc.                                       20,655
       748    McGraw-Hill Companies, Inc.                               44,297
       178    Meredith Corporation                                       7,510
       436    RR Donnelly & Sons Company                                 9,396
       571    The New York Times Company                                27,888
     1,158    Tribune Company                                           56,047
                                                                 -------------
                                                                       251,893
                                                                 -------------
     Retail (6.0%)
       248    American Greetings Corporation (b)                         3,447
       379    Autozone, Inc. (b)                                        24,904
     1,124    Bed Bath & Beyond, Inc. (b)                               37,688
     1,181    Best Buy Company, Inc. (b)                                30,812
       405    Big Lots, Inc. (b)                                         5,062
       792    Circuit City Stores, Inc.                                  4,744
     1,712    Costco Wholesale Corporation (b)                          49,425
       278    Dillards, Inc.                                             4,170
     1,245    Dollar General Corporation                                14,019
     1,155    eBay, Inc. (b)                                            86,810
       628    Family Dollar Stores                                      18,915
       738    Federated Department Stores (b)                           19,203
     3,334    Gap, Inc.                                                 48,776
     8,775    Home Depot, Inc.                                         183,397
     1,013    JC Penney Company                                         19,642
     1,264    Kohls Corporation (b)                                     66,196
     1,962    Limited Brands, Inc.                                      24,702
     2,930    Lowes Companies, Inc.                                    100,147
     1,088    May Department Stores Company                             22,304


              See accompanying notes to investments in securities.

                                       52




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER CYCLICAL--CONTINUED
       997    Nike, Inc.                                         $      44,406
       498    Nordstrom, Inc.                                            8,984
     1,146    Office Depot, Inc. (b)                                    15,299
       609    Radioshack Corporation                                    12,150
       198    Reebok International, Ltd. (b)                             5,988
     1,178    Sears Roebuck Company                                     31,158
     1,775    Staples, Inc. (b)                                         30,477
     3,415    Target Corporation                                        96,337
       562    The Sherwin-Williams Company                              14,972
       518    Tiffany & Company                                         12,043
     1,981    TJX Companies, Inc.                                       36,371
       768    Toys `R' Us, Inc. (b)                                      6,943
    16,654    Wal-Mart Stores, Inc. (e)                                796,061
                                                                 -------------
                                                                     1,875,552
                                                                 -------------
     Service (.6%)
       690    Apollo Group, Inc. (b)                                    30,677
     3,865    Cendant Corporation (b)                                   42,824
       653    Convergys Corporation (b)                                  8,326
       313    Fluor Corporation                                          9,309
       446    Harrahs Entertainment, Inc. (b)                           16,181
     1,444    Interpublic Group Companies, Inc. (b)                     18,584
       708    Omnicom Group                                             42,692
       430    Quintiles Transnational Corporation (b)                    5,465
       629    Robert Half International, Inc. (b)                        9,536
       514    Sabre Holdings Corporation (b)                             9,221
       419    TMP Worldwide, Inc. (b)                                    4,630
                                                                 -------------
                                                                       197,445
                                                                 -------------
     Textiles (.1%)
       475    Jones Apparel Group, Inc. (b)                             15,523
       416    Liz Clairborne, Inc.                                      11,948
       425    VF Corporation                                            14,973
                                                                 -------------
                                                                        42,444
                                                                 -------------
   CONSUMER STAPLES (11.5%)
     Beverage (2.8%)
       164    Adolph Coors Company                                       9,873
     3,220    Anheuser-Busch Companies, Inc.                           152,853
       250    Brown-Forman Corporation                                  15,535
     1,695    Coca-Cola Enterprises                                     37,341
     1,048    Pepsi Bottling Group                                      26,567
     6,516    Pepsico, Inc.                                            263,768


              See accompanying notes to investments in securities.

                                       53




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER STAPLES--CONTINUED
     9,345    The Coca-Cola Company                              $     378,099
                                                                 -------------
                                                                       884,036
                                                                 -------------
     Broadcasting (.4%)
     2,306    Clear Channel Communications, Inc. (b)                    92,424
       846    Univision Communications, Inc. (b)                        22,301
                                                                 -------------
                                                                       114,725
                                                                 -------------
     Entertainment (1.4%)
     2,208    Carnival Corporation                                      53,213
     7,683    The Walt Disney Company                                  134,452
     6,643    Viacom, Inc. (b)                                         256,088
                                                                 -------------
                                                                       443,753
                                                                 -------------
     Food (1.2%)
     1,544    Campbell Soup Company                                     37,010
     2,018    Conagra, Inc.                                             49,502
     1,413    General Mills, Inc.                                       63,486
     1,303    H.J. Heinz Company                                        42,100
       515    Hershey Foods Corporation                                 33,217
     1,544    Kellogg Company                                           51,570
     2,953    Sara Lee Corporation                                      58,883
       849    William Wrigley Jr. Company                               47,136
                                                                 -------------
                                                                       382,904
                                                                 -------------
     Food & Health (.2%)
     2,497    Sysco Corporation                                         73,337
                                                                 -------------
     Household Products (2.3%)
       856    Clorox Company                                            32,716
     2,043    Colgate-Palmolive Company                                104,009
     3,982    Gillette Compay                                          119,062
     1,026    Newell Rubbermaid, Inc.                                   28,574
       597    Pactiv Corporation (b)                                    12,185
     4,943    Procter & Gamble Company                                 422,972
       220    Tupperware Corporation                                     3,401
                                                                 -------------
                                                                       722,919
                                                                 -------------
     Personal Care (.2%)
       249    Alberto-Culver Company                                    12,632
       889    Avon Products, Inc.                                       44,450
                                                                 -------------
                                                                        57,082
                                                                 -------------
     Restaurants (.5%)
       628    Darden Restaurants, Inc.                                  13,628
     4,750    McDonalds Corporation                                     67,640


              See accompanying notes to investments in securities.

                                       54




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER STAPLES--CONTINUED
     1,459    Starbucks Corporation (b)                          $      33,148
       431    Wendy's International, Inc.                               11,702
     1,127    Yum! Brands, Inc. (b)                                     26,124
                                                                 -------------
                                                                       152,242
                                                                 -------------
     Retail (.9%)
     1,430    Albertsons, Inc.                                          30,745
     1,478    CVS Corporation                                           33,432
     2,917    Kroger Company (b)                                        44,018
     1,661    Safeway, Inc. (b)                                         39,366
       504    Supervalu, Inc.                                            7,500
     3,856    Walgreen Company                                         111,824
       531    Winn-Dixie Stores, Inc.                                    7,434
                                                                 -------------
                                                                       274,319
                                                                 -------------
     Service (.5%)
     2,260    Automatic Data Processing, Inc.                           78,354
       630    Cintas Corporation                                        26,019
     1,881    Concord EFS, Inc. (b)                                     27,575
       231    Deluxe Corporation                                         9,295
                                                                 -------------
                                                                       141,243
                                                                 -------------
     Tobacco (1.1%)
     7,805    Altria Group, Inc.                                       295,575
       554    Fortune Brands, Inc.                                      24,415
       315    R.J. Reynolds Tobacco Holdings, Inc.                      13,343
       630    UST, Inc.                                                 19,467
                                                                 -------------
                                                                       352,800
                                                                 -------------
   ENERGY (5.8%)
     Oil (4.3%)
       328    Amerada Hess                                              15,482
     4,021    Chevron Corporation                                      258,952
     2,547    ConocoPhillips                                           122,740
       580    Devon Energy Corporation                                  26,274
    25,388    Exxon Mobil Corporation                                  867,000
     1,156    Marathon Oil Corporation                                  24,160
     1,417    Occidental Petroleum Corporation                          41,391
                                                                 -------------
                                                                     1,355,999
                                                                 -------------
     Oil & Gas (1.5%)
       966    Anadarko Petroleum Corporation                            44,542
       572    Apache Finance Property                                   35,698
       240    Ashland, Inc.                                              6,658
     1,243    Baker Hughes, Inc.                                        37,613


              See accompanying notes to investments in securities.

                                       55




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   ENERGY--CONTINUED
       573    BJ Services Company (b)                                  $17,517
       791    Burlington Resources, Inc.                                34,883
       465    EOG Resources, Inc.                                       18,023
     1,637    Halliburton Company                                       30,710
       400    Kerr-McGee Corporation                                    16,708
       240    McDermott International, Inc. (b)                            970
       528    Nabors Industries, Ltd. (b)(c)                            19,457
       497    Noble Corporation (b)                                     17,037
       320    Rowan Companies, Inc.                                      6,602
     2,174    Schlumberger, Ltd.                                        81,960
       300    Sunoco, Inc.                                               9,396
     1,196    Transocean Sedco Forex, Inc. (b)                          27,233
       973    Unocal Corporation                                        27,098
     1,543    Veritas DGC, Inc. (b)                                     28,163
                                                                 -------------
                                                                       460,268
                                                                 -------------
   FINANCIAL (20.7%)
     Auto Finance (.3%)
     3,944    Fleet Boston Financial Corporation                       102,978
                                                                 -------------
     Banks (6.8%)
     1,341    AmSouth Bancorporation                                    27,477
     5,656    Bank of America Corporation                              396,236
     4,418    Bank One Corporation                                     161,301
     1,820    BB&T Corporation                                          61,079
       658    Comerica Bank                                             26,649
     2,185    Fifth Third Bancorp                                      116,570
       499    First Tennessee National Corporation                      18,712
       885    Huntington Bancshares, Inc.                               16,788
     7,505    J.P. Morgan Chase & Company                              175,167
     1,605    KeyCorp                                                   38,600
       840    Marshal & Ilsley Corporation                              22,764
     1,638    Mellon Financial Corporation                              37,461
     2,300    National City Bancorp                                     63,940
       600    North Fork BanCorporation                                 19,458
       856    Northern Trust Corporation                                29,275
       860    Regions Financial Corporation                             28,191
     1,296    SouthTrust Corporation                                    33,774
     1,249    State Street Corporation                                  49,448
     1,070    Suntrust Banks, Inc.                                      60,615
     1,131    Synovus Financial Corporation                             21,862
     2,894    The Bank of New York Company, Inc.                        73,218
     7,206    U.S. Bancorp                                             152,047
       730    Union Planters Corporation                                20,601
     5,112    Wachovia Corporation                                     183,879


              See accompanying notes to investments in securities.

                                       56




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   FINANCIAL--CONTINUED
     6,395    Wells Fargo & Company                              $     302,931
       372    Zion Bancorp                                              15,408
                                                                 -------------
                                                                     2,153,451
                                                                 -------------
     Consumer Finance (1.3%)
     4,953    American Express Company                                 175,980
       852    Capital One Financial Corporation                         26,455
     1,787    Household International, Inc.                             48,804
     4,809    MBNA Corporation                                          80,935
       580    SLM Corporation                                           61,613
                                                                 -------------
                                                                       393,787
                                                                 -------------
   Finance -- Diversified (1.6%)
       396    Ambac Financial Group, Inc.                               21,214
     3,746    Fannie Mae                                               242,366
     2,619    Freddie Mac                                              146,612
       839    Janus Capital Group, Inc.                                 10,647
     1,062    John Hancock Financial Services, Inc.                     29,003
       387    MGIC Investment Corporation                               16,691
       570    Moodys Corporation                                        23,872
     1,048    Providian Financial Corporation (b)                        6,697
                                                                 -------------
                                                                       497,102
                                                                 -------------
     Insurance (4.8%)
       995    ACE, Ltd. (c)                                             29,303
       590    Aetna, Inc.                                               25,659
     1,947    AFLAC, Inc.                                               63,063
     2,656    Allstate Corporation                                      93,465
     9,878    American International Group                             534,597
     1,147    AON Corporation                                           21,713
       637    Chubb Corporation                                         34,220
       543    Cigna Corporation                                         23,713
       629    Cincinnati Financial Corporation                          22,512
       982    Hartford Financial Services Group, Inc.                   40,930
       541    Jefferson-Pilot Corporation                               20,828
       643    Lincoln National Corporation                              20,737
       722    Loews Corporation                                         31,782
     2,017    Marsh & McLennan Companies, Inc.                          85,985
       554    MBIA, Inc.                                                22,703
     2,642    MetLife, Inc.                                             70,726
       849    Progressive Corporation                                   41,041
     2,134    Prudential Financial, Inc.                                67,797
       522    Safeco Corporation                                        18,714
     1,256    The Principal Financial Group                             35,922
       864    The St. Paul Companies, Inc.                              28,201


              See accompanying notes to investments in securities.

                                       57




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   FINANCIAL--CONTINUED
       434    Torchmark Corporation                              $      15,581
     3,764    Travelers Property Casualty Corporation                   61,203
       872    Unumprovident Corporation                                 15,234
       585    Wellpoint Health Networks, Inc. (b)                       42,518
       540    XL Capital, Ltd. (c)                                      40,532
                                                                 -------------
                                                                     1,508,679
                                                                 -------------
     Investment Bankers/Brokers (4.7%)
       354    Bear Stearns & Companies, Inc.                            21,966
       674    Block Financial Corporation                               25,538
    19,379    Citigroup, Inc.                                          666,250
     8,708    Comcast Corporation (b)                                  231,894
       971    Franklin Resources, Inc.                                  32,373
     1,805    Goldman Sachs Group, Inc.                                122,920
       889    Lehman Brothers Holdings, Inc.                            48,477
     3,258    Merrill Lynch & Company, Inc.                            114,095
     4,126    Morgan Stanley                                           156,375
       446    T. Rowe Price Associates, Inc.                            11,926
     5,069    The Charles Schwab Corporation                            46,736
                                                                 -------------
                                                                     1,478,550
                                                                 -------------
     Public Finance (.2%)
       510    Countrywide Financial Corporation                         28,132
     1,092    PNC Financial Services Group                              48,092
                                                                 -------------
                                                                        76,224
                                                                 -------------
     Real Estate Investment Trust (.3%)
     1,526    EOP Operation LP                                          36,532
       993    Equity Residential                                        24,269
       685    Simon Property Group, Inc.                                22,399
       752    Starwood Hotels & Resorts Worldwide, Inc.                 17,634
                                                                 -------------
                                                                       100,834
                                                                 -------------
     Savings and Loans (.6%)
       851    Charter One Financial, Inc.                               24,602
       598    Golden West Financial Corporation                         43,971
     3,572    Washington Mutual, Inc.                                  123,055
                                                                 -------------
                                                                       191,628
                                                                 -------------
   HEALTH CARE (13.2%)
     Biotechnology (.9%)
     4,862    Amgen, Inc. (b)                                          247,767
       548    Biogen, Inc. (b)                                          20,961
       799    Genzyme Corporation (b)                                   25,848
                                                                 -------------
                                                                       294,576
                                                                 -------------


              See accompanying notes to investments in securities.

                                       58




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   HEALTH CARE--CONTINUED
     Drugs (6.8%)
     7,292    Bristol-Myers Squibb Company                       $     172,018
     1,701    Cardinal Health, Inc.                                     99,219
       712    Chiron Corporation (b)                                    26,714
     4,230    Eli Lilly & Company                                      254,815
     1,354    Forest Laboratories, Inc. (b)                             70,069
       895    King Pharmaceuticals, Inc. (b)                            13,139
       944    Medimmune, Inc. (b)                                       28,122
     8,469    Merck & Company, Inc.                                    469,098
    23,249    Pfizer, Inc.                                             705,840
     5,520    Schering-Plough Corporation                               99,967
       375    Watson Pharmaceuticals, Inc. (b)                          11,355
     4,988    Wyeth                                                    194,682
                                                                 -------------
                                                                     2,145,038
                                                                 -------------
     Health Care-- Diversified (2.8%)
     5,881    Abbott Laboratories                                      224,184
       484    Allergan, Inc.                                            29,364
     1,481    Healthsouth Corporation (b)                                5,672
    11,201    Johnson & Johnson                                        600,486
     1,836    Tenet Healthcare Corporation (b)                          33,030
                                                                 -------------
                                                                       892,736
                                                                 -------------
     Hospital Management (.3%)
     1,945    HCA, Inc.                                                 83,129
       865    Health Management Associates, Inc.                        16,020
                                                                 -------------
                                                                        99,149
                                                                 -------------
     Managed Care (.5%)
       573    Humana, Inc. (b)                                           5,696
       357    Manor Care, Inc. (b)                                       6,862
     1,092    McKesson HBOC, Inc.                                       31,046
     1,143    UnitedHealth Group, Inc.                                 100,470
                                                                 -------------
                                                                       144,074
                                                                 -------------
     Medical Products/Supplies (1.8%)
       392    AmeriSourceBergen Corporation                             22,814
       187    Bausch & Lomb, Inc.                                        6,218
     2,220    Baxter International, Inc.                                62,560
       944    Becton Dickinson and Company                              30,963
       988    Biomet, Inc.                                              27,606
     1,532    Boston Scientific Corporation (b)                         61,969
       227    C.R. Bard, Inc.                                           12,866
     1,137    Guidant Corporation                                       38,226
     4,618    Medtronic, Inc.                                          207,441


              See accompanying notes to investments in securities.

                                       59




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   HEALTH CARE--CONTINUED
       451    Pall Corporation                                   $       6,995
       666    St. Jude Medical, Inc. (b)                                29,018
       752    Stryker Corporation                                       45,300
       718    Zimmer Holdings, Inc. (b)                                 29,438
                                                                 -------------
                                                                       581,414
                                                                 -------------
     Special Services (.1%)
       564    Anthem, Inc. (b)                                          35,013
                                                                 -------------
   TECHNOLOGY (14.2%)
     Communications Equipment (.5%)
     2,998    ADC Telecommunications, Inc. (b)                           6,895
       370    Andrew Corporation (b)                                     3,419
     1,316    Avaya, Inc. (b)                                            3,316
     1,624    Ciena Corporation (b)                                      9,419
       707    Comverse Technology, Inc. (b)                              6,731
    12,922    Lucent Technologies, Inc. (b)                             24,035
     8,654    Motorola, Inc.                                            69,059
       582    Scientific-Atlanta, Inc.                                   6,460
     1,554    Tellabs, Inc. (b)                                         12,106
                                                                 -------------
                                                                       141,440
                                                                 -------------
     Computer Hardware (3.4%)
     1,331    Apple Computer, Inc. (b)                                  19,113
     2,124    Computer Associates International, Inc.                   28,398
     9,766    Dell Computer Corporation (b)                            233,017
     1,192    Gateway, Inc. (b)                                          3,123
    11,487    Hewlett-Packard Company                                  199,989
     6,379    International Business Machines Corporation              499,029
       335    NCR Corporation (b)                                        6,462
       577    Nvidia Corporation (b)                                     5,955
    11,751    Sun Microsystems, Inc. (b)                                36,311
       869    Symbol Technologies, Inc.                                  7,326
     2,748    Xerox Corporation (b)                                     24,320
                                                                 -------------
                                                                     1,063,043
                                                                 -------------
     Computer Networking (1.3%)
    27,259    Cisco Systems, Inc. (b)                                  364,453
     2,230    Yahoo!, Inc. (b)                                          40,586
                                                                 -------------
                                                                       405,039
                                                                 -------------
     Computer Peripherals (.3%)
     8,295    EMC Corporation (b)                                       63,871
     1,248    Network Appliance, Inc. (b)                               13,491


              See accompanying notes to investments in securities.

                                       60




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TECHNOLOGY--CONTINUED
       377    QLogic Corporation (b)                             $      12,547
                                                                 -------------
                                                                        89,909
                                                                 -------------
     Computer Services & Software (5.1%)
       866    Adobe Systems, Inc.                                       22,880
    16,865    AOL Time Warner, Inc. (b)                                196,646
       408    Autodesk, Inc.                                             6,096
       881    BMC Software, Inc. (b)                                    15,532
       629    Citrix Systems, Inc. (b)                                   8,680
       646    Computer Sciences Corporation (b)                         19,768
     1,395    Compuware Corporation (b)                                  4,882
       549    Electronic Arts, Inc. (b)                                 28,444
     1,059    IMS Health, Inc.                                          17,844
       324    Mercury Interactive Corporation (b)                       11,492
    20,172    Microsoft Corporation (e)                                957,363
     1,354    Novell, Inc. (b)                                           4,387
    20,207    Oracle Systems (b)                                       243,090
       958    Parametric Technology Corporation (b)                      2,299
     1,181    Peoplesoft, Inc. (b)                                      22,900
       736    Rational Software Corporation (b)                          7,654
     1,799    Siebel Systems, Inc. (b)                                  15,040
     1,047    Sungard Data Systems, Inc. (b)                            20,354
     1,197    Unisys Corporation (b)                                    11,156
                                                                 -------------
                                                                     1,616,507
                                                                 -------------
     Electrical Instruments (.2%)
     1,760    Agilent Technologies, Inc. (b)                            29,005
       761    Applied Biosystems Group - Applera Corporation            13,356
     5,337    JDS Uniphase Corporation (b)                              14,463
       470    Perkin Elmer, Inc.                                         3,666
       328    Tektronix, Inc. (b)                                        5,412
       453    Waters Corporation (b)                                    10,442
                                                                 -------------
                                                                        76,344
                                                                 -------------
     Electrical Semiconductor (2.4%)
     1,259    Advanced Micro Devices (b)                                 6,597
     1,443    Altera Corporation (b)                                    15,844
     1,352    Analog Devices, Inc. (b)                                  32,353
     6,193    Applied Materials, Inc. (b)                               74,130
     1,109    Applied Micro Circuits Corporation (b)                     4,015
     1,040    Broadcom Corporation (b)                                  14,082
    24,995    Intel Corporation                                        391,422
     1,162    Linear Technology Corporation                             30,363
     1,374    LSI Logic Corporation (b)                                  6,059
     2,272    Micron Technology, Inc. (b)                               18,653


              See accompanying notes to investments in securities.

                                       61




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TECHNOLOGY--CONTINUED
       682    National Semiconductor Corporation (b)             $       9,002
       580    Novellus Systems, Inc. (b)                                17,081
       622    PMC-Sierra, Inc. (b)                                       3,421
       295    Power-One, Inc. (b)                                        1,451
     6,526    Texas Instruments, Inc.                                  103,763
     1,235    Xilinx, Inc. (b)                                          24,441
                                                                 -------------
                                                                       752,677
                                                                 -------------
     Electronics -- Computer Distribution (.2%)
     1,197    Maxim Integrated Products                                 37,287
     1,949    Sanmina Corporation (b)                                    7,133
       220    Thomas & Betts Corporation (b)                             3,714
       344    W.W. Grainger, Inc.                                       16,271
                                                                 -------------
                                                                        64,405
                                                                 -------------
     Equipment Semiconductor (.1%)
       747    Jabil Circuit, Inc. (b)                                   11,661
       710    KLA-Tencor Corporation (b)                                23,174
       663    Teradyne, Inc. (b)                                         6,889
                                                                 -------------
                                                                        41,724
                                                                 -------------
     Service -- Data Processing (.7%)
     1,758    Electronic Data Systems Corporation                       29,798
       511    Equifax, Inc.                                             10,940
     2,850    First Data Corporation                                    98,040
       722    Fiserv, Inc. (b)                                          22,505
       797    Intuit, Inc. (b)                                          35,148
     1,405    Paychex, Inc.                                             35,378
                                                                 -------------
                                                                       231,809
                                                                 -------------
   TRANSPORTATION (1.6%)
     Air Freight (1.0%)
     1,159    FedEx Corporation                                         60,963
     4,203    United Parcel Service, Inc.                              253,567
                                                                 -------------
                                                                       314,530
                                                                 -------------
     Airlines (.1%)
       577    AMR Corporation (b)                                        1,673
       465    Delta Air Lines, Inc.                                      4,250
     2,909    Southwest Airlines Company                                37,962
                                                                 -------------
                                                                        43,885
                                                                 -------------
     Railroads (.5%)
     1,407    Burlington Northern Santa Fe Corporation                  36,540
       801    CSX Corporation                                           22,452


              See accompanying notes to investments in securities.

                                       62




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TRANSPORTATION--CONTINUED
     1,452    Norfolk Southern Railway Company                   $      28,604
       952    Union Pacific Corporation                                 54,321
                                                                 -------------
                                                                       141,917
                                                                 -------------
     Trucking (--)
       206    Ryder System, Inc.                                         4,641
                                                                 -------------
   UTILITIES (2.7%)
     Electric Companies (2.3%)
     2,051    AES Corporation (b)                                        7,117
       453    Allegheny Energy, Inc. (b)                                 3,805
       580    Ameren Corporation                                        22,811
     1,275    American Electric Power Company, Inc.                     30,115
     1,108    Centerpoint Energy, Inc.                                   7,723
       613    Cinergy Corporation                                       19,432
       543    CMS Energy Corporation (b)                                 3,079
       802    Consolidated Edison Company of New York, Inc.             32,016
       594    Constellation Energy Group                                16,424
     1,147    Dominion Resources, Inc.                                  62,156
       618    DTE Energy Company                                        25,907
     3,336    Duke Energy Corporation                                   56,812
     1,200    Edison International (b)                                  14,796
       821    Entergy Corporation                                       36,493
     1,205    Exelon Corporation                                        61,371
     1,120    Firstenergy Corporation                                   34,944
       722    FPL Group, Inc.                                           42,158
       918    Nisource, Inc.                                            16,313
     1,526    Pacific Gas & Electric Company (b)                        21,059
       350    Pinnacle West Capital Corporation                         10,902
       641    PPL Corporation                                           22,435
       893    Progress Energy, Inc.                                     36,086
       836    Public Service Enterprise Group, Inc.                     29,494
     2,668    Southern Company                                          75,158
       654    Teco Energy, Inc.                                          9,045
     1,215    TXU Corp                                                  22,295
                                                                 -------------
                                                                       719,946
                                                                 -------------
     Natural Gas (.3%)
     1,401    Dynegy, Inc. (b)                                           2,620
     2,259    El Paso Energy Corporation                                19,066
       587    Keyspan Corporation                                       19,958
       487    Kinder Morgan Energy Partners                             21,969
       184    Nicor, Inc.                                                5,787
       158    Peoples Energy Corporation                                 5,816
       787    Sempra Energy                                             18,967


              See accompanying notes to investments in securities.

                                       63




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   UTILITIES--CONTINUED
     1,926    Williams Companies, Inc.                           $       6,240
                                                                 -------------
                                                                       100,423
                                                                 -------------
     Power Products -- Industrial (.1%)
     1,426    Calpine Corporation (b)                                    4,649
     1,520    Mirant Corporation (b)                                     2,675
     1,456    Xcel Energy, Inc.                                         16,045
                                                                 -------------
                                                                        23,369
                                                                 -------------
Total common stock (cost: $31,653,449)                              29,754,909
                                                                 -------------
SHORT-TERM SECURITIES (5.8%)
 1,307,771    Dreyfus Cash Management Plus Funds, current rate
              1.224%                                                 1,307,771
   526,724    Federated Money Market Obligations Trust-- Prime
              Obligation Fund, current rate 1.280%                     526,724
    10,563    Wells Fargo & Company Cash Fund I, current rate
              .944%                                                     10,563
                                                                 -------------
              Total short-term securities
              (cost: $1,845,058)                                     1,845,058
                                                                 -------------
              Total investments in securities
              (cost: $33,498,507) (d)                            $  31,599,967
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held .75% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003 the cost of securities for federal income tax purposes
     was $34,191,629. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                         
     Gross unrealized appreciation                               $   4,741,510
     Gross unrealized depreciation                                  (7,333,172)
                                                                 -------------
     Net unrealized depreciation                                 $  (2,591,662)
                                                                 =============

     

(e)  Partially pledged as initial margin deposit on open stock index Futures
     purchase contracts (see note 6 to the financial statements).

                 See accompanying notes to financial statements.

                                       64


                                            Advantus Real Estate Securities Fund
                                                       Investments in Securities
                                                                JANUARY 31, 2003
                                                                     (UNAUDITED)
           (Percentages of each investment category relate to total net assets.)



                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
COMMON STOCK (93.0%)
   CONSUMER CYCLICAL (2.5%)
     Building Materials (.7%)
    13,580    Brookfield Homes Corporation                       $     142,861
     2,100    Ryland Group, Inc.                                        83,244
     3,200    Standard Pacific Corporation                              80,800
                                                                 -------------
                                                                       306,905
                                                                 -------------
     Lodging -- Hotel (1.8%)
    21,900    Extended Stay America, Inc. (b)                          257,325
    24,600    Hilton Hotels                                            288,066
    29,300    Prime Hospitality Corporation (b)                        222,387
                                                                 -------------
                                                                       767,778
                                                                 -------------
   FINANCIAL (89.9%)
     Real Estate (10.6%)
   101,140    Boardwalk Equities, Inc. (c)                             950,716
    71,700    Brookfield Properties Corporation (c)                  1,305,657
    51,200    Catellus Development Corporation (b)                   1,012,224
    22,200    Forest City Enterprises                                  735,930
    14,900    St. Joe Company                                          425,246
                                                                 -------------
                                                                     4,429,773
                                                                 -------------
     Real Estate Investment Trust -- Apartments (10.1%)
    33,920    Apartment Investment & Management Company              1,232,992
    23,200    Archstone-Smith Trust                                    515,040
     7,300    Avalonbay Communities, Inc.                              268,640
    10,500    Camden Property Trust                                    330,750
    33,100    Equity Residential                                       808,964
    10,900    Essex Property Trust, Inc.                               550,232
     7,700    Gables Residential Trust                                 192,731
     7,800    Summit Properties, Inc.                                  140,790
     4,900    Sun Communities, Inc.                                    170,275
                                                                 -------------
                                                                     4,210,414
                                                                 -------------
     Real Estate Investment Trust -- Diversified (9.6%)
    12,700    American Mortgage Acceptance Corporation                 179,705
    12,100    Capital Automotive Reit                                  282,051
    28,400    Entertainment Properties Trust                           667,400
    19,700    iStar Financial, Inc.                                    551,403
     7,100    Liberty Property Trust                                   212,929
    26,400    Newcastle Investment Corporation                         422,664
    26,500    Vornado Realty Trust                                     914,250
     7,800    WCI Communities, Inc.                                     69,576
    97,700    Winston Hotels, Inc.                                     762,060
                                                                 -------------
                                                                     4,062,038
                                                                 -------------


              See accompanying notes to investments in securities.

                                       65




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   FINANCIAL--(CONTINUED)
     Real Estate Investment Trust-- Hotels (2.7%)
    45,000    Host Marriott Corporation (b)                      $     366,750
    40,100    Innkeepers USA Trust                                     293,131
    11,400    Meristar Hospitality Corporation                          64,980
    16,400    Starwood Hotels & Resorts Worldwide, Inc.                384,580
                                                                 -------------
                                                                     1,109,441
                                                                 -------------
     Real Estate Investment Trust-- Office Property (17.0%)
     3,400    Alexandria Real Estate Equities                          140,590
    30,000    Arden Realty, Inc.                                       631,800
    22,700    Boston Properties, Inc.                                  814,930
    23,500    Brandywine Realty Trust                                  470,000
    52,900    Carramerica Realty Corporation                         1,270,129
    60,100    EOP Operation LP                                       1,438,794
     7,200    Great Lakes REIT, Inc.                                   116,280
    37,700    Highwoods Properties, Inc.                               836,186
    14,100    Mission West Properties, Inc.                            131,835
    15,200    Prentiss Properties Trust                                404,776
    10,700    Reckson Associates Realty Corporation                    218,280
     9,126    Reckson Associates Realty Corporation B                  189,456
     7,900    SL Green Realty Corporation                              238,738
    25,800    Trizec Properties, Inc.                                  235,038
                                                                 -------------
                                                                     7,136,832
                                                                 -------------
     Real Estate Investment Trust-- Shopping Centers (27.0%)
    26,100    CBL & Associates Properties, Inc.                      1,003,545
    10,500    Chelsea Property Group, Inc.                             357,315
    54,800    Developers Diversified Realty Corporation              1,228,616
    49,100    Equity One, Inc.                                         641,737
    30,300    General Growth Properties, Inc.                        1,499,850
    32,100    Glimcher Realty Trust                                    562,713
    22,450    Kimco Realty Corporation                                 704,930
    36,100    Mid-Atlantic Realty Trust                                612,617
    37,800    Mills Corporation                                      1,058,400
     8,400    Pan Pacific Retail Properties, Inc.                      307,440
    19,400    Ramco Gershenson                                         387,612
    40,900    Simon Property Group, Inc.                             1,337,430
    41,600    The Rouse Company                                      1,319,968
    25,500    Urstadt Biddle Properties                                284,325
                                                                 -------------
                                                                    11,306,498
                                                                 -------------


              See accompanying notes to investments in securities.

                                       66




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   FINANCIAL--(CONTINUED)
     Real Estate Investment Trust-- Warehouse/Industrial (12.9%)
    19,700    First Industrial Realty Trust                      $     534,855
    14,500    Mack-Cali Realty Corporation                             413,250
    33,800    P.S. Business Parks, Inc.                              1,059,630
   104,062    Prologis                                               2,585,941
    25,400    Public Storage, Inc.                                     786,130
                                                                 -------------
                                                                     5,379,806
                                                                 -------------
   HEALTH CARE (.6%)
     Managed Care (.6%)
    20,300    Vencor, Inc.                                             230,405
                                                                 -------------
Total common stock (cost: $37,994,078)                              38,939,890
                                                                 -------------
SHORT-TERM SECURITIES (3.5%)
     1,469    Blackrock Provident Institutional TempFund,
              current rate 1.204%                                        1,469
 1,425,042    Dreyfus Cash Management Plus Funds,
              current rate 1.224%                                    1,425,042
       163    Federated Prime Obligation Fund, current rate
              1.280%                                                       163
    27,923    Wells Fargo & Company-- Cash Investment Fund I,
              current rate 1.280%                                       27,924
                                                                 -------------
              Total short-term securities
              (cost: $1,454,598)                                     1,454,598
                                                                 -------------
              Total investments in securities
              (cost: $39,448,676) (d)                            $  40,394,488
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 5.4% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003 the cost of securities for federal income tax purposes
     was $40,469,665. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                          
     Gross unrealized appreciation                               $   1,010,737
     Gross unrealized depreciation                                  (1,085,914)
                                                                 -------------
     Net unrealized depreciation                                 $     (75,177)
                                                                 =============

    

                 See accompanying notes to financial statements.

                                       67


Advantus Venture FundInvestments in Securities
JANUARY 31, 2003
(UNAUDITED)
(Percentages of each investment category relate to total net assets.)



                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
COMMON STOCK (99.8%)
   BASIC MATERIALS (16.7%)
     Agriculture Products (1.6%)
    10,400    Bunge, Ltd.                                        $     270,400
    11,300    Corn Products International, Inc.                        338,435
    14,800    NCO Group, Inc. (b)                                      211,640
                                                                 -------------
                                                                       820,475
                                                                 -------------
     Chemicals (6.7%)
   113,800    Agrium, Inc. (c)                                       1,233,592
    42,055    American Pacific Corporation (b)                         396,158
     2,600    Cabot Microcelectronics Corporation (b)                  114,140
     3,700    Cambrex Corporation                                       95,090
    29,400    IMC Global, Inc.                                         287,238
    40,900    Methanex Corporation (c)                                 374,235
    12,900    Minerals Technologies, Inc.                              511,485
    39,300    Omnova Solutions, Inc.                                   137,550
    18,400    PolyOne Corporation                                       64,768
     7,200    Spartech Corporation                                     140,400
     6,032    Stepan Company                                           141,631
                                                                 -------------
                                                                     3,496,287
                                                                 -------------
     Construction (1.1%)
    18,900    Martin Marietta Materials, Inc.                          551,880
                                                                 -------------
     Iron and Steel (2.7%)
    24,500    AK Steel Corporation (b)                                 155,575
    41,900    Allegheny Technologies, Inc.                             191,483
     5,500    Cleveland-Cliffs, Inc.                                   112,695
     6,500    GrafTech International, Ltd. (b)                          25,025
    25,100    NS Group, Inc. (b)                                       168,672
    30,400    United States Steel Corporation                          436,240
    16,500    Valmont Industries, Inc. (b)                             347,325
                                                                 -------------
                                                                     1,437,015
                                                                 -------------
     Mining (2.7%)
    34,800    Phelps Dodge Corporation (b)                           1,202,340
    33,000    Stillwater Mining Company (b)                            141,240
    51,700    Titanium Metals Corporation (b)                           96,162
                                                                 -------------
                                                                     1,439,742
                                                                 -------------


              See accompanying notes to investments in securities.

                                       68




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   BASIC MATERIALS--(CONTINUED))
     Paper and Forest (1.9%)
    13,000    Caraustar Industries, Inc.                         $      98,670
    40,600    Graphic Packaging International Corporation (b)          234,262
    23,000    Louisiana-Pacific Corporation (b)                        167,900
    22,300    Packaging Corporation of America (b)                     373,971
     3,300    Rayonier, Inc.                                           139,854
                                                                 -------------
                                                                     1,014,657
                                                                 -------------
   CAPITAL GOODS (21.8%)
     Aerospace/Defense (3.0%)
    59,700    AAR Corporation                                          284,172
    13,000    Esterline Technologies Corporation                       206,700
    27,900    Orbital Science (b)                                      152,055
     7,000    Precision Castparts Corporation                          177,310
    18,800    Teledyne Technologies, Inc. (b)                          235,940
    11,800    Triumph Group, Inc. (b)                                  297,360
     9,000    United Dominion Industries, Ltd. (b)                     213,750
                                                                 -------------
                                                                     1,567,287
                                                                 -------------
     Electrical Equipment (2.5%)
    61,800    Technitrol, Inc.                                         983,238
    21,400    Trimble Navigation, Ltd. (b)                             349,462
                                                                 -------------
                                                                     1,332,700
                                                                 -------------
     Engineering/Construction (2.3%)
    13,700    Dycom Industries, Inc. (b)                               176,045
    25,100    ElkCorp                                                  436,740
    20,700    Granite Construction, Inc.                               314,640
    23,200    Joy Global, Inc. (b)                                     257,288
                                                                 -------------
                                                                     1,184,713
                                                                 -------------
     Machinery (5.2%)
     7,200    Agco Corporation (b)                                     128,880
    25,500    Asyst Technologies, Inc. (b)                             175,950
     3,600    Denison International PLC (b) (c)                         54,720
    36,600    Hanover Compressor Company (b)                           341,478
    68,600    JLG Industries, Inc.                                     428,750
    29,100    Kadant, Inc. (b)                                         481,023
     6,800    Regal Beloit Corporation                                 130,560
    81,200    Wabtec Corporation                                       974,400
                                                                 -------------
                                                                     2,715,761
                                                                 -------------


              See accompanying notes to investments in securities.

                                       69




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CAPITAL GOODS--(CONTINUED)
     Manufacturing (5.3%)
     5,900    Acuity Brands, Inc.                                $      78,175
     8,800    Excel Technology, Inc. (b)                               158,488
    17,300    Flowserve Corporation (b)                                202,756
     3,100    GSI Group, Inc. (b) (c)                                   15,965
    29,800    Maverick Tube Corporation (b)                            457,132
     7,100    Pentair, Inc.                                            260,783
     5,200    Roper Industries, Inc.                                   181,012
    12,200    RTI International Metals, Inc.                           125,782
    20,300    Steelcase, Inc.                                          213,759
    21,000    Stewart & Stevenson Services, Inc. (b)                   302,610
    10,600    Tredegar Corporation                                     134,620
    30,100    Trinity Industries, Inc.                                 523,439
     6,200    York International Corporation                           147,312
                                                                 -------------
                                                                     2,801,833
                                                                 -------------
     Metal Fabrication (.9%)
    48,201    Ladish Company, Inc. (b)                                 291,616
    17,204    Penn Engineering & Manufacturing Corporation             197,330
                                                                 -------------
                                                                       488,946
                                                                 -------------
     Trucks and Parts (2.6%)
     8,600    Cummins Engine Company, Inc.                             212,420
    47,200    Navistar International Corporation (b)                 1,136,104
                                                                 -------------
                                                                     1,348,524
                                                                 -------------
   COMMUNICATION SERVICES (.5%)
     Telephone (.5%)

    63,700    PTEK Holdings, Inc. (b)                                  244,608
                                                                 -------------
   CONSUMER CYCLICAL (13.6%)
     Auto (3.7%)

    38,600    American Axle & Manufacturing Holdings (b)               971,562
     6,500    Borg-Warner Automotive, Inc.                             348,075
    15,200    Cooper Tire and Rubber Company                           217,360
     8,500    Lear Corporation (b)                                     342,550
    63,093    Titan International, Inc.                                 68,141
                                                                 -------------
                                                                     1,947,688
                                                                 -------------
     Leisure (2.5%)
    16,300    Callaway Golf Company                                    195,274
     3,900    International Game Technology (b)                        307,593
    45,600    Six Flags, Inc. (b)                                      245,784
    35,420    Steinway Musical Instruments, Inc. (b)                   544,760
                                                                 -------------
                                                                     1,293,411
                                                                 -------------


              See accompanying notes to investments in securities.

                                       70




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER CYCLICAL--(CONTINUED)
     Publishing (4.2%)
    11,500    Belo Corporation                                   $     246,100
     5,600    Bowne & Company, Inc.                                     61,152
    56,600    Hollinger International, Inc.                            550,152
    22,300    Journal Register Company (b)                             379,769
    74,900    Readers Digest Association                               964,712
                                                                 -------------
                                                                     2,201,885
                                                                 -------------
     Retail (.7%)
     6,000    Barnes & Noble, Inc. (b)                                 104,400
     1,200    Brookstone, Inc.                                          17,604
     8,500    Dillards, Inc.                                           127,500
    10,140    Whitehall Jewellers, Inc. (b)                            102,110
                                                                 -------------
                                                                       351,614
                                                                 -------------
     Service (2.2%)
    35,300    Argosy Gaming Company (b)                                612,455
    47,200    Integrated Electrical Services, Inc. (b)                 205,320
     6,300    Mandalay Resort Group (b)                                161,847
    30,100    Stewart Enterprises, Inc.                                159,229
                                                                 -------------
                                                                     1,138,851
                                                                 -------------
     Textiles (.3%)
     6,100    Kellwood Company                                         144,753
                                                                 -------------
   CONSUMER STAPLES (5.2%)
     Broadcasting (.7%)
     4,400    Cox Enterprises (b)                                      106,788
    11,700    Entravision Communication Corporation (b)                118,170
    12,500    Gray Television, Inc.                                    125,625
                                                                 -------------
                                                                       350,583
                                                                 -------------
    Food (.8%)
     6,800    Del Monte Foods Company (b)                               56,916
     9,500    Interstate Bakeries Corporation                          138,700
    25,900    Wild Oats Markets, Inc.                                  214,711
                                                                 -------------
                                                                       410,327
                                                                 -------------
     Household Products (.3%)
     9,400    Tupperware Corporation                                   145,324
                                                                 -------------
    Personal Care (.7%)
    19,700    Bally Total Fitness (b)                                  164,298
    19,500    Steiner Leisure, Ltd. (b)                                228,735
                                                                 -------------
                                                                       393,033
                                                                 -------------


              See accompanying notes to investments in securities.

                                       71




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   CONSUMER STAPLES--(CONTINUED)
     Restaurants (.2%)
    10,000    Ryan's Family Steak House, Inc. (b)                $     106,000
                                                                 -------------
     Retail (.7%)
    11,600    Duane Reade, Inc. (b)                                    156,368
     9,700    Longs Drug Stores Corporation                            206,901
                                                                 -------------
                                                                       363,269
                                                                 -------------
     Service (1.8%)
    29,300    Heidrick & Struggles International (b)                   378,849
     1,300    John H. Harland Company                                   28,665
    31,400    Tetra Tech, Inc. (b)                                     403,490
     5,400    Valassis Communications, Inc.                            125,604
                                                                 -------------
                                                                       936,608
                                                                 -------------
   ENERGY (6.8%)
     Mining (1.3%)
    27,000    Peabody Holding Company                                  689,850
                                                                 -------------
     Oil (.9%)
    46,900    Newpark Resources, Inc. (b)                              187,600
    16,600    NUI Corporation                                          264,770
                                                                 -------------
                                                                       452,370
                                                                 -------------
     Oil & Gas (4.6%)
    21,700    Cabot Oil & Gas Corporation                              510,167
    50,700    Canadian 88 Energy Corporation (b) (c)                    78,585
    20,200    Core Laboratories NV (b) (c)                             248,460
    44,900    Global Industries, Ltd. (b)                              166,130
    10,000    Nuevo Energy Company (b)                                 114,300
    27,100    Ocean Energy, Inc.                                       507,583
     4,500    Stone Energy Corporation (b)                             153,045
    19,600    Vintage Petroleum, Inc.                                  212,268
    28,100    W-H Energy Services, Inc. (b)                            435,550
                                                                 -------------
                                                                     2,426,088
                                                                 -------------
   FINANCIAL (3.3%)
     Banks (.4%)
    12,266    Staten Island Bancorp, Inc.                              225,449
                                                                 -------------
     Consumer Finance (.5%)
    11,700    American Capital Strategies Ltd.                         271,908
                                                                 -------------
     Finance-- Diversified (.3%)
     8,500    Dollar Thrifty Auto Group, Inc. (b)                      169,830
                                                                 -------------


              See accompanying notes to investments in securities.

                                       72




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   FINANCIAL--(CONTINUED)
     Insurance (1.3%)
     5,503    Fidelity National Finance                          $    185,561
    15,500    Hub International, Ltd. (c)                              228,625
     6,500    Odyssey Reinsurance Holdings Corporation                 110,695
     3,600    Platinum Underwriters Holdings                            88,740
     2,300    RLI Corporation                                           63,526
                                                                 -------------
                                                                       677,147
                                                                 -------------
     Real Estate Investment Trust (.5%)
    11,000    Heritage Property Investment Trust                       268,950
                                                                 -------------
     Savings and Loans (.3%)
     4,100    First Niagra Financial Group (b)                          47,560
     3,872    New York Community Bancorp, Inc.                         114,301
                                                                 -------------
                                                                       161,861
                                                                 -------------
   HEALTH CARE (1.5%)
     Biotechnology (.3%)
    10,688    Invivo Corporation (b)                                   157,434
                                                                 -------------
     Drugs (.3%)
    15,000    Sangstat Medical Corporation (b)                         160,650
                                                                 -------------
     Hospital Management (.7%)
     6,500    Community Health Systems (b)                             123,630
     4,300    Lifepoint Hospitals, Inc. (b)                            110,510
    21,100    Province Healthcare Company (b)                          139,260
                                                                 -------------
                                                                       373,400
                                                                 -------------
     Medical Products/Supplies (.2%)
    35,700    Aradigm Corporation (b)                                   41,055
     8,600    ArthoCare Corporation (b)                                 88,494
                                                                 -------------
                                                                       129,549
                                                                 -------------
   TECHNOLOGY (23.3%)
     (.2%)
    35,900    Carreker Corporation (b)                                 102,674
                                                                 -------------
     Communications Equipment (2.4%)
    25,300    Anaren Microwave, Inc. (b)                               196,075
     6,500    Anixter International, Inc. (b)                          146,250
    21,600    Commscope, Inc. (b)                                      182,952
    32,700    Inet Technologies, Inc. (b)                              253,719
    33,100    Plantronics, Inc. (b)                                    471,013
                                                                 -------------
                                                                     1,250,009
                                                                 -------------


              See accompanying notes to investments in securities.

                                       73




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TECHNOLOGY--(CONTINUED)
     Computer Hardware (.5%)
    37,400    Natural Microsystems Corporation (b)               $      56,474
     4,600    SanDisk Corporation (b)                                   70,159
    47,100    Simple Technology (b)                                    117,750
                                                                 -------------
                                                                       244,383
                                                                 -------------
     Computer Peripherals (1.9%)
    31,500    Electronics For Imaging, Inc. (b)                        548,100
    18,600    Hutchinson Technology, Inc. (b)                          424,266
                                                                 -------------
                                                                       972,366
                                                                 -------------
     Computer Services & Software (2.5%)
    41,600    Earthlink, Inc. (b)                                      220,896
    10,600    Hall Kinion & Associates, Inc. (b)                        26,182
    47,100    McData Corporation (b)                                   371,619
    24,800    Micros Systems, Inc. (b)                                 544,112
     8,400    Proquest Company (b)                                     133,644
                                                                 -------------
                                                                     1,296,453
                                                                 -------------
     Electrical Instruments (4.3%)
    40,000    BEI Technologies, Inc. (b)                               402,480
    13,300    Benchmark Electronics, Inc. (b)                          432,250
    28,400    Cognex Corporation (b)                                   604,068
    22,800    Coherent, Inc. (b)                                       450,528
    11,000    Credence Systems Corporation (b)                          86,130
    16,600    LeCroy Corporation (b)                                   181,936
     6,900    Littelfuse, Inc. (b)                                     122,130
     7,800    Opticnet, Inc. (b)                                           624
                                                                 -------------
                                                                     2,280,146
                                                                 -------------
     Electrical Semiconductor (6.0%)
    21,800    Actel Corporation (b)                                    325,910
    51,800    Chippac, Inc. (b)                                        134,680
    32,300    Cypress Semiconductor Corporation (b)                    169,575
    19,600    Entegris, Inc. (b)                                       209,544
    12,600    Helix Technology Corporation                             108,360
    37,800    Triquint Semiconductor, Inc. (b)                         123,228
    53,800    Varian Semiconductor Equipment Associates, Inc. (b)    1,395,572
    50,100    Veeco Instruments, Inc. (b)                              701,400
                                                                 -------------
                                                                     3,168,269
                                                                 -------------


              See accompanying notes to investments in securities.

                                       74




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
   TECHNOLOGY--(CONTINUED)
     Electronics-- Computer Distribution (2.2%)
       600    Avnet, Inc.                                        $       6,234
    14,200    AVX Corporation                                          124,960
    11,100    CoorsTek, Inc.                                           285,714
    62,000    Kemet Corporation (b)                                    471,200
    17,000    Thomas & Betts Corporation (b)                           286,960
                                                                 -------------
                                                                     1,175,068
                                                                 -------------
     Equipment Semiconductor (2.9%)
    35,700    Advanced Technology Materials, Inc. (b)                  634,389
     4,800    August Technology Corporation (b)                         18,288
    55,900    Brooks-PRI Automation, Inc. (b)                          586,950
    20,200    MKS Instruments, Inc. (b)                                273,508
                                                                 -------------
                                                                     1,513,135
                                                                 -------------
     Service-- Data Processing (.4%)
    44,000    Ciber, Inc. (b)                                          221,760
                                                                 -------------
   TRANSPORTATION (7.1%)
     Air Freight (1.7%)
    70,000    EGL, Inc. (b)                                            916,300
                                                                 -------------
     Airlines (2.8%)
    16,700    Alaska Airgroup, Inc. (b)                                330,159
    30,900    ExpressJet Holdings, Inc. (b)                            330,630
    34,500    Frontier Airlines, Inc. (b)                              156,975
   129,000    Mesa Air Group, Inc. (b)                                 565,020
    27,500    Midwest Express Holdings, Inc. (b)                       104,775
                                                                 -------------
                                                                     1,487,559
                                                                 -------------
     Railroads (1.1%)
    23,700    GATX Corporation                                         451,959
    21,400    Railamerica, Inc. (b)                                    132,680
                                                                 -------------
                                                                       584,639
                                                                 -------------
     Shipping (.6%)
     7,600    Teekay Shipping Corporation (c)                          296,476
                                                                 -------------
     Transport Services (.9%)
   100,700    OMI Corporation (b)                                      456,171
                                                                 -------------
Total common stock (cost: $61,400,611)                           $  52,357,668
                                                                 -------------


              See accompanying notes to investments in securities.

                                       75




                                                                        MARKET
SHARES                                                                VALUE(a)
- ------                                                                --------
                                                              
SHORT-TERM SECURITIES (.5%)
   289,650    Wells Fargo & Company-- Cash Investment Fund I,
              current rate 1.280%                                $     289,650
                                                                 -------------
              Total short-term securities
              (cost: $289,650)                                         289,650
                                                                 -------------
              Total investments in securities
              (cost: $61,690,261) (d)                            $  52,647,318
                                                                 =============


NOTES TO INVESTMENTS IN SECURITIES
(a)  Securities are valued by procedures described in note 2 to the financial
     statements.
(b)  Presently non-income producing.
(c)  The Fund held 4.8% of net assets in foreign securities as of January 31,
     2003.
(d)  At January 31, 2003 the cost of securities for federal income tax purposes
     was $62,183,134. The aggregate unrealized appreciation and depreciation of
     investments in securities based on this cost were:

                                                         
     Gross unrealized appreciation                               $   4,857,057
     Gross unrealized depreciation                                 (14,392,873)
                                                                 -------------
     Net unrealized depreciation                                 $  (9,535,816)
                                                                 =============

     

                 See accompanying notes to financial statements.

                                       76


                 (This page has been left blank intentionally.)

                                       77


Advantus Equity Funds

Statement of Assets and Liabilities                 JANUARY 31, 2003 (UNAUDITED)



                                                                                 CORNERSTONE       ENTERPRISE        HORIZON
                                                                                     FUND             FUND            FUND
                                                                                --------------   -------------   --------------
                                                                                                        
                                   ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                               $   62,740,476   $  30,250,675   $   25,880,983
Receivable for Fund shares sold                                                          1,575           1,508            2,436
Receivable for investment securities sold                                              561,898         774,194          593,972
Accrued interest receivable                                                                257           3,380              178
Dividends receivable                                                                   117,023           3,444           29,443
Variation margin receivable (note 2)                                                         -               -                -
Collateral for securities loaned (note 7)                                            1,311,278       4,595,168          886,441
Other receivables                                                                        3,327               -              310
                                                                                --------------   -------------   ---------------
     Total assets                                                                   64,735,834      35,628,369       27,393,763
                                                                                --------------   -------------   ---------------
                                   LIABILITIES

Payable for investment securities purchased                                            984,088         468,799          343,518
Payable for Fund shares redeemed                                                        36,310          21,713           50,433
Payable to Adviser                                                                      72,771          41,842           31,981
Other payable                                                                                -              72                -
Payable upon return of securities loaned (note 7)                                    1,311,278       4,595,168          886,441
                                                                                --------------   -------------   --------------
     Total liabilities                                                               2,404,447       5,127,593        1,312,373
                                                                                --------------   -------------   --------------
Net assets applicable to outstanding capital stock                              $   62,331,387   $  30,500,777   $   26,081,390
                                                                                ==============   =============   ==============
Represented by:
   Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
     Class B - 2 billion shares, Class C - 2 billion shares and 4 billion
       shares unallocated) of $.01 par value                                    $       56,645   $      48,055   $       25,285
   Additional paid-in capital                                                       79,134,161      57,599,950       43,104,958
   Undistributed (distributions in excess of) net investment income                     48,605        (202,850)         (50,460)
   Accumulated net realized gains (losses) from investments                         15,363,357     (19,617,584)     (17,905,645)
   Unrealized appreciation (depreciation) on investments                            (1,544,667      (7,326,794)         907,252
                                                                                --------------   -------------   --------------
     Total - representing net assets applicable to outstanding capital stock    $   62,331,387   $  30,500,777   $   26,081,390
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class A Shares                              $   56,613,704   $  27,226,762   $   19,431,534
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class B Shares                              $    5,135,231   $   2,909,575   $    6,116,557
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class C Shares                              $      582,452   $     364,440   $      533,299
                                                                                ==============   =============   ==============
Net asset value per share:

   Class A                                                                      $        11.02   $        6.43   $        10.57
                                                                                ==============   =============   ==============
   Class B                                                                      $        10.83   $        5.75   $         9.63
                                                                                ==============   =============   ==============
   Class C                                                                      $        10.80   $        5.74   $         9.70
                                                                                ==============   =============   ==============
Shares outstanding:
   Class A                                                                           5,136,332       4,235,464        1,838,247
                                                                                ==============   =============   ==============
   Class B                                                                             474,280         506,452          635,288
                                                                                ==============   =============   ==============
   Class C                                                                              53,940          63,489           54,966
                                                                                ==============   =============   ==============
* Identified cost                                                               $   64,285,143   $  37,577,469   $   24,973,731
+ Including securities on loan of                                               $    1,281,474   $   4,348,047   $      849,936


                                       78




                                                                                                  REAL ESTATE
                                                                                     INDEX 500     SECURITES       VENTURE
                                                                                       FUND          FUND           FUND
                                                                                ---------------- -------------   --------------
                                                                                                        
                                   ASSETS
Investments in securities, at market value - see accompanying
  schedule for detailed listing*+                                               $   31,599,967   $  40,394,488   $   52,647,318
Receivable for Fund shares sold                                                         33,899       1,724,457           13,837
Receivable for investment securities sold                                                1,963         245,771          400,592
Accrued interest receivable                                                                 57             534            2,673
Dividends receivable                                                                    47,079          51,227           11,617
Variation margin receivable (note 2)                                                    31,605               -                -
Collateral for securities loaned (note 7)                                              990,363       2,777,920        7,017,993
Other receivables                                                                       15,836           3,433            2,219
                                                                                --------------   -------------   --------------
     Total assets                                                                   32,720,769      45,197,830       60,096,249
                                                                                --------------   -------------   --------------
LIABILITIES

Payable for investment securities purchased                                                  -         509,477          314,970
Payable for Fund shares redeemed                                                       199,147             681          226,337
Payable to Adviser                                                                      33,528          51,179           72,604
Other payable                                                                                -             811                -
Payable upon return of securities loaned (note 7)                                      990,363       2,777,920        7,017,993
                                                                                --------------   -------------   --------------
     Total liabilities                                                               1,223,038       3,340,068        7,631,904
                                                                                --------------   -------------   --------------
Net assets applicable to outstanding capital stock                              $   31,497,731   $  41,857,762   $   52,464,345
                                                                                ==============   =============   ==============
Represented by:
   Capital stock - authorized 10 billion shares (Class A - 2 billion shares,
     Class B - 2 billion shares, Class C - 2 billion shares and 4 billion
       shares unallocated) of $.01 par value                                    $       28,190   $      38,188   $       51,060
   Additional paid-in capital                                                       39,717,606      42,335,974       61,500,778
   Undistributed (distributions in excess of) net investment income                     17,216         169,076         (240,939)
   Accumulated net realized gains (losses) from investments                         (6,269,079)     (1,631,288)         196,389
   Unrealized appreciation (depreciation) on investments                            (1,996,202)        945,812       (9,042,943)
                                                                                --------------   -------------   --------------
     Total - representing net assets applicable to outstanding capital stock    $   31,497,731   $  41,857,762   $   52,464,345
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class A Shares                              $   17,296,639   $  40,318,078   $   47,214,570
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class B Shares                              $   12,715,367   $   1,539,684   $    4,259,417
                                                                                ==============   =============   ==============
Net asset applicable to outstanding Class C Shares                              $    1,485,725   $           -   $      990,358
                                                                                ==============   =============   ==============
Net asset value per share:

   Class A                                                                      $        11.27   $       10.96   $        10.31
                                                                                ==============   =============   ==============
   Class B                                                                      $        11.06   $       10.92   $         9.95
                                                                                ==============   =============   ==============
   Class C                                                                      $        11.04   $           -   $        10.01
                                                                                ==============   =============   ==============
Shares outstanding:
   Class A                                                                           1,535,040       3,677,849        4,579,202
                                                                                ==============   =============   ==============
   Class B                                                                           1,149,368         140,992          427,885
                                                                                ==============   =============   ==============
   Class C                                                                             134,603               -           98,944
                                                                                ==============   =============   ==============
* Identified cost                                                               $   33,498,507   $  39,448,676   $   61,690,261
+ Including securities on loan of                                               $      942,641   $   2,660,063   $    6,587,023


                 See accompanying notes to financial statements.

                                       79


Advantus Equity Funds

Statement of Operations
                      PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003 (UNAUDITED)



                                                                                CORNERSTONE        ENTERPRISE         HORIZON
                                                                                   FUND               FUND              FUND
                                                                               --------------    --------------    --------------
                                                                                                          
Investment income:
  Interest                                                                     $        7,640    $       18,029    $        3,813
  Dividends                                                                           766,301            19,562           167,470
   Income from securities lending activities                                            1,729             4,610               629
                                                                               --------------    --------------    --------------
      Total investment income                                                         775,670            42,201           171,924
                                                                               --------------    --------------    --------------
Expenses (note 4):
  Investment advisory fee                                                             221,879           109,711           100,536
  Rule 12b-1 fees - Class A                                                            71,382            34,770            26,492
  Rule 12b-1 fees - Class B                                                            28,262            15,630            34,618
  Rule 12b-1 fees - Class C                                                             3,179             2,021             3,038
  Administrative services fee                                                          37,200            37,200            37,200
  Transfer agent and shareholder services fees                                         78,609            57,882           125,357
  Custodian fees                                                                        2,888             5,094             3,211
  Auditing and accounting services                                                      9,795             9,795             8,997
  Legal fees                                                                            4,908             5,129             5,326
  Directors' fees                                                                         841               424               378
  Registration fees                                                                    20,000            22,500            21,000
  Printing and shareholder reports                                                     10,278             8,455            14,391
  Insurance                                                                             1,367             1,191             1,191
  Other                                                                                 4,389             4,830             1,887
                                                                               --------------    --------------    --------------
Total expenses                                                                        494,977           312,831           386,565
Less fees and expenses waived or absorbed by Adviser and Distributor:
  Class A Rule 12b-1 fees                                                                   -              (148)                -
  Other waived fees                                                                   (78,354)          (67,632)         (164,181)
                                                                               --------------    --------------    --------------
      Total fees and expenses waived or absorbed                                      (78,354)          (67,780)         (164,181)
                                                                               --------------    --------------    --------------
      Total net expenses                                                              416,623           245,051           222,384
                                                                               --------------    --------------    --------------
      Investment income (loss) - net                                                  359,047          (202,850)          (50,460)
                                                                               --------------    --------------    --------------
Realized and unrealized gains (losses) on investments (note 3):
    Net realized gains (losses) on:
     Security transactions                                                         (4,640,219)       (2,370,125)         (832,625)
     Futures contracts (note 2)                                                             -                 -                 -
                                                                               --------------    --------------    --------------
                                                                                   (4,640,219)       (2,370,125)         (832,625)
   Net change in unrealized appreciation or depreciation on investments               210,428         2,485,459          (823,040)
                                                                               --------------    --------------    --------------
      Net gains (losses) on investments                                            (4,429,791)          115,334        (1,655,665)
                                                                               --------------    --------------    --------------
Net increase (decrease) in net assets resulting from operations                    (4,070,744)          (87,516)       (1,706,126)
                                                                               ==============    ==============    ==============


                 See accompanying notes to financial statements.

                                       80




                                                                                                   REAL ESTATE
                                                                                 INDEX 500         SECURITIES          VENTURE
                                                                                   FUND               FUND              FUND
                                                                               --------------    --------------    --------------
                                                                                                          
Investment income:
  Interest                                                                     $       10,062    $       10,532    $       16,891
  Dividends                                                                           305,956         1,083,448           160,746
   Income from securities lending activities                                              325             2,206            10,146
                                                                               --------------    --------------    --------------
      Total investment income                                                         316,343         1,096,186           187,783
                                                                               --------------    --------------    --------------
Expenses (note 4):
  Investment advisory fee                                                              56,589           138,126           196,286
  Rule 12b-1 fees - Class A                                                            22,524            44,265            62,777
  Rule 12b-1 fees - Class B                                                            68,548             7,108            22,083
  Rule 12b-1 fees - Class C                                                             7,793                 -             7,222
  Administrative services fee                                                          37,200            30,600            37,200
  Transfer agent and shareholder services fees                                         91,033            18,157            52,511
  Custodian fees                                                                        3,577             6,202             7,611
  Auditing and accounting services                                                     11,495             9,747            11,083
  Legal fees                                                                            5,356             4,726             5,295
  Directors' fees                                                                         438               508               748
  Registration fees                                                                    19,000            16,600            20,000
  Printing and shareholder reports                                                      9,483             5,388             4,832
  Insurance                                                                             1,191             1,279             1,367
  Other                                                                                 7,490                 -
                                                                               --------------    --------------    --------------
Total expenses                                                                        336,114           290,196           429,010
Less fees and expenses waived or absorbed by Adviser and Distributor:
  Class A Rule 12b-1 fees                                                                 (98)             (264)             (288)
  Other waived fees                                                                  (137,386)                -                 -
                                                                               --------------    --------------    --------------
      Total fees and expenses waived or absorbed                                     (137,484)             (264)             (288)
                                                                               --------------    --------------    --------------
      Total net expenses                                                              198,630           289,932           428,722
                                                                               --------------    --------------    --------------
      Investment income (loss) - net                                                  117,713           806,254          (240,939)
                                                                               --------------    --------------    --------------
Realized and unrealized gains (losses) on investments (note 3):
    Net realized gains (losses) on:
     Security transactions                                                           (876,190)         (974,296)          718,828
     Futures contracts (note 2)                                                        29,808                 -                 -
                                                                               --------------    --------------    --------------
                                                                                     (846,382)         (974,296)          718,828
   Net change in unrealized appreciation or depreciation on investments            (1,238,825)       (1,346,747)       (5,921,623)
                                                                               --------------    --------------    --------------
      Net gains (losses) on investments                                            (2,085,207)       (2,321,043)       (5,202,795)
                                                                               --------------    --------------    --------------
Net increase (decrease) in net assets resulting from operations                    (1,967,494)       (1,514,789)       (5,443,734)
                                                                               ==============    ==============    ==============


                                       81


Advantus Equity Funds

Statement of Changes in Net Assets

     PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003, PERIOD FROM OCTOBER 1, 2001
                  TO JULY 31, 2002 AND YEAR ENDED SEPTEMBER 30, 2001 (UNAUDITED)



                                                                                               CORNERSTONE FUND
                                                                            ------------------------------------------------------
                                                                               PERIOD FROM       PERIOD FROM
                                                                             AUGUST 1, 2002       OCTOBER 1,         YEAR ENDED
                                                                             TO JANUARY 31,    2001 TO JULY 31,     SEPTEMBER 30,
                                                                                  2003               2002               2001
                                                                            ----------------   ----------------   ----------------
                                                                                                         
Operations:
  Investment income (loss) - net                                            $        359,047   $        387,940   $        429,308
  Net realized gains (losses) on investments                                      (4,640,219)        (5,242,003)        (3,427,029)
  Net change in unrealized appreciation or depreciation on investments               210,428          1,253,980        (11,683,754)
                                                                            ----------------   ----------------   ----------------
      Increase (decrease) in net assets resulting from operations                 (4,070,744)        (3,600,083)       (14,681,475)
                                                                            ----------------   ----------------   ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                          (306,307)          (377,849)          (408,866)
   Class B                                                                            (8,000)            (5,558)            (1,880)
   Class C                                                                              (953)              (594)              (254)
  Net realized gains on investments:
   Class A                                                                                 -                  -                  -
   Class B                                                                                 -                  -                  -
   Class C                                                                                 -                  -                  -
                                                                            ----------------   ----------------   ----------------
      Total distributions                                                           (315,260)          (384,001)          (411,000)
                                                                            ----------------   ----------------   ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                         4,906,652          7,910,021          5,289,579
   Class B                                                                           226,958            357,179            611,558
   Class C                                                                            20,753             37,054             64,321
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                           164,902            207,753            228,567
   Class B                                                                             7,763              5,340              1,823
   Class C                                                                               919                591                251
  Payments for redemption of shares:
   Class A                                                                        (2,446,335)       (12,312,791)        (8,002,033)
   Class B                                                                          (906,300)        (2,231,688)        (3,076,130)
   Class C                                                                           (75,495)          (192,680)          (289,292)
                                                                            ----------------   ----------------   ----------------
      Increase (decrease) in net assets from capital share transactions            1,899,817         (6,219,221)        (5,171,356)
                                                                            ----------------   ----------------   ----------------
      Total increase (decrease) in net assets                                     (2,486,187)       (10,203,305)       (20,263,831)
Net assets at beginning of period                                                 64,817,574         75,020,879         95,284,710
                                                                            ----------------   ----------------   ----------------
Net assets at end of period*                                                $     62,331,387   $     64,817,574   $     75,020,879
                                                                            ================   ================   ================
* including undistributed (distributions in excess) net investment income             48,605              4,818             18,308


                 See accompanying notes to financial statements.

                                       82




                                                                                                ENTERPRISE FUND
                                                                            ------------------------------------------------------
                                                                              PERIOD FROM        PERIOD FROM
                                                                             AUGUST 1, 2002       OCTOBER 1,         YEAR ENDED
                                                                             TO JANUARY 31,    2001 TO JULY 31,     SEPTEMBER 30,
                                                                                  2003               2002               2001
                                                                            ----------------   ----------------   ----------------
                                                                                                         
Operations:
  Investment income (loss) - net                                            $       (202,850)  $       (439,780)  $       (561,707)
  Net realized gains (losses) on investments                                      (2,370,125)        (6,244,790)
  Net change in unrealized appreciation or depreciation on investments             2,485,458          3,142,493        (17,527,880)
                                                                            ----------------   ----------------   ----------------
      Increase (decrease) in net assets resulting from operations                    (87,516)        (3,542,077)
                                                                            ----------------   ----------------   ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                 -                  -                  -
   Class B                                                                                 -                  -                  -
   Class C                                                                                 -                  -                  -
  Net realized gains on investments:
   Class A                                                                                 -                  -        (17,270,178)
   Class B                                                                                 -                  -         (2,987,176)
   Class C                                                                                 -                  -           (359,988)
                                                                            ----------------   ----------------   ----------------
      Total distributions                                                                  -                  -        (20,617,342)
                                                                            ----------------   ----------------   ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                         1,556,420          7,486,324          3,423,922
   Class B                                                                           134,430            300,215            701,160
   Class C                                                                            11,952             61,967            159,604
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                 -                  -         17,184,998
   Class B                                                                                 -                  -          2,913,962
   Class C                                                                                 -                  -            351,595
  Payments for redemption of shares:
   Class A                                                                        (1,617,381)        (7,690,490)        (4,242,274)
   Class B                                                                          (553,207)        (1,080,529)        (1,427,099)
   Class C                                                                           (67,720)          (137,446)          (224,061)
                                                                            ----------------   ----------------   ----------------
      Increase (decrease) in net assets from capital share transactions             (535,506)        (1,059,959)        18,841,807
                                                                            ----------------   ----------------   ----------------
      Total increase (decrease) in net assets                                       (623,023)        (4,602,036)
Net assets at beginning of period                                                 31,123,799         35,725,835         66,252,283
                                                                            ----------------   ----------------   ----------------
Net assets at end of period*                                                $     30,500,777   $     31,123,799   $     35,725,835
                                                                            ================   ================   ================
* including undistributed (distributions in excess) net investment income           (202,850)                 -                  -


                                       83




                                                                                                 HORIZON FUND
                                                                           --------------------------------------------------------
                                                                             PERIOD FROM         PERIOD FROM
                                                                            AUGUST 1, 2002        OCTOBER 1,          YEAR ENDED
                                                                            TO JANUARY 31,     2001 TO JULY 31,      SEPTEMBER 30,
                                                                                 2003                2002                 2001
                                                                           ----------------    ----------------    ----------------
                                                                                                          
Operations:
  Investment income (loss) - net                                           $        (50,460)   $       (262,466)   $       (661,808)
  Net realized gains (losses) on investments                                       (832,625)         (1,803,623)        (13,832,622)
  Net change in unrealized appreciation or depreciation on investments             (823,040)         (1,437,501)        (28,342,114)
                                                                           ----------------    ----------------    ----------------
      Increase (decrease) in net assets resulting from operations                (1,706,126)         (3,503,590)        (42,836,544)
                                                                           ----------------    ----------------    ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                -                   -                   -
   Class B                                                                                -                   -                   -
   Class C                                                                                -                   -                   -
  Net realized gains on investments:
   Class A                                                                                -                   -          (9,628,296)
   Class B                                                                                -                   -          (4,375,595)
   Class C                                                                                -                   -            (390,723)
                                                                           ----------------    ----------------    ----------------
      Total distributions                                                                 -                   -         (14,394,614)
                                                                           ----------------    ----------------    ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                        1,002,754           1,969,386           6,031,604
   Class B                                                                          258,102             539,921           1,569,835
   Class C                                                                           15,372              46,322             270,628
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                                -                   -           9,409,680
   Class B                                                                                -                   -           4,048,610
   Class C                                                                                -                   -             374,664
  Payments for redemption of shares:
   Class A                                                                       (2,145,768)         (5,178,717)        (12,322,741)
   Class B                                                                       (1,234,666)         (2,842,922)         (5,184,908)
   Class C                                                                         (103,252)           (306,392)           (537,056)
                                                                           ----------------    ----------------    ----------------
      Increase (decrease) in net assets from capital share transactions          (2,207,458)         (5,772,402)          3,660,316
                                                                           ----------------    ----------------    ----------------
      Total increase (decrease) in net assets                                    (3,913,582)         (9,275,992)        (53,570,842)
Net assets at beginning of period                                                29,994,972          39,270,964          92,841,806
                                                                           ----------------    ----------------    ----------------
Net assets at end of period*                                               $     26,081,390    $     29,994,972    $     39,270,964
                                                                           ================    ================    ================
* including undistributed (distributions in excess) net investment income           (50,460)                  -                   -


                 See accompanying notes to financial statements.

                                       84




                                                                                      INDEX 500 FUND
                                                                           ------------------------------------
                                                                             PERIOD FROM
                                                                            AUGUST 1, 2002        YEAR ENDED
                                                                            TO JANUARY 31,         JULY 31,
                                                                                 2003                2002
                                                                           ----------------    ----------------
                                                                                         
Operations:
  Investment income (loss) - net                                           $        117,713    $        157,436
  Net realized gains (losses) on investments                                       (846,382)         (3,219,179)
  Net change in unrealized appreciation or depreciation on investments           (1,238,825)         (8,585,433)
                                                                           ----------------    ----------------
      Increase (decrease) in net assets resulting from operations                (1,967,494)        (11,647,176)
                                                                           ----------------    ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                          (94,650)           (143,635)
   Class B                                                                          (19,021)             (6,716)
   Class C                                                                           (2,144)               (649)
  Net realized gains on investments:
   Class A                                                                                -                   -
   Class B                                                                                -                   -
   Class C                                                                                -                   -
                                                                           ----------------    ----------------
      Total distributions                                                          (115,815)           (151,000)
                                                                           ----------------    ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                        1,296,885           4,652,626
   Class B                                                                          812,483           1,997,234
   Class C                                                                          157,303             362,915
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                           59,734              93,414
   Class B                                                                           18,285               6,471
   Class C                                                                            2,013                 623
  Payments for redemption of shares:
   Class A                                                                       (1,123,704)         (5,370,976)
   Class B                                                                       (1,821,395)         (4,188,695)
   Class C                                                                         (180,110)           (487,518)
                                                                           ----------------    ----------------
      Increase (decrease) in net assets from capital share transactions            (778,506)         (2,933,906)
                                                                           ----------------    ----------------
      Total increase (decrease) in net assets                                    (2,861,815)        (14,732,082)
Net assets at beginning of period                                                34,359,546          49,091,628
                                                                           ----------------    ----------------
Net assets at end of period*                                               $     31,497,731    $     34,359,546
                                                                           ================    ================
* including undistributed (distributions in excess) net investment income            17,216              15,318


                                       85


                              PERIOD FROM AUGUST 1, 2002 TO JANUARY 31, 2003 AND
                                            YEAR ENDED JULY 31, 2002 (UNAUDITED)



                                                                                   REAL ESTATE SECURITIES FUND
                                                                              ------------------------------------
                                                                                PERIOD FROM
                                                                               AUGUST 1, 2002        YEAR ENDED
                                                                               TO JANUARY 31,         JULY 31,
                                                                                    2003                2002
                                                                              ----------------    ----------------
                                                                                            
Operations:
  Investment income (loss) - net                                              $        806,254    $        599,322
  Net realized gains (losses) on investments                                          (974,296)            324,588
  Net change in unrealized appreciation or depreciation on investments              (1,346,747)          1,180,088
                                                                              ----------------    ----------------
      Increase (decrease) in net assets resulting from operations                   (1,514,789)          2,103,998
                                                                              ----------------    ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                            (706,012)           (502,926)
   Class B                                                                             (23,988)             (3,574)
   Class C                                                                                   -                   -
  Net realized gains on investments:
   Class A                                                                            (739,608)         (1,186,943)
   Class B                                                                             (30,199)               (753)
   Class C                                                                                   -                   -
                                                                              ----------------    ----------------
      Total distributions                                                           (1,499,807)         (1,694,196)
                                                                              ----------------    ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                          13,557,586          16,920,073
   Class B                                                                             537,715           1,266,380
   Class C                                                                                   -                   -
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                           1,190,975           1,132,267
   Class B                                                                              49,128               4,086
   Class C                                                                                   -                   -
  Payments for redemption of shares:
   Class A                                                                          (3,797,646)         (3,548,144)
   Class B                                                                             (65,527)           (120,245)
   Class C                                                                                   -                   -
                                                                              ----------------    ----------------
      Increase (decrease) in net assets from capital share transactions             11,472,231          15,654,417
                                                                              ----------------    ----------------
      Total increase (decrease) in net assets                                        8,457,635          16,064,219
Net assets at beginning of period                                                   33,400,127          17,335,908
                                                                              ----------------    ----------------
Net assets at end of period*                                                  $     41,857,762    $     33,400,127
                                                                              ================    ================
* including undistributed (distributions in excess) net investment income              169,076              92,822


                 See accompanying notes to financial statements.

                                       86




                                                                                          VENTURE FUND
                                                                              ------------------------------------
                                                                                PERIOD FROM
                                                                               AUGUST 1, 2002        YEAR ENDED
                                                                               TO JANUARY 31,          JULY 31,
                                                                                    2003                2002
                                                                              ----------------    ----------------
                                                                                            
Operations:
  Investment income (loss) - net                                              $       (240,939)   $       (408,024)
  Net realized gains (losses) on investments                                           718,828           6,024,204
  Net change in unrealized appreciation or depreciation on investments              (5,921,623)        (15,478,121)
                                                                              ----------------    ----------------
      Increase (decrease) in net assets resulting from operations                   (5,443,734)         (9,861,941)
                                                                              ----------------    ----------------
Distributions to shareholders from:
  Investment income - net:
   Class A                                                                                   -                   -
   Class B                                                                                   -                   -
   Class C                                                                                   -                   -
  Net realized gains on investments:
   Class A                                                                          (3,999,581)         (3,292,173)
   Class B                                                                            (345,411)           (271,697)
   Class C                                                                            (401,298)            (72,757)
                                                                              ----------------    ----------------
      Total distributions                                                           (4,746,290)         (3,636,627)
                                                                              ----------------    ----------------
Capital share transactions:
  Proceeds from sales:
   Class A                                                                          11,695,514          23,934,179
   Class B                                                                             564,202           2,199,878
   Class C                                                                           4,203,605           1,327,144
  Proceeds from issuance of shares as a result of reinvested dividends:
   Class A                                                                           1,571,837           1,073,557
   Class B                                                                             336,501             259,096
   Class C                                                                              96,611              69,520
  Payments for redemption of shares:
   Class A                                                                         (10,297,721)        (14,413,881)
   Class B                                                                            (380,293)         (1,024,908)
   Class C                                                                          (4,215,158)           (175,731)
                                                                              ----------------    ----------------
      Increase (decrease) in net assets from capital share transactions              3,575,098          13,248,854
                                                                              ----------------    ----------------
      Total increase (decrease) in net assets                                       (6,614,926)           (249,714)
Net assets at beginning of period                                                   59,079,271          59,328,985
                                                                              ----------------    ----------------
Net assets at end of period*                                                  $     52,464,345    $     59,079,271
                                                                              ================    ================
* including undistributed (distributions in excess) net investment income             (240,939)                  -


                                       87


Advantus Equity Funds
Notes to Financial Statements
JANUARY 31, 2003
(UNAUDITED)

(1)  ORGANIZATION

     The Advantus Horizon Fund, Inc., the Advantus Enterprise Fund, Inc., the
Advantus Cornerstone Fund, Inc., the Advantus Venture Fund, Inc., the Advantus
Index 500 Fund, Inc., and the Advantus Real Estate Securities Fund, Inc. (the
Funds) are registered under the Investment Company Act of 1940 (as amended) as
diversified, open-end management investment companies. The Funds' prospectus'
provides a detailed description of each Funds' investment objective, policies
and strategies.

     The Funds currently issue three classes of shares: Class A, Class B and
Class C shares, except for the Real Estate Securities Fund which does not issue
Class C shares. Class A shares are sold subject to a front-end sales charge.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption if redeemed within six years of purchase. Class C shares are
sold without either a front-end sales charge or a contingent deferred sales
charge. Both Class B and Class C shares are subject to a higher Rule 12b-1 fee
than Class A shares. Both Class B and Class C shares automatically convert to
Class A shares at net asset value after a specified holding period. Such holding
periods decline as the amount of the purchase increases and range from 28 to 84
months after purchase for Class B shares and 40 to 96 months after purchase for
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that the
level of Rule 12b-1 fees charged differs between Class A, Class B and Class C
shares. Income, expenses (other than Rule 12b-1 fees) and realized and
unrealized gains or losses are allocated to each class of shares based upon its
relative net assets.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The significant accounting policies followed by the Funds are summarized as
follows:

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, including disclosure of contingent assets and
liabilities, as of the balance sheet date and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those
estimates.

                                       88


  INVESTMENTS IN SECURITIES

     Each Funds' net asset value is generally calculated as of the close of
normal trading on the New York Stock Exchange (typically 3:00 p.m. Central
Time). Investments in securities traded on a national exchange are valued at the
last sales price on that exchange prior to the time when assets are valued;
securities traded in the over-the-counter market and listed securities for which
no sale was reported on that date are valued on the basis of the last current
bid price, by an independent pricing service or at a price deemed best to
reflect fair value as quoted by dealers who make markets in these securities.
The pricing service may use models that price securities based on current yields
and relative security characteristics, such as coupon rate, maturity date,
issuer credit quality and prepayment speeds, as applicable. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith under procedures adopted by the Board of Directors.
Short-term securities are valued at market.

     Security transactions are accounted for on the date the securities are
purchased or sold. Realized gains and losses are calculated on the
identified-cost basis. Dividend income is recognized on the ex-dividend date and
interest income, including amortization of bond premium and discount computed on
a level yield basis, is accrued daily.

  FUTURES TRANSACTIONS

     To gain exposure to or protect itself from market changes, the Funds may
buy and sell financial futures contracts traded on any U.S. or foreign exchange.
The Funds also may buy and write put and call options on these futures
contracts. Risks of entering into futures contracts and related options include
the possibility of an illiquid market and that a change in the value of the
contract or option may correlate with changes in the value of the underlying
securities.

     Upon entering into a futures contract, the Funds are required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Funds each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Funds recognize a realized gain or loss when the contract is
closed or expires.

  FEDERAL TAXES

     The Funds' policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no income tax provision

                                       89


is required. The Funds' policy is to make required minimum distributions prior
to December 31, in order to avoid federal excise tax.

     For federal income tax purposes, the following Funds had capital loss
carryovers and/or post October losses at July 31, 2002 which, if not offset by
subsequent capital gains, will expire July 31, 2010 through July 31, 2011. It is
unlikely the Board of Directors will authorize a distribution of any net
realized capital gains until available capital loss carryovers have been offset
or expire:

                                                        
  Cornerstone Fund                                           $   9,426,327
  Enterprise Fund                                               17,147,760
  Horizon Fund                                                  14,270,820
  Index 500 Fund                                                 4,777,874

  

     Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of temporary book-to-tax
differences. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing of
dividend distributions, the fiscal year in which amounts are distributed may
differ from the year that the income or realized gains were recorded by the
Funds.

     The tax character of distributions paid for the periods indicated is as
follows:



                               PERIOD FROM         PERIOD FROM       YEAR ENDED
                             AUGUST 1, 2002      OCTOBER 1, 2001    SEPTEMBER 30,
FUND                       TO JANUARY 31, 2003   TO JULY 31, 2002       2001
- ----                       -------------------   ----------------   -------------
                                                           
CORNERSTONE
DISTRIBUTIONS PAID FROM:
Ordinary income                 $      315,260       $    384,001   $     411,000
Long-term capital gain                       -                  -               -

ENTERPRISE
DISTRIBUTIONS PAID FROM:
Ordinary income                              -                  -       9,729,068
Long-term capital gain                       -                  -      10,888,274

HORIZON
DISTRIBUTIONS PAID FROM:
Ordinary income                              -                  -       4,147,789
Long-term capital gain                       -                  -      10,246,825


                                       90




                               PERIOD FROM          YEARS ENDED
                              AUGUST 1, 2002          JULY 31,
FUND                       TO JANUARY 31, 2003         2002
- ----                       -------------------   ----------------
                                                
INDEX 500
DISTRIBUTIONS PAID FROM:
Ordinary income                 $      115,815        $   151,000
Long-term capital gain                       -                  -

REAL ESTATE SECURITIES
DISTRIBUTIONS PAID FROM:
Ordinary income                      1,103,242          1,127,977
Long-term capital gain                 396,565            566,219

VENTURE
DISTRIBUTIONS PAID FROM:
Ordinary income                         10,967          2,204,481
Long-term capital gain               4,735,323          1,432,146


  DISTRIBUTIONS TO SHAREHOLDERS

     Dividends from net investment income are declared and paid quarterly.
Realized gains, if any, are paid annually.

(3)  INVESTMENT SECURITY TRANSACTIONS

     For the period ended January 31, 2003, purchases of securities and proceeds
from sales, other than temporary investments in short-term securities, were as
follows:



FUND                                       PURCHASES             SALES
- ----                                    ---------------      -------------
                                                       
Cornerstone                              $   35,895,301      $  33,329,908
Enterprise                                    8,253,619          8,263,278
Horizon                                      13,834,015         15,626,417
Index 500                                       769,111          2,377,404
Real Estate Securities                       19,021,201         10,005,575
Venture                                      16,923,017         17,113,000


(4)  EXPENSES AND RELATED PARTY TRANSACTIONS

     The Funds have an investment advisory agreement with Advantus Capital
Management, Inc. (Advantus Capital or the Adviser), a wholly-owned subsidiary of
Securian Financial Group. Under the agreement, Advantus Capital manages the
Funds' assets and provides research, statistical and advisory services and pays
related office rental and executive expenses and salaries.

                                       91


     Each of the Funds pays Advantus Capital Management an annual fee, based on
average net assets in the following amounts:



FUND                          ANNUAL FEE
- --------------------------------------------------------------------------------
                           
Cornerstone                   .70% of assets to $500 million; and .65% of assets
                              exceeding $500 million to $1 billion; and .60% of
                              assets exceeding $1 billion to $2 billion; and
                              .55% of assets exceeding $2 billion

Enterprise                    .70% of assets to $1 billion; and .68% of assets
                              exceeding $1 billion to $2 billion; and .66% of
                              assets exceeding $2 billion

Horizon                       .70% of assets to $1 billion; and .65% of assets
                              exceeding $1 billion to $2 billion; and .60% of
                              assets exceeding $2 billion

Index                         500 .34% of assets to $500 million; and .30% of
                              assets exceeding $500 million to $1 billion; and
                              .25% of assets exceeding $1 billion to $2 billion;
                              and .20% of assets exceeding $2 billion.

Real Estate Securities        .75% of assets to $1 billion; and .725% of assets
                              exceeding $1 billion to $2 billion; and .70% of
                              assets exceeding $2 billion.

Venture                       .70% of assets to $1 billion; and .68% of assets
                              exceeding $1 billion to $2 billion; and .66% of
                              assets exceeding $2 billion


      Advantus Capital has a sub-advisory agreement with the following
registered investment advisers. Under the sub-advisory agreements, Advantus
Capital pays the sub-advisers an annual fee based on average daily net assets,
in the following amounts:



FUND           SUB-ADVISOR               ANNUAL FEE
- ------------   -----------------------   ---------------------------------------
                                   
Enterprise     Credit Suisse Asset       .65% of assets to $425 million; and
               Management                .60% of assets exceeding $425 million
                                         to $850 million; and .55% of assets
                                         exceeding $850 million to $1.150
                                         billion; and .50% of assets exceeding
                                         $1.150 billion to $2 billion and .45 of
                                         assets exceeding $2 billion

Venture        State Street Research     .65% of assets to $500 million; and .60
               and Management            of assets exceeding $500 million to $1
                                         billion; and .50% of assets Exceeding
                                         $1 billion


     The Funds have adopted separate Plans of Distribution applicable to Class
A, Class B and Class C shares, respectively, relating to the payment of certain
expenses pursuant to Rule 12b-1 under the Investment Company Act

                                       92


of 1940 (as amended). The Funds pay fees to Securian Financial Services, Inc.
(Securian), the underwriter of the Funds and a wholly-owned subsidiary of
Securian Financial Group, to be used to pay certain expenses incurred in the
distribution, promotion and servicing of the Funds shares. The Class A Plan
provides for a service fee up to .25 percent of average daily net assets of
Class A shares. The Class B and Class C Plans provide for a fee up to 1.00
percent of average daily net assets of Class B and Class C shares, respectively.
The Class B and Class C 1.00 percent fee is comprised of a .75 percent
distribution fee and a .25 percent service fee. Prior to August 5, 2002,
Securian was waiving the portion of Class A Rule 12b-1 fees which exceeded, as a
percentage of average daily net assets, .15 percent in Enterprise, Index 500 and
Venture, and .10 percent in the Real Estate Securities Fund. Currently Securian
is not waiving any 12b-1 fees. Securian waived Class A 12b-1 fees in the amounts
of $148, $98, $288, and $264, respectively, for the above Funds for the period
ended January 31, 2003.

     The Funds have engaged PFPC Global Fund Services to act as their transfer
agent, dividend disbursing agent and redemption agent and bear the expenses of
such services.

     The Funds also bear certain other operating expenses including outside
directors' fees, custodian fees, registration fees, printing and shareholder
reporting fees, outside legal, auditing and accounting services, and other
miscellaneous expenses.

     The Funds have entered in a shareholder and administrative services
agreement with Securian Financial Group. Under this agreement, the Funds pay a
shareholder services fee, equal to $7 per shareholder account annually, to
Securian Financial Group for shareholder services which Securian Financial Group
provides. The Funds also pay Securian Financial Group an administrative services
fee equal to $5,100 per month for the Real Estate Securities Fund and $6,200 per
month in all the remaining Funds for accounting, auditing, legal and other
administrative services which Securian Financial Group provides.

     Advantus Capital directly incurs and pays the above operating expenses and
the Fund's in turn reimburses Advantus Capital.

  VOLUNTARY FEE ABSORPTION

     Advantus Capital has voluntarily agreed to absorb all Fund costs and
expenses that exceed 1.24% of Class A average daily net assets and 1.99% of
Class B and C average daily net assets for the Cornerstone Fund, all Fund costs
and expenses that exceed 1.38% of Class A average daily net assets and 2.23% of
Class B and C average daily net assets for the Enterprise Fund, all Fund costs
and expenses that exceed 1.35% of Class A average daily net

                                       93


assets and 2.10% of Class B and C average daily net assets for the Horizon Fund,
all Fund costs and expenses which exceed .75% of Class A average daily net
assets and 1.60% of Class B and C average daily net assets for the Index 500
Fund, and all Fund costs and expenses that exceed 1.65% of Class A average daily
net assets effective August 1, 2002 (previously it was 1.50%) and 2.40% of Class
B average daily net assets for Real Estate Securities Fund. During the period
ended January 31, 2003, Advantus Capital voluntarily agreed to absorb $78,354,
$67,632, $164,181, $137,386, and $0, respectively, in expenses which were
otherwise payable by the Funds.

     For the period ended January 31, 2003, sales charges received by Securian
for distributing the Funds' three classes of shares for Cornerstone, Enterprise,
Horizon, Index 500, Real Estate Securities, and Venture are $12,338, $6,210,
$16,412, $33,902, $62,179, and $27,430 respectively.

     As of January 31, 2003 the ownership of shares by Minnesota Life and
subsidiaries and the directors and officers of the Funds as a whole was as
follows:



                                                         PERCENTAGE
                                             NUMBER OF      OWNED
FUND                                          SHARES      OF CLASS
- ----                                         ---------   ----------
                                                         
Cornerstone
  Class A                                    4,287,464         83.3%
Enterprise
  Class A                                    3,565,465         84.2%
Horizon
  Class A                                          479          0.0%
Index 500
  Class A                                      708,553         46.2%
  Class B                                          764          0.1%
  Class C                                       11,008          8.2%
Real Estate
  Class A                                    3,111,902         84.6%
Venture
  Class A                                    4,094,711         89.4%


     Legal fees were paid to a law firm of which the Funds' secretary is a
partner to the Cornerstone Fund, the Enterprise Fund, the Horizon Fund, the
Index 500 Fund, the Real Estate Securities Fund, and the Venture Fund in the
amount of $5,865 for each of the Funds.

                                       94


(6)  CAPITAL SHARE TRANSACTIONS

     Transactions in shares for the period ended January 31, 2003, the period
ended July 31, 2002 and the year ended September 30, 2001, were as follows:



                                                                             CORNERSTONE FUND
                                     ---------------------------------------------------------------------------------------------
                                                 CLASS A                          CLASS B                        CLASS C
                                     ------------------------------   ------------------------------   ---------------------------
                                       2003       2002       2001       2003       2002       2001       2003      2002      2001
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                                                                                
Sold                                  428,988    590,303    361,247     20,414     27,171     42,405    1,859     2,846     4,525
Issued for reinvested distributions    15,132     15,571     16,815        722        409        128       86        45        17
Redeemed                             (215,469)  (921,372)  (551,305)   (80,697)  (170,656)  (214,538)   (6,817)  (14,734)  (20,295)
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                      228,650   (315,498)  (173,243)   (59,561)  (143,076)  (172,005)   (4,872)  (11,843)  (15,753)
                                     ========   ========  =========   ========   ========   ========   =======   =======   =======




                                                                             ENTERPRISE FUND
                                     ---------------------------------------------------------------------------------------------
                                                 CLASS A                          CLASS B                        CLASS C
                                     ------------------------------   ------------------------------   ---------------------------
                                       2003       2002       2001       2003       2002       2001       2003      2002      2001
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                                                                                
Sold                                  238,272    892,251    374,323     23,382     38,348     67,534     2,053     7,676    14,611
Issued for reinvested distributions         -          -  1,621,745          -          -    302,899         -         -    37,153
Redeemed                             (247,667)  (914,738)  (429,560)   (95,504)  (141,912)  (151,151)  (11,523)  (17,929)  (23,563)
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                       (9,395)   (22,487) 1,566,508    (72,122)  (103,564)   219,282    (9,470)  (10,253)   28,201
                                     ========   ========  =========   ========   ========   ========   =======   =======   =======




                                                                               HORIZON FUND
                                     ---------------------------------------------------------------------------------------------
                                                 CLASS A                          CLASS B                        CLASS C
                                     ------------------------------   ------------------------------   ---------------------------
                                       2003       2002       2001       2003       2002       2001       2003      2002      2001
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                                                                                
Sold                                   89,760    144,293    359,055     25,670     42,647     92,722     1,513     3,696    14,967
Issued for reinvested distributions         -          -    466,476          -          -    216,815         -         -    20,334
Redeemed                             (195,759)  (386,031)  (685,126)  (121,685)  (230,525)  (308,878)  (10,110)  (24,538)  (32,274)
                                     --------   --------  ---------   --------   --------   --------   -------   -------   -------
                                     (105,998)  (241,738)   140,405    (96,015)  (187,878)       659    (8,597)  (20,842)    3,027
                                     ========   ========  =========   ========   ========   ========   =======   =======   =======


                                       95


     Transactions in shares for the period ended January 31, 2003, and the year
ended July 31, 2002, were as follows:



                                                        INDEX 500 FUND
                       ---------------------------------------------------------------------------------
                                CLASS A                     CLASS B                     CLASS C
                       -------------------------   -------------------------   -------------------------
                           2003          2002          2003         2002           2003          2002
                       -----------   -----------   -----------   -----------   -----------   -----------
                                                                               
Sold                       109,652       321,990        70,174       140,642        13,596        25,624
Issued for
reinvested
distributions                5,371         6,645         1,662           439           183            42
Redeemed                   (96,662)     (374,275)     (158,816)     (304,910)      (15,749)      (35,675)
                       -----------   -----------   -----------   -----------   -----------   -----------
                            18,361       (45,640)      (86,980)     (163,829)       (1,970)      (10,009)
                       ===========   ===========   ===========   ===========   ===========   ===========




                                    REAL ESTATE SECURITIES FUND
                       -----------------------------------------------------
                                CLASS A                     CLASS B
                       -------------------------   -------------------------
                           2003          2002          2003         2002
                       -----------   -----------   -----------   -----------
                                                         
Sold                     1,207,762     1,428,832        47,346       104,942
Issued for
reinvested
distributions              106,325       101,578         4,421           342
Redeemed                  (341,107)     (311,365)       (5,907)      (10,152)
                       -----------   -----------   -----------   -----------
                           972,980     1,219,045        45,860        95,132
                       ===========   ===========   ===========   ===========




                                                         VENTURE FUND
                       ---------------------------------------------------------------------------------
                                CLASS A                     CLASS B                     CLASS C
                       -------------------------   -------------------------   -------------------------
                           2003          2002          2003         2002           2003          2002
                       -----------   -----------   -----------   -----------   -----------   -----------
                                                                               
Sold                     1,306,388     1,639,269        50,689       154,746       366,123        98,695
Issued for
reinvested
distributions              145,410        79,848        32,270        19,807        15,801         5,281
Redeemed                  (935,846)   (1,023,466)      (35,863)      (72,399)     (406,504)      (12,771)
                       -----------   -----------   -----------   -----------   -----------   -----------
                           245,952       695,651        47,096       102,154       (24,580)       91,205
                       ===========   ===========   ===========   ===========   ===========   ===========


(7)  SECURITIES LENDING CONTRACTS

     To enhance returns, the Funds loan securities to brokers in exchange for
collateral. The Funds receive a fee from the brokers measured as a percent of
the loaned securities. At January 31, 2003, the collateral is invested in cash
equivalents and repurchase agreements and must be 102% of the value of
securities loaned. The risk to the Funds is that the borrower may not provide
additional collateral when required or return the securities when due. At

                                       96


January 31, 2003, Cornerstone, Enterprise, Horizon, Index 500, Real Estate, and
Venture had securities valued at $1,281,474, $4,348,047, $849,936, $942,641,
$2,660,063 and $6,587,023 that were on loan to brokers and the Funds had
$1,311,277, $4,595,047, $886,441, $990,363, $2,777,920 and $7,017,993 in cash
collateral, respectively.

(8)  STOCK INDEX FUTURES CONTRACTS

     Investments in securities as of January 31, 2003, included securities
valued at $2,826,920 in the Advantus Index 500 Fund that were used as collateral
to cover initial margin deposits on seven open March S&P 500 and eight open
March S&P 500 EMINI Futures purchase contacts. The market value of the open
purchase contracts as of January 31, 2003, was $774,775 with an unrealized loss
of $97,663.

                                       97


(10) FINANCIAL HIGHLIGHTS
ADVANTUS CORNERSTONE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS A
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $     11.81        $     12.59
                                                               -----------        -----------
Income from investment operations:
   Net investment income (loss)                                        .07                .08
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.80)              (.78)
                                                               -----------        -----------
       Total from investment operations                               (.73)              (.70)
                                                               -----------        -----------
Less distributions:
   Dividends from net investment income                               (.06)              (.08)
   Distributions from net realized gains                                 -                  -
   Excess distributions of net investment income                         -                  -
   Tax return of capital                                                 -                  -
                                                               -----------        -----------
       Total distributions                                            (.06)              (.08)
                                                               -----------        -----------
Net asset value, end of period                                 $     11.02        $     11.81
                                                               ===========        ===========
Total return (a)                                                     (6.17)%            (5.72)%
Net assets, end of period (in thousands)                       $    56,614        $    57,947
Ratios to average net assets:
  Expenses                                                            1.24%(b)           1.24%(b)
  Net investment income (loss)                                        1.21%(b)            .70%(b)
  Expenses without waivers                                            1.49%(b)           1.41%(b)
  Net investment income (loss) without waivers                         .96%(b)            .53%(b)
Portfolio turnover rate (excluding short-term securities)             54.0%              95.3%




                                                                                             CLASS A
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   15.08     $   15.14     $   13.88     $   18.68     $   15.06
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                                      .09           .06           .15           .16           .14
   Net gains (losses) on securities
     (both realized and unrealized)                                (2.50)          .13          1.24         (3.04)         5.19
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (2.41)          .19          1.41         (2.88)         5.33
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                             (.08)         (.05)         (.15)         (.16)         (.14)
   Distributions from net realized gains                               -          (.13)            -         (1.76)        (1.57)
   Excess distributions of net investment income                       -          (.06)            -             -             -
   Tax return of capital                                               -          (.01)            -             -             -
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                          (.08)         (.25)         (.15)        (1.92)        (1.71)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $   12.59     $   15.08     $   15.14     $   13.88     $   18.68
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (15.97)%        1.26%        10.13%       (16.45)%       38.35%
Net assets, end of period (in thousands)                       $  65,766     $  81,389     $  92,657     $  93,833     $ 107,322
Ratios to average net assets:
  Expenses                                                          1.24%         1.24%         1.21%         1.16%         1.08%
  Net investment income (loss)                                       .61%          .43%          .94%          .98%          .85%
  Expenses without waivers                                          1.39%         1.34%         1.23%         1.25%         1.28%
  Net investment income (loss) without waivers                       .46%          .33%          .92%          .89%          .65%
Portfolio turnover rate (excluding short-term securities)          147.9%        180.1%         78.7%        114.4%         87.7%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end and contingent deferred sales
    charges.
(b) Adjusted to an annual basis.

                                       98


ADVANTUS CORNERSTONE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS B
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $     11.60        $     12.38
                                                               -----------        -----------
Income from investment operations:
   Net investment income (loss)                                        .03                  -
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.78)              (.77)
                                                               -----------        -----------
       Total from investment operations                               (.75)              (.77)
                                                               -----------        -----------
Less distributions:
   Dividends from net investment income                               (.02)              (.01)
   Distributions from net realized gains                                 -                  -
   Excess distributions of net investment income                         -                  -
                                                               -----------        -----------
       Total distributions                                            (.02)              (.01)
                                                               -----------        -----------
Net asset value, end of period                                 $     10.83        $     11.60
                                                               ===========        ===========
Total return (a)                                                     (6.42)%            (6.40)%
Net assets, end of period (in thousands)                       $     5,135        $     6,190
Ratios to average net assets:
  Expenses                                                            1.99%(b)           1.99%(b)
  Net investment income (loss)                                         .04%(b)           (.05)%(b)
  Expenses without waiver                                             2.24%(b)           2.16%(b)
  Net investment income (loss) without waiver                          .22%(b)           (.22)%(b)
Portfolio turnover rate (excluding short-term securities)             54.0%              95.3%




                                                                                             CLASS B
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   14.86     $   14.97     $   13.73     $   18.52     $   14.97
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                                     (.02)         (.02)          .03           .03             -
   Net gains (losses) on securities
     (both realized and unrealized)                                (2.46)          .10          1.24         (3.02)         5.18
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (2.48)          .08          1.27         (2.99)         5.18
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                                -             -          (.03)         (.04)         (.01)
   Distributions from net realized gains                               -          (.13)            -         (1.76)        (1.57)
   Excess distributions of net investment income                       -          (.06)            -             -             -
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                             -          (.19)         (.03)        (1.80)        (1.58)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $   12.38     $   14.86     $   14.97     $   13.73     $   18.52
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (16.61)%         .54%         9.26%       (17.21)%       37.68%
Net assets, end of period (in thousands)                       $   8,382     $  12,615     $  18,611     $  21,176     $  21,405
Ratios to average net assets:
  Expenses                                                          1.99%         1.99%         1.96%         1.95%         1.98%
  Net investment income (loss)                                      (.14)%        (.29)%         .20%          .18%         (.05)%
  Expenses without waiver                                           2.14%         2.09%         1.96%         1.95%         1.98%
  Net investment income (loss) without waiver                       (.29)%        (.39)%         .21%          .18%         (.05)%
Portfolio turnover rate (excluding short-term securities)          147.9%        180.1%         78.7%        114.4%         87.7%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end and contingent deferred sales
    charges.
(b) Adjusted to an annual basis.

                                       99


ADVANTUS CORNERSTONE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS C
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $     11.56        $     12.35
                                                               -----------        -----------
Income from investment operations:
   Net investment income (loss)                                        .02                  -
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.78)              (.78)
                                                               -----------        -----------
       Total from investment operations                               (.75)              (.78)
                                                               -----------        -----------
Less distributions:
   Dividends from net investment income                               (.02)              (.01)
   Distributions from net realized gains                                 -                  -
   Excess distributions of net investment income                         -                  -
                                                               -----------        -----------
       Total distributions                                            (.02)              (.01)
                                                               -----------        -----------
Net asset value, end of period                                 $     10.80        $     11.56
                                                               ===========        ===========
Total return (a)                                                     (6.43)%            (6.42)%
Net assets, end of period (in thousands)                       $       582        $       680
Ratios to average net assets:
  Expenses                                                            1.99%(b)           1.99%(b)
  Net investment income (loss)                                         .46%(b)           (.05)%(b)
  Expenses without waiver                                             2.24%(b)           2.16%(b)
  Net investment income (loss) without waiver                          .22%(b)           (.22)(b)
Portfolio turnover rate (excluding short-term securities)             54.0%              95.3%




                                                                                             CLASS C
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   14.82     $   14.93     $   13.68     $   18.48     $   14.92
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                                     (.02)         (.02)          .03           .03             -
   Net gains (losses) on securities
     (both realized and unrealized)                                (2.45)          .10          1.25         (3.04)         5.12
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (2.47)          .08          1.28         (3.01)         5.12
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                                -             -          (.03)         (.03)         (.01)
   Distributions from net realized gains                               -          (.13)            -         (1.76)        (1.57)
   Excess distributions of net investment income                       -          (.06)            -             -             -
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                             -          (.19)         (.03)        (1.79)        (1.58)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $   12.35     $   14.82     $   14.93     $   13.68     $   18.48
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (16.58)%         .54%         9.35%       (17.28)%       37.10%
Net assets, end of period (in thousands)                       $     873     $   1,281     $   2,015     $   3,094     $   3,399
Ratios to average net assets:
  Expenses                                                          1.99%         1.99%         1.96%         1.95%         1.98%
  Net investment income (loss)                                      (.14)%        (.29)%         .21%          .18%         (.05)%
  Expenses without waiver                                           2.14%         2.09%         1.96%         1.95%         1.98%
  Net investment income (loss) without waiver                       (.29)%        (.39)%         .21%          .18%         (.05)%
Portfolio turnover rate (excluding short-term securities)          147.9%        180.1%         78.7%        114.4%         87.7%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end and contingent deferred sales
    charges.
(b) Adjusted to an annual basis.

                                       100


ADVANTUS ENTERPRISE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS A
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $      6.44        $      7.20
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.04)              (.08)
   Net gains (losses) on securities
     (both realized and unrealized)                                    .03               (.68)
                                                               -----------        -----------
       Total from investment operations                               (.01)              (.76)
                                                               -----------        -----------
Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of period                                 $      6.43        $      6.44
                                                               ===========        ===========
Total return (a)                                                      (.31)%           (10.56)%
Net assets, end of period (in thousands)                       $    27,227        $    27,357
Ratios to average net assets:
  Expenses                                                            1.48%(b)           1.38%(b)
  Net investment income (loss)                                       (1.21)%(b)         (1.14)%(b)
  Expenses without waiver                                             1.91%(b)           1.69%(b)
  Net investment income (loss) without waiver                        (1.64)%(b)         (1.45)%(b)
Portfolio turnover rate (excluding short-term securities)             39.7%              62.2%




                                                                                             CLASS A
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   20.77     $   14.56     $   11.32     $   15.90     $   15.94
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.03)         (.19)         (.14)         (.13)         (.04)
   Net gains (losses) on securities
     (both realized and unrealized)                                (7.07)         6.40          3.38         (4.45)         1.74
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (7.10)         6.21          3.24         (4.58)         1.70
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Distributions from net realized gains                           (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                         (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $    7.20     $   20.77     $   14.56     $   11.32     $   15.90
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (44.09)%       42.75%        28.53%       (28.81)%       12.88%
Net assets, end of period (in thousands)                       $  30,744     $  56,087     $  40,009     $  31,844     $  44,102
Ratios to average net assets:
  Expenses                                                          1.38%         1.24%         1.33%         1.27%         1.28%
  Net investment income (loss)                                     (1.00)%        (.91)%        (.97)%        (.91)%        (.32)%
  Expenses without waiver                                           1.60%         1.43%         1.45%         1.44%         1.48%
  Net investment income (loss) without waiver                      (1.22)%       (1.10)%       (1.09)%       (1.08)%        (.52)%
Portfolio turnover rate (excluding short-term securities)          105.4%        181.5%         99.3%         71.1%         65.8%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       101


ADVANTUS ENTERPRISE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS B
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $      5.78        $      6.51
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.08)              (.16)
   Net gains (losses) on securities
     (both realized and unrealized)                                    .05               (.57)
                                                               -----------        -----------
       Total from investment operations                               (.03)              (.73)
                                                               -----------        -----------
Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of period                                 $      5.75        $      5.78
                                                               ===========        ===========
Total return (a)                                                      (.69)%           (11.22)%
Net assets, end of period (in thousands)                       $     2,910        $     3,345
Ratios to average net assets:
  Expenses                                                            2.23%(b)           2.23%(b)
  Net investment income (loss)                                       (1.96)%(b)         (1.99)%(b)
  Expenses without waiver                                             2.66%(b)           2.44%(b)
  Net investment income (loss) without waiver                        (2.39)%(b)         (2.20)%(b)
Portfolio turnover rate (excluding short-term securities)             39.7%              62.2%




                                                                                             CLASS B
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   19.63     $   13.88     $   10.88     $   15.42     $   15.64
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.07)         (.35)         (.26)         (.24)         (.18)
   Net gains (losses) on securities
     (both realized and unrealized)                                (6.58)         6.10          3.26         (4.30)         1.70
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (6.65)         5.75          3.00         (4.54)         1.52
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Distributions from net realized gains                           (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                         (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $    6.51     $   19.63     $   13.88     $   10.88     $   15.42
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (44.59)%       41.43%        27.57%       (29.44)%       11.89%
Net assets, end of period (in thousands)                       $   4,440     $   9,086     $   6,491     $   5,903     $   7,683
Ratios to average net assets:
  Expenses                                                          2.23%         2.09%         2.18%         2.14%         2.18%
  Net investment income (loss)                                     (1.85)%       (1.76)%       (1.82)%       (1.77)%       (1.60)%
  Expenses without waiver                                           2.35%         2.10%         2.18%         2.14%         2.18%
  Net investment income (loss) without waiver                      (1.97)%       (1.77)%       (1.82)%       (1.77)%       (1.60)%
Portfolio turnover rate (excluding short-term securities)          105.4%        181.5%         99.3%         71.1%         65.8%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annualized basis.

                                       102


ADVANTUS ENTERPRISE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS C
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of period                           $      5.78        $      6.50
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.08)              (.15)
   Net gains (losses) on securities
     (both realized and unrealized)                                    .04               (.57)
                                                               -----------        -----------
       Total from investment operations                               (.04)              (.72)
                                                               -----------        -----------
Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of period                                 $      5.74        $      5.78
                                                               ===========        ===========
Total return (a)                                                      (.69)%           (11.21)%
Net assets, end of period (in thousands)                       $       364        $       421
Ratios to average net assets:
  Expenses                                                            2.23%(b)           2.23%(b)
  Net investment income (loss)                                       (1.96)%(b)         (1.99)%(b)
  Expenses without waiver                                             2.66%(b)           2.44%(b)
  Net investment income (loss) without waiver                        (2.39)%(b)         (2.20)%(b)
Portfolio turnover rate (excluding short-term securities)             39.7%              62.2%




                                                                                             CLASS C
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of period                           $   19.62     $   13.87     $   10.87     $   15.41     $   15.63
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.05)         (.36)         (.27)         (.26)         (.23)
   Net gains (losses) on securities
     (both realized and unrealized)                                (6.60)         6.11          3.27         (4.28)         1.75
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                            (6.65)         5.75          3.00         (4.54)         1.52
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Distributions from net realized gains                           (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                         (6.47)            -             -             -         (1.74)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of period                                 $    6.50     $   19.62     $   13.87     $   10.87     $   15.41
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (44.54)%       41.46%        27.48%       (29.40)%       11.89%
Net assets, end of period (in thousands)                       $     541     $   1,079     $     812     $     780     $   1,133
Ratios to average net assets:
  Expenses                                                          2.23%         2.28%         2.18%         2.14%         2.18%
  Net investment income (loss)                                     (1.85)%       (1.92)%       (1.82)%       (1.78)%       (1.75)%
  Expenses without waiver                                           2.35%         2.10%         2.18%         2.14%         2.18%
  Net investment income (loss) without waiver                      (1.97)%       (1.77)%       (1.82)%       (1.78)%       (1.75)%
Portfolio turnover rate (excluding short-term securities)          105.4%        181.5%         99.3%         71.1%         65.8%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       103


ADVANTUS HORIZON FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS A
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of year                             $     11.23        $     12.63
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.01)              (.07)
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.65)             (1.33)
                                                               -----------        -----------
       Total from investment operations                               (.66)             (1.40)
                                                               -----------        -----------
Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of year                                   $     10.57        $     11.23
                                                               ===========        ===========
Total return (a)                                                     (5.88)%           (11.08)%
Net assets, end of year (in thousands)                         $    19,431        $    21,830
Ratio to average net assets:
  Expenses                                                            1.35%(b)           1.35%(b)
  Net investment income (loss)                                        (.15)%(b)          (.58)%(b)
  Expenses without waiver                                             2.50%(b)           2.17%(b)
  Net investment income (loss) without waiver                        (1.30)%(b)         (1.40)%(b)
Portfolio turnover rate (excluding short-term securities)             49.6%              67.6%




                                                                                             CLASS A
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of year                             $   31.08     $   26.88     $   23.59     $   23.06     $   23.07
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.16)         (.28)         (.16)         (.09)         (.08)
   Net gains (losses) on securities
     (both realized and unrealized)                               (13.37)         5.41          5.77          3.48          4.89
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                           (13.54)         5.13          5.61          3.39          4.81
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Distributions from net realized gains                           (4.91)         (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                             -          (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of year                                   $   12.63     $   31.08     $   26.88     $   23.59     $   23.06
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (49.46)%       19.26%        24.74%        16.38%        24.96%
Net assets, end of year (in thousands)                         $  27,603     $  63,568     $  56,581     $  47,183     $  40,192
Ratio to average net assets:
  Expenses                                                          1.35%         1.33%         1.30%         1.36%         1.43%
  Net investment income (loss)                                      (.85)%        (.89)%        (.61)%        (.39)%        (.39)%
  Expenses without waiver                                           1.81%         1.42%         1.30%         1.37%         1.48%
  Net investment income (loss) without waiver                      (1.32)%        (.97)%        (.61)%        (.40)%        (.44)%
Portfolio turnover rate (excluding short-term securities)          129.6%        109.3%         60.1%         72.6%         71.5%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For period less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       104


ADVANTUS HORIZON FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS B
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of year                             $     10.27        $     11.62
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.05)              (.16)
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.59)             (1.19)
                                                               -----------        -----------
       Total from investment operations                               (.64)             (1.35)

Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of year                                   $      9.63        $     10.27
                                                               ===========        ===========
Total return (a)                                                     (6.14)%           (11.71)%
Net assets, end of year (in thousands)                         $     6,117        $     7,507
Ratios to average net assets:
  Expenses                                                            2.10%(b)           2.10%(b)
  Net investment income (loss)                                        (.90)%(b)         (1.33)%(b)
  Expenses without waiver                                             3.24%(b)           2.92%(b)
  Net investment income (loss) without waiver                        (2.05)%(b)         (2.15)(b)
Portfolio turnover rate (excluding short-term securities)             49.6%              67.6%




                                                                                             CLASS B
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of year                             $   29.26     $   25.51     $   22.65     $   22.41     $   22.65
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.30)         (.49)         (.32)         (.22)         (.19)
   Net gains (losses) on securities
     (both realized and unrealized)                               (12.43)         5.14          5.53          3.32          4.77
                                                               ---------     ---------     ---------     ---------     ---------
       Total from investment operations                           (12.73)         4.65          5.21          3.10          4.58

Less distributions:
   Distributions from net realized gains                           (4.91)         (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
       Total distributions                                             -          (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of year                                   $   11.62     $   29.26     $   25.54     $   22.65     $   22.41
                                                               ---------     ---------     ---------     ---------     ---------
Total return (a)                                                  (49.85)%       18.40%        23.93%        15.48%        24.25%
Net assets, end of year (in thousands)                         $  10,679     $  26,878     $  23,561     $  17,100     $  11,684
Ratios to average net assets:
  Expenses                                                          2.10%         2.08%         2.04%         2.07%         2.18%
  Net investment income (loss)                                     (1.60)%       (1.63)%       (1.34)%       (1.11)%        1.13%
  Expenses without waiver                                           2.36%         2.17%         2.04%         2.07%         2.18%
  Net investment income (loss) without waiver                      (2.07)%       (1.72)%       (1.34)%       (1.11)%       (1.13)%
Portfolio turnover rate (excluding short-term securities)          129.6%        109.3%         60.1%         72.6%         71.5%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For period less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       105


ADVANTUS HORIZON FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS C
                                                               ------------------------------
                                                               PERIOD FROM        PERIOD FROM
                                                                AUGUST 1,          OCTOBER 1,
                                                                 2002 TO            2001 TO
                                                               JANUARY 31,         JULY 31,
                                                                  2003                2002
                                                               -----------        -----------
                                                                            
Net asset value, beginning of year                             $     10.34        $     11.71
                                                               -----------        -----------
Income from investment operations:
   Net investment loss                                                (.05)              (.16)
   Net gains (losses) on securities
     (both realized and unrealized)                                   (.59)             (1.21)
                                                               -----------        -----------
       Total from investment operations                               (.64)             (1.37)
                                                               -----------        -----------
Less distributions:
   Distributions from net realized gains                                 -                  -
                                                               -----------        -----------
       Total distributions                                               -                  -
                                                               -----------        -----------
Net asset value, end of year                                   $      9.70        $     10.34
                                                               ===========        ===========
Total return (a)                                                     (6.19)%           (11.71)%
Net assets, end of year (in thousands)                         $       533        $       658
Ratio to average net assets:
  Expenses                                                            2.10%(b)           2.10%(b)
  Net investment income (loss)                                        (.90)%(b)         (1.33)%(b)
  Expenses without waiver                                             3.24%(b)           2.92%(b)
  Net investment income without waiver                               (2.05)%(b)         (2.15)%(b)
Portfolio turnover rate (excluding short-term securities)             49.6%              67.6%




                                                                                             CLASS C
                                                               -----------------------------------------------------------------
                                                                                  YEAR ENDED SEPTEMBER 30,
                                                               -----------------------------------------------------------------
                                                                 2001           2000         1999          1998          1997
                                                               ---------     ---------     ---------     ---------     ---------
                                                                                                        
Net asset value, beginning of year                             $   29.44     $   25.69     $   22.79     $   22.38     $   22.67
                                                               ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment loss                                              (.30)         (.51)         (.36)         (.24)         (.20)
   Net gains (losses) on securities
     (both realized and unrealized)                               (12.53)         5.19          5.58          3.51          4.73
                                                               ---------     ---------     ---------     ---------     ---------
      Total from investment operations                            (12.83)         4.68          5.22          3.27          4.53
                                                               ---------     ---------     ---------     ---------     ---------
Less distributions:
   Distributions from net realized gains                           (4.91)         (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
      Total distributions                                              -          (.93)        (2.32)        (2.86)        (4.82)
                                                               ---------     ---------     ---------     ---------     ---------
Net asset value, end of year                                   $   11.71     $   29.44     $   25.69     $   22.79     $   22.38
                                                               =========     =========     =========     =========     =========
Total return (a)                                                  (49.84)%       18.37%        23.82%        15.74%        24.03%
Net assets, end of year (in thousands)                         $     988     $   2,396     $   2,540     $   2,299     $   1,754
Ratio to average net assets:
  Expenses                                                          2.10%         2.08%         2.04%         2.07%         2.18%
  Net investment income (loss)                                     (1.60)%        1.63%        (1.34)%       (1.10)%        1.14%
  Expenses without waiver                                           2.56%         2.17%         2.04%         2.07%         2.18%
  Net investment income without waiver                             (2.07)%       (1.72)%       (1.34)%       (1.10)%       (1.14)%
Portfolio turnover rate (excluding short-term securities)          129.6%        109.3%         60.1%         72.6%         71.5%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For period less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       106


ADVANTUS INDEX 500 FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                         CLASS A
                                                                       -----------
                                                                       PERIOD FROM
                                                                        AUGUST 1,
                                                                         2002 TO
                                                                       JANUARY 31,
                                                                           2003
                                                                       -----------
                                                                    
Net asset value, beginning of period                                   $     12.00
                                                                       -----------
Income from investment operations:
   Net investment income (loss)                                                .04
   Net gains (losses) on securities (both realized and unrealized)            (.73)
                                                                       -----------
      Total from investment operations                                        (.69)
                                                                       -----------
Less distributions:
   Dividends from net investment income                                       (.04)
   Distributions from net realized gains                                         -
                                                                       -----------
      Total distributions                                                     (.04)
                                                                       -----------
Net asset value, end of period                                         $     11.27
                                                                       ===========
Total return (a)                                                             (5.56)%
Net assets, end of period (in thousands)                               $    17,296
Ratios to average net assets:
  Expenses                                                                     .85%(b)
  Net investment income (loss)                                                1.03%(b)
  Expenses without waiver                                                     1.68%(b)
  Net investment income (loss) without waiver                                  .22%(b)
Portfolio turnover rate (excluding short-term securities)                      2.6%




                                                                                                CLASS A
                                                                     -------------------------------------------------------------
                                                                                          YEAR ENDED JULY 31,
                                                                     -------------------------------------------------------------
                                                                       2002          2001         2000         1999         1998
                                                                     ---------    ---------    ---------    ---------    ---------
                                                                                                          
Net asset value, beginning of period                                 $   15.92    $   18.93    $   17.74    $   15.06    $   12.89
                                                                     ---------    ---------    ---------    ---------    ---------
Income from investment operations:
   Net investment income (loss)                                            .11          .12          .10          .11          .10
   Net gains (losses) on securities (both realized and unrealized)       (3.94)       (2.98)        1.27         2.74         2.21
                                                                     ---------    ---------    ---------    ---------    ---------
      Total from investment operations                                   (3.83)       (2.86)        1.37         2.85         2.31
                                                                     ---------    ---------    ---------    ---------    ---------
Less distributions:
   Dividends from net investment income                                   (.09)        (.10)        (.03)        (.10)        (.12)
   Distributions from net realized gains                                     -         (.05)        (.15)        (.07)        (.02)
                                                                     ---------    ---------    ---------    ---------    ---------
      Total distributions                                                 (.09)        (.15)        (.18)        (.17)        (.14)
                                                                     ---------    ---------    ---------    ---------    ---------
Net asset value, end of period                                       $   12.00    $   15.92    $   18.93    $   17.74    $   15.06
                                                                     =========    =========    =========    =========    =========
Total return (a)                                                        (24.14)%     (15.12)%       7.67%       19.13%       18.19%
Net assets, end of period (in thousands)                             $  18,196    $  24,870    $  24,723    $  25,498    $  15,711
Ratios to average net assets:
  Expenses                                                                 .75%         .75%         .75%         .75%         .74%
  Net investment income (loss)                                             .77%         .72%         .52%         .64%         .83%
  Expenses without waiver                                                 1.53%        1.43%        1.38%        1.43%        1.81%
  Net investment income (loss) without waiver                             (.01)%        .04%        (.11)%       (.04)%       (.24)%
Portfolio turnover rate (excluding short-term securities)                 13.6%        17.2%        42.6%        25.3%        59.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       107


ADVANTUS INDEX 500 FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                 CLASS B
                                            -------------------------------------------------------------------------------------
                                            PERIOD FROM
                                              AUGUST 1,
                                              2002 TO                                   YEAR ENDED JULY 31,
                                             JANUARY 31,        -----------------------------------------------------------------
                                                2003              2002          2001          2000         1999           1998
                                            ------------        ---------     ---------     ---------     ---------     ---------
                                                                                                      
Net asset value, beginning of period        $      11.78        $   15.66     $   18.68     $   17.64     $   15.01     $   12.87
                                            ------------        ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                      .01             (.01)          .02          (.06)         (.03)          .02
   Net gains (losses) on securities (both
     realized and unrealized)                       (.72)           (3.86)        (2.93)         1.25          2.73          2.17
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total from investment operations              (.70)           (3.87)        (2.95)         1.19          2.70          2.19
                                            ------------        ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income             (.02)            (.01)         (.02)            -             -          (.03)
   Distributions from net realized gains               -                -          (.05)          .15          (.07)         (.02)
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total distributions                           (.02)            (.01)         (.07)          .15          (.07)         (.05)
                                            ------------        ---------     ---------     ---------     ---------     ---------
Net asset value, end of period              $      11.06        $   11.78     $   15.66     $   18.68     $   17.64     $   15.01
                                            ============        =========     =========     =========     =========     =========
Total return (a)                                   (5.97)%         (24.80)%      (15.77)%        6.71%        18.10%        17.17%
Net assets, end of period (in thousands)    $     12,715        $  14,559     $  21,931     $  28,077     $  24,202     $  11,832
Ratios to average net assets:
  Expenses                                          1.60%(b)         1.60%         1.60%         1.60%         1.60%         1.60%
  Net investment income (loss)                      (.28)%(b)        (.08)%        (.11)%        (.33)%        (.21)%        (.06)%
  Expenses without waiver                           2.43%(b)         2.28%         2.18%         2.13%         2.16%         2.51%
  Net investment income (loss) without
   waiver                                           (.49)%(b)        (.76)%        (.69)%        (.86)%        (.77)%        (.97)%
Portfolio turnover rate (excluding
  short-term securities)                             2.6%            13.6%         17.2%         42.6%         25.3%         59.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       108


ADVANTUS INDEX 500 FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                 CLASS C
                                            -------------------------------------------------------------------------------------
                                            PERIOD FROM
                                              AUGUST 1,
                                              2002 TO                                   YEAR ENDED JULY 31,
                                             JANUARY 31,        -----------------------------------------------------------------
                                                2003              2002          2001          2000         1999           1998
                                            ------------        ---------     ---------     ---------     ---------     ---------
                                                                                                      
Net asset value, beginning of period        $      11.75        $   15.63     $   18.64     $   17.60     $   14.97     $   12.85
                                            ------------        ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                      .02             (.01)         (.03)         (.06)         (.03)          .01
   Net gains (losses) on securities (both
     realized and unrealized)                       (.71)           (3.86)        (2.91)         1.25          2.73          2.16
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total from investment operations               .69            (3.87)        (2.94)         1.19          2.70          2.17
                                            ------------        ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income             (.02)            (.01)         (.02)            -             -          (.03)
   Distributions from net realized gains               -                -          (.05)         (.15)         (.07)         (.02)
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total distributions                           (.02)            (.01)         (.07)         (.15)         (.07)         (.05)
                                            ------------        ---------     ---------     ---------     ---------     ---------
Net asset value, end of period              $      11.04        $   11.75     $   15.63     $   18.64     $   17.60     $   14.97
                                            ============        =========     =========     =========     =========     =========
Total return (a)                                   (5.90)%         (24.80)%      (15.80)%        6.73%        18.03%        17.09%
Net assets, end of period (in thousands)    $      1,485        $   1,605     $   2,291     $   3,168     $   2,910     $   1,508
Ratios to average net assets:
  Expenses                                          1.60%(b)         1.60%         1.60%         1.60%         1.60%         1.60%
  Net investment income (loss)                       .29%(b)         (.08)%        (.11)%        (.33)%        (.21)%        (.06)%
  Expenses without waiver                           2.43%(b)         2.28%         2.18%         2.13%         2.16%         2.51%
  Net investment income (loss) without
    waiver                                          (.51)%(b)        (.76)%        (.69)%        (.86)%        (.77)%        (.97)%
Portfolio turnover rate (excluding
  short-term securities)                             2.6%            13.6%         17.2%         42.6%         25.3%         59.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       109


ADVANTUS REAL ESTATE SECURITIES FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                             CLASS A
                                            --------------------------------------------------------------------------
                                             PERIOD FROM                                                  PERIOD FROM
                                               AUGUST 1,                                                  FEBRUARY 25,
                                               2002 TO                   YEAR ENDED JULY 31,              1999 (c) TO
                                             JANUARY 31,        -------------------------------------       JULY 31,
                                                2003               2002          2001          2000           1999
                                            ------------        ---------     ---------     ---------     ------------
                                                                                           
Net asset value, beginning of year          $      11.93        $   11.67     $   11.23     $   10.25     $      10.02
                                            ------------        ---------     ---------     ---------     ------------
Income from investment operations:
   Net investment income                             .24              .32           .51           .43              .18
   Net gains (losses) on securities
     (both realized and unrealized)                 (.76)            1.01           .47          1.00              .31
                                            ------------        ---------     ---------     ---------     ------------
       Total from investment operations             (.52)            1.33           .98          1.43              .49
                                            ------------        ---------     ---------     ---------     ------------
Less distributions:
   Dividends from net investment income             (.23)            (.28)         (.54)         (.42)            (.18)
   Distributions from net realized gains            (.22)            (.79)            -          (.03)               -
   Excess distributions of net investment
     income                                            -                -             -             -             (.08)
                                            ------------        ---------     ---------     ---------     ------------
       Total distributions                          (.45)           (1.07)         (.54)         (.45)            (.26)
                                            ------------        ---------     ---------     ---------     ------------
Net asset value, end of year                $      10.96        $   11.93     $   11.67     $   11.23     $      10.25
                                            ============        =========     =========     =========     ============
Total return (a)                                   (4.40)%          12.31%         8.92%        14.89%            4.78%
Net assets, end of year (in thousands)      $     40,318        $  32,269     $  17,336     $  11,704     $      6,113
Ratios to average net assets:
  Expenses                                          1.55%(b)         1.50%         1.50%         1.50%            1.50%(b)
  Net investment income (loss)                      4.41%(b)         2.83%         4.30%         4.25%            4.09%(b)
  Expenses without waivers                          1.55%(b)         1.69%         1.99%         2.72%            3.49%(b)
  Net investment income without waivers             4.40%(b)         2.64%         3.81%         3.04%            2.10%(b)
Portfolio turnover rate (excluding
  short-term securities)                            52.6%           101.2%        173.1%        116.8%            51.5%




                                                       CLASS B
                                            --------------------------------
                                            PERIOD FROM         PERIOD FROM
                                              AUGUST 1,         NOVEMBER 28,
                                              2002 TO           2002 (d) TO
                                             JANUARY 31,         JULY 31,
                                                2003               2002
                                            ------------        ------------
                                                          
Net asset value, beginning of year          $      11.89        $      11.56
                                            ------------        ------------
Income from investment operations:
   Net investment income                             .20                 .11
   Net gains (losses) on securities
     (both realized and unrealized)                 (.76)               1.23
                                            ------------        ------------
       Total from investment operations             (.56)               1.34
                                            ------------        ------------
Less distributions:
   Dividends from net investment income             (.19)               (.22)
   Distributions from net realized gains            (.22)               (.79)
   Excess distributions of net investment
     income                                            -                   -
                                            ------------        ------------
       Total distributions                          (.97)              (1.01)
                                            ------------        ------------
Net asset value, end of year                $      10.92        $      11.89
                                            ============        ============
Total return (a)                                   (4.74)%              7.75%
Net assets, end of year (in thousands)      $      1,540        $      1,131
Ratios to average net assets:
  Expenses                                          2.30%(b)            2.40
  Net investment income (loss)                      3.69%(b)            1.29
  Expenses without waivers                          2.30%(b)            2.44
  Net investment income without waivers             3.69%(b)            1.25
Portfolio turnover rate (excluding
  short-term securities)                            52.6%              101.2%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end contingent deferred sales
    charges. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.
(c) Date shares became effectively registered.
(d) Inception date of the Class B shares.

                                       110


ADVANTUS VENTURE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                 CLASS A
                                            -------------------------------------------------------------------------------------
                                            PERIOD FROM
                                              AUGUST 1,
                                              2002 TO                                   YEAR ENDED JULY 31,
                                             JANUARY 31,        -----------------------------------------------------------------
                                                2003              2002          2001          2000         1999           1998
                                            ------------        ---------     ---------     ---------     ---------     ---------
                                                                                                      
Net asset value, beginning of period        $      12.25        $   15.05     $   11.47     $   11.20     $   12.03     $   11.73
                                            ------------        ---------     ---------     ---------     ---------     ---------
Income from investment operations:

   Net investment income (loss)                     (.04)            (.08)         (.06)          .05           .10           .06
   Net gains (losses) on securities (both
     realized and unrealized)                      (1.02)           (1.84)         4.04           .32          (.59)          .98
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total from investment operations             (1.06)           (1.92)         3.98           .37          (.49)         1.04
                                            ------------        ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                -                -             -          (.06)         (.09)         (.08)
   Dividends in excess of net investment
     income                                            -                -             -          (.04)            -             -
   Distributions from net realized gains            (.88)            (.88)         (.40)            -          (.23)         (.66)
   Tax return of capital                               -                -             -             -          (.02)            -
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total distributions                          (1.94)            (.88)         (.40)         (.10)         (.34)         (.74)
                                            ------------        ---------     ---------     ---------     ---------     ---------
Net asset value, end of period              $      10.31        $   12.25     $   15.05     $   11.47     $   11.20     $   12.03
                                            ============        =========     =========     =========     =========     =========
Total return (a)                                   (9.01)%         (13.27)%       35.18%         3.74%        (3.89)%        8.92%
Net assets, end of period (in thousands)    $     47,215        $  53,071     $  54,735     $  31,371     $  31,683     $  34,630
Ratios to average net assets:
  Expenses                                          1.45%(b)         1.27%         1.40%         1.40%         1.40%         1.38%
  Net investment income (loss)                      (.80)%(b)        (.57)%        (.56)%         .63%          .81%          .55%
  Expenses without waiver                           1.45%(b)         1.37%         1.51%         1.71%         1.64%         1.55%
  Net investment income (loss) without waive        (.80)%(b)        (.67)%        (.67)%         .32%          .57%          .38%
Portfolio turnover rate (excluding
  short-term securities)                            31.4%            37.3%         37.8%        169.0%        103.9%         45.0%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charge. For periods less than one year, total return presented has not been
    annualized.

(b) Adjusted to an annual basis.

                                       111


ADVANTUS VENTURE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                 CLASS B
                                            -------------------------------------------------------------------------------------
                                            PERIOD FROM
                                              AUGUST 1,
                                              2002 TO                                   YEAR ENDED JULY 31,
                                             JANUARY 31,        -----------------------------------------------------------------
                                                2003              2002          2001          2000         1999           1998
                                            ------------        ---------     ---------     ---------     ---------     ---------
                                                                                                      
Net asset value, beginning of period        $      11.90        $   14.77     $   11.36     $   11.11     $   11.94     $   11.71
                                            ------------        ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                     (.71)            (.17)         (.16)         (.04)            -          (.02)
   Net gains (losses) on securities (both
     realized and unrealized)                      (1.00)           (1.82)         3.97           .32          (.58)          .92
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total from investment operations             (1.07)           (1.99)         3.81           .28          (.58)          .90
                                            ------------        ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                -                -             -          (.02)         (.02)         (.01)
   Distributions from net realized gains            (.88)            (.88)         (.40)            -          (.23)         (.66)
   Dividends in excess of net investment
     income                                            -                -             -          (.01)            -             -
                                            ------------        ---------     ---------     ---------     ---------     ---------
      Total distributions                           (.88)            (.88)         (.40)         (.03)         (.25)         (.67)
                                            ------------        ---------     ---------     ---------     ---------     ---------
Net asset value, end of period              $       9.95        $   11.90     $   14.77     $   11.36     $   11.11     $   11.94
                                            ============        =========     =========     =========     =========     =========
Total return (a)                                   (9.37)%         (14.02)%       34.01%         2.89%        (4.77)%        7.65%
Net assets, end of period (in thousands)    $      4,259        $   4,531     $   4,114     $   2,500     $   3,115     $   3,529
Ratios to average net assets:
  Expenses                                          2.20%            2.12%         2.25%         2.24%         2.25%         2.25%
  Net investment income (loss)                     (1.57)%(b)       (1.42)%       (1.41)%        (.24)%        (.04)%        (.26)%
  Expenses without waiver                           2.20%(b)         2.12%         2.26%         2.45%         2.36%         2.25%
  Net investment income (loss) without
    waiver                                         (1.57)%(b)       (1.42)%        (.42)%        (.85)%        (.15)%        (.26)%
Portfolio turnover rate (excluding
  short-term securities)                           (31.4)%(b)        37.3%         37.8%        169.0%        103.9%         45.0%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charge. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       112


ADVANTUS VENTURE FUND

Per share data for a share of capital stock and selected information for each
period are as follows:



                                                                                 CLASS C
                                            -------------------------------------------------------------------------------------
                                            PERIOD FROM
                                              AUGUST 1,
                                              2002 TO                                   YEAR ENDED JULY 31,
                                             JANUARY 31,        -----------------------------------------------------------------
                                                2003              2002          2001          2000         1999           1998
                                            ------------        ---------     ---------     ---------     ---------     ---------
                                                                                                      
Net asset value, beginning of period        $      11.96        $   14.83     $   11.41     $   11.15     $   11.98     $   11.71
                                            ------------        ---------     ---------     ---------     ---------     ---------
Income from investment operations:
   Net investment income (loss)                     (.08)            (.14)         (.15)         (.03)         (.01)         (.03)
   Net gains (losses) on securities (both
     realized and unrealized)                      (1.00)           (1.85)         3.98           .32          (.57)          .97
                                            ------------        ---------     ---------     ---------     ---------     ---------
       Total from investment operations            (1.07)           (1.99)         3.83           .29          (.58)          .94
                                            ------------        ---------     ---------     ---------     ---------     ---------
Less distributions:
   Dividends from net investment income                -                -             -          (.02)         (.02)         (.01)
   Distributions from net realized gains            (.88)            (.88)         (.40)            -          (.23)         (.66)
   Distributions in excess of net
     investment income                                 -                -             -          (.01)            -             -
                                            ------------        ---------     ---------     ---------     ---------     ---------
       Total distributions                          (.88)            (.88)         (.40)         (.03)         (.25)         (.67)
                                            ------------        ---------     ---------     ---------     ---------     ---------
Net asset value, end of period              $      10.01        $   11.96     $   14.83     $   11.41     $   11.15     $   11.98
                                            ============        =========     =========     =========     =========     =========
Total return (a)                                   (9.31)%         (13.96)%       33.94%         2.95%        (4.81)%        7.90%
Net assets, end of period (in thousands)    $        990        $   1,477     $     479     $     273     $     467     $     702
Ratios to average net assets:
  Expenses                                          2.20%(b)         2.12%         2.25%         2.24%         2.25%         2.25%
  Net investment income (loss)                      (.76)%(b)       (1.42)%       (1.41)%        (.24)%        (.04)%        (.26)%
  Expenses without waiver                           2.20%(b)         2.12%         2.26%         2.45%         2.36%         2.25%
  Net investment income (loss) without
   waiver                                          (1.57)%(b)       (1.42)        (1.42)%        (.45)%        (.15)%        (.26)%
Portfolio turnover rate (excluding
  short-term securities)                            31.4%            37.3%         37.8%        169.0%        103.9%         45.0%


- ----------
(a) Total return figures are based on a share outstanding throughout the period
    and assume reinvestment of distributions at net asset value. Total return
    figures do not reflect the impact of front-end or contingent deferred sales
    charge. For periods less than one year, total return presented has not been
    annualized.
(b) Adjusted to an annual basis.

                                       113


Advantus Funds
Directors and Executive Officers

Under Minnesota law, the Board of Directors of each Fund has overall
responsibility for managing the Fund in good faith and in a manner reasonably
believed to be in the best interests of the Fund. The directors meet
periodically throughout the year to oversee the Fund's activities, review
contractual arrangements with companies that provide services to the Fund, and
review the performance of the Fund. Certain of the directors are considered
"interested persons" (as defined in the Investment Company Act of 1940) of the
Fund primarily by reason of their engagement as officers of the Fund's
investment adviser, Advantus Capital Management, Inc. ("Advantus Capital"), or
as officers of companies affiliated with Advantus Capital, including Minnesota
Life Insurance Company ("Minnesota Life"). The remaining directors, because they
are not interested persons of the Fund, are considered independent ("Independent
Directors") and are not employees or officers of, and have no financial interest
in, Advantus Capital, Minnesota Life or their other affiliates. A majority of
the Board of Directors is comprised of Independent Directors.

The individuals listed in the table below serve as directors and officers of
each Fund, and also serve in the same capacity for each of the other six
Advantus Funds (the Advantus Funds are the twelve registered investment
companies, consisting of 29 portfolios, for which Advantus Capital serves as the
investment adviser). Only executive officers and other officers who perform
policy-making functions with the Fund are listed. None of the directors is a
director of any public company (a company required to file reports under the
Securities Exchange Act of 1934) or of any registered investment companies other
than the Advantus Funds. Each director serves for an indefinite term, until his
or her resignation, death or removal.



                         POSITION WITH FUND
NAME, ADDRESS(1)         AND LENGTH OF            PRINCIPAL OCCUPATION(s)
AND AGE                  TIME SERVED              DURING PAST 5 YEARS
- -----------------------------------------------------------------------------------------
INTERESTED DIRECTORS
- -----------------------------------------------------------------------------------------
                                            
William N. Westhoff      Director since           Retired since July 2002, prior thereto
Age: 55                  July 23, 1998            President, Treasurer and Director,
                                                  Advantus Capital Management, Inc.;
                                                  Senior Vice President and Treasurer,
                                                  Minnesota Life Insurance Company since
                                                  April 1998; Senior Vice President,
                                                  Global Investments, American Express
                                                  Financial Corporation, Minneapolis,
                                                  Minnesota, from August 1994 to October
                                                  1997

Frederick P. Feuerherm   Vice President,          Vice President, Assistant Secretary and
Age: 56                  Director and             Director, Advantus Capital Management,
                         Treasurer since          Inc.; Vice President, Minnesota Life
                         July 13, 1993            Insurance Company; Vice President,
                                                  Minnesota Mutual Companies, Inc.; Vice
                                                  President, Securian Financial Group,
                                                  Inc.; Vice President, Securian Holding
                                                  Company; Vice President and Director,
                                                  MIMLIC Funding, Inc. (entity holding
                                                  legal title to bonds beneficially owned
                                                  by certain clients of Advantus Capital);
                                                  Vice President and Assistant Secretary,
                                                  MCM Funding 1997-1, Inc. and MCM Funding
                                                  1998-1, Inc. (entities holding legal
                                                  title to mortgages beneficially owned by
                                                  certain clients of Advantus Capital);
                                                  Treasurer, Ministers Life Resources,
                                                  Inc.; Treasurer, The Ministers Life
                                                  Insurance Company


                                       114




- -----------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- -----------------------------------------------------------------------------------------
                                            
Ralph D. Ebbott          Director since           Retired, Vice President and Treasurer of
Age: 75                  October 22, 1985         Minnesota Mining and Manufacturing
                                                  Company (industrial and consumer
                                                  products) through June 1989

William C. Melton        Director since           Founder and President of Melton Research
Age: 55                  April 25, 2002           Inc. since 1997; member of the Advisory
                                                  Board of Macroeconomic Advisors LLC
                                                  since 1998; member, Minneapolis
                                                  StarTribune Board of Economists since
                                                  1986; member, State of Minnesota Council
                                                  of Economic Advisors from 1988 to 1994;
                                                  various senior positions at American
                                                  Express Financial Advisors (formerly
                                                  Investors Diversified Services and,
                                                  thereafter, IDS/American Express) from
                                                  1982 through 1997, including Chief
                                                  Economist and, thereafter, Chief
                                                  International Economist

Ellen S. Berscheid       Director since           Regents' Professor of Psychology at the
Age: 66                  October 22, 1985         University of Minnesota




- -----------------------------------------------------------------------------------------
OTHER EXECUTIVE OFFICERS
- -----------------------------------------------------------------------------------------
                                            
Dianne M. Orbison        President since          President and Treasurer, Advantus
Age: 50                  July 25, 2002            Capital Management, Inc.; Vice President
                                                  and Treasurer, Minnesota Life Insurance
                                                  Company; Vice President and Treasurer,
                                                  Minnesota Mutual Companies, Inc.; Vice
                                                  President and Treasurer, Securian
                                                  Financial Group, Inc.; Vice President
                                                  and Treasurer, Securian Holding Company;
                                                  President and Treasurer, MIMLIC Funding,
                                                  Inc. (entity holding legal title to
                                                  bonds beneficially owned by certain
                                                  clients of Advantus Capital); President
                                                  and Treasurer, MCM Funding 1997-1, Inc.
                                                  and MCM Funding 1998-1, Inc. (entities
                                                  holding legal title to mortgages
                                                  beneficially owned by certain clients of
                                                  Advantus Capital)

Michael J. Radmer        Secretary since          Partner with the law firm of Dorsey &
Dorsey & Whitney LLP     February 25, 1985        Whitney LLP
50 South Sixth Street
Minneapolis, Minnesota
55402
Age: 57


- ----------
(1) Unless otherwise noted, the address of each director and officer is the
    address of the Fund: 400 Robert Street North, St. Paul, Minnesota 55101.

The Fund's Statement of Additional Information (SAI) includes additional
information about Fund directors, and is available, without charge, upon
request. You may request a copy of the current SAI by telephoning Advantus
Shareholder Services, toll free, at (800) 665-6005.

                                       115


Shareholder Services

     The Advantus Family of Funds offers a variety of services that enhance your
ability to manage your assets. Check each Fund's prospectus for the details of
the services and any limitations that may apply.

EXCHANGE PRIVILEGES: You can move all or part of your investment dollars from
one fund to any other Advantus Fund you own (for identical registrations within
the same share class) at any time as your needs change. Exchanges are at the
then current net asset value (exchanges from the Advantus Money Market Fund will
incur the applicable sales charge, if not previously subjected to the charge).
Shareholders may make twelve exchanges each calendar year without incurring a
transaction charge. Thereafter, there will be a $7.50 transaction charge for
each additional exchange within the calendar year.

INCOME DISTRIBUTION FLEXIBILITY: You can have your fund dividends and other
distributions automatically reinvested with no sales charge, direct them from
one Advantus Fund to any other you own within the Fund family or, if you desire,
we'll pay you in cash.

SYSTEMATIC WITHDRAWAL PLAN: You can set up a plan to receive a check at
specified intervals from your fund account subject to minimum guidelines.
Depending upon the performance of the underlying investment options, the value
may be worth more or less than the original amount invested when withdrawn.

DIRECT DIVIDEND DEPOSITS: At your request we will deposit your dividends or
systematic withdrawals directly into your checking or savings account instead of
sending you a check.

TELEPHONE EXCHANGE: You may move money from one Advantus account to any other
Advantus account you own (with identical registrations within the same share
class) just by calling our toll-free number. The Telephone Exchange privilege
will automatically be established unless otherwise indicated on the Account
Application. Telephone Exchange may be changed (added/deleted) at any time by
submitting a request in writing.

SYSTEMATIC EXCHANGE: You may move a set amount of money monthly or quarterly
from one Advantus Fund to another Advantus Fund (with identical registrations
within the same share class) to diversify your investment portfolio and take
advantage of "dollar-cost averaging".

AUTOMATIC PAYMENT OF INSURANCE PREMIUMS: You may automatically pay your
Minnesota Life insurance premiums from your Advantus Money Market account.

REDUCED SALES CHARGES: Letter of Intent, combined purchases with spouse,
children or single trust estates, and the Right of Accumulation make it possible
for you to reduce the sales charge, if any.

                                       116


AUTOMATIC INVESTMENT PLAN: This special purchase plan enables you to open an
Advantus Fund account for as little as $500 when you agree to make investments
of not less than $50 under the plan and lower your average share cost through
"dollar-cost averaging." (Dollar-cost averaging does not assure a profit, nor
does it prevent loss in declining markets.) The Automatic Investment Plan allows
you to invest automatically monthly, semi-monthly or quarterly from your
checking or savings account.

IRAS, OTHER QUALIFIED PLANS: You can use the Advantus Family of Funds for your
Traditional, Roth or Education Individual Retirement Account or other qualified
plans including: SEP IRA's, SIMPLE IRA's, Profit Sharing, 401(k) Money Purchase
or Defined Benefit plans.

TELEPHONE REDEMPTION: You may call us and redeem shares over the phone. The
proceeds will be sent by check to the address of record for the account or wire
transferred to your bank of record for the account. Wire transfers are for
amounts over $500. The prevailing wire charge will be added to the withdrawal
amount. The Telephone Redemption privilege will automatically be established
unless otherwise indicated on the Account Application. Telephone Redemption may
be changed (added/deleted) at any time by submitting a request in writing. To
have the redemption automatically deposited into your checking account, please
send a voided check from your bank. Depending on the performance of the
underlying investment options, the value may be worth more or less than the
original amount invested upon redemption. Some limitations apply, please refer
to the prospectus for details.

ACCOUNT UPDATES: You'll receive written confirmation of every investment you
initiate and quarterly statements to help you track all of your Advantus Fund
investments and annual tax statements. Semi-annual and annual reports will
provide you with portfolio information, fund performance data and the current
investment outlook.

TOLL-FREE SERVICE LINE: For your convenience in obtaining information and
assistance directly from Advantus Shareholder Services, call 1-800-665-6005.
Advantus Account Representatives are available Monday through Friday from 7:30
a.m. to 5:15 p.m. Central Time. Our voice response system is available 24 hours,
seven days a week. This system allows you to access current net asset values,
account balances and recent account activity.

INTERNET ADDRESS: www.AdvantusFunds.com

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HOW TO INVEST

You can invest in one or more of the eleven Advantus Funds through a local
Registered Representative of Securian Financial Services, Inc., distributor of
the Funds. Contact your representative for information and a prospectus
containing more complete information including charges and expenses, for any of
the Advantus Funds you are interested in. Read the prospectus carefully before
investing. To find a Registered Representative near you, call the toll-free
service line (1-800-665-6005) or visit www.AdvantusFunds.com.

MINIMUM INVESTMENTS: Minimum lump-sum initial investment is $1,000 ($500 for
qualified accounts and accounts covered by an automatic investment plan).
Minimum subsequent investment is $50.

THE FUND'S MANAGER

Advantus Capital Management, Inc., investment adviser to the Fund, selects and
reviews the Fund's investments and provides executive and other personnel for
the Fund's management. (For the Advantus International Balanced Fund, Inc.,
Advantus Enterprise Fund, Inc., and Advantus Venture Fund, Inc., the
sub-adviser, Templeton Investment Counsel, Inc., Credit Suisse Asset Management,
LLC, and State Street Research & Management Company, respectively, selects the
Fund's investments.)

Advantus Capital Management, Inc. manages twelve mutual funds containing $2.3
billion in assets in addition to $13.5 billion in assets for other clients.
Advantus Capital's seasoned portfolio managers average more than 15 years of
investment experience.

ADVANTUS FAMILY OF FUNDS

Advantus Bond Fund

Advantus Horizon Fund

Advantus Spectrum Fund

Advantus Enterprise Fund

Advantus Cornerstone Fund

Advantus Money Market Fund

Advantus Mortgage Securities Fund

Advantus International Balanced Fund

Advantus Venture Fund

Advantus Index 500 Fund

Advantus Real Estate Securities Fund

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      THIS REPORT HAS BEEN PREPARED FOR SHAREHOLDERS AND MAY BE DISTRIBUTED
       TO OTHERS ONLY IF PRECEDED OR ACCOMPANIED BY THE CURRENT APPLICABLE
                             MUTUAL FUND PROSPECTUS.
                READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST.

[ADVANTUS(TM) CAPITAL MANAGEMENT LOGO]

                Distributed by:
                SECURIAN FINANCIAL SERVICES, INC.
                Securities Dealer, Member NASD/SIPC.
                Registered Investment Advisor

                400 Robert Street North, St. Paul, MN 55101-2098
                1.888.237.1838
                3010-2003-6429



SECURIAN FINANCIAL SERVICES, INC.
400 ROBERT STREET NORTH                                      PRESORTED STANDARD
ST. PAUL, MN 55101-2098                                       U.S. POSTAGE PAID
                                                                ST. PAUL, MN
                                                               PERMIT NO. 3547


CHANGE SERVICE REQUESTED


F. 58930 Rev. 3-2003